Ainos, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Ainos, Inc.	Financial_Report.xls
EX-32 - EXHIBIT 32.1 3-31-15 - Ainos, Inc.	exhibit32-1_03312015.htm
EX-31.1B - EXHIBIT 31.1B 3-31-15 - Ainos, Inc.	exhibit31-1b_03312015.htm
EX-31.1A - EXHIBIT 31.1A 3-31-15 - Ainos, Inc.	exhibit31-1a_03312015.htm

United States

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2015

Commission File Number 0-20791

AMARILLO BIOSCIENCES, INC.

(Exact name of registrant as specified in its charter)

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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [√ ] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)[ ] Yes [√] No

As of May 15, 2015 there were 20,144,810 shares of the issuer's common stock outstanding.

AMARILLO BIOSCIENCES, INC.

INDEX

		PAGE NO.
PART I:	FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Balance Sheets– March 31, 2015 and December 31, 2014 (unaudited)	3
	Statements of Operations – Three Months Ended March 31, 2015 and 2014 (unaudited)	4
	Condensed Statements of Cash Flows – Three Months Ended March 31, 2015 and 2014 (unaudited)	5
	Notes to Financial Statements (unaudited)	6
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk.	17
ITEM 4.	Controls and Procedures	20

PART II:	OTHER INFORMATION
ITEM 1.	Legal Proceedings	21
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
ITEM 3.	Defaults Upon Senior Securities	21
ITEM 4.	Mine Safety Disclosures	21
ITEM 5.	Other Information	21
ITEM 6.	Exhibits……………………………………………………………	21
Signatures		22

PART I - FINANCIAL INFORMATION

ITEM 1.

Financial Statements

Amarillo Biosciences, Inc.

Balance Sheets

(Unaudited)

	March 31, 2015			December 31, 2014
Assets
Current assets:
Cash and cash equivalents	$	239,347		$	318,556
Prepaid expense and other current assets		710			16,882
Total current assets		240,057			335,438
Patents, net		81,645			86,097
Property and equipment, net		5,833			-
Total assets	$	327,535		$	421,535

Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued expenses	$	84,961		$	67,159
Accrued interest - related parties		850			563
Notes payable – related parties		272,055			234,555
Total current liabilities		357,866			302,277
Notes payable – related party, long term		112,500			150,000
Total liabilities		470,366			452,277

Commitments and contingencies

Stockholders' deficit
Common stock, $0.01 par value:
Authorized shares - 100,000,000
Issued and outstanding shares – 20,144,810 at March 31, 2015 and December 31, 2014		201,448			201,448
Additional paid-in capital		(157,446	)		(157,446	)
Accumulated deficit		(186,833	)		(74,744	)
Total stockholders' deficit		(142,831	)		(30,742	)
Total liabilities and stockholders’ deficit	$	327,535		$	421,535

See accompanying notes to financial statements.

Amarillo Biosciences, Inc.

Statements of Operations

(Unaudited)

	Successor			Predecessor
	March 31, 2015			March 31, 2014
Revenues:
Product sales	$	-		$	-
Total revenues		-			-

Cost of revenues:
Product sales		-			-
Total cost of revenues		-			-
Gross margin		-			-

Operating expenses:
Research and development expenses		-			15,270
Selling, general and administrative expenses		111,818			159,744
Total operating expenses		111,818			175,014

Operating loss		(111,818	)		(175,014	)

Other income (expense):
Interest expense		(271	)		(46	)
Net loss		(112,089	)		(175,060	)
Preferred stock dividend		-			(8,098	)
Net loss applicable to common shareholders	$	(112,089	)	$	(183,158	)

Basic and diluted net loss per average share available to common shareholders	$	(0.01	)	$	(0.00	)

Weighted average common shares outstanding – basic and diluted		20,144,810			73,291,008

See accompanying notes to financial statements.

Amarillo Biosciences, Inc.

Condensed Statements of Cash Flows

(Unaudited)

	Successor			Predecessor
	Three months ended March 31, 2015			Three months ended March 31, 2014

Net cash used in operating activities	$	(73,011	)	$	(110,732	)

Cash flows from investing activities:
Investment in equipment		(6,140	)		-
Investment in patents		(58	)		(19	)
Net cash used in investing activities		(6,198	)		(19	)

Cash flows from financing activities:
Proceeds from notes payable related party		-			107,972
Net cash provided by financing activities		-			107,972

Net change in cash		(79,209	)		(2,779	)
Cash and cash equivalents at beginning of period		318,556			6,539
Cash and cash equivalents at end of period	$	239,347		$	3,760
Supplemental disclosure of cash flow information
Cash paid for interest	$	-		$	-
Cash paid for income taxes	$	-		$	-

See accompanying notes to financial statements.

Amarillo Biosciences, Inc.

Notes to Financial Statements

(Unaudited)

Organization and Business. Amarillo Biosciences, Inc. (the "Company” or “Amarillo” or “ABI”), a Texas corporation formed in 1984, is engaged in developing biologics for the treatment of human and animal diseases. The Company’s current focus is research aimed at the treatment of human disease indications, particularly influenza, hepatitis C, thrombocytopenia, and other indications using natural human interferon alpha that is administered in a proprietary low dose oral form. In addition to the above core technology ABI is exploring the possibility of instituting new revenue streams along with the core technology thus expanding the Company’s current focus into a diversified business portfolio.

