10QSB 1 d89967e10qsb.txt FORM 10QSB FOR QUARTER ENDING JUNE 30, 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 JUNE 30, 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 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 June 30, 2001 there were 7,859,757 shares of the issuer's common stock outstanding. 1 2 AMARILLO BIOSCIENCES, INC. INDEX
PART I: FINANCIAL INFORMATION PAGE NO. -------- ITEM 1. Financial Statements Consolidated Balance Sheets - December 31, 2000 and June 30, 2001.................................................................... 3 Consolidated Statements of Operations - Three Months and Six Months Ended June 30, 2000 and 2001 and Cumulative from June 25, 1984 (Inception) through June 30, 2001........................ 4 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2000 and 2001 and Cumulative from June 25, 1984 (Inception) through June 30, 2001............................. 5 Notes to Consolidated Financial Statements.................................. 6 ITEM 2. Management's Plan of Operations............................................. 6 PART II: OTHER INFORMATION ITEM 2. Changes in Securities and Use of Proceeds................................... 10 ITEM 6. Exhibits and Reports on Form 8-K............................................ 10 Signatures ............................................................................ 11
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, JUNE 30, 2000 2001 ------------ ------------ ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 341,983 $ 28,679 Accounts receivable -- 43,214 Inventory 55,839 48,639 Other current assets 45,500 18,809 ------------ ------------ Total current assets 443,322 139,341 Property and equipment, net 93,236 82,526 Patents, net of accumulated amortization of $101,221 and $104,867 at December 31, 2000 and June 30, 2001, respectively 107,323 119,699 ------------ ------------ Total assets $ 643,881 $ 341,566 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 957,489 $ 884,822 Accrued interest 86,351 130,980 Other accrued expenses 14,724 -- ------------ ------------ Total current liabilities 1,058,564 1,015,802 Notes payable to related party 2,000,000 2,090,000 ------------ ------------ Total liabilities 3,058,564 3,105,802 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 at December 31, 2000 and 78,074 78,598 7,859,757 at June 30, 2001 Additional paid-in capital 18,399,449 18,425,125 Deficit accumulated during the development stage (20,892,206) (21,267,959) ------------ ------------ Total stockholders' equity (deficit) (2,414,683) (2,764,236) ------------ ------------ Total liabilities and stockholders' equity $ 643,881 $ 341,566 ============ ============
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 Six months ended (Inception) June 30, June 30, through ------------------------------ ------------------------------ June 30, 2000 2001 2000 2001 2001 ------------ ------------ ------------ ------------ ------------ Revenues: Contract revenues $ -- $ -- $ -- $ -- $ 9,000,000 Dietary supplement sales -- 71,400 -- 105,000 105,000 Interferon sales -- 60,500 -- 60,500 481,474 Interest income 17,093 110 29,389 1,390 1,574,412 Sublicense fees -- -- -- -- 113,334 Royalty income -- -- -- -- 31,544 Gain on sale of ISI stock -- -- 5,209 -- 113,146 Other 1,430 4,766 1,530 4,597 613,258 ------------ ------------ ------------ ------------ ------------ 18,523 136,776 36,128 171,487 12,032,168 Expenses: Cost of sales -- 75,431 -- 82,631 82,631 Research and development expenses 931,060 103,318 1,873,211 217,541 18,578,854 Selling, general, and administrative expenses 326,268 90,508 627,906 202,439 13,621,063 Interest expense 22,439 22,438 37,455 44,630 982,580 ------------ ------------ ------------ ------------ ------------ 1,279,767 291,695 2,538,572 547,241 33,265,128 ------------ ------------ ------------ ------------ ------------ Loss before income taxes (1,261,244) (154,919) (2,502,444) (375,754) (21,232,960) Income tax expense -- -- -- -- 35,000 ------------ ------------ ------------ ------------ ------------ Net loss $ (1,261,244) $ (154,919) $ (2,502,444) $ (375,754) $(21,267,960) ============ ============ ============ ============ ============ Basic and diluted loss per share $ (0.16) $ (0.02) $ (0.33) $ (0.05) ============ ============ ============ ============ Weighted average shares outstanding 7,771,445 7,831,225 7,621,801 7,819,357 ============ ============ ============ ============
See accompanying notes. 4 5 AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES (COMPANIES IN THE DEVELOPMENT STAGE) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six months ended Cumulative from June 30, June 25, 1984 ---------------------------------- (Inception) through 2000 2001 June 30, 2001 ------------- ------------- ------------------ Net cash used in operating activities $ (1,737,172) $ (429,304) $ (18,994,624) Net cash provided by (used in) investing activities 5,209 -- (619,528) Proceeds from sublicense fees -- -- 32,844 Proceeds from stock sales 806,800 26,000 17,519,987 Proceeds from financing 1,000,000 90,000 2,090,000 ------------- ------------- --------------- Net cash provided by financing activities 1,806,800 116,000 19,642,831 Net increase (decrease) in cash and cash equivalents 74,837 (313,304) 28,679 Cash and cash equivalents at beginning of period 1,302,343 341,983 -- Cash and cash equivalents at end of period $ 1,377,180 $ 28,679 $ 28,679 ============= ============= =============== 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 six months ended June 30, 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. On April 18, 2001, the Company commenced a private placement which is still ongoing. As of June 30, 2001, the Company had sold 52,400 unregistered shares of its voting common stock at a price of $.50 per share, generating $26,200 in cash. 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 $21,267,959 at June 30, 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. 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 2000. The Company has received copies of the advertising campaign Natrol will be starting in the second half of 2001 and Natrol has identified retailers who will start selling ACM in the second half of 2001. The Company had sales of ACM generating $105,000 for the Company in the first half of 2001. In addition to the ACM sales there were sales of interferon to a company for research purposes. 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 6 7 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 INTERFERON SALES: There was a sale of interferon gamma in the amount of $60,500 to a company for research purposes. 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 $563,000 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, the expenditure of this amount will be subject to raising additional funds. The Company expended $217,541 in the first six months 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 $260,254 for personnel in the first six months 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 $18,608 in the first six months 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 $80,000 during 2001. A portion 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 7 8 continue with Ernst & Young, LLP as its independent auditors. The Company incurred $37,200 for legal and $31,935 for accounting fees in the first six months of 2001. 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 $4,890 in the first six months 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 June 30, 2001, the Company had available cash of approximately $29,000. The Company also has a working capital deficit of approximately $876,000. 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 Company with the SEC, including 8 9 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. 9 10 PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. The Company's common stock is currently traded on the Over the Counter Bulletin Board. The Company sold 52,400 shares of its voting common stock in April, May and June, 2001, raising an aggregate of $26,200, as follows:
NUMBER OF PROCEEDS TO DATE SHARES SOLD COMPANY April 25, 2001 10,000 $ 5,000 May 15, 2001 20,000 $10,000 June 1, 2001 12,400 $ 6,200 June 9, 2001 10,000 $ 5,000 ------ ------- Total 54,400 $26,200
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 and to no more than thirty-five (35) non-accredited investors. The offering was not registered, in reliance upon the exemption afforded by 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 $26,200, there were no underwriting discounts, and no commissions were paid. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the quarter ended June 30, 2001. 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: August 13, 2001 By: /s/ JOSEPH M. CUMMINS -------------------------------- Joseph M. Cummins President, Chief Executive Officer and Chief Financial Officer 11