Amarillo Biosciences, Inc. — Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. The filing identifies the registrant as Amarillo Biosciences, Inc. (OTCQB: AMARQ), not Ainos, Inc. Financial statements are unaudited.
Financial results and condition
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $186,203 | $162,288 | $361,218 | $323,579 |
| Operating loss | $186,203 | $162,288 | $361,218 | $323,579 |
| Net loss | $186,887 | $193,113 | $361,948 | $379,670 |
| Net loss applicable to common shareholders | $194,985 | $201,211 | $378,143 | $395,865 |
- No gross margin was generated because there were no revenues or cost of revenues.
- At June 30, cash was $1,490, total assets $144,549, current liabilities $5,305,479, and stockholders’ deficit $5,160,930. Working capital deficit was $5,253,231.
- Six-month operating cash use was $183,690; investing cash use was $7,831; related-party financing provided $186,472. Cash declined by $5,049 from year-end 2013.
- Related-party notes payable were $3,713,515, with accrued related-party interest of $1,050,861. Total liabilities were current; substantial creditor claims are addressed by the bankruptcy plan.
- Management estimated cash burn, including reorganization expenses and patent filings, at approximately $50,000 per month.
Material changes and operating context
- Q2 net loss improved by $6,226 year over year, and six-month net loss improved by $17,722. Lower interest expense was a major factor; operating loss increased by $23,915 for Q2 and $37,639 for the six-month period.
- Q2 R&D expense was zero, versus $37,662 a year earlier. Six-month R&D fell 79% to $15,270; the company said R&D ceased during the bankruptcy reorganization, with expense reclassification stopping in April.
- SG&A rose 49% in Q2 to $186,203 and 37% for the first half to $345,948, primarily due to bankruptcy reorganization expenses and higher directors’ and officers’ insurance.
- The company develops low-dose oral interferon products and reported no product sales. Its former supplier, HBC, halted interferon production and terminated the supply agreement in 2012. The company had no current source for clinical trials and was exploring alternatives; replacing natural interferon with recombinant interferon could require costly, time-consuming studies.
Outlook, risks, and unusual items
- The company filed for Chapter 11 on October 31, 2013. The court confirmed its Plan of Reorganization on May 23, 2014, but the plan’s effective date had not been determined by the report date. The company remained under bankruptcy court jurisdiction.
- Management said continued operations depend on implementing and consummating the reorganization plan, recapitalization, and obtaining interim and permanent financing. It warned that failure to reorganize could force the company to cease operations. The filing cites substantial doubt about the company’s ability to continue as a going concern.
- The filing reports no significant expected sales or royalty revenue in the next several years. No quantified earnings or revenue guidance was provided.
- HBL notes were in repayment default, although HBL had not demanded payment. Other related-party and director debt was also outstanding and subject to the plan. An additional $53,000 from the Yang Group was received after June 30 through August 4, 2014.
- The plan’s treatment of creditors and existing equity remains important: the filing cautions that equity holders in Chapter 11 often receive little or no recovery and that the value, if any, of securities cannot be assured.
- Other key risks include the lack of product supply and revenue, need for financing, FDA and clinical-development uncertainty, dependence on third parties and key personnel, competition, and bankruptcy-related restrictions. Management stated disclosure controls were effective and reported no changes in internal controls over financial reporting during 2014.
Most important facts for investors to verify
- Whether and when the confirmed reorganization plan became effective, including its final treatment of creditors and existing common and preferred equity.
- Availability and terms of additional financing, the source and timing of funds, and whether cash burn can be sustained.
- Whether the company secured a viable interferon supplier and the costs and timetable for any replacement clinical studies and regulatory work.
- Current debt, accrued interest, creditor claims, and any changes in the company’s extremely limited liquidity since June 30, 2014.
- Confirm the issuer identity: this supplied filing is for Amarillo Biosciences, Inc.; the request metadata names Ainos, Inc.