UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021March 31, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to_________ to _____
Commission File No.0-20791
AINOS, 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.) | |
8880 Rio San Diego Drive, Ste. 800, San Diego, CA 92108 (858) 869-2986 | ||
(Address and telephone number, including area code, of registrant's principal executive offices) |
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 has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company,”" and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer |
| Smaller reporting company |
|
|
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ Yes ☒☑ No
142,442,215144,379,308 shares of common stock, par value $0.01 per share, outstanding as of November 15, 2021May 16, 2022
AINOS, INC.
INDEX
|
| PAGE NO. | ||
| ||||
| ||||
| Condensed Consolidated Balance Sheets– March 31, 2022 and December 31, 2021 (unaudited) | 3 | ||
|
| 4 | ||
|
| 5 | ||
|
| |||
| 6 | |||
| 7 | |||
| 8 | |||
Management's Discussion and Analysis of Financial Condition and Results of Operations |
| 13 | ||
| 17 | |||
| 17 | |||
|
|
| ||
| ||||
18 | ||||
19 | ||||
| 19 | |||
| 19 | |||
| 19 | |||
| 19 | |||
| 20 | |||
|
| 22 |
| 2 |
| Table of Contents |
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Ainos, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 706,931 |
|
| $ | 22,245 |
|
Accounts receivable |
|
| 44,643 |
|
|
| 0 |
|
Inventory |
|
| 175 |
|
|
| 3,024 |
|
Prepaid expense and other current assets |
|
| 133,065 |
|
|
| 51,144 |
|
Total current assets |
|
| 884,814 |
|
|
| 76,413 |
|
Patents, net |
|
| 19,011,337 |
|
|
| 180,628 |
|
Property and equipment, net |
|
| 39,956 |
|
|
| 3,249 |
|
Right of Use Asset |
|
| 55,724 |
|
|
| 0 |
|
Other Assets |
|
| 1,795 |
|
|
| 0 |
|
Total assets |
| $ | 19,993,626 |
|
| $ | 260,290 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity (Deficit) |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
| $ | 578,549 |
|
| $ | 145,567 |
|
Contract liabilities |
|
| 37,616 |
|
|
| 0 |
|
Convertible notes payable – related party |
|
| 2,000,193 |
|
|
| 805,001 |
|
Convertible notes payable |
|
| 185,000 |
|
|
| 148,000 |
|
Lease Obligation-Current |
|
| 20,619 |
|
|
| 0 |
|
Total current liabilities |
|
| 2,821,977 |
|
|
| 1,098,568 |
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
Lease Obligation-Non current |
|
| 35,289 |
|
|
| 0 |
|
Total liabilities |
|
| 2,857,266 |
|
|
| 1,098,568 |
|
|
|
|
|
|
|
|
|
|
Stockholders' equity (deficit) |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 10 million shares authorized, 0 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively |
|
| 0 |
|
|
| 0 |
|
Common Stock, $0.01 par value, 300 million shares authorized, 142,442,215 and42,066,172 shares outstanding at September 30, 2021 and December 31, 2020, respectively |
|
| 1,424,422 |
|
|
| 420,662 |
|
Additional paid-in capital |
|
| 24,369,245 |
|
|
| 4,961,315 |
|
Accumulated deficit |
|
| (8,664,145 | ) |
|
| (6,220,255 | ) |
Translation adjustment |
|
| 6,838 |
|
|
| 0 |
|
Total stockholders’ equity (deficit) |
|
| 17,136,360 |
|
|
| (838,278 | ) |
Total liabilities and stockholders’ equity (deficit) |
| $ | 19,993,626 |
|
| $ | 260,290 |
|
|
| March 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Assets |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 1,871,349 |
|
| $ | 1,751,499 |
|
Inventory |
|
| 337,805 |
|
|
| 0 |
|
Other current assets |
|
| 813,905 |
|
|
| 466,198 |
|
Total current assets |
|
| 3,023,059 |
|
|
| 2,217,697 |
|
Intangible assets, net |
|
| 36,214,023 |
|
|
| 37,329,191 |
|
Property and equipment, net |
|
| 1,419,584 |
|
|
| 1,187,702 |
|
Other assets |
|
| 79,598 |
|
|
| 87,571 |
|
Total assets |
| $ | 40,736,264 |
|
| $ | 40,822,161 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Convertible notes payable |
| $ | 3,376,526 |
|
| $ | 3,376,526 |
|
Notes payable |
|
| 1,013,405 |
|
|
| 213,405 |
|
Accrued expenses and others current liabilities |
|
| 1,339,585 |
|
|
| 1,004,868 |
|
Payables – related party |
|
| 0 |
|
|
| 26,000,000 |
|
Total current liabilities |
|
| 5,729,516 |
|
|
| 30,594,799 |
|
Long term liabilities: |
|
|
|
|
|
|
|
|
Convertible notes payable - noncurrent |
|
| 26,900,000 |
|
|
| 0 |
|
Operating lease liabilities - noncurrent |
|
| 24,152 |
|
|
| 30,255 |
|
Total long term liabilities |
|
| 26,924,152 |
|
|
| 30,255 |
|
Total liabilities |
|
| 32,653,668 |
|
|
| 30,625,054 |
|
|
|
|
|
|
|
|
|
|
Stockholders' equity |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 10,000,000 shares |
|
|
|
|
|
|
|
|
authorized; none issued |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 300,000,000 shares |
|
|
|
|
|
|
|
|
authorized as of March 31, 2022 and December 31, |
|
|
|
|
|
|
|
|
2021; 144,379,308 shares issued and outstanding as |
|
|
|
|
|
|
|
|
of March 31, 2022 and December 31, 2021 |
|
| 1,443,793 |
|
|
| 1,443,793 |
|
Additional paid-in capital |
|
| 18,899,873 |
|
|
| 18,856,430 |
|
Accumulated deficit |
|
| (12,208,811 | ) |
|
| (10,108,916 | ) |
Translation adjustment |
|
| (52,259 | ) |
|
| 5,800 |
|
Total stockholders’ equity |
|
| 8,082,596 |
|
|
| 10,197,107 |
|
Total liabilities and stockholders’ equity |
| $ | 40,736,264 |
|
| $ | 40,822,161 |
|
See accompanying notes to condensed consolidated financial statements.
