# Ainos, Inc.: Form 10-Q for the period ended Sep 30, 2014

- Company: [Ainos, Inc.](/companies/aimd.md) (CIK 1014763)
- Form: 10-Q
- Filed: 2014-11-14
- Accepted by EDGAR: Nov 13, 2014, 22:34 ET
- Period: 2014-09-30
- Accession: 0001014763-14-000017
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1014763/000101476314000017/form10-q_09302014.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1014763/000101476314000017/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2014-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2014-07-01 to 2014-09-30 | $0 | us-gaap:Revenues |
| Cost of revenue | 3 months, 2014-07-01 to 2014-09-30 | $0 | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2014-07-01 to 2014-09-30 | $0 | us-gaap:GrossProfit |
| Research and development | 9 months, 2014-01-01 to 2014-09-30 | $15.3k | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2014-07-01 to 2014-09-30 | $103.7k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2014-01-01 to 2014-09-30 | $449.7k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2014-07-01 to 2014-09-30 | −$103.7k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2014-01-01 to 2014-09-30 | −$465.0k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2014-07-01 to 2014-09-30 | $590 | us-gaap:InterestExpense |
| Interest expense | 9 months, 2014-01-01 to 2014-09-30 | $1.3k | us-gaap:InterestExpense |
| Net income | 3 months, 2014-07-01 to 2014-09-30 | −$104.3k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2014-01-01 to 2014-09-30 | −$466.3k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2014-07-01 to 2014-09-30 | $0.00 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2014-01-01 to 2014-09-30 | −$0.01 | us-gaap:EarningsPerShareDiluted |
| Diluted shares (weighted) | 3 months, 2014-07-01 to 2014-09-30 | 73,291,008 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2014-01-01 to 2014-09-30 | 73,291,008 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2014-01-01 to 2014-09-30 | −$260.3k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2014-09-30 | $279 | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2014-09-30 | $34.5k | us-gaap:AssetsCurrent |
| Total assets | at 2014-09-30 | $122.4k | us-gaap:Assets |
| Current liabilities | at 2014-09-30 | $5.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2014-09-30 | $5.4m | us-gaap:Liabilities |
| Shareholders' equity | at 2014-09-30 | −$5.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 15,308 characters.

*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.*

#### Company Goal – FDA Approval and Commercialization of Oral Interferon

Amarillo Biosciences, Inc. (OTCBB or OTCQB: AMARQ) is a leader in the development of low-dose interferon for oral delivery, having completed more than 100 pre-clinical (animal) and human studies related to this technology to date. Our current focus is research aimed at the treatment of human disease indications, particularly influenza, hepatitis C et al, thrombocytopenia, and other indications using interferon alpha that is administered in a proprietary low dose oral form.

#### Intellectual Property

Since inception, the Company has worked to build an extensive patent portfolio for low-dose orally administered interferon. This portfolio consists of patents with claims that encompass method of use or treatment, and/or composition of matter and manufacturing. We presently own or license six issued patents, including one patent on our dietary supplement, Maxisal®. We currently have one pending patent which applies low dose oral interferon to the treatment of Thrombocytopenia.

#### Technology - Non-toxic Interferon

Injectable interferon is FDA-approved to treat some neoplastic, viral and autoimmune diseases. Many patients experience moderate to severe side effects that result in discontinuance of injectable interferon therapy. Our main product has been a natural human interferon alpha delivered into the oral cavity as a lozenge in low (nanogram) doses. The lozenge dissolves in the mouth where interferon binds to surface (mucosal) cells in the mouth and throat resulting in stimulation of immune mechanisms. Orally delivered interferon has been shown to activate hundreds of immune system genes in the peripheral blood. Human studies have shown that oral interferon is safe and effective against viral and autoimmune diseases. Oral interferon is given in concentrations 10,000 times less than that usually given by injection. The Company’s low dose formulation results in almost no side effects; high dose injectable interferon causes adverse effects in at least 50% of recipients.

Governmental or FDA approval is required for our principal product. Our progress toward approval is discussed under each specific indication, below.

