<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, 1997
----------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-20791
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
- -------------------------------------------------------------------------------
(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 July 17, 1997, there were 5,414,232 shares of the issuer's common stock
outstanding.
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, 1996 and June
30, 1997.............................................................. 3
Consolidated Statements of Operations - Three Months and
Six Months Ended June 30, 1996 and 1997 and Cumulative
from June 25, 1984 (Inception) through June 30, 1997.................. 4
Condensed Consolidated Statements of Cash Flows - Six
Months Ended June 30, 1996 and 1997 and Cumulative
from June 25, 1984 (Inception) through June 30, 1997.................. 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
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AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,799,297 $ 1,533,029
Marketable securities 5,984,370 5,984,370
Prepaid expenses 107,535 56,926
Other current assets -- 173,849
------------- -------------
Total current assets 8,891,202 7,748,174
Property and equipment, net 144,507 136,691
Patent license, net of accumulated amortization of $66,471 and
$70,117 at December 31, 1996 and June 30, 1997, respectively 58,529 54,883
Organization costs, net of accumulated amortization of $4,667 and
$4,799 at December 31, 1996 and June 30, 1997, respectively 330 198
Investment in ISI common stock 471,500 625,000
------------- -------------
Total assets $ 9,566,068 $ 8,564,946
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 138,298 $ 74,801
Accrued interest expense 273,296 332,546
Other accrued expenses 65,357 18,886
------------- -------------
Total current liabilities 476,951 426,233
Notes payable to related party 2,300,000 2,300,000
------------- -------------
Total liabilities 2,776,951 2,726,233
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value:
Authorized shares - 10,000,000
Issued shares - 5,414,232 54,142 54,142
Additional paid-in capital 13,312,638 13,312,638
Deficit accumulated during the development stage (6,574,163) (7,678,067)
Unrealized gain (loss) on marketable securities (3,500) 150,000
------------- -------------
Total stockholders' equity 6,789,117 5,838,713
------------- -------------
Total liabilities and stockholders' equity $ 9,566,068 $ 8,564,946
============= =============
</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 Six months ended (Inception)
June 30, June 30, through
------------------ ---------------- June 30,
1996 1997 1996 1997 1997
--------------------------------------- ----------------------------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Contract revenues $ 14,566 $ -- $ 417,140 $ -- $ 9,000,000
Interferon sales 4,805 -- 6,805 -- 420,578
Interest income 8,941 120,602 20,095 221,670 927,788
Sublicense fees -- -- -- -- 113,334
Royalty income -- -- -- -- 31,544
Other -- -- -- 26,000 578,371
------------------ ------------------ ---------------- ----------------- -----------------
28,312 120,602 444,040 247,670 11,071,615
Expenses:
Research and
development expenses 120,236 327,702 254,445 586,027 7,681,257
Selling, general, and
administrative expenses 96,898 294,154 335,610 706,297 10,392,291
Interest expense 31,667 29,625 61,667 59,250 641,134
------------------ ------------------ ---------------- ----------------- -----------------
248,801 680 651,722 1,351,574 18,714,682
------------------ ------------------ ---------------- ----------------- -----------------
Loss before Income taxes (220,489) (559,879) (207,682) (1,103,904) (7,643,067)
Income tax expense -- -- -- -- 35,000
------------------ ------------------ ---------------- ----------------- -----------------
Net loss $ (220,489) $ (559,879) $ (207,682) $ (1,103,904) $ (7,678,067)
================== ================== ================ ================= =================
Net loss per share $ (0.07) $ (0.10) $ (0.07) $ (0.20)
================== ================== ================ =================
Weighted average shares
outstanding 3,035,232 5,414,232 3,035,232 5,414,232
================== ================== ================ =================
</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>
Six months ended Cumulative from
June 30, June 25,1984
-------------------------- (Inception) through
1996 1997 June 30, 1997
----------- ----------- --------------
<S> <C> <C> <C>
Net cash used in operating activities $ (868,691) $(1,263,323) $ (6,620,951)
----------- ----------- ------------
Net cash used in investing activities (2,467) (2,945) (7,023,039)
----------- ----------- ------------
Net cash provided by financing
activities 1,000,000 -- 15,177,019
----------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents 128,842 (1,266,268) 1,533,029
----------- ----------- ------------
Cash and cash equivalents at beginning
of period 1,108,527 2,799,297 --
----------- ----------- ------------
Cash and cash equivalents at end of
period $ 1,237,369 $ 1,533,029 $ 1,533,029
=========== =========== ============
Supplemental Disclosure of Cash Flow
Information
Cash paid for income taxes $ -- $ -- $ 37,084
=========== =========== ============
Cash paid for interest $ -- $ -- $ 6,466
=========== =========== ============
</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 10-KSB, are
unaudited (except for the December 31, 1996 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 three months and six months ended June 30, 1997
are not necessarily indicative of the results that may be expected for the
full year ending December 31, 1997.
2. Loss per share. Loss per share is computed based on the weighted average
number of common shares outstanding.
During March 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share". This statement currently has no
effect on the computation of loss per share as the Company is in a net
loss position and the potential dilutive effect of common stock
equivalents is not considered in the computation.
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 its 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 June 30, 1996 Compared to Three Months Ended June
30, 1997.
During the three months ended June 30, 1996, the Company had total
revenues of $28,312 compared to total revenues of $120,602 during the
three months ended June 30, 1997. 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. The 1997 second quarter revenues consisted
solely of interest income.