| 3 |
| Table of Contents |
Ainos, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
|
| Three months ended September 30 |
| Nine months ended September 30 |
|
| Three Months Ended March 31, |
| ||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||||
Revenues |
| $ | 363,052 |
| $ | 192 |
| $ | 568,164 |
| $ | 15,876 |
|
| $ | 87,200 |
| $ | 2,121 |
| ||||
Cost of revenues |
|
| 103,638 |
|
|
| 123 |
|
|
| 174,395 |
|
|
| 11,221 |
|
|
| (41,078 | ) |
|
| (1,249 | ) |
Gross margin |
|
| 259,414 |
|
|
| 69 |
|
|
| 393,769 |
|
|
| 4,655 |
|
|
| 46,122 |
|
|
| 872 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Research and development expenses |
| 646,798 |
| 0 |
| 646,798 |
| 389 |
|
| 1,577,454 |
| 0 |
| ||||||||||
Selling, general and administrative expenses |
|
| 795,958 |
|
|
| 321,153 |
|
|
| 2,178,969 |
|
|
| 1,001,893 |
|
|
| 551,730 |
|
|
| 522,981 |
|
Total operating expense |
|
| 1,442,756 |
|
|
| 321,153 |
|
|
| 2,825,767 |
|
|
| 1,002,282 |
| ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total operating expenses |
|
| 2,129,184 |
|
|
| 522,981 |
| ||||||||||||||||
Operating loss |
|
| (1,183,342 | ) |
|
| (321,084 | ) |
|
| (2,431,998 | ) |
|
| (997,627 | ) |
|
| (2,083,062 | ) |
|
| (522,109 | ) |
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Non-operating income and expenses |
|
|
|
|
|
|
|
|
| |||||||||||||||
Interest Income, net |
| 23,517 |
| (2,201 | ) |
| (9,361 | ) |
| (4,503 | ) | |||||||||||||
Other Losses |
|
| (285 | ) |
|
| 0 |
|
|
| (2,532 | ) |
|
| 0 |
| ||||||||
Total Non-operating income and expenses |
|
| 23,232 |
|
|
| (2,201 | ) |
|
| (11,893 | ) |
|
| (4,503 | ) | ||||||||
Profit before income tax |
| (1,160,110 | ) |
| (323,285 | ) |
| (2,443,891 | ) |
| (1,002,130 | ) | ||||||||||||
Less: Income tax |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
| ||||||||
Non-operating income and expenses, net |
|
|
|
|
| |||||||||||||||||||
Interest expenses, net |
| (16,687 | ) |
| (11,897 | ) | ||||||||||||||||||
Other losses |
|
| (146 | ) |
|
| 0 |
| ||||||||||||||||
Total non-operating income and expenses, net |
|
| (16,833 | ) |
|
| (11,897 | ) | ||||||||||||||||
Net loss |
|
| (1,160,110 | ) |
|
| (323,285 | ) |
|
| (2,443,891 | ) |
|
| (1,002,130 | ) |
| $ | (2,099,895 | ) |
| $ | (534,006 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Basic and diluted net loss per average share available to common shareholders |
|
| (0.10 | ) |
|
| (0.01 | ) |
|
| (0.03 | ) |
|
| (0.02 | ) |
| $ | (0.01 | ) |
| $ | (0.01 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Weighted average common shares outstanding – basic and diluted |
|
| 142,419,337 |
|
|
| 40,516,351 |
|
|
| 75,919,713 |
|
|
| 40,620,055 |
| ||||||||
Weighted average common shares outstanding– basic and diluted |
| 144,379,308 |
| 42,066,172 |
| |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
| Table of Contents |
Ainos, Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)Comprehensive Loss
For the three months ended September 30, 2021 and 2020
(Unaudited)
|
| Preferred Stock |
|
| Common Stock |
|
| Additional Paid in |
|
| Accumulated |
|
| Translation |
|
| Total Stockholders’ Equity |
| ||||||||||||||
|
| Shares |
|
| Par Value |
|
| Shares |
|
| Par Value |
|
| Capital |
|
| Deficit |
|
| Adjustment |
|
| (Deficit) |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance June 30, 2021 |
|
| - |
|
| $ | 0 |
|
|
| 142,271,815 |
|
| $ | 1,422,718 |
|
| $ | 24,286,875 |
|
| $ | (7,504,035 | ) |
|
| 0 |
|
| $ | 18,205,557 |
|
Issuance of stock for compensation |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Issuance of stock for Patent assets |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Issuance of stock for Option |
|
| - |
|
|
| 0 |
|
|
| 170,400 |
|
|
| 1,704 |
|
|
| 63,048 |
|
|
| 0 |
|
|
| 0 |
|
|
| 64,752 |
|
Warrant expense |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 3,417 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,417 |
|
Option expense |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 15,905 |
|
|
| 0 |
|
|
| 0 |
|
|
| 15,905 |
|
Net loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,160,110 | ) |
|
| 0 |
|
|
| (1,160,109 | ) |
Translation adjustment |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 6,838 |
|
|
| 6,838 |
|
Balance September 30, 2021 |
|
| - |
|
| $ | 0 |
|
|
| 142,442,215 |
|
| $ | 1,424,422 |
|
| $ | 24,369,245 |
|
| $ | (8,664,145 | ) |
|
| 6,838 |
|
| $ | 17,136,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2020 |
|
| - |
|
| $ | 0 |
|
|
| 40,516,351 |
|
| $ | 405,164 |
|
| $ | 4,299,196 |
|
| $ | (5,448,477 | ) |
|
| 0 |
|
|
| (744,117 | ) |
Issuance of stock for compensation |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Issuance of stock for cash |
|
| - |
|
|
| 0 |
|
|
| 400,000 |
|
|
| 4,000 |
|
|
| 96,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| 100,000 |
|
Warrant expense |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 9,496 |
|
|
| 0 |
|
|
| 0 |
|
|
| 9,496 |
|
Option expense |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 181,376 |
|
|
| 0 |
|
|
| 0 |
|
|
| 181,376 |
|
Net loss for the period ended June 30, 2020 |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (323,285 | ) |
|
| 0 |
|
|
| (323,285 | ) |
Translation adjustment |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Balance September 30, 2020 |
|
| - |
|
| $ | 0 |
|
|
| 40,916,351 |
|
| $ | 409,164 |
|
| $ | 4,586,068 |
|
| $ | (5,771,762 | ) |
|
| 0 |
|
| $ | (776,530 | ) |
|
| Three Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net loss |
| $ | (2,099,895 | ) |
| $ | (534,006 | ) |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
Translation adjustment |
|
| (58,059 | ) |
|
| 0 |
|
Comprehensive loss |
| $ | (2,157,954 | ) |
| $ | (534,006 | ) |
See accompanying notes to condensed consolidated financial statements.
