Ainos, Inc. - Quarter Report: 2013 June (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– June 30, 2013  (unaudited) and December 31, 2012	3
	Statements of Operations – Three and Six Months Ended June 30, 2013 and 2012 (unaudited)	4
	Condensed Statements of Cash Flows – Six Months Ended June 30, 2013 and 2012 (unaudited)	5
	Notes to Financial Statements (unaudited)	6
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	8
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk.	14
ITEM 4.	Controls and Procedures	17
PART II:	OTHER INFORMATION
ITEM 1.	Legal Proceedings	18
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
ITEM 3.	Defaults Upon Senior Securities	18
ITEM 4.	Mine Safety Disclosures	18
ITEM 5.	Other Information	18
ITEM 6.	Exhibits……………………………………………………………	18
Signatures		19

ITEM 1.

Financial Statements

Amarillo Biosciences, Inc.

	June 30, 2013				December 31, 2012
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	4,586			$	7,261
Prepaid expense and other current assets		50,163				13,674
Total current assets		54,749				20,935
Patents, net		99,373				94,100
Total assets	$	154,122			$	115,035
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued expenses	$	401,860			$	360,353
Accrued interest - related parties		1,009,269				951,442
Accrued expenses – related party		78,360				78,360
Derivative liabilities		-				4,217
Notes payable – related parties		3,187,793				2,847,958
Total current liabilities		4,677,282				4,242,330
Total liabilities		4,677,282				4,242,330
Commitments and contingencies
Stockholders' deficit
Preferred stock, $0.01 par value:
Authorized shares – 10,000,000
Issued and outstanding shares –  3,262 at       June 30, 2013 and December 31, 2012		33				33
Common stock, $0.01par value:
Authorized shares - 100,000,000
Issued and outstanding shares – 73,554,897 at June       30, 2013 and 73,554,897 at December 31, 2012		735,549				735,549
Additional paid-in capital		31,966,377				31,966,377
Accumulated deficit		(37,225,119	)			(36,829,254	)
Total stockholders' deficit		(4,523,160	)			(4,127,295	)
Total liabilities and stockholders’ deficit	$	154,122			$	115,035

		Three months ended June 30,								Six months ended June 30,
		2013				2012				2013				2012
Revenues:
Product sales		$	-			$	240			$	-			$	480
Total revenues			-				240				-				480
Cost of revenues:
Product sales			-				96				-				192
Total cost of revenues			-				96				-				192
Gross Margin			-				144				-				288
Operating expenses:
Research and development expenses			37,662				88,750				71,792				172,939
Selling, general and administrative expenses			124,626				56,790				251,787				130,788
Total operating expenses			162,288				145,540				323,579				303,727
Operating loss			(162,288	)			(145,396	)			(323,579	)			(303,439	)
Other income (expense)
Gain on debt conversion			-				-				-				15,220
Change in fair value of derivatives			-				46,285				4,217				22,654
Interest expense			(30,825	)			(29,516	)			(60,308	)			(99,176	)
Net loss			(193,113	)			(128,627	)			(379,670	)			(364,741	)
Preferred stock dividend			(8,098	)			(8,098	)			(16,195	)			(14,656	)
Net loss applicable to common shareholders		$	(201,211	)		$	(136,725	)		$	(395,865	)		$	(379,397	)
Basic and diluted net  loss per share		$	(0.00	)		$	(0.00	)		$	(0.01	)		$	(0.01	)
Weighted average shares outstanding – basic and diluted			73,554,897				73,554,897				73,554,897				73,178,668

	Six months ended June 30,
	2013				2012
Net cash provided (used) in operating activities	$	(329,281	)		$	(262,158	)
Cash flows from investing activities:
Investment in patents		(13,229	)			(3,186	)
Net cash used in investing activities		(13,229	)			(3,186	)
Cash flows from financing activities:
Proceeds from notes payable related party		388,335				326,205
Payments on notes payable related party		(48,500	)			(10,000	)
Payments on notes payable		-				(70,000	)
Proceeds from sale of convertible preferred stock		-				20,000
Net cash provided by financing activities		339,835				266,205
Net change in cash		(2,675	)			861
Cash and cash equivalents at beginning of period		7,261				2,819
Cash and cash equivalents at end of period	$	4,586			$	3,680
Supplemental disclosure of cash flow information
Cash paid for interest	$	2,018			$	2,820
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 accrued interest	$	-			$	110,300
Preferred stock issued for accrued dividends and interest	$	-			$	23,578
Reclassification of derivative liability to permanent equity	$	-			$	17,035
Forgiveness of accrued salaries	$	-			$	278,259

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, 2012 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 and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2013.

