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United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/1A
[ 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
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[ ] 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 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.
<S> <C> <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
Year 2000 Disclosure........................................................ 8
Liquidity and Capital Resources............................................. 10
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................ 12
Signatures ............................................................................ 13
</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
------------ ------------
ASSETS
<S> <C> <C>
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
------------------------------ ------------------------------ --------------
<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
------------ ------------ ------------ ------------ ------------
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
------------ ------------ ------------
Cash paid for interest $ -- $ -- $ 6,466
</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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YEAR 2000 DISCLOSURE
I. ABI'S STATE OF READINESS
A. IT SYSTEMS.
ABI owns relatively few information technology ("IT") systems,
consisting of approximately twelve (12) computers. The basic
input/output system ("BIOS") of each computer has been checked
using publicly available utilities designed for that purpose.
With one exception, the BIOS of each computer was found to be
Year 2000 compliant. The non-compliant computer was brought
into compliance with software, and in a subsequent test,
proved to be Year 2000 compliant.
The software used on the computers owned by ABI is all
commercially available, off-the-shelf software; ABI does not
own any custom-made software. The Year 2000 compliance of each
of the programs has been verified with the vendors of those
programs, and all software used by the Company is either Year
2000 compliant or compliant with minor issues.
B. NON-IT SYSTEMS.
The Company does not own any machines (other than the
computers mentioned above) that contain microprocessors or
microcontrollers. Therefore, the Company does not need to
assess or plan for Year 2000 issues pertaining to non-IT
systems.
C. THIRD PARTIES.
The Company is investigating the Year 2000 preparedness of
those third parties with which it has a material relationship.
As the principal business of the Company is testing the
effectiveness of new drugs, the Company sees two categories of
third-party Year 2000 issues.
First, the Company is investigating those third parties who
are essential in the production, packaging, and delivery of
the test drugs ("clinical supplies") to the clinical trial
sites. If any steps along the chain of production of the drugs
were interrupted by a Year 2000 issue, then the supply of the
clinical supplies to the clinical trial sites could be
interrupted. This would delay the clinical trials, and
consequently delay ultimate FDA approval for the drugs. The
Company is in the process of investigating the Year 2000
preparedness of each of the companies that plays a key role in
the production, packaging, and distribution of the drug.
Second, the Company is taking steps to insure that clinical
trial data is not lost due to a Year 2000 issue. This requires
an investigation of the company that is managing the clinical
trial, as well as the procedures used at the various clinical
trial sites, and the process by which the clinical data is
stored and transmitted back to the Company. We have already
had initial contact with PPD Pharmaco, the
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clinical trial manager, and they assure us that they expect
full Year 2000 compliance by the end of the first quarter of
1999.
The Company has employed a consultant, Mr. James Corti, who is
responsible for assessing the Year 2000 preparedness of those
third parties with which the Company has a material
relationship. While the responsiveness of those third parties
to our inquires is beyond the Company's control, we estimate
that Mr. Corti will conclude his Year 2000 assessment by the
end of April, 1999.
II. COSTS TO ADDRESS YEAR 2000 ISSUES
The Company has not yet encountered any actual Year 2000 problems,
except for one computer BIOS referred to in Paragraph I A above, which
was corrected with publicly available shareware at no cost to the
Company. The Company therefore has not spent any money on remediation.
All of the costs incurred to date have been related to the
investigation of potential Year 2000 issues. All of the Year 2000
related costs should be incurred before the end of April, 1999. We
anticipate that these costs will not exceed $10,000.00.
III. THE RISK OF THE COMPANY'S YEAR 2000 ISSUES
There are two ways in which the Company would be adversely affected by
a worst-case Year 2000 scenario.
First, Year 2000 problems could interrupt the supply of clinical
supplies to clinical testing sites. If clinical supplies became
corrupted and had to be replace, or if the supplies otherwise became
temporarily unavailable, this would cause a 3-6 month delay in the
clinical trial. Such a delay would delay the ultimate profits to the
Company from sales of the drug by the same amount of time.
Second, a Year 2000 problem could result in damage to the clinical
trial data. Because the data is originally entered on hardcopy, that
is, actual pieces of paper, and because that hardcopy data is not
destroyed, clinical trial data can never by completely lost due to a
Year 2000 problem. At most, the computer data could be lost due to a
Year 2000 problem, and the Company would incur additional expense and
delay to have the data re-entered from the original hardcopies. The
same is true for the study codes that reveal which trial subjects used
placebo: if a code were lost due to a computer error, then the clinical
trial data could be reconstructed from the hardcopies of the code kept
at the Company.
IV. CONTINGENCY PLANS
A. DRUG SUPPLY. The Company has only one supplier for the drug
itself, but does have a second source for the processing and
packaging of the drug into a usable clinical trial form. The
Company plans to establish a stockpile of each drug before
beginning clinical trials. This will provide a buffer against
any possible interruption of supply due to a Year 2000
problem. But stockpiling alone is not enough to guarantee a
supply of the drug during the clinical trials. In order to
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afford the greatest amount of stability, clinical study
supplies are refrigerated. Conceivably, a Year 2000 problem
could cause the failure of the refrigeration system and ruin
the supply of the drug. Central storage of clinical supplies
will be temporary only, pending distribution to study sites,
and will be at a location with adequate backup systems,
meaning those with the capability to generate electrical power
with fossil fuel fired generators, though the individual
clinical trial sites may not have these precautions. In the
event of loss of trial supplies at one or more trial sites,
the Company will have the capability to replace such supplies,
within certain limits. Specifically, the Company orders 10%
more of all clinical supplies than will be required for
conduct of the study, assays, and other requirements. By way
of example, the Company's Phase 3 Sjogren's Syndrome Trial
will involve 50 separate trial sites. Accordingly, the Company
will have sufficient clinical supplies to replace lost
clinical supplies at five of those trial sites. If the losses
of clinical supplies exceeded that amount, the Company would
then be dependent upon its suppliers to replace such trial
supplies. If such suppliers had also experienced interruptions
in the manufacturing capability, the commencement of the
trials at certain sites could be delayed.
B. DATA INTEGRITY. Clinical trial data and the study codes used
in the study will be stored both in hardcopy form and on
diskette. While the hardcopies should provide the ultimate in
data safety, the diskettes should also be safe from any Year
2000 harm. The diskettes will provide a less expensive way of
restoring lost clinical trial data and study codes in the
event of a Year 2000 problem.
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,
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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: January 26, 1999 By: /s/ JOSEPH M. CUMMINS
-----------------------------------
Joseph M. Cummins
President, Chief Executive Officer
and Chief Financial Officer
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