Business context and reporting period
This Form 10-Q covers the three months ended March 31, 2020, for Amarillo Biosciences, Inc. (ABI), a diversified healthcare company developing low-dose oral interferon, diabetes-related therapies, wound-care products, and nutraceuticals. The request identifies Ainos, Inc.; the filing itself names Amarillo Biosciences, Inc., so the company identity should be verified.
Financial results and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $15,200 | $4,076 |
| Cost of revenue | $10,806 | $2,718 |
| Gross profit / margin | $4,394 / 29% | $1,358 / 33% |
| Operating expenses | $380,268 | $391,862 |
| Operating loss | $(375,874) | $(390,504) |
| Interest expense | $(1,005) | $(885) |
| Net loss | $(376,879) | $(391,389) |
| Basic and diluted loss per share | $(0.01) | $(0.01) |
| Cash used in operations | $(119,482) | $(216,202) |
At March 31, 2020, cash was $289,557, total assets were $479,480, current liabilities were $912,857, and stockholders’ deficit was $433,377. Reported working capital was negative $580,993. The balance sheet reports $512,464 of related-party convertible notes payable; the notes disclose a total principal and accrued interest balance of $521,115, an apparent inconsistency. The notes are unsecured, due on demand, and convertible at stated prices. Cash declined from $409,039 at December 31, 2019. No dividends have been paid or are planned in the immediate future.
Changes, outlook, and risks
- Revenue increased from a low base, entirely from liposomal nutraceutical sales. Gross margin declined from 33% to 29%.
- R&D expense was zero versus $2,386 in the prior-year quarter. SG&A declined by $9,208; management attributed the decrease mainly to lower salary expense. Net loss improved by $14,510, or about 4%.
- Management reported a Q1 average monthly burn rate of $41,000 and a trailing 12-month average of $67,500, and expected future burn to fall within that range. It estimated short-term project-development financing needs of $3 million to $5 million. No specific earnings or revenue guidance was provided.
- The filing states that the company has not achieved sustained operating income and depends primarily on related-party convertible debt and equity financing. Management says financing is necessary for working capital and that inability to obtain acceptable financing could force the company to cease operations; these conditions raise substantial doubt about its ability to continue as a going concern.
- Further interferon trials and commercialization are on hold until ABI finds a new cGMP interferon source; a new source may require comparability studies and additional trials. Other stated risks include regulatory approval, trial outcomes and enrollment, commercial-partner arrangements, financing, and competition.
- Management disclosed ineffective disclosure controls and material weaknesses involving limited technical accounting resources, lack of an independent audit committee, and inadequate segregation of duties. The filing reports no legal proceedings known to the company. Warrants for 452,617 shares expired unexercised on April 14, 2020.
Important facts for investors to verify
- Confirm the filing’s entity and ticker identity: this document is filed by Amarillo Biosciences, Inc., not Ainos, Inc.
- Reconcile the balance-sheet convertible-note amount of $512,464 with the note disclosure total of $521,115.
- Review the company’s available financing, related-party debt terms and demand repayment provisions, and the basis for its going-concern assessment.
- Track progress toward securing an interferon manufacturer, obtaining required approvals, and funding the estimated $3 million to $5 million of development needs.
- Assess remediation of the disclosed control weaknesses and confirm the cash-flow comparison period; the filing’s index contains a period-label inconsistency, although the cash-flow statement presents 2020 and 2019 figures.