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, 2014, 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, 2015 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2015.

Financial Condition. These financial statements have been prepared in accordance with United States generally accepted accounting principles, on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has not yet achieved operating income, and its operations are funded primarily from debt and equity financings. The Company successfully reorganized under Chapter 11 of the U.S. Bankruptcy Code. As part of the Plan of Reorganization, debt in excess of $4 million was discharged. However, losses are anticipated in the ongoing development of its business and there can be no assurance that the Company will be able to achieve or maintain profitability.

The continuing operations of the Company and the recoverability of the carrying value of assets is dependent upon the ability of the Company to obtain necessary financing to fund its working capital requirements, and upon future profitable operations. The accompanying financial statements do not include any adjustments relative to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

There can be no assurance that capital will be available as necessary to meet the Company's working capital requirements or, if the capital is available, that it will be on terms acceptable to the Company. The issuances of additional equity securities by the Company may result in dilution in the equity interests of its current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase the Company's liabilities and future cash commitments. If the Company is unable to obtain financing in the amounts and on terms deemed acceptable, the business and future success may be adversely affected and the Company may cease operations. These factors raise substantial doubt regarding our ability to continue as a going concern.

4.	Current Status. The Company exited bankruptcy on January 23, 2015 when the Final Decree was signed by Robert L. Jones, Bankruptcy Judge for the Northern District of Texas. The Case was administratively closed on February 13, 2015.

In accordance with Accounting Standards Codification Topic 852, Reorganizations, the Company adopted fresh start accounting upon emergence from Chapter 11 bankruptcy. The recorded amounts of assets and liabilities were adjusted to reflect their estimated fair values on the Effective Date.

Upon the adoption of fresh start accounting, the Company became a new entity for financial reporting purposes. References to “Successor” or “Successor Company” relate to the financial position of the reorganized Company as of and subsequent to November 20, 2014 and results of operations for the period ended March 31, 2015. References to “Predecessor” or “Predecessor Company” refer to the financial position of the Company prior to November 20, 2014 and the results of operations for the period ended March 31, 2014. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the financial statements on or after November 20, 2014 are not comparable with the financial statements prior to that date.

Fresh Start Accounting. Upon the Company’s emergence from Chapter 11 bankruptcy, the Company applied the provisions of fresh start accounting to its financial statements as (i) the holders of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the emerging entity and (ii) the reorganization value of the Company’s assets immediately prior to confirmation was less than the post-petition liabilities and allowed claims. The Company applied fresh start accounting as of November 20, 2014, with results of operations and cash flows in the period ending November 20, 2014 attributed to the Predecessor Company.

Upon the application of fresh start accounting, the Company allocated the reorganization value to its individual assets based on their estimated fair values. Reorganization value represents the fair value of the Successor Company’s assets before considering liabilities, and the excess of reorganization value over the fair value of identified tangible and intangible assets is reported separately on the balance sheet.

In accordance with fresh-start reporting requirements, management of ABI has reviewed its assets (excluding cash and prepaid expenses) and evaluated the estimated fair value of those assets, which includes its equipment and its patents. For equipment (which includes furniture & fixtures, computer equipment and software) management evaluated and determined that its estimated fair value immediately preceding ABI’s confirmation date was $0. Management reviewed the various types of equipment with an original book cost of approximately $46,000 and with dates acquired ranging from years between 1992 through 2008. Based on the condition and age of the equipment, management determined that any proceeds that could be received from a local auction-type sale would be minimal; therefore, management determined that $0 (which amount also represents current book carrying value) was a reasonable estimate of ABI’s equipment fair value. For patents, management evaluated and determined that its estimated fair value immediately preceding ABI confirmation date was approximately $86,000. Management reviewed the various patents with dates acquired ranging from years between 1999 and 2010. Based on the consideration of minimal revenues and cash flows from these patents over the past years since their inception dates, management concluded that the discounted cash flow approach was not relevant. However management did consider what it believes ABI could potentially sell such patents for to a

knowledgeable third-party firm in the bio-tech industry and in an arm’s length transaction, which management determined that $86,000 (which amount also represents current book carrying value) was a reasonable estimate of ABI patents fair value.

The four-column condensed balance sheet provided below applies the effects of the Plan of Reorganization and fresh start accounting to the carrying values and classifications of assets or liabilities as of November 20, 2014. Upon adoption of fresh start accounting, the recorded amounts of assets and liabilities were adjusted to reflect their estimated fair values. Accordingly, the reported historical financial statements of the Predecessor Company prior to the adoption of fresh start accounting for periods ended on or prior to November 20, 2014 are not comparable to those of the Successor Company.

In applying fresh start accounting, the Company followed these principles:

The reorganization value, which represents the enterprise value and non-interest bearing liabilities, was allocated to the Successor Company's assets based on their estimated fair values. The reorganization value exceeded the sum of the fair value assigned to assets. This excess reorganization value was recorded as part of the Successor Company assets at November 20, 2014.

