<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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.
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Commission File Number 0-11472
BIOMUNE SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 87-0380088
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2401 South Foothill Drive
Salt Lake City, Utah 84109-1405
(Address of principal executive offices) (Zip Code)
(801) 466-3441
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No __
As of August 10, 1999, the issuer had issued and outstanding 2,388,787 shares of
common stock, par value $.0001.
Transitional Small Business Disclosure Format
(Check One):
Yes No X
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
No.
1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of June
30, 1999 and September 30, 1998..................................3
Unaudited Condensed Consolidated Statements of Operations for
the three and nine months ended June 30, 1999 and 1998...........4
Unaudited Condensed Consolidated Statements of Cash Flows for
the nine months ended June 30, 1999 and 1998.....................5
Notes to Unaudited Condensed Consolidated Financial Statements...7
2. Management's Discussion and Analysis or Plan of Operation.......11
PART II. OTHER INFORMATION........................................13
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<PAGE>
PART I
ITEM 1 - Financial Statements
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
June 30, Sep. 30,
1999 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 40,660 $ 27,701
Receivables, net 904,761 2,147,249
Inventories, net 399,310 661,243
Prepaids 1,502,650 19,032
-------------- --------------
Total current assets 2,847,381 2,855,225
Long-term Receivables, net 500,000 1,391,260
Property and equipment, net 87,642 150,544
Investment in Rockwood 1,681,377 -
Investments 761,016 425,000
Intangibles, net 568,955 814,009
Other assets, net 11,346 14,437
-------------- --------------
Total assets $ 6,457,717 $ 5,650,475
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 710,777 $ 798,968
Notes Payable 150,000 1,074,500
-------------- --------------
Total current liabilities 860,777 1,873,468
Minority Interest 31,281
Shareholders' equity:
Preferred stock, $.0001 par value; 50,000,000 shares authorized 1,360,430 shares and
1,428,388 shares issued and outstanding respectively 2,146,747 2,573,015
Common stock, $.0001 par value; 500,000,000 shares authorized 2,008,142 shares and
2,388,787 shares outstanding respectively 239 128
Additional paid-in capital 40,867,686 39,042,910
Stock subscriptions receivable (55,192) (55,192)
Warrants 338,500 338,500
Deferred compensation and consulting (223,764) (304,862)
Accumulated deficit (37,477,276) (37,848,773)
-------------- --------------
Total shareholders' equity 5,596,940 3,745,726
-------------- --------------
$ 6,457,717 $ 5,650,475
============== ==============
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated balance sheets.
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BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES $ 612,085 $ 1,372,751 $ 1,387,394 $ 1,443,520
OPERATING EXPENSES:
Cost of revenues 261,566 753,591 552,209 793,029
Management, consulting and research fees 98,932 120,313 578,682 782,687
Other general and administrative 89,855 640,564 341,008 1,949,027
----------- ------------- ------------ ------------
Total operating expenses 450,353 1,514,468 1,471,899 3,524,743
INCOME (LOSS) FROM OPERATIONS (141,717) (84,505) (2,081,223)
OTHER INCOME (EXPENSE):
Interest income, net 9,883 54,144 93,005 110,881
Minority interest - - 16,341 -
Other, net - - 495,000 -
----------- ------------- ------------ ------------
Total other income, net 9,883 54,144 604,346 110,881
----------- ------------- ------------ ------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS 171,616 (87,573) 519,841 (1,970,342)
Gain on disposal of discontinued Volu-Sol, Inc. -- - -- 28,027
NET INCOME (LOSS) 171,616 (87,573) 519,841 (1,942,315)
Preferred stock dividends and accretion of
beneficial conversion feature (46,545) (204,303) (152,297) (973,455)
---------- ------------- ------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES 125,071 (291,876) 367,544 (2,915,770)
============ ============= ============ ============
NET INCOME (LOSS) PER COMMON SHARE (basic) $ 0.06 $ (0.53) $ 0.22 $ (5.55)
============ ============= ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,056,000 549,000 1,652,000 525,000
(basic)
NET INCOME (LOSS) PER COMMON SHARE (diluted) $ 0.04 $ (0.53) $ 0.14 $ (5.55)
============ ============= ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,102,000 549,000 2,698,000 525,000
(diluted)
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated statements.
