Ainos(AIMD) - 2019 Q1 - Quarterly Report

PART I: FINANCIAL INFORMATION Financial Statements For Q1 2019, the company reported decreased cash and assets, a significant revenue drop, and a higher net loss, highlighting 'going concern' uncertainty Consolidated Balance Sheets As of March 31, 2019, total assets decreased to $1.23 million from $1.46 million due to reduced cash, while accumulated deficit grew, lowering equity Balance Sheet Highlights | Balance Sheet Highlights | March 31, 2019 (USD) | December 31, 2018 (USD) | | :--- | :--- | :--- | | Cash and cash equivalents | $1,046,314 | $1,276,654 | | Total current assets | $1,071,278 | $1,303,234 | | Total assets | $1,225,840 | $1,463,700 | | Total current liabilities | $673,755 | $733,621 | | Accumulated deficit | $(3,579,723) | $(3,188,334) | | Total stockholders' equity | $552,085 | $730,079 | Consolidated Statements of Operations Q1 2019 revenues plummeted to $4,076 from $56,590, while increased SG&A expenses led to an operating loss of $390,504 and a net loss of $391,389 Income Statement (Three Months Ended March 31) | Income Statement (Three Months Ended March 31) | 2019 (USD) | 2018 (USD) | | :--- | :--- | :--- | | Revenues | $4,076 | $56,590 | | Gross margin | $1,358 | $13,251 | | Selling, general and administrative expenses | $389,476 | $199,309 | | Operating loss | $(390,504) | $(186,058) | | Net loss attributable to common shareholders | $(391,389) | $(192,430) | | Basic and diluted net loss per share | $(0.01) | $(0.01) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly increased to $216,202 in Q1 2019, resulting in a $230,340 decrease in cash, ending at $1,046,314 Cash Flow (Three Months Ended March 31) | Cash Flow (Three Months Ended March 31) | 2019 (USD) | 2018 (USD) | | :--- | :--- | :--- | | Net cash used in operating activities | $(216,202) | $(76,524) | | Net cash used in investing activities | $(1,638) | $(1,687) | | Net cash used in financing activities | $(12,500) | $(195,000) | | Net change in cash | $(230,340) | $(273,211) | | Cash and cash equivalents at end of period | $1,046,314 | $1,706,804 | Notes to Consolidated Financial Statements Notes detail the company's divisions, disclose 'going concern' uncertainty due to recurring losses, and reveal $475,856 in convertible notes payable to the CEO - The company operates through three divisions: Pharmaceutical (low-dose oral interferon), Medical (diabetes treatment technology, wound care products), and Consumer (nutraceuticals)[10] - Management has expressed substantial doubt about the company's ability to continue as a going concern, as its operations are funded by debt and equity financing and it has not yet achieved sustained operating income[12][13][15] - As of March 31, 2019, the company had $475,856 in convertible notes payable to its Chairman, CEO, and President, Dr. Stephen T. Chen[18][19] - Subsequent to the quarter's end, a director, general counsel, and corporate secretary resigned, and the company's outstanding Private Placement offer expired[21] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses stalled interferon development, diversification efforts, and attributes increased net loss to lower sales and higher SG&A, with liquidity strained by a $65k-$75k monthly burn rate and a $3-5 million short-term financing need Overview The company's core interferon development is stalled by manufacturing issues, prompting diversification into Medical (diabetes, wound care) and Consumer (nutraceuticals) divisions - The company's primary research focuses on a proprietary low-dose oral lozenge form of natural human interferon alpha for treating human diseases[25] - Further clinical trials and commercialization of the interferon product are on hold until a new cGMP source of interferon is secured[29] - ABI is expanding into a diversified healthcare portfolio, including developing pulsatile insulin therapy for diabetes in Taiwan and distributing TissueAid™ wound closure products[32][35][36] - The Consumer Product Division offers a line of liposomal nutraceuticals and a dietary supplement, Maxisal®, for dry mouth relief[38] Results of Operations Q1 2019 nutraceutical revenues sharply declined to $4,076, while SG&A expenses increased by 95%, leading to a 110% wider operating loss of $390,504 and a 103% higher net loss of $391,389 - Revenue from liposomal nutraceuticals decreased from $56,590 in Q1 2018 to $4,076 in Q1 2019[40] - SG&A expenses were $190,167 (95%) higher in Q1 2019 than Q1 2018, driven by salary increases, additional accounting and consulting services, and option expenses[42] - The net loss attributable to common shareholders for Q1 2019 was $391,389, a 103% increase from the $192,430 loss in Q1 2018, mainly due to the higher SG&A expenses[44] Liquidity and Capital Resources Cash declined to $1.05 million by Q1 2019, with a monthly burn rate of $65k-$75k, necessitating $3-5 million in short-term financing to avoid cessation of operations Liquidity Metrics | Liquidity Metrics | March 31, 2019 (USD) | December 31, 2018 (USD) | | :--- | :--- | :--- | | Cash | $1,046,314 | $1,276,654 | | Working Capital | $397,523 | $569,613 | - The company's monthly cash burn rate in 2019 was between $65,000 and $75,000[45] - ABI estimates its short-term project development financing needs to be between $3,000,000 and $5,000,000[46] - There is no assurance of successfully making the company profitable, and failure to do so could lead to a cessation of operations[47] Quantitative and Qualitative Disclosures About Market Risk As a 'smaller reporting company,' the company is exempt from providing market risk disclosures - As a 'smaller reporting company,' ABI is exempt from providing disclosures about market risk under Item 3[48] Controls and Procedures Management concluded disclosure controls were ineffective as of March 31, 2019, citing material weaknesses in accounting personnel and segregation of duties, with remediation efforts underway - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were not effective[49] - Identified material weaknesses include: (a) insufficient personnel with appropriate GAAP knowledge and (b) improper segregation of duties due to the company's small size[54] - Remediation efforts include engaging a managerial accounting services provider and plans to hire additional personnel with technical accounting expertise[50][55] PART II: OTHER INFORMATION Legal Proceedings The company is not currently involved in any material legal proceedings or claims - The company is not currently involved in any significant lawsuits or legal proceedings[56] Unregistered Sales of Equity Securities and Use of Proceeds Since January 1, 2019, 200,000 unregistered shares were issued, raising $50,000 for general corporate purposes and partial debt repayment to the CEO - From January 1, 2019, through the filing date, 200,000 shares were issued for proceeds of $50,000[57] - Proceeds were used for general corporate purposes, including R&D, SG&A, compensation, and repayment of debt to Dr. Chen[57] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[53] Mine Safety Disclosures This item is not applicable to the company - Not applicable[53] Other Information The company reported no other information under this item - None[53] Exhibits No exhibits were filed with this report - None[59]