U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-K | --- | --- | |-----------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------| | | | | Annual Report Pursuant to Section 13 Act of 1934 [Fee For the Fiscal Year Ended | or 15(d) of the Securities Exchange Required] December 31, 2019 | | Transition Report Under Section 13 or Act of 1934 [No | 15(d) of the Secu ...

[PART I: FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%3A%20FINANCIAL%20INFORMATION) This part details the company's unaudited financial statements, management's analysis, market risk disclosures, and internal control assessments [ITEM 1. Financial Statements](index=3&type=section&id=ITEM%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements and notes, highlighting the company's financial position, performance, and liquidity [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) | Metric | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $482,772 | $1,276,654 | | Total current assets | $551,807 | $1,303,234 | | Total assets | $691,682 | $1,463,700 | | Total current liabilities | $612,598 | $733,621 | | Total liabilities | $612,598 | $733,621 | | Total stockholders' equity | $79,084 | $730,079 | | Accumulated deficit | $(4,399,514) | $(3,188,334) | - The company experienced a significant decrease in **cash and cash equivalents**, **total assets**, and **total stockholders' equity** from December 31, 2018, to September 30, 2019, while its **accumulated deficit substantially increased**[7](index=7&type=chunk) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Three Months Ended September 30 | Metric | 2019 | 2018 | Change (2019 vs 2018) | | :--- | :--- | :--- | :--- | | Revenues | $4,786 | $14,908 | $(10,122) | | Cost of revenues | $(3,368) | $(16,791) | $13,423 | | Gross margin | $1,418 | $(1,883) | $3,301 | | Selling, general and administrative | $366,824 | $306,965 | $59,859 | | Operating income (loss) | $(365,406) | $(308,848) | $(56,558) | | Net income (loss) | $(366,215) | $(310,039) | $(56,176) | | Basic and diluted net loss per share | $(0.01) | $(0.01) | $0.00 | Nine Months Ended September 30 | Metric | 2019 | 2018 | Change (2019 vs 2018) | | :--- | :--- | :--- | :--- | | Revenues | $9,468 | $71,748 | $(62,280) | | Cost of revenues | $(6,649) | $(60,837) | $54,188 | | Gross margin | $2,819 | $10,911 | $(8,092) | | Research and development expenses | $52,510 | $0 | $52,510 | | Selling, general and administrative | $1,161,317 | $859,956 | $301,361 | | Operating income (loss) | $(1,213,827) | $(849,045) | $(364,782) | | Net income (loss) | $(1,211,180) | $(852,589) | $(358,591) | | Basic and diluted net loss per share | $(0.03) | $(0.02) | $(0.01) | [Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) - **Total Stockholders' Equity decreased significantly** from $730,079 at December 31, 2018, to $79,084 at September 30, 2019, primarily due to a **net loss of $(1,211,180)** for the nine-month period[12](index=12&type=chunk) - The company issued common stock for compensation, cash, and debt conversion, contributing to increases in common stock par value and additional paid-in capital during the period[12](index=12&type=chunk)[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Metric | Nine months ended Sept 30, 2019 | Nine months ended Sept 30, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(779,339) | $(697,341) | | Net cash provided by (used in) investing | $(2,043) | $55,643 | | Net cash used in financing activities | $(12,500) | $(195,000) | | Net change in cash | $(793,882) | $(836,698) | | Cash and cash equivalents at end of period| $482,772 | $1,143,317 | - The company experienced increased cash usage in operating activities and a shift from cash provided to cash used in investing activities year-over-year, resulting in a **net decrease in cash and cash equivalents**[14](index=14&type=chunk) [Notes to Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [Note 1. Organization and Business](index=7&type=section&id=1.%20Organization%20and%20Business.) - Amarillo Biosciences, Inc (ABI) is a diversified healthcare company founded in 1984, operating through Pharmaceutical, Medical, and Consumer divisions[15](index=15&type=chunk) - The Pharmaceutical division focuses on low-dose oral interferon (IFN) for neoplastic, viral, and fibrotic diseases, seeking patent licensing and commercialization[15](index=15&type=chunk) - The Medical division develops technology for metabolism-related diseases and distributes medical care products, while the Consumer division licenses and distributes nutraceuticals[15](index=15&type=chunk) [Note 2. Basis of presentation](index=7&type=section&id=2.%20Basis%20of%20presentation.) - The accompanying consolidated financial statements are unaudited and prepared in accordance with GAAP for interim financial information[16](index=16&type=chunk) [Note 3. Financial Condition](index=7&type=section&id=3.%20Financial%20Condition.) - The company has not achieved sustained operating income and relies on related-party financing, raising **substantial doubt about its ability to continue as a going concern**[17](index=17&type=chunk)[20](index=20&type=chunk) - Future operations are dependent on obtaining necessary financing, and there is no assurance that capital will be available on acceptable terms[18](index=18&type=chunk)[20](index=20&type=chunk) [Note 4. Common Stock](index=8&type=section&id=4.