-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rit4V0uvXLQm6cPwpKBgQl1qD0m08KpqXG+kuLhXo5xkh80b4qvjDNF8udoKp8br c9WEIJCZw6ey6/OYXCBd7Q== 0001144204-05-016764.txt : 20050523 0001144204-05-016764.hdr.sgml : 20050523 20050523124228 ACCESSION NUMBER: 0001144204-05-016764 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050523 DATE AS OF CHANGE: 20050523 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMARILLO BIOSCIENCES INC CENTRAL INDEX KEY: 0001014763 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 751974352 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 333-04413 FILM NUMBER: 05850409 BUSINESS ADDRESS: STREET 1: 800 W 9TH AVE CITY: AMARILLO STATE: TX ZIP: 79101-3206 BUSINESS PHONE: 8063761741 MAIL ADDRESS: STREET 1: AMARILLO BIOSCIENCES INC STREET 2: 800 W 9TH AVE CITY: AMARILLO STATE: TX ZIP: 79101-3206 10QSB 1 v018970_10qsb.txt 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, 2005 ----------------------------- |_| 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.) 4134 Business Park Drive, Amarillo, Texas 79110 ----------------------------------------- ----- (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, 2005 there were 16,020,614 shares of the issuer's common stock outstanding. 1 AMARILLO BIOSCIENCES, INC. INDEX PAGE ---- PART I: FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Balance Sheet - March 31, 2005............. 3 Consolidated Statements of Operations - Three Months Ended March 31, 2005 and March 31, 2004................. 4 Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2005 and 2004.................... 5 Notes to Consolidated Financial Statements.............. 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results ofOperations...................... 7 ITEM 3. Controls and Procedures................................. 7 PART II: OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K........................ 10 Signatures Signatures.............................................. 11 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Amarillo Biosciences, Inc. and Subsidiaries Consolidated Balance Sheet March 31, 2005 Assets Current assets: Cash $ 8,931 Other current assets 807 Total current assets 9,738 Equipment, net 768 Patents, net of accumulated amortization of $182,504 128,192 Total assets $ 138,698 Liabilities and Stockholders' Deficit Current liabilities: Accounts payable $ 125,532 Accrued interest expense 468,482 Accrued payroll 103,343 Current maturities of notes payable 1,048,500 ------------ Total current liabilities 1,745,857 Notes payable, including notes payable to stockholder 1,065,000 Total liabilities 2,810,857 Commitments and contingencies Stockholders' deficit Preferred stock, $.01 par value: Authorized shares - 10,000,000 Issued shares - none - Common stock, $.01par value: Authorized shares - 20,000,000 Issued shares - 16,020,614 160,206 Additional paid-in capital 19,872,641 Accumulated deficit (22,705,006) Total stockholders' deficit (2,672,159) Total liabilities and stockholder's deficit $ 138,698 See accompanying notes to financial statements. 3 Amarillo Biosciences, Inc. and Subsidiaries Consolidated Statements of Operations Three Months ended March 31, 2005 2004 ------------ ------------ Revenues: Dietary supplement sales $ 876 $ 3,560 Gain on sale of building, equipment -- 2,663 Other -- 36 ------------ ------------ 876 6,259 Expenses: Cost of sales 8 1,810 Research and development expenses 42,527 46,981 Selling, general and administrative expenses 132,348 74,563 Interest expense 23,791 23,892 ------------ ------------ 198,674 147,246 ------------ ------------ Net loss $ (197,799) (140,987) ============ ============ Basic and diluted not loss per share $ (0.012) $ (0.012) ============ ============ Weighted average shares outstanding 16,086,523 11,465,203 ============ ============ See accompanying notes to financial statements. 4 Amarillo Biosciences, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows Three months ended March 31, 2005 2004 ---------- ---------- Net cash used in operating activities $ (137,832) $ (57,217) ---------- ---------- Cash from financing activities: Proceeds from issuance of common stock 140,480 40,890 Proceeds from notes payable -- 10,000 ---------- ---------- Net cash provided by (used in) financing activities 140,480 50,890 Net increase (decrease) in cash 2,648 (6,327) ---------- ---------- Cash at beginning of period 6,283 11,300 ---------- ---------- Cash at end of period $ 8,931 $ 4,973 ========== ========== Supplemental Disclosure of Cash Flow Information Cash paid for interest $ 2,431 $ 2,051 ========== ========== Non Cash Disclosure Stock issued for debt $ -- $ (10,500) ---------- ---------- See accompanying notes to financial statements. 5 Amarillo Biosciences, Inc. and Subsidiaries 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, 2004 filed with the Securities and Exchange Commission, are unaudited, 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, 2005 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2005. 2. Stock based compensation. The Company accounts for its employee stock-based compensation plans under Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees. There were 520,000 options granted to purchase common stock in the three months ended March 31, 2004, with an exercise price of $0.40 per share with a 5 year term. 3. The following table illustrates the effect on net loss and net loss per share if Amarillo had applied the fair value provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation. Three Months Ended March 31, 2005 2004 --------------- -------------- Net loss, as reported $ (197,799.00) $ (135,545.00) Less: stock based compensation determined under fair value based method $ (181,105.00) -- Pro forma net loss $ (378,904.00) $ (135,545.00) Basic and diluted net loss per share As reported $ (0.01) $ (0.01) Pro forma $ (0.02) $ (0.01) 6 The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yield 0.0%, expected volatility of 134.0%, risk-free interest rate of 1.5% and expected life of 60 months. 