Attached files
U.S.
Securities and Exchange Commission
Washington, D.C.
20549
FORM 10-K
(Mark
One)
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[ X
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Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the
Fiscal Year Ended December 31, 2020
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[
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Transition
Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 [No Fee Required]
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Commission File Number 0-20791
AMARILLO
BIOSCIENCES, INC.
(Exact
name of registrant as specified in its charter)
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TEXAS
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75-1974352
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(State
or other jurisdiction of incorporation or
organization)
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(IRS
Employer Identification No.)
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4134 Business Park Drive, Amarillo, Texas
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79110-4225
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(Address
of principal executive offices)
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Zip
Code
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Issuer’s
telephone number, including area code:
(806) 376-1741
Securities
registered under Section 12(b) of the Exchange Act.
None.
Securities
registered under Section 12(g) of the Exchange Act.
Common
Stock, Par Value $.01
Indicate by check mark whether the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. [
]Yes [√ ]No
Indicate by check mark whether the issuer is not required to file
reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ]Yes
[√ ]No
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange
Act of 1934 during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
[√]Yes [ ]No
Indicate by check mark if there is no disclosure of delinquent
filers in response to Item 405 of Regulation S-K (Sec. 229.405 of
this chapter) is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
[√]
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.
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Large accelerated filer [ ]
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Accelerated filer [ ]
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Non-accelerated filer [ ]
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Smaller reporting company [√]
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Emerging growth company [ ]
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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. [ ]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [√]
No
As of
December 31, 2020, there were issued and outstanding 42,066,172
shares of the registrant’s common stock, par value $0.01,
which is the only class of common or voting stock of the
registrant. As of that date, the aggregate market value of
22,305,240 shares of common stock held by non-affiliates of the
registrant was approximately $3,791,891 (based on the closing price
of $0.17 for the common stock on the OTC BB.AMAR December 31,
2020). Shares of common stock held by officers, directors and each
shareholder owning ten percent or more of the outstanding common
stock have been excluded in that such persons may be deemed to be
affiliates.
The
number of shares of the Registrant’s common stock issued and
outstanding as of March 30, 2021 was 42,066,172.
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 2021 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.
Overview
Amarillo
Biosciences, Inc. (the "Company” or “the
Company”) 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 (IFN)
alpha that is administered in a proprietary low-dose non-injectable
form. In addition to its core technology the Company is working to
expand the Company’s current focus into a diversified
healthcare business portfolio in order to generate new revenue
streams.
The
Company presently owns eight issued patents with two
patents pending. This collection consists of patents with claims
that encompass method of use or treatment, and/or composition of
matter and manufacturing as well as design utility and/or
invention. Of the eight issued patents, four patents are related to
the low-dose oral delivery of interferon, one patent is for a
product promoting oral health, and three patents are associated
with treatment of metabolic disorders.
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. The Company 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, the Company 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
the Company to enter markets in Taiwan, Hong Kong, China, and other
Asian countries for the distribution of new medical and healthcare
products.
2
Over
the past several years the Company has focused its research efforts
towards the development of a novel pulsatile insulin pump infusion
therapy in Taiwan that consists of delivering insulin intravenously
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. The Company 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. The
Company intends to target Taiwan first as an R&D base and
demonstration platform in Greater China, and subsequently establish
a licensing platform for clinics in Greater 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.
The
Company maintains a representative branch office in Taiwan –
Amarillo Biosciences, Inc. (the “Taiwan Branch”) to
increase the Company's presence in Taiwan and to serve as an
operational hub to access growing Asian markets.
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 lack of appropriate interferon supply
in the 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 have
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 help stem the
pandemic. In light of these circumstances, the Company is uniquely
positioned to potentially develop safe, low-dose
interferon.
While
the pharmaceutical industry is creating and marketing new and
effective anti-viral medications, there still exists opportunities
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.
Recent Business Expansion Opportunity
On
December 24, 2020, the Company entered into a Securities Purchase
Agreement (“Ainos Agreement”) with Ainos, Inc., a
Cayman Islands corporation (“Purchaser”) and certain
principal shareholders of the Company including (i) Stephen T.
Chen, individually and as Trustee of the Stephen T. Chen and
Virginia M. Chen Living Trust, dated April 12, 2018, (ii) Virginia
M. Chen, individually and as Trustee of the Stephen T. Chen and
Virginia M. Chen Living Trust, dated April 12, 2018, and (iii) Hung
Lan Lee (collectively, “Principal
Shareholders”).
3
Pursuant
to the Ainos Agreement, upon the closing of the transactions
contemplated thereby (the “Closing”), the Company will
acquire certain patent assets (the “Patent Assets”) by
issuing 100,000,000 shares of common stock (the
“Shares”) valued at $0.20 to Purchaser. The
Patent Assets encompass technologies relating to development and
manufacturing of point-of-care testing rapid test kit products that
include diagnostics for COVID-19 (SARS CoV2 Antigen Rapid Test),
pneumonia, vaginal infection and helicobacter pylori (H. pylori)
bacterial infection. The Company anticipates that the Shares
issued to the Purchaser will represent approximately 70.39% of the
issued and outstanding shares of common stock of the Company and
effect a change of control in the Company at the Closing. The
Ainos Agreement provides for certain registration rights to the
Purchaser regarding the Shares.
The
Closing is conditioned on the Company (1) obtaining shareholder
approval for, among other things: (i) the adoption of the Ainos
Agreement and approval of the transactions contemplated by the
Agreement; (ii) the amendment of the Company’s charter
documents to (A) increase the number of authorized shares of common
stock to 300,000,000 shares, and (B) rename the Company to
“Ainos, Inc.” or any other corporate name designated by
Purchaser and (iii) the expansion of the number of directors on the
Company’s Board of Directors (“Company Board”)
and the election of directors as designated by the Purchaser
(collectively, the “Company Actions Required for
Closing”); and (2) file with the Securities and Exchange
Commission (the “SEC”)_a proxy statement or information
statement, which shall include the recommendation of the Company
Board that the Company’s shareholders approve the Ainos
Agreement and authorize the transactions contemplated thereby (the
“Company Board Recommendation”).
The
Ainos Agreement contains certain customary termination rights that
are (i) in favor of each of the Company and Purchaser, including by
mutual agreement or for uncured breach by the other party and (ii)
in favor of Purchaser, including if there is a change of the
Company Board Recommendation or, if the Closing has not been
consummated by the end of day on the forty-fifty day after the date
of the Ainos Agreement, subject to certain limitations. The Ainos
Agreement contains customary representations, warranties and
covenants, including covenants obligating the Company to continue
to conduct its business in the ordinary course and to cooperate in
seeking regulatory approvals, as needed.
Under
the Ainos Agreement, the Principal Shareholders agree to be
responsible jointly and severally with the Company for the
Company’s indemnification obligations provided in the Ainos
Agreement and to cause their controlled entities to enter into
joinder agreements to be bound by the terms and conditions of the
Agreement as a Principal Shareholder prior to the
Closing.
The
foregoing description of the Ainos Agreement is not complete and is
qualified in its entirety by the text of the agreement, which is
included as Exhibit 2.1 to the Form 8-K filed by the Company with
the SEC on December 30, 2020.
On
December 18, 2020, the Company Board, and on January 25,
2021, the
holders owning a majority of the shares of common stock of the
Company as of the record date of January 22, 2021 approved the
Company Actions Required for Closing. The Company filed a
definitive information statement regarding the majority stockholder
approval of the Company Actions Required for Closing on March 19,
2021 and completed mailing of the information statements to its
shareholders on March 26, 2021. The Company expects the Closing to
occur on or after April 15, 2021, subject to the terms and
conditions of the Ainos Agreement.
4
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 eight issued
patents with two patents pending.
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.
“SMART DRUG INJECTION DEVICE” as described and claimed
in TAIWAN invention patent application number 108137797, Owned,
Issued: November 27, 2020, Expiration: October 18,
2039
“SMART DRUG INJECTION DEVICE” as described and claimed
in TAIWAN design utility model patent application number 108213819,
Owned, Issued: December 12, 2019, Expiration: November 11,
2038.
“SMART DRUG INJECTION DEVICE” as described and claimed
in CHINA design utility model patent application number
201921808292.6, Owned, Issued: July 28, 2020, Expiration: June 27,
2039.
“SMART DRUG INJECTION DEVICE” as described and claimed
in CHINA invention patent application number 201911024619.5,
Pending.
“SMART DRUG INJECTION DEVICE” as described and claimed
in US invention patent application number 17/069,418,
Pending.
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
2020.
United States Regulation
Before
products with health claims can be marketed in the United States,
they must receive approval from the U.S. Food and Drug
Administration (“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.
5
In
general, before any ethical pharmaceutical product can be marketed
in the United States, the FDA will require the following
process:
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Preclinical
laboratory and animal tests;
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Submission
of an investigational new drug application, or IND, which must
become effective before human clinical trials may
begin;
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Adequate
and well-controlled human clinical trials to establish the safety
and efficacy of the proposed drug for its intended
use;
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Pre-approval
inspection of manufacturing facilities and selected clinical
investigators;
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Submission
of a New Drug Application (NDA) to the FDA; and
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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).
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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 the Company 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)
The
Company 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, the Company
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. The Company 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.
Similarly,
substantial financial resources are necessary to fund the research,
design, testing, fabrication and related activities necessary to
satisfy FDA requirements or similar requirements of state, local,
and foreign regulatory agencies for medical devices. The Company
may seek to obtain FDA clearance for the sales, marketing, and use
of its novel pulsatile insulin pump for the U.S. market after
obtaining FDA approvals under one of the following regulatory
approvals:
Premarket Notification 510(k)
Each person who intends to market in the U.S., a Class I, II, and
III device intended for human use, for which a Premarket Approval
application (“PMA”) is not required, must submit a
510(k) to FDA unless the device is exempt from 510(k) requirements
of the Federal Food, Drug, and Cosmetic Act (the “FD&C
Act”) and does not exceed the limitations of exemptions in .9
of the device classification regulation chapters (e.g., 21 CFR
862.9, 21 CFR 864.9).