%20Common%20Stock.) - As of September 30, 2019, the company had **40,216,351 common shares issued and outstanding**, out of 100,000,000 authorized shares[21](index=21&type=chunk) - During 2019, the company issued shares for private placement, stock compensation to officers and employees, and as a finder's fee[22](index=22&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk) - No dividends have been paid to common stock shareholders to date, and there are no immediate plans to do so[24](index=24&type=chunk) [Note 5. Convertible Notes Payable – Related Party](index=8&type=section&id=5.%20Convertible%20Notes%20Payable%20%E2%80%93%20Related%20Party.) | Convertible Note Type | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Convertible Note payable – related party (Note 1) | $114,026 | $144,426 | | Convertible Note payable – related party (Note 2) | $262,500 | $262,500 | | Convertible Note payable – related party (Note 3) | - | $106,430 | | **Total Convertible Notes payable – related party** | **$376,526** | **$513,356** | - The outstanding balance of convertible promissory notes payable to Dr Stephen T Chen **decreased from $513,356 to $376,526** due to partial repayment and conversions into common stock[25](index=25&type=chunk)[26](index=26&type=chunk) - Specific conversions included **$69,600 into 371,200 shares** and **$30,400 into 180,952 shares** during July 2019[26](index=26&type=chunk) [Note 6. Subsequent Events](index=9&type=section&id=6.%20Subsequent%20Events) - No events have occurred subsequent to the balance sheet date through the date of this filing[28](index=28&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=9&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, operational results, liquidity needs, and forward-looking uncertainties [Forward-Looking Statements](index=9&type=section&id=Forward-Looking%20Statements) - The document contains forward-looking statements subject to risks and uncertainties, including regulatory approvals, R&D costs, and clinical trial difficulties[30](index=30&type=chunk)[32](index=32&type=chunk)[62](index=62&type=chunk) - Principal uncertainties include the inability to ensure favorable trial results, accurately budget for personnel, and continue as a going concern[32](index=32&type=chunk)[62](index=62&type=chunk) - Investors are cautioned not to place undue reliance on forward-looking statements due to the competitive and rapidly changing industry[33](index=33&type=chunk)[34](index=34&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk) [Overview](index=10&type=section&id=Overview) - ABI is developing biologics, primarily focusing on low-dose oral interferon for human and animal diseases, holding 5 related patents[35](index=35&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk) - Further clinical trials and commercialization of low-dose interferon are on hold pending the identification of a new cGMP source for interferon[38](index=38&type=chunk)[39](index=39&type=chunk) - The company is expanding its diversified healthcare business to generate new revenue streams through its Medical and Consumer divisions[41](index=41&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk) [Results of Operations for Three Months Ended September 30, 2019 and 2018](index=12&type=section&id=Results%20of%20Operations%20for%20Three%20Months%20Ended%20September%2030%2C%202019%20and%202018) | Metric | 2019 | 2018 | Change (2019 vs 2018) | | :--- | :--- | :--- | :--- | | Revenues | $4,786 | $14,908 | $(10,122) | | Gross margin | $1,418 | $(1,883) | $3,301 | | Selling, general and administrative | $366,824 | $306,965 | $59,859 | | Operating loss | $(365,406) | $(308,848) | $(56,558) | | Net loss | $(366,215) | $(310,039) | $(56,176) | - The increase in operating and net loss was primarily attributed to a **19.8% increase in selling, general, and administrative expenses**[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) [Results of Operations for the Nine Months Ended September 30, 2019 and 2018](index=13&type=section&id=Results%20of%20Operations%20for%20the%20Nine%20Months%20Ended%20September%2030%2C%202019%20and%202018) | Metric | 2019 | 2018 | Change (2019 vs 2018) | | :--- | :--- | :--- | :--- | | Revenues | $9,468 | $71,748 | $(62,280) | | Gross profit | $2,819 | $10,911 | $(8,092) | | Research and development expenses | $52,510 | $0 | $52,510 | | Selling, general and administrative | $1,161,317 | $859,956 | $301,361 | | Operating loss | $(1,213,827) | $(849,045) | $(364,782) | | Net loss | $(1,211,180) | $(852,589) | $(358,591) | - The significant increase in operating and net loss was primarily due to an **86.8% decrease in revenue**, a new **R&D expenditure of $52,510**, and a **35.4% increase in SG&A expenses**[53](index=53&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk) [Liquidity Needs](index=13&type=section&id=Liquidity%20Needs) - As of September 30, 2019, the company had **$482,772 in cash**, down from $1,276,654, with an estimated historical **burn rate of $65,000 to $75,000 per month**[59](index=59&type=chunk) - ABI estimates financing needs of **$5,000,000 to $6,000,000** over the next three years for commercialization activities[59](index=59&type=chunk)[61](index=61&type=chunk) - The company's main goal is to return to a **going concern status** by reducing operating losses, but there is no assurance of success[59](index=59&type=chunk)[61](index=61&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=14&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exempt from market risk disclosures as it qualifies as a "smaller reporting company" - The company is exempt from providing market risk disclosures as it qualifies as a "smaller reporting company"[65](index=65&type=chunk) [ITEM 4. Controls and Procedures](index=15&type=section&id=ITEM%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of disclosure controls, internal controls, and management's remediation plans for identified material weaknesses [Disclosure Controls and Procedures](index=15&type=section&id=Disclosure%20Controls%20and%20Procedures) - Management concluded that **disclosure controls and procedures were not effective** as of September 30, 2019, in ensuring timely and accurate SEC reporting[65](index=65&type=chunk) [Changes to Internal Controls and Procedures over Financial Reporting](index=15&type=section&id=Changes%20to%20Internal%20Controls%20and%20Procedures%20over%20Financial%20Reporting) - The company engaged a managerial accounting services provider to oversee accounting processes and augment internal financial controls[66](index=66&type=chunk) [Management's Remediation Plans](index=15&type=section&id=Management's%20Remediation%20Plans) - Management identified **material weaknesses**: insufficient personnel with appropriate technical accounting knowledge and lack of proper segregation of duties[67](index=67&type=chunk) - The remediation plan involves increasing personnel resources and technical accounting expertise within the accounting function[69](index=69&type=chunk) [PART II: OTHER INFORMATION](index=16&type=section&id=PART%20II%3A%20OTHER%20INFORMATION) This part covers other required disclosures, including legal proceedings, unregistered securities sales, and filed exhibits [ITEM 1. Legal Proceedings](index=16&type=section&id=ITEM%201.%20Legal%20Proceedings) The company reported no awareness of any material legal proceedings or claims against it as of the filing date - As of the report date, the company was not aware of any material legal proceedings or claims against it[70](index=70&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=16&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the unregistered sales of equity securities and how the proceeds were utilized during the reporting period - From January 1, 2019, through the filing date, **200,000 shares were issued for proceeds of $50,000**[71](index=71&type=chunk) - The proceeds were used for R&D, SG&A expenses, capital expenditures, compensation, and repayment of convertible debt[71](index=71&type=chunk) [ITEM 3. Defaults Upon Senior Securities](index=16&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - No defaults upon senior securities were reported[72](index=72&type=chunk) [ITEM 4. Mine Safety Disclosures](index=16&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Mine Safety Disclosures are not applicable to Amarillo Biosciences, Inc[72](index=72&type=chunk) [ITEM 5. Other Information](index=16&type=section&id=ITEM%205.%20Other%20Information) No other information was reported under this item - No other information was provided under this item[72](index=72&type=chunk) [ITEM 6. Exhibits](index=17&type=section&id=ITEM%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including required certifications and XBRL documents - Exhibits include certifications from the Chief Executive Officer (31.1 and 32.1) as required by the Securities Exchange Act and Sarbanes-Oxley Act[74](index=74&type=chunk)[75](index=75&type=chunk) - The filing also includes various XBRL (eXtensible Business Reporting Language) documents for interactive data[76](index=76&type=chunk) [Signatures](index=17&type=section&id=Signatures) The report was officially signed by Stephen T Chen, Chairman, CEO, and CFO, on November 13, 2019 - The report was signed on November 13, 2019, by Stephen T Chen, Chairman of the Board, Chief Executive Officer, and Chief Financial Officer[77](index=77&type=chunk)

[PART I: FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%3A%20FINANCIAL%20INFORMATION) This section presents unaudited consolidated financial statements, highlighting significant declines in assets, revenue, and increased net losses, raising going concern doubts [Item 1. Financial Statements](index=3&type=section&id=ITEM%201.%20Financial%20Statements) Unaudited consolidated financial statements show significant asset and revenue declines, increased net losses, and going concern uncertainties [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (Unaudited) | Metric | June 30, 2019 ($) | December 31, 2018 ($) | | :--- | :--- | :--- | | Cash and cash equivalents | 723,441 | 1,276,654 | | Total current assets | 797,978 | 1,303,234 | | Total assets | 944,997 | 1,463,700 | | Total liabilities | 705,343 | 733,621 | | Total stockholders' equity | 239,654 | 730,079 | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Statement of Operations Summary (Unaudited) | Metric | Six Months Ended June 30, 2019 ($) | Six Months Ended June 30, 2018 ($) | | :--- | :--- | :--- | | Revenues | 4,682 | 56,840 | | Gross margin | 1,401 | 12,794 | | Total operating expenses | 847,003 | 552,991 | | Operating loss | (845,602) | (540,197) | | Net loss | (844,965) | (542,550) | | Basic and diluted net loss per share | (0.02) | (0.02) | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for Six Months Ended June 30 (Unaudited) | Metric | 2019 ($) | 2018 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | (539,076) | (389,433) | | Net cash used in investing activities | (1,637) | (2,108) | | Net cash used in financing activities | (12,500) | (195,000) | | Net change in cash | (553,213) | (586,541) | | Cash and cash equivalents at end of period | 723,441 | 1,393,474 | [Notes to Consolidated Financial Statements](index=5&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) - The company operates through three divisions: Pharmaceutical (low-dose oral interferon), Medical (diabetes technology and medical product distribution), and Consumer (nutraceuticals and food supplements)[9](index=9&type=chunk) - The financial statements have been prepared on a going concern basis, but the company's history of losses, lack of sustained operating income, and dependence on financing raise **substantial doubt about its ability to continue as a going concern**[11](index=11&type=chunk)[14](index=14&type=chunk) - As of June 30, 2019, the company had **$475,856** in convertible notes payable to its Chairman and CEO, Dr. Stephen T. Chen. A portion of this debt was converted to common stock subsequent to the balance sheet date[18](index=18&type=chunk)[19](index=19&type=chunk)[21](index=21&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=8&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, liquidity, and strategy, highlighting revenue decline, increased losses, and financing needs [Overview](index=9&type=section&id=Overview) - The company's core technology is a low-dose oral interferon lozenge. However, clinical trials and commercialization plans are **on hold** because its long-time manufacturer is no longer producing interferon, and ABI is actively seeking a new cGMP source[30](index=30&type=chunk)[33](index=33&type=chunk) - ABI is **diversifying its business** to generate new revenue streams through a Medical Division (developing pulsatile insulin therapy for diabetes, distributing TissueAid™ wound closure products) and a Consumer Products Division (nutraceuticals)[36](index=36&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) - The company is **focusing on Asian markets**, using its Taiwan branch office as an operational hub for expansion in Taiwan, Hong Kong, and China[36](index=36&type=chunk)[41](index=41&type=chunk) [Results of Operations](index=11&type=section&id=Results%20of%20Operations) Financial Performance Comparison: Six Months Ended June 30 | Metric | 2019 ($) | 2018 ($) | Change | | :--- | :--- | :--- | :--- | | Revenue | 4,682 | 56,840 | -92% | | Gross Profit | 1,401 | 12,794 | -89% | | SG&A Expenses | 794,493 | 552,991 | +44% | | Operating Loss | (845,602) | (540,197) | +57% | | Net Loss | (844,965) | 524,229 | +61% | - The **increase in SG&A expenses** was primarily due to costs associated with stock compensation programs, professional accounting fees, and expanded international operations[52](index=52&type=chunk)[53](index=53&type=chunk) [Liquidity and Capital Resources](index=13&type=section&id=Liquidity%20and%20Capital%20Resources) - Cash and cash equivalents **decreased from $1,275,654 at December 31, 2018, to $723,441 at June 30, 2019**[57](index=57&type=chunk) - The company estimates it **needs between $5 million and $6 million in financing** to support its core technology and expand its new Medical and Consumer Products divisions[57](index=57&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=14&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exempt from market risk disclosures due to its status as a smaller reporting company - The company is **exempt from this disclosure requirement** due to its status as a **smaller reporting company**[64](index=64&type=chunk) [Item 4. Controls and Procedures](index=14&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective due to material weaknesses, with remediation efforts underway - The CEO and CFO concluded that the company's disclosure controls and procedures were **not effective**[65](index=65&type=chunk) - Identified material weaknesses include: (a) **insufficient personnel with technical accounting knowledge** and (b) a **lack of proper segregation of duties** due to the company's small size[68](index=68&type=chunk) - Remediation plans include **engaging a managerial accounting service provider** and **hiring additional personnel** with technical accounting expertise[66](index=66&type=chunk)[69](index=69&type=chunk) [PART II: OTHER INFORMATION](index=15&type=section&id=PART%20II%3A%20OTHER%20INFORMATION) This section provides other required information, including legal proceedings, unregistered equity sales, and other disclosures [Item 1. Legal Proceedings](index=15&type=section&id=ITEM%201.%20Legal%20Proceedings) The company reports no active or pending legal proceedings or claims as of the filing date - The company reports **no active or pending legal proceedings**[70](index=70&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=16&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company issued unregistered shares for $50,000, with proceeds used for general corporate purposes and debt repayment - From January 1, 2019, the company issued **200,000 shares** for proceeds of **$50,000**[72](index=72&type=chunk) - The proceeds were used for **general corporate purposes**, including R&D, SG&A, and debt repayment[72](index=72&type=chunk) [Other Items (Items 3, 4, 5, 6)](index=16&type=section&id=Other%20Items) The company reported no senior security defaults, inapplicable mine safety disclosures, and no other information or exhibits - The company reported **no defaults upon senior securities**, **inapplicable mine safety disclosures**, **no other information**, and **no exhibits**[73](index=73&type=chunk)

