Amarillo Biosciences, Inc.
The continuing operations of the Company and the recoverability of the carrying value of assets is dependent upon the ability of the Company to obtain necessary financing to fund its working capital requirements, and upon future profitable operations. The accompanying financial statements do not include any adjustments relative to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.
There can be no assurance that capital will be available as necessary to meet the Company's working capital requirements or, if the capital is available, that it will be on terms acceptable to the Company. The issuances of additional equity securities by the Company may result in dilution in the equity interests of its current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase the Company's liabilities and future cash commitments. If the Company is unable to obtain financing in the amounts and on terms deemed acceptable, the business and future success may be adversely affected and the Company may cease operations. These factors raise substantial doubt regarding our ability to continue as a going concern.
We have not paid any dividends to our common stock shareholders to date, and have no plans to do so in the immediate future.
ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations
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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.
Forward-Looking Statements: Certain statements made throughout this document 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 Securities and Exchange Commission, including Forms 8-K, 10-Q and 10-K 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 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 operations. 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.
Overview. ABI is engaged in developing biologics for the treatment of human and animal diseases. One area of focus is research aimed at the treatment of human disease indications, particularly influenza, hepatitis C, thrombocytopenia, and other indications using natural human interferon alpha that is administered in a proprietary low dose oral form lozenge.
ABI currently owns or licenses 5 issued patents, four in the U.S., and one in Taiwan, of which four patents are related to the low-dose oral delivery of interferon and one patent is associated with a dietary supplement, Maxisal®. Since inception, the Company has completed more than 100 pre-clinical animal and human studies on the safety and efficacy of low-dose orally administered interferon, including two phase 3 clinical trials.
Injectable interferon is FDA-approved to treat some neoplastic, viral and autoimmune diseases. Many patients experience moderate to severe side-effects, causing them to discontinue injectable interferon therapy. Our core technology is a natural human interferon-alpha that is delivered into the oral cavity as a lozenge in low (nanogram) doses. The lozenge dissolves in the mouth where interferon binds to surface (mucosal) cells in the mouth and throat, resulting in activation of hundreds of genes in the peripheral blood that stimulate the immune system. Human studies have shown that oral interferon is safe and effective against viral and neoplastic diseases. Oral interferon is given in concentrations 10,000 times less than that usually given by injection. The Company’s low-dose formulation results in almost no side effects, in contrast to high dose injectable interferon, which causes adverse effects in at least 50% of recipients.
Governmental or FDA approval is required for low-dose oral interferon. Our progress toward approval is discussed under each specific indication, below. We believe that our technology is sound and can be commercialized.
The Company’s long-time human interferon producer is no longer manufacturing interferon. Plans for further clinical trials and commercialization of a low-dose interferon product have been placed on hold until a new cGMP source of interferon is found. ABI is actively seeking a new manufacturing partner and exploring options with pharmaceutical companies that have a supply of natural human interferon made in a similar manner.
Procuring a new source of interferon may require some studies demonstrating comparability and further clinical trials may have to be performed. Although these studies involve cost and time, the Company will be able to utilize optimized protocols from its thirty years of experience in conducting trials with natural human interferon. Rather than having to start from greenfield stage, the Company will be able to leverage its history, past results, and data library to target the most appropriate disease states with the best dosage regimens and minimize the time wasted by trial-and-error searching prevalent in pharmaceutical research.
While the pharmaceutical industry is creating and marketing new and effective anti-viral medications, ABI believes that there is still sufficient time to develop and commercialize low-dose interferon as a safer anti-viral treatment for Influenza, Hepatitis, and other conditions caused by viruses such as genital warts and canker sores. Interferon also has powerful cytotoxic effects which in combination with its immune stimulating activities could play a role in the rapidly expanding field of cancer immunotherapy. Other demonstrated effects of interferon offer opportunities to commercialize low-dose interferon for the treatment of Thrombocytopenia and chronic cough in lung diseases such as COPD and Idiopathic Pulmonary Fibrosis (IPF). The Company has the opportunity to capitalize on its relationship channels in the Asian markets to explore sources of raw materials, capital, production facilities, and to target a significant and growing sales market.
