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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 JUNE 30, 2000
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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 Identification No.)
incorporation or organization)
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, 2000 there were 7,807,357 shares of the issuer's common stock
outstanding.
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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, 1999 and June
30, 2000 .................................................... 3
Consolidated Statements of Operations - Three Months and
Six Months Ended June 30, 1999 and 2000 and Cumulative
from June 25, 1984 (Inception) through June 30, 2000 ........ 4
Condensed Consolidated Statements of Cash Flows - Six
Months Ended June 30, 1999 and 2000 and Cumulative from
June 25, 1984 (Inception) through June 30, 2000 ............. 5
Notes to Consolidated Financial Statements .................. 6
ITEM 2. Management's Plan of Operations ............................. 8
PART II: OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds ................... 10
ITEM 5. Other Information ........................................... 11
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
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,302,343 $ 1,377,180
Inventory 48,639 48,639
Other current assets 32,137 27,812
------------ ------------
Total current assets 1,383,119 1,453,631
Property and equipment, net 105,799 99,552
Patents, net of accumulated amortization of $89,806 and $99,547
at December 31, 1999 and June 30, 2000 (unaudited), respectively 73,495 85,957
------------ ------------
Total assets $ 1,562,413 $ 1,639,140
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 521,199 $ 1,183,026
Accrued interest 3,526 40,981
Other accrued expenses 82,198 28,794
------------ ------------
Total current liabilities 609,923 1,252,802
Notes payable to related party 1,000,000 2,000,000
------------ ------------
Total liabilities 1,609,923 3,252,801
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value:
Authorized shares - 10,000,000
Issued shares - none
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued shares - 7,807,357 74,722 78,074
Additional paid-in capital 17,374,570 18,307,511
Deficit accumulated during the development stage (17,496,802) (19,999,246)
------------ ------------
Total stockholders' equity (47,510) (1,613,661)
------------ ------------
Total liabilities and stockholders' equity $ 1,562,413 $ 1,639,140
============ ============
</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 Six months ended (Inception)
June 30, June 30, through
------------------------------ ------------------------------ June 30,
1999 2000 1999 2000 2000
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Contract revenues $ -- $ -- $ -- $ -- $ 9,000,000
Interferon sales -- -- -- -- 420,974
Interest income 27,951 17,093 76,638 29,389 1,555,394
Sublicense fees -- -- -- -- 113,334
Royalty income -- -- -- -- 31,544
Gain on sale of ISI stock -- -- -- 5,209 113,446
Other -- 1,430 -- 1,530 608,361
------------ ------------ ------------ ------------ ------------
27,951 18,523 76,638 36,128 11,843,053
Expenses:
Research and
development expenses 450,355 931,060 2,131,399 1,873,211 17,958,020
Selling, general, and
administrative expenses 521,090 326,268 845,419 627,906 12,956,698
Interest expense 321 22,439 29,170 37,455 892,581
------------ ------------ ------------ ------------ ------------
971,766 1,279,767 3,005,988 2,538,572 31,807,299
------------ ------------ ------------ ------------ ------------
Loss before income taxes (943,815) (1,261,244) (2,929,350) (2,502,444) (19,964,246)
Income tax expense -- -- -- -- 35,000
------------ ------------ ------------ ------------ ------------
Net loss $ (943,815) $ (1,261,244) $ (2,929,350) $ (2,502,444) $(19,999,246)
============ ============ ============ ============ ============
Basic and diluted loss
per share $ (0.15) $ (0.16) $ (0.50) $ (0.33)
============ ============ ============ ============
Weighted average shares
outstanding 6,349,929 7,771,445 5,884,665 7,621,801
============ ============ ============ ============
</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>
Six months ended Cumulative from
June 30, June 25, 1984
------------------------------ (Inception) through
1999 2000 June 30, 2000
------------ ------------ --------------------
<S> <C> <C> <C>
Net cash used in operating activities $ (2,901,136) $ (1,737,172) $(17,580,574)
Net cash provided by (used in) investing
activities (6,130) 5,209 (569,077)
Net cash provided by financing activities -- 1,806,800 19,526,831
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents (2,907,266) 74,837 1,377,180
Cash and cash equivalents at beginning
of period 4,776,328 1,302,343 --
Cash and cash equivalents at end of
period $ 1,869,062 $ 1,377,180 $ 1,377,180
============ ============ ============
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, 1999 filed with the Securities and Exchange Commission,
are unaudited (except for the December 31, 1999 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, 2000 are not
necessarily indicative of the results that may be expected for the full
year ending December 31, 2000.
2. Loss per share. Loss per share is computed based on the weighted average
number of common shares outstanding.
