10QSB 1 d81780e10qsb.txt FORM 10QSB FOR QUARTER ENDING SEPTEMBER 30, 2000 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, 2000 ---------------------------------------- [ ] 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 ------------------------------ --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 800 West Ninth, Amarillo, TX 79101 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 806-376-1741 FAX 806-376-9301 -------------------------------------------------------------------------------- (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, 2000 there were 7,807,357 shares of the issuer's common stock outstanding. 2 AMARILLO BIOSCIENCES, INC. INDEX
PART I: FINANCIAL INFORMATION PAGE NO. -------- ITEM 1. Financial Statements Consolidated Balance Sheets - December 31, 1999 and September 30, 2000.......................................................... 3 Consolidated Statements of Operations - Three Months and Nine Months Ended September 30, 1999 and 2000 and Cumulative from June 25, 1984 (Inception) through September 30, 2000.......................................................... 4 Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1999 and 2000 and Cumulative from June 25, 1984 (Inception) through September 30, 2000................... 5 Notes to Consolidated Financial Statements.................................. 6 ITEM 2. Management's Plan of Operations............................................. 7 PART II: OTHER INFORMATION ITEM 5. Other Information........................................................... 9 ITEM 6. Exhibits and Reports on Form 8-K............................................ 10 Signatures ............................................................................ 11
2 3 AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES (COMPANIES IN THE DEVELOPMENT STAGE) CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30, 1999 2000 --------------- --------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 1,302,343 $ 655,445 Inventory 48,639 48,639 Other current assets 32,137 45,698 --------------- --------------- Total current assets 1,383,119 749,782 Property and equipment, net 105,799 96,394 Patents, net of accumulated amortization of $89,806 and $101,395 at December 31, 1999 and September 30, 2000 (unaudited), respectively 73,495 86,192 --------------- --------------- Total assets $ 1,562,413 $ 932,368 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable $ 521,199 $ 778,636 Accrued interest 3,526 63,666 Other accrued expenses 82,198 19,000 --------------- --------------- Total current liabilities 609,923 861,302 Notes payable to related party 1,000,000 2,000,000 --------------- --------------- Total liabilities 1,609,923 2,861,302 STOCKHOLDERS' EQUITY (DEFICIENCY): 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 at September 30, 2000 and 74,722 78,074 7,472,157 at December 31, 1999 Additional paid-in capital 17,374,570 18,361,856 Deficit accumulated during the development stage (17,496,802) (20,368,864) --------------- --------------- Total stockholders' equity (deficiency) (47,510) (1,928,934) --------------- --------------- Total liabilities and stockholders' equity (deficiency) $ 1,562,413 $ 932,368 =============== ===============
See accompanying notes. 3 4 AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES (COMPANIES IN THE DEVELOPMENT STAGE) CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Cumulative from June 25, 1984 Three months ended Nine months ended (Inception) September 30, September 30, through ------------------ ---------------- September 30, 1999 2000 1999 2000 2000 ------------------ ----------------- ------------------ ------------------ ------------------ Revenues: Contract revenues $ - $ - $ - $ - $ 9,000,000 Interferon sales - - - - 420,974 Interest income 19,492 12,123 96,130 41,512 1,567,517 Sublicense fees - - - - 113,334 Royalty income - - - - 31,544 Gain on sale of ISI stock - - - 5,209 113,446 Other - 125 - 1,655 608,486 ------------------ ----------------- ------------------ ------------------ ------------------ 19,492 12,248 96,130 48,376 11,855,301 Expenses: Research and development expenses 1,299,344 142,684 3,536,743 2,015,895 18,100,704 Selling, general, and administrative expenses 267,807 216,497 1,007,226 844,403 13,173,195 Interest expense 3,637 22,685 32,807 60,140 915,266 ------------------ ----------------- ------------------ ------------------ ------------------ 1,570,788 381,866 4,576,776 2,920,438 32,189,165 ------------------ ----------------- ------------------ ------------------ ------------------ Loss before income taxes (1,551,296) (369,618) (4,480,646) (2,872,062) (20,333,864) Income tax expense - - - - 35,000 ------------------ ----------------- ------------------ ------------------ ------------------ Net loss $ (1,551,296) $ (369,618) $ (4,480,646) $ (2,872,062) $ (20,368,864) ================== ================= ================== ================== ================== Basic and diluted loss per share $ (0.24) $ (0.05) $ (0.74) $ (0.37) ================== ================= ================== ================== Weighted average shares outstanding 6,360,326 7,807,357 6,044,961 7,684,104 ================== ================= ================== ==================