·	Each liability existing as of the fresh start accounting date, other than deferred taxes, has been stated at the fair value, and determined at appropriate risk adjusted interest rates.

·	Deferred taxes were reported in conformity with applicable income tax accounting standards. Deferred tax assets and liabilities have been recognized for differences between the assigned values and the tax basis of the recognized assets and liabilities.

The adjustments set forth in the following condensed balance sheet at November 20, 2014 reflect the effect of the consummation of the transactions contemplated by the Plan of Reorganization (reflected in the column "Reorganization Adjustments") as well as fair value adjustments as a result of the adoption of fresh start accounting (reflected in the column "Fresh Start Adjustments").

	Predecessor Company		Reorganization Adjustments				Fresh-Start Adjustments		Successor Company
Assets
Current assets:
Cash and cash equivalents	$	261,147	$	113,220		(a)	$	-	$	374,367
Prepaid expense and other current assets		24,063		-				-		24,063
Total current assets		285,210		113,220				-		398,430
Patents, net		86,355		-				-		86,355
Total assets		371,565		113,220				-		484,785

Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued expenses		347,236		(291,009	)	(b)		-		56,227
Accrued interest – related parties		1,051,093		(1,051,093	)	(c)		-		-
Accrued expenses – related party		78,360		(78,360	)	(d)		-		-
Notes payable – related parties		4,214,935		(3,830,380	)	(e)		-		384,555
Total current liabilities		5,691,624		(5,250,842	)			-		440,782
Total liabilities		5,691,624		(5,250,842	)			-		440,782

	Predecessor Company			Reorganization Adjustments				Fresh-Start Adjustments				Successor Company
Stockholders' deficit
Preferred stock (Predecessor)		33			(33	)	(f)		-				-
Common stock (Predecessor)		732,910			(732,910	)	(g)		-				-
Additional paid-in capital (Predecessor)		31,968,516			732,910		(g)		(32,701,426	)	(j)		-
Preferred stock (Successor)		-			-				-				-
Common stock (Successor)		-			201,448		(h)		-				201,448
Additional paid-in capital (Successor)		-			1,739,797		(h)		(1,897,242	)	(j)		(157,445	)
Accumulated deficit		(38,021,518	)		3,422,850		(i)		34,598,668		(j)		-
Total stockholders' deficit		(5,320,059	)		5,364,062				-				44,003
Total liabilities and stockholders’ deficit	$	371,565		$	113,220			$	-			$	484,785

Reorganization Adjustments

(a)

The cash payments recorded on the Effective Date from implementation of the Plan of Reorganization include the following:

Proceeds from Yang Group	$	322,500
Less: Payments of Class Four claims		(207,110	)
Less: Payments of Class Five claims		(2,170	)
Net increase in cash	$	113,220

(b)

Pursuant to the Plan of Reorganization, General Unsecured Creditors were given a settlement of six percent (6%) of the amount of the allowed claim. Administrative Convenience Creditors were given the opportunity to receive the lesser of $500 or 100% of their claim and receive payment within twenty-eight (28) days after the twenty-eight day objection period expired. The Effective Date was November 20, 2014. Creditors had twenty-eight days from the Effective Date to object to the amount of their particular claim. The objection period was from November 21, 2014, through December 18, 2014. Administrative Convenience Claims were paid beginning December 19, 2014 and payments to this class were completed no later than January 16, 2015. Creditors in the following general ledger accounts received six percent (6%) payout in full and final settlement of all outstanding debts. The balance of the debts for both classes was discharged after the settlement payments were tendered.

General Ledger Account	Amount Paid in Settlement		Amount Discharged
Deferred Revenue	$	225	$	1,557
Accounts Payable		8,029		161,167
Accrued Payroll – P. Mueller*		*-		*30,590
Accrued Payroll – B. Cohen		793		12,428
Notes Payable		1,111		17,266
Accrued Dividends		3,471		54,372
Total	$	13,629	$	277,380

*There was no settlement payout for this creditor. The debt was beyond the Statute of Limitations and, therefore, not an allowed debt.

(c)

Pursuant to the Plan of Reorganization, Accrued Interest for Related Parties was classified as General Unsecured Creditors. These Creditors received six percent (6%) of the allowed claim in full and final settlement of all outstanding debts. The balance of the debt was discharged after the settlement payment was tendered.

Description	Amount
Tibbits payout of interest on $200,000 loan; write off of unpaid & discharged interest debt.	$	43,123
Adjustment to interest for The Yang Group.		1,933
Sub-Total		45,056
Accrued Yang interest post-bankruptcy		(163	)
Accrued Yang interest post-bankruptcy		(53	)
Sub-Total Yang interest		(216	)
Net Sub-Total		44,840
Write off HBL accrued interest discharged.		1,006,253
Total Adjustment	$	1,051,093

(d)

Write off licensing fees due Hayashibara Biochemical Laboratories, Inc. (HBL) which originated through sales of Bimron, and interferon product.

