Ainos, Inc. - Quarter Report: 2013 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, 2013  (unaudited) and December 31, 2012	3
	Statements of Operations – Three Months Ended March 31, 2013 and 2012 (unaudited)	4
	Condensed Statements of Cash Flows – Three Months Ended March 31, 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.	13
ITEM 4.	Controls and Procedures	16
PART II:	OTHER INFORMATION
ITEM 1.	Legal Proceedings	16
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceed	16
ITEM 3.	Defaults Upon Senior Securities	17
ITEM 4.	Mine Safety Disclosures	17
ITEM 5.	Other Information	17
ITEM 6.	Exhibits……………………………………………………………	17
Signatures		18

ITEM 1.

Financial Statements

Amarillo Biosciences, Inc.

	March 31, 2013				December 31, 2012
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	7,355			$	7,261
Prepaid expense and other current assets		2,361				13,674
Total current assets		9,716				20,935
Patents, net		90,336				94,100
Total assets	$	100,052			$	115,035
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued expenses	$	337,326			$	360,353
Accrued interest - related parties		980,023				951,442
Accrued expenses – related party		78,360				78,360
Derivative liabilities		-				4,217
Notes payable – related parties		3,026,293				2,847,958
Total current liabilities		4,422,002				4,242,330
Total liabilities		4,422,002				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 March  31, 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 March 31, 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		(37,023,909	)			(36,829,254	)
Total stockholders' deficit		(4,321,950	)			(4,127,295	)
Total liabilities and stockholders’ deficit	$	100,052			$	115,035

	Three months ended March 31,
		2013				2012
Revenues:
Product sales	$	-			$	240
Total revenues		-				240
Cost of revenues:
Product sales		-				96
Total cost of revenues		-				96
Gross margin		-				144
Operating expenses:
Research and development expenses		34,129				84,189
Selling, general and administrative expenses		127,162				73,998
Total operating expenses		161,291				158,187
Operating loss		(161,291	)			(158,043	)
Other income (expense):
Gain on debt conversion		-				15,220
Change in fair value of derivatives		4,217				(23,631	)
Interest expense		(29,483	)			(69,660	)
Net loss		(186,557	)			(236,114	)
Preferred stock dividend		(8,098	)			(6,558	)
Net loss applicable to common shareholders	$	(194,655	)		$	(242,672	)
Basic and diluted net loss per average share available to common shareholders	$	(0.00	)		$	(0.00	)
Weighted average common shares outstanding – basic and diluted		73,554,897				72,802,438

	Three months ended March 31,
	2013				2012
Net cash used in operating activities	$	(178,030	)		$	(112,297	)
Cash flows from investing activities:
Investment in patents		(211	)			-
Net cash used in investing activities		(211	)			-
Cash flows from financing activities:
Proceeds from  notes payable related party		198,335				192,000
Payments on notes payable related party		(20,000)				(10,000	)
Payments on notes payable		-				(70,000	)
Proceeds from sale of convertible preferred stock		-				20,000
Net cash provided by financing activities		178,335				132,000
Net change in cash		94				19,703
Cash and cash equivalents at beginning of period		7,261				2,819
Cash and cash equivalents at end of period	$	7,355			$	22,522
Supplemental disclosure of cash flow information
Cash paid for interest	$	619			$	27
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

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 months ended March 31, 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. 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, 2013, a total of 81,934,189 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 (8,379,292).  No common stock was issued in the first 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 depress the market price of our common stock.  In addition the warrants have an anti-dilution ratchet feature that could cause 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.

 

		Options				Price Range
Outstanding December 31, 2012			1,852,792			$	0.040-0.125
Granted			-				-
Cancelled/Expired			100,000				0.075
Exercised			-				-
Outstanding March 31, 2013			1,752,792				0.040-0.125
Exercisable March 31, 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			3,277,817				0.0202-0.10
Exercised			-				-
Outstanding March 31, 2013			3,364,500				0.03-0.10
Exercisable March 31, 2012			3,364,500			$	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 quarter of 2013.

 

The Company accrued $8,098 of dividends on preferred stock during the first quarter 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 March 31, 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 March 31, 2013 of $19,581 which is included in accounts payable and accrued expenses.

8.

Subsequent Events.  From April 1, 2013 to May 3, 2013, $120,000 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 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.

Mine Safety Disclosures.

ITEM.5.

Other Information

ITEM 6.

Exhibits.

None.

 

 

 

	AMARILLO BIOSCIENCES, INC.
Date:     May 13, 2013	By:   /s/ Stephen Chen           Stephen Chen, Chairman of the Board,           and Chief Executive Officer
Date:     May 13, 2013	By:   /s/ Bernard Cohen           Bernard Cohen, Vice President,           Chief Financial Officer