[PART I: FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%3A%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=ITEM%201.%20Financial%20Statements) For Q1 2019, the company reported decreased cash and assets, a significant revenue drop, and a higher net loss, highlighting 'going concern' uncertainty [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2019, total assets decreased to **$1.23 million** from **$1.46 million** due to reduced cash, while accumulated deficit grew, lowering equity Balance Sheet Highlights | Balance Sheet Highlights | March 31, 2019 (USD) | December 31, 2018 (USD) | | :--- | :--- | :--- | | Cash and cash equivalents | $1,046,314 | $1,276,654 | | Total current assets | $1,071,278 | $1,303,234 | | Total assets | $1,225,840 | $1,463,700 | | Total current liabilities | $673,755 | $733,621 | | Accumulated deficit | $(3,579,723) | $(3,188,334) | | Total stockholders' equity | $552,085 | $730,079 | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Q1 2019 revenues plummeted to **$4,076** from **$56,590**, while increased SG&A expenses led to an operating loss of **$390,504** and a net loss of **$391,389** Income Statement (Three Months Ended March 31) | Income Statement (Three Months Ended March 31) | 2019 (USD) | 2018 (USD) | | :--- | :--- | :--- | | Revenues | $4,076 | $56,590 | | Gross margin | $1,358 | $13,251 | | Selling, general and administrative expenses | $389,476 | $199,309 | | Operating loss | $(390,504) | $(186,058) | | Net loss attributable to common shareholders | $(391,389) | $(192,430) | | Basic and diluted net loss per share | $(0.01) | $(0.01) | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities significantly increased to **$216,202** in Q1 2019, resulting in a **$230,340** decrease in cash, ending at **$1,046,314** Cash Flow (Three Months Ended March 31) | Cash Flow (Three Months Ended March 31) | 2019 (USD) | 2018 (USD) | | :--- | :--- | :--- | | Net cash used in operating activities | $(216,202) | $(76,524) | | Net cash used in investing activities | $(1,638) | $(1,687) | | Net cash used in financing activities | $(12,500) | $(195,000) | | Net change in cash | $(230,340) | $(273,211) | | Cash and cash equivalents at end of period | $1,046,314 | $1,706,804 | [Notes to Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail the company's divisions, disclose 'going concern' uncertainty due to recurring losses, and reveal **$475,856** in convertible notes payable to the CEO - The company operates through three divisions: Pharmaceutical (low-dose oral interferon), Medical (diabetes treatment technology, wound care products), and Consumer (nutraceuticals)[10](index=10&type=chunk) - Management has expressed substantial doubt about the company's ability to continue as a going concern, as its operations are funded by debt and equity financing and it has not yet achieved sustained operating income[12](index=12&type=chunk)[13](index=13&type=chunk)[15](index=15&type=chunk) - As of March 31, 2019, the company had **$475,856** in convertible notes payable to its Chairman, CEO, and President, Dr. Stephen T. Chen[18](index=18&type=chunk)[19](index=19&type=chunk) - Subsequent to the quarter's end, a director, general counsel, and corporate secretary resigned, and the company's outstanding Private Placement offer expired[21](index=21&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=8&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses stalled interferon development, diversification efforts, and attributes increased net loss to lower sales and higher SG&A, with liquidity strained by a **$65k-$75k** monthly burn rate and a **$3-5 million** short-term financing need [Overview](index=9&type=section&id=Overview) The company's core interferon development is stalled by manufacturing issues, prompting diversification into Medical (diabetes, wound care) and Consumer (nutraceuticals) divisions - The company's primary research focuses on a proprietary low-dose oral lozenge form of natural human interferon alpha for treating human diseases[25](index=25&type=chunk) - Further clinical trials and commercialization of the interferon product are on hold until a new cGMP source of interferon is secured[29](index=29&type=chunk) - ABI is expanding into a diversified healthcare portfolio, including developing pulsatile insulin therapy for diabetes in Taiwan and distributing TissueAid™ wound closure products[32](index=32&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) - The Consumer Product Division offers a line of liposomal nutraceuticals and a dietary supplement, Maxisal®, for dry mouth relief[38](index=38&type=chunk) [Results of Operations](index=11&type=section&id=Results%20of%20Operations) Q1 