3. On December 29, 1999 405,932 options were granted to employees of the
Company, including 300,000 granted to Joseph Cummins, President and CEO.
Such options are exercisable at a price of $.875 per share, being the fair
market value of the Company's stock on December 29, 1999, the date of
grant. All of such options granted to employees were granted in
consideration of the employees' agreement to relinquish salary during 2000,
on the basis of two options granted for every $1.00 of salary voluntarily
relinquished, with the amount of such relinquished salary being reflected
in the Option Agreement signed with each employee, such options to vest
monthly beginning in January, 2000, and to expire December 29, 2004.
The Company recorded compensation expense in the amount of $64,746 during
the first quarter of 2000 and $64,746 during the second quarter of 2000 in
regard to these options. This amount represents the difference between the
exercise price and the fair market value of the stock on the date of the
salary reduction commitment by each of the employees, amortized over the 12
month vesting period.
To date, a total of 19,200 options have been exercised by employees, as is
more fully explained in Part II, Item 2.
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On April 15, 2000 the Company completed a private placement. The Company
sold 316,000 unregistered shares of its voting common stock at a price of
$2.50 per share, generating $790,000 in cash. In addition, the investment
package included five year warrants allowing each investor the right to
purchase 20% more stock, or a total of 63,200 more shares than originally
subscribed at a 25% increase in price per share, and an additional 20% more
stock, or a total of 63,200 more shares than that originally subscribed at
a 50% increase in price per share.
Proceeds from the private placement are being used to fund the Phase III
clinical trial in primary Sjogren's syndrome and to fund the general
operating expenses of the Company.
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ITEM 2. MANAGEMENT'S PLAN OF OPERATIONS
Amarillo Biosciences, Inc. is a development stage company which is conducting
research and development activities focused on biologics for the treatment of
human and animal diseases. The Company has not commenced any significant product
commercialization and, until such time as it does, will not generate significant
product revenues. The Company's accumulated deficit has continued to grow, from
$17,496,802 at December 31, 1999 to $19,999,246 at June 30, 2000. Operating
losses are expected to continue for the foreseeable future and until such time
as the Company is able to attain sales levels sufficient to support its
operations.
During the next 12 months the Company will continue its research and development
activities, as well as the activities necessary to develop commercial
partnerships and licenses. The Company's expenditure of financial resources
during this period will fall principally into five broad categories, as follows:
Research and Development; Personnel; Consulting and Professional (other than
legal and accounting); Legal and Accounting; and Liquidity Needs. The Company's
expectations and goals with respect to these categories are addressed separately
below, by category:
RESEARCH AND DEVELOPMENT: Until it achieves commercial product sales, the
Company's business is research and development, and this is the area where the
Company's principal efforts will be expended during the next 12 months. The
Company has reduced its budget to $1.3 million to be spent on research and
development during the next 12 months, inclusive of amounts to be expended on
the Company's Phase III Sjogren's syndrome clinical trials.
PERSONNEL: In addition to its intellectual property, the Company's principal
assets are its personnel. The Company has been successful in controlling its
personnel costs, both by maintaining its principal location in Amarillo, Texas,
and by ensuring maximum efficiency and utilization of existing personnel. The
Company has budgeted approximately $560,000 for personnel expenses during the
next 12 months, including salaries, payroll taxes, directors' and officers'
general liability insurance, group health and liability insurance.
CONSULTING AND PROFESSIONAL (EXCEPT LEGAL AND ACCOUNTING): The Company has
budgeted approximately $90,000 for expenditure on professional consultants in
the next 12 months. Consulting fees are expected to be paid to certain
independent consultants, in connection with the operation of the Company. The
Company will continue to use the services of consultants to complement the
Company's small full-time staff, where such is a more efficient utilization of
the Company's resources.
LEGAL AND ACCOUNTING: Although the Company is not involved in litigation, it has
budgeted legal expenses of approximately $135,000 during the next 12 months.
Almost 20% of the Company's legal expenditures will be for preparation and
filing of patents and for maintenance of existing patents in a number of
countries. Other legal expenses will be related to compliance with laws and
regulations affecting public companies, licensing and contracting, and general
corporate matters. The Company does not presently have an in-house legal staff,
nor does it intend to put such a staff in place within the near term. The
Company expects to continue Ernst & Young as its auditors.
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PUBLIC RELATIONS, INVESTOR RELATIONS AND SHAREHOLDER RELATIONS: The Company has
budgeted approximately $30,000 for public relations, investor relations and
shareholder relations during the next 12 months. The Company has also budgeted
sufficient amounts to maintain its comprehensive web site (www.amarbio.com).
