SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A2
(AMENDMENT NO. 2)
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 19, 1998
BIOMUNE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Commission File Number: 0-11472
Nevada 87-0380088
(State of Incorporation) (I.R.S. Employer Identification No.)
2401 South Foothill Drive, Salt Lake City, UT 84109
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:(801) 466-3441
ITEM 2.Acquisition or Disposition of Assets.
On June 1, 1998, Biomune Systems, Inc. (the "Company" or the "Registrant")
signed and agreement to purchase a 52 percent ownership interest in Rockwood
companies, LLC, formerly Rockwood Vitamins, LLC, a California limited liability
company ("Rockwood"). Final issues surrounding the closing of the transaction
were resolved on August 17, 1998. Among other things, the amendments to the
Purchase Agreement included a reduction of the down payment to $360,000. In
addition, Cypress Springs, LLC will receive up to 3,750,000 shares of
convertible preferred stock of Biomune. The addendum is filed as an exhibit to
this amended current report on Form 8-K.
ITEM 7.Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired. The audited financial
statements of Rockwood are filed with this amendment
Page
3 Indepentent Auditors' Report
4 Combined Balance Sheet at September 30, 1997 (Unaudited)
5 Combined Statement of Operations for the Three Years Ended
September 30, 1997 (Unaudited)
6 Combined Statement of Stockholders' Equity for the Three Years Ended
September 30, 1997 (Unaudited)
7 Combined Statement of Cash Flows for the Three Years Ended
September 30, 1997 (Unaudited)
8 Notes to Combined Financial Statements
(b) Pro Forma Financial Information. Pro forma information is filed with
this amendment
Page
16 Pro Forma Condensed Consolidated Balance Sheet at March 31, 1998
(Unaudited)
17 Pro Forma Condensed Consolidated Statement of Operations for the Year
Ended September 30, 1997 (Unaudited)
18 Pro Forma Condensed Consolidated Statement of Operations for the Six
Months Ended March 31, 1998 (Unaudited)
19 Notes to Condensed Consolidated Financial Statements
(c) Exhibits
10 Purchase agreement between Biomune Systems, Inc. and Cypress
Springs, LLC
2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Rockwood Investments, Inc.
We have audited the accompanying combined balance sheet of Rockwood Investments,
Inc., as of September 30, 1997 and 1996, and the related combined statements of
operations and retained earnings, and cash flows for the years ended September
30, 1997, 1996, and 1995. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rockwood Investments, Inc., as
of September 30, 1997 and 1996, and the results of their operations and their
cash flows for the years ended September 30, 1997, 1996, and 1995, in conformity
with generally accepted accounting principles.
TANNER+Co.
Salt Lake City, Utah
July 23, 1998
3
ROCKWOOD INVESTMENTS, INC.
Combined Balance Sheet
September 30,
- ----------------------------------------------------------------------------------------------------------
1997 1996
-----------------------------------
Assets
Current assets:
Cash $ 17,828 $ 7,645
Accounts receivable 1,297,215 240,725
Inventories 61,232 157,956
Other current assets 73,860 703
-----------------------------------
Total current assets 1,450,135 407,029
Property and equipment, net 10,153 15,939
Deferred income taxes - 45,000
-----------------------------------
$ 1,460,288 $ 467,968
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable $ 479,255 $ 153,939
Accrued liabilities 274,095 9,959
Notes payable 378,000 200,000
-----------------------------------
Total current liabilities 1,131,350 363,898
-----------------------------------
Minority interest 4,184 -
Commitments and contingencies - -
Stockholder's equity:
Common stock, $1 par value; 10,000 shares
authorized, issued and outstanding 10,000 10,000
Retained earnings and members' equity 314,754 94,070
-----------------------------------
Total stockholder's equity 324,754 104,070
-----------------------------------
$ 1,460,288 $ 467,968
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
4
ROCKWOOD INVESTMENTS, INC.
