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AMARQ > SEC Filings for AMARQ > Form 10-Q on 13-Nov-2013All Recent SEC Filings

Show all filings for AMARILLO BIOSCIENCES INC

Form 10-Q for AMARILLO BIOSCIENCES INC


13-Nov-2013

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and the notes thereto which appear elsewhere in this report. The results shown herein are not necessarily indicative of the results to be expected in any future periods. 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.

Company Goal - FDA Approval and Commercialization of Oral Interferon Amarillo Biosciences, Inc. (OTCQB: AMARQ) is a leader in the development of low-dose interferon for oral delivery, having completed more than 100 pre-clinical (animal) and human studies related to this technology to date. Our funding strategy is to seek private placement and pharma partner funding to complete Phase 2 clinical studies, and then to find large pharma partners to fund Phase 3 clinical studies and assist with the regulatory approval process in the United States and Europe.


Intellectual Property
Our portfolio consists of patents with claims that encompass method of use or treatment with interferon and composition of matter and manufacturing. We currently own or license five patents related to low-dose orally delivered interferon, and one issued patent on our dietary supplement, Maxisal®.

Technology - Non-toxic Interferon
Injectable interferon is FDA-approved to treat some neoplastic, viral and autoimmune diseases. Many patients experience moderate to severe side effects that result in discontinuance of injectable interferon therapy. Our main product is a natural human interferon alpha delivered into the oral cavity as a lozenge in low (nanogram) doses. The lozenge dissolves in the mouth where interferon binds to surface (mucosal) cells in the mouth and throat resulting in stimulation of immune mechanisms. Orally delivered interferon has been shown to activate hundreds of immune system genes in the peripheral blood. Human studies have shown that oral interferon is safe and effective against viral and autoimmune 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; high dose injectable interferon causes adverse effects in at least 50% of recipients.

Governmental or FDA approval is required for our principal product. Our progress toward approval is discussed under each specific indication, below.

Influenza
Influenza, commonly referred to as "the flu," is an infectious disease caused by RNA viruses of the family Orthomyxoviridae, which affects birds and mammals. The most common symptoms of the disease are chills, fever, sore throat, muscle pains, severe headache, coughing, weakness/fatigue and general discomfort. Influenza spreads around the world in seasonal epidemics, resulting in the deaths of between 250,000 and 500,000 people every year, and up to millions in some pandemic years. On average 41,400 people died each year in the United States between 1979 and 2001 from influenza. Two publications in the April 2009 issue of the Journal of Virology report that interferon placed in the nose of guinea pigs or ferrets significantly suppresses replication of influenza virus. These publications reinforce the Company's view that low-dose interferon is protective against influenza.

Further support of the efficacy of oral interferon against influenza was generated by The University of Western Australia in a Phase 2 clinical trial with 200 healthy volunteers during the 2009 winter cold/flu season in Australia. Among those study participants who were confirmed to have a respiratory infection, 76.2% of the placebo group reported moderate to severe cold and flu symptoms, compared to only 23.8% of the participants in the interferon-alpha group (p<0.01). This finding indicates that, while it did not reduce the infection rate, daily use of interferon-alpha lozenges did significantly reduce the frequency of moderate to severe viral respiratory illness. Full study results have been accepted for publication in an upcoming issue of the journal, Influenza and Other Respiratory Viruses.

In January 2011, the Company along with its international development partner CytoPharm, Inc. (CP) launched an influenza treatment study in Taiwan with the target of enrolling up to 60 patients being treated with Tamiflu for influenza A infection of less than 48 hours' duration. Half of the enrolled flu patients were randomly assigned to co-treatment with oral IFN or placebo. The aim of the study was to examine whether the combination of oral IFN and Tamiflu is superior to Tamiflu alone in the treatment of influenza illness. Results are expected in the near future.


Hepatitis C
Hepatitis C is an infectious disease affecting primarily the liver, caused by the hepatitis C virus (HCV). The infection is often asymptomatic, but chronic infection can lead to scarring of the liver and ultimately to cirrhosis. In some cases, those with cirrhosis will go on to develop liver failure, liver cancer or life-threatening esophageal and gastric varices. HCV is spread primarily by blood-to-blood contact associated with intravenous drug use, poorly sterilized medical equipment and transfusions. An estimated 130-170 million people worldwide are infected with hepatitis C.

