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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, 1998
----------------------------------------
[ ] 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 FAX 806-376-9301
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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 September 30, 1998, there were 5,414,232 shares of the issuer's common
stock outstanding.
This report contains 13 pages.
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AMARILLO BIOSCIENCES, INC.
INDEX
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE NO.
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<S> <C>
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - December 31, 1997 and
September 30, 1998.......................................................... 3
Consolidated Statements of Operations - Three Months and
Nine Months Ended September 30, 1997 and 1998 and
Cumulative from June 25, 1984 (Inception) through
September 30, 1998.......................................................... 4
Condensed Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 1997 and 1998 and Cumulative
from June 25, 1984 (Inception) through September 30, 1998................... 5
Notes to Consolidated Financial Statements.................................. 6
Item 2. Update to Management's 1998 Plan of Operation............................... 7
Liquidity and Capital Resources............................................. 8
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................ 9
Signatures ............................................................................ 10
</TABLE>
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AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------------ ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 879,170 $ 5,335,452
Marketable securities 6,007,182 --
Other current assets 70,779 51,368
------------------ ------------------
Total current assets 6,957,131 5,386,820
Property and equipment, net 125,179 120,621
Patent license, net of accumulated amortization of $73,824 and
$79,323 at December 31, 1997 and September 30, 1998, respectively 51,176 45,677
Organization cost, net of accumulated amortization of $4,962 and
$6,084 at December 31, 1997 and September 30, 1998, respectively 1,122 --
Investment in ISI common stock 114,023 8,203
------------------ ------------------
Total assets $ 7,248,631 $ 5,561,321
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 74,754 $ 143,192
Accrued interest expense 91,356 179,106
Other accrued expenses 47,958 19,061
------------------ ------------------
Total current liabilities 214,068 341,359
Notes payable to related party 2,600,000 2,600,000
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Total liabilities 2,814,068 2,941,359
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 13,392,138 13,392,138
Deficit accumulated during the development stage (9,045,415) (10,754,196)
Other comprehensive income (loss) 33,698 (72,122)
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Total stockholders' equity 4,434,563 2,619,962
------------------ ------------------
Total liabilities and stockholders' equity $ 7,248,631 $ 5,561,321
================== ==================
</TABLE>
See accompanying notes.
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AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Cumulative
from
June 25,
1984
Three months ended Nine months ended (Inception)
September 30, September 30, through
------------------------ ------------------------- September 30,
1997 1998 1997 1998 1998
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<S> <C> <C> <C> <C> <C>
Revenues:
Contract revenues $ -- $ -- $ -- $ -- $ 9,000,000
Interferon sales 402 -- 402 -- 420,974
Interest income 101,821 68,494 323,491 235,969 1,353,787
Sublicense fees -- -- -- -- 113,334
Royalty income -- -- -- -- 31,544
Gain on sale of ISI stock -- -- -- -- 188,562
Other 26,000 -- 52,000 -- 604,371
------------------------------------------------------------------------------------
128,223 68,494 375,893 235,969 11,712,572
Expenses:
Research and
development expenses 341,015 341,998 1,057,350 1,062,409 11,042,003
Selling, general, and
administrative expenses 397,018 235,600 973,007 794,591 10,602,071
Interest expense 29,625 29,250 88,875 87,750 787,694
------------------------------------------------------------------------------------
767,658 606,848 2,119,232 1,944,750 22,431,768
------------------------------------------------------------------------------------
Loss before income taxes (639,435) (538,354) (1,743,339) (1,708,781) (10,719,196)
Income tax expense -- -- -- 35,000
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Net loss $ (639,435) $ (538,354) $ (1,743,339) $ (1,708,781) $(10,754,196)
====================================================================================
Net loss per share $ (0.12) $ (0.10) $ (0.32) $ (0.32)
==================================================================
Weighted average shares
outstanding 5,414,232 5,414,232 5,414,232 5,414,232
==================================================================
</TABLE>
See accompanying notes.
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AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended Cumulative from
September 30, June 25,1984
------------------------------- (Inception) through
1997 1998 Sept. 30, 1998
-------------- ------------- ----------------------
<S> <C> <C> <C>
Net cash used in operating activities $ (2,019,952) $ (1,541,335) $ (9,613,216)
------------ ------------ ------------
Net cash provided by (used in) investing
activities 6,870 5,997,617 (528,351)
------------ ------------ ------------
Net cash provided by financing activities -- -- 15,477,019
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents (2,013,082) 4,456,282 5,335,452
------------ ------------ ------------
Cash and cash equivalents at beginning of
period 2,799,297 879,170 --
------------ ------------ ------------
Cash and cash equivalents at end of
period $ 786,215 $ 5,335,452 $ 5,335,452
============ ============ ============
Supplemental Disclosure of Cash Flow
Information
Cash paid for income taxes $ -- $ -- $ 37,084
============ ============ ============
$ -- $ -- $ 6,466
Cash paid for interest
</TABLE>
See accompanying notes.
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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 for the year ended December 31, 1997, are unaudited (except for
the December 31, 1997 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, 1998 are not
necessarily indicative of the results that may be expected for the full
year ending December 31, 1998.
2. Loss per share. Loss per share is computed based on the weighted
average number of common shares outstanding.
3. Reclassification. For comparison purposes with 1998, certain amounts
have been reclassified from selling, general and administrative
expenses to research and development expenses for the nine months ended
September 30, 1997. The impact of the reclassification was $130,308.
