AIMD 10-Q Quarterly Report Sept. 30, 2020 | Alphaminr
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AIMD 10-Q Quarter ended Sept. 30, 2020

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10-Q 1 form10q_09302020.htm FORM 10-Q 9-30-2020


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[ √ ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
or

[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____to____      Commission File No. 0-20791

AMARILLO BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)

TEXAS
75-1974352
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
4134 Business Park Drive, Amarillo, Texas 79110
(806) 376-1741
(Address and telephone number, including area code, of registrant's principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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   [ ]No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  [√]Yes   [ ]No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer   [√ ]
Smaller reporting company [√]
Emerging growth company [  ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. D
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) [ ] Yes   [√] No
41,016,351 shares of common stock, par value $0.01 per share, outstanding as of November 13, 2020
1
AMARILLO BIOSCIENCES, INC.

INDEX

PAGE NO.
PART I:
FINANCIAL INFORMATION
ITEM 1.
Financial Statements

Balance Sheets– September 30, 2020 and December 31, 2019 (unaudited)
3
Statements of Operations – Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)
4

Statements of Stockholders’ Equity (Deficit) – Nine Months Ended September 30, 2020 and 2019 (unaudited)
5
Condensed Statements of Cash Flows – Nine Months Ended September 30, 2020 and 2019 (unaudited)
6

Notes to Financial Statements (unaudited)
7
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
10

ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
16

ITEM 4.
Controls and Procedures
16

PART II:
OTHER INFORMATION

ITEM 1.
Legal Proceedings
18

ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
18

ITEM 3.
Defaults Upon Senior Securities
18

ITEM 4.
Mine Safety Disclosures
18

ITEM 5.
Other Information
18

ITEM 6.
Exhibits
18
Signatures
19
2
PART I - FINANCIAL INFORMATION
ITEM 1.
Financial Statements
Amarillo Biosciences, Inc.
Balance Sheets
(Unaudited)
September 30,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents
$
83,767
$
409,039
Accounts receivable
751
-
Inventory
3,452
4,131
Prepaid expense and other current assets
69,960
32,125
Total current assets
157,930
445,295
Patents, net
139,774
146,263
Property and equipment, net
3,576
5,068
Total assets
$
301,280
$
596,626
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued expenses
$
359,996
$
208,727
Advances from investors
85,000
100,000
Convertible notes payable – related party
632,814
444,581
Total current liabilities
1,077,810
753,308
Total liabilities
1,077,810
753,308
Stockholders' equity (deficit)
Preferred stock, $0.01 par value:
Authorized shares - 10,000,000,
Issued and outstanding shares – 0 at September 30, 2020 and December 31, 2019
-
-
Common stock, $0.01 par value:
Authorized shares - 100,000,000,
Issued and outstanding shares –40,916,351 and 40,516,351 at September 30, 2020 and December 31, 2019, respectively
409,164
405,164
Additional paid-in capital
4,586,068
4,207,786
Accumulated deficit
(5,771,762
)
(4,769,632
)
Total stockholders’ equity (deficit)
(776,530
)
(156,682
)
Total liabilities and stockholders’ equity (deficit)
$
301,280
$
596,626

See accompanying notes to financial statements.
3
Amarillo Biosciences, Inc.
Statements of Operations
(Unaudited)

Three months ended September 30
Nine months ended September 30
2020
2019
2020
2019
Revenues
$
192
$
4,786
$
15,876
$
9,468
Cost of revenues
(123
)
(3,368
)
(11,221
)
(6,649
)
Gross margin
69
1,418
4,655
2,819
Operating expenses:
Research and development expenses
-
-
389
52,510
Selling, general and administrative expenses
321,153
366,824
1,001,893
1,161,317
Total operating expenses
(321,153
)
(366,824
)
(1,002,282
)
(1,213,827
)
Operating income (loss)
(321,084
)
(365,406
)
(997,627
)
(1,211,008
)
Other income (expense)
Interest income (expense), net
(2,201
)
(809
)
(4,503
)
(172
)
Net income (loss)
(323,285
)
(366,215
)
(1,002,130
)
(1,211,180
)
Basic and diluted net loss per average share available to common shareholders
$
(0.01
)
$
(0.01
)
$
(0.02
)
$
(0.03
)
Weighted average common shares outstanding – basic and diluted
40,516,351
40,156,334
40,620,055
39,684,743