In addition to pharmaceutical IFN applications, ABI is working to expand its diversified healthcare business portfolio in order to generate new revenue streams. An integral facet of the Company’s strategic plan is to create multiple revenue streams by implementing various medical therapeutics and healthcare product programs (including but not limited to in-licensing). The Medical Division and Consumer Products Division facilitate the enhancement of those revenue streams. These programs will be the catalyst which allows ABI to enter markets in Taiwan, Hong Kong, China, and other Asian countries for the distribution of these new medical and healthcare products.
Diabetes is a global epidemic. Diabetic complications such as retinopathy which is a leading cause of blindness, peripheral neuropathies which contribute to delayed wound healing and amputations, and nephropathy which can necessitate dialysis and kidney transplant, are catastrophic both to quality of life and cost of care. Presently, Type-2 diabetes is treated as a chronic progressive disease with increases in both number and dose of drugs seen across a patient’s lifetime. Generally one or more oral hypoglycemic drugs are used for months or years until a combination of short and long-acting insulin is required to keep the patient’s blood glucose within normal limits. Unfortunately, once a patient’s pancreas is exhausted and they are finally forced to go on insulin, they require insulin for the rest of their lives. And even more unfortunate is that even with fairly well-controlled blood glucose levels, diabetics will face one or more undesirable complications with poor outcomes from cardiovascular, eye, nerve, or kidney disease secondary to their diabetes. This unsuccessful model of diabetes care is not satisfactory.
ABI has been developing pulsatile insulin infusion therapy in Taiwan that consists of delivering insulin intravenously by pump in pulses, as opposed to the typical subcutaneous route of administration, in order to more closely imitate how the pancreas secretes insulin in healthy non-diabetics. Our Medical Division is developing medical equipment for pulsatile insulin infusion and plans to be able to offer innovative and comprehensive diabetes treatment that provides solutions to all stages of diabetes. The Company will target Taiwan and Hong Kong first, then subsequently plans to open clinics in China within 3 years.
ABI is also a licensed distributor of TissueAid™ biodegradable wound closure products in Taiwan. ABI became the official distributor of TissueAid™ for the Taiwan market in the fourth quarter of 2017.
The Consumer Division currently offers a unique proprietary liposomal delivery system for nutraceuticals and food supplements including Vitamin C, Glutathione, CoQ10, Curcumin/Resveratrol, DHA, and a Multi-Vitamin.
ABI maintains a representative branch office in Taiwan – Amarillo Biosciences, Inc. (Taiwan Branch) (美商康華全球生技股份有限公司 台灣分公司) (“ABI Taiwan”) to increase the Company's presence in Taiwan and serve as an operational hub to access growing Asian markets.
Results of Operations for Three Months Ended September 30, 2019 and 2018:
Revenues. ABI reported revenue of $4,786 for the quarter ended September 30, 2019, mostly from sales of liposomal nutraceuticals. Revenue for the same period in 2018 was $14,908. The cost of sales for the third quarter of 2019 was $3,368 as compared to $16,791 for cost of sales in the same quarter of 2018. The gross margin for the quarter ended September 30, 2019 was $1,418 as compared to $(1,883) for the same period in 2018.
Research and Development Expenses. There were no R&D related expenses during the three months ended September 30, 2019 as compared to $0 for the same period in 2018.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were $366,824 for the third quarter in 2019, as compared to $306,965 for the third quarter of 2018, an increase of $59,859 (19.8%). The increase was attributed to additional consulting support services related to streamlining back office accounting operations as well as business development.
Operating Loss. The Company's operating loss for the three months ended September 30, 2019 was $365,406, which was $57,976 (18.7%) higher than the operating loss of $308,848 for the same period in 2018, mostly due to SG&A expense increase.
Interest Expense. For the three months ended September 30, 2019, net interest expense was $809, as compared to interest expense of $1,191 for the three months ended September 30, 2018.
Net Loss. Net loss attributable to common shareholders was $366,215 for the third quarter of 2019, which was $56,176 (18.1%) more than the net loss of $310,039 for the same period in 2018. This increase was mainly due to augmented selling, general and administrative expenses for the quarter.
Results of Operations for the Nine Months Ended September 30, 2019 and 2018:
Revenues. The total revenue recognized primarily from the sale of nutraceuticals was $9,468 through September 30, 2019, as compared to $71,748 for the first nine months of 2018, a decrease of $62,280 or 86.8%.
