PART I

 

The following contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those discussed in the forward-looking statements as a result of certain factors, including those set forth in “Management’s 2020 Plan of Operations” as well as those discussed elsewhere in this Form 10-K. The following discussion should be read in conjunction with the Financial Statements and the Notes thereto included elsewhere in this Form 10-K.

 

ITEM 1.

BUSINESS.

 

General

 

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 natural human 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.

 

Current Status

 

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 conditions. ABI has a library of almost 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 processes. 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 these 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 three 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 completed development of a proprietary insulin infusion pump dedicated for administering its pulsatile insulin therapy and is currently in the process of obtaining patents and related medical device classifications, including 510k FDA clearance.

 

ABI plans to soon be able to offer 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 a base R&D and demonstration platform in Greater China, with plans to open clinics in China within three years. 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. This distributorship provides momentum to enter next level for ABI.

 

 

The global market of tissue adhesives is $800 million and has an annual growth of 11%. Since the current market in Taiwan has yet to previously use this product, there is great room for growth.

 

The Consumer Product Division is presently working on multiple endeavors including a unique proprietary liposomal delivery system for nutraceuticals and food supplements including Vitamin C, Glutathione, CoQ10, Curcumin/Resveratrol, DHA, and a Multi-Vitamin. ABI also has a dietary supplement product, Maxisal® that is useful in the symptomatic relief of dry mouth.

 

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 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 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, 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.

 

Patents and Proprietary Rights

 

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.

 

There are no current patent litigation proceedings involving the Company.

 

Cost of Compliance with Environmental Regulations

 

The Company incurred no costs to comply with environment regulations in 2019.

 

Competition

 

The pharmaceutical industry is an expanding and rapidly changing industry characterized by intense competition. ABI believes that our ability to compete will be dependent in large part upon our ability to successfully operate business lines, continue recapitalization, and steadily enhance and improve our core technology products. In order to do so, we must effectively utilize and expand our research and development capabilities and, once developed, quickly convert new technology into products and processes, which can then be commercialized. Competition is based primarily on scientific and technological superiority, technical support, availability of patent protection, access to adequate capital, the ability to develop, acquire and market products and processes successfully, the ability to obtain governmental approvals and the ability to serve the particular needs of commercial customers. Corporations and institutions with greater resources therefore, have a significant competitive advantage.

 

 

Our potential competitors include entities that develop and produce therapeutic agents and/or medical devices for treatment of human and animal disease. These include numerous public and private academic and research organizations and pharmaceutical and biotechnology companies pursuing production of, among other things, biologics from cell cultures, genetically engineered drugs and natural and chemically synthesized drugs. Many of these potential competitors have substantially greater capital resources, research and development capabilities, manufacturing and marketing resources. Competitors may succeed in developing products or processes that are more effective or less costly or that gain regulatory approval prior to our products. ABI expects that the number of competitors and potential competitors will increase as more anti-viral and cytotoxic products receive commercial marketing approvals from the FDA or analogous foreign regulatory agencies. Any of these competitors may be more successful in manufacturing, marketing and distributing its products. However, upon securing a new source of interferon, ABI’s intellectual property and clinical trials experience with low-dose oral human interferon-alpha, its efficacy for a broad array of disease states, and its strong safety record, will continue to give the Company a fundamental edge in the anti-viral and cytotoxic therapeutics markets.

 

United States Regulation

 

Before products with health claims can be marketed in the United States, they must receive approval from the FDA. To receive this approval, any drug must undergo rigorous preclinical testing and clinical trials that demonstrate the product candidate’s safety and effectiveness for each indicated use. This extensive regulatory process controls, among other things, the development, testing, manufacture, safety, efficacy, record keeping, labeling, storage, approval, advertising, promotion, sale, and distribution of pharmaceutical products.

 

In general, before any ethical pharmaceutical product can be marketed in the United States, the FDA will require the following process:

 

•	Preclinical laboratory and animal tests;
•	Submission of an investigational new drug application, or IND, which must become effective before human clinical trials may begin;
•	Adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use;
•	Pre-approval inspection of manufacturing facilities and selected clinical investigators;
•	Submission of a New Drug Application (NDA) to the FDA; and
•	FDA approval of an NDA, or of an NDA supplement (for subsequent indications or other modifications, including a change in location of the manufacturing facility).

 

Substantial financial resources are necessary to fund the research, clinical trials, and related activities necessary to satisfy FDA requirements or similar requirements of state, local, and foreign regulatory agencies. At such time as ABI undertakes to commercialize any of its products, all necessary preclinical testing, clinical trials, data review, and approval steps will be judiciously executed to insure that the product satisfies all regulatory requirements at all levels.

 

 

505(b)(2)

 

ABI has historically followed and will continue to follow the traditional approval process for New Drugs as set out in Section 505(b)(1) of the Federal Food, Drug, and Cosmetic Act. If an alternative path to FDA approval for new or improved formulations of previously approved products is scientifically and economically feasible and beneficial to the Company and the public, ABI may choose to follow this alternative path as established by section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act. This section of the Act permits the applicant to rely on certain preclinical or clinical studies conducted for an approved product as some of the information required for approval and for which the applicant has not obtained a right of reference. The process of approval under 505(b)(2) will be followed as judiciously as 505(b)(1) or any regulation.

 

Orphan Drug Designation

 

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States. ABI may choose to seek approval for a product satisfying the definition of an Orphan Drug if that product can be used to treat such an indication. Orphan drug designation does not convey any advantage in or shorten the duration or rigidity of the regulatory review and approval process.

 

Foreign Regulation

 

In addition to regulations in the United States, a variety of foreign regulations govern clinical trials and commercial sales and distribution of products in foreign countries. Whether or not the Company obtains FDA approval for a product, the Company must obtain approval of a product by the comparable regulatory authorities of foreign countries before the Company can commence clinical trials or market the product in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

 

The policies of the FDA and foreign regulatory authorities may change and additional government regulations may be enacted which could prevent or delay regulatory approval of investigational drugs or approval of new diseases for existing products and could also increase the cost of regulatory compliance. It is not possible to predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the United States or abroad.