See accompanying notes to financial statements.
4


Amarillo Biosciences, Inc.
Statements of Stockholders’ Equity (Deficit)
For the nine months ended September 30, 2020 and 2019
(Unaudited)
Preferred Stock
Common Stock
Additional Paid in Capital
Accumulated Deficit
Total Stockholders’ Equity (Deficit)
Shares
Par Value
Shares
Par Value
Balance December 31, 2019
-
$
-
40,516, 351
$
405,164
$
4,207,786
$
(4,769,632
)
$
(156,682
)
Issuance of stock for compensation
-
-
-
-
Issuance of stock for cash
400,000
4,000
96,000
100,000
Issuance of stock for debt
-
-
-
-
-
Warrant expense
10,218
10,218
Option expense
272,064
272,064
Net loss
-
-
-
-
-
(1,002,130
)
(1,002,130
)
Balance September 30, 2020
-
$
-
40,916,351
$
409,164
$
4,586,068
$
(5,771,762
)
$
(776,530
)
Balance December 31, 2018
-
$
-
39,117,524
$
391,175
$
3,527,238
$
(3,188,334
)
$
730,079
Compensation – i2China (Q4 2018 accrual)
-
-
40,170
401.70
11,598
-
12,000
Compensation – Cohen and Chen (Q4 2018 accrual)
-
-
191,505
1,915.05
55,585
-
57,500
Subscription Issuance – Hen Vai Wu
-
-
200,000
2,000
48,000
-
50,000
Finder’s fee issuance – Hen Vai Wu
115,000
1,150
22,600
23,750
Warrant expense
-
-
-
-
28,488
-
28,488
Option expense
-
-
-
-
288,447
-
288,447
Conversion
-
-
552,152
5,522
94,478
-
100,000
Subscription issuance – Assyrea Ltd.
-
-
Net loss for the period ended September 30, 2019
-
-
-
-
-
(1,211,180
)
(1,211,180
)
Balance September 30, 2019
-
$
-
40,216,351
$
402,164
$
4,076,434
$
(4,399,514
)
$
79,084


See accompanying notes to financial statements.
5
Amarillo Biosciences, Inc.
Condensed Statements of Cash Flows
(Unaudited)


Nine months ended September 30,
2020
2019
Net cash used in operating activities
$
(244,967
)
$
(539,076
)
Cash flows from investing activities
Investment in equipment
-
(1,638
)
Investment in patents
(1,891
)
(405
)
Net cash used in investing activities
(1,891
)
(2,043
)
Cash flows from financing activities
Payments on convertible notes
-
(37,500
)
Advances from shareholder
35,000
-
Proceeds from private placement offering
50,000
25,000
Net cash used in financing activities
85,000
(12,500
)
Net change in cash
(325,272
)
(793,882
)
Cash and cash equivalents at beginning of period
409,039
1,276,654
Cash and cash equivalents at end of period
$
83,767
$
482,772
Supplemental Cash Flow Information
Cash paid for interest
$
4,895
$
727
Cash paid for income taxes
$
-
$
-
Non-Cash Transactions
Stock issued for accrued liabilities
$
-
$
93,250
Stock issued for advances from investors
$
100,000
$
25,000
Stock issued for advances from investors
$
-
$
100,000

See accompanying notes to financial statements.
6
Amarillo Biosciences, Inc.
Notes to Financial Statements
(Unaudited)

1.
Organization and Business. Amarillo Biosciences, Inc. (the "Company" or "ABI"), is a diversified healthcare company engaged in the discovery and development of pharmaceutical and biotech products.  ABI is a Texas corporation which was formed in 1984.

2.
ABI primarily operates through three divisions:  Pharmaceutical, Medical and Consumer.  The Pharmaceutical division leverages our extensive library of clinical research by applying the Company's experience in the use of low-dose non-injectable interferon (IFN) for the treatment of neoplastic, viral, and fibrotic diseases. ABI seeks to engage in patent licensing and commercialization opportunities with global partners. The Medical division is focused on developing technology to treat metabolism related diseases such as type-1 and type-2 diabetes in Asia. The Consumer division includes a range of nutraceutical and food supplement products that utilize a unique liposomal delivery system.  ABI currently has offices in the United States and Taiwan.  ABI operates in Taiwan under the name AMARILLO BIOSCIENCES, INC. TAIWAN BRANCH ( 美商康華全球生技股份有限公司 台灣分公司 ).