Cost of Revenues. Cost of sales for the nine months ended September 30, 2019 was $6,649. For the nine months ended September 30, 2018, the cost of sales was $60,837. The decrease in cost of sales for 2019 as compared to 2018 for the nine month period was $54,188, or 89.0%. Gross profit for nine months ended September 30, 2019 was $2,819 against $10,911 for the nine months ended September 30, 2018, a decrease of $8,092 or 74.1%.
Research and Development Expenses. There was an increase in R&D activity for the nine months ended September 30, 2019, of $52,510 whereas there were no expenditures recognized in the first nine months ended September 30, 2018. An increase in R&D expenditures is anticipated with the roll-out of ABI’s core technology and other new technologies of which most of the R&D activity is anticipated to occur in the Asian markets generated through AMARILLO BIOSCIENCES, INC’s TAIWAN BRANCH (美商康華全球生技股份有限公司 台灣分公司).
Selling, General and Administrative Expenses. Selling, general and administrative expenses of $1,161,317 were incurred for the first nine months of 2019, compared to $859,956 for the first nine months of 2018, an increase of $301,361 (35.4%).
Operating Loss. In the nine month period ended September 30, 2019, the Company's operating loss was $1,213,827 compared to an operating loss for the nine month period ended September 30, 2018 of $849,045, a $364,782 (42.9%) increase. The increased selling, general, and administrative expense increases along with minimal sales in 2019 was a major factor in the operating loss increase. However, major portion of the expense increases continue to be driven by expanded international operations and activities.
Interest Expense, net. During the nine month period ended September 30, 2019, there was net interest expense of $172 versus interest expense of $3,544 for the same period of 2018.
Net Loss. The Net Loss for the first three quarters of 2019, increased to $1,211,180 from $852,589 in 2018, an increase of $358,591 (42.0%) for the period.
Liquidity Needs. At September 30, 2019, we had available cash of $482,772 whereas we had a cash position of $1,276,654 as of December 31, 2018. Historically the burn rate has been between $65,000 and $75,000 per month. It is difficult to estimate the burn rate at this point insomuch as foreign operations have increased and new budgets are being developed for escalations in R&D spending and foreign operations. One of the Company’s main goals is to return to the status of a going concern by having reduced operating losses and subsequently becoming profitable. As indicated throughout this document, the major goals of ABI are to (1) leverage its core technology, low-dose oral interferon, and (2) incorporate additional lines of business to generate multiple revenue streams. Some current investors and potential new investors have indicated the willingness to assist in future financing of operations as ABI seeks to commercialize its existing and newly developed intellectual property. ABI estimates financing needs to be between $5,000,000
and $6,000,000 to support commercialization activities over the next three years. In order to conserve capital where it is best utilized, effective on September 1, 2019 the Company enacted a salary reduction for all of its employees until which time sufficient capital funds are secured from investors.
There can be no assurance that we will be successful in our efforts to make the Company profitable. If those efforts are not successful, we could be forced to cease operations.
Forward-Looking Statements: Certain statements made throughout this document 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 Securities and Exchange Commission, including Forms 8-K, 10-Q and 10-K 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 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 operations. 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.
Overview. Amarillo Biosciences, Inc. (the "Company” or “ABI”) is a Texas corporation formed in 1984 engaged in developing biologics for the treatment of human and animal diseases. Our current focus is research aimed at the treatment of human disease indications, particularly influenza, hepatitis C, thrombocytopenia, and other indications using interferon alpha that is administered in a proprietary low dose oral form. In addition to its core technology ABI is working to expand the Company’s current focus into a diversified healthcare business portfolio in order to generate new revenue streams.
ABI currently owns or licenses five issued patents, four in the U.S., and one in Taiwan, of which four patents are related to the low-dose oral delivery of interferon and one patent is associated with a dietary supplement, Maxisal®. In our history, we have completed more than 100 pre-clinical (animal) and human studies on the safety and efficacy of low-dose orally administered interferon, including two phase 3 clinical trials.