6
If the
Company’s novel pulsatile insulin pump is determined to be
similar to one already cleared for the U.S. market, the Company
will seek FDA clearance under 510(k) at least 90 days before the
device is marketed. A
510(k) application requires demonstration of substantial
equivalence to another legally U.S. marketed device. Substantial
equivalence means that the new device is as safe and effective as
the predicate. Documented laboratory testing among other
submissions will be required and if the Company’s device
features significant alterations from predecessor devices the
Company may be required to present results from clinical
trials.
Premarket Approval (PMA)
Alternatively,
if the Company’s device is deemed to be completely new to the
U.S. market or classified as a Class
III device, the
Company will be required to apply for PMA approval. The Medical Device Amendments of 1976
to the FD&C Act established three regulatory classes for
medical devices. The three classes are based on the degree of
control necessary to assure that the various types of devices are
safe and effective. The most regulated devices are in Class III.
The amendments define a Class III device as one that supports or
sustains human life or is of substantial importance in preventing
impairment of human health or presents a potential, unreasonable
risk of illness or injury
Under Section 515 of the FD&C Act, all devices placed into
Class III are subject to premarket approval requirements. Premarket
approval by FDA is the required process of scientific review to
ensure the safety and effectiveness of Class III
devices.
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, 2020, the Company incurred $40,389 of
which $40,000 was paid in stock and $389 in cash, 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 the Company’s pulsatile
insulin treatment pump.
7
The
better focus the Company’s research and development efforts,
the Company elected to terminate or not extend the following
licensing agreements and transactions:
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A License Agreement
by and between the Company and The Texas A&M University System,
dated as of March 22, 1998 and amended by that certain Amendment
No. 1, dated as of September 28, 1998. The Licensor licensed to the
Company certain intellectual property rights under U.S. Patent
Number 4,497,795 entitled “Appetite and Feed/Gain”,
Continuation-in-Part Patent Application filed January 4, 1985
entitled “Method of Using Interferon in Low Dosage to
Regulate Appetite and Efficiency of Food Utilization”, U.S.
Patent Application Serial Number 814,317 filed December 30, 1985
entitled “Low Dosage of Interferon to Enhance Vaccine
Efficiency”, U.S. Patent Application Serial Number 044,317
filed April 30, 1987 entitled “Improved Method of
Administering Interferon”, and U.S. Patent Application Serial
Number 927,834 filed November 6, 1986 entitled “Treatment of
Immune-Resistant Disease” (the “Texas A&M
University Patent License Agreement”). The subject license
expired in 2019 and the Company elected not to extend or renew the
license.
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Term Sheet for
Cooperative Development and Licensing Venture between the Company
and Xiamen Weiyang Pharmaceutical Co., Ltd. dated July 19, 2019
(“Xiamen Term Sheet”). The Xiamen Term Sheet expired as
of October 19, 2019 and ABI has issued a notification of expiration
dated December 22, 2020.
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Memorandum of
Understanding between the Company and Leadtek Research, Inc. dated
June 30, 2020 (“Leadtech MOU”). The Term Sheet expires
as of December 31, 2020 and ABI has issued a notification of
expiration dated December 22, 2020.
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.
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.
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 the Company since
October 2009. Mr. Cohen works with Ms. Shelton, providing the
reporting necessary for the Company’s various SEC filings,
and ordinary-course internal bookkeeping and accounting
services.
Chrystal Shelton: Office Manager & Administration. Ms. Shelton
has been with the Company 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 the Company 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 the Taiwan Branch.
Consultants
From time to time, the Company engages consultants as needed for
specific areas of responsibility. Presently, the Company has
engaged the following consultants: John Junyong Lee, Esq. - Chief
Legal Counsel, Dr. Yung-Hsiang Hung - Director-Medical Division;
Jenny Chiu- Legal and Regulatory Consultant; and Mr. Lawrence Lin-
Executive Advisor. On December 18, 2020, the Board of Directors
nominated and approved the appointment of Mr. John Junyong Lee as
the Company corporate secretary, filling the position vacated by
the former secretary, Mr. Edward L. Morris, Esq. upon his
retirement.
8
ITEM
1A.
RISK
FACTORS.
Please
carefully consider the following discussion of significant factors,
events, and uncertainties that make an investment in our securities
risky. The events and consequences discussed in these risk factors
could, in circumstances we may or may not be able to accurately
predict, recognize, or control, have a material adverse effect on
our business, growth, reputation, prospects, financial condition,
operating results (including components of our financial results),
cash flows, liquidity, and stock price. These risk factors do not
identify all risks that we face; our operations could also be
affected by factors, events, or uncertainties that are not
presently known to us or that we currently do not consider to
present significant risks to our operations. In addition, the
global economic climate amplifies many of these risks.
We Face Intense Competition
The
pharmaceutical industry is an expanding and rapidly changing
industry characterized by intense competition. The Company 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. The Company 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.
Our Expansion Places a Significant Strain on our Management,
Operational, Financial, and Other Resources
Increasing
our product and service offerings will require scaling our
management, financial and research and development resources. The
complexity of the current focus of our business on innovative
biotechnologies and treatments can place significant strain on our
management, personnel, operations, systems, technical performance,
financial resources, and internal financial control and reporting
functions, and our expansion increases these factors. Failure to
manage growth effectively could damage our reputation, limit our
growth, and negatively affect our operating results.
Our Expansion into New Products, Services, Technologies, and
Geographic Regions Subjects Us to Additional Risks
We may
have limited or no experience in our newer market segments, and our
customers may not adopt our product or service offerings. These
offerings, which can present new and difficult technology
challenges, may subject us to claims if customers of these
offerings experience service disruptions or failures or other
quality issues. In addition, profitability, if any, in our newer
activities may not meet our expectations, and we may not be
successful enough in these newer activities to recoup our
investments in them. Failure to realize the benefits of amounts we
invest in new technologies, products, or services could result in
the value of those investments being written down or written
off.
9
Our International Operations Expose Us to a Number of
Risks
We have
relatively little operating experience and may not benefit from any
first-to-market advantages or otherwise succeed. It is costly to
establish, develop, and maintain international operations, sales
and marketing channels, and research and development and licensing
capacity. Our international operations may not become profitable on
a sustained basis.
In
addition to risks described elsewhere in this section, our
international sales and operations are subject to a number of
risks, including:
●
local economic and
political conditions;
●
government
regulation (such as regulation of our product and service offerings
and of competition); restrictive governmental actions (such as
trade protection measures, including export duties and quotas and
custom duties and tariffs); nationalization; and restrictions on
foreign ownership restrictions on sales or distribution of certain
products or services and uncertainty regarding liability for
products, services, and content, including uncertainty as a result
of less Internet-friendly legal systems, local laws, lack of legal
precedent, and varying rules, regulations, and practices regarding
the physical and digital distribution of media products and
enforcement of intellectual property rights;
●
business licensing
or certification requirements, such as for imports, exports,
medical devices and medical treatments;
●
limitations on the
repatriation and investment of funds and foreign currency exchange
restrictions;
●
difficulty in
staffing, developing, and managing foreign operations as a result
of distance, language, and cultural differences;
●
compliance with the
U.S. Foreign Corrupt Practices Act and other applicable U.S. and
foreign laws prohibiting corrupt payments to government officials
and other third parties;
●
laws and policies
of the U.S. and other jurisdictions affecting trade, foreign
investment, loans, and taxes; and
●
geopolitical
events, including war and terrorism.
Our Commercial Agreements, Strategic Alliances, and Other Business
Relationships Expose Us to Risks
Our
business growth depends on commercial agreements, strategic
alliances, and business relationships. Under these agreements, we
provide access to our research library and clinical data as part of
licensing and sales and marketing agreements. These arrangements
are complex and require substantial infrastructure capacity,
personnel, and other resource commitments, which may limit the
amount of business we can service. We may not be able to implement,
maintain, and develop the components of these commercial
relationships, which may include research and development, clinical
trials, diagnostic software and hardware design, and engaging third
parties to perform services.
Our
licensing agreements partially dependent on the volume of the other
company’s sales. Therefore, when the other company’s
offerings are not successful, the compensation we receive may be
lower than expected or the agreement may be terminated. Moreover,
we may not be able to enter into additional or alternative
commercial relationships and strategic alliances on favorable
terms. We also may be subject to claims from businesses to which we
provide these services if we are unsuccessful in implementing,
maintaining, or developing these services.
10
We Face Significant Supply Risk
We are
exposed to significant supply risks that may adversely affect our
operating results. 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 source of interferon
is found. The Company 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 additional studies to
compare results to the Company’s research and further
clinical trials will have to be performed. The Company’s
inability to secure interferon supplies may adversely affect our
operating results.
Government Regulation Is Evolving and Unfavorable Changes Could
Harm Our Business
We are
subject to general business regulations and laws, as well as
regulations and laws specifically governing biologics,
pharmaceuticals, and medical devices and treatments. A large number
of jurisdictions regulate our operations, and the extent, nature,
and scope of such regulations is evolving and expanding as the
scope of our businesses expand. We are regularly subject to formal
and informal reviews and investigations by governments and
regulatory authorities under existing laws, regulations, or
interpretations or pursuing new and novel approaches to regulate
our operations. Unfavorable regulations, laws, decisions, or
interpretations by government or regulatory authorities applying
those laws and regulations, or inquiries, investigations, or
enforcement actions threatened or initiated by them, could cause us
to incur substantial costs, expose us to unanticipated civil and
criminal liability or penalties (including substantial monetary
fines), diminish the demand for, or availability of, our products
and services, increase our cost of doing business, require us to
change our business practices in a manner materially adverse to our
business, damage our reputation, impede our growth, or otherwise
have a material effect on our operations.