Combined Statement of Operations
Years Ended September 30,
- ----------------------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------
Sales $ 4,055,836 $ 3,379,411 $ 3,721,067
Cost of sales 2,357,535 2,097,285 2,709,532
---------------------------------------------
Gross profit 1,698,301 1,282,126 1,011,535
Selling, general and administrative expense 1,589,464 1,318,184 1,068,428
---------------------------------------------
Income (loss) from operations 108,837 (36,058) (56,893)
---------------------------------------------
Other income and (expense):
Other income 279,086 - -
Interest expense (24,055) (27,618) (21,206)
---------------------------------------------
Net other income (expense) 255,031 (27,618) (21,206)
---------------------------------------------
Income (loss) before minority interest and
(provision) benefit for income taxes 363,868 (63,676) (78,099)
Minority interest (4,184) - -
---------------------------------------------
Net income (loss) before income taxes 359,684 (63,676) (78,099)
---------------------------------------------
Income taxes (provision) benefit:
Current (95,000) 2,000 4,000
Deferred (45,000) 21,000 24,000
---------------------------------------------
(140,000) 23,000 28,000
---------------------------------------------
Net income (loss) $ 219,684) $ (40,676) $ (50,099)
---------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
5
ROCKWOOD INVESTMENTS, INC.
Statement of Stockholders' Equity
Years Ended September 30, 1997, 1996, and 1995
- ----------------------------------------------------------------------------------------------------------
Common Stock Retained
(Rockwood Investments, Earnings/
Inc.) Members'
----------------------------------
Shares Amount Equity Total
---------------------------------------------------------------------
Balance October 1, 1994 10,000 $ 10,000 $ 184,845 $ 194,845
Net loss - - (50,099) (50,099)
---------------------------------------------------------------------
Balance at September 30, 1995 10,000 10,000 134,746 144,746
Net loss - - (40,676) (40,676)
---------------------------------------------------------------------
Balance at September 30, 1996 10,000 10,000 94,070 104,070
Member contributions - - 1,000 1,000
Net income - - 219,684 219,684
---------------------------------------------------------------------
Balance at September 30, 1997 10,000 $ 10,000 $ 314,754 $ 324,754
---------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
6
ROCKWOOD INVESTMENTS, INC.
Combined Statement of Cash Flows
Years Ended September 30,
- ----------------------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 219,684 $ (40,676) $ (50,099)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 13,038 8,780 2,263
(Gain) loss on sale of assets (4,539) 7,957 781
Deferred income taxes 45,000 (21,000) (24,000)
(Increase) decrease in:
Accounts receivable (1,056,490) 373,751 (426,343)
Inventories 96,724 92,542 (103,423)
Other current assets (73,157) 7,260 7,002
Increase (decrease) in:
Accounts payable 325,316 (480,668) 416,928
Accrued liabilities 264,136 (38,572) 38,682
Minority interest 4,184 - -
---------------------------------------------------
Net cash used in
operating activities (166,104) (90,626) (138,209)
---------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (13,713) (25,510) (5,066)
Proceeds from sale of assets 11,000 - -
---------------------------------------------------
Net cash used in
investing activities (2,713) (25,510) (5,066)
---------------------------------------------------
Cash flows from financing activities:
Increase in notes payable 178,000 10,351 71,649
Member contributions 1,000 - -
---------------------------------------------------
Net cash provided by
financing activities 179,000 10,351 71,649
---------------------------------------------------
Net increase (decrease) in cash 10,183 (105,785) (71,626)
Cash, beginning of year 7,645 113,430 185,056
---------------------------------------------------
Cash, end of year $ 17,828 $ 7,645 $ 113,430
---------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
7
ROCKWOOD INVESTMENTS, INC.
Notes to Combined Financial Statements
September 30, 1997 and 1996
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Organization
Rockwood Investments, Inc. (Rockwood) d.b.a. Rockwood Cosmetics, Inc. was
incorporated under the laws of the state of California on December 15, 1992. The
sole owner of Rockwood was Cypress Springs, L.L.C. (Cypress), a California
limited liability company controlled by Ira E. Ritter (Ritter). On May 1, 1997,
Rockwood formed a subsidiary, Drive by Willie Gault, L.L.C. (Drive), of which
Rockwood owned a 73 percent interest. Also on May 1, 1997, Ritter formed
Rockwood Vitamins, L.L.C. (Vitamins) of which he owned 90 percent.