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BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
For the Nine Months
Ended June 30,
1999 1998
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 519,841 $ (1,942,316)
Adjustments to reconcile net loss to net cash used in operating
activities:
Gain on disposal of Volu-Sol, Inc. -- (28,027)
Depreciation and amortization 96,515 83,355
Issuance of Common Stock, options and warrants for services -- 561,526
Amortization of deferred consulting expense 81,098 447,084
Gain on sale of investments (270,000) --
Cancellation of stock issued to consultants -- (50,000)
Income from management fee from equity investment (450,000) --
Exchange of related-party note receivable -- 24,671
Changes in assets and liabilities:
Accounts receivable, net 698,283 31,431
Inventories 261,933 68,834
Prepaid expenses -- --
Other assets (1,483,618) (39,436)
Accounts payable and accrued liabilities 88,190 (1,199,091)
Minority Interest -- --
-------------- -------------
Net cash generated (used) in operating activities (457,758) (2,041,969)
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (5,646) (3,721)
Net (advances) repayments from related parties -- (1,225,335)
Payments received on notes receivable -- --
Proceeds from sale of investment 431,000 --
Purchase investments, net (288,122) --
-------------- -------------
Net cash generated (used) in investing activities 137,232 (1,229,056)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock, net -- 1,196,841
Proceeds from issuance of common stock, net 848,985 206,303
Net decrease in notes payable (515,500) --
-------------- -------------
Net cash provided (used) by financing activities 333,485 1,403,144
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these
unaudited condensed consolidated statements.
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BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
For the Nine Months
Ended June 30,
1999 1998
------ ------
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ 12,959 $ (1,867,881)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE PERIOD 27,701 1,922,790
-------------- -------------
CASH AND CASH EQUIVALENTS AT END OF
THE PERIOD $ 40,660 $ 54,909
============== =============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company reduced its ownership in Rockwood LC from 52% to 19% in March 1999.
This change in ownership increased the carrying amount of its investment in
Rockwood LC by $1,231,377 from reclassifying receivables of $1,011,508,
unamortized intangible assets of $251,150 and reducing minority interest by
$31,281.
During the nine months ended June 30, 1999, the Company reduced notes payable by
$559,000 by exchanging 189,000 shares of its investment in Bioxide Corporation.
During the nine months ended June 30, 1999, the Company received 178,692 shares
of Bioxide Corporation in exchange for receivables of $402,056.
During the nine months ended June 30, 1999, the Company converted $369,445 of
preferred stock to common stock.
During the nine months ended June 30, 1999, the Company paid preferred stock
dividends of $169,929 by issuing additional shares of preferred stock.
The accompanying notes are an integral part of these unaudited
condensed consolidated statements.
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BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying interim condensed consolidated financial statements are
unaudited and have been prepared consistent with generally accepted accounting
principles for interim financial information and with the instructions to Form
10- QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. These statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's annual report on Form 10-K for the fiscal year ended September 30,
1998. Reference to the Company or Biomune includes Biomune Systems, Inc. and its
wholly owned subsidiary, Optim Nutrition, Inc.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to fairly present the Company's financial
position as of June 30, 1999 and the results of operations for the three months
and nine months and cash flows for the nine months ended June 30, 1999 and 1998.
The interim financial statements should be read in conjunction with the
following explanatory notes. The results of operations for the three months and
nine months ended June 30, 1999 are not necessarily indicative of the results
that may be expected for the year ending September 30, 1999.
(2) DIVESTITURE OF VOLU-SOL, INC.
