Ainos, Inc. - Quarter Report: 2012 March (Form 10-Q)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

TEXAS		75-1974352
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
4134 Business Park Drive, Amarillo, Texas 79110
(Address of principal executive offices) (Zip Code)
(806) 376-1741
(Issuer’s telephone number, including area code)

 

 

Large accelerated filer [ ]		Accelerated filer [ ]
Non-accelerated filer [ ] (do not check if smaller reporting company)		Smaller reporting company [√]

 

 

		PAGE NO.
PART I:	FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Balance Sheets– March 31, 2012  (unaudited) and December 31, 2011	3
	Statements of Operations – Three Months Ended March 31, 2012 and 2011 (unaudited)	4
	Condensed Statements of Cash Flows – Three Months Ended March 31, 2012 and 2011 (unaudited)	5
	Notes to Financial Statements (unaudited)	6
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	9
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk.	15
ITEM 4.	Controls and Procedures	18
PART II:	OTHER INFORMATION
ITEM 1.	Legal Proceedings	19
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
ITEM 3.	Defaults Upon Senior Securities	19
ITEM 4.	Submission of Matters to a Vote of Security Holders	19
ITEM 5.	Other Information	19
ITEM 6.	Exhibits……………………………………………………………	19
Signatures		20

ITEM 1.

Financial Statements

Amarillo Biosciences, Inc.

	March 31, 2012				December 31, 2011
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	22,522			$	2,819
Prepaid expense and other current assets		4,967				6,588
Total current assets		27,489				9,407
Property, equipment and software, net		-				42
Patents, net		101,709				105,556
Total assets	$	129,198			$	115,005
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued expenses	$	825,769			$	810,621
Accrued interest - related parties		870,505				841,294
Accrued expenses – related party		78,360				78,360
Derivative liabilities		71,944				114,659
Notes payable		-				70,000
Notes payable – related parties		2,382,000				2,285,000
Notes payable – convertible, net		-				18,533
Total current liabilities		4,228,578				4,218,467
Total liabilities		4,228,578				4,218,467
Commitments and contingencies
Stockholders' deficit
Preferred stock, $0.01 par value:
Authorized shares – 10,000,000
Issued and outstanding shares –  3,262 at March  31, 2012 and 1,700 at December 31, 2011		33				17
Common stock, $0.01par value:
Authorized shares - 100,000,000
Issued and outstanding shares – 73,554,897 at March 31, 2012 and 71,559,789 at December 31, 2011		735,549				715,598
Additional paid-in capital		31,555,266				31,328,479
Accumulated deficit		(36,390,228	)			(36,147,556	)
Total stockholders' deficit		(4,099,380	)			(4,103,462	)
Total liabilities and stockholders’ deficit	$	129,198			$	115,005

 

		Three months ended March 31,
		2012				2011
Revenues:
Product sales		$	240			$	2,720
Total revenues			240				2,720
Cost of revenues:
Product sales			96				1,431
Total cost of revenues			96				1,431
Gross margin			144				1,289
Operating expenses:
Research and development expenses			84,189				86,945
Selling, general and administrative expenses			73,998				111,224
Total operating expenses			158,187				198,169
Operating loss			(158,043	)			(196,880	)
Other income (expense):
Gain on debt conversion			15,220				-
Change in fair value of derivatives			(23,631	)			(610	)
Interest expense			(69,660	)			(23,063	)
Other income			-				300
Net loss			(236,114	)			(220,253	)
Preferred stock dividend			(6,558	)			(4,206	)
Net loss applicable to common shareholders		$	(242,672	)		$	(224,459	)
Basic and diluted net loss per average share available to common shareholders		$	(0.00	)		$	(0.00	)
Weighted average common shares outstanding – basic and diluted			72,802,438				61,172,113

	Three months ended March 31,
	2012				2011
Net cash used in operating activities	$	(112,297	)		$	(39,615	)
Cash from investing activities:
Patent expenditures		-				(1,178	)
Net cash used in investing activities		-				(1,178	)
Cash from financing activities:
Proceeds from issuance of note payable related party		192,000				20,000
Payments on notes payable related party		(10,000	)			-
Payments on notes payable		(70,000	)			-
Proceeds from sale of convertible preferred stock		20,000				18,000
Net cash provided by financing activities		132,000				38,000
Net change in cash		19,703				(2,793	)
Cash and cash equivalents at beginning of period		2,819				4,332
Cash and cash equivalents at end of period	$	22,522			$	1,539
Supplemental disclosure of cash flow information
Cash paid for interest	$	27			$	513
Cash paid for income taxes	$	-			$	-
Non-Cash Transactions
Common stock issued for convertible debt	$	74,091			$	-
Preferred stock issued for notes payable
related party and interest	$	110,300			$	-
Preferred stock issued for accrued
dividends and interest	$	23,578			$	-
Reclassification of derivative liability to
permanent equity	$	17,035			$	-

1.

