<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 MARCH 31, 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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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 May 5, 1999, the issuer had issued and outstanding 2,008,142 shares of
common stock, par value $.0001.
Transitional Small Business Disclosure Format
(Check One):
Yes __ No X
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TABLE OF CONTENTS
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<CAPTION>
PART I. FINANCIAL INFORMATION
Page
No.
<S> <C>
1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of March 31, 1999
and September 30, 1998.....................................................3
Unaudited Condensed Consolidated Statements of Operations for the
three and six months ended March 31, 1999 and 1998.........................4
Unaudited Condensed Consolidated Statements of Cash Flows for
the six months ended March 31, 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
</TABLE>
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PART I
ITEM 1 - Financial Statements
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
Mar. 31, Sep. 30,
1999 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 202,346 $ 27,701
Receivables, net 710,268 2,147,249
Inventories, net 174,591 661,243
Prepaids 957,787 19,032
----------- ------------
Total current assets 2,044,992 2,855,225
Long-term receivables, net 500,000 1,391,260
Property and equipment, net 58,723 150,544
Investment in Rockwood 1,681,377 -
Investments 381,056 425,000
Intangibles, net 583,829 814,009
Other assets, net 11,346 14,437
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Total assets $ 5,261,322 $ 5,650,475
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 237,237 $ 798,968
Notes payable - 1,074,500
----------- ------------
Total current liabilities 237,257 1,873,468
Minority interest -- 31,281
Shareholders' equity:
Preferred stock, $.0001 par value; 50,000,000 shares authorized
1,360,430 shares and 1,408,662 shares issued and
outstanding respectively 2,428,638 2,573,015
Common stock, $.0001 par value; 500,000,000 shares authorized
2,008,142 shares and 1,339,762 shares outstanding respectively 201 128
Additional paid-in capital 40,159,328 39,042,910
Stock subscriptions receivable (55,192) (55,192)
Warrants 338,500 338,500
Deferred compensation and consulting (245,044) (304,862)
Accumulated deficit (37,602,347) (37,848,773)
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Total shareholders' equity 5,024,084 3,745,726
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$ 5,261,322 $ 5,650,475
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</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 Six Months
Ended March 31, Ended March 31,
1999 1998 1999 1998
----- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $ 501,491 $ 18,852 $ 1,663,318 $ 70,769
OPERATING EXPENSES:
Cost of revenues 182,233 8,388 672,125 39,439
Management, consulting and research fees 235,257 364,524 563,662 662,375
Other general and administrative 222,131 697,220 421,763 1,308,462
------------ ----------- ----------- -----------
Total operating expenses 639,621 1,070,132 1,657,550 2,010,276
INCOME (LOSS) FROM OPERATIONS (138,130) (1,051,280) 5,768 (1,939,507)
OTHER INCOME (EXPENSE):
Interest income, net 42,043 25,915 83,122 56,737
Minority interest - - 10,665 -
Other, net 270,000 - 270,000 -
------------ ----------- ----------- -----------
Total other income, net 312,043 25,515 363,787 56,737
------------ ----------- ----------- -----------
NET INCOME FROM CONTINUING OPERATIONS 173,913 (1,025,365) 369,555 (1,882,770)
Gain on disposal of discontinued Volu-Sol, Inc. - - - 28,027
NET INCOME 173,913 (1,025,365) 369,555 (1,853,743)
Preferred stock dividends and accretion of
beneficial conversion feature (49,514) (732,215) (105,752) (769,152)
------------ ----------- ----------- -----------
NET INCOME APPLICABLE TO COMMON SHARES $ 124,399 $(1,757,580) $ 263,803 (2,623,895)
============ =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE (basic) $ 0.08 $ (3.60) $ 0.18 $ (6.44)
============ =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (basic) 1,520,000 488,000 1,451,000 407,000
NET INCOME (LOSS) PER COMMON SHARE (diluted) $ 0.06 $ (3.60) $ 0.13 $ (6.44)
============ =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (diluted) 2,059,000 488,000 2,000,000 407,000
</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 CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
For the Six Months
Ended March 31,
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 369,555 $ (1,854,743)
Adjustments to reconcile net loss to net cash used in