Claims, Litigation, Government Investigations, and Other
Proceedings May Adversely Affect Our Business and Results of
Operations
As a
company focusing on diagnostics and treatments for a wide range of
human health care needs, we may be subject to actual and threatened
claims, litigation, reviews, investigations, and other proceedings,
including proceedings by governments and regulatory authorities,
involving a wide range of issues, including patent and other
intellectual property matters, taxes, labor and employment,
competition and antitrust, privacy and data protection, product
liability, consumer protection, commercial disputes, goods and
services offered by us and by third parties, and other matters. Any
of these types of proceedings can have an adverse effect on us
because of legal costs, disruption of our operations, diversion of
management resources, negative publicity, and other factors. The
outcomes of these matters are inherently unpredictable and subject
to significant uncertainties.
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, 2020 was $1,315 per month. The renewed lease for the
period January 1, 2021, through March 31, 2021, has a rent cost of
$1,315 per month. The monthly lease for the Company’s
similarly sized 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.
11
ITEM
4.
MINE SAFETY
DISCLOSURES.
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, 2020, a total of 50,783,942
shares of common stock were either issued (42,066,172), reserved
for conversion of convertible debt to stock (3,608,153), held for
future exercise of stock options (4,657,000)1 and warrants
(452,617).
On
January 6, 2020, 400,000 shares were issued at the price of $0.25
per share for the investment of $100,000 in the Company’s
2019-2 Private Placement Stock Offering. The investment funds were
received on December 31, 2019.
On
October 1, 2020, 100,000 shares were issued to UHO Wellness
Corporation (UHO) pursuant to a stock for services agreement
executed by the Company and UHO on February 13, 2020. The shares
were issued at $0.22 per share for the preparation and submission
of Taiwan and China patent applications for the Company’s
SMART technology. On December 1, 2020, the Company issued 100,000
shares at $0.18 per share to UHO when the aforementioned patents
were issued.
On
December 30, 2020, 54,780 common shares were issued to the
Company’s legal consultant as part of the engagement contract
for services for the fiscal year 2020. The total amount of the
stock was $14,440. Also on December 30, 2020, 158,528 shares were
issued to the Company’s executive consultant for advisory
services rendered as part of the engagement contract for 2019 and
2020. The total amount of the stock was $42,000.
On
December 30, 2020, Dr. Stephen T. Chen, Ph.D., CEO, received
651,701 as compensation in the amount of $175,000 for 2019 and
2020. Also on December 30, 2020, Bernard Cohen, VP, received 78,203
shares as compensation of $21,000 for 2019 and 2020. Dr. Celee
Spidel, former Medical Liaison, received 6,309 common shares for
compensation of $2,250 for 2019.
On May
11, 2020, the Company’s Board of Directors unanimously
approved a Consent Resolution enacting the 2020-1 Private Placement
Memorandum and Subscription of Non-Distributive Intent (PPM
Offering) (2020-1 Private Placement Package). The offering was
approved for the sale of a maximum of 5,208,334 common shares to
raise an aggregate amount not to exceed $1,000,000. The stated use
of proceeds was for commercialization of technologies and operating
expenses. The offering was to be completed not later than July 31,
2020.
On
November 30, 2020, the Company Board of Directors approved the
extension of the 2020-1 Private Placement Package until March 31,
2021. With the exception of the new closing date, all terms and
conditions of the 2021-1 Private Placement Package remain the
same.
On
December 18, 2020, the Company Board of Directors approved an
increase in the amount of authorized shares for issuance from 100
million common shares to 300 million common shares contingent upon
transaction close of the Securities Purchase Agreement with Ainos,
Inc. Pursuant to this Agreement, the Company will acquire Patent
Assets by issuing 100,000,000 shares of common stock valued at
$0.20 to Ainos, Inc.
_______________
12
The
Company did not pay any dividends to its common stock shareholders
in 2020 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, 2020, 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 the Company or by a committee of directors appointed
by the Board of Directors of the Company (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 the Company 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.
On
December 18, 2020, the Board of Directors approved the termination
of the 2008 Stock Incentive Plan that was previously approved by
the board on May 23, 2008 and replaced it with the 2018 company
stock option plans that were adopted on September 26,
2018.
13
Equity
Compensation Plan Information:
|
Stock Plans
1
|
|
Issue Date
Range
|
Total Options
Authorized
|
Options
Issued
|
Options
Remaining
|
|
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 8, 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
Company’s shareholders.
For
both qualified and nonqualified stock options when the options are
exercised, the Company Common Stock shares would 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, 2019
and December 31, 2020 are presented below.
|
Date
|
Number of
Options 1Qualified*
|
Number of
Options Nonqualified
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contractual Term
|
Aggregate
Intrinsic Value
|
|
Balance December
31, 2018
|
950,000
|
3,995,000
|
$0.38
|
9
years -
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
|
Expired or
Forfeited
|
100,000
|
188,000
|
$0.38
|
-
|
-
|
|
Balance December
31, 2019
|
850,000
|
3,807,000
|
$0.38
|
8
years -
|
-
|
|
Granted
2020
|
-
|
-
|
-
|
-
|
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
|
Expired or
Forfeited
|
|
|
$0.38
|
-
|
-
|
|
Balance December
31, 2020
|
850,000
|
3,807,000
|
$0.38
|
7
years -
|
|
|
Vested as of
December 31, 2020
|
390,000
|
1,522,800
|
$0.38
|
7
years -
|
|
* 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 Because the plan was
not ratified by the Company’s shareholders, 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, 2020, there is $924,180 in unrecognized option expense
that will be recognized over the next 2.75 years.
Directors,
officers, employees and consultants did not exercise any options in
2019 or 2020.
14
On
November 30, 2020, the Company’s Board of Directors approved
an extension of the consulting agreement and pre-existing warrant
certificate between the Company and i2China Management Group, LLC,
originally dated April 15, 2018. The warrant is effective from
November 25, 2020, until November 25, 2025 at 5:00 P.M. Central
Standard Time. The warrant entitles the consultant to purchase
452,617 shares of common stock at an exercise price of
$0.272 per
share. The warrant was valued at $70,608 and will be expensed over
sixty (60) months. The Company used the Black-Scholes option
pricing model to value the warrants with the following assumptions
applied: (1) Volatility – 201%; (2) Term – 5 years (3)
Discount Rate – 0.39%.
No
warrants were exercised in 2019 or 2020.
Insurance
As of
December 31, 2020, the Company has an outstanding balance of
$15,344.13 for a financing agreement for the periodic payment of
Directors & Officers Liability Insurance premium for 2020
– 2021. The terms of the agreement are as follows: Payee
– Bank Direct Capital Finance; Effective Date – June
29, 2020; Total Premiums - $67,687; Cash Down Payment - $27,675
(Insurica Insurance Management Network/Amarillo); Amount Financed -
$40,012; Annual Percentage Rate – 6.00%; Finance Charge -
$905; Total Payments - $40,918; Periodic Payment - $5,115; Number
of Payments – 8 (eight); First Payment July 29, 2020. The
Company also paid $5,000 for D&O coverage for Taiwan
operations. This policy is administered by an agency in
Taiwan.
The
Company pays $639 annually for Property and Casualty Insurance
coverage administered through Insurica Management Network. The
insurance carrier for the property and casualty coverage is The
Hartford. Additionally, the Company has a General Liability Policy
administered by Insurica Management Network for an annual premium
of $708.
Convertible Notes Payable and Other Related Party Notes
Payable
As of
December 31, 2020 and 2019, the amount of convertible debt of the
Company’s balance sheet was $953,001 and $444,581,
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.
|
Note
#.
|
Conversion
Rate
|
Interest
Rate3
|
December 31,
2020
Principal
Amount4
|
December 31,
2019
Principal
Amount
|
|
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%
|
$14,879
|
$12,435
|
|
Note 5.19 –
i2China
|
$0.2500
|
1.85%
|
$16,000
|
$16,000
|
|
Note 6.20 -
Chen
|
$0.2500
|
1.85%
|
$216,600
|
$-
|
|
Note 7.20 -
Chen
|
$0.2500
|
1.60%
|
$23,366
|
$-
|
|
Note 8.20a –
i2China5
|
$0.2500
|
1.85%
|
$48,000
|
$-
|
|
Note 8.20b –
i2China6
|
$0.2500
|
1.85%
|
$84,000
|
$-
|
|
Note 9.21 -
Chen7
|
N/A
|
0.13%
|
$134,010
|
$-
|
|
Total
Convertible Notes – Related Party
|
$953,001
|
$444,581
|
||
3 Interest on all Related Party notes is assessed
using the short-term or medium-term Applicable Federal Rate (AFR).
Applicable Federal Rate is-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.
5 On November 30, 2020, the Company’s Board
of Directors approved an extension of the consulting agreement and
pre-existing warrant certificate between the Company and i2China
Management Group, LLC, originally dated April 15, 2018.
Compensation stated in the updated agreement increased the monthly
retainer from $8,000 to $15,000 per month retroactive as of January
1, 2020. The retainer increase was $7,000 per month and was
retroactively deferred and added to Convertible promissory note
#8.20. The retroactive retainer totaled $84,000 and was added to
the unpaid balance of the note, $48,000, bringing the total unpaid
balance as of December 31, 2020 to $132,000.
7 Dr. Chen loaned operating funds to the Company in
2020 on an open-ended basis. There will be a promissory note
executed in 2021. The note will not be convertible and interest
will be accrued at the short-term AFR rate.
15
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
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. The Company 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
the Company 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 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 aggregate Principal
Amount advanced to date up to the stated maximum amount at
Maturity. The Company 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, and 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 AFR1 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. The
Company 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.
On
April 13, 2020, Dr. Stephen T. Chen began loaning operating funds
to the Company in 2020 on an open-ended, as needed basis. This
indebtedness will be documented as a promissory note and formally
executed in early 2021. The note will not be convertible and
interest will be accrued at the short-term AFR rate. Loans were
made for both U.S. and Taiwan operations. Following is a table
showing the loan activity through December31, 2020.
|
Office
Received
|
|
Date
Received
|
Amount
US
|
|
U.S.
|
|
4/13/2020
|
$10,000
|
|
U.S.
|
|
7/27/2020
|
$50,000
|
|
U.S.
|
|
8/10/2020
|
$25,000
|
|
U.S.
|
|
11/2/2020
|
$15,000
|
|
Taiwan8
|
|
11/5/2020
|
$14,010
|
|
U.S.
|
|
12/15/2020
|
$10,000
|
|
U.S.
|
|
12/22/2020
|
$10,000
|
|
|
|
Total
|
$134,010
|
_______________
16
The
notes are unsecured. 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.