| 5 |
| Table of Contents |
Ainos, Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
For the ninethree months ended September 30,March 31, 2022 and 2021 and 2020
(Unaudited)
|
| Preferred Stock |
|
| Common Stock |
|
| Additional Paid in |
|
| Accumulated |
|
| Translation |
|
| Total Stockholders’ Equity |
| ||||||||||||||
|
| Shares |
|
| Par Value |
|
| Shares |
|
| Par Value |
|
| Capital |
|
| Deficit |
|
| Adjustment |
|
| (Deficit) |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance December 31, 2020 |
|
| - |
|
| $ | 0 |
|
|
| 42,066,172 |
|
| $ | 420,661 |
|
| $ | 4,961,315 |
|
| $ | (6,220,254 | ) |
|
| 0 |
|
| $ | (838,278 | ) |
Issuance of stock for compensation |
|
| - |
|
|
| 0 |
|
|
| 205,643 |
|
|
| 2,056 |
|
|
| 137,349 |
|
|
| 0 |
|
|
| 0 |
|
|
| 139,405 |
|
Issuance of stock for Patent assets |
|
| - |
|
|
| 0 |
|
|
| 100,000,000 |
|
|
| 1,000,000 |
|
|
| 19,000,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| 20,000,000 |
|
Issuance of stock for Option |
|
| - |
|
|
| 0 |
|
|
| 170,400 |
|
|
| 1,704 |
|
|
| 63,048 |
|
|
| 0 |
|
|
| 0 |
|
|
| 64,752 |
|
Warrant expense |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 10,252 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10,252 |
|
Option expense |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 197,281 |
|
|
| 0 |
|
|
| 0 |
|
|
| 197,281 |
|
Net loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (2,443,891 | ) |
|
| 0 |
|
|
| (2,443,891 | ) |
Translation adjustment |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 6,838 |
|
|
| 6,838 |
|
Balance September 30, 2021 |
|
| - |
|
| $ | 0 |
|
|
| 142,442,215 |
|
| $ | 1,424,422 |
|
| $ | 24,369,245 |
|
| $ | (8,664,145 | ) |
|
| 6,838 |
|
| $ | 17,136,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2019 |
|
| - |
|
| $ | 0 |
|
|
| 40,516,351 |
|
| $ | 405,164 |
|
| $ | 4,207,786 |
|
| $ | (4,769,632 | ) |
|
| 0 |
|
| $ | (156,682 | ) |
Issuance of stock for compensation |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Issuance of stock for cash |
|
| - |
|
|
| - |
|
|
| 400,000 |
|
| $ | 4,000 |
|
|
| 96,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| 100,000 |
|
Issuance of stock for debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant expense |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 10,218 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10,218 |
|
Option expense |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 272,064 |
|
|
| 0 |
|
|
| 0 |
|
|
| 272,064 |
|
Net loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,002,130 | ) |
|
| 0 |
|
|
| (1,002,130 | ) |
Translation adjustment |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Balance September 30, 2020 |
|
| - |
|
| $ | - |
|
|
| 40,916,351 |
|
| $ | 409,164 |
|
| $ | 4,586,068 |
|
| $ | (5,771,762 | ) |
|
| - |
|
| $ | (776,530 | ) |
|
| Preferred Stock |
|
| Common Stock |
|
| Additional Paid in |
|
| Accumulated |
|
| Other comprehensive |
|
| Total Stockholders’ Equity |
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| loss |
|
| (Deficit) |
| ||||||||
Balance at December 31, 2021 |
|
| - |
|
| $ | 0 |
|
|
| 144,379,308 |
|
| $ | 1,443,793 |
|
| $ | 18,856,430 |
|
| $ | (10,108,916 | ) |
| $ | 5,800 |
|
| $ | 10,197,107 |
|
Share-based compensation |
|
| - |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
| 43,443 |
|
|
|
|
|
|
|
|
|
|
| 43,443 |
|
Net loss |
|
| - |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,099,895 | ) |
|
|
|
|
|
| (2,099,895 | ) |
Translation Adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (58,059 | ) |
|
| (58,059 | ) |
Balance at March 31, 2022 |
|
| - |
|
| $ | 0 |
|
|
| 144,379,308 |
|
| $ | 1,443,793 |
|
| $ | 18,899,873 |
|
| $ | (12,208,811 | ) |
| $ | (52,259 | ) |
| $ | 8,082,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
|
| - |
|
| $ | 0 |
|
|
| 42,066,172 |
|
|
| 420,662 |
|
|
| 4,961,315 |
|
|
| (6,220,255 | ) |
|
|
|
|
|
| (838,278 | ) |
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 94,105 |
|
|
|
|
|
|
|
|
|
|
| 94,105 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (534,006 | ) |
|
|
|
|
|
| (534,006 | ) |
Balance at March 31, 2021 |
|
| - |
|
| $ | 0 |
|
|
| 42,066,172 |
|
| $ | 420,662 |
|
| $ | 5,055,420 |
|
| $ | (6,754,261 | ) |
| $ | 0 |
|
| $ | (1,278,179 | ) |
See accompanying notes to condensed consolidated financial statements.statements.
| 6 |
| Table of Contents |
Ainos, Inc.