operating activities:
Gain on disposal of Volu-Sol, Inc. - (28,027)
Depreciation and amortization 76,497 21,127
Issuance of common stock, options and warrants for services - 524,491
Amortization of deferred consulting expense 59,818 386,234
Gain on sale of investments (270,000) -
Cancellation of stock issued to consultants - (50,000)
Income from management fee from equity investment (450,000) -
Changes in assets and liabilities:
Accounts receivable, net 914,677 (56,763)
Inventories 486,652 36,899
Prepaid expenses (938,755) -
Other assets 3,091 -
Accounts payable and accrued liabilities (561,729) (546,433)
Minority interest - -
----------- -------------
Net cash generated (used) in operating activities (310,194) (1,567,215)
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (5,646) -
Net (advances) repayments from related parties - (451,929)
Payments received on notes receivable - (337,691)
Proceeds from sale of investment 431,000 -
Purchase investments, net (274,000) -
----------- -------------
Net cash generated (used) cash in investing activities 151,354 (789,620)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock, net - 723,500
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 333,485 929,803
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</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 CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
For the Six Months
Ended March 31,
1999 1998
---------- ----------
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ 174,645 $ (427,032)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE PERIOD 27,701 1,922,790
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
THE PERIOD $ 202,346 $ 495,758
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</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company had its ownership in Rockwood reduced from 52% to 19%. This change
in ownership increased the carrying amount of its investment in Rockwood by
$1,231,377 from reclassifying receivables of $1,011,508, unamortized intangible
assets of $251,150 and reducing minority interest by $31,281.
The Company reduced notes payable by $559,000 by exchanging 189,000 shares of
its investment in Bioxide Corporation.
The Company received 178,692 shares of Bioxide Corporation in exchange for
receivables of $402,056.
The Company converted $267,506 of preferred stock to common stock.
The Company paid preferred stock dividends of $123,129 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 March 31, 1999 and the results of operations for the three
months and six months and cash flows for the six months ended March 31, 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 six ended March 31, 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 March 31, 1999, there were outstanding options and warrants to purchase
15,632 shares of common stock and there were 1,408,662 shares of preferred stock
outstanding, convertible into a minimum of 521,360 shares of common stock.
<TABLE>
<CAPTION>
Preferred Stock Number of Convertible into #
Preferred Shares of Common Shares
<S> <C> <C>
Series A 40,035 1,360
Series E 20 20,000
Series F 1,367,415 250,000
Series J 1,192 250,000
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1,408,662 521,360
============ =============
</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 $59,818
for the six months ended March 31, 1999 and $21,280 for the three months ended
March 31, 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 six months ended March 31, 1998, warrants to purchase 147,059 shares
of common stock expired. As a result, $544,773 was reclassified from the caption
"Common Stock Warrants" to the caption "Additional Paid-in Capital."
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 six months ended March 31, 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
six months ended March 31, 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 March 31, 1999. On March 31, 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 six months ended March 31, 1999 the Company sold 320,000 shares of
Bioxide Corporations stock and recorded a gain of $270,000.
(7) PREFERRED STOCK TRANSACTIONS
During the six months ended March 31, 1999, the Company accrued dividends on its
outstanding Series A, Series E, Series F and Series J Preferred stock of $6,500,
$7,020, $30,400 and $56,750, 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 March 31, 1999, accrued dividends on Series A,
E, F and J Preferred stock totaling $100,670, were paid by issuing 1,300 shares
of Series A Preferred stock, 6.0 shares of Series E Preferred stock, 50,666
shares of Series F Preferred stock and 56.8 shares of Series J Preferred stock.