On October 1, 1997, the Company divested itself of its wholly owned subsidiary
Volu-Sol, Inc., by distributing the common stock of Volu-Sol pro rata to the
Company's stockholders of record as of March 5, 1997. The operations of
Volu-Sol, Inc. are reflected herein as discontinued operations during the
affected period.
(3) NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share ("Basic EPS") excludes dilution and is
computed by dividing net income (loss) by the weighted average number of common
shares outstanding during the period. Diluted net income (loss) per common share
("Diluted EPS") reflects the potential dilution that could occur if stock
options or other contracts to issue common stock including convertible preferred
stock were exercised or converted into common stock. The computation of Diluted
EPS does not assume exercise or conversion of securities that would have an
anti-dilutive effect on net income per common share.
At June 30, 1999, there were outstanding options and warrants to purchase 15,632
shares of common stock and there were 1,428,388 shares of preferred stock
outstanding, convertible into a minimum of 1,046,190 shares of common stock.
<TABLE>
<CAPTION>
Number of Convertible into #
Preferred Stock Preferred Shares of Common Shares
- --------------- ---------------- ----------------
<S> <C> <C>
Series A 34,410 1,190
Series E 10 15,000
Series F 1,392,748 448,000
Series J 1,220 582,000
------------- -------------
1,428,388 1,046,190
============= =============
</TABLE>
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(4) COMMON STOCK TRANSACTIONS
The Company has deferred consulting expense related to shares issued under
consulting agreements entered into prior to September 30, 1998. These deferred
amounts are being recognized over the terms of the agreements as services are
provided. Total amortization of these deferred consulting expenses was $66,310
for the nine months ended June 30, 1999 and $6,492 for the three months ended
June 30, 1999.
(5) STOCK OPTIONS AND WARRANTS
As of December 16, 1997, the Company offered all holders of options and warrants
a one-time opportunity to exchange their options or warrants, as the case may
be, for options or warrants exercisable until February 28, 1998 at a price of
$.50 per share. Option and warrant holders who decline to exchange their
outstanding options or warrants and exercise the replacement warrants retained
their existing options or warrants, without any change in the previously stated
exercise terms and price. For the three months ended December 31, 1997, as a
result of this exchange offer, the Company recorded compensation expense of
$124,359 related to options held by employees and directors.
During the nine months ended June 30, 1999, warrants to purchase 147,059 shares
of common stock expired. As a result, $544,773 was reclassified from the caption
"Common Stock Warrants" to the caption "Additional Paid-in Capital."
Subsequent to December 31, 1997, an option holder exercised his right to
purchase 412,457 shares of common stock at $0.50 per share and the Company
received $206,229 in cash.
(6) RELATED-PARTY TRANSACTIONS
During the nine months ended June 30, 1999, the Company recorded a management
fee of $225,000 from its Rockwood subsidiary.
From March 5, 1997 through September 30, 1997, the Company made loans to
Volu-Sol, Inc. (then a wholly owned subsidiary of the Company) totaling
$390,500. During the year ended September 30, 1998, Volu-Sol made a payment of
$150,000 of which $114,351 went to principal and $35,649 to interest During the
nine months ended June 30, 1999 the Company made additional loans to Volu-Sol
totaling $96,000. These loans bear interest at a rate of 10% per annum and are
due on demand. Accrued but unpaid interest owed to the Company on these loans
totaled $28,813 at June 30, 1999. During the nine months ended June 30, 1999,
the Company sold and assigned the Volu-Sol Note plus accrued interest to Bioxide
Corporation in exchange for 178,205 shares of Bioxide Corporation common stock.
During the nine months ended June 30, 1999 the Company sold 320,000 shares of
Bioxide Corporations stock and recorded a gain of $270,000.
During the nine months ended June 30, 1999, the Company exchanged 322,000 shares
of its common stock for 1,900 shares of Volu-Sol Series A Preferred pursuant to
an agreement with investors entered into prior to the effective date of the
divestiture of Volu-Sol. Approximately 122,000 shares of common stock were
issued in the exchange to a shareholder of the Company and its former President,
CEO and Chairman.