2019 nutraceutical revenues sharply declined to **$4,076**, while SG&A expenses increased by **95%**, leading to a **110%** wider operating loss of **$390,504** and a **103%** higher net loss of **$391,389** - Revenue from liposomal nutraceuticals decreased from **$56,590** in Q1 2018 to **$4,076** in Q1 2019[40](index=40&type=chunk) - SG&A expenses were **$190,167 (95%)** higher in Q1 2019 than Q1 2018, driven by salary increases, additional accounting and consulting services, and option expenses[42](index=42&type=chunk) - The net loss attributable to common shareholders for Q1 2019 was **$391,389**, a **103%** increase from the **$192,430** loss in Q1 2018, mainly due to the higher SG&A expenses[44](index=44&type=chunk) [Liquidity and Capital Resources](index=11&type=section&id=Liquidity%20and%20Capital%20Resources) Cash declined to **$1.05 million** by Q1 2019, with a monthly burn rate of **$65k-$75k**, necessitating **$3-5 million** in short-term financing to avoid cessation of operations Liquidity Metrics | Liquidity Metrics | March 31, 2019 (USD) | December 31, 2018 (USD) | | :--- | :--- | :--- | | Cash | $1,046,314 | $1,276,654 | | Working Capital | $397,523 | $569,613 | - The company's monthly cash burn rate in 2019 was between **$65,000** and **$75,000**[45](index=45&type=chunk) - ABI estimates its short-term project development financing needs to be between **$3,000,000** and **$5,000,000**[46](index=46&type=chunk) - There is no assurance of successfully making the company profitable, and failure to do so could lead to a cessation of operations[47](index=47&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=12&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a 'smaller reporting company,' the company is exempt from providing market risk disclosures - As a 'smaller reporting company,' ABI is exempt from providing disclosures about market risk under Item 3[48](index=48&type=chunk) [Controls and Procedures](index=12&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective as of March 31, 2019, citing material weaknesses in accounting personnel and segregation of duties, with remediation efforts underway - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were not effective[49](index=49&type=chunk) - Identified material weaknesses include: (a) insufficient personnel with appropriate GAAP knowledge and (b) improper segregation of duties due to the company's small size[54](index=54&type=chunk) - Remediation efforts include engaging a managerial accounting services provider and plans to hire additional personnel with technical accounting expertise[50](index=50&type=chunk)[55](index=55&type=chunk) [PART II: OTHER INFORMATION](index=13&type=section&id=PART%20II%3A%20OTHER%20INFORMATION) [Legal Proceedings](index=13&type=section&id=ITEM%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings or claims - The company is not currently involved in any significant lawsuits or legal proceedings[56](index=56&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=13&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Since January 1, 2019, **200,000** unregistered shares were issued, raising **$50,000** for general corporate purposes and partial debt repayment to the CEO - From January 1, 2019, through the filing date, **200,000** shares were issued for proceeds of **$50,000**[57](index=57&type=chunk) - Proceeds were used for general corporate purposes, including R&D, SG&A, compensation, and repayment of debt to Dr. Chen[57](index=57&type=chunk) [Defaults Upon Senior Securities](index=13&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - None[53](index=53&type=chunk) [Mine Safety Disclosures](index=13&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[53](index=53&type=chunk) [Other Information](index=13&type=section&id=ITEM%205.%20Other%20Information) The company reported no other information under this item - None[53](index=53&type=chunk) [Exhibits](index=14&type=section&id=ITEM%206.%20Exhibits) No exhibits were filed with this report - None[59](index=59&type=chunk)

PART I [Item 1. Business](index=2&type=section&id=ITEM%201.%20BUSINESS.) The company develops low-dose oral interferon but faces a critical manufacturing halt while diversifying its business post-bankruptcy - The company's core business is developing biologics, with a focus on low-dose oral natural human interferon alpha for various conditions[7](index=7&type=chunk) - Post-bankruptcy, ABI restructured into **three business units**: Medical, Pharmaceutical, and Consumer Product Divisions to diversify revenue streams[10](index=10&type=chunk)[12](index=12&type=chunk) - A major operational hurdle is the **cessation of manufacturing by its long-time interferon supplier**, halting further clinical trials and commercialization[18](index=18&type=chunk) - ABI is expanding into Asian markets by establishing a Taiwan branch to distribute new medical products like TissueAid™ and develop diabetes therapies[12](index=12&type=chunk)[15](index=15&type=chunk) - The company owns or licenses **six issued patents**, primarily related to its low-dose oral interferon technology[8](index=8&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) [Item 2. Description of Property](index=7&type=section&id=ITEM%202.