(e)

The total amount of cash received by ABI from the Yang Group was $2,324,185. The amount of debt exchanged for equity with Yang was $1,939,630 leaving $384,555 of cash not converted to debt and still owed to The Yang Group. This cash was for the purpose of financing future, post-bankruptcy operations. The Notes Payable – Related Parties consisted of the following:

Creditor	Amount
Tibbits	$	200,000
Martin Cummins		13,250
Allowed Unsecured Debt to Yang		1,939,630
Hayashibara Biochemical Laboratories		2,000,000
Total Discharged		4,152,880
Yang Cash for future operations		(322,500	)
Total Adjustment	$	3,830,380

The amount of remaining debt to Yang, $384,555 was reclassified pursuant to the Plan of Reorganization in that ABI has a secured debt to Yang in the amount of $150,000 and an unsecured note payable to Yang for $234,555.

(f)

Convert Preferred Stock at Par to Common Stock pursuant to Implementation of Plan of Reorganization – 32.62 shares of Preferred stock at $0.01 par to 3,262,000 Common shares at par $0.01.

(g)

Adjust Common Stock at par value of $0.01 for 20,144,810 Common Shares following 1-for-19 reverse stock split pursuant to Plan of Reorganization.

(h)

Adjust Common Stock at par of $0.01 and Additional Paid in Capital for conversion of Yang debt to (New) ABI Common Equity.

(i)

Adjust Accumulated Deficit for debt forgiveness/debt discharge pursuant to the Plan of Reorganization.

Fresh Start Adjustments

(j)

Adjust Paid in Capital – Predecessor, Paid in Capital – Successor, and Accumulated Deficit for Fresh Start Reporting.

Common Stock. The shareholders have authorized 100,000,000 shares of voting common shares for issuance. On March 31, 2015, a total of 20,279,167 shares of common stock were either outstanding (20,144,810) or reserved for issuance upon exercise of options and warrants (134,357). No common stock was issued in the three months ending March 31, 2015.

7.	Common Stock Options and Warrants. As of March 31, 2015 there were 52,631 shares reserved as unexercised warrants and 81,726 shares reserved as unexercised options. No warrants or options expired in the first quarter of 2015.

A summary of the Company’s stock option activity and related information for the period ended March 31, 2015 is as follows:

	Options		Price Range
Outstanding December 31, 2014		81,726	$	1.235-0.760
Granted		-		-
Cancelled/Expired		-		-
Exercised		-		-
Outstanding March 31, 2015		81,726		1.235-0.760
Exercisable March 31, 2015		81,726	$	1.235-0.760

A summary of the Company’s stock warrant activity and related information for the period ended March 31, 2015

	Warrants		Price Range
Outstanding December 31, 2014		52,631	$	0.57
Granted		-		-
Cancelled/Expired		-		-
Exercised		-		-
Outstanding March 31, 2015		52,631		0.57
Exercisable March 31, 2015		52,631	$	0.57

Notes Payable – Related Party. On the Effective Date of the Plan of Reorganization, the Class Three Secured Claim of Yang was deemed allowed in the amount of $150,000, secured by the same assets that secured Yang’s prepetition secured claim (See Texas Financing Statement No. 13-0029795076). This claim bears interest at the Applicable Federal Rate, will be fully amortized and paid as follows: four (4) consecutive equal annual installments of combined principal and interest, beginning September 1, 2015, and continuing on the same date of each succeeding year until September 1, 2018, when the obligation is due and payable in full.

Subsequent to consummation of the Plan, The Yang Group has provided $234,555 for post-reorganization financing. This is unsecured and draws interest at the short term Applicable Federal Rate.

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and the notes thereto which appear elsewhere in this report. The results shown herein are not necessarily indicative of the results to be expected in any future periods. This discussion contains forward-looking statements based on current expectations, which involve uncertainties. Actual results and the timing of events could differ materially from the forward-looking statements as a result of a number of factors. Readers should also carefully review factors set forth in other reports or documents that we file from time to time with the Securities and Exchange Commission.

Overview. ABI has been (and is) engaged in the business of biopharmaceutical research and development. Its primary focus historically has been the development of low-dose, orally administered interferon. ABI holds or licenses various patents; it also is the developer of Maxisal®, a dietary supplement to treat dry-mouth symptoms.

Having reorganized and exited bankruptcy, the Company’s goal is to expand the reach of its research, development, and marketing of biopharmaceutical, biotechnical, health and life science related products. ABI will continue to leverage its core technology going forward by using its thirty years of scientific and clinical data to establish interferon-alpha lozenges as a therapeutic agent for conditions such as influenza, hepatitis C, and various causes of thrombocytopenia just to name a few. The Company is committed to expanding its business operations from the currently narrow focus to encompass a wide variety of licensing, partnerships, and development opportunities in the aforementioned sectors. This commitment extends not only to the U.S., but to Taiwan, China, and other Asian Countries.

Bankruptcy. On October 31, 2013, ABI filed for relief under Chapter 11 of the U.S. Bankruptcy Code. Effective November 20, 2014, the Company consummated the Plan and has completed the following actions reducing the Company’s debt from $4,787,127 to $452,277 as of December 31, 2014: Administrative debts have been paid and are now current, the unsecured debt to The Yang Group has been exchanged for common equity in ABI, general unsecured and administrative convenience creditors have been paid according to the Plan, the Company’s preferred stock has been converted to common stock, and the 1-for-19 reverse stock split has been successfully implemented. On January 23, 2015, the Final Decree was signed by Robert L. Jones, Bankruptcy Judge for the Northern District of Texas and the Case was administratively closed on February 13, 2015.