 

Research and Development

 

During the year ended December 31, 2019, the Company incurred $52,510 in direct expenses towards research, development and IP protection related activities associated entirely with the development of a proprietary pulsatile insulin treatment. Other than corporate administrative and professional accounting fees related to maintaining public listing requirements, a significant portion, if not all, of the Company’s Selling, General & Administrative expenses were also allocated towards the research and development of ABI’s proprietary pulsatile insulin treatment.

 

Employees

 

The Company currently has two full-time employees and two part-time employees. Of these four employees, two are executive officers and two work in administrative capacities. Non-employee Consultants in business and research development are also engaged as needed.

 

ITEM 2.

DESCRIPTION OF PROPERTY.

 

Our executive and administrative offices are located at 4134 Business Park Drive, Amarillo, Texas in a 1,800 square-foot leased facility. The lease term, which is a semi-annual renewal, begins on January 1 of the calendar year and expires on June 30 of the calendar year. The lease automatically renews on July 1 of the calendar year if termination notice is not given to lessor.  The rent in effect on December 31, 2019 was $1,200 per month.  The renewed lease for the period January 1, 2020, through June 30, 2020, has a rent cost of $1,265 per month.  The monthly lease for a similar size office in Taiwan was $2,548 per month or $30,579 annually for a twelve-month lease.

 

 

ITEM 3.

LEGAL PROCEEDINGS.

 

There are currently no legal proceedings involving the Company.

 

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

None.

 

PART II

 

ITEM 5.

MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Common Stock

 

The shareholders have authorized 100,000,000 shares of voting common shares for issuance. On December 31, 2019, a total of 48,673,437 shares of common stock were either issued (40,516,351), reserved for conversion of convertible debt to stock (2,350,949), reserved for issuance to an investor (400,000), issuance to two Company officers as compensation (238,997), one Company employee (6,309), held for future compensation issue to a consultant (51,214), held for future exercise of stock options (4,657,000)¹ and warrants (452,617).

 

On February 19, 2019, 200,000 shares were issued at the price of $0.25 per share for the investment of $50,000 in the Company’s 2016-3 Private Placement Offering.

 

On February 26, 2019, Stephen T. Chen, CEO, and Bernard Cohen, VP, received 100,000 shares of common stock and 12,000 shares of common stock, respectively, as payment of fourth quarter 2018 stock compensation totaling $28,000.  The stock was issued, pursuant to the Board of Directors resolution of March 27, 2018, at a price of $0.25 per share.

 

On February 26, 2019, 24,000 common shares were issued to a Company consultant at $0.25 per share as part of the engagement contract for services for the fourth quarter of fiscal year 2018. The total amount of the stock was $6,000.

 

On March 26, 2019, 115,000 common shares were issued at $0.25 per share for payment of aggregate finders' fees in the amount of $28,750.

 

On April 26, 2019, Dr. Stephen T. Chen, Ph.D., CEO, received 67,377 shares at $0.3711 per share as compensation in the amount of $25,000 for the first quarter of 2019. Also on April 26, 2019, Bernard Cohen, VP, received 8,085 shares at $0.3711 as compensation of $3,000 for the first quarter of 2019 and Dr. Celee Spidel, Medical Liaison, received 4,043 common shares at $0.3711 for compensation of $1,500 for the first quarter of 2019. In addition to the aforementioned employees, the Company issued 16,170 shares of stock to a Company consultant at $0.3711 per share for the designated part of first quarter compensation of $6,000.

 

On July 10, 2019, Dr. Stephen T. Chen, Ph.D., CEO, converted $68,930 of the promissory note executed by the Company on June 30, 2016 and accrued interest of $670 in to 371,200 shares, at the specified Conversion Price of $0.1875 per share. Also on July 10, 2019, Dr. Chen converted $30,400 of the promissory note executed by the Company on January 30, 2016 in to 180,952 shares, at the specified Conversion Price of $0.1681.

 

On December 1, 2019, the Company issued 300,000 shares at $0.1875 per share for a $56,250 investment in the 2016-2 Private Placement Offering. The Company received the funds on November 23, 2017, but did not receive the executed subscription documents from the investor until 2019.

 

---

1 Of the total options granted (4,657,000), 1,217,375 are vested as of December 31, 2019.

 

 

Accrual for 2019 stock compensation and reservation of shares. Stock will be issued in 2020.

Beneficiary		Accrued Compensation Quarter 2				Accrued Compensation Quarter 3				Accrued Compensation Quarter 4				Total Compensation				Total Shares1
Dr. Stephen T. Chen		$	25,000			$	25,000			$	25,000			$	75,000				213,390
Bernard Cohen		$	3,000			$	3,000			$	3,000			$	9,000				25,607
Dr. Celee Spidel		$	1,500			$	750				-			$	2,250				6,309
i2China Mgt., LLC		$	6,000			$	6,000			$	6,000			$	18,000				51,214
Total		$	35,500			$	34,750			$	34,000			$	104,250				296,520
Price Per Share		$	0.3499			$	0.4183			$	0.3043

^{1 Total number of shares reserved for the compensation accrued in 2019 and total number of shares to be issued in 2020 for 2019 stock compensation.}

 

On September 15, 2019, the ABI Board of Directors unanimously approved a Consent Resolution enacting the 2019-1 Private Placement Memorandum and Subscription of Non-Distributive Intent (PPM Offering). The offering was approved for the sale of a maximum of 24,000,000 shares to raise an aggregate amount not to exceed $6,000,000. The stated use of proceeds was for commercialization of technologies and application of funds to operating expenses as necessary. The Offering closed on December 17, 2019.

 

On December 18, 2019, the Company Board of Directors approved and enacted the 2019-2 PPM Offering whereby a maximum of 12,000,000 shares of Common voting stock would be offered at $0.25 per share for aggregate proceeds of $3,000,000. The offering is to be completed within one year from the date of approval. The proceeds are to be used for commercialization of technologies and application to operating expenses as necessary.

 

On December 31, 2019, the Company received $100,000 from an investor who purchased 400,000 shares of Common stock at $0.25 per share through the 2019-2 Private Placement Offering. The stock will be issued in 2020.

 

The Company did not pay any dividends to its common stock shareholders in 2019 and has no plans to do so in the immediate future.

 

Amarillo Biosciences, Inc. uses the services of American Stock Transfer and Trust Company as the Company’s transfer agent.

 

Preferred Stock

 

The shareholders have authorized 10,000,000 shares of preferred stock shares for issuance.