%20DESCRIPTION%20OF%20PROPERTY.) The company leases an 1,800 square-foot office facility in Amarillo, Texas under an annually renewed agreement - ABI leases an **1,800 square-foot** office facility at 4134 Business Park Drive, Amarillo, Texas[39](index=39&type=chunk) - The lease is renewed annually, with a monthly rent of **$1,120** as of December 31, 2018[39](index=39&type=chunk) [Item 3. Legal Proceedings](index=7&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS.) The company is not currently involved in any legal proceedings - There are **currently no legal proceedings** involving the Company[39](index=39&type=chunk) [Item 4. Submission of Matters to a Vote of Security Holders](index=8&type=section&id=ITEM%204.%20SUBMISSION%20OF%20MATTERS%20TO%20A%20VOTE%20OF%20SECURITY%20HOLDERS) No matters were submitted to a vote of security holders during the reporting period - No matters were submitted to a vote of security holders[40](index=40&type=chunk) PART II [Item 5. Market for Registrant's Common Equity and Related Shareholder Matters](index=8&type=section&id=ITEM%205.%20MARKET%20FOR%20THE%20REGISTRANT'S%20COMMON%20EQUITY%20AND%20RELATED%20SHAREHOLDER%20MATTERS%2C%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES.) This section details the company's equity structure, new stock option plans, and significant related-party transactions with the CEO - As of December 31, 2018, there were **39,117,524 common shares outstanding**, with an additional 8,855,831 shares reserved for issuance[41](index=41&type=chunk) - In September 2018, the company adopted two new stock option plans authorizing a total of **26,000,000 shares**[47](index=47&type=chunk)[49](index=49&type=chunk) Convertible Notes Payable to Related Party (Dr. Stephen T. Chen) | Date | 2018 Balance | 2017 Balance | | :--- | :--- | :--- | | Dec 31 | $513,356 | $886,481 | - During 2018, Dr. Chen converted **$178,125** of his convertible notes into **950,000 common shares** and received cash repayments for other notes[45](index=45&type=chunk)[63](index=63&type=chunk) - Effective July 1, 2018, the company acquired all voting interests of ACTS Global, a related party, in exchange for **539,447 shares** of ABI common stock[45](index=45&type=chunk)[71](index=71&type=chunk) [Item 7. Management's Discussion and Analysis (MD&A)](index=13&type=section&id=ITEM%207.%20MANAGEMENT%20DISCUSSION%20AND%20ANALYSIS%20OR%20PLAN%20OF%20OPERATION%3A) The financial review shows a significant revenue decline and a widened net loss in 2018, driven by increased SG&A expenses Fiscal Year Comparison (2018 vs. 2017) | Metric | 2018 | 2017 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $77,724 | $250,928 | -69.0% | | Gross Profit | $12,847 | $190,612 | -93.3% | | SG&A Expenses | $1,314,932 | $770,375 | +70.7% | | Net Loss | ($1,338,639) | ($617,375) | +117.0% | Liquidity Position (as of Dec 31) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Cash | $1,276,654 | $2,038,150 | | Working Capital | $569,613 | $261,412 | - The company's monthly cash burn rate in 2018 was approximately between **$65,000 and $75,000**[80](index=80&type=chunk) - Management estimates short-term project development financing needs to be between **$3,000,000 and $5,000,000**[80](index=80&type=chunk) [Item 9A. Controls and Procedures](index=15&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES.) Management concluded that disclosure controls were ineffective due to material weaknesses in internal control over financial reporting - Management concluded that as of December 31, 2018, the company's disclosure controls and procedures were **not effective**[87](index=87&type=chunk) - **Material weaknesses** in internal control were identified, including insufficient personnel with GAAP knowledge and a lack of proper segregation of duties[90](index=90&type=chunk) - Management's remediation plan is to hire additional qualified personnel as funds become available[93](index=93&type=chunk) PART III [Item 10. Directors, Executive Officers, and Corporate Governance](index=17&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%2C%20AND%20CORPORATE%20GOVERNANCE.) This section provides biographical details for the company's leadership team and notes the current inactivity of its Audit Committee - The executive officers are Dr. Stephen Chen (Chairman, CEO, President) and Bernard Cohen (Vice President, CFO)[94](index=94&type=chunk)[95](index=95&type=chunk) - The Board of Directors consists of **five members**: Stephen T. Chen, Yasushi Chikagami, Daniel Fisher, Nicholas Moren, and Edward L. Morris[78](index=78&type=chunk)[94](index=94&type=chunk) - The company does not currently have an active Audit Committee but anticipates it will resume its function as the company progresses[103](index=103&type=chunk) [Item 11. Executive Compensation](index=19&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION.) Executive compensation was restructured in 2018, significantly increasing the cash and stock awards for top officers Executive Compensation Summary (2018) | Name and Principal Position | Salary | Stock Compensation | | :--- | :--- | :--- | | Dr. Stephen T. Chen, CEO | $240,000 | $100,000 | | Mr. Bernard Cohen, CFO | $70,000 | $12,000 | - The Board of Directors approved a restructuring of the compensation packages for Dr. Chen and Mr. Cohen, effective as of January 1, 