Filing summary
Issuer identification: The request identifies Ainos, Inc., but the supplied Form 10-Q is for Amarillo Biosciences, Inc. (ABI). This summary reflects the filing provided, for the quarter ended September 30, 2017.
Business context and reporting period
ABI develops biologics, historically focusing on low-dose oral interferon for human and animal diseases. It also describes medical and consumer-product initiatives, including diabetes treatment centers in Asia and nutraceutical delivery products. The financial statements are unaudited and cover the three and nine months ended September 30, 2017.
Financial results and liquidity
- Third-quarter revenue: $0, unchanged from Q3 2016. Net loss was $232,804, versus $179,268; operating expenses were $230,875, up 29% from $178,470. Interest expense was $1,929.
- Nine-month revenue: $250,502, compared with $4,400 in 2016, primarily from APT equipment sales. Cost of revenue was $58,801, producing gross profit of $191,701 (about 77% gross margin); 2016 gross loss was $700.
- Nine-month expenses and losses: SG&A was $592,822, up 37% from $434,176. Operating loss was $401,121, compared with $434,876; net loss was $408,751, compared with $437,133. No R&D expense was reported for either comparable period.
- Cash flow: Operating activities used $188,526 in the first nine months, versus $426,988 in 2016. Investing activities used $39,945, mainly for patents. Financing provided $239,375, including $144,375 from stock placements and $95,000 from related-party notes. Cash increased by $10,904 to $145,029.
- Balance sheet and debt: At September 30, cash was $145,029, current assets $212,331, and total assets $422,841. Current liabilities were $1,401,445, including $886,481 of unsecured, on-demand convertible notes payable to the CEO. The company reported a $1,189,114 working-capital deficit and a $978,604 stockholders’ deficit.
Material changes, outlook, and risks
- Nine-month revenue rose substantially due to APT equipment sales, but ABI reported no third-quarter revenue. Management attributed higher SG&A to salary, stock compensation, fundraising, and professional fees.
- Management estimated $1.0 million to $1.6 million in financing needs for its core technology and potential new business lines. It said meaningful revenue from commercialization efforts was not expected before the last quarter of 2018, or possibly later. No formal earnings guidance was provided.
- The filing states that ongoing operations depend on obtaining financing and future profitable operations, and that these conditions raise substantial doubt about ABI’s ability to continue as a going concern. Management warned that failure to obtain acceptable financing could force the company to cease operations.
- Risks include regulatory approvals and clinical-trial costs and results; uncertainty around commercial partners and financing; the discontinued source of human interferon; and supply and pricing issues affecting the ACM product. ABI noted that several patents expire within months or within two to four years, while newer patents expire in 2033.
- In September, ABI accepted a $142,107 deposit toward a proposed approximately $1.4 million stock subscription; shares had not been issued as of the filing date. In October, the company extended and expanded its private placement, which could increase dilution. The CEO purchased 200,000 shares in the quarter, and related-party convertible notes are payable on demand.
- Management reported ineffective disclosure controls and identified material weaknesses involving accounting expertise, segregation of duties, and controls over revenue and equity transactions. It reported no material changes to internal control during the quarter. ABI said it was unaware of legal proceedings or claims as of the report date.
Important facts for investors to verify
- Confirm the issuer and filing: the supplied report is for Amarillo Biosciences, Inc., not Ainos, Inc.
- Verify current cash needs, financing availability, and the status and terms of the proposed stock subscription and amended private placement.
- Review repayment or conversion terms for the $886,481 of related-party notes payable on demand, and assess potential share dilution.
- Check progress toward commercializing interferon and other products, including replacement supply, regulatory and trial requirements, patent timelines, and revenue prospects.
- Assess remediation of the disclosed material weaknesses and the implications of the going-concern uncertainty.