 

No Preferred Equity was outstanding as of December 31, 2019, and none is outstanding as of the Balance Sheet date of this report.

 

Stock Options and Warrants 

 

On September 26, 2018, the Company’s Board of Directors adopted the Amarillo Biosciences, Inc., 2018 Employee Stock Option Plan (the “2018-ESOP”). The 2018-ESOP provides for the grant of Qualified Incentive Stock Options to the Company’s employees. The Board, in its adoption of the 2018-ESOP, directed the Officers to submit the 2018-ESOP to the shareholders for ratification and approval at the next scheduled shareholders meeting. Failure of the ratification and approval of the 2018-ESOP within one year of the effective date renders the qualified options to become nonqualified options for purposes of the U.S Internal Revenue Code. The 2018-ESOP is administered by the Board of Directors of ABI or by a committee of directors appointed by the Board of Directors of ABI (the “Stock Option Committee”) as constituted from time to time. The maximum number of shares of Common Stock which may be issued under the 2018-ESOP is six million (6,000,000) common stock shares which will be reserved for issuance subject to options.

 

 

The option price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option is 100% of the fair market value of a share of Common Stock on the date the Incentive Stock Option is granted. The option price is $0.38 per share and the options are exercisable during a period of ten (10) years from the date of grant, where the options vest 20% annually over five (5) years, commencing one (1) year from date of grant. If an option grantee owns or controls over ten percent (10%) of the outstanding stock, then pursuant to Section 424(d) of the Code, the option price becomes 110% of fair market value, $0.418; the term of exercise becomes five (5) years from ten (10); and the vesting period decreases from five (5) years to four (4) years.

 

Since approval of the “2018-ESOP” on September 26, 2018 through the date this document was filed, no stockholders meeting has been convened. As a result of the stockholders not having ratified the “2018-ESOP”, the qualified options automatically became non-qualified options on September 26, 2019. All other terms and conditions of the plan remain the same.

 

On September 26, 2018, the Company’s Board of Directors adopted the Amarillo Biosciences, Inc., 2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan (the “2018-NQSOP”). The 2018-NQSOP provides for the grant of Nonqualified Incentive Stock Options to the Company’s employees. The 2018-NQSOP is administered by the Board of Directors of ABI or by the Stock Option Committee as constituted from time to time. The maximum number of shares of Common Stock which may be issued under the 2018-NQSOP is twenty million (20,000,000) common stock shares which will be reserved for issuance subject to options. The option price for the Nonqualified Options is $0.38 exercisable for a period of ten (10) years, with a vesting period of five (5) years at 20% per year commencing one (1) year from date of grant. There are no changes in terms or conditions for shareholders who own or control over ten percent (10%) of the outstanding stock.

 

Equity Compensation Plan Information:

 

Stock Plans 1

Issue Date Range

Total Shares Authorized

Shares Issued

Shares Remaining

2008 Stock Incentive Plan

5/23/08

–

10/11/11

600,000

463,420

136,580

Amarillo Biosciences, Inc., 2018 Employee Stock Option Plan2, 3

9/26/18

–

9/26/28

6,000,000

850,000

5,150,000

Amarillo Biosciences, Inc., 2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan2

9/26/18

–

9/26/28

20,000,000

3,807,000

16,193,000

¹ The Board of Directors has approved all stock, stock option and stock warrant issuances.

² Details of the option plans are also disclosed in Financial Statements footnote 9, Stock Options and Stock Plans.

³ On September 26, 2019, all Qualified Options became non-qualified options since the 2018-ESOP was not ratified by the stockholders.

 

Whether qualified or nonqualified, when options are exercised, the ABI Common Stock shares will be issued pursuant to Rule 144A meaning that the shares cannot be traded or otherwise exchanged for a minimum period of six months from issue date.

 

 

A summary of option activity for the years ended December 31, 2018 and December 31, 2019 are presented below.

 

Date		Number of Options 1Qualified*				Number of Options Nonqualified				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (years)				Aggregate Intrinsic Value
Balance December 31, 2018			950,000				3,995,000			$	0.38			9 -					-
Granted 2019			-				-				-				-
Exercised			-				-				-				-				-
Expired or Forfeited			100,000				188,000			$	0.38				-				-
Balance December 31, 2019			850,000				3,807,000			$	0.38			8 -

* There is one stock owner over 10% currently holding 500,000 qualified options. The exercise price for this option-holder would be $0.418 with an exercise period of 5 years and a vesting period of 4 years at 25% per year.

¹ Insomuch as the plan was not ratified by stockholders, the qualified options became non-qualified on September 26, 2019. These totals remain separated since the two different plans are still in existence.

 

The Company used the Black-Scholes option pricing model to value the option awards with the following assumptions applied: (1) Volatility – 276%; (2) Term – 5 years was chosen although the full option term is 10 years to be more commensurate with the 5-year vesting portion of the plan; (3) Discount – 2.96%.

 

As of December 31, 2019, there is $1,308,932 in unrecognized option expense that will be recognized over the next 3.75 years.

 

Directors, officers, employees and consultants did not exercise any options in 2018 or 2019.

 

On April 15, 2018, the Company issued a warrant to a consultant for the purchase of 452,617 shares of common stock at an exercise price of $0.27 per share. The warrant is exercisable through April 14, 2020. The warrant was valued at $75,967 and will be expensed over twenty-four months. The Company used the Black-Scholes option pricing model to value the warrants with the following assumptions applied: (1) Volatility – 207%; (2) Term – 2 years (3) Discount Rate – 2.39%.

 

No warrants were exercised in 2018 or 2019.

 

Insurance

 

As of December 31, 2019, the Company has an outstanding balance of $8,229 for a financing agreement for the periodic payment of Directors & Officers Liability Insurance premium for 2019 – 2020. The terms of the agreement are as follows: Payee – Bank Direct Capital Finance; Effective Date – June 1, 2019; Total Premiums - $54,350; Cash Down Payment - $22,340 (Insurica Insurance Management Network/Amarillo); Amount Financed - $32,010; Annual Percentage Rate – 7.50%; Finance Charge - $907; Total Payments - $32,917; Periodic Payment - $4,115; Number of Payments – 8 (eight); First Payment July 1, 2019.

