<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 JUNE 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 No X
--- ---
As of August 29, 1996, there were 5,414,232 shares of the issuer's common stock
outstanding.
This report contains 13 pages.
<PAGE> 2
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 June 30, 1996 . . . . . . . . . . . . 3
Consolidated Statements of Operations -
Three Months and Six Months Ended June 30, 1995
and 1996 and Cumulative from June 25, 1984
(Inception) through June 30, 1996 . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1995 and 1996 and
Cumulative from June 25, 1984 (Inception) through
June 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, June 30,
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,108,527 $ 1,237,369
Prepaid expenses 26,395 15,635
----------- -----------
Total current assets 1,134,922 1,253,004
Property and equipment, net 114,593 111,160
Patent license, net of accumulated amortization of 65,882 62,226
$59,118 and $62,774 at December 31, 1995 and June
30, 1996, respectively
Organization cost, net of accumulated amortization of 663 330
$6,335 and $6,667 at December 31, 1995 and June 30,
1996, respectively
Deferred charge -- 264,193
Investment in ISI common stock 475,000 505,000
----------- -----------
Total assets $ 1,791,060 $ 2,195,913
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Deferred contract revenues $ 417,140 $ --
Accounts payable 148,274 65,555
Accrued interest expense 453,699 515,366
Accrued restricted stock grants 114,844 134,531
Other accrued expenses 19,000 20,040
----------- -----------
Total current liabilities 1,152,957 735,492
Notes payable to related party 2,000,000 3,000,000
----------- -----------
Total liabilities 3,152,957 3,735,492
----------- -----------
Shareholders' deficit:
Common stock, $.01 par value:
Authorized shares - 10,000,000
Issued shares - 3,048,672 and 3,035,232 in 1995 and 30,487 30,352
1996, respectively
Additional paid-in capital 3,589,591 3,563,726
Deficit accumulated during the development stage (4,955,975) (5,163,657)
Unrealized gain on marketable securities -- 30,000
Treasury stock - 13,440 shares, at cost (26,000) --
----------- -----------
Total shareholders' deficit (1,361,897) (1,539,579)
----------- -----------
Total liabilities and shareholders' deficit $ 1,791,060 $ 2,195,913
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
from
June 25,
1984
(Inception)
Three months ended Six months ended through
June 30, June 30, June 30,
1995 1996 1995 1996 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Contract revenues $ (109,253) $ 14,566 $ 509,013 $ 417,140 $9,000,000
Interferon sales -- 4,805 -- 6,805 420,578
Interest income 39,396 8,941 68,199 20,095 529,371
Sublicense fees 50,000 -- 50,000 -- 108,334
Royalty income -- -- -- -- 31,544
Other 500,000 -- 500,000 -- 509,371
-----------------------------------------------------------------------------
480,143 28,312 1,127,212 444,040 10,599,198
Expenses:
Research and
development expenses 212,185 120,236 460,163 254,445 6,705,307
Selling, general, and
administrative expenses 355,531 96,898 799,556 335,610 8,505,060
Interest expense 30,000 31,667 60,000 61,667 517,488
-----------------------------------------------------------------------------
597,716 248,801 1,319,719 651,722 15,727,855
-----------------------------------------------------------------------------
Loss before income taxes (117,573) (220,489) (192,507) (207,682) (5,128,657)
Income tax expense -- -- -- -- 35,000
-----------------------------------------------------------------------------
Net loss $ (117,573) $ (220,489) $ (192,507) $ (207,682) $(5,163,657)
=============================================================================
Loss per share $ (.04) $ (.07) $ (.06) $ (.07)
=============================================================================
Weighted average shares
outstanding 3,035,232 3,035,232 3,033,431 3,035,232
=============================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 5
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
Six months ended June 30, June 30,
1995 1996 1996
--------------------------------------------------------
<S> <C> <C> <C>
Net cash used in operating activities $ (743,068) $ (868,691) $ (4,271,951)
---------- ---------- ------------
Net cash used in investing activities (140,453) (2,467) (989,997)
---------- ---------- ------------
Net cash provided by financing activities 74,100 1,000,000 6,499,317
---------- ---------- ------------
Net increase (decrease) in cash and cash
equivalents (809,421) 128,842 1,237,369
Cash and cash equivalents at beginning of
period 964,005 1,108,527 --
---------- ---------- ------------
Cash and cash equivalents at end of
period $ 154,584 $1,237,369 $ 1,237,369
========== ========== ============
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 six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the entire
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. Notes payable. On each of May 31, 1996 and June 28, 1996, the Company
borrowed $500,000 from a related party. These notes bear interest at 4%
and are payable in full out of the proceeds of the Company's initial
public offering. On August 13, 1996, in connection with the closing of
the initial public offering, the $1,000,000 of notes payable were paid in
full.
