Ainos(AIMD) - 2019 Q3 - Quarterly Report

PART I: FINANCIAL INFORMATION This part details the company's unaudited financial statements, management's analysis, market risk disclosures, and internal control assessments ITEM 1. Financial Statements This section presents the unaudited consolidated financial statements and notes, highlighting the company's financial position, performance, and liquidity Consolidated Balance Sheets | Metric | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $482,772 | $1,276,654 | | Total current assets | $551,807 | $1,303,234 | | Total assets | $691,682 | $1,463,700 | | Total current liabilities | $612,598 | $733,621 | | Total liabilities | $612,598 | $733,621 | | Total stockholders' equity | $79,084 | $730,079 | | Accumulated deficit | $(4,399,514) | $(3,188,334) | - The company experienced a significant decrease in cash and cash equivalents, total assets, and total stockholders' equity from December 31, 2018, to September 30, 2019, while its accumulated deficit substantially increased[7] Consolidated Statements of Operations Three Months Ended September 30 | Metric | 2019 | 2018 | Change (2019 vs 2018) | | :--- | :--- | :--- | :--- | | Revenues | $4,786 | $14,908 | $(10,122) | | Cost of revenues | $(3,368) | $(16,791) | $13,423 | | Gross margin | $1,418 | $(1,883) | $3,301 | | Selling, general and administrative | $366,824 | $306,965 | $59,859 | | Operating income (loss) | $(365,406) | $(308,848) | $(56,558) | | Net income (loss) | $(366,215) | $(310,039) | $(56,176) | | Basic and diluted net loss per share | $(0.01) | $(0.01) | $0.00 | Nine Months Ended September 30 | Metric | 2019 | 2018 | Change (2019 vs 2018) | | :--- | :--- | :--- | :--- | | Revenues | $9,468 | $71,748 | $(62,280) | | Cost of revenues | $(6,649) | $(60,837) | $54,188 | | Gross margin | $2,819 | $10,911 | $(8,092) | | Research and development expenses | $52,510 | $0 | $52,510 | | Selling, general and administrative | $1,161,317 | $859,956 | $301,361 | | Operating income (loss) | $(1,213,827) | $(849,045) | $(364,782) | | Net income (loss) | $(1,211,180) | $(852,589) | $(358,591) | | Basic and diluted net loss per share | $(0.03) | $(0.02) | $(0.01) | Consolidated Statements of Stockholders' Equity - Total Stockholders' Equity decreased significantly from $730,079 at December 31, 2018, to $79,084 at September 30, 2019, primarily due to a net loss of $(1,211,180) for the nine-month period[12] - The company issued common stock for compensation, cash, and debt conversion, contributing to increases in common stock par value and additional paid-in capital during the period[12][13] Condensed Consolidated Statements of Cash Flows | Metric | Nine months ended Sept 30, 2019 | Nine months ended Sept 30, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(779,339) | $(697,341) | | Net cash provided by (used in) investing | $(2,043) | $55,643 | | Net cash used in financing activities | $(12,500) | $(195,000) | | Net change in cash | $(793,882) | $(836,698) | | Cash and cash equivalents at end of period| $482,772 | $1,143,317 | - The company experienced increased cash usage in operating activities and a shift from cash provided to cash used in investing activities year-over-year, resulting in a net decrease in cash and cash equivalents[14] Notes to Consolidated Financial Statements Note 1. Organization and Business - Amarillo Biosciences, Inc (ABI) is a diversified healthcare company founded in 1984, operating through Pharmaceutical, Medical, and Consumer divisions[15] - The Pharmaceutical division focuses on low-dose oral interferon (IFN) for neoplastic, viral, and fibrotic diseases, seeking patent licensing and commercialization[15] - The Medical division develops technology for metabolism-related diseases and distributes medical care products, while the Consumer division licenses and distributes nutraceuticals[15] Note 2. Basis of presentation - The accompanying consolidated financial statements are unaudited and prepared in accordance with GAAP for interim financial information[16] Note 3. Financial Condition - The company has not achieved sustained operating income and relies on related-party financing, raising substantial doubt about its ability to continue as a going concern[17][20] - Future operations are dependent on obtaining necessary financing, and there is no assurance that capital will be available on acceptable terms[18][20] Note 4. Common Stock - As of September 30, 2019, the company had 40,216,351 common shares issued and outstanding, out of 100,000,000 authorized shares[21] - During 2019, the company issued shares for private placement, stock compensation to officers and employees, and as a finder's fee[22][23][24] - No dividends have been paid to common stock shareholders to date, and there are no immediate plans to do so[24] Note 5. Convertible Notes Payable – Related Party | Convertible Note Type | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Convertible Note payable – related party (Note 1) | $114,026 | $144,426 | | Convertible Note payable – related party (Note 2) | $262,500 | $262,500 | | Convertible Note payable – related party (Note 3) | - | $106,430 | | Total Convertible Notes payable – related party | $376,526 | $513,356 | - The outstanding balance of convertible promissory notes payable to Dr Stephen T Chen decreased from $513,356 to $376,526 due to partial repayment and conversions into common stock[25][26] - Specific conversions included $69,600 into 371,200 shares and $30,400 into 180,952 shares during July 2019[26] Note 6. Subsequent Events - No events have occurred subsequent to the balance sheet date through the date of this filing[28] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, liquidity