4. Loss per share. Loss per share is computed based on the weighted average number of common shares outstanding. 5. Financial Condition. The Company's viability is dependent upon successful commercialization of products resulting from its research and product development activities. The Company plans on working with commercial development partners in the United States and in other parts of the world to provide the necessary sales, marketing and distribution infrastructure to successfully commercialize the interferon alpha product for both human and animal applications. The Company's products will require significant additional development, laboratory and clinical testing and investment prior to the Company obtaining regulatory approval to commercially market its product(s). Accordingly, for at least the next few years, the Company will continue to incur research and development and general and administrative expenses and may not generate sufficient revenues from product sales to support its operations. 6. Equity. During the quarter ended March 31, 2005, the Board of Directors authorized the issuance of 5,318 shares of restricted common stock to consultants in lieu of cash payments. Based upon the common stock trading price at the time of issuance, a non-cash consulting expense of $1,850 was recorded for the issuance of these shares during the first quarter of 2005. In the first three months of 2005, the Company completed private equity financing by selling 1,380,000 restricted shares of common stock at a discount to 15 investors. The net proceeds to the Company were approximately $138,000. During the quarter ending March 31, 2005 Amarillo issued 250,000 shares of stock to a consultant. The consultant paid $2,500 for these shares. The difference between the fair market value of the stock of $80,000 and the cash proceeds of $2,500 was recorded as compensation expense. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our financial statements and the notes thereto which appear elsewhere in this report. The results shown herein are not necessarily indicative of the results to be expected in any future periods. This discussion contains forward-looking statements based on current expectations, which involve uncertainties. Actual results and the timing of events could differ materially from the forward-looking statements as a result of a number of factors. Readers should also carefully review factors set forth in other reports or documents that we file from time to time with the Securities and Exchange Commission. In the first quarter, the Company completed private equity financing by selling restricted stock at a discount to 15 investors. The net proceeds to the Company were approximately $138,000. 7 During the first quarter of 2005, ABI worked in five areas to improve the Company. These are the areas 1) agroterrorism, 2) publishing, 3) partner discussions, 4) sales, and 5) relocation. Agroterrorism. Dr. Joseph Cummins continues to meet with scientists, livestock producers and elected officials to argue for alternatives to the government's plans to slaughter livestock if diseases are introduced by terrorists. Dr. Cummins expressed his concerns that the livestock in the Texas Panhandle are completely vulnerable to an attack with foot-and-mouth disease virus and proposed an alternative control plan that was published in January 2005 (see next paragraph). Publishing. A manuscript entitled "Orally Administered Interferon Alpha has Systemic Effects" was published in the January issue of the American Journal of Veterinary Research. This information, ABI believes, will help the Company gain recognition for our inexpensive, non-toxic technology. A second publication was posted on the internet by the International Society for Interferon and Cytokine Research, Jan 2005, Vol 12, No 1, pages 9-15. Entitled Foot-and-Mouth Disease: A Third Control Alternative, this document is expected to increase awareness about our plan to combat FMD. Nutraceutical Product. Natrol has discontinued the sale of anhydrous crystalline maltose (ACM) under their brand name Dry Mouth Relief (DMR). ABI sells ACM as Maxisal(R) to individuals and to pharmacies. Partner/License Discussions. Because sales of oral interferon in animal health are ongoing in Japan, a Certificate of Free Sale (CFS) from Japan, the Company plans to move forward negotiating animal health sales in those countries which will honor the CFS. ABI received notice of the amount of our first royalty payment. The Company is presently negotiating with human health and animal health commercial development partners in various regions of the world including the United States and South East Asia. The Company believes that one or more of these agreements will be executed during 2005. These agreements could generally include provisions for the commercial partner to pay ABI a technology access fee, could include payments for a portion of the clinical trial expenses, could include payment obligations to ABI 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 ABI. 