Business context and reporting period
This is a Form 10-Q for the quarter and six months ended June 30, 2019. Although the request identifies Ainos, Inc., the filing names Amarillo Biosciences, Inc. as the registrant; investors should verify the company and filing match.
Amarillo Biosciences describes itself as a diversified healthcare company spanning pharmaceutical, medical, and consumer products. Its core pharmaceutical program is low-dose oral interferon. The company says further clinical trials and commercialization are on hold while it seeks a new cGMP interferon supplier. It also pursues diabetes-related medical services and consumer nutraceutical products.
Financial results and liquidity
| Metric | Three months ended June 30, 2019 | Six months ended June 30, 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | $606 | $4,682 | $250 quarterly; $56,840 for six months |
| Gross profit (loss) | $43 | $1,401 | $(457) quarterly; $12,794 for six months |
| Research and development | $50,124 | $52,510 | $0 in both periods |
| Selling, general and administrative | $404,958 | $794,493 | $353,682 quarterly; $552,991 for six months |
| Operating loss | $(455,039) | $(845,602) | $(354,139) quarterly; $(540,197) for six months |
| Net loss | $(453,517) | $(844,965) | Comparative figures conflict within the filing; see below |
Six-month operating cash used was $539,076, versus $389,433 in 2018. Investing cash use was $1,637 and financing cash use was $12,500. Cash declined by $553,213 to $723,441 from $1,276,654 at year-end 2018. At June 30, current assets were $797,978, current liabilities were $705,343, and working capital was $92,635.
Total liabilities were $705,343, including $475,856 in current convertible notes payable to the CEO, a related party. Stockholders’ equity was $239,654. The filing reports no sustained operating income and states that financing is needed to support operations.
Material changes, outlook, and risks
- Six-month revenue fell 92% year over year; management attributed the decline primarily to lower nutraceutical sales and no surgical-product sales. Six-month SG&A rose 44%, driven in part by professional and accounting fees, travel, rent, and stock-option expenses. R&D spending began in 2019.
- Management estimated financing needs of $5 million to $6 million for the core technology and new revenue streams. It provided no assured financing plan or profitability timetable and warned that failure to obtain acceptable financing could force the company to cease operations. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern.
- Key business risks include finding a new interferon manufacturer, possible comparability studies and further clinical trials, regulatory approval and trial outcomes, patient enrollment, commercial-partner arrangements, and the cost of expanding operations. Management anticipated increased R&D and foreign-operation spending but did not provide quantified earnings guidance.
- After quarter-end, the CEO converted debt and accrued interest totaling $100,000 into 552,152 common shares. The filing also says executed documents were received for a previously funded private placement associated with 300,000 reserved shares; those shares had not yet been issued as of the filing date.
- Management concluded disclosure controls and procedures were not effective and identified material weaknesses relating to accounting expertise, oversight, and segregation of duties. It reported engaging an accounting-services provider and plans to add technical accounting expertise.
- The filing reports no known legal proceedings as of its date and no defaults upon senior securities.
Important facts to verify
- Confirm the registrant identity: this filing is for Amarillo Biosciences, Inc., not Ainos, Inc.
- Reconcile comparative net-loss amounts: the financial statements show 2018 net losses of $(355,112) for the quarter and $(542,550) for six months, while MD&A cites $(331,799) and $(524,229), respectively.
- Verify the cash balance cited in MD&A: it gives December 31, 2018 cash as $1,275,654, while the balance sheet and cash-flow statement report $1,276,654.
- Assess available runway, financing commitments, and the impact of the stated $5 million to $6 million funding need, including potential dilution and related-party debt conversions.
- Track progress toward securing a cGMP interferon supplier, restarting trials, and remediating the disclosed control weaknesses.