(7) PREFERRED STOCK TRANSACTIONS
During the nine months ended June 30, 1999, the Company accrued dividends on its
outstanding Series A, Series E, Series F and Series J Preferred stock of $9,125,
$7,220, $45,600 and $85,125 respectively. Preferred stock dividends are payable
in either additional shares of preferred stock (of the same series) or in cash,
at the option of the Company. On June 30, 1999, accrued dividends on Series A,
E, F and J Preferred stock totaling $147,070, were paid by issuing 1,825 shares
of Series A Preferred stock, 6.2 shares of Series E Preferred stock, 75,999
shares of Series F Preferred stock and 85.2 shares of Series J Preferred stock.
During the nine months ended June 30, 1999, 307.4 shares of the Company's Series
E preferred stock were converted into approximately 289,000 shares of common
stock. Subsequent to June 30, 1999, 20 additional shares of Series E were
converted into approximately 30,000 shares of common stock.
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(8) ROCKWOOD TRANSACTION
In April 1998, the Company acquired a controlling (52%) equity interest in
Rockwood's successor, Rockwood Companies LLC (referred to as "Rockwood LC") for
$360,000 cash, a commitment to issue 500,000 shares of preferred stock (payable
if certain benchmarks in sales were obtained), and covenants on the part of the
Company to loan $1,500,000 to Rockwood LC or its affiliates over a one-year
period. Rockwood LC distributes and sells health and beauty aids to wholesale
and retail chains. Rockwood LC retained the right to redeem a portion of the
Company's member interest if the Company failed to keep its covenants to make
the loans to Rockwood LC. As of December 31, 1998, the Company had not advanced
$850,000 of the funds it had covenanted to loan to Rockwood LC. By letter dated
March 15, 1999 Rockwood exercised its right to reduce the Company's interest to
19% and to terminate, effective December 31, 1998, other on-going commitments
and agreements between the Company and Rockwood.
ITEM 2 - Management's Discussion and Analysis or Plan of Operation
The following discussion should be read in conjunction with the
unaudited condensed consolidated financial statements and the notes thereto
appearing elsewhere in this Quarterly Report on Form 10-QSB.
Overview
The Company is engaged in the research, development, distribution and
sale of biologic pharmaceutical products, nutraceutical food products and
supplements, medical foods and health and beauty aids. Certain of these products
have been developed by the Company and incorporate a patented whey protein
technology, which is designed to provide or increase protective immunities from
an immune response to disease and to provide nutritional supplementation. The
Company markets under an exclusive license agreement a medical food bar
(NiteBite) that is a patented formulation developed by researchers at Beth
Israel Deaconess Medical Center, Harvard Medical School. The energy and sports
nutrition bars of the Company (Mountain Lift) are also marketed under an
exclusive license from the developer of the products. The Company also holds a
minority interest in Rockwood LC that distributes health and beauty aids and
related products to national wholesale and retail customers.
The Company believes its future results of operations will be
affected by factors such as:
o the availability of cash from financing activities to fund
its operations;
o the results of research and development efforts and the
clinical trials on BWPT-301, BWPT-302 and other future
pharmaceutical drug candidates based on or derived from the
Technology;
o market acceptance of Optimune, the nutrition and medical
food bars, and pharmaceutical drug candidates;
o increased competitive pressures;
o changes in raw material sources and costs; and
o adverse changes in general economic conditions in any
market in which the Company conducts or markets its
products.
During the nine months and the quarter ended June 30, 1999, the
Company's revenues were generated from the sale of Optimune and Maximune,
special food bars and nutrition bars, and sale of health and beauty aids through
Rockwood LC. The Company's primary focus and efforts during the fiscal year
ended September 30, 1998, were the commercialization of its nutraceutical
products, assessing and obtaining additional nutraceutical and medical products
to add to its product line, and, to a lesser extent, continuing its efforts to
obtain FDA approval of BWPT-301 for the treatment of cryptosporidiosis in people
with AIDS and BWPT-302 for the treatment of E. coli, strain 0157:H7.
