10QSB 1 d87370e10qsb.txt FORM 10QSB FOR QUARTER ENDING MARCH 31, 2001 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 MARCH 31, 2001 ----------------------------------------------- [ ] 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 incorporation or organization) Identification No.) 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 March 31, 2001 there were 7,807,357 shares of the issuer's common stock outstanding. 1 2 AMARILLO BIOSCIENCES, INC. INDEX
PAGE ---- PART I: FINANCIAL INFORMATION Item 1. Financial Statements............................................................ 3 Consolidated Balance Sheets - December 31, 2000 and March 31, 2001.................................................................. 3 Consolidated Statements of Operations - Three Months Ended March 31, 2000 and 2001 and Cumulative from June 25, 1984 (Inception) through March 31, 2001................................ 4 Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2000 and 2001 and Cumulative from June 25, 1984 (Inception) through March 31, 2001........................... 5 Notes to Consolidated Financial Statements...................................... 6 Item 2. Management's Plan of Operations................................................. 6 PART II: OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K................................................ 9 Signatures ................................................................................ 10
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES (COMPANIES IN THE DEVELOPMENT STAGE) CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31, 2000 2001 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 341,983 $ 39,510 Inventory 55,839 48,639 Other current assets 45,500 28,877 ------------- ------------- Total current assets 443,322 117,026 Property and equipment, net 93,236 87,766 Patents, net of accumulated amortization of $101,221 and $103,033 at December 31, 2000 and March 31, 2001, respectively 107,323 105,510 ------------- ------------- Total assets $ 643,881 $ 310,302 ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 957,489 $ 837,278 Accrued interest expense 86,351 108,542 Other accrued expenses 14,724 -- ------------- ------------- Total current liabilities 1,058,564 945,820 Notes payable to related party 2,000,000 2,000,000 ------------- ------------- Total liabilities 3,058,564 2,945,820 STOCKHOLDERS' 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 78,074 78,074 Additional paid-in capital 18,399,449 18,399,449 Deficit accumulated during the development stage (20,892,206) (21,113,041) ------------- ------------- Total stockholders' deficit (2,414,683) (2,635,518) ------------- ------------- Total liabilities and stockholders' deficit $ 643,881 $ 310,302 ============= =============
See accompanying notes. 3 4 AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES (COMPANIES IN THE DEVELOPMENT STAGE) CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Cumulative from March 31, June 25, 1984 ---------------------------------- (Inception) through 2000 2001 March 31, 2001 --------------- --------------- ------------------- Revenues: Contract revenues $ -- $ -- $ 9,000,000 Interferon sales -- -- 420,974 Dietary supplement sales -- 33,600 33,600 Interest income 12,296 1,280 1,574,302 Sublicense fees -- -- 113,334 Royalty income -- -- 31,544 Gain on ISI stock 5,209 -- 113,146 Other 100 (169) 608,492 --------------- --------------- --------------- 17,605 34,711 11,895,392 Expenses: Cost of sales -- 7,200 7,200 Research and development expenses 942,151 114,223 18,475,536 Selling, general, and administrative expenses 301,638 111,931 13,530,555 Interest expense 15,016 22,192 960,142 --------------- --------------- --------------- 1,258,805 255,546 32,973,433 --------------- --------------- --------------- Loss before income taxes (1,241,200) (220,835) (21,078,041) Income tax expense -- -- (35,000) --------------- --------------- --------------- Net loss $ (1,241,200) $ (220,835) $ (21,113,041) =============== =============== =============== Basic and diluted loss per share $ (0.17) $ (0.03) =============== =============== Weighted average shares outstanding 7,472,157 7,807,357 =============== ===============
See accompanying notes. 4 5 AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES (COMPANIES IN THE DEVELOPMENT STAGE) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Cumulative from March 31, June 25, 1984 ---------------------------------- (Inception) through 2000 2001 March 31, 2001 --------------- --------------- --------------- Net cash used in operating activities $ (1,242,369) $ (302,473) $ (18,867,793) --------------- --------------- --------------- Net cash provided by (used in) investing activities 5,209 -- (619,528) --------------- --------------- --------------- Net cash provided by financing activities 1,000,000 -- 19,526,831 --------------- --------------- --------------- Net increase (decrease) in cash and cash equivalents (237,160) (302,473) 39,510 --------------- --------------- --------------- Cash and cash equivalents at beginning of period 1,302,343 341,983 -- --------------- --------------- --------------- Cash and cash equivalents at end of period $ 1,065,183 $ 39,510 $ 39,510 =============== =============== =============== 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, 2000 filed with the Securities and Exchange Commission, are unaudited (except for the December 31, 2000 consolidated balance sheet which was derived from the Company's audited financial statements), but have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States 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 three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2001. 