<PAGE> 1
United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
--------------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333-4413
AMARILLO BIOSCIENCES, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
TEXAS 75-1974352
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
800 West Ninth, Amarillo, TX 79101
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
806-376-1741 FAX 806-376-9301
- --------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
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 October 31, 1996, there were 5,414,232 shares of the issuer's common
stock outstanding.
This report contains 13 pages.
1
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AMARILLO BIOSCIENCES, INC.
INDEX
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE NO.
--------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1995 and
September 30, 1996 . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations -
Three Months and Nine Months Ended September 30,
1995 and 1996 and Cumulative from June 25, 1984
(Inception) through September 30, 1996 . . . . . . . 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1995 and 1996 and
Cumulative from June 25, 1984 (Inception) through
September 30, 1996 . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . 7
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
2
<PAGE> 3
AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,108,527 $ 4,226,533
Marketable securities -- 4,922,067
Prepaid expenses 26,395 131,841
----------- -----------
Total current assets 1,134,922 9,280,441
Property and equipment, net 114,593 109,640
Patent license, net of accumulated amortization of
$59,118 and $64,622 at December 31, 1995 and
September 30, 1996, respectively 65,882 60,378
Organization cost, net of accumulated amortization of
$6,335 and $6,667 at December 31, 1995 and
September 30, 1996, respectively 663 330
Investment in ISI common stock 475,000 505,000
----------- -----------
Total assets $ 1,791,060 $ 9,955,789
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Deferred contract revenues $ 417,140 $ --
Accounts payable 148,274 97,223
Accrued interest expense 453,699 543,699
Accrued restricted stock grants 114,844 --
Other accrued expenses 19,000 19,874
----------- -----------
Total current liabilities 1,152,957 660,796
Notes payable to related party 2,000,000 2,000,000
----------- -----------
Total liabilities 3,152,957 2,660,796
----------- -----------
Shareholders' equity (deficit):
Common stock, $.01 par value:
Authorized shares - 10,000,000
Issued shares - 3,048,672 and 5,414,232
in 1995 and 1996, respectively 30,487 54,142
Additional paid-in capital 3,589,591 13,312,638
Deficit accumulated during the development stage (4,955,975) (6,101,787)
Unrealized gain on marketable securities -- 30,000
Treasury stock - 13,440 shares, at cost (26,000) --
----------- -----------
Total shareholders' equity (deficit) (1,361,897) 7,294,993
----------- -----------
Total liabilities and shareholders' equity (deficit) $ 1,791,060 $ 9,955,789
=========== ===========
</TABLE>
See accompanying notes.
3
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AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
from
June 25,
1984
Three months ended Nine months ended (Inception)
September 30, September 30, through
-------------------------- ------------------------- Sept. 30,
1995 1996 1995 1996 1996
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Contract revenues $ 330,035 $ -- $ 839,049 $ 417,140 $ 9,000,000
Interferon sales -- -- -- 6,805 420,578
Interest income 15,462 37,194 83,661 57,289 566,565
Sublicense fees -- 5,000 50,000 5,000 113,334
Royalty income -- -- -- -- 31,544
Other -- 43,000 500,000 43,000 552,371
----------------------------------------------------------------------
345,497 85,194 1,472,710 529,234 10,684,392
Expenses:
Research and
development expenses 155,643 168,095 615,806 422,540 6,873,402
Selling, general, and
administrative expenses 139,673 820,430 939,230 1,156,040 9,325,490
Interest expense 30,000 34,799 90,000 96,466 552,287
----------------------------------------------------------------------
325,316 1,023,324 1,645,036 1,675,046 16,751,179
----------------------------------------------------------------------
Income (loss) before 20,181 (938,130) (172,326) (1,145,812) (6,066,787)
income taxes
Income tax expense -- -- -- -- 35,000
----------------------------------------------------------------------
Net income (loss) $ 20,181 $ (938,130) $ (172,326) $(1,145,812) $(6,101,787)
======================================================================
Income (loss) per share $ .01 $ (.22) $ (.06) $ (.33)
=======================================================
Weighted average shares
outstanding 3,035,232 4,255,286 3,034,038 3,444,885
=======================================================
</TABLE>
See accompanying notes.
4
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AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
from
June 25,
1984
(Inception)
through
Nine months ended September 30, Sept. 30,
1995 1996 1996
--------------------------------------------
<S> <C> <C> <C>
Net cash used in operating activities $(1,061,763) $(1,728,305) $(5,131,565)
----------- ----------- -----------
Net cash provided by (used in) investing
activities 59,641 (4,926,391) (5,913,921)
----------- ----------- -----------
Net cash provided by financing activities 74,100 9,772,702 15,272,019
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents (928,022) 3,118,006 4,226,533
Cash and cash equivalents at beginning
of period 964,005 1,108,527 --
----------- ----------- -----------
Cash and cash equivalents at end of
period $ 35,983 $ 4,226,533 $ 4,226,533
=========== =========== ===========
Supplemental Disclosure of Cash Flow
Information
Cash paid for income taxes $ -- $ -- $ 37,084
=========== =========== ===========
</TABLE>
See accompanying notes.
5
<PAGE> 6
AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation. The accompanying consolidated financial
statements, which should be read in conjunction with the consolidated
financial statements and footnotes included in the Company's Form
SB-2, are unaudited (except for the December 31, 1995 consolidated
balance sheet which was derived from the Company's audited financial
statements), but have been prepared in accordance with generally
accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary
for a fair presentation have been included.
Operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the
full year ending December 31, 1996.
2. Loss per share. Loss per share is computed based on the weighted
average number of common shares outstanding.
