Filing summary
Issuer and period: The supplied filing is Amarillo Biosciences, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2013, not a filing identified as Ainos, Inc. The statements cover the three and six months ended June 30, 2013, with comparisons to 2012.
Business context and financial condition
Amarillo was developing low-dose oral interferon products and seeking FDA approval and commercialization. The company reported no revenue in the first half of 2013 and said it had lost its source of natural human interferon, putting development and potential supply agreements at risk.
- Liquidity: Cash was $4,586 at June 30, 2013, versus $7,261 at December 31, 2012. Current assets were $54,749 and current liabilities were $4,677,282, a working capital deficit of $4,622,533.
- Debt and obligations: Related-party notes payable were $3,187,793; accrued interest to related parties was $1,009,269. The company disclosed that it was in repayment default on two HBL notes totaling $2 million, although HBL had not demanded payment. A Wells Fargo credit line had an $18,806 balance.
- Equity: Total stockholders’ deficit was $4,523,160. Common shares outstanding were 73,554,897 at June 30; 7,304,292 additional shares were reserved for options, warrants, or preferred conversion.
Results and cash flows
| Metric | Three months ended June 30, 2013 | Three months ended June 30, 2012 | Six months ended June 30, 2013 | Six months ended June 30, 2012 |
|---|---|---|---|---|
| Revenue | $0 | $240 | $0 | $480 |
| Operating expenses | $162,288 | $145,540 | $323,579 | $303,727 |
| Operating loss | $162,288 | $145,396 | $323,579 | $303,439 |
| Net loss | $193,113 | $128,627 | $379,670 | $364,741 |
| Net loss applicable to common shareholders | $201,211 | $136,725 | $395,865 | $379,397 |
- For the first half, R&D expense declined 59% to $71,792, primarily due to lower personnel costs. Selling, general and administrative expense rose 93% to $251,787, mainly from travel, insurance, consulting, legal, patent, and professional costs.
- First-half interest expense was $60,308, down from $99,176. The 2013 period included a $4,217 derivative fair-value gain, compared with a $22,654 gain in 2012; the relevant warrants expired in January 2013.
- Operating cash use was $329,281, and patent investment used another $13,229. Financing provided $339,835, largely from $388,335 of related-party borrowing, partly offset by $48,500 of repayments. Management estimated a cash burn of about $50,000 per month.
Changes, outlook, and risks
- Management said additional funding would be needed to continue operations in the second half of 2013 and warned that failure to raise funds could force the company to cease operations. The filing states that recurring losses and lack of liquidity raise substantial doubt about the company’s ability to continue as a going concern.
- Management’s development strategy depended on private-placement or pharmaceutical-partner funding for clinical studies. No specific financial guidance was provided.
- The company reported that its primary interferon supplier had issued a termination notice; management said this threatened the ability to supply partners and could lead to termination of distribution or license arrangements. Finding a replacement source was expected to be costly and time-consuming.
- Clinical and regulatory outcomes, financing availability, supplier and partner arrangements, and the ability to retain key staff were identified as significant risks. The company said it could not replace its clinical and regulatory executive, whose employment contract expired August 31, 2013.
- After quarter-end, the company received $85,500 in short-term working-capital advances through its CEO. On July 12, it paid $5,500 to settle a dispute with PAN Consulting; the agreement included return of certificates for 263,889 common shares and termination of the parties’ contract.
- Management stated that disclosure controls were effective and that there were no changes in internal control over financial reporting during the first half.
Important facts to verify
- Confirm the intended issuer: the supplied document identifies Amarillo Biosciences, Inc., whereas the request metadata names Ainos, Inc.
- Verify current financing availability, the terms and status of related-party advances, and the default status and repayment terms of the HBL notes.
- Confirm whether the company secured a replacement interferon supply and whether the expected influenza study results or other development plans progressed.
- Review subsequent filings for liquidity changes, additional share issuance or dilution, and any developments affecting the going-concern assessment.