The Company primarily operates three business units: the Medical, Pharmaceutical, and Consumer Product Divisions. Historically, the Company has focused on R&D involving low-dose, orally administered lozenges containing the natural immune system activator interferon-alpha as a treatment for a variety of disease indications. ABI owns a proprietary library of over thirty years of scientific and clinical data on the human and animal applications of low-dose oral interferon. Through the Pharmaceutical Division, ABI seeks to out-license or leverage in other ways its core technology by forming partnerships to develop current and new discoveries and commercialize the resulting products.
An integral part of the company’s operating strategy is to create multiple revenue streams through the implementation of programs (including but not limited to in-licensing) of medical and healthcare products and therapeutics. The Medical Division and Consumer Products Division facilitate the enhancement of these revenue streams. These programs will be the catalysts that allow ABI to enter markets in Taiwan, Hong Kong, China, and other Asian countries for the distribution of new medical and healthcare products.
Diabetes is a global epidemic with an estimated cost topping $2.5 trillion world-wide. Taiwan, gateway to China and representative of the upward trend in diabetes prevalence and cost throughout Asia, saw a 70% increase in total diabetes cases between 2000-2009 with a 35% increase in standardized prevalence rate. Currently, almost 2 million people suffer from diabetes in Taiwan, which equals 11% prevalence or 1 in 9 people, for a country with a population of around 18 million adults. The adoption of a Western diet and lifestyle has had more detrimental effects on East Asian countries with diabetes prevalence in Taiwan and China now outpacing the US and other Western nations. Studies have shown that East Asians have weaker insulin secretions compared with other ethnicities which make controlling blood glucose more challenging which in turn makes them more susceptible to type-2 diabetes. The weaker insulin response seen in Taiwanese and Chinese populations could be due to certain genetic polymorphisms or differential intestinal secretions and helps explain why only 30-40% of East Asians with type-2 diabetes are overweight or obese compared to over 80% of Americans. So while obesity is on the rise in China, diabetes is climbing at a faster rate than other obesity-related diseases such as heart disease and cancer. Diabetic complications such as retinopathy which is a leading cause of blindness, peripheral neuropathies which contribute to delayed wound healing and amputations, and nephropathy which can necessitate dialysis and kidney transplant, are catastrophic both to quality of life and cost of care.
Currently, type-2 diabetes is treated as a chronic progressive disease with increases in both number and dose of drugs seen across a patient’s lifetime. Generally one or more oral hypoglycemic drugs are used for months or years until a combination of short and long-acting insulin is required to keep the patient’s blood glucose within normal limits. Unfortunately, once a patient’s pancreas is exhausted and they are finally forced to go on insulin, they require insulin for the rest of their lives. And even more unfortunate is that even with fairly well-controlled blood glucose levels, diabetics will face one or more undesirable complications with poor outcomes from cardiovascular, eye, nerve, or kidney disease secondary to their diabetes. This unsuccessful model of diabetes care is not satisfactory.
Over the past several years the Company has focused its research efforts towards the development of a novel pulsatile insulin infusion therapy in Taiwan that consists of delivering insulin intravenously by pump in pulses, as opposed to the typical subcutaneous route of administration, in order to more closely imitate how the pancreas secretes insulin in healthy non-diabetics.
When the liver receives insulin in discreet pulses, it appears to be better able to regulate blood glucose levels. Patients suffering from peripheral neuropathies have reported less numbness and pain after receiving pulsatile insulin infusion treatments for several weeks or months. Pulsatile-insulin treatments given once or twice a week for a number of months show promise in lessening the incidence and severity of microvascular complications of diabetes such as retinopathy, neuropathy, and nephropathy. In addition, certain endpoints such as reduction of patient medications and avoidance of worsening kidney function leading to kidney dialysis can be achieved. ABI’s Medical Division has developed a proprietary insulin infusion pump dedicated for administering its pulsatile insulin therapy and is currently in the process of obtaining patents and medical device approvals, including 510k FDA clearance.
ABI plans to soon be able to offer an innovative and comprehensive diabetes treatment that provides solutions to all stages of diabetes from pre-diabetes through late-stage diabetes with advanced complications. We plan to target Taiwan first as an R&D base and demonstration platform in Greater China, with plans to subsequently open clinics in China. Within the Medical division, ABI is also a licensed distributor of TissueAid™ biodegradable wound closure products in Taiwan. ABI became the official distributor of TissueAid™ for the Taiwan market in the fourth quarter of 2017. The TissueAid™ product is developed by the first and only medical material research company for wound care, GJ Biotech Co Ltd.