Principles of Combination
The financial statements for the years ended September 30, 1996 and 1995 include
the financial statements of Rockwood. The combined financial statements for the
year ended September 30, 1997 include the financial statements of Rockwood and
its subsidiary, Drive, subsequent to May 1, 1997, and Vitamins, subsequent to
May 1, 1997 (together "the Company"). All significant intercompany balances and
transactions have been eliminated.
Business Activity
The Company is primarily engaged in the development and sale of health, beauty
and cosmetic aids.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments with a maturity of three months or less to be cash
equivalents.
Inventories
Inventories are stated at the lower of cost or market as determined using the
first-in, first-out method.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation.
Depreciation is provided using the straight line and accelerated methods over
the estimated useful lives. Expenditures for maintenance and repairs are
expensed when incurred and betterments are capitalized. Gains and losses on sale
of property and equipment are reflected in net income.
- --------------------------------------------------------------------------------
8
ROCKWOOD INVESTMENTS, INC.
Notes to Combined Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies Continued
Income Taxes
Deferred income taxes are provided in amounts sufficient to give effect to
temporary differences between financial and tax reporting, principally related
to a net operating loss carryforward.
Vitamins, with the consent of its stockholders has elected under the Internal
Revenue Code to be taxed as a limited liability company. In lieu of corporation
income taxes, the stockholders of a limited liability company are taxed on the
Vitamins' taxable income. Therefore, no provision or liability for federal
income taxes related to Vitamins has been included in the financial statements.
Revenue Recognition
Revenue is recognized upon shipment of product or performance of services.
Defined Benefit Pension Plan
The Company had a defined benefit pension plan covering employees with at least
one year of employment with the Company. The benefits were based on years of
service and an employee's compensation during the last five years of employment.
The Company's funding policy was to contribute annually the maximum amount that
could be deducted for federal income tax purposes. Contributions were intended
to provide not only for benefits attributed to the service to date, but also for
those expected to be earned in the future. During the years ended September 30,
1997, 1996, and 1995, the Company contributed approximately $74,000, $73,000,
and $71,000, respectively.
The defined benefit pension plan was terminated subsequent to September 30,
1997. As of September 30, 1997, the assets held by the plan exceeded the
projected future obligation of such plan.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk consist primarily of trade receivables. In the normal course of
business, the Company provides credit terms to its customers. Accordingly, the
Company performs ongoing credit evaluations of its customers and maintains
allowances for possible losses which, when realized, have been within the range
of management's expectations.
- --------------------------------------------------------------------------------
9
ROCKWOOD INVESTMENTS, INC.
Notes to Combined Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies Continued
Concentration of Credit Risk - Continued
The Company's customer base consists primarily of retail companies. Although the
Company is directly affected by the well-being of the retail industry,
management does not believe significant credit risk exists at September 30,
1997.
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such account and believes it is not exposed to any significant credit risk on
cash and cash equivalents.
Use of Estimates in the Preparation of Financial Statements The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
2. Detail of Certain Balance Sheet Accounts
September 30,
------------------------------------
1997 1996
------------------------------------
Inventories:
Raw materials $ 13,976 $ 16,846
Finished goods 47,256 141,110
------------------------------------
$ 61,232 $ 157,956
------------------------------------
December 31,
------------------------------------
1997 1996
------------------------------------
Accrued liabilities:
Royalties payable (see Note 10) $ 36,058 $ -
Accrued promotion expense 115,000 -
Income taxes payable (receivable) 46,000 (23,703)
Other accrued expenses 29,537 13,662
Management fees payable 47,500 20,000
------------------------------------
$ 274,095 $ 9,959
------------------------------------
- --------------------------------------------------------------------------------
10
ROCKWOOD INVESTMENTS, INC.
