<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, 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.
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(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 June 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.
--------
<S> <C> <C>
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - December 31, 1997 and
June 30, 1998............................................................... 3
Consolidated Statements of Operations - Three Months and
Six Months Ended June 30, 1997 and 1998 and Cumulative
from June 25, 1984 (Inception) through June 30, 1998........................ 4
Condensed Consolidated Statements of Cash Flows - Six
Months Ended June 30, 1997 and 1998 and Cumulative
from June 25, 1984 (Inception) through June 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>
2
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AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
----------------- -----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 879,170 $ 438,315
Marketable securities 6,007,182 5,441,261
Other current assets 70,779 18,794
----------------- -----------------
Total current assets 6,957,131 5,898,370
Property and equipment, net 125,179 125,685
Patent license, net of accumulated amortization of $73,824 and
$77,470 at December 31, 1997 and June 30, 1998, respectively 51,176 47,530
Organization cost, net of accumulated amortization of $4,962 and
$6,084 at December 31, 1997 and June 30, 1998, respectively 1,122 --
Investment in ISI common stock 114,023 15,172
----------------- -----------------
Total assets $ 7,248,631 $ 6,086,757
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 74,754 $ 152,815
Accrued interest expense 91,356 149,856
Other accrued expenses 47,958 18,801
----------------- -----------------
Total current liabilities 214,068 321,472
Notes payable to related party 2,600,000 2,600,000
----------------- -----------------
Total liabilities 2,814,068 2,921,472
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) (10,215,842)
Other comprehensive income (loss) 33,698 (65,153)
----------------- -----------------
Total stockholders' equity 4,434,563 3,165,285
----------------- -----------------
Total liabilities and stockholders' equity $ 7,248,631 $ 6,086,757
================= =================
</TABLE>
See accompanying notes.
3
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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 Six months ended (Inception)
June 30, June 30, through
-------------------- ------------------ June 30,
1997 1998 1997 1998 1998
------------------------------------- -------------------------------------- ------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Contract revenues $ - $ - $ - $ - $ 9,000,000
Interferon sales -- -- -- -- 420,974
Interest income 120,602 77,664 221,670 167,475 1,285,293
Sublicense fees -- -- -- -- 113,334
Royalty income -- -- -- -- 31,544
Gain on sale of ISI stock -- -- -- -- 188,562
Other -- -- 26,000 -- 604,371
------------------ ----------------- ------------------ ------------------ ------------------
$ 120,602 $ 77,664 $ 247,670 $ 167,475 $ 11,644,078
Expenses:
Research and
development expenses 327,702 351,894 705,438 720,411 10,700,005
Selling, general, and
administrative expenses 323,154 260,312 586,886 558,991 10,366,471
Interest expense 29,625 29,250 59,250 58,500 758,444
------------------ ----------------- ------------------ ------------------ ------------------
$ 680,481 $ 641,456 $ 1,351,574 $ 1,337,902 $ 21,824,920
------------------ ----------------- ------------------ ------------------ ------------------
Loss before income taxes (559,879) (563,792) (1,103,904) (1,170,427) (10,180,842)
Income tax expense -- -- -- -- 35,000
------------------ ----------------- ------------------ ------------------ ------------------
Net loss $ (559,879) $ (563,792) $ (1,103,904) $ (1,170,427) $ (10,145,842)
================== ================= ================== ================== ==================
Net loss per share $ (0.10) $ (0.10) $ (0.20) $ (0.22)
================== ================= ================== ==================
Weighted average shares
outstanding 5,414,232 5,414,232 5,414,232 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
(unaudited)
<TABLE>
<CAPTION>
Six months ended Cumulative from
June 30, June 25,1984
-------------------------------------------- (Inception) through
1997 1998 June 30, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net cash used in operating activities $ (1,263,323) $ (997,211) $ (9,069,092)
------------------ ------------------ ------------------
Net cash provided by (used in) investing
activities (2,945) 556,356 (5,969,612)
------------------ ------------------ ------------------
Net cash provided by financing
activities -- -- 15,477,019
------------------ ------------------ ------------------
Net decrease in cash and cash
equivalents (1,266,268) (440,855) 438,315
------------------ ------------------ ------------------
Cash and cash equivalents at beginning
of period 2,799,297 879,170 --
------------------ ------------------ ------------------
Cash and cash equivalents at end of
period $ 1,533,029 $ 438,315 $ 438,315
================== ================== ==================
Supplemental Disclosure of Cash Flow
Information
Cash paid for income taxes $ -- $ -- $ 37,084
================== ================== ==================
$ -- $ -- $ 6,466
Cash paid for interest
</TABLE>
See accompanying notes.
5
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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 six months ended June 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. Certain amounts have been reclassified from selling,
general and administrative expenses to research and development
expenses for the six months ended June 30, 1997. The impact of the
reclassification was $119,411.
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 were 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 June 30, 1998 and 1997, total comprehensive
loss amounted to ($642,136) and ($398,379). For the six months ended
June 30, 1998 and 1997, total comprehensive loss amounted to
($1,269,273) and ($950,404).
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ITEM 2. UPDATE TO MANAGEMENT'S 1998 PLAN OF OPERATION
RESEARCH
A confirmatory Phase 2 clinical trial was started in subjects
with fibromyalgia syndrome (FMS). A market analysis estimated
that 7.5 million Americans suffer from FMS. Our confirmatory
Phase 2 trial in 180 subjects represents a significant step in
the Company's strategy to develop an 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) and HIV positive with dry mouth (University of
Mississippi) and our study in myelofibrotic disease subjects
are continuing and moving toward completion, probably in the
third quarter of 1998. The start of the Phase 3 clinical trial
on Sjogren's syndrome was delayed while the FDA reviewed our
Phase 2 data. Suggestions from the FDA will guide us as we
seek to initiate the Sjogren's syndrome study in the third
quarter of 1998. Progress in understanding the basic mechanism
of action of oral interferon alpha continued in the second
quarter of 1998. A study of topical interferon alpha in dogs
and cats continued in the second quarter of 1998.
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash of $438,315 and
marketable securities of $5,441,261 with accounts payable of
$152,815 and other funding commitments for clinical studies of
approximately $659,000.
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.
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 18-21
months. 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 and marketable
securities as of June 30, 1998 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.
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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
June 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: August 13, 1998 By:/s/ JOSEPH M. CUMMINS
----------------------------------
Joseph M. Cummins
President, Chief Executive Officer
and Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN THIS FORM 10QSB
FOR PERIOD ENDED JUNE 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 438,315
<SECURITIES> 5,441,261
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,898,370
<PP&E> 243,728
<DEPRECIATION> 118,043
<TOTAL-ASSETS> 6,086,757
<CURRENT-LIABILITIES> 321,472
<BONDS> 2,600,000
0
0
<COMMON> 54,142
<OTHER-SE> 3,111,143
<TOTAL-LIABILITY-AND-EQUITY> 6,086,757
<SALES> 0
<TOTAL-REVENUES> 167,475
<CGS> 0
<TOTAL-COSTS> 720,412
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,500
<INCOME-PRETAX> (1,170,428)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,170,428)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,170,428)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