The Consumer Product Division is presently focused on sales of liposomal nutraceuticals and food supplements that include Vitamin C, Glutathione, CoQ10, Curcumin/Resveratrol, DHA, and a Multi-Vitamin.
ABI maintains a representative branch office in Taiwan – Amarillo Biosciences, Inc. (Taiwan Branch) (美商康華全球生技股份有限公司 台灣分公司) (“ABI Taiwan”) to increase the Company's presence in Taiwan and serve as an operational hub to access growing Asian markets.
Core Technology. Injectable high-dose interferon is FDA-approved to treat some neoplastic, viral and autoimmune diseases. Many patients experience moderate to severe side-effects, causing them to discontinue injectable interferon therapy. Our core technology is a human interferon-alpha that is delivered into the oral cavity as a lozenge in low (nanogram) doses. The lozenge dissolves in the mouth where interferon binds to surface (mucosal) cells in the mouth and throat, resulting in activation of hundreds of genes in the peripheral blood that stimulate the immune system. Human studies have shown that oral interferon is safe and effective against viral and neoplastic diseases. Oral interferon is given in concentrations 10,000 times less than that usually given by injection. The Company’s low-dose formulation results in almost no side effects, in contrast to high dose injectable interferon, which causes adverse effects in at least 50% of recipients.
Governmental or FDA approval is required for low-dose oral interferon. We believe that our technology is sound and can be commercialized for various indications. Due to occurrences in the interferon supply market over the past several years, we have been unsuccessful at such commercialization to date. However, with the recent novel coronavirus incident seemingly originating from Wuhan and the China government health authorities recommended use of anti-AIDS drugs and interferon, the Company believes this could bring renewed attention in the importance of incorporating low dose interferon to combat various anti-viral indications. In light of the circumstances in China, ABI is uniquely positioned to potentially develop safe, low-dose interferon applications in the country with its China partner, Xiamen Weiyang Pharmaceutical Co., Ltd.
Interferon Supply. The Company’s long-time human interferon producer is no longer manufacturing interferon. Plans for further clinical trials and commercialization of a low-dose interferon product have been placed on hold until a new cGMP source of interferon is found. ABI is actively seeking a new manufacturing partner and exploring sourcing options with pharmaceutical companies that have a supply of either recombinant interferon or natural human interferon made in a similar manner, but from a different cell line as our previous product.
Procuring a new source of interferon may require some studies demonstrating comparability and further clinical trials will have to be performed. The Company will be able to use optimized protocols from its thirty years of experience in conducting trials with natural human interferon. Rather than having to start from a greenfield development stage, the Company will be able to leverage its history, past results, and data library to target the most appropriate disease states with the best dosage regimens and minimize the time wasted by trial-and-error searching prevalent in pharmaceutical research.
While the pharmaceutical industry is creating and marketing new and effective anti-viral medications, there is still sufficient time to develop and commercialize low-dose interferon as a safer anti-viral treatment for Influenza, Hepatitis, and other conditions caused by viruses such as genital warts and canker sores. Interferon also has powerful cytotoxic effects which in combination with its immune stimulating activities could play a role in the rapidly expanding field of cancer immunotherapy. Other demonstrated effects of interferon offer opportunities to commercialize low-dose interferon for the treatment of Thrombocytopenia and chronic cough in lung diseases such as COPD and Idiopathic Pulmonary Fibrosis (IPF). The Company has the opportunity to capitalize on its relationship channels in the Asian markets to explore sources of raw materials, capital, production facilities, and to target a significant and growing sales market.
Intellectual Property. Since inception, the company has worked to build an extensive patent portfolio for low dose orally administered interferon. This portfolio consists of patents with claims that encompass method of use or treatment, and/or composition of matter and manufacturing. As listed below, the Company presently owns or licenses five issued patents.
ACTIVE PATENTS:
"TREATMENT OF THROMBOCYTOPENIA USING ORALLY ADMINISTERED INTERFERON" as described and claimed in U.S. Patent No. 9,526,694 B2 issued December 27, 2016, Owned. Expiration: April 2033.