Basis of presentation. The accompanying financial statements, which should be read in conjunction with the financial statements and footnotes included in the Company's Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission, are unaudited, but have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2012.

2.

Financial Condition. Our viability as a company is dependent upon successful commercialization of products resulting from its research and product development activities. We plan on working with commercial development partners in the United States and in other parts of the world to provide the necessary sales, marketing and distribution infrastructure to successfully commercialize the interferon alpha product for both human and animal applications.  Our products will require significant additional development, laboratory and clinical testing and investment prior to obtaining regulatory approval to commercially market our product(s). Accordingly, for at least the next few years, we will continue to incur research and development and general and administrative expenses and may not generate sufficient revenues from product sales or license fees to support its operations.

The Company continues to pursue a broad range of financing alternatives to improve its financial condition. These alternatives may include the sale or issuance of a substantial amount of common stock, common stock warrants or stock options. These financing alternatives could require an increase in the number of authorized shares of the Company’s common stock and result in significant dilution to existing shareholders and, possibly, a change of control of the Company.

3.

Common Stock.  The shareholders have authorized 100,000,000 shares of voting common shares for issuance.  On March 31, 2012, a total of 89,813,366 shares of common stock were either outstanding (73,554,897) or reserved for issuance upon exercise of options and warrants or conversion of convertible preferred stock (16,258,469).  Common stock issuances in the first quarter of 2012 are as follows:

Common Stock Issued in Q1 2012		Shares				Issue Price				Net Price
Consultants plan – services			50,000			$	0.035			$	1,750
Conversion – debt			1,945,108			$	0.0202-0.0207			$	40,000
Total Common Stock Issued in Q1 2012			1,995,108			$	0.0202 - 0.035			$	41,750

4.

Common Stock Options and Warrants.  On February 6, 2012, Amarillo Biosciences, Inc. issued 724,487 warrants as a result of having issued common shares for debt to Hope Capital at $0.0202 per share (and triggering the existing anti-dilution ratchet) on February 6, 2012. The Base Share Price for this dilutive issuance was $0.0202 per share.  ABI sent a Dilutive Issuance Notice to Warrant Strategies, Inc. on February 6, 2012.  The notice was sent pursuant to the Series A Common Stock Purchase Warrant dated June 16, 2009, Section 3(b), “…the Exercise Price shall be reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise price issuable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment.”

ABI issued a new Purchase Warrant dated February 6, 2012 reflecting the new Warrant Share amount of 2,217,817 shares and an adjusted Exercise Price of $0.0202 per share.  (The old Warrant Share amount was 1,493,330.  The new Warrant Shares, in the amount of 724,487, brought the new Warrant Share amount to 2,217,817.)  The new warrant was sent to Warrant Strategies, Inc. and return of the old warrant was requested.

		Options				Price Range
Outstanding December 31, 2011			3,641,792			$	0.04-0.40
Granted			-				-
Cancelled/Expired			(100,000	)			0.11
Exercised			-				-
Outstanding March 31, 2012			3,541,792				0.04-0.40
Exercisable March 31, 2012			3,541,792				0.04-0.40

		Warrants				Price Range
Outstanding December 31, 2011			8,730,190			$	0.03-0.10
Granted			724,487				0.0202
Cancelled/Expired			-				-
Exercised			-				-
Outstanding March 31, 2012			9,454,677				0.0202-0.10
Exercisable March 31, 2012			9,454,677				0.0202-0.40

5.

Convertible Preferred Stock.  The shareholders have authorized 10,000,000 shares of preferred stock shares for issuance. The Board of directors authorized the issuance of up to 10,000 shares of Series 2010-A 10% Convertible Preferred Stock on July 29, 2010.  Each preferred share is convertible into 1,000 common shares ($100 stated value per share divided by $0.10).  Dividends are payable quarterly at 10% per annum in cash or stock at the option of the preferred stockholder.