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Continuing in fiscal year 1999, the Company has directed its
resources and efforts on:
o commercialization of its nutraceutical products;
o continued marketing and selling of the NiteBite and
Mountain Lift bars;
o acquisition of new nutraceutical and or medical food
products;
o development of one or more additional nutraceutical
products based on its BWPT products (collectively the
"Technology");
o approval of BWPT-301 and BWPT-302; and
o renewing its Technology license.
Results of Operations
Comparison of the Three Months Ended June 30, 1999
with the Three Months Ended June 30, 1998
During the three months ended June 30, 1999, the Company had revenues
of $612,085 compared to $1,372,751 for the comparable three month period ended
June 30, 1998. The decrease in sales is due primarily to the Company reducing
its interest in Rockwood LC from 52% to 19% and partially offset by an increase
in sales of its medical food, sports and energy bars and nutrition products.
Cost of sales were $261,566 for the three months ended June 30, 1999
compared to cost of sales of $753,591 for the same period in 1998. The overall
gross margin for the quarter in 1999 was 57% of revenues, compared to 45% for
the comparable quarter in 1998. The increase in gross margin is due to the
higher margins from the sale of its nutrition products, medical food and sports
and energy bars.
Management, consulting and research fees were $98,932 for the three
months ended June 30, 1999, as compared to $120,313 for the three months ended
June 30, 1998. General and administrative expenses decreased from $538,926 for
the three months ended June 30, 1998 to $89,855 for the three months ended June
30, 1999. The decrease in fees and expenses is due to the Company's efforts to
reduce overhead costs.
During the three months ended June 30, 1998, the Company had a net
loss of $291,876 ($0.53 per share, fully diluted) compared to a net profit of
$125,071 ($0.04 per share) for the three months ended June 30, 1999. This
turnaround from a net loss in 1998 to a net profit in the same quarter in 1999
is attributable primarily to the increase in revenue from the Company's
nutraceutical products and medical food bars and a reduction in operating
expense discussed above.
Comparison of the Nine Months Ended June 30, 1999
with the Nine Months Ended June 30, 1998
During the nine months ended June 30, 1999, the Company had revenues
of $1,387,394 compared to $1,443,520 for the comparable nine month period ended
June 30, 1998. The decrease in revenues is due to the reduction of the Company's
ownership interest in Rockwood LC.
Cost of sales were $552,209 for the nine months ended June 30, 1999
compared to cost of sales of $793,029 for the same period in 1998. The overall
gross margin for 1999 was 60% of revenues, compared to 45% for the comparable
quarter in 1998. The increase in gross margin is due to the higher gross margins
from the Company's Optim product line.
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<PAGE>
Management, consulting and research fees were $578,682 for the nine
months ended June 30, 1999, compared to $782,687 for the nine months ended June
30, 1998. This decrease is due to the Company's decision to allocate its limited
resources to development and commercialization of its nutraceutical products
rather than continuing research and development of pharmaceuticals at historical
levels. General and administrative expenses decreased from $1,847,389 for the
nine months ended June 30, 1998 to $341,008 for the nine months ended June 30,
1999. The decrease in these expenses is due to the Company's efforts to reduce
overhead costs and a reduction in the number of employees.
During the nine months ended June 30, 1999, the Company had a net
profit of $367,544 ($0.14 per share, fully diluted), compared to a net loss of
$2,915,770 ($5.55 per share) during the nine months ended June 30, 1998. This
turnaround from a net loss in 1998 to a net profit in the same quarter in 1999
is attributable primarily to the increase in revenue from the Company's
nutraceutical products and medical food bars, the sale of Bioxide shares, the
recording of management fees from Rockwood LC, and a reduction in operating
expenses discussed above.