ABI and CP conducted a Phase 2 study of oral interferon treatment of hepatitis C virus-infected patients which was completed in Taiwan in late 2011. The study explored the ability of oral interferon to reduce virologic relapse in patients who have completed standard therapy with pegylated interferon plus Ribavirin. Up to 50% of patients with certain genotypes of HCV relapse after receiving standard therapy, so reducing this relapse rate would have represented a major breakthrough in the management of HCV. The results of the study indicate that, although the primary endpoint was not achieved, subjects with mild liver fibrosis, as suggested by low FibroIndex scores at study entry, had a reduced rate of relapse (12%) when treated once daily with oral interferon-alpha lozenges compared to subjects in the placebo group (32%).

It was noted that 60% of the study subjects had a low platelet count (thrombocytopenia) at baseline. This was likely due to the high-dose injectable interferon-alpha treatment they received immediately prior to study entry. Interestingly, it was observed that subjects treated once per day with orally administered interferon-alpha had nearly twice the rate of platelet count normalization (81%) as subjects given placebo (42%), which was statistically significant at P=0.005. In order to confirm this effect prospectively in a larger group of HCV patients and to explore the application of oral IFNa to other indications involving thrombocytopenia, additional studies must be performed. However, the loss of the source of human IFNa makes it impossible to conduct those studies. The inability to find a source of IFNa and the difficulty in finding financing for the studies will indefinitely obstruct the forward progress of this discovery and have a very negative impact on the continuation of the Company as a going concern.

Strategic Alliance with Bumimedic
In January 2006, a license and distribution agreement was executed with Bumimedic (Malaysia) Sdn. Bhd, a Malaysian pharmaceutical company that is a part of the Antah HealthCare Group, to market our low-dose interferon (natural human IFN) in Malaysia. Given the termination notice received from HBC, it is likely that the agreement with Bumimedic will be terminated as the Company can no longer supply Bumimedic with natural human IFN produced by Hayashibara.

Strategic Alliance with Intas Pharmaceuticals On January 7, 2010, the Company entered into a License and Supply Agreement with Intas Pharmaceuticals Ltd., an India-based pharmaceutical company with three decades of experience in the healthcare industry and a global presence in 42 countries worldwide. Given the termination notice received from HBC, it is likely that the agreement with Intas will be terminated as the Company can no longer supply Intas with natural human IFN produced by Hayashibara.

Strategic Alliance with CytoPharm

On May 15, 2013, the Company entered into a CIT Patents Agreement with CytoPharm, Inc. (CP) a former licensee for oral IFN technology in Taiwan and China. This agreement establishes the


ownership, inventorship, prosecution, maintenance, use and commercialization of a patent regarding treatment of thrombocytopenia with oral IFN that developed out of a study conducted by CP under a previous License and Supply Agreement.

Equity Funding. There have been no sales of stock in the first nine months of 2013.

Results of Operations for Quarter Ended September 30, 2013 and 2012:

Revenues. During the quarter ended September 30, 2013, there were no dietary supplement sales generated compared to $50 for the quarter ended September 30, 2012, a decrease of $50 (100%). During the quarters ended September 30, 2013 and September 30, 2012, no ACM sales were generated.

Research and Development Expenses. Research and development expenses of $33,659 were incurred for the quarter ended September 30, 2013, compared to $70,809 for the quarter ended September 30, 2012, a decrease of $37,150 (52%). The amount was lower in 2013 than 2012 due to less research and development personnel costs.

Selling, General and Administrative Expenses. Selling, general and administrative expenses of $50,793 were incurred for the third quarter in 2013, compared to $60,826 for the third quarter of 2012, a decrease of $10,033 (16%). This decrease was mostly due to lower personnel costs and reduced professional fees.

Changes in Fair Value of Derivative Instruments. There was no derivative gain for the third quarter ended September 30, 2013 because the underlying securities (warrants) expired unexercised and worthless at the close of business on January 8, 2013. The underlying securities were the warrants owned by Warrant Strategies, Inc. which originally were part of the Firebird transaction of 2008. There are no more securities in existence from that transaction. For the third quarter of 2013, the net derivative gain/loss was $0 compared to $15,096 decrease for the same period in 2012 which represents a net decrease of $15,096 (100%).

Operating Loss. In the three month period ended September 30, 2013, the Company's operating loss was $84,452 compared to an operating loss for the three month period ended September, 2012 of $131,605, a decrease of $47,153 (36%). The operating loss was lower mostly because of decreased salaries in 2013.

Other Income. During the three month period ended September 30, 2013 and September 30, 2012, no interest or miscellaneous income was generated. Interest expense for the period was $31,101 as compared to $30,266 for the previous year, an increase of $835.