During the six months ended March 31, 1999, 233.3 shares of the Company's Series
E preferred stock were converted into approximately 230,000 shares of common
stock. Subsequent to March 31, 1999, 74.1 additional shares of Series E were
converted into approximately 59,000 shares of common stock.
(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
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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 also markets a medical food bar that is a patented formulation developed
by researchers at Beth Israel Deaconess Medical Center, Harvard Medical School,
and marketed by the Company under an exclusive license. The energy and sports
nutrition bars of the Company are also marketed under an exclusive license from
the developer of the products. The Company also holds a minority interest in a
California company 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, 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.
The Company believes that the majority of its future revenues will come
from its nutrition and medical food products and new nutraceutical products and
pharmaceutical drugs. The Company cannot determine the ultimate effect that new
products will have on revenues, earnings or the price of the Company's common
stock.
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
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. During the six months
and the quarter ended March 31, 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 the Rockwood.
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Continuing in fiscal year 1999, the Company will focus 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 the Technology; and
o approval of BWPT-301 and BWPT-302.
o renewing its technology license.
Results of Operations
Comparison of the Three Months Ended March 31, 1999
with the Three Months Ended March 31, 1998
During the three months ended March 31, 1999, the Company had revenues of
$501,491 compared to $18,852 for the comparable three month period ended March
31, 1999. The increase in sales is due primarily to the sale of medical foods
and nutrition bars that commenced during the quarter ended December 31, 1998.
Cost of sales were $182,233 for the three months ended March 31, 1999
compared to cost of sales of $8,388 for the same period in 1998. The overall
gross margin for the quarter in 1999 was 63.7% of revenues, compared to 30% for
the comparable quarter in 1998. The increase in gross margin is due to the
higher margins from the Company's Optim subsidiary.
Management, consulting and research fees were $235,257 for the three
months ended March 31, 1999, as compared to $364,524 for the three months ended
March 31, 1998. General and administrative expenses decreased from $697,220 for
the three months ended March 31, 1998 to $222,131 for the three months ended
March 31, 1999. The decrease in fees and expenses is due to the Company's
efforts to reduce overhead costs.
During the three months ended March 31, 1998, the Company had a net loss
of $1,025,365 compared to a net profit of $173,913 for the three months ended
March 31, 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, the sale of shares
of Bioxide Corporation common stock held by the Company, the recording of
$225,000 of management fee income from Rockwood, and a reduction in operating
expense discussed above.
Net (fully diluted) loss per common share was $(3.60) during the quarter
ended March 31, 1998 compared to net income per common share of $0.06 for the
quarter ended March 31, 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, the
sale of Bioxide shares, the recording of $225,000 of management fee income from
Rockwood, and a reduction in operating expense discussed above.
Comparison of the Six Months Ended March 31, 1999
with the Six Months Ended March 31, 1998
During the six months ended March 31, 1999, the Company had revenues of
$1,663,318 compared to $70,769 for the comparable six month period ended March
31, 1998. The increase in revenues is due to the sales of medical food and
nutrition bars as well as sales of Rockwood.
Cost of sales were $672,125 for the six months ended March 31, 1999
compared to cost of sales of $39,439 for the same period in 1998. The overall
gross margin for 1999 was 59.6 percent of revenues, compared to 44 percent
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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.
Management, consulting and research fees were $563,662 for the six months
ended March 31, 1999, as compared to $662,375 for the six months ended March 31,
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 at this time. General and administrative expenses decreased from
$1,308,462 for the six months ended March 31, 1998 to $421,763 for the six
months ended March 31, 1999. The decrease in both of these expenses is due to
the Company's efforts to reduce overhead costs and a reduction in the number of
employees.
Interest income was $82,028 for the six months ended March 31, 1999.
During the six months ended March 31, 1999, the Company had a net profit
of $172,906, compared to a net loss of $1,025,365 during the six months ended
March 31, 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, and a reduction in
operating expenses discussed above.