Assets, Liquidity, and Capital. ABI holds various patents and related intellectual property, which are described earlier in this document. Most, if not all, of ABI’s assets secure Yang’s collateralized debt pursuant to Loan Documents.1

At March 31, 2015, we had available cash of $239,347 whereas we had a cash position of $3,760 as of March 31, 2014. The Company had a working capital deficit of $5,054,909 at the end of March 31, 2014. For 2015, the working capital deficit was $117,809. Historically the burn rate

1 ABI also owns office furniture and equipment, which has been fully depreciated and has little resale value

was between $50,000 and $60,000 per month. It is difficult to estimate the burn rate at this point insomuch as the new budgets are still being developed. One of the Company’s main goals is to return to the status of a going concern by having reduced operating losses and subsequently becoming profitable. As indicated throughout this document, Two other major goals of ABI are to (1) leverage the core technology, low-dose oral interferon, and (2) diversify Company operations to incorporate additional lines of business which will extend the reach of ABI into additional economic sectors such as biotech / bio-pharmaceutical / health care products and life sciences business. The Yang Group has indicated the willingness to assist in future financing of operations as ABI seeks to monetize its existing (and potentially newly developed) intellectual property. ABI estimates its post-reorganization financing needs to be between $1,000,000 and $1,600,000.

The Yang Group Controls The Reorganized Company. In return for forgiveness of the Allowed Unsecured Claim of Yang and other Cash Consideration, Yang received newly issued stock and effectively owns eighty percent (80%) of the ownership interest of ABI, post-reorganization. The existing Common Equity Security Holders underwent a reverse stock split on the basis of one (1) (New) ABI common share received for every nineteen (19) (Old) ABI common shares held pre-split, as of a record date which was set by the Directors of ABI pursuant to Section 6.101(b) of the Texas Business Organizations Code. The Code indicated that the date shall be no more than 60 days prior to the implementation of the reverse stock split. The (New) ABI common shares received pursuant to the reverse split were not in addition to, but replaced, the (Old) ABI common shares held pre-split, and such (Old) ABI common shares were returned to the status of authorized, but unissued common shares, with the result that the Common Equity Security Holders now held, post-reorganization, common stock constituting approximately twenty percent (20%) of the issued and outstanding common stock in the reorganized company. ABI will continue to compete in the biotech / bio-pharmaceutical / health care products and life sciences business.

It is anticipated that Dr. Chen and the present management team will continue to operate ABI. This does not, however, preclude Yang from exercising its voting rights as a stockholder in ABI.

Pending Litigation

To the best of management’s knowledge, the Company does not believe that there is any pending litigation against ABI.

Risk Factors

The most significant asset is the Debtor’s intellectual property consisting of six patents, one pending patent, and one trademark. Two of the patents expire in less than ten months and three of the patents expire in a range of four to seven years. These five patents and the single pending patent employ the Company’s core technology, which is the oral, low dosage use of (human) interferon. These patents will not have significant value unless commercialized, which will require adequate funding, time, effort, and expertise in biologics. As stated earlier, ABI’s sole source of human interferon discontinued production, which negatively impacted ABI’s ability to obtain source product. The anticipated location and development time required for a new source of human interferon along with the requisite testing and FDA approval time could exceed the life span of the all of the patents, and even if it does not, would leave relatively little time to derive revenues from the patent protections, prior to patent expiration. The sixth patent, a product

promoting oral health, also is the victim of supply-chain interruption because the supplier of the raw material for the product (anhydrous crystalline maltose, or “ACM”) has substantially increased its purchase price. The price increase and other actions have rendered the manufacture and sale of the product less attractive.

ABI will operate subject to the oversight by its 80% owner, Yang. Yang has recognized the necessity of additional capital infusion to return ABI to profitable operations post-reorganization. This will likely include the advance of debt financing or infusion of additional capital by Yang, although Yang is not obligated to do so, and will consider economic and market factors before making such determination. It is anticipated that ABI will attempt to monetize and commercialize its existing intellectual property, which would necessitate identification and acquisition of new source product (e.g., Interferon), conducting new trials, and additional protection of intellectual property. It is estimated this may require additional funding (including general administrative cost and professional fees) of between $500,000 and $800,000. Similarly, New ABI may explore with Yang the acquisition and development of new product lines to which Yang may have access. The cost to commercialize any such development could likely require a similar funding level, resulting in aggregate funding requirements between $1 million and $1.6 million. These activities, even if undertaken, would not be expected to produce meaningful revenue before the last calendar quarter of 2015, or possibly later.2