Liquidity and Capital Resources
Historically, the Company has been unable to finance its operations
from cash flows from operating activities. The Company expects it will require
substantial funds and time to commercialize its nutraceutical products, to
complete clinical trials, to obtain regulatory approval for and commercialize
products utilizing the Technology and to develop and commercialize additional
nutraceutical products based on the Technology. Because revenue-generating
operating activities are not in place at significant levels and because the
Company will require significant capital to accomplish the objectives set forth
above, additional funding will be required, although such funding may not be
available or may not be available on favorable terms. Management believes that
the Company-funded research and development efforts to date have positioned the
Company to pursue future research and development efforts and clinical trials
with joint venture, strategic alliance, government or private grants or other
third-party funding.
As of June 30, 1999, the Company had cash and cash equivalents of
$40,660 and working capital of $1,986,604 as compared to cash and cash
equivalents of $27,701 and working capital of $981,757 as of September 30, 1998.
The increase in cash is due to the sale of Bioxide shares.
The Company paid preferred stock dividends of $169,529 by issuing
additional shares of preferred stock.
During the nine months ended June 30, 1999 the Company sold 320,000
shares of its Bioxide Corporation stock and recorded a gain of $270,000.
During the nine months ended June 30, 1999, the Company's operating
activities used cash of $457,758. During the same period in the previous fiscal
year, the Company's operating activities used $2,041,969 of cash, which was
provided by the raising of capital from the sale of preferred stock.
The Company has no established credit facility with a bank or other
lending institution. The Company has in the past, from time to time, borrowed
money from certain shareholders, but there is no formal financing arrangement,
agreement or understanding in effect at this time.
Assignment of Note and Sale of Bioxide Shares
The Company borrowed $600,000 from the Calvin Black Trust in May 1998
pursuant to a promissory note and line of credit agreement ("Black Note"). On
March 31, 1999, the Company entered into an agreement with IMG, Ltd., a Utah
limited liability company, for the sale of 300,000 shares of Bioxide Corporation
common stock owned by the Company. The purchase price for such securities was
$3.00 per share and was paid in cash of $341,000 and by the assumption of the
Black Note by IMG. At March 31, 1999, principal and accrued interest due under
the Note was $570,552.27. In connection with the assumption of the Black Note,
the Trust and IMG entered into a separate agreement pursuant to which the Trust
released its claims against the Company. The sole member and manager of IMG is
David G. Derrick, formerly the President, CEO and director of the Company.
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<PAGE>
Exchange of Volu-Sol Note Receivable
Prior to and from time to time following the divestiture of Volu-Sol,
the Company loaned funds to Volu-Sol. The amounts loaned to Volu-Sol by the
Company were repayable pursuant to a promissory note ("Volu-Sol Note"). At March
31, 1999, amounts owing under the Volu-Sol Note totaled approximately $402,000.
During the nine months ended June 30, 1999, the Company exchanged the Volu-Sol
Note with Bioxide Corporation for 178,205 shares of the common stock of Bioxide.
Exchange of Volu-Sol Series A Preferred
In connection with certain financing transactions entered into by
Volu-Sol at or about the effective date of the divestiture, the Company agreed
to exchange certain shares of Volu-Sol Series A Preferred for shares of
previously unissued common stock of the Company under certain circumstances.
During the nine months ended June 30, 1999, the Company issued 322,000 shares of
its common stock in exchange for 1,900 shares of Volu-Sol Series A Preferred
pursuant to this agreement. Certain of the shares of common stock issued in this
exchange were issued to David G. Derrick, a former officer and director of the
Company. The Volu-Sol Series A Preferred is convertible to common stock of
Volu-Sol at the rate of a minimum of 160 common shares for each preferred share.