#### Strategic Alliance with HBL

Hayashibara Biochemical Laboratories, Inc. (“HBL”) produced a natural form of human interferon alpha and also developed technology relating to the production of interferon alpha-containing lozenges by which the stability of the interferon alpha can be maintained at room temperature. We believe that the use of such lozenges gives us advantages over competitive technologies in terms of cost, taste and ease of handling.

On March 13, 1992, we entered into a Joint Development and Manufacturing/Supply Agreement with HBL (the “Development Agreement”). As of February 1, 2012, HBL began operating under the name Hayashibara Company, Ltd. (“HBC”) as a wholly-owned subsidiary of Nagase Corporation. In correspondence received April 23, 2012, HBC informed us that they had decided to permanently halt production of interferon. Written notice was received on September 23, 2012, and the Development Agreement was officially terminated as of December 22, 2012.

The Development Agreement provided us with a source of natural human interferon alpha for use in the Company’s interferon alpha-containing products. Termination of the Development Agreement leaves the Company without a current source of interferon with which to conduct clinical trials. The Company is currently exploring its options and is talking with alternate suppliers of interferon.

Historically, the research and development was conducted by ABI using a unique form of natural human interferon supplied by HBL. This interferon no longer provides a competitive edge insomuch as the industry as a whole is rapidly moving toward the use of recombinant interferon rather than natural human interferon. ABI’s thirty years of data has been generated from the numerous studies performed using natural human interferon. Since human interferon is virtually impossible to obtain, those studies will have to be repeated using recombinant interferon. Repeating the studies will be both costly and time consuming. While the pharmaceutical industry is creating and marketing new and effective anti-viral medications, ABI believes that there is still sufficient time to develop and commercialize low dose interferon for treatment of such diseases as Influenza, Chronic Cough in COPD, Hepatitis B, C, and D, and Thrombocytopenia caused by other diseases and as a side effect of treatment of other diseases.

#### Strategic Alliance with Bumimedic

In January 2006, a license and distribution agreement was executed with Bumimedic (Malaysia) Sdn. Bhd, a Malaysian pharmaceutical company that is a part of the Antah HealthCare Group, to market our low-dose interferon (natural human IFN) in Malaysia. Given the problems associated with the natural human interferon supply, it is likely that the agreement with Bumimedic will be terminated as the Company can no longer supply Bumimedic with natural human IFN produced by Hayashibara. Once the problems associated with the interferon supply are solved, the Company will most likely endeavor to enter into another such agreement with Bumimedic.

#### Strategic Alliance with Intas Pharmaceuticals

On January 7, 2010, the Company entered into a License and Supply Agreement with Intas Pharmaceuticals Ltd., an India-based pharmaceutical company with three decades of experience in the healthcare industry and a global presence in 42 countries worldwide. Given the termination notice received from HBC, it is likely that the agreement with Intas will be terminated as the Company can no longer supply Intas with natural human IFN produced by Hayashibara. Once the problems associated with the interferon supply are solved, the Company will most likely endeavor to enter into another such agreement with Intas Pharmaceuticals.

*Equity Funding.* There have been no sales of stock in the nine months ending September 30, 2014.

Results of Operations for Quarters Ended September 30, 2014 and 2013:

Revenues. During the three months ended September 30, 2014, and September 30, 2013 there were no sales of dietary supplements or ACM.

Research and Development Expenses. Research and development expenses of $0 were incurred for the quarter ended September 30, 2014, compared to $33,659 for the quarter ended September 30, 2013, a decrease of $33,659 (100%). The amount was lower in 2014 than 2013 due to the Ch. 11 Bankruptcy Reorganization. All R&D expenses ceased and beginning in April 2014 all R&D expense reclassification stopped until R&D resumes.