 

Stock dividend payments are valued at the higher of $0.10 per share of common stock or the average of the two highest volume weighted average closing prices for the 5 consecutive trading days ending on the trading day that is immediately prior to the dividend payment date.

During the first quarter of 2012, a total of 223 shares of Series 2010-A 10% Convertible Preferred Stock were issued for cash, an additional 1,339 shares were issued (850 shares for debt, 257 shares for accrued interest on notes and unpaid preferred dividends, 232 for dividends). The preferred stock is convertible into restricted common stock.

The Company accrued $6,558 of dividends on preferred stock during the quarter.

6.	Notes Payable – Related Party.  Two $1,000,000 notes are payable under an unsecured loan agreement with Hayashibara Biochemical Laboratories, Inc. (“HBL”), a major stockholder, dated July 22, 1999.  Although we are currently in repayment default on the notes, HBL has not demanded payment.

On January 10, 2011 a promissory note for the $200,000 was executed with Paul Tibbits, a director, which includes interest at 10% per annum, with no stated maturity date, and no collateral. As of March 31, 2012 this note is still outstanding.

On February 8, 2012, the company had $85,000 in additional notes to Paul Tibbits. This $85,000 was paid to Mr. Tibbits with convertible preferred stock, 850 shares.

The Company is currently investigating the possibility of structural changes.  The Company has received funds to support operations during the period of investigation under an interim agreement executed by the Company and the Yang Group of Taoyuan, Taiwan.  During this interim period while the final agreement is being negotiated, the funds discussed above are being advanced to Dr. Stephen Chen, ABI CEO.  Dr. Chen then advances the funds to the Company at his discretion.  The Agreement executed by the parties contemplates the execution of comprehensive transaction documents by the Company and one or more Yang Group affiliated entities, upon the completion of ongoing negotiations.  Additional amounts received by the Company under these arrangements are discussed in footnote 9, below.

7.

Note Payable - On December 16, 2011, Shen An Chou, wired $70,000 ($69,982 net of an $18 international wire fee) to ABI as a short-term non-interest-bearing loan for operations.  The agreement was verbal only and no note was executed.  Due to the short-term nature of the loan, no interest rate was assigned to the loan. The loan from Shen An Chou for $70,000 of December 16, 2011 was repaid in full on February 28, 2012.

On January 31, 2012, Hope Capital, Inc. exercised its right to convert debt into equity by sending a Notice of Conversion to ABI to convert $12,000 principal amount of the note dated May 24, 2011, into 579,710 shares of ABI Common Stock at $0.0207 per share.  The shares were issued in a timely manner in accordance with the covenants of the Note.  The Conversion Price used was the Variable Conversion Price as defined by the Note.  The principal balance of the note after the conversion was $28,000.

8.	Line of Credit.  We have a line of credit with Wells Fargo for $20,000, with an interest rate of prime rate plus 6.75 percent.  There was an outstanding balance on March 31, 2012 of $18,970 which is included in accounts payable and accrued expenses.

9.

Subsequent Events.  From April 4, 2012 to April 30, 2012, $79,829 has been received from Stephen Chen, ABI CEO, pursuant to the arrangements described in footnote 6. This is a working capital loan to be used for operations.  The working capital loan is short term, without a due date, and carries no stated interest rate or any other terms.

 

ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

·

announcements of technological innovation or improved or new diagnostic products by others;

·

general market conditions;

·

changes in government regulation or patent decisions;

·

changes in insurance reimbursement practices or policies for diagnostic products.

·

net tangible assets in excess of $2,000,000, if such issuer has been in continuous operation for three years;

·

net tangible assets in excess of $5,000,000, if such issuer has been in continuous operation for less than three years; or

·

average revenue of at least $6,000,000, for the last three years.

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

ITEM 3.

Defaults Upon Senior Securities.

None, other than set forth in Note 6 to Financial Statements, “Notes Payable”, under Part I, Item 1, above, regarding non-payment of the HBL Notes.

ITEM 4.

Submission of Matters to a Vote of Security Holders.

ITEM.5.

Other Information.

ITEM 6.

Exhibits.

None

 

 

 

	AMARILLO BIOSCIENCES, INC.
Date:     May 14, 2012	By:   /s/ Stephen Chen Stephen Chen, Chairman of the Board, and Chief Executive Officer
Date:     May 14, 2012	By:   /s/ Bernard Cohen Bernard Cohen, Vice President, Chief Financial Officer