needs, and forward-looking uncertainties Forward-Looking Statements - The document contains forward-looking statements subject to risks and uncertainties, including regulatory approvals, R&D costs, and clinical trial difficulties[30][32][62] - Principal uncertainties include the inability to ensure favorable trial results, accurately budget for personnel, and continue as a going concern[32][62] - Investors are cautioned not to place undue reliance on forward-looking statements due to the competitive and rapidly changing industry[33][34][63][64] Overview - ABI is developing biologics, primarily focusing on low-dose oral interferon for human and animal diseases, holding 5 related patents[35][36][37] - Further clinical trials and commercialization of low-dose interferon are on hold pending the identification of a new cGMP source for interferon[38][39] - The company is expanding its diversified healthcare business to generate new revenue streams through its Medical and Consumer divisions[41][44][45][46] Results of Operations for Three Months Ended September 30, 2019 and 2018 | Metric | 2019 | 2018 | Change (2019 vs 2018) | | :--- | :--- | :--- | :--- | | Revenues | $4,786 | $14,908 | $(10,122) | | Gross margin | $1,418 | $(1,883) | $3,301 | | Selling, general and administrative | $366,824 | $306,965 | $59,859 | | Operating loss | $(365,406) | $(308,848) | $(56,558) | | Net loss | $(366,215) | $(310,039) | $(56,176) | - The increase in operating and net loss was primarily attributed to a 19.8% increase in selling, general, and administrative expenses[49][50][51] Results of Operations for the Nine Months Ended September 30, 2019 and 2018 | Metric | 2019 | 2018 | Change (2019 vs 2018) | | :--- | :--- | :--- | :--- | | Revenues | $9,468 | $71,748 | $(62,280) | | Gross profit | $2,819 | $10,911 | $(8,092) | | Research and development expenses | $52,510 | $0 | $52,510 | | Selling, general and administrative | $1,161,317 | $859,956 | $301,361 | | Operating loss | $(1,213,827) | $(849,045) | $(364,782) | | Net loss | $(1,211,180) | $(852,589) | $(358,591) | - The significant increase in operating and net loss was primarily due to an 86.8% decrease in revenue, a new R&D expenditure of $52,510, and a 35.4% increase in SG&A expenses[53][55][56][57][58] Liquidity Needs - As of September 30, 2019, the company had $482,772 in cash, down from $1,276,654, with an estimated historical burn rate of $65,000 to $75,000 per month[59] - ABI estimates financing needs of $5,000,000 to $6,000,000 over the next three years for commercialization activities[59][61] - The company's main goal is to return to a going concern status by reducing operating losses, but there is no assurance of success[59][61] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk The company is exempt from market risk disclosures as it qualifies as a "smaller reporting company" - The company is exempt from providing market risk disclosures as it qualifies as a "smaller reporting company"[65] ITEM 4. Controls and Procedures This section addresses the effectiveness of disclosure controls, internal controls, and management's remediation plans for identified material weaknesses Disclosure Controls and Procedures - Management concluded that disclosure controls and procedures were not effective as of September 30, 2019, in ensuring timely and accurate SEC reporting[65] Changes to Internal Controls and Procedures over Financial Reporting - The company engaged a managerial accounting services provider to oversee accounting processes and augment internal financial controls[66] Management's Remediation Plans - Management identified material weaknesses: insufficient personnel with appropriate technical accounting knowledge and lack of proper segregation of duties[67] - The remediation plan involves increasing personnel resources and technical accounting expertise within the accounting function[69] PART II: OTHER INFORMATION This part covers other required disclosures, including legal proceedings, unregistered securities sales, and filed exhibits ITEM 1. Legal Proceedings The company reported no awareness of any material legal proceedings or claims against it as of the filing date - As of the report date, the company was not aware of any material legal proceedings or claims against it[70] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the unregistered sales of equity securities and how the proceeds were utilized during the reporting period - From January 1, 2019, through the filing date, 200,000 shares were issued for proceeds of $50,000[71] - The proceeds were used for R&D, SG&A expenses, capital expenditures, compensation, and repayment of convertible debt[71] ITEM 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities were reported[72] ITEM 4. Mine Safety Disclosures This item is not applicable to the company's operations - Mine Safety Disclosures are not applicable to Amarillo Biosciences, Inc[72] ITEM 5. Other Information No other information was reported under this item - No other information was provided under this item[72] ITEM 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including required certifications and XBRL documents - Exhibits include certifications from the Chief Executive Officer (31.1 and 32.1) as required by the Securities Exchange Act and Sarbanes-Oxley Act[74][75] - The filing also includes various XBRL (eXtensible Business Reporting Language) documents for interactive data[76] Signatures The report was officially signed by Stephen T Chen, Chairman, CEO, and CFO, on November 13, 2019 - The report was signed on November 13, 2019, by Stephen T Chen, Chairman of the Board, Chief Executive Officer, and Chief Financial Officer[77]