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Note 2 - Financial Condition

9 Months Ended

Sep. 30, 2014

Financial Condition. Our viability as a company is dependent upon successful commercialization of products resulting from its research and product development activities. However, our inability to commercialize a product has had a profoundly negative impact on the financial condition of the Company. On October 31, 2013 (the “Petition Date”), Amarillo Biosciences, Inc. (“AMAR”, “ABI”, “Debtor” or the “Company”) filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”), in the United States Bankruptcy Court for the Northern District of Texas (the “Bankruptcy Court” or the “Court”). The Chapter 11 Case number is 13-20393-11.

No assurance can be given as to the value, if any, that may be ascribed to the Debtor’s various pre-petition liabilities and other securities. While the Company cannot predict what the ultimate value of any of its securities may be, it has included provisions for treatment of security holders in its confirmed Plan of Reorganization. In most cases under Chapter 11 of the Bankruptcy Code, holders of equity securities receive little or no recovery of value from their investment. Accordingly, the Debtors urge that caution be exercised with respect to existing and future investments in any of these securities or other Debtor claims. On November 4, 2013, the Company’s common stock began trading under the symbol “AMARQ” on the OTCQB marketplace, operated by OTC Markets Group (www.otcmarkets.com).

The Company operated as “a debtor in possession” (DIP) from October 31, 2013, when the Chapter 11 petition was filed until May 23, 2014, when the Company’s Plan of Reorganization was confirmed by the Court. Although the Company has a confirmed Plan of Reorganization (Plan), that Plan has not been implemented and until the Plan is implemented, the Company is still considered a DIP. An Effective Date for the Plan has not yet been determined. Once the Effective Date is set and the Plan is implemented, the Company will continue to operate and carry out the provisions of the Plan supervised by the Court and the Bankruptcy Code to consummate the Plan of Reorganization.

Under Section 362 of the Bankruptcy Code, the commencement of a Chapter 11 case automatically stays most creditor actions against the Debtor’s property. Court filings and claims information are available at http://www.upshotservices.com/amarillobiosciences. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Chapter 11 Proceedings” for further information regarding the Chapter 11 Case. Commercialization of a product or products will require significant development, laboratory and clinical testing and capital investment prior to obtaining regulatory approval to commercially market our product(s). Continued losses and lack of liquidity indicate that we were having great difficulty being able to continue as a going concern. The ability to continue as a going concern is dependent upon implementation and consummation of an executable Plan of Reorganization. A major component of the plan is recapitalization of the Company.