Ainos, Inc. quarterly report, Q1 FY2018

Business context and reporting period

This is a Form 10-Q for the three months ended March 31, 2018. Important identity discrepancy: although the request identifies Ainos, Inc., the filing names Amarillo Biosciences, Inc. (ABI) as the registrant. Verify that this is the intended filing.

ABI develops biologics, including low-dose oral interferon, and is diversifying into medical, consumer-product, and other health-related businesses. It consolidated ACTS Global Healthcare, Inc. as a variable interest entity effective January 1, 2018.

Financial results and position

All Q1 2018 revenue came from the Consumer Product division’s liposomal nutraceutical sales. SG&A rose $14,296, which management attributed largely to increased Asian operations; rent increased to $26,032 from $3,210. The statement of operations reports consolidated net loss of $187,438, including $4,992 of income attributable to non-controlling interests; common-shareholder loss was $192,430.

At March 31, cash and cash equivalents were $1,706,804, down from $1,980,015 at December 31, 2017. Working capital was $579,143, versus $261,412 at year-end. Cash used in investing was $1,687; financing cash flow was negative $195,000, reflecting convertible-note repayments. Ending cash was $1,706,804, compared with $52,971 a year earlier.

Total assets were $1,920,330 and total liabilities were $1,140,237. Current related-party convertible notes were $691,481, down from $886,481 at year-end. The company reported 33,724,261 common shares outstanding at quarter-end, up from 23,156,563 at December 31, 2017.

Material changes, outlook, and risks

• Management said Q1 2018 was the second consecutive quarter with revenue. It reported no direct R&D activity in either comparison period.
• ABI disclosed substantial doubt about its ability to continue as a going concern. It has not achieved sustained operating income and depends primarily on related-party debt and equity financing; failure to obtain acceptable financing could force it to cease operations.
• Management estimated post-reorganization funding needs of $1 million to $1.6 million, including $500,000 to $800,000 for efforts to commercialize existing intellectual property. Meaningful revenue from these activities was not expected before the last quarter of 2019, or possibly later.
• Risks include obtaining a new source of human interferon after its prior supplier discontinued production, the time and expense of trials and regulatory approval, patent expirations, and supply-cost increases affecting a product. Management also cited uncertainty around commercial partnerships and financing.
• Disclosure controls and procedures were found ineffective. Disclosed material weaknesses included limited technical accounting resources, inadequate segregation of duties, and insufficient controls over revenue and equity transactions. Management said it would seek to increase accounting resources as funds became available.
• Related-party matters include repayment of $195,000 of Dr. Stephen T. Chen’s convertible-note principal during the quarter and issuance of 1,000,000 shares to him in repayment of a separate $187,500 advance. The company also approved cash and stock compensation arrangements for its CEO and CFO.
• After quarter-end, the board increased the maximum size of a private placement to 30 million shares and $7.5 million. The filing reports no legal proceedings known to the company as of the report date.

Important facts for investors to verify

1. Confirm the issuer identity: the supplied filing is for Amarillo Biosciences, Inc., not Ainos, Inc.
2. Review the going-concern disclosure, funding estimates, and the company’s available financing and cash runway.
3. Verify share issuances, reserved shares, private-placement terms, and potential dilution, including subsequent events.
4. Assess related-party debt repayments, executive compensation, and the ACTS Global consolidation and restricted assets.
5. Review remediation of the disclosed control weaknesses and the feasibility, timing, and costs of the company’s commercialization plans.