Other
Related Party Transactions
Other
than the aforementioned common stock and convertible note activity,
there were no related party transactions that occurred during the
period from January 1, 2020 to December 31, 2020.
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. The Company 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. The Company holds or licenses various
patents.
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. The
Company will continue to leverage its core technology going forward
by applying 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.
Assets, Liquidity, and Capital. The Company holds various patents and related
intellectual property, which are described earlier in this
document.
As of
December 31, 2020, the Company had available cash of $22,245
compared to a cash position of $409,039 on December 31, 2019. The
Company had working capital of $(1,022,155) at the end of fiscal
year 2020, whereas in 2019, working capital was $(308,014). The
gross burn rate in 2020 was approximately $119,053 per month
compared with the gross burn rate for 2019, $130,020. 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 the Company’s core technology,
low-dose non-injectable 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. The Company 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 the
Company.
17
Comparison of results for the fiscal year ended December 31, 2020,
to the fiscal year ended December 31, 2019.
Revenues. There was an increase in liposomal Nutraceutical
sales of $4,832, 41.19%, for 2020 ($16,563) over 2019 ($11,731).
COGS increased $2,505, 28.56%, for 2020 ($11,277) over 2019
($8,772). The activity for 2020 resulted in a Gross Profit of
$5,286 which was an increase of $2,327, 78.64%, over the 2019 Gross
Profit of $2,959. As a percent of sales, gross profit for 2020 was
31.91% as compared to 2019 showing a 25.22% gross profit as a
percent of sales.
Selling, General and Administrative Expenses. Total
operating expenses for 2020 were $1,445,721 as compared to 2019
expenses of $1,583,372, a decrease of $137,651 or 8.69%. Net
operating loss for 2020, $1,440,435, decreased 8.52% or $134,692
from the 2019 net operating loss of $1,580,413.
Salary/Wages. Salary and wage expenses for 2020 ($345,936)
decreased as compared to 2019 ($405,695) or $59,759 (14.73%). In
2020, the Company changed the Office Manager's status to part-time
from full-time and reduced the hours worked from 80 hours to 40
hours per pay period. Related to employee compensation expenses is
Compensation Restricted Stock Grant which characterizes employee
compensation paid in the Company Common Stock. There was a minimal
decrease in this expense for 2020 as compared to 2019, $109,750
versus $115,750 for a reduction of $6,000, or 5.18%.
Travel & Entertainment. Travel and entertainment
expenses were significantly lower in 2020 in both amount and
percentage. For Meals & Entertainment, expenditures in 2020
were $14,809 compared to $24,465 in 2019, a decrease of $9,656
(39.47%). Travel expense showed a greater reduction in expenditures
for 2020, $9,331 compared to $38,881 spent in 2019, a decline of
$29,550 or 76%. The need for business travel including
transportation and lodging costs was reduced due to the pandemic
and travel restrictions. Since there was less travel, there were
less expenditures for meals, lodging, and meeting
costs.
Insurance. Directors & Officers Liability Insurance
expense, increased in 2020 by $9,040 (15.39%), when comparing
$67,768 in 2020 to $58,728 in 2019. The increase was more a result
of a general tightening in the overall D&O liability insurance
market as opposed to an increase in the risk profile of the
Company. Property insurance showed a minimal increase in cost, $66
or 5.23%; Group (Health) Insurance showed a minimal decrease of
1.86% ($408); and a negligible increase in other insurance
expenditures.
Rent & Lease. Rent and lease expenses have increased in
2020 ($54,833) over 2019 ($51,349) by a minimal amount, $3,484 or
6.78%. The source of the increase was the execution of a short-term
lease for the corporate office in Amarillo, Texas.
Professional Fees – Accounting. Accounting fees were
significantly less in 2020, $96,136 as compared to expenses in
2019, $133,457. Expenses for 2020 decreased by $37,321 or 27.96%.
Accounting fees consists of costs of the SEC auditors to review,
audit, and support filing of SEC reports such as 10K, 10Q, and
other reports. Additionally the Company employs tax accountants and
accounting consultants. The decrease in accounting professional
fees was due mainly to discontinuing accounting consultants,
improved preparation for material sent to the SEC auditors, better
coordination with the SEC accounting firm, and working within
budget constraints set up with the SEC Accounting firm.
Miscellaneous Professional fees increased significantly in 2020,
$227,903 over 2019, $134,305, which was an increase of $93,598
(69.69%). This expense consists of consulting costs, contracted
administrative services, and commercial services for preparation of
SEC filings. The increase was mainly caused by a retroactive
increase in some contracted services. Professional Fees - Stock
Grants reflects expenses paid by stock for service agreements.
These are non-cash requiring expenses. There was no significant
difference between 2020 and 2019. The minimal difference was a
timing issue for a stock distribution and not additional expense.
Professional Fees - Services & Labor reflect expenses for
services purchased which in this case represent computer system
monitoring and maintenance. The minimal increase in 2020 over 2019,
$245, was minor unscheduled parts replacement in some
workstations.
18
Office Expenses. Office Supplies expense was down by 35.33%
($1,785) in 2020, $3,268 as compared to $5,053 in 2019. Repair and
maintenance was significantly down in 2020, $2,224 although such
expenditures in most years are generally modest. Telephone and
internet services were reduced by $239 (3.96%) by reviewing and
modifying the services purchased. Expenses for this service in 2020
were $5,803 as compared to $6,042 for 2019.
Legal Expenses. General legal expenses were $6,362 in 2020
as compared to $32,680 for 2019. This is an 80.53% decrease for
2020. Total legal expenditures for patents in 2020 were $46,909. A
significant amount of patent legal expenditures was related to new
patent prosecution, maintenance fees for existing patents, and
trade mark expenditures. The patent legal expenditures totaling
$46,563 were capitalized leaving $346 expensed for the
period.
Interest Expense. Expenses related to interest were up
significantly in 2020, $10,702 as compared to 2019, $4,094, an
increase of $6,579 or 161.41%. The main cause of the increase was
increasing balances owed for convertible notes payables. Interest
income was down significantly for 2020, $517 as compared to $3,209
for 2019, a decrease of $2,692, 83.89%. A lower cash balance in
2020 was the primary cause for the reduction in interest
income.
Other Expenses. Other expenses consist of amortization of
the capitalization and periodic expensing of costs associated with
intellectual property. There was a minimal increase in amortization
expense for 2020, $12,878, over 2019, $11,662, for an increase of
$1,216 (10.43%). This increase was due to the patent and trademark
costs disbursed in 2020. There was a decrease in depreciation
expense of $8,759 (82.80%) in 2020, $1,820 compared to 2019, of
$10,579 due to minimal investment in fixed assets. There was
minimal gain on foreign exchange in 2020, $86 as compared to $1,670
in 2019.
Research and Development Expenses. Direct R&D expenses
were minimal in 2020, $40,389, versus $52,510 in 2019, a decrease
of 23.08% ($12,121).
Operating Loss. Net operating loss for 2020, $1,440,435,
decreased 8.86% or $139,978 from the 2019 net operating loss of
$1,580,413.
Other Income. Other income for 2020 totalled $517, decreased
from $3,209 in 2019, which was a decrease of $2,692, or
83.89%.
Net Loss. The net loss for fiscal year 2020 was $1,450,623
which was a $130,675 decrease from the net loss of $1,581,298 for
2019. Net loss decreased 8.26% in 2020 as compared to
2019.
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.
19
ITEM
9A.
CONTROLS AND
PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer
and Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures as of December 31, 2020. The
term "disclosure controls and procedures," as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act, means controls and
other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods
specified in the SEC's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange
Act is accumulated and communicated to the company's management,
including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only
reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on the
evaluation of our disclosure controls and procedures as of December
31, 2020, our Chief Executive Officer and Chief Financial Officer
concluded that, as of such date, our disclosure controls and
procedures were effective at the reasonable assurance
level.
Management's Report on Internal Control Over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined
in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the
supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in
Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation
under the framework in Internal
Control - Integrated Framework (2013), our management
concluded that our internal control over financial reporting was
effective at the reasonable assurance level as of December 31,
2020.
Changes in Internal Control Over Financial Reporting
We have
not experienced any material impact to our internal controls over
financial reporting even though our workforce continues to
primarily work-from-home due to COVID-19. We are continually
monitoring and assessing the COVID-19 situation and its impact on
our internal controls.
ITEM
9B.
OTHER
INFORMATON
None.
20
PART
III
ITEM
10.
DIRECTORS,
EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
As of
December 31, 2020, the directors and executive officers of the
Company were as follows:
|
Name
|
|
Age
|
|
Position
|
|
Stephen
T. Chen, Ph.D.
|
|
71
|
|
Chairman
of the Board, Chief Executive Officer President, Chief Financial
Officer, Chief Operating Officer and Director
|
|
Bernard
Cohen
|
|
67
|
|
Vice
President - Administration
|
|
Yasushi
Chikagami
|
|
81
|
|
Director
|
|
Daniel
Fisher .
|
|
76
|
|
Director
|
|
Nicholas
Moren .
|
|
74
|
|
Director
|
|
Beatrice
Liu, Ph.D., CPA
|
|
56
|
|
Director
|
Stephen T. 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 was 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).
21
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.
If and
when the transactions contemplated under the Ainos Agreement are
completed, the five directors on the current Board will resign and
seven Purchaser-designated directors will commence service. For
information regarding the post-Closing directors, please refer to
the Company’s definitive information statement filed with the
SEC on March 19, 2021.
Audit Committee
Company
bylaws provide for the appointment of members to the Audit
Committee 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 be appointed. 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.
22
Code of Ethics
The
Company’s Code of Ethics may be found on the Company’s
website, www.amarbio.com,
which is incorporated herein by this reference.