Selling, General and Administrative Expenses. Selling, general and administrative expenses of $103,747 were incurred for the quarter ended September 30, 2014, compared to $50,793 for the quarter ended September 30, 2013, an increase of $52,954 (104%). This increase was mostly due to no R&D Reclassification for certain administrative costs in the quarter ended September 30, 2014, D&O Insurance liability increased for 2014, and the addition of the Reorganization Expense associated with the Chapter 11 Bankruptcy Reorganization.

Operating Loss. In the three-month period ended September 30, 2014, the Company's operating loss was $103,747 compared to an operating loss for the three-month period ended September 30, 2013 of $84,452, a $19,295 (23%) increase. There were approximately the same expenses overall during the quarter ending September 30, 2014, but the addition of Reorganization Expense related to the bankruptcy filing increased the loss.

Interest Expense. During the three-month period ended September 30, 2014, interest expense was $590, compared to $31,101 for the three-month period ended September 30, 2013. The interest expense recognized in the third quarter of 2014 is due to the Post-Petition Financing Facility and D&O insurance only.

Net Loss. In the three-month period ended September 30, 2014, the Company's net loss was $104,337 compared to a net loss for the three-month period ended September 30, 2013 of $115,553, a $11,216 (10%) decrease. This decrease was mainly due to increased reorganization expense and decrease in interest.

Results of Operations for the Nine Months Ended September 30, 2014 and September 30, 2013.

Revenues. During the nine months ended September 30, 2014 and September 30, 2013 there were no sales of dietary supplements. During the nine months ended September 30, 2014 and September 30, 2013 there were no ACM sales.

Research and Development Expenses. Research and development expenses of $15,270 were incurred for the nine month period ended September 30, 2014, compared to $105,450 for the nine month period ended September 30, 2013, a decrease of $90,180 (86%). The amount was lower in 2014 than 2013 due to the Ch. 11 Bankruptcy Reorganization. All R&D expenses ceased and beginning in April 2014 all R&D expense reclassification stopped until R&D resumes.

Selling, General and Administrative Expenses. Selling, general and administrative expenses of $449,695 were incurred for the first nine months of 2014, compared to $302,581 for the first nine months of 2013, an increase of $147,114 (49%). This increase was mostly due to no R&D Reclassification for certain administrative costs beginning in April 2014, D&O Insurance liability increased for 2014, and the addition of the Reorganization Expense associated with the Chapter 11 Bankruptcy Reorganization.

Operating Loss. In the nine month period ended September 30, 2014, the Company's operating loss was $464,965 compared to an operating loss for the nine month period ended September 30, 2013 of $408,031, a $56,934 (14%) increase.

Change in Fair Value of Derivative Instruments. Change in fair value of derivative instruments was $0 in the first nine months of 2014 compared to a $4,217 gain in the first nine months of 2013. The decrease between the two periods was $4,217 (100%).

Interest Expense. During the nine month period ended September 30, 2014, interest expense was $1,320 compared to $91,409 for the nine month period ended September 30, 2013, a decrease of $90,089 (99%). The interest expense recognized in the second and third quarters of 2014 is due to the Post-Petition Financing Facility and D&O insurance only.

Net Loss. In the nine months ended September 30, 2014, the Company's net loss was $466,285 compared to a net loss for the nine months ended September 30, 2013 of $495,223 a $28,938 (6%) decrease.

Liquidity Needs. At September 30, 2014, we had available cash of $279, and had a working capital deficit of $5,361,214. This includes $102,199 of accrued salaries; $3,051,093 from loans ($2,000,000) and accrued interest ($1,006,253 from HBL and $44,840 from a related party); loans for $200,000 from a Director; and loans of $1,588,935 from related parties. Negative cash flow from operating activities plus reorganization expense and patent filings (burn rate) is approximately $50,000 per month. 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 implementation and consummation of a Plan of Reorganization and successful emergence from Chapter 11 Bankruptcy which includes interim and permanent financing.

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.

## Market risk

As filed, 14,293 characters.