 

 

Convertible Notes Payable and Other Related Party Notes Payable

 

As of December 31, 2019 and 2018, the amount of convertible debt of the Company’s balance sheet was $444,581 and $513,356, respectively. This amount consisted of the following convertible promissory notes payable to Dr. Stephen T. Chen, Chairman, CEO, President, and CFO as shown in the table below.

 

		December 31, 2019				December 31, 2018
Convertible Note payable – related party		$	114,026			$	144,426
Convertible Note payable – related party			262,500				262,500
Convertible Note payable – related party			-				106,430
Convertible Note payable – related party++			39,620				-
Convertible Note payable – related party			12,435				-
Convertible Note payable			16,000				-
Convertible Notes payable		$	444,581			$	513,356

++The original principal of the note was $72,200. On December 11, 2019, Dr. Chen was paid 1,000,000 NTD from the ABI Taiwan Branch which converted to USD of $32,808 by applying the currency exchange rate of 30.48 for that day. The payment was applied to the outstanding principal balance of Note 3.19 which reduced the principal balance to $39,392. The accrued interest on the Note from September 1, 2019 through December 31, 2019, is $228, which when added to the principal increases the current balance, to $39,620 as of December 31, 2019.

 

On January 30, 2019, Dr. Chen demanded a partial repayment in the amount of $37,500. The repayment reduced the outstanding balance of a convertible promissory note from $106,430 to $68,930.

 

On July 1, 2019, Dr. Chen notified the Company of his intent to convert the remaining principal balance and accrued interest, $69,600, of the promissory note dated June 30, 2016, to ABI Common Voting Shares at a conversion price of $0.1875. On July 10, 2019, 371,200 ABI shares were issued in full and final satisfaction of the aforementioned promissory note referred to as Note #3. On July 1, 2019, Dr. Chen also notified ABI of his intent to convert $30,400 into Company shares at a price of $0.168 per share. The conversion was applied to the principal and accrued interest on the promissory note dated January 11, 2016, reducing the balance of the note from $144,426 to $114,026. On July 10, 2019, 180,952 ABI shares were issued.

 

Beginning September 1, 2019, Dr. Chen elected to defer cash compensation from the Company as well as reimbursement of cash advanced by him on behalf of Amarillo Biosciences, Inc., for travel, entertainment, and various other operating expenses.

 

A Company consultant, i2China Management Group, LLC, elected to defer fifty percent (50%) of the monthly cash fee for services paid by the Company and take a note payable from Amarillo Biosciences, Inc. for the deferred portion of the fee. The contractual monthly fee is $8,000 and the Consultant agreed to accept $4,000 per month and defer $4,000 per month until the note matures.

 

On September 1, 2019, the Company issued a new promissory note, Note #3.19, to Dr. Stephen T. Chen, Chairman, CEO, President, and CFO in the amount of $72,200. The Note is payable on September 1, 2020, or on demand and bears interest at the AFR¹ short-term rate of 1.85%. 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 September 1, 2019, the Company issued Note #5.19 to i2China Management Group, LLC in the amount of $16,000. The Note is payable on September 1, 2020, or on demand and bears interest at the AFR¹ short-term rate of 1.85%. 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 December 1, 2019, the Company issued a new promissory note, Note #4.19, to Dr. Stephen T. Chen, Chairman, CEO, President, and CFO in the amount of $12,436. The Note is payable on December 31, 2020, or on demand and bears interest at the AFR¹ short-term rate of 1.61%. 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 December 31, 2019, interest expense was accrued for Note #1 ($216), Note #2 ($430), Note #3.19 ($228), Note #4.19 ($17) and Note#5.19 ($56) totaling $947 for the fourth quarter of 2019.

 

As of December 31, 2019, the Company has the following Convertible Notes Payable outstanding to Dr. Stephen T. Chen, Chairman, CEO, President, and CFO; and to i2China Management Group LLC $428,354 and $16,000, respectively, totaling $444,582.

 

Note #.		Date	Payee		Principal Amount			Maturity		Annual Interest AFR2				Conversion Price
1		1/11/2016	Stephen T. Chen		$	114,026		On Demand			0.75	%		$	0.1680
2		3/18/2016	Stephen T. Chen		$	262,500		On Demand			0.65	%		$	0.1875
3.19		9/1/2019	Stephen T. Chen**		$	39,620		On Demand			1.85	%		$	0.2500
4.19		12/1/2019	Stephen T. Chen		$	12,435		On Demand			1.61	%		$	0.2500
5.19		9/1/2019	I2China Mgt. Co. LLC		$	16,000		On Demand			1.85	%		$	0.2500
Total Convertible Notes Payable					$	444,581

**On December 11, 2019, Dr. Chen was paid 1,000,000 NTD from the ABI Taiwan Branch which converted to USD of $32,808 by applying the currency exchange rate of 30.48 for that day. The payment was applied to the outstanding principal balance of Note 3.19 which reduced the principal balance to $39,392 The accrued interest on the Note from September 1, 2019 through December 31, 2019, is $228, which when added to the principal increases the current balance, to $39,620 as of December 31, 2019.

 

All of the Notes are unsecured. The Notes are convertible into ABI Common Voting Shares which are issued as restricted stock pursuant to SEC Rule 144. The shares must be held for a minimum of six (6) months before they can be sold or otherwise traded. Other restrictions might apply.

 

Other Related Party Transactions

 

Other than the aforementioned common stock and convertible notes activity, there were no related party transactions that occurred during the period from January 1, 2019 to December 31, 2019.

 

ITEM 6.

SELECTED FINANCIAL DATA.

 

This item is not applicable to smaller reporting companies.

 

ITEM 7.

MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:

 

The following discussion should be read in conjunction with our financial statements and the notes thereto which appear elsewhere in this report. The results shown herein are not necessarily indicative of the results to be expected in any future periods. This discussion contains forward-looking statements based on current expectations, which involve uncertainties. Actual results and the timing of events could differ materially from the forward-looking statements as a result of a number of factors. Readers should also carefully review factors set forth in other reports or documents that we file from time to time with the Securities and Exchange Commission.

 

Overview. ABI has been (and is) engaged in the business of biopharmaceutical research and development. Its primary focus historically has been the development of low-dose, orally administered interferon. ABI holds or licenses various patents; it also is the developer of Maxisal^®, a dietary supplement to treat dry-mouth symptoms.