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.
The
following table sets forth for the three years ended December 31,
2020, 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
|
|
2020
|
$240,975
|
$-
|
$100,000
|
-
|
|
|
2019
|
$249,633
|
$-
|
$100,000
|
-
|
|
|
|
2018
|
$240,000
|
$-
|
$100,000
|
-
|
|
|
Mr. Bernard
Cohen,
Vice
President – Administration.
|
|
2020
|
$71,085
|
$-
|
$12,000
|
-
|
|
|
2019
|
$71,398
|
$-
|
$12,000
|
-
|
|
|
|
2018
|
$70,000
|
$12,500
|
$12,000
|
-
|
|
23
Option Grants in 2020
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
2020.
ITEM
12.
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
As of
December 31, 2020, there were 42,066,172 shares of the
Company’s common stock issued and outstanding. The following
table sets forth as of December 31, 2020, 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
Owned9
|
|
Stephen T. Chen,
Ph.D.
4134 Business Park
Drive
Amarillo, Texas
79110
|
12,505,477
|
24.62%
|
|
Hung Lan Lee4134
Business Park Drive
Amarillo, Texas
79110
|
4,000,000
|
7.88%
|
|
ANXON International
Inc.4134 Business Park Drive
Amarillo, Texas
79110
|
2,459,153
|
4.84%
|
24
The
following table sets forth the beneficial ownership of the
Company’s stock as of December 31, 2020 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
Owned10
|
|
Stephen T. Chen,
Ph.D.4134 Business Park Drive
Amarillo, Texas
79110
|
12,505,47711
|
24.62%
|
|
Bernard
Cohen
4134 Business Park
Drive
Amarillo, Texas
79110
|
236,362
|
0.47%
|
|
Yasushi
Chikagami
4134 Business Park
Drive
Amarillo, Texas
79110
|
2,647,153
|
5.21%
|
|
Daniel
Fisher
4134 Business Park
Drive
Amarillo, Texas
79110
|
150,400
|
0.30%
|
|
Nicholas
Moren
4134 Business Park
Drive
Amarillo, Texas
79110
|
150,400
|
0.30%
|
|
Beatrice Liu,
Ph.D., CPA (ROC & U.S.)
4134 Business Park
Drive
Amarillo, Texas
79110. 104
|
-
|
-
|
|
Total Group (all
directors and executive officers – 5 persons)
|
15,689,792
|
30.90
|
_______________
25
ITEM
13.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.
Historically,
the Company has relied upon certain relationships which gave rise
to related transactions. These relationships have helped the
Company 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, 2020 and 2019, were:
|
|
2020
|
2019
|
|
PWR
CPA
|
$35,000
|
$18,500
|
|
LBB &
Associates Ltd., LLP
|
$-
|
$20,750
|
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.
26
PART IV
ITEM
15.
EXHIBITS, FINANCIAL
STATEMENT SCHEDULES.
|
Report of Independent Registered Public Accounting
Firm
|
F-1
|
|
Consolidated Balance Sheets as of December 31, 2020 and
2019
|
F-2
|
|
Consolidated Statements of Operations for the years ended December
31, 2020 and 2019
|
F-3
|
|
Statements of Stockholders’ Equity (Deficit) for the years
ended December 31, 2020 and 2019
|
F-4
|
|
Statements of Cash Flows for the years ended December 31, 2020 and
2019
|
F-5
|
|
Notes to Financial Statements for the years ended December 31, 2020
and 2019
|
F-6
|
EXHIBIT INDEX
|
|
INCORPORATED BY REFERENCE
|
||||
|
EXHIBIT NUMBER
|
DESCRIPTION
|
FILED WITH THIS FORM 10-K
|
FILING DATE WITH SEC
|
FORM
|
EXH #
|
|
|
|
|
|
|
|
|
Restated
Certificate of Formation of the Company, dated and filed July 27,
2015
|
|
3/30/2016
|
10-K
|
3.i.
|
|
|
Bylaws
of the Company, as amended July 10, 2015
|
|
3/30/2016
|
10-K
|
3.ii.
|
|
|
4.1(a)
|
Specimen
Common Stock Certificate
|
|
8/8/1996
|
SB-2
|
4.1
|
|
4.1(b)
|
Form of
Underwriter's Warrant
|
|
8/8/1996
|
SB-2
|
4.2
|
|
2008
Stock Incentive Plan dated May 20, 2008
|
|
5/22/2008
|
S-8
|
10.1(11)
|
|
|
2018
Employee Stock Option Plan
|
|
4/16/2019
|
10-K
|
10.72
|
|
|
2018
Officer, Directors, Employees and Consultants Nonqualified Stock
Option Plan
|
|
4/16/2019
|
10-K
|
10.73
|
|
|
2018
Stock Option Agreement – Nonqualified Stock
Option
|
|
4/16/2019
|
10-K
|
10.74
|
|
|
2018
Stock Option Agreement – Employee Plan
|
|
4/16/2019
|
10-K
|
10.75
|
|
|
Employment
Agreement between Company and Stephen T. Chen, Ph.D. dated 12/31/20
and effective 01/01/21
|
X
|
3/30/2021
|
10-K
|
10.1(f)
|
|
|
Amendment
No. 1 to Employment Agreement between Company and Stephen T. Chen,
Ph.D. effective 01/01/21
|
X
|
3/30/2021
|
10-K
|
10.1(g)
|
|
|
Employment
Agreement between Company and Bernard Cohen dated 12/31/20 and
effective 01/01/21
|
X
|
3/30/2021
|
10-K
|
10.1(h)
|
|
|
Settlement
Agreement and Mutual General Release, effective
12/24/20
|
X
|
3/30/2021
|
10-K
|
10.1(i)
|
|
|
Extension
of the consulting agreement and pre-existing warrant certificate
between the Company and i2China Management Group, LLC (originally
dated April 15, 2018), dated November 30, 2020
|
X
|
3/30/2021
|
10-K
|
10.1(j)
|
|
|
Securities
Purchase Agreement between Company and Ainos, Inc., dated December
24, 2020
|
|
12/30/2020
|
8-K
|
2.1
|
|
|
14.1
|
Code of
Ethics
|
|
|
|
|
|
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.
|
X
|
3/30/2021
|
10-K
|
31.1
|
|
|
906
Certification
|
X
|
|
|
|
|
|
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.
|
X
|
|
|
|
|
101.SCH
|
XBRL
Taxonomy Extension Schema Document
|
X
|
|
|
|
|
101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase
|
X
|
|
|
|
|
101.DEF
|
XBRL
Taxonomy Extension Definition Linkbase
|
X
|
|
|
|
|
101.LAB
|
XBRL
Taxonomy Extension Label Linkbase
|
X
|
|
|
|
|
101.PRE
|
XBRL
Taxonomy Extension Presentation Linkbase
|
X
|
|
|
|
|
104.1
|
Cover Page Interactive Data File
|
X
|
|
|
|
The
exhibits listed in the Exhibit Index are filed or incorporated by
reference as part of this filing.
+
Schedules (as similar attachments) have been omitted from this
filing pursuant to Item 601(a)(5) of Regulation S-K.
*
Indicates a management contract or compensatory plan or
arrangement.
ITEM
16.
FORM 10-K
SUMMARY.
None.
27
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,
2021
|
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, 2021
|
|
Stephen
Chen
|
|
Director
Chief
Executive Officer
and
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
/s/ Yasushi Chikagami
|
|
Director
|
|
March
30, 2021
|
|
Yasushi
Chikagami
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Daniel Fisher
|
|
Director
|
|
March
30, 2021
|
|
Daniel
Fisher
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Nicholas Moren
|
|
Director
|
|
March
30, 2021
|
|
Nicholas
Moren
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Beatrice Liu
|
|
Director
|
|
March
30, 2021
|
|
Beatrice
Liu
|
|
|
|
|
28
Amarillo
Biosciences, Inc.
Financial
Statements
Years
ended December 31, 2020 and 2019
|
Contents
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
|
|
Balance
Sheets
|
F-2
|
|
|
|
|
Statements
of Operations
|
F-3
|
|
|
|
|
Statements
of Stockholders’ Equity (Deficit)
|
F-4
|
|
|
|
|
Statements
of Cash Flows
|
F-5
|
|
|
|
|
Notes
to Financial Statements
|
F-6
|
|
|
|
29
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019,
and the results of its operations and its cash flows for each of
the years in the two-year period ended December 31, 2020, 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 2021 raise substantial doubt about its
ability to continue as a going concern. These 2020 financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
Critical
Audit Matters
Critical
audit matters arising from the current period audit of the
financial statements that were communicated or required to be
communicated to the audit committee and that (1) relate to accounts
or disclosures that are material to the financial statements and
(2) involved our especially challenging, subjective, or complex
judgments. We determined that there are no critical audit
matters.
|
/s/PWR
CPA, LLP
|
|
|
|
|
|
We
have served as the Company’s auditor since 2020.
|
|
|
|
|
|
Houston,
Texas
|
|
|
|
|
|
March
30, 2021
|
|
F-1
Amarillo
Biosciences, Inc.