Special Statement Concerning Forward-looking Statements
This Report, in particular the "Management's Discussion and Analysis
or of Operation" section, contains forward-looking statements concerning the
expectations and anticipated operating results of the Company. All such
forward-looking statements are intended to qualify for the safe harbor
protection provided by Section 21E of the Securities Exchange Act of 1934, as
amended. The Company cautions the reader that numerous factors govern whether
events described by any forward-looking statement made by the Company will
occur. Any one of such factors could cause actual results to differ materially
from those projected by the forward-looking statements made in this Report.
These forward-looking statements include plans and objectives of management for
future operations, including plans and objectives relating to the products and
the future economic performance of the Company, including:
o market acceptance of the products;
o development of new nutraceutical products;
o the extent of additional research and development, general
and administrative and other direct costs associated with
clinical trials and FDA approval of certain products using
the Technology;
o unexpected delays in receipt of final FDA approval; and
o and the lack of sufficient cash to fund current and
projected operations and budgeted research and development
for fiscal year 1999.
The forward-looking statements are based on current expectations and
assumptions, such as:
o the Company will have adequate financing available;
o the efficacy of the Technology-based products will be
established during the ongoing clinical trials and future
clinical trials;
o the Company will successfully market the health and beauty
aids and its nutraceutical products and successfully
develop and commercialize other nutraceutical products;
o the Company will successfully develop and commercialize
the Technology; and
o the Company will timely and properly quantify and analyze
the data derived from its clinical trials.
-12-
<PAGE>
Assumptions involve judgments with respect to, among other things,
future economic, competitive and market conditions, future business decisions,
and the results of the clinical trials and the time and money required to
successfully complete those trials, all of which are difficult or impossible to
predict accurately and many of which are beyond the control of the Company.
Although the Company believes that the assumptions underlying the
forward-looking statements in this Report are reasonable, any of these
assumptions could prove inaccurate. Therefore, there can be no assurance that
the results contemplated in any of the forward-looking statements will be
realized. Budgeting and other management decisions are subjective in many
respects and are susceptible to interpretations and periodic revision based on
actual experience and business developments, the impact of which may cause the
Company to alter its marketing capital expenditure plans or other budgets. This
will affect the Company's business, financial condition and results of
operations. In light of the significant uncertainties inherent in the
forward-looking statements, any such statement should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved.
Update on Year 2000 Readiness
The "Year 2000 problem" is pervasive and complex, with the
possibility that it will affect many technology systems. Systems and embedded
technology that are date-sensitive may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has reviewed its operating systems, information
technology and information management systems and non-information technology
systems in anticipation of potential Year 2000 problems. To date, the review has
not revealed any problems with the Company's internal systems or equipment. In
addition, the Company has not received any notification from significant vendors
or service providers or other third parties whose services are significant to
the business operations of the Company of possible Year 2000 problems with the
information systems and technology of such third parties that may adversely
affect the business, results of operations or financial condition of the
Company.
There can be no assurance that the Company will not experience
operational difficulties as a result of Year 2000 issues, either arising out of
internal operations, or caused by third-party service providers, which
individually or collectively could have an adverse impact on business operations
or require the Company to incur unanticipated expenses to remedy any problems.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On September 29, 1998, Bryan Furtek filed a lawsuit in the Third
Judicial District Court for Salt Lake County, Salt Lake Department, State of
Utah (Civil No. 9890909809), naming the Company, Bioxide Corporation, David G.
Derrick, Jack Solomon, Genesis Investment Corporation, and Biomed Patent
Development as defendants. The plaintiff's claims allegedly arose out of his
role in the development of certain waste disposal technologies. Those
technologies were included in the property sold by the Company in 1998 to
Bioxide Corporation. The defendants, including the Company, filed answers to the
complaint, denying all of plaintiff's principal allegations and claims and
asserting counterclaims against Mr. Furtek, including, among other things,
unjust enrichment and a claim that Furtek misrepresented his authority and
ability to patent the technology at the core of the litigation. This case has
been settled and the lawsuit dismissed.