 

---

2 Short Term Applicable Federal Rate

 

 

The Company’s goal is to expand the reach of its research, development, and marketing of biopharmaceutical, biotechnical, health and life science related products and services. ABI will continue to leverage its core technology going forward by using its thirty-five years of scientific and clinical data to establish low dose interferon-alpha lozenges as a therapeutic agent for conditions such as influenza, hepatitis C, and various causes of thrombocytopenia just to name a few. The Company is committed to expanding its business operations to encompass a wide variety of licensing, partnerships, and development opportunities in the aforementioned sectors. This commitment extends not only to the U.S., but to Greater China and other Asian countries.

 

Company Management and Employees. On December 31, 2019, ABI had four employees, five directors, and three consultants. Presently, ABI has four employees, five directors, and five consultants. The employees include the following persons:

 

 

 

Stephen T. Chen:

Chairman, Chief Executive Officer (CEO), President and Chief Operating Officer (COO), and Chief Financial Officer (CFO). Dr. Chen was named Chairman of the Board in February 2012, and he has been a director of the Company since February 1996. He currently executes the management functions as not only Chairman, but as CEO, President, COO, and CFO. He has been President and Chief Executive Officer of STC International, Inc., a health care investment firm, since May 1992. Dr. Chen has over thirty years of international business experience, including an extensive background in pharmaceutical product acquisition and licensing, development of joint venture agreements, execution of business strategy, and leadership of start-up companies in the pharmaceutical, biotechnology and nutraceutical industries. Dr. Chen has held executive positions in R&D and business development at several major pharmaceutical companies, including Burroughs Wellcome (presently GlaxoSmithKline), Miles Pharmaceuticals (presently Bayer), ICI America (presently AstraZeneca), and Ciba-Geigy (presently Novartis). He received a Ph.D. in Industrial & Physical Pharmacy from Purdue University in 1977.

 

Bernard Cohen:

Vice President - Administration (VP-Admin). Mr. Cohen holds BBA and MPA degrees from West Texas A&M University. He is a long time Amarillo resident with over thirty years of management experience. Mr. Cohen has been with ABI since October 2009. Mr. Cohen works with Ms. Shelton, providing the reporting necessary for ABI’s various SEC filings, and ordinary-course internal bookkeeping and accounting services.

 

Chrystal Shelton:

Office Manager & Administration. Ms. Shelton has been with ABI since 1987. In addition to handling routine office administration, Ms. Shelton is responsible for accounting, form, and formatting of SEC filings. She is an integral part of the reporting process and interacts with outside professionals who assist ABI in its various compliance measures.

 

Maggie Wang:

Director of Business Development. Ms. Wang has an extensive background in business development and marketing of consumer products in Asian countries. Ms. Wang is also the branch manager for ABI Taiwan.

 

 

Directors. The board of directors of ABI consists of the following persons: Stephen T. Chen, Ph.D., Yasushi Chikagami, Daniel Fisher, Nicholas Moren, and Beatrice Liu, Ph.D., CPA.

 

 

Consultants. From time to time, ABI engages consultants as needed for specific areas of responsibility. Presently, the Company has engaged the following consultants: Jun Y. Lee, Esq.- Chief Legal Consultant, Dr. Yung-Hsiang Hung- Director-Medical Division; Jenny Chiu- Legal and Regulatory Consultant; SBSuite.com, Inc.- Accounting Consultant; and Mr. Lawrence Lin- Executive Advisor.

 

Assets, Liquidity, and Capital. ABI holds various patents and related intellectual property, which are described earlier in this document.

 

As of December 31, 2019, the Company had available cash of $409,039 compared to a cash position of $1,276,654 on December 31, 2018. The Company had working capital of $(308,014) at the end of fiscal year 2019, whereas in 2018, working capital was $569,613. The burn rate in 2019 was approximately $72,300 per month. The Company continued to develop and establish new revenue streams to eventually maintain a profitable going concern. Two major areas of focus are to (1) leverage ABI’s core technology, low-dose oral interferon, through licensing ventures and (2) develop business lines to extend the Company’s reach into biotech, bio-pharmaceutical, health care products and life sciences businesses. 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.

 

Pending Litigation

 

To the best of management’s knowledge, the Company does not believe that there is any pending litigation against ABI.

 

Comparison of results for the fiscal year ended December 31, 2019, to the fiscal year ended December 31, 2018.

 

Revenues. Revenue for 2019 was $11,731 resulting primarily from the sale of liposomal nutraceuticals as compared to that in 2018 which was $77,724, also for the sale of liposomal nutraceuticals. Gross profit for 2019 was $2,959 compared to $12,847 in 2018. The 2019 cost of sales was 74.78% compared to 83.47% in 2018.

 

Selling, General and Administrative Expenses. Selling, General and Administrative expenses increased from $1,314,932 for the fiscal year ended December 31, 2018 to $1,530,862 for the fiscal year ended December 31, 2019, an increase of $215,930 or approximately 16%. Much of the increase was attributable to salaries, compensation related restricted stock grants and professional fees.

 

Research and Development Expenses. Research and development expenses incurred for the fiscal year ended 2019 was $52,510 as compared to $32,591 for fiscal year 2018, an increase of $19,919 or 61%.

 

Net Loss. Net loss for the fiscal year ended December 31, 2019 was $1,581,298 compared to net loss of $1,338,639 for the fiscal year ended December 31, 2018, a difference of $242,659 or 18%.

 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation.

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

The financial statements of the Company are set forth beginning on page F-1 immediately following the signature page of this report.

 

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None.

 

ITEM 9A.

CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures

 

At the end of the period covered by this Annual Report on Form 10-K for the fiscal year ended  December 31, 2019, 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”), and 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 CEO/CFO and Accounting Consultant have 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, including our CEO/CFO and accounting consultant, as appropriate, to allow for accurate and timely decisions regarding required disclosure. 

 

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 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 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 annual report.

 

Changes to Internal Controls and Procedures over Financial Reporting

 

We intend that our internal control over financial reporting will continue to be modified during our most recent year by further addressing deficiencies in the financial closing, review and analysis process, which will improve our internal control over financial reporting.

 

Management’s Remediation Plans

 

We will continue seeking to increase our personnel resources and technical accounting expertise within the accounting function as funds become available. Management believes that hiring additional knowledgeable personnel with technical accounting expertise will remedy the following material weakness: insufficient 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.