Condensed Consolidated Statements of Cash FlowFlows
(Unaudited)
|
| Nine months ended September 30, 2021 |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Net cash used in operating activities |
| $ | (569,150 | ) |
| $ | (244,967 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Investment in patents |
|
| 0 |
|
|
| (1,891 | ) |
Purchase of fixed assets |
|
| (41,581 | ) |
|
| 0 |
|
Proceeds from disposal of property, plant and equipment |
|
| 36 |
|
|
| 0 |
|
Increase in refundable deposits |
|
| (1,795 | ) |
|
| 0 |
|
Net cash flows used in investing activities |
|
| (43,340 | ) |
|
| (1,891 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Advances from shareholder |
|
| 0 |
|
|
| 35,000 |
|
Proceeds from private placement offering, net |
|
| 0 |
|
|
| 50,000 |
|
Proceeds from exercise of share options |
|
| 64,752 |
|
|
| 0 |
|
Payments of lease liabilities |
|
| (6,815 | ) |
|
| 0 |
|
Proceeds from convertible note payable –related party |
|
| 1,232,192 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
| 1,290,129 |
|
|
| 85,000 |
|
|
|
|
|
|
|
|
|
|
Effect of changes in exchange rates |
|
| 7,046 |
|
|
| 0 |
|
Net change in cash and cash equivalents |
|
| 677,639 |
|
|
| (325,272 | ) |
Cash and cash equivalents at beginning of period |
|
| 22,245 |
|
|
| 409,039 |
|
Cash and cash equivalents at end of period |
|
| 706,931 |
|
|
| 83,767 |
|
Supplemental Cash Flow Information |
|
|
|
|
|
|
|
|
Interest paid |
| $ | 9,363 |
|
| $ | 4,895 |
|
Non-Cash Transactions |
|
|
|
|
|
|
|
|
Stock issued for acquisition of patents |
| $ | 20,000,000 |
|
| $ | 0 |
|
Stock issued for compensation, warrant and option expense |
| $ | 346,938 |
|
| $ | 0 |
|
Stock issued for advances from investors |
| $ | 0 |
|
| $ | 100,000 |
|
ROU Leased assets |
| $ | 62,723 |
|
| $ | 0 |
|
Lease obligation |
| $ | 62,723 |
|
| $ | 0 |
|
|
| Three months ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows from operating activities： |
|
|
|
|
|
| ||
Net loss |
| $ | (2,099,895 | ) |
| $ | (534,006 | ) |
Adjustments to reconcile net loss to net cash used in operating. activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 1,168,773 |
|
|
| 3,905 |
|
Share-based compensation expense |
|
| 43,443 |
|
|
| 94,105 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Inventory |
|
| (337,805 | ) |
|
| 3,024 |
|
Other current assets |
|
| (297,707 | ) |
|
| 18,254 |
|
Accrued expenses and others current liabilities |
|
| 133,302 |
|
|
| 202,981 |
|
Net cash used in operating activities |
|
| (1,389,889 | ) |
|
| (211,737 | ) |
Cash flows from investing activities： |
|
|
|
|
|
|
|
|
Acquisition of property and equipment |
|
| (135,899 | ) |
|
| 0 |
|
Net cash used in investing activities |
|
| (135,899 | ) |
|
| 0 |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable |
|
| 850,000 |
|
|
| 236,854 |
|
Proceeds from notes payable |
|
| 800,000 |
|
|
| 0 |
|
Payments of other notes payable |
|
| 0 |
|
|
| (37,985 | ) |
Payments of lease liabilities |
|
| (5,116 | ) |
|
| 0 |
|
Net cash provided by financing activities |
|
| 1,644,884 |
|
|
| 198,869 |
|
Net change in cash |
|
| 119,096 |
|
|
| (12,868 | ) |
Effect from foreign currency exchange |
|
| 754 |
|
|
| 0 |
|
Cash and cash equivalents at beginning of period |
|
| 1,751,499 |
|
|
| 22,245 |
|
Cash and cash equivalents at end of period |
|
| 1,871,349 |
|
|
| 9,377 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of noncash financing and investing activities |
|
|
|
|
|
|
|
|
Issuance of convertible notes for payables - related party |
|
| 26,000,000 |
|
|
| 0 |
|
Receivable of convertible notes issued |
|
| 50,000 |
|
|
| 0 |
|
Net change in equipment payable |
|
| 202,002 |
|
|
| 0 |
|
See accompanying notes to condensed consolidated financial statements.
| 7 |
| Table of Contents |
Ainos, Inc.
Notes to Financial Statements
(Unaudited)
1.Organization and Business. Ainos, Inc., a Texas corporation formerly known as Amarillo Biosciences, Inc. (the "Company", "we" or "us"), is engaged in developing medical technologies for point-of-care (“POCT”) testing and safe and novel medical treatment for a broad range of disease indications. Since our inception in 1984, we have concentrated our resources on business planning, raising capital, research and clinical development activities for our programs, securing related intellectual property and commercialization of proprietary therapeutics using low-dose non-injectable interferon (“IFN”). In addition to our core IFN technology, we are committed to developing a diversified healthcare business portfolio to include medical devices and consumer healthcare products. Although we have historically been involved in extensive pharmaceutical research and development of low-dose oral interferon as a therapeutic, we are prioritizing the commercialization of medical devices as part of our diversification strategy. Since the beginning of 2021, we have acquired significant intellectual property from our majority shareholder, Ainos, Inc., a Cayman Islands corporation (“Ainos KY”), to expand our potential product portfolio into Volatile Organic Compounds (“VOC”) POCTs and COVID-19 POCTs. We expect our underlying intellectual property to enable us to expedite the commercialization of our medical device pipeline, beginning with the Ainos-branded COVID-19 POCT product candidates. 2. Basis of presentation. The accompanying consolidated financial statements, which should be read in conjunction with the audited financial statements and footnotes included in the Company's Form 10-K/A for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on April 15, 2022 have been prepared in accordance with the Generally Accepted Accounting Principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by for audited 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, 2022, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022. 3. Financial Condition. These financial statements have been prepared in accordance with GAAP, 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 sustained operating income, and its operations are funded primarily from related-party convertible debt and equity financings. 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. |
|
|
|
|
|
|
|
|
| 8 |
| Table of Contents |
While the Company has recurring losses and generated negative cash flows from operations, the Company has taken initiatives to improve its management capacity and business operations. Such initiatives include the procurement of innovative diagnostic technologies and securing a strategic investor, as a result of the closing of a securities purchase agreement with Ainos, Inc. a Cayman Island corporation (“Ainos KY”) on April 15, 2021 (the “Ainos KY Transaction”). Details of the Ainos Transaction were disclosed in the Company’s Form 10-Q filing for the second quarter of 2021.