Notes to Combined Financial Statements
Continued
- --------------------------------------------------------------------------------
3. Property and Equipment
Property and equipment consist of the following:
September 30,
-----------------------------------
1997 1996
-----------------------------------
Equipment, furniture and fixtures $ 25,543 $ 11,830
Vehicles - 13,459
-----------------------------------
25,543 25,289
Less accumulated depreciation (15,390) (9,350)
-----------------------------------
$ 10,153 $ 15,939
-----------------------------------
4. Notes Payable
Rockwood has a revolving line-of-credit arrangement which allows the Company to
borrow a maximum of $500,000. Vitamins also has a revolving line-of-credit
arrangement, which allows Vitamins to borrow a maximum of $300,000. All amounts
advanced pursuant to these arrangements bear interest at the bank's prime rate
plus 2 percent. Borrowings are secured by all assets of Rockwood and Vitamins.
The line-of-credit arrangement of Rockwood matures on October 1, 1998 and the
line-of-credit arrangement of Vitamins matures on November 1, 1998. Each
line-of-credit arrangement contains various covenants requiring that certain
financial ratios be maintained. At September 30, 1997, Rockwood and Vitamins
were not in compliance with all line-of-credit covenants. Each line-of-credit is
personally guaranteed by Ritter, the spouse of Ritter and a management company
controlled by Ritter. The balance outstanding under these agreements at
September 30, 1997 and 1996 was $378,000 and $200,000, respectively.
- --------------------------------------------------------------------------------
11
ROCKWOOD INVESTMENTS, INC.
Notes to Combined Financial Statements
Continued
- --------------------------------------------------------------------------------
5. Income Taxes
The (provision) benefit for income taxes is different than amounts which would
be provided by applying the statutory federal income tax rate to income before
(provision) benefit for income taxes for the following reasons:
Years Ended September 30,
---------------------------------------
1997 1996 1995
---------------------------------------
Federal income tax (provision)
benefit at statutory rate $ (122,000) $ 22,000 $ 26,000
State income taxes (17,000) 3,000 4,000
Nontaxable L.L.C. income 4,000 - -
Other (5,000) (2,000) (2,000)
---------------------------------------
$ (140,000) $ 23,000 $ 28,000
---------------------------------------
Deferred tax assets are comprised of the following:
September 30,
---------------------------------
1997 1996
---------------------------------
Net operating loss carryforward $ - $ 45,000
---------------------------------
6. Related Party Transactions
The Company rents certain facilities from an entity controlled by Ritter on a
month-to-month basis. The Company recorded rent expense of approximately
$35,000, $25,000, and $19,000 for the years ended September 30, 1997, 1996, and
1995, respectively.
An entity controlled by Ritter provides management and administrative services
to the Company. The Company recorded management fees of $695,000, $864,000, and
$727,420 for the years ended September 30, 1997, 1996, and 1995, respectively.
At September 30, 1996, the Company included $20,000 of related party accrued
management fees in accrued expenses.
The Company has entered into certain license agreements with an entity partially
owned by Ritter (see Note 10). During the year ended September 30, 1997, the
Company recorded $30,661 of royalty expense related to such license agreements.
At September 30, 1997, the Company included $15,243 of related party royalties
payable in accrued expenses.
- --------------------------------------------------------------------------------
12
ROCKWOOD INVESTMENTS, INC.
Notes to Combined Financial Statements
Continued
- --------------------------------------------------------------------------------
6. Related Party Transactions Continued
A member of the Company's legal counsel is a stockholder of Vitamins. The
Company incurred legal expenses with such legal counsel of approximately $14,000
during the period May 1, 1997 (date of organization of Vitamins) through
September 30, 1997. As of September 30, 1997, the Company included in accounts
payable legal fees to the related party of approximately $9,000.
During the year ended September 30, 1997, the Company recorded marketing fees of
$270,000 related to services provided to Biomune Systems, Inc., a company which
purchased a controlling interest in the Company subsequent to September 30, 1997
(see Note 11). Such marketing fees are reflected in other income.
7. Major Customers
During the years ended September 30, 1997, 1996, and 1995, substantially all of
the Company's sales were to the same customer. Sales to such customer were
approximately $3,691,000, $3,379,000, and $3,721,000, respectively.
Subsequent to September 30, 1997, such major customer ceased placing new orders
with the Company. The Company has made efforts to secure business with other
retail companies and believes that by obtaining orders with such new customers,
the loss of the major customer will not have an adverse effect on the Company's
ability to continue as a going concern.
