Ainos, Inc. — filing summary
Filing identity: The supplied filing is for Amarillo Biosciences, Inc., not Ainos, Inc. It is a Form 10-Q for the quarter ended September 30, 2016; the financial statements are unaudited.
Business context
Amarillo develops biologics, with a stated focus on low-dose oral human interferon for human and animal disease indications. It also sought to diversify through other health-related products and business opportunities, including in Asia. The company reported no research and development expense in the quarter or nine-month period.
Financial performance and liquidity
| Metric | Three months ended September 30, 2016 | Nine months ended September 30, 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | $0 | $4,400 | $0 |
| Gross margin | $0 | $(700) | $0 |
| Selling, general and administrative expense | $178,470 | $434,176 | $113,552 and $327,473, respectively |
| Operating loss | $(178,470) | $(434,876) | $(113,552) and $(327,473), respectively |
| Net loss | $(179,268) | $(437,133) | $(114,148) and $(329,087), respectively |
Quarterly SG&A rose 57% year over year and nine-month SG&A rose 33%; management attributed the increases mainly to professional fees and, depending on the period, ginseng and project expenses, shipping, and travel. Nine-month interest expense was $2,257 versus $1,614 in 2015. Basic and diluted net loss per share was $0.01 for the quarter and $0.02 for the nine months.
At September 30, cash was $176,357, total current assets were $281,485, and current liabilities were $929,263, resulting in a working capital deficit of $647,778. Total assets were $441,963 and stockholders’ deficit was $487,300. The balance sheet reported $791,481 of current convertible notes payable to a related party; the notes are due on demand and convertible at $0.1875 per share. Nine-month operating cash use was $426,988, investing cash use was $102,168, and financing provided $684,375. The financing included $421,875 from a common-stock placement and $262,500 from related-party convertible notes.
Changes, outlook, and material risks
- Nine-month revenue consisted of $4,400 in ginseng sample sales; no dietary supplement or ACM sales were reported. The quarter had no revenue.
- Management estimated post-reorganization financing needs of $1.0 million to $1.6 million. It estimated $500,000 to $800,000 might be needed to commercialize existing intellectual property; meaningful revenue was not expected before the last quarter of 2017, or possibly later.
- The filing states that the company has not achieved operating income, relies primarily on debt and equity financing, and faces substantial doubt about its ability to continue as a going concern. It warns that unavailable or unacceptable financing could adversely affect the business and potentially force it to cease operations.
- Management identified risks including clinical-trial outcomes and enrollment, FDA and foreign regulatory requirements, funding needs, commercial-partner timing and terms, and difficulty estimating future costs. The sole human-interferon supplier had discontinued production; finding and qualifying a new source could take time and threaten the value of patents nearing expiration. Higher raw-material costs also made another product less attractive to manufacture and sell.
- The company amended its common-stock private placement to offer up to 10 million shares at $0.1875 per share, or $1.875 million in total, over one year. It reported no stock sales in the third quarter or after quarter-end through the report date. The filing also says 4,310,639 shares were reserved for conversion of convertible debt as of September 30.
- Management reported disclosure controls and procedures were effective and no material change in internal control over financial reporting during the quarter. It reported no known pending legal proceedings.
Important facts for investors to verify
- Whether this Amarillo Biosciences filing is the intended filing for Ainos, Inc.; the company names do not match.
- Cash runway, current financing availability, and progress on the stated $1.0 million to $1.6 million funding requirement.
- Outstanding related-party note principal, accrued interest, conversion terms, and potential share dilution.
- Whether a viable interferon supply, clinical development plan, regulatory pathway, and commercial partners can be secured before relevant patent protection expires.
- The status and realizability of the reported tax attributes, including the stated $21.7 million net operating loss carryforward, which the company had not independently verified.