Ainos, Inc. (identified in the filing as Amarillo Biosciences, Inc.) — Q1 2015 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2015. The company was developing biologics, with a focus on low-dose oral interferon, and was exploring additional health, biotechnology, and life-sciences opportunities. It emerged from Chapter 11 in January 2015. The company adopted fresh-start accounting effective November 20, 2014, so successor and predecessor results are not directly comparable.
Key financial metrics
| Metric | Q1 2015 / March 31, 2015 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $0 | $0 in Q1 2014 |
| Operating expenses | $111,818 | $175,014 in Q1 2014 |
| Operating loss | $111,818 | $175,014 in Q1 2014 |
| Interest expense | $271 | $46 in Q1 2014 |
| Net loss | $112,089 | $175,060 in Q1 2014 |
| Cash and cash equivalents | $239,347 | $318,556 at December 31, 2014; $3,760 at March 31, 2014 |
| Cash flows | Operating $(73,011); investing $(6,198); financing $0 | Net cash used was $2,779 in Q1 2014 |
| Current assets / current liabilities | $240,057 / $357,866 | Working capital deficit of $117,809 |
| Total liabilities | $470,366 | Includes $384,555 of related-party notes payable |
| Stockholders’ deficit | $142,831 | Accumulated deficit was $186,833 |
Gross margin and margin percentages are not meaningful because the company reported no revenue or cost of revenue. No interest or income taxes were paid in cash during the quarter. There were 20,144,810 common shares outstanding at March 31, 2015 and May 15, 2015.
Material changes versus the prior comparable period
- Net loss narrowed by $62,971, or 36%, and operating loss declined by $63,196. Management attributed the improvement mainly to lower general and administrative costs and reduced bankruptcy reorganization expense.
- Selling, general and administrative expense fell 30% to $111,818; research and development expense was zero, compared with $15,270 in Q1 2014.
- Cash fell $79,209 from December 31, 2014 to March 31, 2015. The company reported no financing cash inflow during Q1 2015.
- The working capital deficit improved substantially from $5,054,909 at March 31, 2014 to $117,809 at March 31, 2015, following the bankruptcy reorganization and discharge or restructuring of debt. Fresh-start accounting limits comparisons across reporting periods.
Outlook, risks, contingencies, and unusual items
- Going concern and funding: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. It estimated post-reorganization financing needs of $1 million to $1.6 million. Yang indicated willingness to assist but made no commitment and was not obligated to provide funding. The filing warns that failure to obtain acceptable financing could force the company to cease operations.
- Commercialization: The company expected that planned commercialization and development efforts, even if undertaken, would not produce meaningful revenue before Q4 2015 or possibly later. It did not expect significant sales or royalty revenue in the next several years.
- Product and supply risks: The company reported that its sole source of natural human interferon had discontinued production. Finding and qualifying a replacement, conducting trials, and obtaining regulatory approval could be costly and time-consuming. A supplier’s price increase for an ingredient used in the oral-health product also made that product less attractive to manufacture and sell.
- Intellectual property: The filing describes several patents and one pending patent related to oral, low-dose interferon; it states that two patents expire in less than ten months and three in four to seven years. Commercial value depends on funding, supply, development, and regulatory progress. The filing also describes an oral-health patent.
- Control and debt: Yang owns approximately 80% of the reorganized company. Related-party notes payable totaled $384,555, including secured debt of $150,000 with annual installments beginning September 1, 2015 and an unsecured Yang note of $234,555.
- Bankruptcy and accounting: The company emerged from Chapter 11 and adopted fresh-start accounting. The reorganization discharged more than $4 million of debt, while the filing cautions that pre- and post-fresh-start financial statements are not comparable.
- Tax attributes: The company reported a federal tax-return net operating loss carryforward face amount of $22,240,816, but had not independently verified its availability or usability; ownership-change limitations may apply.
- Other disclosures: Management reported effective disclosure controls and no significant changes in internal controls. The company reported no known pending legal proceedings, no stock sales during the quarter, and no defaults upon senior securities.
Important facts for investors to verify
- Whether Yang or another source will provide the estimated $1 million to $1.6 million of required funding, and on what terms.
- Current cash burn, runway, and updated working-capital needs; management said the post-reorganization burn rate was difficult to estimate.
- Progress in securing a new interferon supply, financing and conducting trials, and meeting regulatory requirements before relevant patent protections expire.
- The accuracy and usability of the reported tax attributes, including any limitations resulting from ownership changes.
- The company’s legal name and corporate identity: this supplied filing is for Amarillo Biosciences, Inc., notwithstanding the request metadata naming Ainos, Inc.