8. Supplemental Cash Flow Information
During the years ended September 30, 1997, 1996, and 1995, operations reflect
actual interest paid of approximately $24,000, $28,000, and $16,000,
respectively, and actual income taxes paid of approximately $6,000, $18,000, and
$10,000, respectively.
- --------------------------------------------------------------------------------
13
ROCKWOOD INVESTMENTS, INC.
Notes to Combined Financial Statements
Continued
- --------------------------------------------------------------------------------
9. Fair Value of Financial Instruments
None of the Company's financial instruments are held for trading purposes. The
Company estimates that the fair value of all financial instruments at September
30, 1997, does not differ materially from the aggregate carrying values of its
financial instruments recorded in the accompanying balance sheet. The estimated
fair value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. Considerable judgement is
necessarily required in interpreting market data to develop the estimates of
fair value, and, accordingly, the estimates are not necessarily indicative of
the amounts that the Company could realize in a current market exchange.
10. Commitments and Contingencies
Royalties
The Company has entered into certain licensing agreements, which allow the
Company to use certain formulas to develop product for sales. Such licensing
agreements require the payment of 5 percent of all EONE (cosmetic product) sales
to an entity partially owned by Ritter (see Note 6) and 2.5 percent of all Drive
sales, as royalties, to the licensor.
The Company also has agreed to pay 36.5 percent of the net income of Drive to an
individual for use of his name and services in marketing Drive products.
During the year ended September 30, 1997, the Company incurred royalty expense
of approximately $67,000 and included $36,058 of royalties payable in accrued
liabilities at September 30, 1997.
Litigation
The Company may become or is subject to investigations, claims or lawsuits
ensuing out of the conduct of its business, including those related to
environmental safety and health, product liability, commercial transactions etc.
The Company has accrued amounts related to such lawsuits and is currently not
aware of any additional items which it believes could have a material adverse
affect on its financial position.
- --------------------------------------------------------------------------------
14
ROCKWOOD INVESTMENTS, INC.
Notes to Combined Financial Statements
Continued
- --------------------------------------------------------------------------------
11. Subsequent Events
On April 1, 1998, Rockwood acquired the remaining 27 percent of Drive, thus
becoming the sole owner. Also on April 1, 1998, Rockwood was combined with
Vitamins leaving Vitamins as the surviving entity. At that date, the name of
Rockwood Vitamins, L.L.C. was changed to Rockwood Companies, L.L.C. On June 1,
1998, Biomune Systems, Inc. purchased a 52 percent interest in Rockwood
Companies, L.L.C.
- --------------------------------------------------------------------------------
15
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, 1998
ASSETS Biomune Rockwood Adjustments Pro Forma
Cash $ 495,758 $ - $ 495,758
Accounts receivable 138,888 582,928 721,816
Inventories 305,869 439,463 745,332
Other current assets - 30,008 30,008
Amounts due from (to) related parties 676,587 (365,000) 311,587
Receivable from Volu-Sol, Inc. 390,500 - 390,500
--------------------------------- -------------------
Total current assets 2,007,602 687,399 2,695,001
Property and Equipment, net 78,420 9,946 88,366
Cost in excess of net assets acquired - - 832,754 (1) 832,754
Deferred income taxes - - -
Other assets, net 35,828 90,495 126,323
--------------------------------- -------------------
$ 2,121,850 $ 787,8 $ 3,742,444
================================= ===================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Cash overdraft $ - $ 151,505 $ 151,505
Notes payable - 193,000 193,000
Accounts payable 87,241 768,163 855,404
Accrued expenses 7,575 507,926 515,501
Minority interest - - -
--------------------------------- -------------------
Total current liabilities 94,816 1,620,594 1,715,410
Shareholders' equity 2,027,034 (832,754) 832,754 (1) 2,027,034
--------------------------------- -------------------
$ 2,121,850 $ 787,840 $ 3,742,444
================================= ===================
16
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Year Ended September 30, 1997
Biomune Rockwood Adjustments Pro Forma
Revenues $ 199,051 $ 4,055,836 $ 4,254,887