After closing the Ainos KY Transaction, the Company engaged additional management resources including Mr. Chun-Hsien Tsai as Chairman and CEO, Ms. Hui-Lan (Celia) Wu as CFO and Mr. Chih-Heng (Jack Lu) as Head of Corporate Development, retained key management and legal staff, and implemented new business initiatives. On June 14, 2021, the Company became the master sales and marketing agent for the Ainos SARS-Cov-2 Antigen Rapid Test Kit (“Ainos Covid-19 Test Kit”) which has generated $568,164 in sales thus far in 2021.
As of September 30, 2021, the Company’s financial improvement includes the following:
Total stockholder’s equity increased to $17,136,360 as of September 30, 2021 compared to a negative total shareholder’s equity of $838,278 as of December 2021.
Cash and cash equivalents increased to $706,931 as of September 30, 2021 compared to $22,245 at December 31, 2020. This is attributable to increased revenues from sales of our Ainos Covid-19 Test Kit in Taiwan and operational loans made to the Company by Ainos KY. The Company’s revenues increased to $568,164 during this reporting period compared to $15,876 as of third quarter of 2020.
The Company anticipates business revenues and potential additional financial support from Ainos KY and other entities to fund the Company’s operations over the next twelve months. The Company may raise additional capital through the issuance of equity securities, debt financings or other sources in order to further implement its business plan. However, if such financing is not available when needed and at adequate levels, the Company will need to reevaluate its operating plan.
There can be no assurance that capital will be available as necessary to meet the Company'sCompany’s working capital requirements or, if the capital is available, that it will be on terms acceptable to the Company. AnyThe 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'sCompany’s liabilities and future cash commitmentscommitments. If the Company is unable to obtain financing in the extent such loans wouldamounts and on terms deemed acceptable, the business and future success may be available. While management believesadversely affected and the Company may cease operations. These factors raise substantial doubt regarding our ability to continue as a going concern.
4. Common Stock. We have 300,000,000 shares of voting common shares authorized for issuance. On March 31, 2022, a total of 163,987,550 shares of common stock were either issued (144,379,308), reserved for conversion of convertible debt to stock (17,285,625), reserved for future issuance of RSUs for non-employee directors (1,320,000), held for future exercise of stock options (550,000) and shares reserved for warrant conversion (452,617). We also have $26.9 million outstanding in its strategicconvertibles notes which are convertible into shares of common stock upon and at a conversion price equal to 80% of the offering price of any public offering as a result of which the Company's common stock is listed on a national exchange.
We have not paid any dividends to our common stock shareholders to date, and have no plans management cannot be certain that projected financial results can be achieved.to do so in the immediate future.
5. Preferred Stock. We have 10,000,000 shares of preferred stock authorized for issuance. No shares of preferred stock were outstanding as of March 31, 2022.
6. Current Convertible Notes Payable and Other Notes Payable. As of March 31, 2022 and December 31, 2021, the amount of convertible and other notes payable totaled $4,389,931 and $3,589,931, respectively. The details of the convertible notes payable and other notes payable are shown in the table below:
Payee | No. | Effective Date | Due Date | From Effective | Following Maturity | Conversion Rate | Issuing Purpose | As of 12/31/2021 | Addition | Payment | As of 3/31/2022 | Accrued Interest | |
Current Convertible Notes Payable: | |||||||||||||
Stephen Chen | #1.16 | 1/30/2016 | Payable on demand | 0.75% | N/A | $ 0.17 | working capital | 114,026 | 0 | 0 | 114,026 | 6,050 | |
Stephen Chen | #2.16 | 3/18/2016 | Payable on demand | 0.65% | N/A | $ 0.19 | working capital | 262,500 | 0 | 0 | 262,500 | 10,298 | |
376,526 | 0 | 0 | 376,526 | 16,348 | |||||||||
Ainos KY | #12.21 | 4/27/2021 | 2/28/2023 (1) | 1.85% | N/A | $ 0.20 | working capital | 15,000 | 0 | 0 | 15,000 | 257 | |
Ainos KY | #13.21 | 5/5/2021 | 2/28/2023 (1) | 1.85% | N/A | $ 0.20 | working capital | 20,000 | 0 | 0 | 20,000 | 335 | |
Ainos KY | #14.21 | 5/25/2021 | 2/28/2023 (1) | 1.85% | N/A | $ 0.20 | working capital | 30,000 | 0 | 0 | 30,000 | 471 | |
Ainos KY | #15.21 | 5/28/2021 | 2/28/2023 (1) | 1.85% | N/A | $ 0.20 | working capital | 35,000 | 0 | 0 | 35,000 | 545 | |
Ainos KY | #16.21 | 6/9/2021 | 2/28/2023 (1) | 1.85% | N/A | $ 0.20 | working capital | 300,000 | 0 | 0 | 300,000 | 4,486 | |
Ainos KY | #17.21 | 6/21/2021 | 2/28/2023 (1) | 1.85% | N/A | $ 0.20 | working capital | 107,000 | 0 | 0 | 107,000 | 1,535 | |
Ainos KY | #18.21 | 7/2/2021 | 2/28/2023 (1) | 1.85% | N/A | $ 0.20 | working capital | 54,000 | 0 | - | 54,000 | 744 | |
Ainos KY | #19.21 | 9/1/2021 | 2/28/2023 (1) | 1.85% | N/A | $ 0.20 | working capital | 120,000 | - | - | 120,000 | 1,289 | |