3. Initial public offering. On August 13, 1996, the Company completed its
initial public offering of 2,000,000 shares of its common stock. Net
proceeds to the Company were approximately $8,072,000. On August 29,
1996, the underwriter exercised their option to acquire an additional
300,000 shares of common stock with net proceeds to the Company of
$1,305,000.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 Compared to Three Months Ended
September 30, 1995.
During the three months ended September 30, 1995, the Company had
total revenues of $345,497 compared to total revenues of $85,194
during the three months ended September 30, 1996. Revenues for 1995
consisted of interest income of $15,462 and contract revenues in the
amount of $330,035. During the 1996 third quarter, the Company
received a $5,000 sublicense fee and a $43,000 reimbursement of
research and development cost in exchange for the grant by the Company
of a sublicense for the development and sale of oral IFNa for dog and
cat applications worldwide except in Japan. Other 1996 revenues
consisted of interest income of $37,194.
During the 1995 third quarter, research and development expenses were
$155,643 as compared to $168,095 during the 1996 third quarter.
During 1995 and 1996, the Company incurred general and administrative
expenses of $139,673 and $820,430, respectively. The 1996 third
quarter expenses were $680,757 more than the 1995 third quarter due
primarily to the issuance of common stock to three officers of the
Company pursuant to stock grants. The amount of compensation
associated with the stock grants was $630,000 of which $134,531 had
been accrued as of June 30, 1996 leaving a balance of $495,469 which
was expensed in the third quarter of 1996.
7
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Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995
During the nine months ended September 30, 1996, the Company had total
revenues of $529,234 compared to total revenues of $1,472,710 during
the nine months ended September 30, 1995. Revenues for 1996 consisted
of interest income of $57,289 and deferred contract revenues
recognized in the amount of $417,140 based on research and development
and administrative costs incurred. In 1995, $550,000 of the revenues
were received in connection with the settlement of a patent
infringement action brought by the Company in New Zealand. Of the
total settlement amount, $50,000 was in exchange for the grant by the
Company of a sublicense of the technology that was the subject of the
lawsuit and $500,000 was a reimbursement of research and development
costs incurred by the Company. Had the Company not received the
$500,000 payment toward research and development costs from the
settlement, the remaining balance of deferred contract revenue
($417,140) would have been recognized as contract revenue in 1995.
During 1995, deferred contract revenues of $839,049 were recorded as
earned based on research and development and administrative costs
incurred. Other 1995 revenues consisted of interest income of $83,661.
During 1996, research and development expenses were $422,540 as
compared to $615,806 during 1995. The decrease of $193,266 in 1996 was
the result of certain clinical studies being completed in 1995.
During 1996 and 1995, the Company incurred general and administrative
expenses of $1,156,040 and $939,230, respectively. The 1996 general
and administrative expenses exceeded 1995 by $216,810 due primarily to
the issuance of common stock to three officers of the Company pursuant
to stock grants. The amount of compensation expense associated with
the stock grants for 1996 was $515,156. In 1995, the Company incurred
litigation expense of $260,628.
8
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had cash of $4,226,533 and
marketable securities of $4,922,067 with accounts payable of $97,223
and other funding commitments for clinical studies of approximately
$19,000.
The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations (including assumptions
regarding the progress of its research and development and the timing
and costs associated with its primary development projects), that the
net proceeds of its recent initial public offering (approximately
$9,377,000) together with the Company's existing capital resources,
will be sufficient to satisfy the Company's estimated cash
requirements for at least the next 24 months. The Company estimates
that an aggregate of $11,100,000 will be needed over approximately the
next three years to complete its primary development projects. Such
amount is in excess of the net proceeds of the offering and the
existing capital of the Company. Therefore, unless the Company
generates significant revenues during such period, which the Company
believes is unlikely, the Company will need additional financing to
fully fund such development. Moreover, the Company's estimate of the
amount required to complete its primary development projects may prove
to be inaccurate. The Company has no current arrangements with respect
to, or sources of, additional financing and it is not anticipated that
any of the officers, directors or shareholders of the Company will
provide any portion of the Company's future financing requirements.
There can be no assurance that, when needed, additional financing will
be available to the Company on commercially reasonable terms, or at
all. In the event that the Company's plans change, its assumptions
change or prove inaccurate, or if the net proceeds of the initial
public offering, together with other capital resources, otherwise
prove to be insufficient to fund operations, the Company could be
required to seek additional financing sooner than currently
anticipated. Any inability to obtain additional financing when needed
would have a material adverse effect on the Company, including
requiring the Company to significantly curtail or possibly cease its
operations.
9
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27. Financial Data Schedule
No reports on Form 8-K were filed during the quarter ended September
30, 1996.
10
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SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMARILLO BIOSCIENCES, INC.
Date: October __, 1996 By:
-----------------------------------
Joseph M. Cummins
President and
Chief Executive Officer
Date: October __, 1996 By:
-----------------------------------
Charles H. Hughes
Financial Vice President and
Chief Financial Officer
(Chief Accounting Officer)
11
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPT. 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS
INCLUDED IN ITS FORM 10-QSB FOR THE PERIOD ENDED SEPTEMBER 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,226,533
<SECURITIES> 4,922,067
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,280,441
<PP&E> 221,210
<DEPRECIATION> 111,570
<TOTAL-ASSETS> 9,955,789
<CURRENT-LIABILITIES> 660,796
<BONDS> 2,000,000
0
0
<COMMON> 54,142
<OTHER-SE> 7,240,851
<TOTAL-LIABILITY-AND-EQUITY> 9,955,789
<SALES> 6,805
<TOTAL-REVENUES> 529,234
<CGS> 0
<TOTAL-COSTS> 422,540
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96,466
<INCOME-PRETAX> (1,145,812)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,145,812)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,145,812)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> (.33)
</TABLE>
