Filing summary
Entity and period: The supplied filing is Amarillo Biosciences, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2014, filed November 14, 2014. This does not match the request metadata naming Ainos, Inc.; verify the issuer before relying on this summary.
Business context and financial condition
Amarillo was developing low-dose oral interferon products and had no product revenue. Its research and development was curtailed, and the company said commercialization depended on obtaining a new interferon supply, further development, regulatory approval, and financing. The company filed for Chapter 11 on October 31, 2013. A reorganization plan was confirmed May 23, 2014, but had not been implemented by quarter-end; Amarillo remained a debtor in possession, with no effective date determined.
Key financial metrics
| Metric | Three months ended September 30, 2014 | Nine months ended September 30, 2014 | Prior-year comparable |
|---|---|---|---|
| Revenue | $0 | $0 | $0 in both 2013 periods |
| Operating expenses | $103,747 | $464,965 | $84,452; $408,031 |
| Operating loss | $103,747 | $464,965 | $84,452; $408,031 |
| Net loss | $104,337 | $466,285 | $115,553; $495,223 |
| Net loss applicable to common shareholders | $112,434 | $490,578 | $123,650; $519,516 |
| Net loss per share, basic and diluted | $(0.00) | $(0.01) | $(0.00); $(0.01) |
Gross margin was reported as zero because there were no revenues or cost of revenues. At September 30, 2014, cash was $279, current assets were $34,505, current liabilities were $5,395,719, and the working-capital deficit was $5,361,214. Total assets were $122,354; total liabilities were $5,395,719; stockholders’ deficit was $5,273,365. Related-party notes payable were $3,788,935, with accrued related-party interest of $1,051,093.
For the first nine months of 2014, operating cash use was $260,320, patent expenditures were $7,832, and financing provided $261,892 through related-party notes. Cash fell by $6,260, from $6,539 to $279. Management estimated a cash burn of approximately $50,000 per month, including reorganization expense and patent filings.
Material changes versus prior periods
- Third-quarter SG&A rose 104% to $103,747; nine-month SG&A rose 49% to $449,695. Management attributed the increases primarily to reorganization expenses, higher D&O insurance costs, and administrative costs no longer reclassified to R&D.
- Nine-month R&D fell 86% to $15,270; none was incurred in the third quarter. Management said R&D had ceased and would not resume until circumstances allowed.
- Nine-month operating loss increased 14%, while net loss decreased 6%, principally reflecting sharply lower interest expense: $1,320 versus $91,409. The third-quarter net loss decreased 10%, to $104,337.
- No common stock was issued in the first nine months. At September 30, 73,291,008 common shares were outstanding; 5,814,792 additional shares were reserved for options, warrants, or preferred conversion.
Outlook, risks, and unusual items
- Management said continued operations depended on implementation and consummation of the reorganization plan and obtaining interim and permanent financing. It warned that failure could force the company to cease operations; the filing cites substantial doubt about the company’s ability to continue as a going concern.
- After quarter-end, the company reported receiving $26,000 from the Yang Group and an aggregate $400,000 for plan funding: $300,000 on October 30 and $100,000 on November 4. Of that amount, $250,000 satisfied a plan cash-contribution requirement.
- The company was in repayment default on two HBL notes and a director’s note. HBL had not demanded payment. Related-party and other creditor claims were subject to the reorganization plan.
- HBL/Hayashibara had halted production of natural human interferon, leaving the company without its prior supply and without a current source for clinical trials. Management said sourcing alternatives and repeating studies with recombinant interferon could be costly and time-consuming; existing commercial partner arrangements could also be affected.
- Additional risks include Chapter 11 delays or failure to consummate the plan, lack of financing, regulatory and clinical-development uncertainty, dependence on third parties and key personnel, competition, and limited liquidity and trading in the company’s OTC shares.
- Management reported disclosure controls and procedures were effective as of September 30, 2014, with no significant changes in internal controls over financial reporting during 2014. The filing reported no known legal proceedings or claims as of its date.
Important facts for investors to verify
- Confirm the issuer: the filing is for Amarillo Biosciences, Inc., not Ainos, Inc.
- Check whether and when the confirmed Chapter 11 plan became effective, and its treatment of equity, creditor claims, and required financing.
- Verify the availability and terms of post-quarter-end Yang Group funding, other financing, and related-party advances.
- Review the company’s ability to meet obligations given $279 of quarter-end cash, the working-capital deficit, debt defaults, and stated monthly burn.
- Assess whether an alternative interferon supply, clinical development, regulatory path, and commercial partnerships were secured after this reporting period.