SEC Form 10-Q Summary
Entity and period: The supplied filing is Amarillo Biosciences, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2016, filed August 18, 2016. This does not match the request metadata naming Ainos, Inc.; confirm the intended issuer.
Business context
Amarillo develops biologics, with a historical focus on low-dose oral human interferon for human and animal diseases. It also holds intellectual property related to an oral-health product and was exploring additional business lines. The company reported no research and development expense in the periods presented.
Financial results and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0 in 2016 and 2015 | $4,400 in 2016; $0 in 2015 |
| Gross margin | $0 in both years | $(700) in 2016; $0 in 2015 |
| Operating expenses | $135,127 in 2016; $102,103 in 2015 | $255,706 in 2016; $213,921 in 2015 |
| Operating loss | $(135,127) in 2016; $(102,103) in 2015 | $(256,406) in 2016; $(213,921) in 2015 |
| Net loss | $(136,224) in 2016; $(102,849) in 2015 | $(257,865) in 2016; $(214,938) in 2015 |
| Basic and diluted loss per share | $(0.01) in both years | $(0.01) in both years |
Second-quarter SG&A increased 32% year over year, mainly due to salary, professional-fee, and postage/shipping costs. Six-month SG&A increased 20%. Interest expense was $1,097 for Q2 and $1,459 for the first half of 2016. Sales were too limited for a meaningful operating margin assessment.
At June 30, 2016, cash was $312,261, versus $21,138 at year-end 2015. Current assets were $453,778 and current liabilities were $896,824, a working-capital deficit of $443,046. Total assets were $588,794; total liabilities were $896,824; stockholders’ deficit was $308,030. The filing reports no cash paid for interest or income taxes.
Six-month operating cash use was $325,120, investing cash use was $68,132, and financing cash inflow was $684,375, comprising $421,875 from a common-stock private placement and $262,500 from a related-party convertible note. Cash increased by $291,123 during the period.
Material changes and financing
- Common shares outstanding at June 30 were 21,394,810, up from 20,144,810 at December 31, 2015. The company received $421,875 for 2,250,000 shares at $0.1875 per share; shares had not all been issued as of quarter-end. After quarter-end, 1,250,000 shares were issued, with 1,000,000 pending receipt of executed offering documents.
- Related-party notes and payables totaling $384,555 were consolidated into a demand convertible note assigned to CEO Stephen T. Chen. The note is unsecured, bears 0.64% annual interest, and converts at $0.1875 per share. A separate $262,500 demand convertible note issued to Chen bears 0.65% interest and has the same conversion price.
- The company advanced approximately $92,218 to ACTS Global Healthcare under an agency and service agreement; $91,718 remained in prepaid expenses at June 30.
Outlook, risks, and contingencies
Management stated that the company had not achieved operating income and depended primarily on debt and equity financing. The filing says these conditions raise substantial doubt about the company’s ability to continue as a going concern; it warns that failure to secure acceptable financing could force cessation of operations. Estimated post-reorganization funding needs were $1.0 million to $1.6 million. Management did not provide a firm revenue or profitability forecast and said meaningful revenue from contemplated commercialization activities was not expected before the final quarter of 2017, or possibly later.
- The company’s sole human-interferon source had discontinued production. Finding and developing a replacement, completing trials, and obtaining regulatory approval could be costly and take longer than the remaining lives of key patents.
- Three patents, one pending patent, and one trademark were identified as significant intellectual property; one patent expires in less than two years and two in three to five years. The oral-health product also faced a raw-material price increase.
- Third-party manufacturers and distributors are required, and supply, production, or distribution disruptions could impede commercialization. The company reported no significant expected sales or royalty revenue in the next several years.
- Clinical, FDA and foreign regulatory, financing, personnel, competition, and commercialization risks were disclosed. The company also noted that potential tax attributes, including a reported $21.7 million net operating loss, had not been independently verified and could be limited.
- Management reported no known pending legal proceedings. Disclosure controls were assessed as effective, with no significant changes in internal controls over financial reporting during 2016.
Important facts for investors to verify
- Whether the requested issuer is Ainos, Inc. or the filing issuer, Amarillo Biosciences, Inc.
- Current cash, monthly cash burn, financing availability, and the company’s ability to meet demand obligations and continue as a going concern.
- Status and terms of the private placements, including issuance of the remaining 1,000,000 common shares and potential dilution from convertible debt.
- Availability of a replacement interferon source, required trial and regulatory plans, and the commercial value remaining under the patents.
- The filing contains an apparent date inconsistency: its cover states shares outstanding “as of August 18, 2015,” although the report is for 2016. Verify the correct date and share count.