Ainos, Inc. quarterly report, Q1 FY2019

Business Context and Reporting Period

This unaudited Form 10-Q covers the three months ended March 31, 2019. The filing registrant is Amarillo Biosciences, Inc. (ABI), not Ainos, Inc.; investors should verify the issuer identity. ABI describes a diversified healthcare business spanning pharmaceutical, medical and consumer products, with operations in the U.S. and Taiwan.

Key Financial Metrics

All liabilities were classified as current. Related-party convertible notes totaled $475,856 at quarter-end. Cash declined by $230,340 during the quarter; financing included $37,500 of note repayments and $25,000 of private-placement proceeds. ABI reported a monthly cash burn rate of $65,000–$75,000.

Material Changes Versus Prior Period

• Revenue fell approximately 93% year over year, while cost of revenue declined to $2,718 from $43,339. Gross margin increased to 33% from 23%.
• SG&A increased by $190,167, which management attributed primarily to salary increases, accounting and consulting services, stock-option expense, and executive consulting. R&D expense was $2,386 versus none in Q1 2018.
• Operating loss increased by $204,446; the company reported a 103% increase in net loss attributable to common shareholders.
• Operating cash use rose to $216,202 from $76,524. Cash and working capital also declined from year-end 2018.
• ABI issued shares during the quarter, including shares for private-placement proceeds, a finder’s fee and compensation. Common shares outstanding were 39,568,524 at March 31 and 39,664,199 as of May 17, 2019.

Outlook, Risks and Unusual Items

• Going concern: ABI has not achieved sustained operating income, anticipates continuing losses and says its operations depend primarily on related-party convertible debt and equity financings. Management states that these factors raise substantial doubt about the company’s ability to continue as a going concern. Short-term project financing needs were estimated at $3 million–$5 million.
• Product development: Further clinical trials and commercialization of low-dose oral interferon are on hold until ABI finds a new cGMP interferon supplier. A new source may require comparability studies and additional clinical trials.
• Other business plans: ABI described plans involving pulsatile insulin therapy in Taiwan, wound-care distribution and liposomal nutraceuticals, but did not provide quantified revenue or earnings guidance. Management cautioned that first-quarter results are not necessarily indicative of full-year results.
• Risks: The filing cites regulatory approval, clinical-trial outcomes and costs, patient enrollment, commercial-partner timing, financing availability and the ability to continue as a going concern. Additional equity financing could dilute shareholders.
• Controls: Management concluded disclosure controls were not effective and identified material weaknesses involving accounting expertise and segregation of duties. ABI said it had engaged an accounting-services provider and intended to add technical accounting resources.
• Subsequent events: After quarter-end, ABI issued 95,675 shares for previously accrued compensation and fees. A director, general counsel and corporate secretary resigned effective April 30, 2019; the company’s only outstanding private-placement offer expired April 25.

Investor Verification Priorities

1. Confirm the issuer identity and whether this filing relates to the requested company, Ainos, Inc.; the filing names Amarillo Biosciences, Inc.
2. Assess financing needs, cash burn, related-party debt terms and repayment demands in light of the stated going-concern doubt.
3. Track progress toward securing an interferon manufacturer and the costs, timing and funding of required studies and trials.
4. Review the causes of the sharp revenue decline and whether the medical and consumer product initiatives are generating sustainable sales.
5. Monitor dilution from shares reserved, issued or potentially issuable, and the remediation of disclosed material weaknesses.