3.
Basis of presentation. The accompanying consolidated financial statements, which should be read in conjunction with the audited financial statements and footnotes included in the Company's Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on March 30, 2020, 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 and nine months ended September 30, 2020, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2020.

4.
Financial Condition. These financial statements have been prepared in accordance with United States generally accepted accounting principles, on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has not yet achieved sustained operating income, and its operations are funded primarily from related-party convertible debt and equity financings. However, losses are anticipated in the ongoing development of its business and there can be no assurance that the Company will be able to achieve or maintain profitability.
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
7

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.

5.
Common Stock. The shareholders have authorized 100,000,000 shares of voting common shares for issuance.  On September 30, 2020, a total of 50,073,805 shares of common stock were either issued (40,916,351), reserved for conversion of convertible debt to stock (3,529,417), issuance to two Company officers as compensation (582,670), one Company employee (6,309), held for future compensation issue to a consultant (127,278), held for payment of stock for legal services (54,780), held for payment of stock for R&D services (200,000), and held for future exercise of nonqualified options (4,657,000).

We have not paid any dividends to our common stock shareholders to date, and have no plans to do so in the immediate future.

6.
Convertible Notes Payable – Related Party. As of December 31, 2019, the amount of convertible debt principal, on the Company’s balance sheet was $444,581.  The total balance of the principal for convertible promissory notes as of September 30, 2020, is $632,814. This amount consisted of the following convertible promissory notes payable to Dr. Stephen T. Chen, Chairman, CEO, President, and CFO, and i2China, a consultant, as shown in the table below.

Note #.
Conversion Rate
Interest Rate
September 30, 2020
December 31, 2019
Note 1 - Chen
$
0.1680
0.75
%
$
114,026
$
114,026
Note 2 - Chen
$
0.1875
0.65
%
$
262,500
$
262,500
Note 3.19 - Chen
$
0.2500
1.85
%
$
39,620
$
39,620
Note 4.19 - Chen
$
0.2500
1.61
%
$
12,436
$
12,453
Note 5.19 – i2China
$
0.2500
1.85
%
$
16,000
$
16,000
Note 6.20 - Chen
$
0.2500
1.85
%
$
162,450
$
-
Note 7.20 - Chen
$
0.2500
1.60
%
$
1,782
$
-
Note 8.20 – i2China
$
0.2500
1.85
%
$
24,000
$
-
Total Convertible Notes – Related Party
$
632,814
$
444,581

Dr. Stephen T. Chen, Chairman, CEO, President, and CFO, and i2China Management Group, LLC, the Company’s management consultant, elected to defer cash compensation during a period of development and fundraising.  The parties received convertible promissory notes in consideration of the deferrals.

On January 1, 2020, the Company issued Note #6.20 for deferred compensation to Dr. Stephen T. Chen, Chairman, CEO, President, and CFO, in the amount of $216,600, the maximum amount of cash compensation that could be deferred for 2020.  The Note is payable on January 1, 2021, or on demand and bears interest at the AFR 1 short-term rate of 1.85%.  The note is an advancing note with a maximum limit of $216,600 whereby the Company promises to repay the aggregate Principal Amount advanced to date up to the stated maximum amount at Maturity.

ABI may request and the payee shall advance up to $9,025 on the 15th and last day of each month until the note matures.  The Note may be convertible in whole or in part at a conversion price of $0.25 per share into Amarillo Biosciences, Inc., Common voting stock.   All shares issued are to be restricted subject to Rule 144 promulgated under the U.S. Securities Act of 1933. The Company may prepay the Note in whole or in part at any time without penalty.