Balance
Sheets
|
|
December
31,
2020
|
December
31,
2019
|
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash
and cash equivalents
|
$22,245
|
$409,039
|
|
Inventory
|
3,024
|
4,131
|
|
Prepaid
expense and other current assets
|
51,144
|
32,124
|
|
Total current
assets
|
76,413
|
445,294
|
|
Patents,
net
|
180,628
|
146,263
|
|
Property and
equipment, net
|
3,249
|
5,069
|
|
Total
assets
|
$260,290
|
$596,626
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity (Deficit)
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable and accrued expenses
|
$145,567
|
$208,727
|
|
Advances
from investors
|
-
|
100,000
|
|
Convertible
notes payable
|
953,001
|
444,581
|
|
Total current
liabilities
|
1,098,568
|
753,308
|
|
Total
liabilities
|
1,098,568
|
753,308
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
Stockholders’
equity (deficit)
|
|
|
|
Preferred
stock, $0.01 par value:
|
|
|
|
Authorized
shares – 10,000,000,
|
|
|
|
Issued and
outstanding shares – 0 at December 31, 2020 and December 31,
2019, respectively
|
-
|
-
|
|
Common
stock, $0.01 par value:
|
|
|
|
Authorized
shares – 100,000,000,
|
|
|
|
Issued and
outstanding shares –42,066,172 and 40,516,351 at December 31,
2020 and 2019, respectively
|
420,662
|
405,164
|
|
Additional
paid-in capital
|
4,961,315
|
4,207,786
|
|
Accumulated
deficit
|
(6,220,255)
|
(4,769,632)
|
|
Total
stockholders’ equity (deficit)
|
( 838,278)
|
(156,682)
|
|
Total liabilities
and stockholders’ equity (deficit)
|
$260,290
|
$596,626
|
The accompanying notes are an integral part of these financial
statements.
F-2
Amarillo
Biosciences, Inc.
Statements
of Operations
|
|
Years
ended
December
31,
|
|
|
|
2020
|
2019
|
|
Revenues
|
$16,563
|
$11,731
|
|
Cost of
revenues
|
(11,277)
|
(8,772)
|
|
Gross
margin
|
5,286
|
2,959
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Research
and development expenses
|
389
|
52,510
|
|
Selling,
general and administrative expenses
|
1,445,332
|
1,530,862
|
|
Total
operating expenses
|
1,445,721
|
1,583,372
|
|
|
|
|
|
Operating
loss
|
(1,440,435)
|
(1,580,413)
|
|
|
|
|
|
Other income
(expense):
|
|
|
|
Interest
expense, net
|
(10,188)
|
(885)
|
|
Net
loss
|
$(1,450,623)
|
$(1,581,298)
|
|
|
|
|
|
Basic and diluted
net loss per average share available to common
shareholders
|
$(.04)
|
$(0.04)
|
|
|
|
|
|
Weighted average
common shares outstanding – basic and diluted
|
40,730,934
|
39,896,388
|
The accompanying notes are an integral part of these financial
statements.
F-3
Amarillo
Biosciences, Inc.
Statements of
Stockholders’ Equity (Deficit)
Years
Ended December 31, 2020 and 2019
|
|
Preferred
Stock
|
Common
Stock
|
Additional Paid
in
|
Accumulated
|
Total
Stockholders'
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Equity
|
|
Balance at December 31,
2018
|
-
|
$-
|
39,117,524
|
$391,175
|
3,527,238
|
(3,188,334)
|
730,079
|
|
Issuance of stock for
compensation
|
-
|
-
|
231,675
|
2,317
|
67,183
|
-
|
69,500
|
|
Issuance of common stock for
cash
|
-
|
-
|
615,000
|
6,150
|
123,850
|
-
|
130,000
|
|
Issuance of stock for
debt
|
-
|
-
|
552.152
|
5,522
|
94,478
|
-
|
100,000
|
|
Warrant expense
|
-
|
-
|
-
|
-
|
37,984
|
-
|
37,984
|
|
Option expense
|
-
|
-
|
-
|
-
|
357,053
|
-
|
357,053
|
|
Net Loss
|
-
|
-
|
-
|
-
|
-
|
(1,581,298)
|
(1,581,298)
|
|
Balance at December 31,
2019
|
-
|
$-
|
40,516,351
|
$405,164
|
4,207,786
|
(4,769,632)
|
(156,682)
|
|
Issuance of stock for
compensation
|
-
|
-
|
1,149,821
|
11,498
|
283,192
|
-
|
294,690
|
|
Issuance of stock for
subscriptions
|
-
|
-
|
400,000
|
4,000
|
96,000
|
-
|
100,000
|
|
Warrant expense
|
-
|
-
|
-
|
-
|
11,585
|
-
|
11,585
|
|
Option expense
|
-
|
-
|
-
|
-
|
362,752
|
-
|
362,752
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
(1,450,623)
|
(1,450,623)
|
|
Balance at December 31,
2020
|
-
|
$-
|
42,066,172
|
$420,662
|
4,961,315
|
(6,220,255)
|
(838,278)
|
The accompanying notes are an integral part of these financial
statements.
F-4
Amarillo
Biosciences, Inc.
Statements
of Cash Flows
|
|
Year
Ended
December
31,
2020
|
Year
Ended
December
31,
2019
|
|
Cash flows from
Operating Activities
|
|
|
|
Net
loss
|
$(1,450,623)
|
$(1,581,298)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation
and amortization
|
14,698
|
22,241
|
|
Stock
issued for compensation
|
150,440
|
|
|
Warrant
expense
|
11,585
|
37,984
|
|
Option
expense
|
362,752
|
357,053
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Inventory
|
1,107
|
(4,131)
|
|
Prepaid expense and
other current assets
|
(19,020)
|
(5,544)
|
|
Accounts
payable and accrued expenses
|
419,618
|
261,674
|
|
Accrued
interest – related party
|
9,892
|
2,545
|
|
Net cash used in
operating activities
|
(499,551)
|
(909,476)
|
|
Cash flows from
Investing Activities
|
|
|
|
Investment in
patents
|
(7,243)
|
(11,469)
|
|
Capital
expenditures
|
-
|
(1,638)
|
|
Net cash used in
investing activities
|
(7,243)
|
(13,107)
|
|
Cash flows from
Financing Activities
|
|
|
|
Proceeds
from private placement offering, net
|
-
|
125,048
|
|
Proceeds from
convertible note payable – related party
|
120,000
|
-
|
|
Repayment on
convertible note payable – related party
|
-
|
(70,080)
|
|
Net cash provided
by financing activities
|
120,000
|
54,968
|
|
Net change in
cash
|
(386,794)
|
(867,615)
|
|
Cash and cash
equivalents at beginning of period
|
409,039
|
1,276,654
|
|
Cash and cash
equivalents at end of period
|
$22,245
|
$409,039
|
|
Supplemental Cash
Flow Information
|
|
|
|
Cash
paid for interest
|
$855
|
$903
|
|
Non-Cash
Transactions
|
|
|
|
Stock issued for
accrued liabilities
|
104,250
|
$69,500
|
|
Stock issued for
subscription
|
$100,000
|
$-
|
|
Conversion of debt
to common stock
|
$-
|
$100,000
|
|
Stock issued for
patent costs
|
$40,000
|
$
|
|
Stock issued for
advances from investors
|
$-
|
$100,635
|
The accompanying notes are an integral part of these financial
statements.
F-5
Amarillo Biosciences, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
1.
Organization
and Summary of Significant Accounting Policies
Organization
and Business
Amarillo
Biosciences, Inc. (the "Company" or "the Company"), is a
diversified healthcare company engaged in the discovery and
development of pharmaceutical and biotech products. The Company is
a Texas corporation which was formed in 1984.
The
Company primarily operates through three divisions:
Pharmaceutical, Medical and Consumer. The Pharmaceutical
division leverages our data library 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. The
Company seeks to engage in patent licensing and commercialization
opportunities with global partners. The Medical division is focused
on medical devices and 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 liposomal delivery system.
The Company currently has offices in the United States and
Taiwan. The Company operates in Taiwan under the name
AMARILLO BIOSCIENCES, INC. TAIWAN BRANCH.
Going Concern
These
financial statements have been prepared in accordance with United
States generally accepted accounting principles (U.S. GAAP), 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 operating
income, and its operations are funded primarily from 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 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.
F-6
Fair
Value of Financial Instruments
Under
the Financial Account Standards Board Accounting Standards
Codification (“FASB ASC”), we are permitted to elect to
measure financial instruments and certain other items at fair
value, with the change in fair value recorded in earnings. We
elected not to measure any eligible items using the fair value
option. Consistent with Fair Value Measurement Topic of the FASB
ASC, we implemented guidelines relating to the disclosure of our
methodology for periodic measurement of our assets and liabilities
recorded at fair market value.
Fair
value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. A
three-tier fair value hierarchy prioritizes the inputs used in
measuring fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets
or liabilities (level 1 measurements) and the lowest priority to
unobservable inputs (level 3 measurements). These tiers
include:
●
Level 1, defined as
observable inputs such as quoted prices for identical instruments
in active markets;
●
Level 2, defined as
inputs other than quoted prices in active markets that are either
directly or indirectly observable such as quoted prices for similar
instruments in active markets or quoted prices for identical or
similar instruments in markets that are not active;
and
●
Level 3, defined as unobservable inputs in which
little or no market data exists, therefore requiring an entity to
develop its own assumptions, such as valuations derived from
valuation techniques in which one more significant inputs or
significant value drivers are unobservable.
Our
Level 1 assets and liabilities primarily include our cash and cash
equivalents. Valuations are obtained from readily available pricing
sources for market transactions involving identical assets or
liabilities. The carrying amounts of accounts receivable,
prepaid expense, accounts payable, accrued liabilities, advances
from investors, and notes payable approximate fair value due to the
immediate or short-term maturities of these financial
instruments.
Stock-Based
Compensation
Stock-based
compensation expense is recorded in accordance with FASB ASC Topic
718, Compensation – Stock
Compensation, for stock and stock options awarded in return
for services rendered. The expense is measured at the grant-date
fair value of the award and recognized as compensation expense on a
straight-line basis over the service period, which is the vesting
period. The Company estimates forfeitures that it expects will
occur and records expense based upon the number of awards expected
to vest.
Cash and Cash Equivalents
The
Company classifies investments as cash equivalents if the original
maturity of an investment is three months or less.
Revenue Recognition
The Company's
primary source of revenue is the sale of products within three
business units: the Medical, Pharmaceutical, and Consumer Product
Divisions.
F-7
The
Medical division periodically provides medical equipment to
metabolism treatment centers in Taiwan and Hong Kong. The
Consumer Product division provides nutraceuticals and food
supplements in Asian markets. Revenues are recognized for both
these revenue streams when an agreement is in place, the price is
fixed, title for product passes to the customer or services have
been provided and collectability is reasonably assured, which is
generally upon delivery to the customer. Revenues are recorded net
of sales taxes.