2.

Financial Condition. Our viability as a company is dependent upon successful commercialization of products resulting from its research and product development activities. However, our inability to commercialize a product has had a profoundly negative impact on the financial condition of the Company. The difficulty in raising funds has put our core technology in jeopardy. To save, and further develop, our core technology, the Company must continue to pursue a broad range of financing alternatives to improve its financial condition. These alternatives include the sale or issuance of common stock, common stock warrants, stock options, and debt financing. These financing alternatives could require an increase in the number of authorized shares of the Company’s common stock (subject to any required shareholder approval) and such could result in significant dilution to existing shareholders and, possibly, a change of control of the Company.  Due to the high risk position of the Company, debt financing could prove to be a very costly financing avenue.  Commercialization of a product or products will require significant development, laboratory and clinical testing and capital investment prior to obtaining regulatory approval to commercially market our product(s).  Continued losses and lack of liquidity indicate that we are having great difficulty being able to continue as a going concern for a reasonable period of time. The ability to continue as a going concern is dependent upon several factors including, but not limited to, the ability to generate sufficient cash flow to meet obligations on a timely basis, obtain additional financing, and continue to obtain operating services from vendors.

3.

Common Stock.  The shareholders have authorized 100,000,000 shares of voting common shares for issuance.  On June 30, 2013, a total of 80,859,189 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 (7,304,292).  No common stock was issued in the first or second quarter of 2013.

4.

Common Stock Options and Warrants.  As of December 31, 2012 there remained 2,217,817 shares underlying our warrants related to our January 2008 financing arrangement that would have been available for future sale and the sale of these shares may have depressed the market price of our common stock.  In addition the warrants had an anti-dilution ratchet feature that could have caused the number of warrants to increase and the exercise price to decrease if we should have any non exempt stock, option or warrant issuances at less than the $0.0202 per share. The aforementioned warrants expired unexercised and worthless at the close of business on January 8, 2013. In accordance with the terms of the individual agreements, 2,135,000 warrants expired during the six months ended June 30, 2013.

		Options				Price Range
Outstanding December 31, 2012			1,852,792			$	0.040-0.125
Granted			-				-
Cancelled/Expired			(100,000	)			0.075
Exercised			-				-
Outstanding June 30, 2013			1,752,792				0.040-0.125
Exercisable June 30, 2013			1,752,792			$	0.040-0.125

		Warrants				Price Range
Outstanding December 31, 2012			6,642,317			$	0.0202-0.10
Granted			-				-
Cancelled/Expired			(4,352,817	)			0.0202-0.10
Exercised			-				-
Outstanding June 30, 2013			2,289,500				0.03-0.10
Exercisable June 30, 2013			2,289,500				0.03-0.10

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 stock holder.  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.

There was no Series 2010-A 10% Convertible Preferred Stock issued in the first or second quarter of 2013.

 

The Company accrued $16,195 of dividends on preferred stock during the first and second quarters of 2013.

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 June 30, 2013 this note is still outstanding.

7.	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 June 30, 2013 of $18,806 which is included in accounts payable and accrued expenses.

8.

Subsequent Events.  Subsequent to June 30, 2013 to August 1, 2013, $85,500 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.

On July 12, 2013, ABI and PAN Consulting, Ltd. entered into and executed a Settlement Agreement and Release whereby ABI paid $5,500 in full and final settlement of any and all claims held or asserted by PAN Consulting, Ltd. and PAN Consulting, Ltd. agreed to endorse and deliver to ABI any and all stock certificates evidencing an aggregate of 263,889 shares of ABI common stock.  The terms of the agreement also included termination of the contract executed in 2006 by the parties.

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 4.

Mine Safety Disclosures.

ITEM.5.

Other Information.

ITEM 6.

Exhibits.

None

 

 

 

	AMARILLO BIOSCIENCES, INC.
Date:   August 9, 2013	By:   /s/ Stephen Chen Stephen Chen, Chairman of the Board,   and Chief Executive Officer
Date:   August 9, 2013	By:   /s/ Bernard Cohen Bernard Cohen, Vice President,    Chief Financial Officer