4. Comprehensive income. As of January 1, 1998, the Company adopted
Financial Accounting Standards Board Statement No. 130 (Statement 130),
Reporting Comprehensive Income. Statement 130 establishes new rules for
the reporting and display of comprehensive income and its components;
however, the adoption of this Statement has no impact on the Company's
results of operations or shareholders' equity. Statement 130 requires
unrealized gains or losses on the Company's available-for-sale
securities, which prior to adoption are reported separately in
shareholders' equity, to be included in other comprehensive income.
Prior year financial statements have been reclassified to conform to
the requirements of Statement 130.
For the three months ended September 30, 1998 and 1997, total
comprehensive loss amounted to ($545,323) and ($639,435). For the nine
months ended September 30, 1998 and 1997, total comprehensive loss
amounted to ($1,814,601) and ($1,589,839).
5. Subsequent Event. On November 5, 1998, the Company confirmed by letter
its intention to enter into an agreement with Agritek Bio Ingredients
Corporation ("Agritek"), under which Agritek would expend $250,000 over
the course of one (1) year for clinical studies in at least two (2)
animal health indications. Depending upon Agritek's evaluation of the
results of those studies, Agritek would then make an election to either
purchase seventy percent (70%) of the voting common stock of the
Company's animal health subsidiary, Vanguard Biosciences, Inc.
("Vanguard"); or, in lieu of acquiring the stock of Vanguard, to
receive $250,000 worth of the Company's common stock, priced at its
market value on the date of such election. If Agritek elects to
purchase seventy percent (70%) of Vanguard, the purchase price will be
at least $500,000, and no more than $2,000,000, with the actual price
being contingent upon the speed with which regulatory approval to
market two animal health products in the US is obtained.
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ITEM 2. UPDATE TO MANAGEMENT'S 1998 PLAN OF OPERATION
RESEARCH
A confirmatory Phase 2 clinical trial continues in subjects with
fibromyalgia syndrome (FMS). A market analysis estimated that 7.5
million Americans suffer from FMS. Our confirmatory Phase 2 trial in
120 subjects represents a significant step in the Company's strategy to
develop a FDA approved treatment. As of now, there are no products
approved in the US for FMS; currently patients are treated with pain
relieving drugs and antidepressants which are approved for other
indications.
Our clinical trials in human immunodeficiency virus (HIV) positive
subjects with oral warts (University of California San Francisco)
continues. Our study in subjects who are HIV positive with dry mouth
(University of Mississippi) was completed; some improvement in oral
comfort and increased salivation was noted. Nineteen subjects were
screened and 12 were enrolled; of those, only 5 completed the study but
the data are useful in a patent application.
The study in myelofibrotic disease subjects was completed. Ten subjects
were enrolled with agnogenic myeloid metaplasia and 9 completed the
course of therapy; 0 of 5 evaluable subjects had a response for
hemoglobin improvement, 4 with high hemoglobin maintained their
hemoglobin and 2 of 9 evaluable subjects had at least a partial
response for both hepatomegaly. One of 6 subjects with primary
thrombocytopenia had a positive response and 3 of 7 subjects with
polycythemia vera had at least a partial response. Overall, there were
some positive responses. However, because other areas of research look
more promising, and because the principal investigator died of a heart
attack, the Company does not contemplate further R&D in this area.
The start of the Phase 3 clinical trial on Sjogren's syndrome was
delayed while the FDA considered protocol changes. Progress in
understanding the basic mechanism of action of oral interferon alpha
continued in the third quarter of 1998. A study of topical interferon
alpha in dogs and cats continued in the third quarter of 1998. Our
hepatitis C study in Canada continues.
A new R&D director, Dr. Phil Fox, agreed to a contract and will join
the company January 1, 1999. Dr. Fox has a research career spanning 23
years at the National Institutes of Health, National Institute of
Dental Research in Bethesda, Maryland, serving most recently as
clinical director of the Intramural Research Program.
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had cash of $5,335,452 with accounts
payable of $143,192 and other funding commitments for clinical studies
of approximately $944,449.
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 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 12 months.
The Company intends to continue to focus its development activities on
the treatment of Sjogren's syndrome, fibromyalgia, opportunistic
infections in patients who are HIV positive and hepatitis C, and in
addition, is considering the commencement of research into
myeloproliferative diseases and hepatitis B. Unless the Company
generates significant revenues during such period, the Company will
need additional financing to fully fund such development. Moreover, the
Company's estimate of the amount required to complete its 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 Company's existing cash as of September 30, 1998 otherwise
proves 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.
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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, 1998.
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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 11, 1998 By: /s/ JOSEPH M. CUMMINS
--------------------------------
Joseph M. Cummins
President, Chief Executive
Officer and Chief Financial
Officer
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EXHIBIT INDEX
Exhibit Number Description
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27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN
THIS FORM 10QSB FOR PERIOD ENDED SEPTEMBER 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,335,452
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,386,820
<PP&E> 243,728
<DEPRECIATION> 123,107
<TOTAL-ASSETS> 5,561,321
<CURRENT-LIABILITIES> 341,359
<BONDS> 2,600,000
0
0
<COMMON> 54,142
<OTHER-SE> 2,565,820
<TOTAL-LIABILITY-AND-EQUITY> 5,561,321
<SALES> 0
<TOTAL-REVENUES> 235,969
<CGS> 0
<TOTAL-COSTS> 1,062,409
<OTHER-EXPENSES> 794,591
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,750
<INCOME-PRETAX> (1,708,781)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,708,781)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,708,781)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
</TABLE>
