Business context and reporting period
The supplied filing is Amarillo Biosciences, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2020—not a filing under the name Ainos, Inc. Amarillo described its business as healthcare and biotech product development, including low-dose oral interferon, diabetes-related medical technology, and nutraceuticals.
Financial performance and liquidity
Amounts are U.S. dollars.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $192 | $4,786 | $15,876 | $9,468 |
| Gross profit | $69 | $1,418 | $4,655 | $2,819 |
| Operating expenses | $321,153 | $366,824 | $1,002,282 | $1,213,827 |
| Operating loss | $(321,084) | $(365,406) | $(997,627) | $(1,211,008) |
| Net loss | $(323,285) | $(366,215) | $(1,002,130) | $(1,211,180) |
| Basic and diluted loss per share | $(0.01) | $(0.01) | $(0.02) | $(0.03) |
At September 30, 2020, cash was $83,767, current assets were $157,930, and current liabilities were $1,077,810, producing a working-capital deficit of $919,880. Total assets were $301,280; liabilities were $1,077,810; and stockholders’ deficit was $776,530. Current liabilities included $632,814 of related-party convertible notes, up from $444,581 at December 31, 2019. The notes are unsecured, due on demand, and generally convertible at stated prices.
The cash flow statement reports nine-month operating cash use of $244,967, investing cash use of $1,891, financing cash inflows of $85,000, and ending cash of $83,767. The reported cash change was a decrease of $325,272. The filing’s MD&A gives a different operating cash-use figure of $408,381; those amounts and the cash reconciliation do not clearly agree.
Material changes versus prior periods
- Nine-month revenue increased 68% and gross profit increased 65%, but both remained very small in absolute terms; Q3 revenue fell to $192 from $4,786.
- Nine-month operating expenses fell 17%, primarily because of lower SG&A and R&D. SG&A declined 14%; R&D was $389 versus $52,510, with the prior-year amount largely related to initial metabolic-pump development.
- Nine-month net loss narrowed 17% to $1,002,130. Related-party convertible note principal rose 42% from year-end 2019.
- Cash fell from $409,039 at December 31, 2019 to $83,767 at September 30, 2020. Management reported an average monthly burn rate of approximately $65,000.
Outlook, risks, and unusual items
- Management said it expected the burn rate to remain around $65,000 per month and anticipated R&D activity to ramp up in the remainder of 2020 and 2021. It estimated short-term project development needs of $3 million to $6 million; the filing provides no revenue or profitability forecast.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern. Continued operations depend on obtaining financing and achieving profitable operations; the company warned that unavailable or unacceptable financing could adversely affect the business or result in cessation of operations.
- Interferon clinical trials and commercialization were on hold pending a new cGMP supply source. A replacement source may require comparability studies and further clinical trials. COVID-19 slowed diabetes-device development and testing.
- The company reported ineffective disclosure controls and material weaknesses in financial reporting controls, including insufficient technical accounting personnel and inadequate segregation of duties. It had no independent audit committee.
- A $1 million private placement offering at $0.192 per share remained open. The CEO had committed $100,000, of which $85,000 had been submitted, with shares to be issued upon receipt of the balance. After quarter-end, 100,000 restricted shares were issued to UHO Wellness for services.
- No legal proceedings were reported as of the filing date. The filing also says 40,916,351 common shares were outstanding at quarter-end and 41,016,351 were outstanding as of November 13, 2020.
Important facts for investors to verify
- Confirm the issuer identity: the supplied 10-Q is for Amarillo Biosciences, Inc., while the request metadata names Ainos, Inc.
- Reconcile the cash-flow figures: the statement’s operating cash use differs from MD&A, and the stated cash flows do not appear to reconcile to the reported net cash decrease and ending cash.
- Assess near-term financing availability against the cash balance, monthly burn, working-capital deficit, and demand features of related-party notes.
- Verify progress in securing an interferon supplier, resuming clinical work, and advancing the diabetes-device program, including required regulatory steps and funding.
- Review the plan and timeline for remediating the disclosed material weaknesses and ineffective disclosure controls.