The
Pharmaceutical Division is currently seeking to leverage the
Company's intellectual property and core technology, low-dose
non-injectable interferon, to expand treatment of the
aforementioned neoplastic, viral, and fibrotic diseases as well as
other potential indications.
Revenue
recognized during the year ended December 31, 2020 and 2019 was
generated by the Consumer Product division
Allowance for Doubtful Accounts
The
Company establishes an allowance for doubtful accounts to ensure
trade and notes receivable are not overstated due to
non-collectability. The Company’s allowance is based on a
variety of factors, including age of the receivable, significant
one-time events, historical experience, and other risk
considerations. The Company had no material accounts receivable and
no allowance at December 31, 2020 or 2019.
Inventory
Inventories
are stated at the lower of cost or market. Cost is determined on a
first-in, first-out basis. The Company continually assesses the
appropriateness of inventory valuations giving consideration to
slow-moving, non-saleable, out-of-date or close-dated
inventory.
Property and Equipment
Property
and equipment are stated on the basis of historical cost less
accumulated depreciation. Depreciation is provided using the
straight-line method over the two to seven year estimated useful
lives of the assets.
Patents and Patent Expenditures
The
Company holds patent license agreements and maintains patents that
are owned by the Company. All patent license agreements remain in
effect over the life of the underlying patents. Accordingly, the
patent license fee is being amortized over the estimated life of
the patent using the straight-line method. Patent fees and legal
fees associated with the issuance of new owned patents are
capitalized and amortized over the estimated 15 to 20 year life of
the patent. The Company continually
evaluates the amortization period and carrying basis of patents to
determine whether subsequent events and circumstances warrant a
revised estimated useful life or impairment in value. No patent
costs were written off for the years ended December 31, 2020, or
December 31, 2019.
Long-lived Assets
Impairment
losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount. No impairment losses have been recorded
since inception.
F-8
Income Taxes
The
asset and liability approach is used to account for income taxes by
recognizing deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. The
Company records a valuation allowance to reduce the deferred tax
assets to the amount that is more likely than not to be
realized.
Research and Development
Research
and development costs are expensed as incurred. During the years
ended December 31, 2020, and December 31, 2019, the Company
incurred $40,389 of which $40,000 was paid in stock and $389 in
cash and $52,510, respectively, in expenses towards research
activities associated with the development of its proprietary
pulsatile infusion 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 expenss were
also allocated towards the research and development of the
Company’s proprietary pulsatile insulin
treatment.
Use of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Basic and Diluted Net Income (Loss) Per Share
As of
December 31, 2020, potentially dilutive shares of 678,726 are not
included in the calculation of fully diluted net loss per share as
the effect with a net loss would be antidilutive.
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to significant
concentration of credit risk consist principally of cash. The
Company has cash balances in a single U.S. financial institution
which, from time to time, could exceed the federally insured limit
of $250,000. The Company maintains multiple accounts in its Taiwan
Branch office which help to mitigate risk. As of December 31, 2020,
cash held in Taiwan accounts amounted to $3,671. No loss has been
incurred related to the aforementioned concentration of
cash.
Recent Accounting Pronouncements
Recent
accounting pronouncements issued by the FASB, its Emerging Issues
Task Force, the American Institute of Certified Public Accountants,
and the Securities and Exchange Commission did not or are not
believed by management to have a material impact on the
Company’s present or future financial
statements.
2. Property, Equipment and Software, net
Property, equipment
and software are stated at cost less accumulated depreciation and
consist of the following at December 31, 2020 and
2019:
F-9
|
|
2020
|
2019
|
|
Furniture and
equipment
|
$94,625
|
$94,625
|
|
Automobiles
|
4,912
|
4,912
|
|
Software
|
8,012
|
8,012
|
|
|
107,549
|
107,549
|
|
Less: accumulated
depreciation
|
(104,300)
|
(102,480)
|
|
Property, equipment
and software, net
|
$3,249
|
$5,069
|
Depreciation
expense amounted to $1,820 for the year ended December 31, 2020 and
$10,579 for the year ended December 31, 2019 and is included in
selling, general and administrative expenses.
3.
Patents, net
Patents
are stated at cost less accumulated amortization and consist of the
following at December 31, 2020 and 2019:
|
|
2020
|
2019
|
|
Patents
|
$245,898
|
$198,655
|
|
Less: accumulated
amortization
|
(65,270)
|
(52,392)
|
|
Patents,
net
|
$180,628
|
$146,263
|
Amortization
expense amounted to $12,878 for the year ended December 31, 2020
and $11,662 December 31, 2019 respectively, and is included in
selling, general and administrative expenses.
Estimated
future amortization expense is as follows:
|
2020
|
12,435
|
|
2021
|
11,222
|
|
2022
|
10,818
|
|
2023
|
10,818
|
|
2024
|
10,818
|
|
Thereafter
|
124,517
|
|
Total
expense
|
$180,628
|
F-10
4. Convertible Notes Payable
As of
December 31, 2020 and 2019, convertible notes payable consisted of
the following:
|
Note
#.
|
Conversion
Rate
|
Interest
Rate
|
December
31,
2020
Principal
Amount
|
December
31,
2019
Principal
Amount
|
|
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%
|
$14,879
|
$12,435
|
|
Note 5.19 –
i2China
|
$0.2500
|
1.85%
|
$16,000
|
$16,000
|
|
Note 6.20 –
Chen
|
$0.2500
|
1.85%
|
$216,600
|
$-
|
|
Note 7.20 –
Chen
|
$0.2500
|
1.60%
|
$23,366
|
$-
|
|
Note 8.20a –
i2China
|
$0.2500
|
1.85%
|
$48,000
|
$-
|
|
Note 8.20b –
i2China
|
$0.2500
|
1.85%
|
$84,000
|
$-
|
|
Note 9.21 -
Chen
|
N/A
|
0.13%
|
$134,010
|
$-
|
|
Total Convertible
Notes – Related Party
|
|
|
$953,001
|
$444,581
|
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. See
footnote 5.
5. Related Party Transactions
As
discussed in Note 4, as of December 31, 2020 and 2019, the Company
has convertible notes payable of $953,001 and $444,581,
respectively. Interest expense related to these notes for 2020 and
2019 was $9,892 and $4,094, respectively.
Dr.
Chen is an officer and Director of the Company. Furthermore, he
beneficially owns over 10% of the issued and outstanding stock. Dr.
Chen is, therefore, considered a related party. The total related
party promissory notes for 2020, were $805,001 as compared to
$428,581 in 2019.
6.
Common Stock
The
shareholders have authorized 100,000,000 shares of voting common
shares for issuance. On December 31, 2020, a total of 50,783,942
shares of common stock were either issued (42,066,172), reserved
for conversion of convertible debt to stock (3,608,153), held for
future exercise of stock options (4,657,000)12 and warrants
(452,617).
On
January 6, 2020, 400,000 shares were issued at the price of $0.25
per share for the investment of $100,000 in the
Company’s2019-2 Private Placement Stock Offering. The
investment funds were received on December 31, 2019.
On
October 1, 2020, 100,000 shares were issued to UHO Wellness
Corporation (UHO) pursuant to a stock for services agreement
executed by the Company and UHO on February 13, 2020. The shares
were issued at $0.22 per share for preparation and submission of a
Taiwan patent application for the Company’s SMART technology.
On December 1, 2020, the Company issued 100,000 shares at $0.18 per
share to UHO when the aforementioned patent was issued. Issuance of
the patent and payment of the shares signified fulfillment of the
agreement.
_______________
12 Of the total options granted (4,657,000),
1,912,800 are vested as of December 31, 2020.
F-11
On
December 30, 2020, 54,780 common shares were issued to the
Company’s legal consultant as part of the engagement contract
for services for the fiscal year 2019. The total amount of the
stock was $14,440. Also on December 30, 2021, 158,528 shares were
issued to the Company’s executive consultant for advisory
services rendered as part of the engagement contract for 2019 and
2020. The total amount of the stock was $42,000.
On
December 30, 2020, Dr. Stephen T. Chen, Ph.D., CEO, received
651,701 as compensation in the amount of $175,000 for 2019 and
2020. Also on December 30, 2020, Bernard Cohen, VP, received 78,203
shares as compensation of $21,000 for 2019 and 2020. Dr. Celee
Spidel, former Medical Liaison, received 6,304 common shares for
compensation of $2,250 for 2019
On May
11, 2020, the Company Board of Directors unanimously approved a
Consent Resolution enacting the 2020-1 Private Placement Memorandum
and Subscription of Non-Distributive Intent (PPM Offering) (2020-1
Private Placement Package). The offering was approved for the sale
of a maximum of 5,208,334 shares to raise an aggregate amount not
to exceed $1,000,000. The stated use of proceeds was for
commercialization of technologies and application of funds to
operating expenses as necessary. The offering was to be completed
not later than July 31, 2020.
On
November 30, 2020, the Company Board of Directors approved the
extension of the 2020-1 Private Placement Package until March 31,
2021. With the exception of the new closing date, all terms and
conditions of the 2021-1 Private Placement Package remain the same
as disclosed in the previous paragraph.
On
December 18, 2020, the Company Board of Directors approved an
increase in the amount of authorized shares for issuance from 100
million common shares to 300 million common shares contingent upon
transaction close of the Securities Purchase Agreement with Ainos,
Inc. Pursuant to this Agreement, the Company will acquire Patent
Assets by issuing 100,000,000 shares of common stock valued at
$0.20 to Ainos, Inc.
The
Company did not pay any dividends to its common stock shareholders
in 2020 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.
7.
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, 2020 and 2019
and none is outstanding as of the date of this report.
8.
Stock Option and Stock Plans
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 the Company or by a committee of directors
appointed
F-12
by the
Board of Directors of the Company (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 the Company 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.
On
December 18, 2020, the Board of Directors approved the termination
of the 2008 Stock Incentive Plan that was previously approved by
the board on May 23, 2008 and replaced with the 2018 company stock
option plans that were adopted on September 26, 2018.