Ainos KY | #20.21 | 9/28/2021 | 2/28/2023 (1) | 1.85% | N/A | $ 0.20 | working capital | 300,000 | - | - | 300,000 | 2,798 | |
Ainos KY | #21.21 | 11/10/2021 | 2/28/2023 (1) | 1.85% | N/A | $ 0.20 | working capital | 50,000 | - | - | 50,000 | 357 | |
Ainos KY | #22.21 | 11/25/2021 | 2/28/2023 (1) | 1.85% | N/A | $ 0.20 | working capital | 450,000 | - | - | 450,000 | 2,851 | |
Ainos KY | #23.21 | 11/29/2021 | 2/28/2023 (1) | 1.85% | N/A | $ 0.20 | working capital | 300,000 | - | - | 300,000 | 1,840 | |
Ainos KY | #24.21 | 12/29/2021 | 2/28/2023 (1) | 1.85% | N/A | $ 0.20 | working capital | 1,219,000 | - | - | 1,219,000 | 5,684 | |
|
|
|
|
|
|
|
| 3,000,000 | - | - | 3,000,000 | 23,192 | |
Total convertible notes payable- related parties | 3,376,526 | - | - | 3,376,526 | 39,540 | ||||||||
Non-Convertible Notes Payable: | |||||||||||||
Stephen Chen | #9.21 | 1/1/2021 | 4/14/2021 | 0.13% | N/A | N/A | working capital | 129,405 | - | - | 129,405 | 354 | |
Ainos KY | #26.22 (2) | 3/4/2022 | 3/31/2023 | 1.85% | N/A | N/A | working capital | - | 800,000 | - | 800,000 | 1,135 | |
Non-convertible notes payable-related party | 129,405 | 800,000 | - | 929,405 | 1,489 | ||||||||
i2 China | #8b.20 | 1/1/2020 | 1/1/2021 | 1.85% | N/A | N/A | consulting fee | 84,000 | - | - | 84,000 | 3,527 | |
|
|
| Non-Convertible Notes payable- non-related party | 84,000 |
|
| 84,000 | 3,527 | |||||
|
|
| Total non-convertible notes payable | 213,405 | 800,000 | - | 1,013,405 | 5,016 | |||||
Total convertible and non-convertible | 3,589,931 | 800,000 | - | 4,389,931 | 44,556 | ||||||||
|
|
|
|
| 9 |
| Table of Contents |
|
|
|
|
|
| Annual Interest Rate |
|
|
|
|
| Unpaid Principal Balance | |||||||||||
No# |
| Effective Date |
| Due Date |
| From Effective |
| Following Maturity |
|
Payee |
| Issuing Purpose |
| Sep 30, 2021 |
| Dec 31, 2020 | |||||||
Payee: Dr. Stephen T. Chen, resigned as Chairman of the Board, President, and Board director April 15, 2021 | |||||||||||||||||||||||
#1.16 | 2016/01/30 | Payable on demand | 0.75% | NA | Stephen Chen | working capital | 114,026 | 114,026 | |||||||||||||||
#2.16 | 2016/03/18 | Payable on demand | 0.65% | NA | Stephen Chen | working capital | 262,500 | 262,500 | |||||||||||||||
#3.19 | 2019/09/01 | 2020/09/01 | 1.85% | 10% | Stephen Chen | salary | 39,392 | 39,620 | |||||||||||||||
#4.19 | 2019/12/01 | 2020/12/31 | 1.61% | 10% | Stephen Chen | working capital | 14,879 | 14,879 | |||||||||||||||
#6.20 | 2020/01/01 | 2021/01/01 | 1.85% | 10% | Stephen Chen | salary | 216,600 | 216,600 | |||||||||||||||
#7.20 | 2020/01/01 | 2021/01/02 | 1.60% | 10% | Stephen Chen | working capital | 23,366 | 23,366 | |||||||||||||||
#9.20 | 2020/01/01 | 2021/04/14 | 0.13% | 10% | Stephen Chen | working capital | 279,405 | 134,010 | |||||||||||||||
#10.21 | 2021/01/01 | 2021/04/01 | 1.85% | 10% | Stephen Chen | salary | 59,025 | ||||||||||||||||
#11.21 | 2021/04/01 | 2021/05/01 | 1.85% | 10% | Stephen Chen | salary | 10,000 | ||||||||||||||||
1,019,193 | 805,001 | ||||||||||||||||||||||
Payee: Ainos KY, an affiliated company | |||||||||||||||||||||||
#12.21 | 2021/04/27 | 2021/10/27 | 1.85% | NA | Ainos KY | working capital | 15,000 | ||||||||||||||||
#13.21 | 2021/05/05 | 2021/11/05 | 1.85% | NA | Ainos KY | working capital | 20,000 | ||||||||||||||||
#14.21 | 2021/05/25 | 2021/11/25 | 1.85% | NA | Ainos KY | working capital | 30,000 | ||||||||||||||||
#15.21 | 2021/05/28 | 2021/11/28 | 1.85% | NA | Ainos KY | working capital | 35,000 | ||||||||||||||||
#16.21 | 2021/06/09 | 2021/12/09 | 1.85% | NA | Ainos KY | working capital | 300,000 | ||||||||||||||||
#17.21 | 2021/06/21 | 2021/12/21 | 1.85% | NA | Ainos KY | working capital | 107,000 | ||||||||||||||||
#18.21 | 2021/07/02 | 2022/01/02 | 1.85% | NA | Ainos KY | working capital | 54,000 | ||||||||||||||||
#19.21 | 2021/09/01 | 2021/03/01 | 1.85% | NA | Ainos KY | working capital | 120,000 | ||||||||||||||||
#20.21 | 2021/09/28 | 2021/03/28 | 1.85% | NA | Ainos KY | working capital | 300,000 | ||||||||||||||||
981,000 | 0 | ||||||||||||||||||||||
Convertible and other notes payable- related parties | 2,000,193 | 805,001 | |||||||||||||||||||||
Payee: i2China Management Group LLC, a management consultant | |||||||||||||||||||||||
#5.19 | 2019/09/01 | 2020/09/01 | 1.85% | 10% | i2China | consulting fee | 16,000 | 16,000 | |||||||||||||||
#8a.20 | 2020/01/01 | 2021/01/01 | 1.85% | 10% | i2China | consulting fee | 48,000 | 48,000 | |||||||||||||||
#8b.20 | Retroactive from 2020/01/01 | 2021/01/01 | 1.85% | 10% | i2China | consulting fee | 84,000 | 84,000 | |||||||||||||||
#11.21 | 2021/01/01 | 2021/04/01 | 1.85% | 10% | i2China | consulting fee | 37,000 | ||||||||||||||||
Convertible and other notes payable | 185,000 | 148,000 | |||||||||||||||||||||
Total Convertible and other notes payable | 2,185,193 | 953,001 | |||||||||||||||||||||
Notes:
(1) On March 17, 2022, we executed a Promissory Note Extension Agreement with Ainos KY in which the due dates for certain convertible notes enumerated as #12.21 to #24.21 issued by the Company to Ainos KY were extended to February 28, 2023. The total unpaid principal for these extended period convertible notes amount to $3,000,000 in the aggregate.