4. 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 $8,075,000. 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
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Three Months Ended June 30, 1996 Compared to Three Months Ended
June 30, 1995.
During the three months ended June 30, 1995, the Company had total
revenues of $480,143 compared to total revenues of $28,312 during
the three months ended June 30, 1996. 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. Other revenues for
1995 consisted of interest income of $39,396 and negative deferred
contract revenues in the amount of $109,253. Had the Company not
received the $500,000 payment toward research and development costs
from the settlement, deferred contract revenue of $500,000 would
have been recognized as contract revenue in the 1995 second
quarter. During the 1996 second quarter, the remaining deferred
contract revenues of $14,566 were recorded as earned. Other 1996
revenues consisted of interest income of $8,941 and interferon
sales of $4,805.
During the 1995 quarter, research and development expenses were
$212,185 as compared to $120,236 during the 1996 quarter. The
decrease of $91,949 in 1996 was the result of certain clinical
studies being completed in 1995.
During 1995 and 1996, the Company incurred general and
administrative expenses of $355,531 and $96,898, respectively. The
1995 second quarter expenses were $258,633 more than the 1996
second quarter due primarily to litigation expense of $156,891 paid
in 1995 and public offering expenses of $73,611 expensed in the
first quarter of 1996. This $73,611 along with additional offering
expenses accrued in the second quarter of 1996 was recorded as a
deferred charge in the second quarter of 1996.
7
<PAGE> 8
Six Months Ended June 30, 1996 Compared to Six Months Ended June
30, 1995
During the six months ended June 30, 1996, the Company had total
revenues of $444,040 compared to total revenues of $1,127,212
during the six months ended June 30, 1995. Revenues for 1996
consisted of interest income of $20,095 and deferred contract
revenues recognized in the amount of $417,013 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 cost 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 $509,013 were
recorded as earned based on research and development and
administrative costs incurred. Other 1995 revenues consisted of
interest income of $68,199.
During 1996, research and development expenses were $254,445 as
compared to $460,163 during 1995. The decrease of $205,718 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 $335,610 and $799,556, respectively.
The 1995 general and administrative expenses exceeded 1996 by
$463,946 due primarily to litigation expense in 1995 of $260,628
and approximately $109,000 more in salary costs for 1995 as more
personnel were employed.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had cash of $1,237,369 with accounts
payable of $65,555 and other funding commitments for clinical
studies of approximately $36,000.
The Company borrowed from Hayashibara Biochemical Laboratories,
Inc. (HBL) an additional $500,000 in May 1996 and $500,000 in June
1996. Such additional loans bear interest at the rate of 4% per
annum and were paid in full simultaneously with the consummation of
the Company's initial public offering on August 13, 1996.
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 the Primary Development Projects),
that the net proceeds of the initial public offering (approximately
$9,380,000) together with the Company's existing capital resources,
will be sufficient to satisfy the Company's estimated cash
requirements for at least 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 an
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 (including HBL) 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
<PAGE> 10
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 June 30,
1996.
10
<PAGE> 11
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: September , 1996 By:
----- -----------------------------------
Joseph M. Cummins
President and
Chief Executive Officer
Date: September , 1996 By:
----- -----------------------------------
Charles H. Hughes
Financial Vice President and
Chief Financial Officer
(Chief Accounting Officer)
11
<PAGE> 12
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 THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 AND THE CONSOLIDATED STATEMENT OF
OPERATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF FORM SB-2 FILED EFFECTIVE
ON AUGUST 7, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,237,369
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,253,004
<PP&E> 219,352
<DEPRECIATION> 108,192
<TOTAL-ASSETS> 2,195,913
<CURRENT-LIABILITIES> 735,492
<BONDS> 3,000,000
<COMMON> 3,594,078
0
0
<OTHER-SE> (5,133,657)
<TOTAL-LIABILITY-AND-EQUITY> 2,195,913
<SALES> 6,805
<TOTAL-REVENUES> 444,040
<CGS> 0
<TOTAL-COSTS> 590,055
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,667
<INCOME-PRETAX> (207,682)
<INCOME-TAX> 0
<INCOME-CONTINUING> (207,682)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (207,682)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
