Ainos, Inc. (identified in filing as Amarillo Biosciences, Inc.) — Form 10-Q
Reporting period: Quarter ended September 30, 2019; financial statements are unaudited. The filing names Amarillo Biosciences, Inc. (“ABI”), not Ainos, Inc.; investors should verify the issuer and filing identity.
Business context
ABI describes itself as a diversified healthcare company with pharmaceutical, medical and consumer-product activities, including low-dose oral interferon research, diabetes-related medical technology development, and nutraceutical sales. The filing says further interferon trials and commercialization are on hold while the company seeks a new cGMP manufacturing source. ABI also describes plans to develop pulsatile insulin infusion therapy and distribute healthcare products in Asian markets.
Financial performance and position
| Metric | Three months ended September 30, 2019 | Nine months ended September 30, 2019 |
|---|---|---|
| Revenue | $4,786 | $9,468 |
| Gross profit (margin) | $1,418 (29.6%) | $2,819 (29.8%) |
| Operating expenses | $366,824 | $1,213,827 |
| Operating loss | $365,406 | $1,211,008 |
| Net loss | $366,215 | $1,211,180 |
| Basic and diluted loss per share | $0.01 | $0.03 |
- For the nine months, operating cash used was $779,339, versus $697,341 in 2018. Cash fell to $482,772 from $1,276,654 at December 31, 2018.
- At September 30, current assets were $551,807 and current liabilities were $612,598, implying negative working capital of approximately $60,800. Total assets were $691,682; total liabilities were $612,598; stockholders’ equity was $79,084.
- Related-party convertible notes payable were $376,526, down from $513,356 at year-end 2018. The company reported $37,500 in note repayments and $100,000 of debt converted to common stock during the nine-month period.
- Common shares outstanding increased to 40,216,351 from 39,117,524 at year-end 2018. The filing also identifies substantial shares reserved for debt conversion, compensation, options and warrants.
Changes versus prior comparable periods
- Third-quarter revenue declined to $4,786 from $14,908; net loss widened to $366,215 from $310,039. SG&A rose 19.8% to $366,824, which management primarily attributed to consulting support for accounting operations and business development.
- Nine-month revenue fell 86.8% to $9,468 from $71,748, and gross profit decreased 74.1% to $2,819 from $10,911. Management attributed the larger operating loss primarily to increased SG&A and minimal sales, with expense growth also reflecting expanded international operations.
- Nine-month SG&A increased 35.4% to $1,161,317. R&D expense was $52,510, compared with none reported in the prior-year period.
- Nine-month net loss increased 42.0% to $1,211,180 from $852,589. Weighted-average shares rose to 39,684,743 from 34,715,330.
Outlook, risks and unusual items
- Management estimated financing needs of $5 million to $6 million over the next three years to support commercialization. It said the historical cash burn was approximately $65,000–$75,000 per month, while noting that the burn rate was difficult to estimate as foreign operations and planned R&D spending expanded.
- Effective September 1, 2019, the company reduced employee salaries until sufficient investor capital is secured. Management cautioned that financing may not be available on acceptable terms and that failure to secure funding could force the company to cease operations.
- The financial statements explicitly state that substantial doubt exists about the company’s ability to continue as a going concern. Management said operations depend on obtaining financing and achieving future profitable operations.
- Key business risks include finding a new interferon manufacturer, possible comparability studies and additional clinical trials, regulatory approval, trial costs and enrollment, and uncertainty over commercial partners and financing. No specific earnings guidance was provided.
- Management concluded disclosure controls and procedures were not effective and identified material weaknesses involving accounting expertise, monitoring, and segregation of duties. The company engaged an accounting-services provider and said it intended to add technical accounting resources.
- The filing reports no subsequent events through filing and no known legal proceedings or claims as of the report date.
Important facts for investors to verify
- Confirm the issuer identity: the supplied request says Ainos, Inc., while the filing is for Amarillo Biosciences, Inc.
- Assess near-term liquidity, the company’s ability to obtain financing, and the assumptions behind the stated $5–$6 million three-year funding requirement.
- Track progress toward a replacement cGMP interferon source and determine whether additional studies or clinical trials will be required.
- Review the scope and remediation status of the reported material weaknesses in financial reporting controls.
- Reconcile share issuances, reserved shares, related-party debt conversions and potential dilution against subsequent filings.