<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, 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
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(Address of principal executive offices) (Zip Code)
806-376-1741
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(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 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>
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1996 and
September 30, 1997 ......................................... 3
Consolidated Statements of Operations - Three Months and
Nine Months Ended September 30, 1996 and 1997 and
Cumulative from June 25, 1984 (Inception) through
September 30, 1997 ......................................... 4
Condensed Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 1996 and 1997 and
Cumulative from June 25, 1984 (Inception) through
September 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, September 30,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,799,297 $ 786,215
Marketable securities 5,984,370 5,984,370
Prepaid expenses 107,535 108,000
Other current assets -- 272,027
------------ ------------
Total current assets 8,891,202 7,150,612
Property and equipment, net 144,507 122,472
Patent license, net of accumulated amortization of $66,471 and $71,970 at
December 31, 1996 and September 30, 1997, respectively 58,529 53,030
Organization costs, net of accumulated amortization of $4,667 and
$4,799 at December 31, 1996 and September 30, 1997, respectively 330 198
Investment in ISI common stock 471,500 625,000
------------ ------------
Total assets $ 9,566,068 $ 7,951,312
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 138,298 $ 70,872
Accrued interest expense 273,296 362,171
Other accrued expenses 65,357 18,991
------------ ------------
Total current liabilities 476,951 452,034
Notes payable to related party 2,300,000 2,300,000
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Total liabilities 2,776,951 2,752,034
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) (8,317,502)
Unrealized gain (loss) on marketable securities (3,500) 150,000
------------ ------------
Total stockholders' equity 6,789,117 5,199,278
------------ ------------
Total liabilities and stockholders' equity $ 9,566,068 $ 7,951,312
============ ============
</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
(Inception)
Three months ended Nine months ended through
September 30, September 30, September
------------------------ -------------------- 30,
1996 1997 1996 1997 1997
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Contract revenues $ -- $ -- $ 417,140 $ -- $ 9,000,000
Interferon sales -- 402 6,805 402 420,980
Interest income 37,194 101,821 57,289 323,491 1,029,609
Sublicense fees 5,000 -- 5,000 -- 113,334
Royalty income -- -- -- -- 31,544
Other 43,000 26,000 43,000 52,000 604,371
---------------------------------------------------------------------------------------
85,194 128,223 529,234 375,893 11,199,838
Expenses:
Research and
development expenses 168,095 341,015 422,540 927,042 8,022,272
Selling, general, and
administrative expenses 820,430 397,018 1,156,040 1,103,315 10,789,309
Interest expense 34,799 29,625 96,466 88,875 670,759
---------------------------------------------------------------------------------------
1,023,324 767,658 1,675,046 2,119,232 19,482,340
---------------------------------------------------------------------------------------
Loss before income taxes (938,130) (639,435) (1,145,812) (1,743,339) (8,282,502)
Income tax expense -- -- -- -- 35,000
---------------------------------------------------------------------------------------
Net loss $ (938,130) $ (639,435) $ 1,145,812) $(1,743,339) $ (8,317,502)
=======================================================================================
Net loss per share $ (0.22) $ (0.12) $ (0.33) $ (0.32)
====================================================================
Weighted average shares
outstanding 4,255,286 5,414,232 3,444,885 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>
Nine months ended Cumulative from
September 30, June 25,1984
----------------------------- (Inception) through
1996 1997 September 30, 1997
----------- ----------- ------------------
<S> <C> <C> <C>
Net cash used in operating activities $(1,728,305) $(2,019,952) $ (7,377,580)
Net cash provided by (used in)
investing activities (4,926,391) 6,870 (7,013,224)
----------- ----------- ------------
Net cash provided by financing
activities 9,772,702 -- 15,177,019
----------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents 3,118,006 (2,013,082) 786,215
----------- ----------- ------------
Cash and cash equivalents at
beginning of period 1,108,527 2,799,297 --
----------- ----------- ------------
Cash and cash equivalents at end of
period $ 4,226,533 $ 786,215 $ 786,215
=========== =========== ============
Supplemental Disclosure of Cash
Flow Information
Cash paid for income taxes $ -- $ -- $ 37,080
=========== =========== ============
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 nine months ended September 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 September 30, 1997 Compared to Three Months Ended
September 30, 1996.