Tax Consequences

ABI’s most recent tax return and financial statements reflect tax attributes that may or may not be obtainable. Some of these tax attributes (e.g., net operating loss carry forwards (“NOL”), if any) are for the benefit of ABI. According to the Company’s most recent federal income tax return, the face amount of the NOL was $22,240,816. ABI has not independently verified or otherwise confirmed the favorable nature of such tax attributes or the extent to which any of the NOL can still be used. It is the Company’s belief that obtaining the value of such tax attributes may be difficult and directly dependent upon many factors outside of our control, including, but not limited to, changes in the legal and regulatory framework and the operational and corporate structure of ABI and shareholders, or sales or transfers of stock by or among shareholders. For example, if ABI has experienced a change of control as defined in the relevant provisions of the IRC,3 the use of any existing tax attributes could be severely limited. ABI does not believe the reorganization has or will impair any tax attributes; however, obtaining value from the tax attributes is a function of the Company’s return to profitable operations and the timeframe of that return. While we believes it is possible, there is no assurance that ABI will return to profitability in the future.4

2 Yang has not expressly committed to these funding levels.

3 See 26 U.S.C. § 382 (known as Section 382 of the IRC) and related regulations.

4 As noted above, the extent to which these NOL may be used by the Debtor or New ABI to offset future income may be affected by the passage of time, transactions among shareholders, and other factors. The Debtor has sought to limit certain trading activities by separate motion. See e.g., Debtor’s Motion for Immediate Entry of Order Establishing Procedures for Certain Transfers of Debtor’s Common Stock (Doc. No. 94) and the Interim Order Establishing Procedures for Certain Transfers of Debtor’s Common Stock (Doc. No. 96). Under the Plan, similar limitations may be imposed post-confirmation.

Equity Funding. There have been no sales of stock in the three months ending March 31, 2015.

Results of Operations for Quarters Ended March 31, 2015 and 2014:

Factors Affecting Comparability. We adopted fresh start accounting and reporting effective November 20, 2014 (the “Fresh Start Reporting Date”). The financial statements as of the Fresh Start Reporting Date report the results of the Successor Company with no beginning retained earnings or accumulated deficit. Any financial statement presentation of the Successor Company represents the financial position and results of operations of a new reporting entity and is not comparable to prior periods presented by the Predecessor Company. The financial statements for periods ended prior to the Fresh Start Reporting Date do not include the effect of any changes in the Predecessor Company’s capital structure or changes in the fair value of assets and liabilities as a result of fresh start accounting. Accordingly, the financial statements on or prior to November 20, 2014 are not comparable with the financial statements for periods after November 20, 2014. Operating activities between January 1, 2014 and November 20, 2014 were insignificant.

Revenues. During the quarters ended March 31, 2015, and March 31, 2014 there were no sales of dietary supplements. During the quarters ended March 31, 2015, and March 31, 2014 there were no ACM sales.

Research and Development Expenses. Research and development expenses have not been incurred for the quarter ended March 31, 2015, compared to $15,270 for the quarter ended March 31, 2014. No R&D reclassification of any expenses have been made since the first quarter of 2014.

Selling, General and Administrative Expenses. Selling, general and administrative expenses of $111,818 were incurred for the first quarter in 2015, compared to $159,744 for the first quarter of 2014, a decrease of $47,926 (30%). This decrease is mostly due to less salary expense, less professional fees, less travel expense and the less reorganization expenses in 2015.

Operating Loss. In the three-month period ended March 31, 2015, the Company's operating loss was $111,818 compared to an operating loss for the three-month period ended March 31, 2014 of $175,014, a $63,196 decrease. There were less expenses overall during the first quarter of 2015, reduction in Reorganization Expense related to the bankruptcy filing was a significant factor in the decrease of expense.

Interest Expense. During the three-month period ended March 31, 2015, interest expense was $271, compared to $46 for the three-month period ended March 31, 2014. The interest expense recognized in the first quarter of 2015 is mostly due to accrued interest for our secured and unsecured loans with The Yang Group.

Net Loss. In the three-month period ended March 31, 2015, the Company's net loss was $112,089 compared to a net loss for the three-month period ended March 31, 2014 of $175,060 a $62,971 (36%) decrease. This decrease was mainly due to decreased reorganization expense.

Liquidity Needs. At March 31, 2015, we had available cash of $239,347 whereas we had a cash position of $3,760 as of March 31, 2014. The Company had a working capital deficit of $5,054,909 at the end of March 31, 2014. For 2015, the working capital deficit was $117,809. Historically the burn rate was between $50,000 and $60,000 per month. It is difficult to estimate the burn rate at this point insomuch as the new budgets are still being developed. One of the Company’s main goals is to return to the status of a going concern by having reduced operating losses and subsequently becoming profitable. As indicated throughout this document, Two other major goals of ABI are to (1) leverage the core technology, low-dose oral interferon, and (2) diversify Company operations to incorporate additional lines of business which will extend the reach of ABI into additional economic sectors such as biotech / bio-pharmaceutical / health care products and life sciences business. The Yang Group has indicated the willingness to assist in future financing of operations as ABI seeks to monetize its existing (and potentially newly developed) intellectual property. ABI estimates its post-reorganization financing needs to be between $1,000,000 and $1,600,000.

There can be no assurance that we will be successful in our efforts to reorganize the Company. If we are not successful in our efforts to reorganize, we will be forced to cease operations.