 

PART III

 

ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

 

As of December 31, 2019, the directors and executive officers of the Company were as follows:

 

Name		Age		Position
Stephen Chen, Ph.D.		70		Chairman of the Board, Chief Executive Officer President, Chief Financial Officer, Chief Operating Officer and Director
Bernard Cohen		66		Vice President - Administration
Yasushi Chikagami		80		Director
Daniel Fisher		75		Director
Nicholas Moren		73		Director
Beatrice Liu, Ph.D., CPA		55		Director

 

Stephen Chen was named Chairman of the Board in February 2012 and has been a director of the Company since February 1996. Effective January 28, 2019, Dr. Chen assumed the duties, responsibilities, and title of Chief Financial Officer (CFO) of the Company in addition to his existing duties and titles of Chairman of the Board, CEO, and President. He has been President and Chief Executive Officer of STC International, Inc., a health care investment firm, since May 1992. Dr. Chen has over thirty years of international business experience, including an extensive background in pharmaceutical product acquisition and licensing, development of joint venture agreements, execution of business strategy, and leadership of start-up companies in the pharmaceutical, biotechnology and nutraceutical industries. Dr. Chen has held executive positions in R&D and business development at several major pharmaceutical companies, including Burroughs Wellcome (presently GlaxoSmithKline), Miles Pharmaceuticals (presently Bayer), ICI America (presently AstraZeneca), and Ciba-Geigy (presently Novartis). He received a Ph.D. in Industrial & Physical Pharmacy from Purdue University in 1977.

 

 

Bernard Cohen was hired to be a Vice-President and Chief Financial Officer of the Company on October 1, 2009. On January 28, 2019, Bernard Cohen, relinquished the duties and title of Chief Financial Officer (CFO) and assumed the duties and title of Vice President – Administration. Mr. Cohen has been Director of Finance and Data Base Manager at the Harrington Regional Medical Center, Inc. (HRMCI), which is the management and development entity for the Harrington Regional Medical Center in Amarillo, Texas.  Previously, he held various executive positions at Colbert’s of Amarillo, a department store.  His positions included:  Chief Executive Officer, Vice President, Chief Financial Officer, and Controller.  He has previously been a member of the Texas Tech University Health Sciences Center at Amarillo (TTUHSC) Institutional Review Board (IRB) where he participated in the review of clinical trial protocols to monitor the safety and protection of human research and testing subjects.  Neither HRMCI nor TTUHSC has any connection whatsoever with the Company.

 

Yasushi Chikagami was added to the board of directors in June 2012. Mr. Chikagami holds a B.S. Degree in Agricultural Engineering from National Taiwan University, and an M.S. Degree in Engineering from the University of Tokyo. Mr. Chikagami has principally been engaged in the technology industry during his business career, continues to serve on several boards, and is currently serving as Chairman for Arise Corporation (Taiwan), Good TV Broadcasting Corporation (Taiwan), and ZMOS Technology, Inc. (US), and is a director of Anxon International, Inc. (US).

 

Daniel Fisher was added to the board of directors in July 2015. Mr. Fisher is the co-founder, and President of Nano BioMed, Locust Valley, New York. The base technologies are licensed from The Albert Einstein College of Medicine. The licensed technologies are a drug delivery system for the delivery of nitric oxide. In addition, the company has licensed a magnetic nano drug targeting technology. Mr. Fisher negotiated the license from the Einstein College, closed the company’s first sublicenses, arranged for investment financing, and developed the business plan. Mr. Fisher, co-founder of BioZone Laboratories, Inc., served as its President for 22 years. Based near San Francisco, California, BioZone specializes in research, development and manufacturing of products utilizing its drug delivery technologies. He was awarded three patents for his work with liposomal drug delivery technology. In addition, Mr. Fisher was president of Equalan Pharma LLC, which marketed GlyDerm professional skincare products to dermatologists and direct marketing companies. Prior to forming BioZone in 1989, Mr. Fisher's experience base included more than twenty years in sales and marketing management positions for consumer and technical product companies, including Dun & Bradstreet, General Foods Corporation and Control Data Corporation. His memberships include being the founding secretary of the Foundation for Global Skin Health Strategies. He holds a B.S. in Marketing from San Francisco State University.

 

Nicholas Moren was added to the board of directors in July 2015. Mr. Moren is currently retired. Prior to that he was a senior financial executive with several major public companies, including Loral Space & Communications, Inc., Transworld Corporation and Trans World Airlines, Inc. He brings with him extensive understanding and knowledge of a wide range of businesses, and substantial financial expertise and insightful perspectives relating to economic, financial and business conditions acquired during more than 20 years of serving as a senior executive. He received a B.A. in Engineering from Brown University and a M.B.A. from Wharton Graduate Division, University of Pennsylvania.

 

 

Beatrice Liu was appointed to the Amarillo Biosciences, Inc., Board of Directors in July 2019. Ms. Liu is the senior partner of BDO Taiwan and has over twenty years of experience in accounting, auditing, and corporate governance. Ms. Liu has an impressive academic history earning a B.S. – Taxation degree from National Cheng-Chi University, ROC; an M.A. – Accounting from University of Illinois at Urbana-Champaign, USA; and a Ph.D. – Accounting from XIAMEN University, PRC. Ms. Liu has worked extensively in such areas as assurance service, internal audit outsourcing, mergers and acquisitions, IPO services, corporate restructuring, Sarbanes-Oxley Section 404 attestation services, and many other areas. Her certifications and memberships include: CPA-ROC; CPA-USA; Member of Audit Standards Committee of the Auditing Research and Development Foundation, Chairman, and Auditing and Accounting Committee of the National Federation of Certified Accountant Associations, ROC. Ms. Liu’s knowledge and depth of experience enable her to be a valuable asset to Amarillo Biosciences, Inc.

 

The Company’s directors are elected at the annual meeting of shareholders to hold office until the annual meeting of shareholders for the ensuing year or until their successors have been duly elected and qualified. Directors receive compensation of $1,000 per day for attendance at meetings, $250 per day for regularly scheduled teleconference meetings, and are reimbursed for any out-of-pocket expenses in connection with their attendance at meetings.

 

Officers are elected annually by the Board of Directors and serve at the discretion of the Board.