Net income per common share was $0.13 for the six months ended March 31,
1999, compared to a net (fully diluted) loss per common share of $6.44 during
the quarter ended March 31, 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, 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 Phase II and Phase III clinical trials on BWPT-301(TM) (assuming
efficacy is established during the Phase II clinical trials), to complete the
necessary clinical trials on BWPT-302(TM), 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 equity and/or debt funding will be
required, although such funding may not be available or may not be available on
favorable terms. Management believes that the Company-funded research and
development efforts to date have positioned the Company to pursue future
research and development efforts and clinical trials with joint venture,
strategic alliance, government or private grants or other third-party funding.
As of March 31, 1999, the Company had cash and cash equivalents of
$202,346 and working capital of $1,807,755 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 $123,129 by issuing
additional shares of preferred stock.
During the six months ended March 31, 1999 the Company sold 320,000 shares
of its Bioxide Corporation stock and recorded a gain of $270,000.
During the three months ended March 31, 1999, the Company's operating
activities used cash of $310,194. During the same period in the previous fiscal
year, the Company's operating activities used $1,567,215 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 of 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 affect with any of its shareholders or any other
related or unrelated party at this time.
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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 ("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 is $3.00 per
share, payable $341,000 in cash and the assumption of the Note by IMG. At March
31, 1999, principal and accrued interest due under the Note was $570,552.27. The
Trust and IMG entered into a separate agreement for the assumption of the Note,
pursuant to which the Trust released its claims against the Company under the
Note. The sole member and manager of IMG is David G. Derrick, formerly the
President, CEO and director of the Company.
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 contained herein 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. The forward-looking
statements and associated risks relate to:
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 obtaining
final FDA approval on BWPT-301;
o the anticipated cost and related expense of the BWPT-301 and
BWPT-302 clinical trials until final FDA approval has been received;
o unexpected delays in receipt of final FDA approval on BWPT- 301;
o the estimated commencement date of Phase III clinical trials and the
completion of those clinical trials on BWPT-301;
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 that may
be affected by a number of risks and uncertainties and are based on certain
assumptions, such as:
o the Company will have adequate financing available.
o the efficacy of BWPT-301 will be established during the ongoing
Phase II clinical trials and the Phase III clinical trials;
o the Company will be able to successfully undertake and complete
clinical trials on BWPT-302(TM);
o the Company will be able to successfully market the health and
beauty aids and its nutraceutical products, and successfully develop
and commercialize other nutraceutical products;
-12-
<PAGE>
o the Company will be able to successfully develop and commercialize
the Technology;
o the Company will successfully conduct additional Phase II clinical
trials on BWPT-301and 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
o the Company will be able to timely and properly quantify and analyze
the data derived from its clinical trials.
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 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 2. Changes in Securities and Use of Proceeds
Amendment of Conversion Feature of Series F Preferred
In January 1999, the Company amended the designation of rights and
preferences of the Series F Preferred Stock of the Company. The amendment was
adopted by consent of the holders of the issued and outstanding shares of Series
F Preferred. As amended, the rights and preferences of the Series F Preferred
permit each share of Series F Preferred to be converted at the holder's option
at any time after January 1, 1999 into 3 shares of the Company's
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<PAGE>
Common Stock. Previously, the conversion feature of this series was determined
by dividing $1,000 plus any accrued and unpaid regular or special dividends by
an amount equal to $.20.
Issuance of Unregistered Equity Securities During the Quarter Ended March 31,
1999
During the quarter ended March 31, 1999, the Company issued 19,095 shares
as compensation for services to an independent consultant who is otherwise not
affiliated with the Company. During the quarter, the Company also issued 231,036
shares of common stock upon conversion of preferred stock.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
-14-
<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: May 17, 1999 /s/ Michael G. Acton
-----------------------------------
Michael G. Acton, Chief Executive Officer and
Controller (Principal Financial and Accounting Officer)
-15-
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BIOMUNE
SYSTEMS, INC., DECEMBER 31, 1998, FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000714634
<NAME> BIOMUNE SYSTEMS, INC.
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