“TREATMENT OF THROMBOCYTOPENIA USING ORALLY ADMINISTERED INTERFERON" as described and claimed in U.S. Patent No. 9,750,786 B2 issued September 5, 2017, Owned. Expiration: April 2033.
“TREATMENT OF THROMBOCYTOPENIA USING ORALLY ADMINISTERED INTERFERON" as described and claimed in U.S. Patent No. 9,839,672 B2 issued December 12, 2017, Owned. Expiration: April 2033.
"TREATMENT OF THROMBOCYTOPENIA USING ORALLY ADMINISTERED INTERFERON" as described and claimed in TAIWAN Patent No. I592165 issued July 21, 2017, Owned. Expiration: May 2033.
"COMPOSITION AND METHOD FOR PROMOTING ORAL HEALTH" as described and claimed in U.S. Patent No. 6,656,920 B2 issued December 2003, Owned. Expiration: April 2021.
Results of Operations for Quarters Ended March 31, 2020 and 2019:
Revenues. ABI reported revenue for the quarter ended March 31, 2020, of $15,200 from sales of liposomal nutraceuticals. Revenue for the same period in 2019 was $4,076 also from sales of nutraceuticals. The cost of sales for the first quarter of 2020 was $10,806 as compared to $2,718 for cost of sales in 2019. The cost of goods sold in 2020 was 71% of sales making gross profit on sales for 2020 29%. The 2019 cost of sales and gross profit was 67% and 33%, respectively.
Research and Development Expenses. The R&D activity in 2020 was $0 as compared to 2019 when there were $2,386 direct R&D expenses.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were $9,208 (2%) lower in 2020 than 2019 largely due to reduction in salary expense.
Operating Loss. The Company's operating loss was $ 375,874 which was $14,630 (4%) lower for 2020 than 2019 mostly due to the SG&A expense decrease constituted by salary decreases.
Interest Expense. During the three months ended March 31, 2020, interest expense,net was $1,005, compared to $885 for the three months ended March 31, 2019. The interest expense recognized in the three months ended March 31, 2020 is mostly due to accrued interest for convertible debt notes.
Net Loss. Net loss attributable to common shareholders was $376,879 which was $14,510 (4%) less during 2020 than 2019. This decrease was mainly due to a reduction of selling, general and administrative expenses in 2020.
Liquidity and Capital Resources
At March 31, 2020, the Company had available cash of $289,557 whereas it had a cash position of $409,039 as of December 31, 2019. The Company had working capital of $(580,993) at the end of March 2020. As of December 31, 2019, the working capital was $(308,014). The average monthly burn rate in 2020 was $41,000, with a 12-month trailing average of $67,500. Moving forward we expect the burn rate will be between $41,000 and $67,500. ABI continues to develop and establish new revenue streams to become, and maintain the position of, a profitable going concern. Two major areas of focus are to (1) continue to leverage ABI’s core technology pharmaceutical development platform, low-dose oral interferon, and (2) commercialize its metabolic restoration therapy for the treatment of diabetes. ABI aggressively seeks to monetize its existing and any newly developed intellectual property and estimates its short-term project development financing needs to be between $3,000,000 and $5,000,000 depending upon project negotiated terms and structuring yet to be determined.
There can be no assurance that we will be successful in our efforts to make the Company profitable. If those efforts are not successful, we will be forced to cease operations.
ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk.
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ITEM 3.Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company,” we are not required to provide the information under this Item 3.
ITEM 4. | Controls and Procedures
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ITEM 4.Controls and Procedures
Disclosure Controls and Procedures
At the end of the period covered by the Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, and this Form 10-Q Quarterly Report for the quarter ending September 30, 2019,March 31, 2020, an evaluation was carried out under the supervision of and with the participation of our management, including the Chief Executive Officer (“CEO”) and /Chief Financial Officer (“CFO”), ofand Accounting Consultant as to the effectiveness of the design and operations of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). Based on that evaluation, the CEOCEO/CFO and CFOAccounting Consultant have concluded that as of the end of the period covered by thethis Annual Report and Quarterly Report, our disclosure controls and procedures were not effective in ensuring that: (i) information required to be disclosed by us in reports that we file or submit to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEOCEO/CFO and CFO,accounting consultant, as appropriate, to allow for accurate and timely decisions regarding required disclosure.