2. Loss per share. Loss per share is computed based on the weighted average number of common shares outstanding. 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 $20,892,206 at December 31, 2000 to $21,113,041 at March 31, 2001. 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 twelve 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 in 2001 will fall principally into seven broad categories, as follows: Research and Development; Personnel; Consulting and Professional (except legal and accounting); Legal and Accounting; Public Relations, Investor Relations, and Shareholder Relations; and Liquidity Needs. The Company's expectations and goals with respect to these categories are addressed separately below, by category: REVENUES FROM SALES OF DIETARY SUPPLEMENT: The Company has received orders for anhydrous crystalline maltose (ACM) from Natrol as dictated by a supply agreement executed in December 6 7 2000. The Company has received copies of the advertising campaign Natrol will be starting in April 2001 and Natrol has identified retailers who will start selling ACM in the second quarter of 2001. The Company expects sales of ACM to generate approximately $211,000 for the Company in the first half of 2001 from the minimum orders. Other supply agreements, currently in negotiation, are expected to provide additional revenue to the Company in 2001. 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 2001. The Company has budgeted approximately $666,783 for expenditure for the balance of the year on research and development, inclusive of amounts to be expended on the Company's Phase III Sjogren's syndrome clinical trials, a pivotal oral warts clinical trial and costs associated with the initiation of a Behcet's disease clinical trial during the first half of 2001. The Company expended $114,223 in the first quarter of 2001 for research and development. 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 $480,000 for personnel expenses during 2001, including salaries, payroll taxes, directors' and officers' general liability insurance, and group life, health, and liability insurance. Also, in lieu of cash compensation, the Company may issue stock options or other equity instruments to selected employees in 2001. The Company expended $124,786 for personnel in the first quarter of 2001. At the present time, the President and CEO of the Company, Joseph M. Cummins, is also serving as the Company's Chief Financial Officer (CFO). CONSULTING AND PROFESSIONAL (EXCEPT LEGAL AND ACCOUNTING): The Company has budgeted approximately $24,000 for expenditure on professional consultants in 2001. Consulting fees are expected to be paid to the Company's scientific advisory board; to certain directors who perform specific consulting tasks at the Company's request; and to a number of 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. The Company expended $4,718 in the first quarter of 2001 for consulting and professional fees. LEGAL AND ACCOUNTING: Although the Company is not involved in litigation, it has budgeted legal expenses of approximately $120,000 during 2001. 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 during the next 12 months. The Company has budgeted $40,000 for accounting expenses for 2001, and expects to continue with Ernst & Young, LLP as its independent auditors. The Company incurred $49,080 for legal and accounting fees in the first quarter of 2001. 7 8 PUBLIC RELATIONS, INVESTOR RELATIONS AND SHAREHOLDER RELATIONS: The Company has budgeted approximately $7,600 for public relations, investor relations and shareholder relations during 2001. The Company has also budgeted sufficient amounts to maintain its comprehensive web site (www.amarbio.com). The Company expended $1,490 in the first quarter of 2001 for public relations, investor relations and shareholder relations. LIQUIDITY NEEDS: The principal budget items discussed above, along with other miscellaneous costs and expenses, will cause the Company to expend approximately $1.7 million in 2001. At March 31, 2001, the Company had available cash of approximately $40,000. The Company also has a working capital deficit of approximately $830,000. The Company's continued losses and lack of liquidity indicate that the Company may not be able to continue as a going concern for a reasonable period of time. The Company's ability to continue as a going concern is