Forward-Looking Statements: Certain statements made throughout this document are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance, achievements, costs or expenses and may contain words such as "believe," "anticipate," "expect," "estimate," "project," "budget," or words or phrases of similar meaning. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from those projected in the forward-looking statements. Such risks and uncertainties are detailed from time to time in reports filed by the Company with the Securities and Exchange Commission, including Forms 8-K, 10-Q and 10-K and include among others the following: promulgation and implementation of regulations by the U.S. Food and Drug Administration ("FDA"); promulgation and implementation of regulations by foreign governmental instrumentalities with functions similar to those of the FDA; costs of research and development and clinical trials, including without limitation, costs of clinical supplies, packaging and inserts, patient recruitment, trial monitoring, trial evaluation and publication; and possible difficulties in enrolling a sufficient number of qualified patients for certain clinical trials. The Company is also dependent upon a broad range of general economic and financial risks, such as possible increases in the costs of employing and/or retaining qualified personnel and consultants and possible inflation which might affect the Company's ability to remain within its budget forecasts. The principal uncertainties to which the Company is presently subject are its inability to ensure that the results of trials performed by the Company will be sufficiently favorable to ensure eventual regulatory approval for commercial sales, its inability to accurately budget at this time the possible costs associated with hiring and retaining of additional personnel, uncertainties regarding the terms and timing of one or more commercial partner agreements and its ability to continue as a going concern.

The risks cited here are not exhaustive. Other sections of this report may include additional factors which could adversely impact the Company's business and future operations. Moreover, the Company is engaged in a very competitive and rapidly changing industry.

New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company's business, or the extent to which any factor or combination of factors may cause actual results to differ materially from those projected in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual future events.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

We may not be able to adequately protect and maintain our intellectual property The most significant asset is the Debtor’s intellectual property consisting of five patents, one pending patent, and one trademark. Two of the patents expire in less than ten months and three of the patents expire in a range of four to seven years. These five patents and the single pending patent employ the Company’s core technology, which is the oral, low dosage use of (human) interferon. These patents will not have significant value unless commercialized, which will require adequate funding, time, effort, and expertise in biologics. As stated earlier, ABI’s sole source of human interferon discontinued production, which negatively impacted ABI’s ability to obtain source product. The anticipated location and development time required for a new source of human interferon along with the requisite testing and FDA approval time could exceed the life span of the all of the patents, and even if it does not, would leave relatively little time to derive revenues from the patent protections, prior to patent expiration. The sixth patent, a product promoting oral health, also is the victim of supply-chain interruption because the supplier of the raw material for the product (anhydrous crystalline maltose, or “ACM”) has substantially increased its purchase price. The price increase and other actions have rendered the manufacture and sale of the product less attractive.

We rely on third parties for the supply, manufacture and distribution of our products. Third parties manufacture and distribute all of our products. Our reliance on third parties such as HBL (HBC) has left us without a source of natural human interferon which seriously jeopardizes our ability to leverage our core technology. The

5 Yang has not expressly committed to these funding levels.

Company has been forced to diligently search for a new supply of interferon. Developing a new source of interferon will be very costly and time consuming which will have a profoundly negative impact on the Company’s continuing operations. We do not currently have manufacturing facilities or personnel to independently manufacture our products; therefore, third parties would have to manufacture and distribute all of our products. Licensed distributors located in the United States and internationally, would be required to distribute the products. Except for any contractual rights and remedies that we might have with potential manufacturers and distributors, we would have no control over the availability of our products, their quality or cost or the actual distribution of our products. If for any reason we were unable to obtain or retain third-party manufacturers and distributors on commercially acceptable terms, we would not be able to produce and distribute our products as planned. If delays or difficulties were encountered with contract manufacturers in producing or packaging products or with a distributor in distributing our products, the production, distribution, marketing and subsequent sales of these products would be adversely affected, and we would then have to seek alternative sources of supply or distribution or abandon or sell product lines on unsatisfactory terms or even discontinue sales entirely. We may not be able to enter into alternative supply, production or distribution arrangements on commercially acceptable terms, if at all. There can be no assurance that the manufacturer that we have engaged will be able to provide sufficient quantities of these products or that the products supplied will meet with our specifications or that our distributor will be able to distribute our products in accordance with our requirements.

Sales revenue, sublicense fees and royalty income are currently nonexistent. Historically, the Company’s primary focus has been to achieve FDA approval of oral interferon for one or more disease indications. We do not expect any significant sales or royalty revenue in the next several years. We operate at a net loss and current liabilities exceed current assets by $117,809 as of March 31, 2015.

We are dependent on certain key existing and future personnel. Our ability to continue operations will depend, to a large degree, upon the efforts and abilities of our officers and key management employees such as Stephen T. Chen, President, Chairman and Chief Executive Officer, and Bernard Cohen, our Vice President and Chief Financial Officer. The loss of the services of one or more of our key employees would have a material adverse effect on our operations. We do not currently maintain key man life insurance on any of our key employees. In addition, as our business plan is implemented, we will need to recruit and retain additional management and key employees in virtually all phases of our operations. We cannot offer assurance that we will be able to successfully attract and retain key personnel. From time to time we contract consultants to advise on certain projects.