During the three months ended September 30, 1997, the Company had total
revenues of $128,223 compared to total revenues of $85,194 during the
three months ended September 30, 1996. The 1997 third-quarter revenues
consisted of income from interferon sales of $402, interest income of
$101,821, and other income of $26,000. 1996 revenues consisted of
interest income of $37,194, sublicense fees of $5,000, and other income
of $43,000. The significant increase in interest income was due
primarily to the fact that the Company's 1996 initial public offering
was concluded on August 13, 1996, and the proceeds of that offering were
therefore available for investment by the Company during only a portion
of the 1996 third quarter.
During the 1997 third quarter, research and development expenses were
$341,015 as compared to $168,095 during the 1996 quarter. The increase
of $172,920 in 1997 was the result of certain clinical studies being
commenced in 1997.
During 1997 and 1996, the Company incurred selling, general and
administrative expenses of $397,018 and $820,430, respectively. The 1997
third-quarter expenses were $423,412 less than the 1996 third quarter
due primarily to the issuance of common stock to three officers of the
Company in 1996, pursuant to stock grants. The amount of compensation
associated with the stock granted was $630,000 of which $134,453 had
been accrued as of June 30, 1996 leaving a balance of $495,547 to be
expensed in the third quarter of 1996.
7
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Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996.
During the nine months ended September 30, 1997, the Company had total revenues
of $375,893 compared to total revenues of $529,234 during the nine months ended
September 30, 1996. Revenues for 1997 consisted of interferon sales of $402,
interest income of $323,491, and other income of $52,000. Revenues for 1996
consisted of contract revenues of $417,140, interferon sales revenues of $6,805,
interest income of $57,289, sublicense fees of $5,000 and other income of
$43,000. The significant difference in interest income is due to the fact that
proceeds from the Company's 1996 initial public offering were available for
investment by the Company during the entire nine month period for 1997, but were
only available during 1996 after August 13. The difference in contract revenue
income is due to the fact that the Company recognized during 1996 all remaining
revenue amounts under its Joint Development and Manufacturing/Supply Agreement
with Hayashibara Biochemical Laboratories, Inc.
During 1997, research and development expenses were $927,042 as compared to
$422,540 during 1996. The increase of $504,502 in 1997 was the result of certain
clinical studies being commenced in 1997.
During 1997 and 1996, the Company incurred general and administrative expenses
of $1,103,315 and $1,156,040, respectively. Total general and administrative
expenses for 1997 are therefore $52,725 lower than for the same nine months in
1996. However, 1997 expenses overall are higher than for 1996 due to the
substantial increase in research and development expenses, reflecting
expenditure of a portion of the proceeds received by the Company pursuant to its
1996 initial public offering.
Although selling, general and administrative expenses are down by $52,725 from
the corresponding nine month period in 1996, that is only the case because
nonrecurring compensation expense was incurred during 1996, due to the issuance
of common stock pursuant to stock grants. If said nonrecurring compensation
expense in 1996 is disregarded, selling, general and administrative expenses
increased by $442,822 in the first three quarters of 1997, compared to the
corresponding period in 1996. The primary cause of such increase is that the
Company has operated as a public company for all nine months of 1997, compared
to only two months of 1996, resulting in the following increases in the
categories indicated: consultant expenses, $129,144; travel, $51,740; general
insurance, $35,528; legal expense, $77,560; and investor relations, $102,090.
8
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had cash of $786,215 and marketable
securities of $5,984,370 with accounts payable of $70,872 and other funding
commitments for clinical studies of approximately $1,169,863.
The Company intends to focus its development activities on the treatment of
Sjogrens syndrome, oral mucositis in cancer patients, hepatitis B and C,
fibromyalgia, opportunistic infections in HIV patients 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 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, 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: November 12 , 1997 By: /s/ JOSEPH M. CUMMINS
------ -----------------------------------
Joseph M. Cummins
President,
Chief Executive Officer, and
Chief Financial Officer
11
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. 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 SEPTEMBER 30, 1997 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN
ITS FORM 10-QSB FOR THE PERIOD ENDED SEPTEMBER 30, 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 786,215
<SECURITIES> 5,984,370
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,150,612
<PP&E> 251,973
<DEPRECIATION> 129,501
<TOTAL-ASSETS> 7,951,312
<CURRENT-LIABILITIES> 452,034
<BONDS> 2,300,000
0
0
<COMMON> 54,142
<OTHER-SE> 5,145,136
<TOTAL-LIABILITY-AND-EQUITY> 7,951,312
<SALES> 402
<TOTAL-REVENUES> 375,893
<CGS> 0
<TOTAL-COSTS> 927,042
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,875
<INCOME-PRETAX> (1,743,339)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,743,339)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,743,339)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
</TABLE>