-13-
<PAGE>
ITEM 2. Changes in Securities and Use of Proceeds
Issuance of Unregistered Equity Securities During the Quarter Ended June 30,
1999
During the quarter ended June 30, 1999, the Company issued 79,000
shares of common stock upon conversion of preferred stock.
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders on June 23, 1999, the
following actions were submitted and approved by vote of the majority of the
issued and outstanding shares of the Company:
(1) Election of directors;
(2) Selection of Tanner+Co., as the Company's independent public
accountants.
(3) Adoption of the 1999 Stock Option Plan by the Board of Directors.
(4) Issuance of shares upon conversion of the Series F and Series J
Preferred Stock of the Company in aggregate amounts in excess of 20%
of the issued and outstanding shares of common stock of the Company.
(5) Amendment to the Company's Article's of Incorporation changing the
corporate name of the Company to Option Nutrition, Inc.
A total of 1,546,104 shares (approximately 74.5%) of the issued and
outstanding shares of the Company were represented by proxy or in person at the
meeting. These shares were voted on the matters described above as follows:
1. Election of directors.
<TABLE>
<CAPTION>
#Shares
Abstaining/
Name # Shares For #Shares Against Withheld
- -------------------------------------- -------------------- ------------------------- -------------------
<S> <C> <C> <C>
Aaron Gold, D.D. 1,537,789 0 8,315
Charles J. Quantz 1,537,789 0 8,318
Thomas Q. Garvey, III, M.D. 1,557,883 0 8,221
Christopher D. Illick 1,537,883 0 8,221
Michael G. Acton 1,537,883 0 8,221
</TABLE>
2. Ratification of the Board of Directors' selection of Tanner+Co. as
the independent public accountants of the Company.
<TABLE>
<CAPTION>
#Shares For #Shares Against #Shares Abstaining
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1,489,941 54,620 1,542
</TABLE>
3. Ratification of the adoption of the 1999 Stock Option Plan as follows:
<TABLE>
<CAPTION>
#Shares For #Shares Against #Shares Abstaining
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
367,468 82,069 2,345
</TABLE>
-14-
<PAGE>
4. Issuance of shares of common stock upon conversion of certain series
of preferred stock in excess of 20% of the issued and outstanding
shares of the Company's common stock.
<TABLE>
<CAPTION>
#Shares For #Shares Against #Shares Abstaining
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
364,824 82,120 4,938
</TABLE>
5. Adoption of amendment changing the name of the Company.
<TABLE>
<CAPTION>
#Shares For #Shares Against #Shares Abstaining
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1,486,991 58,136 977
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
-15-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BIOMUNE SYSTEMS, INC.
(Registrant)
Date: August 16, 1999 /s/ Michael G. Acton
----------------------------------------------
Michael G. Acton, Chief Executive Officer and
Controller (Principal Financial and Accounting
Officer)
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000714634
<NAME> BIOMUNE SYSTEMS, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-03-1999
<CASH> 40,660
<SECURITIES> 0
<RECEIVABLES> 910,209
<ALLOWANCES> (5,448)
<INVENTORY> 399,310
<CURRENT-ASSETS> 2,847,381
<PP&E> 220,452
<DEPRECIATION> (132,808)
<TOTAL-ASSETS> 6,457,717
<CURRENT-LIABILITIES> 860,777
<BONDS> 0
0
2,146,747
<COMMON> 239
<OTHER-SE> 3,449,954
<TOTAL-LIABILITY-AND-EQUITY> 6,457,717
<SALES> 1,387,394
<TOTAL-REVENUES> 1,387,394
<CGS> 552,209
<TOTAL-COSTS> 552,209
<OTHER-EXPENSES> 919,690
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 519,841
<DISCONTINUED> 0
<EXTRAORDINARY> (152,297)
<CHANGES> 0
<NET-INCOME> 367,544
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.14
</TABLE>