(2) On March 11, 2022, the Board approved a Non-Convertible Note dated March 4, 2022 in favor of Ainos KY with a principal amount of $800,000, interest of 1.85% per annum on unpaid principal and accrued interest, and a maturity date of February 28, 2023. The Note includes standard provisions for notice, default, and remedies for default.
All of the aforementioned convertible promissory notes and other notes payable are unsecured and due on demand upon maturity. The Company may prepay the notes in whole or in part at any time. The holder of convertible notes has the option to convert some or all of the unpaid principal and accrued interest to our common voting stock.
The total interest expense of convertible notes payable and other notes payable for the three months ended March 31, 2022 and as of December 31 2021 was $15,883 and $11,897 respectively; the cumulative related accrued interest as of March 31, 2022 and December 31, 2021 were $44,556 and $28,673, respectively.
7. Non-Current Convertible Notes Payable. As of March 31, 2022 and December 31, 2021, the amount of non-current convertible notes payable was $26,900,000 and $0, respectively.
On January 30, 2022, we issued to Ainos KY a Convertible Promissory Note in the principal amount of $26,000,000 (the “APA Convertible Note”) for the Asset Purchase Transaction as more particularly described below in Item 8 in these Notes to Financial Statements. The principal sum of the APA Convertible Note is payable in cash on January 30, 2027, although we may prepay the APA Convertible Note in whole or in part without penalty. The APA Convertible Note is noninterest bearing. If not earlier repaid, the APA Convertible Note will be converted into shares of our common stock or such other securities or property for which the APA Convertible Note may become convertible, immediately prior to the closing of any public offering of our common stock as a result of which our common stock will be listed on a U.S. stock exchange. The conversion price, subject to certain adjustments, will be 80% of the initial public offering price of the offering.
| 10 |
| Table of Contents |
All of the aforementioned convertible and non-convertible promissory notes are unsecured and due on demand. All shares issued upon conversion are restricted and subjectConvertible Note Offering Pursuant to Rule 144 promulgated under the U.S. Securities Act of 1933 (the “Securities Act”); subject to any exemptions or exclusions under the Act. The Company may prepay the notes in whole or in part at any time without penalty.Regulation S
The promissory notes due to Dr. Stephen T. Chen and Ainos KY are related party notes.
i2China Management Group, LLC (“i2China”) and Dr. Stephen T. Chen (together the “Payees”), have both agreed to waive any and all rights pertaining to the conditional term “Annual Interest Rate on Matured, Unpaid Amounts: 10% per annum, compounded annually of Convertible Notes” in regards to interest charged on any unpaid amounts following maturity for all of their respective notes. The Company and the Payees agree that the originally agreed annual interest rate will continue to be valid for any unpaid amounts after maturity. The amended terms of the above convertible notes were made during 2021 Q3 on September 1, 2021. The waived interest amount was $45,875.
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|
| Unpaid |
| Interest Rate |
| Interest amount |
| Interest |
|
| ||||||
No# |
|
Date |
|
Payee |
|
Description |
| Principal Amount |
|
Original |
| after Maturity |
| Original rate |
|
10% |
| Total |
| after Maturity |
| Interest Waived |
#1.16 |
| 1/30/2016 |
| Stephen |
| working capital |
| 114,026 |
| 0.75% |
| NA |
| 5,624 |
| 0 |
| 5,624 |
| 5,624 |
| 0 |
#2.16 |
| 3/18/2016 |
| Stephen |
| working capital |
| 262,500 |
| 0.65% |
| NA |
| 9,447 |
| 0 |
| 9,447 |
| 9,447 |
| 0 |
#3.19 |
| 9/1/2019(DS) |
| Stephen |
| salary |
| 39,392 |
| 1.85% |
| 10% |
| 714 |
| 4,340 |
| 5,054 |
| 1,518 |
| 3,536 |
#4.19 |
| 12/1/2019(DE) |
| Stephen |
| working capital |
| 14,879 |
| 1.61% |
| 10% |
| 257 |
| 1,132 |
| 1,389 |
| 439 |
| 950 |
#6.20 |
| 1/1/2020(DS) |
| Stephen |
| salary |
| 216,600 |
| 1.85% |
| 10% |
| 2,179 |
| 16,363 |
| 18,543 |
| 5,206 |
| 13,336 |
#7.20 |
| 1/1/2020(DE) |
| Stephen |
| working capital |
| 23,366 |
| 1.60% |
| 10% |
| 72 |
| 1,753 |
| 1,825 |
| 352 |
| 1,473 |
#9.20 |
| 11/2020 (Open) |
| Stephen |
| working capital |
| 279,405 |
| 0.13% |
| 10% |
| 81 |
| 12,864 |
| 12,945 |
| 248 |
| 12,697 |
#10.21 |
| 1/1/2021(DS) |
| Stephen |
| salary |
| 59,025 |
| 1.85% |
| 10% |
| 178 |
| 2,968 |
| 3,146 |
| 725 |
| 2,421 |
#11.21 |
| 4/1/2021(DS) |
| Stephen |
| salary |
| 10,000 |
| 1.85% |
| 10% |
| 15 |
| 420 |
| 435 |
| 93 |
| 342 |
|
|
|
| 1,019,193 |
| 1.85% |
| 10% |
| 18,566 |
| 39,841 |