On January 1, 2020, the Company issued Note #7.20 to Dr. Stephen T. Chen for deferred reimbursement of expenses advanced on behalf of ABI for $30,000, the maximum amount of reimbursable expense that could be deferred.  The Note is payable on January 1, 2021, or on demand and bears interest at the AFR 1 short-term rate of 1.85%.  The note is an advancing note with a maximum limit of $30,000 whereby the Company promises to repay the
8
aggregate Principal Amount advanced to date up to the stated maximum amount at Maturity.  ABI may request and the payee shall advance against the Note, until Maturity, the amount submitted on a completed and approved reimbursement form along with documentation of the amount to be advanced.  The Note may be convertible in whole or in part at a conversion price of $0.25 per share into Amarillo Biosciences, Inc., Common voting stock.  All shares issued are to be restricted subject to Rule 144 promulgated under the U.S. Securities Act of 1933. The Company may prepay the Note in whole or in part at any time without penalty.

On January 1, 2020, the Company issued Note #8.20 for deferred compensation to i2China Management Group, LLC in the amount of $48,000, the maximum amount of cash compensation that could be deferred in 2020.  The Note is payable on January 1, 2021, or on demand and bears interest at the AFR 1 short-term rate of 1.85%.  The note is an advancing note with a maximum limit of $48,000 whereby the Company promises to repay the aggregate Principal Amount advanced to date up to the stated maximum amount at Maturity.  ABI may request and the payee shall advance up to $4,000 on the last day of each month until the note matures.  The Note may be convertible in whole or in part at a conversion price of $0.25 per share.

The notes are unsecured and are due on demand.  All shares issued on conversion are to be restricted subject to Rule 144 promulgated under the U.S. Securities Act of 1933.  The Company may prepay the notes in whole or in part at any time without penalty. The convertible notes due to Dr. Chen are related party notes.

7.
Other Related Party Transactions. Other than the aforementioned convertible notes activity, there were no related party transactions that occurred during the period from January 1, 2020 to September 30, 2020.

8.
Subsequent Events. On October 14, 2020, subsequent to the balance sheet date, the Company issued 100,000 shares of its Common voting stock to UHO Wellness Corporation as compensatory shares for services provided pursuant to a Medical Device Development Agreement entered into on February 13, 2020.  The shares are restricted pursuant Rule 144 in that they cannot be sold or otherwise traded for a minimum period of six months from the date of issue. 2


1 Applicable Federal Rate - the minimum interest rate that the Internal Revenue Service (IRS) allows for private loans. The IRS publishes a monthly  set of interest rates that the agency considers the minimum market rate for loans, whereas, interest rates less than the AFR would have tax implications.
2 The stock was issued as of October 1, 2020.
9

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. 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.
10

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. 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.
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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 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 intend to target Taiwan first as an R&D base and demonstration platform in Greater China, then subsequently establish a licensing platform for clinics in China.  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 primarily based on low-dose non-injectable interferon-alpha that is delivered into the oral cavity as a lozenge in low 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, as a result of Covid-19, Chinese government health authorities recently recommended use of anti-AIDS drugs and interferon.  The Company believes this has brought renewed attention in the importance of incorporating low-dose interferon as a treatment to stem the pandemic.  In light of the circumstances, ABI is uniquely positioned to potentially develop safe, low-dose interferon.

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
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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.
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Results of Operations for Quarter Ended September 30, 2020 and 2019:

Revenues. ABI reported revenue for the quarter ended September 30, 2020, of $192 from sales of liposomal nutraceuticals.  Revenue for the same period in 2019 was $4,786 also from sales of nutraceuticals.  The cost of sales for the third quarter of 2020 was $123 as compared to $3,368 for cost of sales in 2019.  Gross profit for the quarter in 2020 was $69 as compared to $1,418 in 2019, a decrease of $1,349.

Research and Development Expenses. There were no R&D expenditures for the third quarter of 2020 and none for the same period in 2019.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the third quarter of 2020 were $321,153 as compared to $366,824 for the same period in 2019, a decrease of $45,671 12%.  The decrease was largely due to reductions in salary and related expenses; travel, entertainment and business meals; dues and subscriptions; and expenses for accounting and other professional fees.

Operating Loss. The Company's operating loss was $321,084 which was $44,322 (12%) lower for 2020 than the 2019 operating loss of $365,406 mostly due to decreases in SG&A expenses.

Interest Income and Expense. During the three months ended September 30, 2020, interest income was $75 consisting of interest earned on two interest-bearing bank accounts.  Interest income for 2019 was $213, $138 or 65% higher than the previous year.  Interest expense recognized in those three months was $2,111 due to accrued interest for convertible debt - notes payable.  For the same period in 2019, interest expense was $1,026.