LIQUIDITY NEEDS: The principal budget items discussed above, along with other
miscellaneous costs and expenses, will cause the Company to expend approximately
$2.4 million during the next 12 months including the substantial expense of the
Company's Phase III Sjogren's syndrome clinical trials. At June 30, 2000 the
Company had available cash of $1,377,180. Proceeds from a private placement
which closed in April generated cash in the amount of $790,000.
The Company will need to raise additional funds to continue operations during
the next 12 months. If the Company is not successful in raising additional
funds, it will need to significantly curtail clinical trial expenditures and to
reduce staff and administrative expenses and may be forced to cease operations.
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The Company's common stock was delisted from the Nasdaq SmallCap Stock Market on
October 12, 1999 because the Company did not have sufficient net tangible assets
to meet the applicable Nasdaq maintenance criteria. The Company's common stock
is currently traded on the Over the Counter Bulletin Board.
The Company completed a private placement of its voting common stock in April,
2000, raising an aggregate of $790,000, as follows:
<TABLE>
<CAPTION>
NUMBER OF PRICE PER
DATE SHARES SOLD SHARE
<S> <C> <C>
April 6, 2000 80,000 $2.50
April 7, 2000 86,000 $2.50
April 7, 2000 40,000 $2.50
April 7, 2000 40,000 $2.50
April 9, 2000 40,000 $2.50
April 10, 2000 20,000 $2.50
April 11, 2000 10,000 $2.50
Total 316,000
</TABLE>
There was no principal underwriter for the offering. The offering was limited to
accredited investors within the meaning of Section 4(6) of the Securities Act of
1933 (the "Act"), and within the meaning of Regulation D, promulgated under the
Act. The offering was not registered, in reliance upon the exemptions afforded
by Section 4(6) of the Act, and Rule 506 of Regulation D, promulgated under the
Act, and a notice on Form D was timely filed with the Securities and Exchange
Commission. The total offering price of the securities sold was $790,000, there
were no underwriting discounts, and no commissions were paid.
In addition to the shares purchased, set forth above, the package for each
investor included 5 year warrants granting to the investor the right to purchase
additional shares of stock in the amount of 20% of the shares initially
purchased, at a price of $3.125 per share, and additional shares, in the amount
of 20% of the shares initially purchased, at a price of $3.75 per share.
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ITEM 5. OTHER INFORMATION
CLINICAL TRIAL RESULTS: On April 7, 2000 the Company announced the results from
the first of its double-blinded, placebo-controlled Phase III studies in primary
Sjogren's syndrome. These results demonstrated an improvement in unstimulated
whole saliva (UWS) production in those patients receiving the 150 International
Units of interferon alpha (IFN"). This increase correlated strongly with
subjective improvements in oral dryness, throat dryness and nasal dryness, as
determined by visual analog scale. Measurements of stimulated whole saliva and
subjective oral dryness had been designated the primary end points of the study.
When an intent-to-treat analysis was used to analyze these data, the results
were not significant. Because of the importance of UWS measurement, the Company
plans to focus on this measure in its second, ongoing Phase III study. The
Company intends to revise the primary end point of the study to be the change in
UWS, but will continue to measure all end points.
NATURAL PRODUCTS: In May, 2000 the Company announced that it will enter the
natural product or nutraceutical market place. A nutraceutical is a specially
formulated food product (not a drug) designed to promote long term health and/or
reduce the risk of chronic disease. The Food and Drug Administration (FDA)
regulates the composition and labeling of nutraceutical type products. Vanguard
Biosciences, Inc., a wholly owned subsidiary, will oversee the introduction of
products into this market.
The first product will be a nutritional supplement which has been shown in
clinical trials to alleviate the symptoms of dry mouth. This product will be
sold, using the brand name Salive, for which a trademark application has been
filed.
Two groups have been retained to provide assistance for entrance into the
natural products market place. These include the American Institute for
Biosocial and Medical Research of Puyallup, Washington and Wilke Resources of
Kansas City, Missouri, which was selected as the exclusive North American agent
for Vanguard's natural product business.
PPD DEVELOPMENT, INC.: On July 5, 2000, Veldona USA, Inc. (Veldona), a wholly
owned subsidiary, received notice from PPD Development, Inc. (PPD) that it was
immediately terminating the Master Services Agreement between the companies.
This Agreement delineated the services provided by PPD relating to the Sjogren's
syndrome clinical trial. The Company plans to continue the clinical trial and
will use company employees to perform the work previously conducted by PPD.
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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,
2000.
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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 1, 2000 By: /s/ JOSEPH M. CUMMINS
------------------------------------
Joseph M. Cummins
President, Chief Executive Officer
and Chief Financial Officer
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