 

Audit Committee

 

Company bylaws provide for the appointment of members to the Board of Directors when and as necessary. As the Company progresses and achieves operational goals as well as the addition of revenue producing businesses, it is anticipated that the Audit Committee will resume its function. While there have been no changes in internal controls, the Company continually reviews all existing internal controls. From time to time, the Company may engage an independent internal control auditor who consults with the Company on its existing internal controls and possible changes or augmentations to those controls.

 

 

Code of Ethics

 

The Company’s Code of Ethics may be found on the Company’s website, www.amarbio.com.

 

Compliance with Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires directors and officers of the Company and persons who own more than 10 percent of the Company’s common stock to file with the Securities and Exchange Commission (the “Commission”) initial reports of ownership and reports of changes in ownership of the common stock. Directors, officers and more than 10% shareholders are required by the Exchange Act to furnish the Company with copies of all Section 16(a) forms they file.

 

To the Company’s knowledge based solely on a review of the copies of such reports furnished to the Company, the following persons have failed to file, on a timely basis, the identified reports required by the Exchange Act during the most recent fiscal year:

 

Name and Principal Position		Number of Late Reports				Known Failures to File a Required Form
Dr. Stephen T. Chen, Chairman of the Board, Chief Executive Officer, President, and Chief Financial Officer			0				0
Bernard Cohen, Vice President – Administration			0				0
Yasushi Chikagami, Director			0				0
Daniel Fisher, Director			0				0
Nicholas Moren, Director			0				0
Edward L. Morris, Director			0				0
Dr. Beatrice Liu, Director			0				0

 

 

ITEM 11.

EXECUTIVE COMPENSATION.

 

On March 31, 2018, the Board of Directors voted to restructure the compensation packages of Dr. Chen and Mr. Cohen, effective as of January 1, 2018.

 

The following table sets forth for the three years ended December 31, 2019, compensation paid by the Company to its Chairman of the Board, President, Chief Executive Officer, and Chief Financial Officer; and to its Vice President - Administration.

 

Summary Compensation Table
			Annual Compensation												Long Term Compensation
Name and Principal Position	Year		Salary				Bonus				Other Compensation				Securities Underlying Options
Dr. Stephen T. Chen, Chairman of the Board, President, Chief Executive Officer, and Chief Financial Officer	2019		$	249,633			$	-			$	100,000				-
	2018		$	240,000			$	-			$	100,000				-
	2017		$	86,250			$	93,750			$	-				-
Mr. Bernard Cohen, Vice President and Chief Financial Officer	2019		$	71,398			$	-			$	12,000				-
	2018		$	70,000			$	12,500			$	12,000				-
	2017		$	62,292			$	17,500			$	-				-

 

Option Grants in 2018

 

On September 26, 2018, the Company’s Board of Directors adopted the Amarillo Biosciences, Inc., 2018 Employee Stock Option Plan (the “2018-ESOP”). The 2018-ESOP provides for the grant of Qualified Incentive Stock Options to the Company’s employees.

 

On September 26, 2018, the Company’s Board of Directors adopted the Amarillo Biosciences, Inc., 2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan (the “2018-NQSOP”). The 2018-NQSOP provides for the grant of Nonqualified Incentive Stock Options to the Company’s employees.

 

Both of these stock option plans are explained in detail in the “Stock Options and Warrants” section and in the Financial Statements footnotes section in note #9 “Stock Option and Stock Plans.”

 

 

Director Compensation for Last Fiscal Year

 

Directors receive $1,000 compensation for attendance at directors’ meetings and $250 for regularly scheduled teleconference meetings. There were no regularly scheduled meetings during 2019.

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

As of December 31, 2019, there were 40,516,351 shares of the Company’s common stock issued and outstanding. The following table sets forth as of December 31, 2019, the beneficial ownership of each person who owned more than 5% of such outstanding common stock:

 

Name and Address	Amount and Nature of Beneficial Ownership	Percent of Class Owned(1)
Stephen T Chen & Virginia M Chen TTEES Stephen T & Virginia M Chen Living Trust DTD 04/12/2018 19 Pine Plain Road Wellesley Hills MA 02481	10,376,813	23.17%
Hung Lan Lee FL 20 NO 19 Lane 8 SEC 5 RD XIN-YI Taipei 110 (R.O.C.) Taiwan	4,000,000	8.93%
ANXON International Inc. 9F -3 NO 32 SEC 1 Chenggong RD Taipei City 115 Nangang Dist. 00115 Taiwan ROC	2,553,153	5.70%

(1) As of December 31, 2019, applicable percentage ownership is based on 44,833,812 shares of common stock consisting of 40,516,351 shares issued, shares reserved for warrant conversion, 452,617, 2,350,949 shares reserved for note conversions, 1,217,375 vested options, and compensation stock earned and accrued but not issued, 296,520 shares. (Accrued compensation shares are included in the base because those shares will be issued and are exercisable within sixty days of December 31, 2019). Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of December 31, 2019, are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 

 

The following table sets forth the beneficial ownership of the Company’s stock as of December 31, 2019 by each executive officer and director and by all executive officers and directors as a group:

 

Name and Address of Owner	Amount and Nature of Beneficial Ownership	Percent of Class Owned1
Stephen T. Chen 31 Service Drive Wellesley, MA 02482	10,376,8132	23.17%
Bernard Cohen 2025 S. Lipscomb St. Amarillo, TX 79109	161,766	0.36%
Yasushi Chikagami 9F, No. 29, Ln. 107, Sec. 2 Heping E. Rod., Da’an Dist. Taipei City 106, Taiwan (ROC)	2,553,153	5.70%
Daniel Fisher 36 Marlee Road Pleasant Hill, CA 94523	75,000	0.17%
Nicholas Moren PO Box 6873 Incline Village, NV 89450	75,000	0.17%
Beatrice Liu, Ph.D., CPA (ROC & U.S.) 10F., No. 72, Sec 2, Nan Jing E. Rd., Taipei, Taiwan, R.O.C. 104	-	-
Total Group (all directors and executive officers – 6 persons)	13,241,7323	29.57%

(1) As of December 31, 2019, applicable percentage ownership is based on 44,784,407 shares of common stock consisting of 40,516,351 shares issued, shares reserved for warrant conversion, 452,617, 2,350,949 shares reserved for note conversions, 1,217,375 vested options, and compensation stock earned and accrued but not issued, 296,520 shares. (Accrued compensation shares are included in the base because those shares will be issued and are exercisable within sixty days of December 31, 2019). Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of December 31, 2019, are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