#### Chapter 11 Reorganization Risks.

**We filed for reorganization under Chapter 11 of the Bankruptcy Code on October 31, 2013 and are subject to the risks and uncertainties associated with Chapter 11 Cases.**

For the duration of our Chapter 11 Case, our operations, including our ability to execute our business plan, are subject to the risks and uncertainties associated with bankruptcy. Risks and uncertainties associated with our Chapter 11 Case includes the following:

- our creditors or other third parties may take actions or make decisions that are inconsistent with and detrimental to the plans we believe to be in the best interests of the Company;
- we may be unable to obtain court approval with respect to certain matters in the Chapter 11 Case from time to time;
- the court may not agree with our objections to positions taken by other parties;
- we may not be able to confirm and consummate a Chapter 11 plan of reorganization or may be delayed in doing so;
- we may not be able to obtain and maintain normal credit terms with vendors, strategic partners and service providers;
- we may not be able to continue to invest in our products and services, which could hurt our competitiveness;
- we may not be able to enter into or maintain contracts that are critical to our operations at competitive rates and terms, if at all;
- we may be exposed to risks associated with third parties seeking and obtaining court approval to (i) terminate or shorten our exclusivity period to propose and confirm a plan of reorganization, (ii) appoint a Chapter 11 trustee or (iii) convert the case to a Chapter 7 liquidation case.

These risks and uncertainties could affect our business and operations in various ways. For example, negative events, the positions we take in court, or publicity associated with our Chapter 11 Case could adversely affect our relationships with vendors and partners which in turn could adversely affect our operations and financial condition, particularly if the Chapter 11 Case is protracted. Because of the risks and uncertainties associated with our Chapter 11 Case, the ultimate impact of events that occur during these proceedings will have on our business, financial condition and results of operations cannot be accurately predicted or quantified. If any one or more of these risks materializes, it could affect our ability to continue as a going concern.

**Operating under Chapter 11 may restrict our ability to pursue our business strategies.**

Under Chapter 11, transactions outside the ordinary course of business will be subject to the prior approval of the Bankruptcy Court, which may limit our ability to respond in a timely manner to certain events or take advantage of certain opportunities. We must obtain Bankruptcy Court approval to, among other things:

- engage in certain transactions with our vendors;
- buy or sell assets outside the ordinary course of business;
- consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and
- borrow for our operations, investments or other capital needs or to engage in other business activities that would be in our interest.

15

*We may not be able to adequately protect and maintain our intellectual property.* Our success will depend in part on our ability to protect and maintain our patents, intellectual property rights and licensing arrangements for our products and technology. We currently own or license five patents related to orally-delivered low dose interferon, and one issued patent on our dietary supplement, Maxisal®. No assurance can be given that such licenses or rights used by us will not be challenged, infringed or circumvented or that the rights granted thereunder will provide competitive advantages to us. Furthermore, there can be no assurance that we will be able to remain in compliance with our existing or future licensing arrangements. Consequently, there may be a risk that licensing arrangements are withdrawn with no penalties to the licensee or compensation to us.

*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 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 $5,361,214 as of September 30, 2014. Most of the $5,395,719 of current liabilities includes the amount owed to HBL for $2 million in two notes plus $1,006,253 of accrued interest; $200,000 in loans plus $44,840 accrued interest owed to a Director, and $102,199 of accrued salaries and $1,588,935 notes payable owed to related parties.

*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 $466,285 for the nine months ended September 30, 2014 and a net loss of $495,223 for the nine months ended September 30, 2013. The operating loss for the nine months ended September 30, 2014 was $464,965. In addition, as of September 30, 2014 we had an accumulated deficit of $37,974,824. 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.

There were no restricted shares of our common stock issued during the nine months ended September 30, 2014. The number of shares of restricted stock issued prior to September 1, 2012 that has been held for at least six months and hasn’t had the legends removed to become freely tradable under Rule 144 or 144(k) is not known.

## Controls and procedures

As filed, 1,660 characters.

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 September 30, 2014. 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 2014.

Filed Nov 14, 2014.
Source: SEC EDGAR, the filing index for accession 0001014763-14-000017. Last ingested by Listed: Oct 24, 2026, 15:02 ET. No prices; not investment advice.