See accompanying notes. 4 5 AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES (COMPANIES IN THE DEVELOPMENT STAGE) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine months ended Cumulative from September 30, June 25,1984 ------------------------------------------- (Inception) through 1999 2000 September 30, 2000 -------------------- -------------------- -------------------- Net cash used in operating activities $ (4,000,538) $ (2,456,824) $ (18,300,226) Net cash provided by (used in) investing activities (6,130) 3,126 (571,160) Net cash provided by financing activities 1,000,000 1,806,800 19,526,831 -------------------- -------------------- -------------------- Net increase (decrease) in cash and cash equivalents (3,006,668) (646,898) 655,445 Cash and cash equivalents at beginning of period 4,776,328 1,302,343 -- -------------------- -------------------- -------------------- Cash and cash equivalents at end of period $ 1,769,660 $ 655,445 $ 655,445 ==================== ==================== ==================== Supplemental Disclosure of Cash Flow Information Cash paid for income taxes $ -- $ -- $ 37,084 ==================== ==================== ==================== Cash paid for interest $ -- $ -- $ 6,466 ==================== ==================== ====================
See accompanying notes. 5 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 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 nine months ended September 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. 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. In response to a request by Joseph Cummins, President and CEO, the Board of Directors resolved during the September 23, 2000 Board meeting that commencing August 31, 2000, the salary of Joseph Cummins (President and CEO) shall be restored in the amount of $6,250.00 per month; there shall be paid to the President and CEO in addition thereto $1,000.00 per month as a non-accountable expense allowance; and that the options receivable by the President and CEO pursuant to the terms of that certain Stock Option Agreement dated December 29, 1999, between the President and the Company shall be reduced, commencing August 31, 2000, from 25,000 options per month to 12,500 options per month, with all other option terms, conditions and provisions to remain unchanged. The Company recorded compensation expense in the amount of $64,746 during the first quarter of 2000, $64,746 during the second quarter of 2000 and $54,346 during the third quarter of 2000 in regard to these options. This amount represents the difference between 6 7 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. 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 $20,368,864 at September 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. As of September 30, 2000, the Company had current assets of $749,782, including cash in the amount of $655,445, which management believes will permit the Company to continue operations through the end of year 2000. The Company will need to raise additional capital in order to implement its plan of operations. As noted in item 5, Hunter Wise Financial Group, LLC has been retained to assist the Company in its fund raising activities. Assuming that these activities are successful the Company will implement the operations plan over the next 12 months which will include the expenditure of the following financial resources. 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 and to initiate nutraceutical sales. 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 Public Relations, Investor Relations and Shareholder Relations. 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 including sales of its nutraceutical product, 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 budgeted to $1.7 million to be spent on research and development during the next 12 months, inclusive of amounts to be expended on the Company's clinical trial programs in Sjogren's syndrome; Behcet's disease; and hepatitis C. PERSONNEL: In addition to its intellectual property, the Company's principal assets are its personnel. To implement its plan of operations, Amarillo Biosciences plans to increase the number of personnel during calendar year 2001. Planned personnel additions are in the clinical group and include hiring a full-time Chief Financial Officer. The Company has budgeted approximately $1.2 million for personnel expenses during the next 12 months, including salaries, payroll taxes, directors' and officers' general liability insurance, group health and liability insurance. 7 8 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 $250,000 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 has budgeted approximately $45,000 for accounting charges during the next 12 months. 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. PUBLIC RELATIONS, INVESTOR RELATIONS AND SHAREHOLDER RELATIONS: The Company has budgeted approximately $50,000 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 $3.7 million during the next 12 months. As of September 30, 2000 the Company had available cash of $655,445. The Company has sufficient cash to continue operations only through December 31, 2000. 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. 8 9 PART II - OTHER INFORMATION ITEM 5. OTHER INFORMATION INVESTMENT BANKER RELATIONSHIPS: On July 25, 2000 the Company and First Security Van Kasper (FSVK) executed an agreement whereby FSVK would serve as financial advisor to the Company relating to partner agreements including possible merger and the sale of assets activities. This agreement was mutually terminated by the Company and FSVK on September 26, 2000. On September 28, 2000 the Company and Hunter Wise Financial Group, LLC executed an agreement whereby Hunter Wise will provide advisory services to the Company in the areas of corporate development, corporate finance and capital placement transactions. BOARD OF DIRECTORS: Richard A. Franco submitted his resignation from the Board of Directors effective October 1, 2000. 9 10 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, 2000. 10 11 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 10, 2000 By: /s/ JOSEPH M. CUMMINS ------------------------------------- Joseph M. Cummins President, Chief Executive Officer and Chief Financial Officer 12 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------ ----------- 27 Financial Data Schedule