Equity
Compensation Plan Information:
|
Stock Plans
1
|
|
Issue Date
Range
|
Total Shares
Authorized
|
Shares
Issued
|
Shares
Remaining
|
|
Amarillo
Biosciences, Inc., 2018 Employee Stock Option Plan,
2
|
|
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 Plan
|
|
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 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 Company
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, 2019
and December 31, 2020 are presented below.
F-13
|
Date
|
Number of
Options 1Qualified*
|
Number of
Options Nonqualified
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contractual Term
|
Aggregate
Intrinsic Value
|
|
Balance December
31, 2018
|
950,000
|
3,995,000
|
$0.38
|
9
years -
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
|
Expired or
Forfeited
|
100,000
|
188,000
|
$0.38
|
-
|
-
|
|
Balance December
31, 2019
|
850,000
|
3,807,000
|
$0.38
|
8
years -
|
-
|
|
Granted
2020
|
-
|
-
|
-
|
-
|
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
|
Expired or
Forfeited
|
|
|
$0.38
|
-
|
-
|
|
Balance December
31, 2020
|
850,000
|
3,807,000
|
$0.38
|
7
years -
|
|
|
Vested as of
December 31, 2020
|
390,000
|
1,522,800
|
$0.38
|
7
years -
|
|
●
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, 2020, there is $924,180 in unrecognized option expense
that will be recognized over the next 2.75 years.
Directors,
officers, employees and consultants did not exercise any options in
2019 or 2020.
9.
Warrants
On
November 30, 2020, the Company’s Board of Directors approved
an extension of the consulting agreement and pre-existing warrant
certificate between the Company and i2China Management Group, LLC,
originally dated April 15, 2018. The warrant is effective from
November 25, 2020, until November 25, 2025 at 5:00 P.M. Central
Standard Time. The warrant entitles the consultant to purchase
452,617 shares of common stock at an exercise price of $0.27 per
share. The warrant was valued at $70,608 and will be expensed over
sixty (60) months. The Company used the Black-Scholes option
pricing model to value the warrants with the following assumptions
applied: (1) Volatility – 201%; (2) Term – 5 years (3)
Discount Rate –.39%.
No
warrants were exercised in 2020 or 2019.
10.
Income Taxes
Income
tax expense (benefit) attributable to income from continuing
operations differed from the amounts computed by applying the U.S.
Federal income tax of 21% to pretax income from continuing
operations as a result of the following:
F-14
|
|
December
31,
2020
|
December
31,
2019
|
|
Provision (benefit)
at statutory rate
|
$(305,000)
|
$(332,000)
|
|
Permanent
differences
|
80,000
|
85,000
|
|
Change in valuation
allowance
|
225,000
|
247,000
|
|
|
$-
|
$-
|
The tax
effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 2020 and 2019, are presented below:
|
|
December
31,
2020
|
December
31,
2019
|
|
Deferred tax
assets:
|
|
|
|
Net
operating loss carryforward
|
$3,725,000
|
$5,239,000
|
|
Deferred
tax assets
|
3,725,000
|
5,239,000
|
|
|
|
|
|
Deferred tax
liabilities:
|
-
|
-
|
|
Net deferred tax
assets
|
3,725,000
|
5,239,000
|
|
Valuation
allowance
|
(3,725,000)
|
(5,239,000)
|
|
|
$-
|
$-
|
At
December 31, 2020, the Company has estimated net operating loss
carryforwards of approximately $24,948,000 for federal income tax
purposes expiring in 2021 through 2040. The ability of the Company
to utilize these carryforwards may be difficult and directly
dependent upon many factors outside of the Company’s control,
including, but not limited to, changes in the legal and regulatory
framework and the operational and corporate structure of the
Company and shareholders, or sales or transfers of stock by or
among shareholders. For example, if the Company has experienced a
change of control as defined in the relevant provisions of the
IRC,13 the
use of any existing tax attributes could be severely limited. The
Company does not believe the reorganization has or will impair any
tax attributes; however, obtaining value from the tax attributes is
a function of the Company’s return to profitable operations
and the timeframe of that return. While we believe it is possible,
there is no assurance that the Company will return to profitability
in the future.
As of
December 31, 2020, the Company had open tax years of 2020, 2019 and
2018 which are subject to examination by tax
authorities.
11.
Commitments and Contingencies
Lease commitment
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, 2020 was $1,315 per month. The renewed lease for the
period January 1, 2021, through March 31, 2021, has a rent cost of
$1,315 per month. The monthly lease for a similarly sized office in
Taiwan was $2,548 per month or $30,579 annually for a twelve-month
lease.
_______________
13 See 26 U.S.C. § 382 (known as Section 382 of
the IRC) and related regulations.
F-15
Litigation
The
Company is not a party to any litigation and is not aware of any
pending litigation or unasserted claims or assessments as of
December 31, 2020.
Officer Compensation
On
January 1, 2021, the Company entered into new employment contracts
with Stephen T Chen, the Company’s Chairman, CEO, President,
and CFO; and with Bernard Cohen, the Company’s Vice-President
of Administration. These new contracts replace the previous
contracts which expired on December 31, 2020. The new contracts
began January 1, 2021, and extend through March 31, 2021, at which
time each contract expires. The job descriptions, duties, titles,
benefits, and compensation amounts are identical or proportionate
to the expired employment agreements. Compensation for Dr. Chen is
set at $20,000 per month (an annual rate of $240,000) in cash,
payable bi-monthly, and $8,333.33 monthly (an annual rate of
$100,000) payable in shares of the Company’s unregistered,
voting common stock. Compensation for Mr. Cohen is set at $70,000
per annum in $5,833.33 cash payable bi-monthly (based on the annual
amount of $70,000), and $1,000 payable monthly (annualized at
$12,000), payable in shares of the Company’s unregistered,
voting common stock.
The
contracts provide that the Employee shall devote his entire
productive time, ability, attention and energies to the business of
the Company. In addition, the contracts protect the property rights
of the Company, including inventions and other intellectual
property, trade secrets, and proprietary information. The contracts
also prohibit Employees from competing directly or indirectly with
the business of the Company or its controlled subsidiaries, both
during the term of the contracts, and continuing for a
period.
12. Subsequent Events
On
January 1, 2021, the Company issued Note #10.21 for deferred
compensation to Dr. Stephen T. Chen, Chairman, CEO, President, and
CFO, in the amount of $54,150, the maximum amount of cash
compensation that could be deferred for 2021. The Note is payable
on April 1, 2021, and bears interest at the AFR14 short-term rate of
1.85%. The note is an advancing note with a maximum limit of
$54,150 whereby the Company promises to repay the aggregate
Principal Amount advanced to date up to the stated maximum amount
at Maturity. The Company 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, 2021, the Company issued Note #11.21 for deferred
compensation to i2China Management Group, LLC in the amount of
$33,000, the maximum amount of cash compensation that could be
deferred in 2021. The Note is payable on April 1, 2021, and bears
interest at the AFR15 short-term rate of
1.85%. The note is an advancing note with a maximum limit of
$33,000 whereby the Company promises to repay the aggregate
Principal Amount advanced to date up to the stated maximum amount
at Maturity. The Company may request and the payee shall advance up
to $11,000 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 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.
_______________
14 Applicable Federal Rate
15 Applicable Federal Rate
F-16
On
January 1, 2021, the Company issued Note #9.21 to Dr. Chen which
reduced to writing the various working capital advances through
December 2020, and became the ongoing record to track future
working capital advances through the Note’s maturity date of
April 14, 2021. The maximum aggregate value of Note #9.21 is
$325,000 and carries an AFR interest rate of 0.13%. The Company may
request in writing, as needed, an advance of funds, not to exceed
the specified maximum amount, and the payee shall advance the
requested amount until Maturity.
Following
is a complete list of Convertible Notes Payable issued by the
Company as of December 31, 2020, and subsequent to that Balance
Sheet Date.
|
Note
#.
|
Conversion
Rate
|
Interest
Rate16
|
December
31,
2020
Principal
Amount17
|
December
31,
2019
Principal
Amount
|
|
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%
|
$14,879
|
$12,435
|
|
Note 5.19 –
i2China
|
$0.2500
|
1.85%
|
$16,000
|
$16,000
|
|
Note 6.20 –
Chen
|
$0.2500
|
1.85%
|
$216,600
|
$-
|
|
Note 7.20 –
Chen
|
$0.2500
|
1.60%
|
$23,366
|
$-
|
|
Note 8.20a –
i2China18
|
$0.2500
|
1.85%
|
$48,000
|
$-
|
|
Note 8.20b –
i2China19
|
$0.2500
|
1.85%
|
$84,000
|
$-
|
|
Note 9.21 -
Chen20
|
N/A
|
0.13%
|
$236,905
|
$-
|
|
Note 10.21 -
Chen
|
$0.2500
|
1.85%
|
$59,025
|
$-
|
|
Note 11.21 –
i2China
|
$0.2500
|
1.85%
|
$37,000
|
$-
|
|
Total
Convertible Notes – Related Party
|
$1,151,921
|
$444,581
|
||
_______________
16 Interest on all Related Party notes is assessed
using the short-term or medium-term Applicable Federal Rate (AFR).
Applicable Federal Rate is-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.
18 On November 30, 2020, the Company’s Board
of Directors approved an extension of the consulting agreement and
pre-existing warrant certificate between the Company and i2China
Management Group, LLC, originally dated April 15, 2018.
Compensation stated in the updated agreement increased the monthly
retainer from $8,000 to $15,000 per month retroactive to January 1,
2020. The retainer increase was $7,000 per month and was
retroactively deferred and added to Convertible promissory note
#8.20. The retroactive retainer totaled $84,000 and was added to
the unpaid balance of the note, $48,000, bringing the total unpaid
balance as of December 31, 2020 to $132,000.
20 Dr. Chen loaned operating funds to the Company in
2020 on an open-ended basis. Note 9.21was issued in 2021. The note
is not convertible and interest will be accrued at the short-term
AFR rate.
F-17