Business context and reporting period
This is Amarillo Biosciences, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2020, filed August 12, 2020. The request identifies Ainos, Inc.; the filing itself names Amarillo Biosciences, Inc., so the issuer identity should be verified. Amarillo develops healthcare products, including low-dose oral interferon, diabetes-related technology, and nutraceuticals. Reported revenue was primarily from nutraceutical sales.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $484 | $606 | $15,684 | $4,682 |
| Gross profit | $192 | $43 | $4,586 | $1,401 |
| Operating expenses | $300,861 | $455,082 | $681,129 | $847,003 |
| Operating loss | $(300,669) | $(455,039) | $(676,543) | $(845,602) |
| Net loss | $(301,966) | $(453,517) | $(678,845) | $(844,965) |
Q2 gross margin was about 40%; first-half gross margin was about 29% (calculated from reported revenue and gross profit). Basic and diluted loss per share was $0.02 in both first-half periods.
At June 30, cash was $172,802, total current assets $191,811, and current liabilities $880,905, yielding a working-capital deficit of $689,094. Total assets were $336,972 and stockholders’ deficit was $543,933. The balance sheet reports $578,664 of current related-party convertible notes; the note disclosure gives $595,571 including accrued interest. The company reported average monthly cash burn of about $41,000 for 2020 and a 12-month trailing average of $67,500.
Changes versus prior period
First-half revenue rose 235% year over year, but remained small in absolute terms. Gross profit increased by $3,185. Net loss narrowed by $166,120 (about 20%), primarily reflecting lower reported operating costs. First-half R&D fell to $389 from $52,510; management attributed the prior-year spending largely to initial metabolic-pump development and said COVID-19 slowed 2020 testing. Q2 SG&A declined from the prior-year quarter, while the MD&A’s first-half SG&A comparison contains an apparent inconsistency: it lists $680,740 versus $794,493 but calls this an increase, although the figures indicate a decrease.
Cash declined from $409,039 at December 31, 2019. The cash-flow statement reports $244,967 of operating cash used in the first half of 2020 versus $539,076 in 2019. The MD&A gives materially different cash-flow figures; see investor verification items below.
Outlook, risks, and unusual items
- Management states that substantial doubt exists about the company’s ability to continue as a going concern. Operations depend on financing and future profitable operations; the company warns it may cease operations if it cannot obtain acceptable financing.
- Management estimated short-term project development needs of $3 million to $5 million, with amounts dependent on project terms. It anticipated the burn rate would remain in a similar range; no revenue or earnings guidance was provided.
- Low-dose interferon trials and commercialization are on hold pending a new cGMP interferon source. A new source may require comparability work and additional clinical trials. The company cited regulatory, trial, patient-enrollment, funding, and commercial-partner uncertainties.
- The company reported ineffective disclosure controls and material weaknesses related to limited technical accounting resources, lack of an independent audit committee, and inadequate segregation of duties.
- Related-party notes are unsecured and due on demand, with conversion prices generally between $0.168 and $0.25 per share. The CEO/CFO is a principal noteholder. The notes increased during the period as compensation and expenses were deferred.
- After quarter-end, the company arranged financing for a $67,687 directors’ and officers’ insurance renewal, with $40,012 financed at 6% over eight monthly payments. The CEO also committed to invest $100,000 in a private placement; $50,000 had been submitted and the balance was expected by August 31, 2020.
Most important facts to verify
- Confirm that Amarillo Biosciences, Inc., rather than Ainos, Inc., is the intended filing and issuer.
- Reconcile the cash-flow statement’s $244,967 operating cash use with MD&A’s $441,105 figure, and the statement’s $1,270 investing outflow with MD&A’s stated investing cash inflow.
- Reconcile the balance-sheet related-party note balance of $578,664 with the note disclosure’s $595,571 including accrued interest.
- Confirm the first-half SG&A comparison and the reported working-capital and cash figures against the company’s filed financial statements.
- Assess near-term financing needs, the status and terms of the CEO’s private-placement investment, and the company’s ability to source interferon and fund development.