Business context and reporting period
The supplied filing is Amarillo Biosciences, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2018—not a filing under the name Ainos, Inc. Amarillo describes itself as a diversified healthcare company pursuing low-dose oral interferon, medical products and technology, and consumer health products. Revenue in the first half came from its Medical and Consumer divisions.
Financial performance and position
| Metric | Three months ended June 30, 2018 | Six months ended June 30, 2018 | Comparable 2017 period |
|---|---|---|---|
| Revenue | $250 | $56,840 | $250,502 in both periods |
| Gross margin | $(457) | $12,794 | $191,701 in both periods |
| Operating income (loss) | $(354,139) | $(540,197) | $14,766; $(170,247) |
| Net income (loss) | $(355,112) | $(542,550) | $13,024; $(175,948) |
| Net loss attributable to common shareholders | $(331,799) | $(524,229) | $13,024; $(175,948) |
| Operating cash flow | Not presented | $(389,433) | $(159,588) |
At June 30, cash and equivalents were $1.393 million, down from $1.980 million at December 31, 2017. Current assets were $1.458 million and current liabilities $1.003 million; reported working capital was $454,587. Total assets were $1.650 million, liabilities $1.003 million, and stockholders’ equity $646,155. Related-party convertible notes payable were $513,356, down from $886,481 at year-end. The company reported no cash paid for interest or income taxes during the first half.
Changes versus prior periods
Second-quarter revenue fell from $250,502 to $250, and the company moved from a small operating profit and net income to losses. First-half revenue declined 77% year over year, largely because no metabolism-treatment equipment sales were reported in 2018; $2,053 of first-half revenue came from TissueAid. First-half SG&A increased 53% to $552,991, which management attributed mainly to higher compensation, stock compensation, rent, professional fees, and expanded foreign operations. First-half net loss increased by $366,602. Operating cash use rose from $159,588 to $389,433.
Common shares outstanding increased to 34,674,261 at June 30 from 23,156,563 at December 31, 2017. The increase included private-placement issuances, shares issued to repay a related-party advance, and 950,000 shares issued on conversion of $178,125 of related-party debt. The company also reported a 452,617-share consultant warrant, exercisable at $0.27 through April 2020.
Outlook, risks, contingencies and unusual items
Management said the company has not achieved sustained operating income and depends primarily on related-party debt and equity financing. The filing states that these conditions raise substantial doubt about its ability to continue as a going concern. Management estimated $1.0 million–$1.6 million in financing needs for core technology and new revenue streams; it said commercialization may require time and that meaningful revenue was not expected before the fourth quarter of 2019, or possibly later. No assurance was given that financing or profitability would be achieved.
Management identified risks including funding availability, clinical and regulatory outcomes, trial costs and enrollment, timing and terms of commercial partnerships, foreign operations, and patent life. It noted that some patents expire in 2019 and 2021, while newer patents run to 2033; commercialization depends on funding, development, and access to suitable interferon sources. It also cited increased costs for the raw material used in Maxisal as making its manufacture and sale less attractive.
Subsequent to quarter-end, the company issued 1,839,034 shares to complete a previously funded private placement and issued 539,447 restricted shares to acquire ACTS Global Healthcare assets. ACTS Global was consolidated as a variable interest entity beginning January 1, 2018; at June 30 its reported assets were $71,055 and liabilities $13,201, with assets restricted for settling its obligations. The company reported no known legal proceedings or defaults upon senior securities.
Disclosure controls and procedures were deemed ineffective. Management cited material weaknesses involving limited technical accounting resources and oversight, inadequate segregation of duties, and insufficient controls over revenue and equity transactions. No material changes in internal control over financial reporting were reported during the quarter.
Important facts for investors to verify
- Confirm the registrant’s identity: the supplied filing names Amarillo Biosciences, Inc., while the request metadata names Ainos, Inc.
- Assess cash runway and financing availability in light of operating cash burn, the going-concern warning, and management’s stated $1.0 million–$1.6 million funding need.
- Review the terms, completion status, and dilution implications of private placements, related-party debt conversions, compensation shares, and the ACTS Global asset acquisition.
- Verify the revenue outlook, commercial partnerships, product sales, clinical-development plans, regulatory requirements, and remaining patent life.
- Monitor remediation of the disclosed material weaknesses and the effectiveness of financial-reporting controls.