dependent upon several factors including, but not limited to, the continued non-demand for immediate payment of outstanding indebtedness by the Company's vendors and suppliers, the Company's ability to generate sufficient revenue and cash flows to meet its obligations on a timely basis, obtain additional financing, and continue to obtain supplies and services from its vendors. The Company will need to raise additional funds in order to satisfy its vendors and other creditors and to completely execute its 2001 Plan. The Company is presently negotiating with human health and animal health commercial development partners in various regions of the world including the United States, Canada, Europe, and the Middle East. The Company believes that one or more of these agreements will be executed during 2001. These agreements could generally include provisions for the commercial partner to pay the Company a technology access fee, could include payments for a portion of the clinical trial expenses, could include payment obligations to the Company upon the accomplishment of certain defined tasks, and/or could provide for payments relating to the future sales of commercial product. These agreements could be an important source of funds for the Company. Management believes the fact that it has concluded an advanced Phase III clinical trial significantly enhances its ability to successfully raise additional funds from its commercial partnering activities and from private investors. However, there can be no assurance that the Company will be successful in obtaining additional funding from either human health and animal health commercial development partners or private investors. If the Company is not successful in raising additional funds, it will need to significantly curtail clinical trial expenditures and to further reduce staff and administrative expenses and may be forced to cease operations. Furthermore, the Company's creditors could demand the Company's obligations to them be satisfied immediately. Should this event occur, the Company could be forced to file for protection under Chapter 11 of the United States Bankruptcy Code if it were not able to obtain alternative sources of financing. Certain statements made in this Plan of Operations and elsewhere in this report are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance, achievements, costs or expenses and may contain words such as "believe", "anticipate", "expect", "estimate", "project", "budget", or words or phrases of similar meaning. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from those projected in the forward-looking statements. Such risks and uncertainties are detailed from time to time in reports filed by the 8 9 Company with the SEC, including Forms 8-K, 10-QSB and 10-KSB, and include among others the following: promulgation and implementation of regulations by the U.S. Food and Drug Administration ("FDA"); promulgation and implementation of regulations by foreign governmental instrumentalities with functions similar to those of the FDA; costs of research and development and clinical trials, including without limitation, costs of clinical supplies, packaging and inserts, patient recruitment, trial monitoring, trial evaluation, and publication; and possible difficulties in enrolling a sufficient number of qualified patients for certain clinical trials. The Company is also dependent upon a broad range of general economic and financial risks, such as possible increases in the costs of employing and/or retaining qualified personnel and consultants, and possible inflation which might affect the Company's ability to remain within its budget forecasts. The principal uncertainties to which the Company is presently subject are its inability to ensure that the results of the Sjogren's syndrome Phase III trial, or any other trials performed by the Company, will be sufficiently favorable to ensure eventual regulatory approval for commercial sales, its inability to accurately budget at this time the possible costs associated with hiring and retaining of additional personnel, uncertainties regarding the terms and timing of one or more commercial partner agreements, and its ability to continue as a going concern. The risks cited here are not exhaustive. Other sections of this report may include additional factors which could adversely impact the Company's business and future prospects. Moreover, the Company is engaged in a very competitive and rapidly changing industry. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company's business, or the extent to which any factor or combination of factors may cause actual results to differ materially from those projected in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual future events. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the quarter ended March 31, 2001. 9 10 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: May 14, 2001 By: /s/ JOSEPH M. CUMMINS ----------------------------------- Joseph M. Cummins President, Chief Executive Officer and Chief Financial Officer 10