Net Loss. Net loss attributable to common shareholders was $323,285 which was $42,930 (12%) less in 2020 than the 2019 loss of $366,215. This decrease was mainly due to a reduction of selling, general and administrative expenses in 2020.

Results of Operations for the Nine Months Ended September 30, 2020 and 2019:

Revenues. The total revenue recognized from the sale of nutraceuticals was $15,876 through September 30, 2020, as compared to $9,468 for the first nine months of 2019, an increase of $6,408 or 68%.

Cost of Revenues. Cost of sales for the nine months ended September 30, 2020 was $11,221. For the nine months ended September 30, 2019, the cost of sales was $6,649.  The increase in cost of sales for 2020 as compared to 2019 for the nine month period was $4,572, or 69%.  Gross profit for nine months ended September 30, 2020, was $4,655 compared to $2,819 for the nine months ended September 30, 2019, an increase of $1,836 or 65%.

Research and Development Expenses. The R&D activity in 2020 was $389 as compared to 2019 when the expenditure was $52,510.  The large expenditure in 2019 was the initial development investment for the metabolic pump which consisted of modification of LCD function, prototype development, hardware and software engineering.  Subsequent to the balance sheet date, the Company issued 100,000 common voting shares to a Taiwan company, UHO Wellness Corporation (“UHO”), for services rendered pursuant to the Medical Device Development Agreement of
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February 13, 2020, between ABI and UHO.  The spread of Covid-19 in 2020 slowed the development and testing process.  R&D activity is anticipated to ramp up significantly in both the U.S. and Asian markets for the balance of 2020 and in 2021.

Selling, General and Administrative Expenses. Selling, general and administrative expenses of $1,001,893 were incurred for the first nine months of 2020, compared to $1,161,317 for the first nine months of 2019, a decrease of $159,424 (14%).  The 2020 decrease was due in large part to decreases in numerous expense line items.  Expense decreases for 2020 over 2019 primarily include:  (1) Salaries and wages - $253,302 compared to $321,458 (a decrease of $68156 or 21%); (2) travel expenses - $7,745 compared to $31,594 (a decrease of $23,849 or 75%); (3) business meals, and entertainment - $12,372.19 compared to $17,919 (a decrease of $5,547 or 31%); (4) accounting fees - $84,315.05 compared to $99,001 (a decrease of $14,686 or 15%); and (5) occupancy expense (rent) - $33,299 compared to $40,068 (a decrease of $6,769 or 17%).

There were also areas where expenses increased for the 2020 – 2019 comparative periods.  These expense items include:  (1) Insurance expense including general liability, directors & officers liability, group health insurance, and property casualty - $66,713 compared to $52,012 (an increase of $14,700 or 22%); and (2) legal services - $6,362 compared to $2,271 (an increase of $4,091 or 180%).

Operating Loss. In the nine month period ended September 30, 2020, the Company's operating loss was $997,627 compared to an operating loss for the nine month period ended September 30, 2019 of $1,211,008, a $213,381 (18%) decrease.  The decrease in selling, general, and administrative expenses in 2020 was a major factor in reducing the operating loss.

Interest Income and Expense. During the nine month period ended September 30, 2020, there was interest income of $356 versus expense of $2,745 for the same period of 2019.  Cash balances were higher for the 2019 period resulting in greater interest income.

Interest expense was $4,895 for the nine months ended September 30, 2020, compared to $2,920 for the nine month period ended September 30, 2019, an increase of $1,975 (68%).  The increase in interest expense for 2020 was precipitated by the continued deferral of salary for Dr. Chen and consulting fees for i2China, both of which were included in the outstanding balances for Convertible Notes – Related Party as explained in footnote 6 to financial statements.  There was an increase in outstanding Convertible Debt- Related Party for the period June 30, 2020, through September 30, 2020, in the amount of $54,150 from $578,664 to $632,814.  As shown in the table of footnote 6, principal for the notes increased from $444,581 on December 31, 2019 to $632,814 as of September 30, 2020, or $188,233, or 42%.

