Filing identity and period
The supplied filing is Amarillo Biosciences, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2017, filed May 12, 2017. It does not identify Ainos, Inc. as the registrant; investors should verify that this is the intended filing.
Amarillo describes itself as a biopharmaceutical research and development company focused historically on low-dose oral interferon. It was also developing medical and consumer-product business lines.
Financial results and position
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue and gross margin | No product sales; zero revenue and gross margin | No product sales; zero revenue and gross margin |
| Operating expenses | $185,013 | $121,279 |
| Operating loss | $185,013 | $121,279 |
| Interest expense | $3,959 | $362 |
| Net loss | $188,972 | $121,641 |
| Operating cash flow | $(126,512) | $1,663 |
| Cash at period end | $52,971 | $134,125 at Dec. 31, 2016 |
At March 31, 2017, total assets were $348,141 and current liabilities were $1,253,886, with a reported working-capital deficit of $1,101,617. Total liabilities were $1,253,886, including $791,481 of unsecured, demand convertible notes payable to the CEO. Stockholders’ deficit was $905,745. The company received $50,625 from a private stock placement during the quarter. No cash interest or income taxes were paid.
Changes and management commentary
Compared with Q1 2016, operating expenses rose $63,734 (53%), and net loss increased $67,331 (55%). Management attributed the expense increase mainly to salaries and benefits; interest expense also increased, mostly due to accrued interest on the CEO’s convertible notes. Cash fell $81,154 from year-end 2016. The company reported no research and development expense in either quarter.
Management said the company was pursuing low-dose oral interferon commercialization and diversification. It planned to begin deploying artificial-pancreas diabetes treatment centers in Taiwan sometime in Q3 2017. Management estimated $500,000–$800,000 of funding for commercializing existing intellectual property and potentially similar funding for new product development, or $1 million–$1.6 million in aggregate. It did not expect meaningful revenue from these activities before Q4 2017 or later.
Outlook, risks and unusual items
- The filing states that losses are expected and that substantial doubt exists about the company’s ability to continue as a going concern. Continued operations depend on obtaining financing and achieving profitable operations; failure to obtain acceptable financing could result in cessation of operations.
- Management cited risks involving clinical-trial results and enrollment, FDA and foreign regulatory approvals, costs, commercial partnerships, and the ability to raise capital. Additional equity financing could dilute shareholders.
- The company said its sole human-interferon supplier had discontinued production, potentially delaying development and commercialization. It also reported increased raw-material costs that made its Maxisal oral-health product less attractive to manufacture and sell. Several patents were nearing expiration.
- Common shares outstanding were 22,350,935 at March 31, 2017. The filing also reported 4,310,639 shares reserved for conversion of convertible debt and 270,000 shares reserved for an investor. The CEO and CFO had received stock bonuses, and additional stock compensation was accrued.
- Management concluded disclosure controls and procedures were ineffective. Identified material weaknesses included insufficient technical accounting resources, inadequate segregation of duties, and insufficient controls over revenue and equity transactions. The company had no independent audit committee.
- The filing reported no known legal proceedings or defaults upon senior securities.
Key facts for investors to verify
- Whether this Amarillo Biosciences filing is the intended filing for the requested company, Ainos, Inc.
- Availability and terms of financing sufficient to address the working-capital deficit and stated $1 million–$1.6 million funding need.
- Status and terms of the CEO’s demand convertible notes, other related-party balances, and potential share dilution.
- Progress, regulatory requirements, funding, and commercial prospects for the Taiwan treatment centers and interferon program.
- Whether the identified internal-control weaknesses have been remediated.