2018[108](index=108&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management](index=20&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) CEO Dr. Stephen T. Chen is the largest beneficial owner, and insiders collectively hold over 28% of the company's stock Beneficial Owners of More Than 5% | Name | Percent of Class Owned | | :--- | :--- | | Stephen T Chen & Virginia M Chen Living Trust | 22.21% | | Hung Lan Lee | 9.43% | | ANXON International Inc. | 5.80% | - All directors and executive officers as a group beneficially own **12,076,650 shares**, representing **28.48%** of the class[116](index=116&type=chunk) [Item 13. Certain Relationships and Related Transactions](index=22&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS.) The company outlines its policy for future related-party transactions to ensure they are conducted at arm's length - The company states that all future transactions with related parties will be on terms **no less favorable** than could be obtained from independent third parties[119](index=119&type=chunk) - No new related party arrangements are disclosed in this section, as all current arrangements have been disclosed elsewhere[120](index=120&type=chunk) [Item 14. Principal Accounting Fees and Services](index=22&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES.) The company reports a year-over-year increase in audit fees paid to its independent accounting firm Audit Fees | Year | Amount | | :--- | :--- | | 2018 | $42,250 | | 2017 | $32,250 | Financial Statements and Notes [Report of Independent Registered Public Accounting Firm](index=25&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The auditor's report expresses substantial doubt about the company's ability to continue as a going concern - The auditor's report explicitly raises **"substantial doubt about its ability to continue as a going concern"** due to recurring losses and lack of revenues[130](index=130&type=chunk) [Consolidated Financial Statements](index=27&type=section&id=Consolidated%20Financial%20Statements) Financial statements show deteriorating operational performance with a widening net loss, offset by an improved equity position Consolidated Balance Sheet Data (as of Dec 31) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,276,654 | $2,038,150 | | Total Assets | $1,463,700 | $2,293,834 | | Total Liabilities | $733,621 | $1,823,039 | | Total Stockholders' Equity | $730,079 | $470,795 | Consolidated Statement of Operations Data (Year Ended Dec 31) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Revenues | $77,724 | $250,928 | | Operating Loss | ($1,334,676) | ($579,763) | | Net Loss | ($1,338,639) | ($617,375) | | Net Loss per Share | ($0.04) | ($0.03) | Consolidated Statement of Cash Flows Data (Year Ended Dec 31) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,009,198) | ($484,568) | | Net cash provided by financing activities | $254,979 | $2,437,689 | | Net change in cash | ($761,496) | $1,904,025 | [Notes to Consolidated Financial Statements](index=31&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes reiterate the going concern uncertainty and detail the consolidation of a VIE, related-party transactions, and new stock option plans [Note 1. Organization and Summary of Significant Accounting Policies](index=31&type=section&id=Note%201.%20Organization%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note details the 'going concern' uncertainty, the consolidation of ACTS Global as a VIE, and the adoption of ASC 606 - The financial statements were prepared on a going concern basis, but management notes that recurring losses raise **substantial doubt** about this assumption[146](index=146&type=chunk)[148](index=148&type=chunk) - Effective January 1, 2018, the company consolidated ACTS Global Healthcare, Inc. as a **Variable Interest Entity (VIE)**[142](index=142&type=chunk) - The company adopted **ASC Topic 606** (Revenue from Contracts with Customers) on January 1, 2018, with no material impact to reported revenues[156](index=156&type=chunk) [Note 4. Convertible Notes Payable – Related Party](index=37&type=section&id=Note%204.%20Convertible%20Notes%20Payable%20%E2%80%93%20Related%20Party) This note details the significant reduction in convertible notes payable to the CEO through repayments and stock conversions Change in Convertible Notes Payable to Related Party | Date | Balance | | :--- | :--- | | Dec 31, 2017 | $886,481 | | Dec 31, 2018 | $513,356 | - During 2018, Dr. Chen was repaid **$195,000** in principal and converted **$178,125** of principal into **950,000 common shares**[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) [Note 9. Stock Option and Stock Plans](index=41&type=section&id=Note%209.%20Stock%20Option%20and%20Stock%20Plans) The company adopted two new stock option plans authorizing 26 million shares, creating a significant future compensation expense - On September 26, 2018, the company adopted two new stock option plans authorizing a total of **26 million common shares** for issuance[204](index=204&type=chunk)[205](index=205&type=chunk) - A total of **4,945,000 options** were granted on September 26, 2018, with an exercise price of **$0.38**[210](index=210&type=chunk) - As of December 31, 2018, there is **$1,775,222 in unrecognized option expense** that will be recognized over the next 4.75 years[210](index=210&type=chunk)