(2) Includes 5,749,019 shares owned by Dr. Chen through the Stephen T Chen & Virginia M Chen TTEES, Stephen T & Virginia M Chen Living Trust, DTD 04/12/2018; 638,801 shares owned by STC International, Inc., of which Dr. Chen is the majority owner and serves as Chairman, President and a Board member. Also included are 39,473 shares owned by ACTS Biosciences, Inc., of which Dr. Chen serves as Chairman and a Board member; 761,000 shares owned by Virginia M. Chen IRA, Dr. Chen’s spouse; and 2,350,049 shares of common stock reserved for note conversions beneficially owned by Dr. Chen exercisable within 60 days. Dr. Chen was awarded 500,000 Qualified Incentive Stock Options and 2,585,000 Nonqualified Incentive Stock Options on September 26, 2018, through the Amarillo Biosciences, Inc., 2018 Employee Stock Option Plan and the Amarillo Biosciences, Inc., 2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan, respectively. Dr. Chen’s total options granted him (3,085,000) are reserved for future issue, but only the options that vested as of September 26, 2019, 802,500, are counted in his beneficial ownership. Since Dr. Chen is an “insider” or “Affiliate” by virtue of his holdings and his position in the Company, his vesting schedule is determined over a four-year period rather than five years as are the other grantees. Furthermore, Dr. Chen’s options vest at a rate of twenty-five per cent (25%) per year rather than twenty percent per year as the other grantees vest. (As explained in the section “Stock Options and Warrants,” the qualified options awarded September 26, 2018, became non-qualified on September 26, 2019, because the stockholders did not ratify the “2018-ESOP” within one year from the date the plan was adopted. All other terms remained unchanged.)

(3) Directors and officers percentage ownership is calculated based 44,784,407 total shares (outstanding and reserved for note conversions) plus beneficial ownership.

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

 

Historically, ABI has relied upon certain relationships which gave rise to related transactions. These relationships have helped ABI with financing, ingredients to potential products, research, and technology. All future transactions and loans between the Company and its officers, directors and 5% shareholders will be on terms no less favorable to the Company than could be obtained from independent third parties. There can be no assurance, however, that future transactions or arrangements between the Company and its affiliates will be advantageous, that conflicts of interest will not arise with respect thereto or that if conflicts do arise, that they will be resolved in favor of the Company.

 

 

Currently there are no such arrangements that have not already been disclosed in this document.

 

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

Audit Fees

 

The aggregate fees billed by our independent auditors, PWR CPA, LLP (“PWR”) (who was appointed as our independent auditors on March 19, 2020) and LBB & Associates Ltd., LLP (“LBB”) (who were terminated as our independent auditors on March 3, 2020), for professional services rendered for the audit of our annual financial statements, and for the review of quarterly financial statements for the fiscal years ended December 31, 2019 and 2018, were:

 

		2019				2018
PWR CPA		$	20,000			$	-
LBB & Associates Ltd., LLP		$	20,750			$	46,450

 

Audit fees incurred by the Company were pre-approved by the Board of Directors.

 

Audit Related Fees: None.

 

Tax Fees: None.

 

All Other Fees: None.

 

We do not use the auditors for financial information system design and implementation. Such services, which include designing or implementing a system that aggregates source data underlying the financial statements or that generates information that is significant to our financial statements, are provided internally or by other service providers. We do not engage the auditors to provide compliance outsourcing services.

 

The Board of Directors has considered the nature and amount of fees billed by PWR and LBB and believes that the provision of services for activities unrelated to the audit is compatible with maintaining PWR’s and LBB’s independence.

 

Accountant Approval Policy

 

Before an accountant is engaged by the Company to perform audit or non-audit services, the accountant must be approved by the Company’s Audit Committee or the Executive Committee in the absence of an Audit Committee.

 

 

PART IV

 

ITEM 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

EXHIBIT INDEX

 

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.
33.1		Management’s Report on Internal Control Over Financial Reporting
99.1		906 Certification
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

 

*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 Section 13 or 15(d) of the 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: March 30, 2020	By:     /s/ Stephen Chen                                            Stephen Chen, Chairman of the Board, Chief Executive Officer and Chief Financial Officer

 

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature		Title		Date
/s/ Stephen Chen		Chairman of the Board,		March 30, 2020
Stephen Chen		Director and Chief Executive Officer
/s/ Yasushi Chikagami		Director		March 30, 2020
Yasushi Chikagami
/s/ Daniel Fisher		Director		March 30, 2020
Daniel Fisher
/s/ Nicholas Moren		Director		March 30, 2020
Nicholas Moren
/s/ Beatrice Liu		Director		March 30, 2020
Beatrice Liu

 

 

Amarillo Biosciences, Inc.

Financial Statements

 

Years ended December 31, 2019 and 2018

 

 

Contents
Report of Independent Registered Public Accounting Firm	F-1
Balance Sheets	F-2
Statements of Operations	F-3
Statements of Stockholders’ Equity	F-4
Statements of Cash Flows	F-5
Notes to Financial Statements	F-6

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and
Stockholders of Amarillo Biosciences, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Amarillo Biosciences, Inc. (the Company) as of December 31, 2019 and 2018, and the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

As discussed in Note 1 to the financial statements, the Company’s absence of significant revenues, recurring losses from operations, and its need for additional financing in order to fund its projected loss in 2020 raise substantial doubt about its ability to continue as a going concern. These 2019 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

/s/PWR CPA, LLP
We have served as the Company’s auditor since 2020.
Houston, Texas
March 30, 2020

 

 

Amarillo Biosciences, Inc.

Balance Sheets

 

 

The accompanying notes are an integral part of these financial statements.

 

 

Amarillo Biosciences, Inc.

Statements of Operations

 

 

The accompanying notes are an integral part of these financial statements.

 

 

Amarillo Biosciences, Inc.

Statements of Stockholders’ Equity (Deficit)

Years Ended December 31, 2019 and 2018

 

 

The accompanying notes are an integral part of these financial statements.

 

 

Amarillo Biosciences, Inc.

Statements of Cash Flows

 

 

The accompanying notes are an integral part of these financial statements.

 

 

Amarillo Biosciences, Inc.

Notes to Financial Statements

December 31, 2019 and 2018