Amarillo Biosciences, Inc. — Q1 2013 Form 10-Q
Period: Three months ended March 31, 2013; balance-sheet comparisons are with December 31, 2012. The supplied filing is for Amarillo Biosciences, Inc., not Ainos, Inc., as stated in the request metadata.
Business context and financial results
The company is developing low-dose oral interferon products and is pursuing clinical development and commercialization through partners. It reported no revenue for Q1 2013, versus $240 in product sales in Q1 2012; accordingly, no meaningful gross margin was reported for 2013.
| Metric | Q1 2013 / March 31, 2013 | Comparable period / December 31, 2012 |
|---|---|---|
| Operating expenses | $161,291 | $158,187 in Q1 2012 |
| Operating loss | $161,291 | $158,043 in Q1 2012 |
| Net loss | $186,557 | $236,114 in Q1 2012 |
| Net loss applicable to common shareholders | $194,655 | $242,672 in Q1 2012 |
| Cash used in operating activities | $178,030 | $112,297 in Q1 2012 |
| Cash and cash equivalents | $7,355 | $7,261 |
| Total assets | $100,052 | $115,035 |
| Current liabilities | $4,422,002 | $4,242,330 |
| Stockholders’ deficit | $4,321,950 | $4,127,295 |
No debt-to-equity or conventional liquidity ratios are meaningful given the company’s substantial stockholders’ deficit and minimal cash. The filing reports a working-capital deficit of $4,412,286. It states an approximate cash burn rate of $50,000 per month.
Changes and notable financial items
- R&D expense fell 59% to $34,129, primarily due to lower personnel costs. SG&A rose 72% to $127,162, mainly due to travel, directors’ and officers’ insurance, and consulting expense.
- Net loss declined by $49,557, or 21%, year over year. The filing attributes the lower interest expense ($29,483 versus $69,660) largely to the absence of certain 2012 convertible-note and accrued-interest costs. A $4,217 derivative fair-value gain also contrasted with a $23,631 loss in Q1 2012.
- Financing activities provided net cash of $178,335, including $198,335 of related-party loan proceeds, partly offset by $20,000 of repayments. Cash increased by only $94 during the quarter.
- Related-party notes payable were $3,026,293 at quarter-end. The company says it is in repayment default on two unsecured $1 million HBL notes, although HBL had not demanded payment. The Wells Fargo line of credit had a $19,581 outstanding balance.
Outlook, risks, and contingencies
- Management says the company needs additional funding to carry out its 2013 plan and is negotiating with potential commercial development partners. No assurance is given that partner agreements or other financing will be secured; failure to raise funds could require further cuts or cessation of operations.
- The filing states that recurring losses and financing needs raise substantial doubt about the company’s ability to continue as a going concern. The financial statements contain no adjustments for the possible outcome of that uncertainty.
- HBC/Hayashibara permanently halted interferon production, and the supply agreement was terminated effective December 22, 2012. The company lacked a current interferon source for clinical trials and was exploring alternatives. The filing says the Bumimedic and Intas agreements were likely to be terminated because the company could no longer supply the product.
- The principal product requires further development, testing, investment, and regulatory approval. Risks include clinical-trial and FDA uncertainty, obtaining supply and financing, reliance on third parties, competition, and possible dilution from future equity financing.
- The HCV Phase 2 study did not meet its primary endpoint; the filing reports potentially favorable subgroup and platelet-normalization observations and says follow-up studies were being planned. Results from a Taiwan influenza study were expected in the first half of 2013.
- After quarter-end, the company received $120,000 from CEO Stephen Chen from April 1 through May 3 as a short-term working-capital loan with no stated maturity date, interest rate, or other terms.
- Management reported disclosure controls as effective and no significant changes in internal controls during the quarter. The company reported no known legal proceedings or claims as of the report date.
Most important facts for investors to verify
- Confirm the issuer identity: this filing is for Amarillo Biosciences, Inc., not Ainos, Inc.
- Review the going-concern disclosure, near-zero cash, working-capital deficit, and dependence on additional financing.
- Verify the status, terms, and repayment expectations for HBL and other related-party debt, including the disclosed HBL default.
- Check whether the company secured an alternative interferon supplier and whether partner agreements or clinical programs advanced.
- Assess potential dilution from future financing and the status of the company’s outstanding options, warrants, and reserved shares.