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. ABI has edited the protocols for myeloproliferative disease studies at a major cancer center in Texas. The myeloproliferative diseases to be studied are polycythemia vera and essential thrombocythemia. Clinical supplies were ordered in the first quarter of 2005. Documents were prepared to be submitted to the Turkish government seeking permission to conduct a study on 90 patients with Behcet's disease. Nobel ILAC and the Company have agreed to extend the study from 4 weeks to 8 weeks of treatment with interferon lozenges in order to collect more data about relapse oral ulceration. The investigative new drug (IND) application was submitted to the FDA. Clinical supplies were ordered in the first quarter of 2005. 8 Relocation. ABI has continued to explore relocation incentives. Negotiations continued in the first quarter of 2005 and a decision is expected in the second quarter of 2005. Results of Operations: Revenues. During the three-month period ended March 31, 2005 $876 from product sales was generated compared to revenues from product sales for the three-month period ended March 31, 2004, of $3,560, a decrease of $2,684 or approximately 75%. There have been no sales of interferon products in 2005, this accounts for the decrease in product sales. Selling, General and Administrative Expenses. Selling, General and Administrative expenses of $132,348 were incurred for the three-month period ended March 31, 2005, compared to $74,563 for the three-month period ended March 31, 2004, an increase of $57,785. This included $79,350 in non-cash expenses in recognition of restricted stock issued to cover services provided by consultants in lieu of cash. Non-Cash Consulting Activities. During the three-month period ended March 31, 2005, the Board of Directors authorized the issuance of shares of restricted common stock to two consultants in lieu of cash payments. Based upon the common stock trading price at the times of issuance, and FASB rules, a non-cash consulting expense of $79,350 was recorded for the issuance of these shares during the three-month period ended March 31, 2005. Net Income (Loss). As a result of the above, in the three-month period ended March 31, 2005, the Company's Net Loss was ($197,799) compared to a Net Loss for the three-month period ended March 31, 2004 of ($140,987). This increased loss is primarily due to lower revenues in 2005 and an increase in consulting activity. Liquidity Needs: At March 31, 2005, the Company had available cash of approximately $8,931, and had a working capital deficit of approximately ($1,736,119). Assuming there is no decrease in current accounts payable, and accounting for various one-time expenses, the Company's negative cash flow is approximately $39,000 per month. 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 Company's ability to generate sufficient 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 fully execute its 2005 Plan. Forward-Looking Statements: 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 9 to time in reports filed by the Company with the Securities and Exchange Commission, 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 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. Item 3. Controls and Procedures As required by Rule 13a-15 under the Exchange Act, we have carried out an evaluation of the effectiveness of the design and operation of our company's disclosure controls and procedures as of the end of the period covered by this quarterly report, being March 31, 2005. This evaluation was carried out under the supervision and with the participation of our company's management, including our company's president and chief executive officer. Based upon that evaluation, our company's president and chief executive officer concluded that our company's disclosure controls and procedures are effective as at the end of the period covered by this report. There have been no significant changes in our company's internal controls or in other factors, which could significantly affect internal controls subsequent to the date we carried out our evaluation. 10 Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our company's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our company's reports filed under the Exchange Act is accumulated and communicated to management, including our company's president and chief executive officer as appropriate, to allow timely decisions regarding required disclosure. 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, 2005. 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 23, 2005 By: /s/ Joseph M. Cummins ------------ ------------------------------------------- Joseph M. Cummins President, Chief Executive Officer and Chief Financial Officer 11 EX-31.1 2 v018970_ex31-1.txt EXHIBIT 31.1 FORM OF CERTIFICATION PURSUANT TO RULE 13a-14 AND 15d-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED CERTIFICATION I, Joseph M. Cummins, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Amarillo Biosciences, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. As the registrant's certifying officer I have disclosed, based on the most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. 6. I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 23, 2005 /s/ Joseph M. Cummins ------------ ------------------------------------------ Name: Joseph M. Cummins Title: President, Chief Executive Officer and Chief Financial Officer EX-32.1 3 v018970_ex32-1.txt EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Amarillo Biosciences, Inc. on Form 10-QSB for the period ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. Date: May 23, 3005 By: /s/ Joseph M. Cummins -------------- ---------------------------------------- Joseph M. Cummins President, Chief Executive Officer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----