Net Loss. The Net Loss for the first nine months of 2020, decreased to $1,002,130 from $1,211,180 in 2019, a decrease of $209,050 (17%) for the period.  The major constituents of the decrease in net loss are the decreases in operating expenses in the first six months of 2020 as previously discussed.
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Liquidity and Capital Resources

As of September 30, 2020, the Company had available cash of $83,767 whereas it had a cash position of $482,772 for the same period in 2019 and $409,039 as of December 31, 2019.  The Company had a working capital deficit of $919,880 at the end of September 2020, and a working capital deficit of $65,043 for the same period in 2019, an increase of 1,414%.  As of December 31, 2019, working capital was a deficit of $308,013.  The average monthly burn rate in 2020, was $65,000.  Going forward, we expect that the burn rate will continue to be in that same range.

As explained in the previous section entitled Selling, General, and administrative Expenses , the Company did, indeed, reduce expenses by an overall amount of $159,424 or 14%.  Significant reductions were made in the areas discussed in that paragraph.  A comparative review of cash flows for the nine-month periods ending September 30, 2020 and 2019 reveal that cash used for operations in 2020 was $408,381 as compared to $779,339 used in 2019.  In 2020, the Company used $1,891 for investing activities as compared to $2,043 used in 2019.  Financing activities provided $85,000 in 2020 and used $12,500 in 2019.

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 (1) to continue to leverage the Company’s core technology, the development and application of low-dose oral interferon, and (2) to commercialize its metabolic restoration therapy for the treatment of diabetes and other metabolic diseases.  ABI aggressively seeks to monetize its existing intellectual property as well as potential new discoveries and estimates its short-term project development needs to be between $3,000,000 and $6,000,000 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

As a “smaller reporting company,” we are not required to provide the information under this Item 3.

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, 2019, and this Form 10-Q Quarterly Report for the quarter ending September 30, 2020, an evaluation was carried out under the supervision of and with the participation of our management, including the Chief Executive Officer (“CEO”)/Chief Financial Officer (“CFO”), 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 CEO/CFO has concluded that as of the end of the period covered by this Annual 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 and our CEO/CFO, as appropriate, to allow for accurate and timely decisions regarding required disclosure.
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Changes to Internal Controls and Procedures over Financial Reporting

There 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 materially affect, our internal control 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.

As a result of the existence of these material weaknesses as of September 30, 2020, management has concluded that we did not maintain effective internal control over financial reporting as of September 30, 2020, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

This interim 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 attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit the company to provide only management's report in this interim report.
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PART II - OTHER INFORMATION


ITEM 1.
Legal 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.
The 2020-1 Private Placement Equity Security Offering was unanimously authorized and approved by Consent of ABI Board of Directors.  The Company offered up to 5,208,334 shares of Common voting stock at a price of $0.192 per share for an aggregate amount of $1,000,000.  That offering is currently open and still available for investment.

On July 28, 2020, Dr. Stephen T. Chen, Chairman, CEO, President, and CFO, executed and submitted a Private Placement Memorandum for the purchase of 520,833 common voting shares at $0.192 per share through the Company’s 2020-1 Private Placement Stock Offering.  The total amount of the investment is $100,000 of which $85,000 has been submitted by Dr. Chen.  The shares will be issued upon receipt of the balance of the investment funds.

ITEM 3.
Defaults Upon Senior Securities
None

ITEM 4.
Mine Safety Disclosures
Not applicable

ITEM.5.
Other Information
None

ITEM 6.
Exhibits

3(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*
Specimen Common Stock Certificate.
4.2*
Form of Underwriter's Warrant.
10.1 (11)
2008 Stock Incentive Plan dated May 20, 2008.
10.2*
License Agreement dated as of March 22, 1988 between the Company and The Texas A&M University System.
10.30***
Amendment No. 1 dated September 28, 1998 to License Agreement of March 22, 1988 between The Texas A&M University System and the Company.
10.72***
2018 Employee Stock Option Plan
10.73***
2018 Officer, Directors, Employees and Consultants Nonqualified Stock Option Plan
10.74***
Stock Option Agreement – Nonqualified Stock Option
10.75***
Stock Option Agreement – Employee Plan
31.1
Certification of Chief Executive Officer (Principal Executive Officer) required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
18

32.1
Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 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

99.1 906 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, 2020
By: /s/ Stephen Chen
Stephen Chen, Chairman of the Board,
Chief Executive Officer and Chief Financial Officer
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