If we do not successfully develop, acquire or license new drugs we will not be able to continue operations. We must invest substantial time, resources and capital in identifying and developing new drugs, dosage and delivery systems, either on our own or by acquiring and licensing such products from third parties. Our growth depends, in part, on our success in such process. If we are unable to either develop new products on our own or acquire licenses for new products from third parties, our ability to grow revenues and market share will be adversely affected. In addition, we will not be able to recover our investment in the development of new drugs, given that projects may be interrupted, unsuccessful, not as profitable as initially contemplated or we were not be able to obtain necessary financing for such development. Similarly, there is no assurance that we can successfully secure such rights from third parties on an economically feasible basis.

Our competitors are much larger and more experienced than we are and, even if we complete the development of our drugs, we may not be able to successfully compete with them. The pharmaceutical industry is highly competitive. Our biologics and low-dose oral interferon alpha applications compete with high dose injectable interferon manufactured by Roche, InterMune, Serano, Biogen, Berlex and Hemispherx and others. High dose injectable interferon has been widely accepted by the medical community for many years. Companies who manufacture injectable interferon alpha applications are more established than we are and have far greater financial, technical, research and development, sales and marketing, administrative and other resources than we do. Even if we successfully complete the development of our tests, we may not be able to compete effectively with these much larger companies and their more established products.

We have been the subject of a going concern opinion by our independent auditors who have raised substantial doubt as to our ability to continue as a going concern. Our Independent Registered Public Accounting Firm has added an explanatory paragraph to their audit opinion issued in connection with our financial statements which states that our recurring losses from operations and the need to raise additional financing in order to execute our business plan raise substantial doubt about our ability to continue as a going concern. We incurred a net loss of $112,089 for the three months ended March 31, 2015 and a net loss of $175,060 for the three months ended March 31, 2014. The operating loss for the three months ended March 31, 2015 was $111,818. In addition, as of March 31, 2015 we had an accumulated deficit of $186,833. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustment that might result from the outcome of this uncertainty. Assurances cannot be given that adequate financing can be obtained to meet our capital needs. We have already significantly curtailed operations, and if we are not successful in our efforts to reorganize the Company, we will be forced to cease operations.

Risks Related to our Common Stock. There is only a limited market for our common stock and the price of our common stock may be affected by factors that are unrelated to the performance of our business. If any of the risks described in these Risk Factors or other unseen risks are realized, the market price of our common stock could be materially adversely affected. Additionally, market prices for securities of biotechnology and diagnostic companies have historically been very volatile.

The market for these securities has from time to time experienced significant price and volume fluctuations for reasons that are unrelated to the operating performance of any one company. In particular, and in addition to the other risks described elsewhere in these Risk Factors, the following factors can adversely affect the market price of our common stock:

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.

Our common shares have traded on the Over the Counter Bulletin Board at prices below $5.00 for several years. As a result, our shares are characterized as “penny stocks” which could adversely affect the market liquidity of our common stock. The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. Securities and Exchange Commission regulations generally define a penny stock to be an equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Such exceptions include any equity security listed on NASDAQ or a national securities exchange and any equity security issued by an issuer that has:

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.

Unless an exception is available, the regulations require, prior to any transaction involving a penny stock that a disclosure schedule explaining the penny stock market and the risks associated therewith is delivered to a prospective purchaser of the penny stock. We currently do not qualify for an exception, and, therefore, our common stock is considered to be penny stock and is subject to these requirements. The penny stock regulations adversely affect the market liquidity of our common shares by limiting the ability of broker/dealers to trade the shares and the ability of purchasers of our common shares to sell in the secondary market. In addition, certain institutions and investors will not invest in penny stocks.

ITEM 4. Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report, being March 31, 2015. This evaluation was carried out under the supervision and with the participation of our company’s management, including our company’s chairman of the board and chief executive officer, Dr. Stephen T. Chen and chief financial officer, Bernard Cohen. Our company’s disclosure controls and procedures are effective as at the end of the period covered by this report. There have been no significant changes in our company’s internal controls or in other factors, which could significantly affect internal controls subsequent to the date we carried out our evaluation.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is accumulated and communicated to management, including our company’s president and chief executive officer as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in internal controls over financial reporting during 2015.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. As of the date of this report, we were not aware of any such legal proceedings or claims against us.

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

In the three months ended March 31, 2015, there were no sales of stock.

ITEM 3.

Defaults Upon Senior Securities.

None

ITEM 4.

Mine Safety Disclosures.

Not applicable

ITEM.5.

Other Information.

None

ITEM 6.

Exhibits.

None

SIGNATURES

Pursuant to the requirements of Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AMARILLO BIOSCIENCES, INC.
Date: May 15, 2015	By: /s/ Stephen Chen Stephen Chen, Chairman of the Board, and Chief Executive Officer
Date: May 15, 2015	By: /s/ Bernard Cohen Bernard Cohen, Vice President, Chief Financial Officer

Ainos, Inc. - FORM 10-Q - May 15, 2015

Attached files

Ainos, Inc. Reports