Net Loss. In the three month period ended September 30, 2013, the Company's net loss was $115,553 compared to net loss of $146,775 for the three month period ended September 30, 2012, a $31,222 (21%) decrease in net loss.

Results of Operations for the Nine Months Ended September 30, 2013 and September 30, 2012.

Revenues. During the nine months ended September 30, 2013 there were no sales of dietary supplements compared to $530 for the nine months ended September 30, 2012, a decrease of $530 (100%). During the nine months ended September 30, 2013, and September 30, 2012 there were no ACM sales.


Research and Development Expenses. Research and development expenses of $105,450 were incurred for the nine month period ended September 30, 2013, compared to $243,748 for the nine month period ended September 30, 2012, a decrease of $138,298 (57%). The amount was lower in 2013 than 2012 due to less R&D personnel costs.

Selling, General and Administrative Expenses. Selling, general and administrative expenses of $302,581 were incurred for the first nine months of 2013, compared to $191,614 for the first nine months of 2012, an increase of $110,967 (58%). This increase was mostly due to higher travel expenses, D&O insurance, consultant expense, legal and patent expenditures, and professional fees.

Operating Loss. In the nine month period ended September 30, 2013, the Company's operating loss was $408,031 compared to an operating loss for the nine month period ended September 30, 2012 of $435,044, a decrease of $27,013 (6%).

Change in Fair Value of Derivative Instruments. Change in fair value of derivative instruments was realized as a $4,217 gain in the nine months ended September 30, 2013 compared to $37,750 gain in the nine months ended September 30, 2012 which represents a net decrease of $33,533 (89%).

Interest Expense. During the nine month period ended September 30, 2013, interest expense was $91,409; compared to $129,442 for the nine month period ended September 30, 2012. In 2012 we incurred interest on Tibbits' notes payable and interest on unpaid dividends for 2012 through February 8, 2012, when outstanding notes were converted to shares of preferred stock. There was a significant interest expense attributed to the convertible Asher/Hope note #2 in 2012, where there was no such expense in 2013.

Net Loss. In the nine months ended September 30, 2013, the Company's net loss was $495,223 compared to a net loss for the nine months ended September 30, 2012 of $511,516 a $16,293 (3%) decrease.

Liquidity Needs. At September 30, 2013, we had available cash of $9,105, and had a working capital deficit of $4,743,464. Negative cash flow from operating activities plus equipment purchases, software purchases and patent filings (burn rate) is approximately $50,000 per month. Continued losses and lack of liquidity indicate that we are having great difficulty being able to continue as a going concern for a reasonable period of time. The ability to continue as a going concern is dependent upon confirmation of a Plan of Reorganization and successful emergence from Chapter 11 Bankruptcy which includes interim and permanent financing.

There can be no assurance that we will be successful in our efforts to reorganize the Company. If we are not successful in our efforts to reorganize, we will be forced to cease operations.

Forward-Looking Statements: Certain statements made in throughout this document are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance, achievements, costs or expenses and may contain words such as "believe," "anticipate," "expect," "estimate," "project," "budget," or words or phrases of similar meaning. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from those projected in the forward-looking statements. Such risks and uncertainties are detailed from time to time in reports filed by the Company with the Securities and Exchange Commission, including Forms 8-K, 10-Q and 10-K and include among


others the following: promulgation and implementation of regulations by the U.S. Food and Drug Administration ("FDA"); promulgation and implementation of regulations by foreign governmental instrumentalities with functions similar to those of the FDA; costs of research and development and clinical trials, including without limitation, costs of clinical supplies, packaging and inserts, patient recruitment, trial monitoring, trial evaluation and publication; and possible difficulties in enrolling a sufficient number of qualified patients for certain clinical trials. The Company is also dependent upon a broad range of general economic and financial risks, such as possible increases in the costs of employing and/or retaining qualified personnel and consultants and possible inflation which might affect the Company's ability to remain within its budget forecasts. The principal uncertainties to which the Company is presently subject are its inability to ensure that the results of trials performed by the Company will be sufficiently favorable to ensure eventual regulatory approval for commercial sales, its inability to accurately budget at this time the possible costs associated with hiring and retaining of additional personnel, uncertainties regarding the terms and timing of one or more commercial partner agreements and its ability to continue as a going concern.

The risks cited here are not exhaustive. Other sections of this report may include additional factors which could adversely impact the Company's business and future operations. Moreover, the Company is engaged in a very competitive and rapidly changing industry.

New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company's business, or the extent to which any factor or combination of factors may cause actual results to differ materially from those projected in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual future events.

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