During the 1996 quarter, research and development expenses were
$120,236 as compared to $327,702 during the 1997 quarter. The increase
of $207,466 in 1997 was the result of certain clinical studies being
started in 1997.
During 1996 and 1997, the Company incurred general and administrative
expenses of $96,898 and $294,154, respectively. The 1997 second quarter
expenses were $197,256 more than the 1996 second quarter due primarily
to an overall increase in the Company's activities and the additional
cost associated with the Company being a publicly-held company in 1997.
The major increases were experienced in the following expense items --
consultants $72,754 over 1996, travel $32,225 over 1996, general
insurance $15,088 over 1996, public and investor relations $25,035 over
1996, legal $33,087 over 1996, and clinical supplies $21,465 over 1996.
7
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Six Months Ended June 30, 1996 Compared to Six Months Ended June 30,
1997
During the six months ended June 30, 1996, the Company had total
revenues of $444,040 compared to total revenues of $247,670 during the
six months ended June 30, 1997. Revenues for 1996 consisted of interest
income of $20,095 and deferred contract revenues recognized in the
amount of $417,140 based on research and development and administrative
costs incurred. Revenues for 1997 consisted of interest income of
$221,670 and other income of $26,000.
During 1996, research and development expenses were $254,445 as
compared to $586,027 during 1997. The increase of $331,582 in 1997 was
the result of certain clinical studies being started in 1997.
During 1996 and 1997, the Company incurred general and administrative
expenses of $335,610 and $706,297, respectively. The 1997 general and
administrative expenses exceeded 1996 by $370,687 due primarily to an
increase in the Company's activities and the additional costs
associated with the Company being a publicly-held company in 1997. The
major increases were experienced in the following expense items --
consultants $105,704 higher than 1996, conferences & meetings $42,915
higher than 1996, travel $29,543 higher than 1996, general insurance
$33,198 higher than 1996, public and investor relations $72,260 higher
than 1996, legal $59,068 higher than 1996, and clinical supplies
$21,465 over 1996.
8
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash of $1,533,029 and marketable
securities of $5,984,370 with accounts payable of $74,801 and other
funding commitments for clinical studies of approximately $1.7 million.
The Company intends to focus its development activities on the
treatment of Sjogrens syndrome, oral mucositis in cancer patients,
hepatitis B and C and the common cold ("Primary Development Projects").
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 Company's
existing capital resources will be sufficient to satisfy the Company's
estimated cash requirements for at least the next 21 months. 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
stockholders 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 remaining net proceeds of the Company's recent 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 5. OTHER INFORMATION
The Company announced on July 14, 1997 that it has engaged PPD Pharmaco, a
leading clinical research organization, to conduct Amarillo Biosciences' Phase
III clinical trial testing low dose oral interferon alpha in patients
experiencing dry mouth due to Sjogren's syndrome. Under the terms of the
agreement, PPD Pharmaco will manage the trial and assist the Company in
preparing a development plan including a Food and Drug Administration approval
application. The trial is anticipated to begin in early 1998.
PPD Pharmaco is a wholly-owned subsidiary of Pharmaceutical Product
Development, Inc. of Wilmington, N.C. Tom D'Alonzo, a director of the Company
since March 1997, is the President and COO of Pharmaceutical Product
Development, Inc.
In April 1996, the National Institutes of Health ("NIH") announced that it
would be conducting a clinical trial of the use of low dose oral IFN alpha
therapy for the treatment of AIDS-related symptoms. The study was to enroll 560
AIDS patients and test three different forms of IFN alpha, including the form
produced by Hayashibara Biochemical Laboratories as well as forms produced by
two licensees of the Company. On June 12, 1997, the NIH announced that the
clinical trial of three preparations of Low-Dose Oral Alpha Interferon in
HIV-Infected Patients was to be closed. The Division of AIDS (DAIDS) determined
that the clinical trial would not reach a successful conclusion due to poor
accrual, missing data, and high drop-out rate. The protocol called for
completion of accrual within one year of its opening in April 1996. Only 263 of
the proposed 560 patients had been accrued and greater than 20% of those
patients dropped out of the study before completing the required study visits
or had not been seen for at least three of the six sequential monthly visits.
The extent of any further development work, for the treatment of AIDS-related
symptoms, to be undertaken by the Company has not been determined at this time.
The clinical study of IFN as it relates to AIDS, has not been a Primary
Development Project of the Company (See Liquidity and Capital Resources).
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,
1997.
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: July 30, 1997 By: /s/ JOSEPH M. CUMMINS
-------------------------------------
Joseph M. Cummins
President and
Chief Executive Officer
Date: July 30, 1997 By: /s/ CHARLES H. HUGHES
-------------------------------------
Charles H. Hughes
Executive Vice President and
Chief Financial Officer
(Chief Accounting Officer)
11
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTIONS
- ----------- ------------
<S> <C>
24 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 JUNE 30, 1997 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS INCLUDED IN ITS FORM
10-QSB FOR THE PERIOD ENDED JUNE 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,533,029
<SECURITIES> 5,984,370
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,748,174
<PP&E> 268,025
<DEPRECIATION> 131,334
<TOTAL-ASSETS> 8,564,946
<CURRENT-LIABILITIES> 426,233
<BONDS> 2,300,000
0
0
<COMMON> 54,142
<OTHER-SE> 5,784,571
<TOTAL-LIABILITY-AND-EQUITY> 8,564,946
<SALES> 0
<TOTAL-REVENUES> 247,670
<CGS> 0
<TOTAL-COSTS> 586,027
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,250
<INCOME-PRETAX> (1,103,904)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,103,904)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,103,904)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