Changes to Internal Controls and Procedures over Financial Reporting
In an effortThere were no changes in our internal controls over financial reporting that occurred during the annual period covered by this report that have materially affected, or are reasonably likely to augmentmaterially affect, our internal financial controls and reporting, the Company recently engaged a managerial accounting services provider to begin the oversight and internal management of Company accounting processes andcontrol over financial reporting.
Management’s Remediation Plans
Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”). Management has assessed the effectiveness of internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. A material weakness, as defined by SEC rules, is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses in internal control over financial reporting that were identified are:
a) We did not maintain sufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of GAAP commensurate with our complexity and our financial accounting and reporting requirements. We have limited experience in the areas of financial reporting and disclosure controls and procedures. Also, we do not have an independent audit committee. As a result, there is a lack of monitoring of the financial reporting process and there is a reasonable possibility that material misstatements of the financial statements, including disclosures, will not be prevented or detected on a timely basis; and
b) Due to our small size, we do not have a proper segregation of duties in certain areas of our financial reporting process. The areas where we have a lack of segregation of duties include cash receipts and disbursements, approval of purchases and approval of accounts payable invoices for payment. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis.
The Company intendsAs a result of the existence of these material weaknesses as of December 31, 2019, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2019, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to and has begunattestation by our independent registered public accounting firm pursuant to increase its personnel resources and technical accounting expertise withintemporary rules of the accounting function. Management believesSEC that hiring additional knowledgeable personnel with technical accounting expertise will remedypermit the following material weakness: insufficient personnel with an appropriate level of technical accounting knowledge, experience, and trainingcompany to provide only management's report in the application of GAAP commensurate with our complexity and our financial accounting and reporting requirements.this annual report.
PART II - OTHER INFORMATION
| ITEM 1. | Legal Proceeds.Proceedings.
|
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. As of the date of this report, we were not aware of any such legal proceedings or claims against us.
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
From January 1, 20192020 through the date this report was filed, 200,000no Company shares were issued for proceeds of $50,000.issued.
Use of the proceeds from the offering included research and development projects, selling, general, and administration expenses, capital expenditures, compensation expenses, and repayment of convertible debt.
| ITEM 3. | Defaults Upon Senior Securities. |
None
| ITEM 4. | Mine Safety Disclosures. |
Not applicable
| ITEM.5. | Other Information. |
None
Exhibit3(i)† | | Restated Certificate of Formation of the Company, dated and filed July 27, 2015. |
| 3(ii)†† | | Bylaws of the Company, as amended July 10, 2015. |
| 4.1* | | |
| 4.2* | | |
10.1(11) | | |
| 10.2* | | |
| 10.30*** | | |
| 10.72*** | Exhibit Description | |
| 10.73*** | | |
| 10.74*** | | |
| 10.75*** | | |
| 31.1 | |
2002
|
32.1*32.1 | |
2002
|
| 101.INS | | XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the XBRL document.
|
| 101.SCH | | XBRL Taxonomy Extension Schema Document
|
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase
|
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase
|
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase
|
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase |
99.1906 Certification
*The Exhibit is incorporated by reference to the exhibit of the same number to the Company's Registration Statement on Form SB-2 filed with and declared effective by the Commission (File No. 333-4413) on August 8, 1996.
**The Exhibit is incorporated by reference to the Company's 1998 Annual Report on Form 10-KSB filed with the Commission on or before March 31, 1999.
(11) The Exhibit is incorporated by reference to the Company’s Report on Form S-8 filed with the SEC on May 22, 2008.
***Incorporated as required by: Item 601, Regulation S-K. Each compensatory Plan required to be filed as an Exhibit per Item 15(b) of Form 10K.
† The Exhibit is incorporated by reference to the Company's 2015 Annual Report on Form 10-K filed with the Commission on or before March 30, 2016.
†† The Exhibit is incorporated by reference to the Company's 2015 Annual Report on Form 10-K filed with the Commission on or before March 30, 2016.
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 13, 2019May 15, 2020 | By: /s/ Stephen T. Chen Stephen T. Chen, Chairman of the Board, Chief Executive Officer and Chief Financial Officer |
| |
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