Cost of products sold 165,401 2,357,535 2,522,936
---------------------------------------- ------------------
Gross profit 33,650 1,698,301 1,731,951
General and administrative 7,638,262 1,593,648 (270,000) (2) 8,961,910
Amortization of goodwill - - 166,551 (3) 166,551
---------------------------------------- ------------------
Loss from operations (7,604,612) 104,653 (7,396,510)
Interest expense - (24,055) (24,055)
Other income 256,331 279,086 (270,000) (2) 265,417
---------------------------------------- ------------------
Loss from continuing operations (7,348,281) 359,684 (7,155,148)
Loss from discontinued operations
of Volu-Sol, Inc. (719,652) - (719,652)
---------------------------------------- ------------------
Loss before income taxes (8,067,933) 359,684 (7,874,800)
Income taxes - (140,000) (140,000)
---------------------------------------- ------------------
Net loss (8,067,933) 219,684 (8,014,800)
Preferred stock dividends and
beneficial conversion premium (4,040,517) - (4,040,517)
---------------------------------------- ------------------
Net loss applicable to common
shares $ (12,108,450) $ 219,68 $ (12,055,317)
======================================== ==================
Net loss per common share:
Continuing Operations $ (5.11) $ - $ (5.02)
Discontinued Operations (0.32) - (0.32)
---------------------------------------- ------------------
Earnings per share $ (5.43) $ - $ (5.34)
======================================== ==================
Weighted average number of
shares outstanding 2,229,624 2,229,624
===================== ==================
17
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Six Months Ended March 31, 1998
Biomune Rockwood Adjustments Pro Forma
Revenues $ 70,769 $ 2,281,627 $ 2,352,396
Cost of products sold 39,439 1,564,853 1,604,292
---------------------------------------- ---------------------
Gross profit 31,330 716,774 748,104
General and administrative 1,970,837 1,770,104 3,740,941
Amortization of goodwill - - 166,551 (3) 166,551
---------------------------------------- ---------------------
Loss from operations (1,939,507) (1,053,330) (3,159,388)
Interest expense - (41,972) (41,972)
Other income 84,764 - 84,764
---------------------------------------- ---------------------
Loss from continuing operations (1,854,743) (1,095,302) (3,116,596)
Loss from discontinued operations
of Volu-Sol, Inc. - - -
---------------------------------------- ---------------------
Loss before income taxes (1,854,743) (1,095,302) (3,116,596)
Income taxes - 95,000 95,000
---------------------------------------- ---------------------
Net loss (1,854,743) (1,000,302) (3,021,596)
Preferred stock dividends and
beneficial conversion premium (769,152) - (769,152)
---------------------------------------- ---------------------
Net loss applicable to common
shares $ (2,623,895) $ (1,000,302) $ (3,790,748)
======================================== =====================
Net loss per common share:
Continuing Operations $ (0.64) $ - $ (0.95)
Discontinued Operations - - -
---------------------------------------- ---------------------
Earnings per share $ (0.64) $ - $ (0.95)
======================================== =====================
Weighted average number of
shares outstanding 4,074,427 4,074,427
===================== =====================
18
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, 1998
NOTE A -- The pro forma adjustments to the condensed consolidated balance sheet
are as follows:
(1) To reflect the acquisition of 52% of Rockwood, and in accordance
with push-down accounting, the accumulated deficit of Rockwood has
been pushed down to goodwill in order to reflect the fair market value
of Rockwood. The purchase price consists of up to 3,000,000 shares of
series H preferred stock which will be issued if certain specified
earnings are achieved. Due to the contingent nature of such issuance
of preferred stock, no amount will be recorded until the specified
earnings are achieved and the preferred stock is issued. Accordingly,
the cost in excess of net assets acquired (goodwill) consists of the
accumulated deficit of Rockwood at March 31, 1998.
NOTE B -- The pro forma adjustments to the condensed financial statements of
income are as follows:
(2) Elimination of $270,000 of marketing fees charged by Rockwood to
Biomune.
(3) Amortization of cost in excess of net assets acquired (goodwill).
Amortization has been calculated based on an estimated life of five
years.
19
SIGNATURE
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 18, 1998 /s/ Michael G. Acton
---------------------
By: Michael G. Acton
Chief Executive Officer