| 58,407 |
| 23,653 |
| 34,754 | ||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
#5.19 |
| 9/1/2019 |
| i2China |
| consulting fee |
| 16,000 |
| 1.85% |
| 10% |
| 253 |
| 1,759 |
| 2,012 |
| 579 |
| 1,433 |
#8a.20 |
| 1/1/2020 |
| i2China |
| consulting fee |
| 48,000 |
| 1.85% |
| 10% |
| 483 |
| 3,626 |
| 4,109 |
| 1,154 |
| 2,955 |
#8b.20 |
| 1/1/2020 |
| i2China |
| retroactive increase |
| 84,000 |
| 1.85% |
| 10% |
| 1,554 |
| 6,399 |
| 7,953 |
| 2,738 |
| 5,215 |
#11.21 |
| 1/1/2021(DS) |
| i2China |
| consulting fee |
| 37,000 |
| 1.85% |
| 10% |
| 107 |
| 1,860 |
| 1,967 |
| 450 |
| 1,517 |
|
|
|
| 185,000 |
|
|
| 2,397 |
| 13,645 |
| 16,041 |
| 4,920 |
| 11,121 | ||||||
TOTAL ACCRUED |
| 1,204,193 |
|
|
| 20,963 | 53,485 | 74,448 | 28,573 | 45,875 | ||||||||||||
The accrued interest amount was $31,983 and $18,691 as of September 30, 2021 and December 31, 2020, respectively.
|
|
The following is a list of related parties who have undertaken transactions with the Company during this reporting period:
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| ||
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Below is a summary of the significant related party transactions entered into by the Company over the first nine months of 2021:
Financial support
|
| Convertible Note |
|
| Related Interest Expense |
| ||||||||||
|
| Nine months ended September 30, 2021 |
|
| As of September 30, 2021 |
|
| Nine months ended September 30, 2021 |
|
| As of September 30, 2021 |
| ||||
Ainos KY |
|
| 981,000 |
|
|
| 981,000 |
|
|
| 3,410 |
|
|
| 3,410 |
|
i2China |
|
| 37,000 |
|
|
| 185,000 |
|
|
| 2,087 |
|
|
| 4,920 |
|
Dr. Stephen T. Chen |
|
| 15,272 |
|
|
| 1,019,193 |
|
|
| 5,936 |
|
|
| 23,653 |
|
|
|
| 1,033,272 |
|
|
| 2,185,193 |
|
|
| 11,433 |
|
|
| 31,983 |
|
i2China became an affiliate of the Company as of August 1, 2021. From August 1, 2021 to September 30, 2021, interest payable to i2China amounted to $496.
Other transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares |
|
| Par Value |
|
| Paid in Excess of Par |
|
| Total amount |
|
| Price per share |
| |||||
06/30/2021 | Bernard Cohen |
|
| 5,876 |
|
|
| 58.76 |
|
|
| 3,107.89 |
|
|
| 3,166.65 |
|
|
| 0.5389 |
|
06/30/2021 | Dr. Stephen T. Chen |
|
| 53,419 |
|
|
| 534.19 |
|
|
| 32,799.14 |
|
|
| 33,333.33 |
|
|
| 0.6240 |
|
|
|
|
| 59,295 |
|
|
| 593 |
|
|
| 35,907 |
|
|
| 36,500 |
|
|
|
|
|
|
|
The Company engaged PricewaterhouseCoopers, Taiwan (“PWC”) as independent accountants of Ainos Inc. Taiwan Branchissued Convertible Notes pursuant to certain Convertible Note Purchase Agreements under an engagement agreement dated October 4, 2021 (“Audit Engagement”).Regulation S. The Audit Engagement covers audit services for the years ending December 31, 2021 and 2022 and PWC will issue interfirm audit reports for group reporting purposes to the Company’s group audit firm, PWR CPA, LLP. Additionally, the Company engaged PWC under separate agreements dated October 4, 2021 for PWC to render advisory services in connection to the Company’s internal controls over financial reporting as required under section 404 of the Sarbanes-Oxley Act (“SOX Engagement”) and in respect to compliance with Taiwan corporate income tax requirements for the tax years ending December 31, 2021 and 2022 (“Taiwan Tax Engagement”).
On October 6, 2021, the Company board of directors approved and adopted the following resolutions:transactions are more particularly described below:
| · | $50,000 Convertible Note issued on March 31, 2022 to Yun-Han Liao. The purchaser is the |
Company’s Chief Financial Officer (the “Liao Convertible Note”). | ||
| ||
|
|
|
| · |
|
|
|
|
| · | |
|
On November 1, 2021,The Principal Amount of the Convertible Notes are payable in cash on March 30, 2027, although the Company engaged its former Presidentmay prepay the Convertible Notes in whole or in part without penalty. The Convertible Notes are non-interest bearing. If not earlier repaid, the Convertible Notes will be converted into shares of common stock, $0.01 par value per share of the Company, or such other securities or property for which the Convertible Notes may become convertible, immediately prior to the closing of any public offering of the Company’s common stock as result of which the Company’s common stock will be listed on a U.S. stock exchange. The conversion price, subject to certain adjustments, will be eighty percent (80%) of the initial public offering price of the offering.
8. Related Party Transactions. The following is a summary of related party transactions that met our disclosure threshold for the three months ended March 31, 2022 and CEO, Dr. Stephen T. Chen,2021:
Asset Purchase Agreement
Ainos KY and the Company entered into an Asset Purchase Agreement dated as a consultantof November 18, 2021(the “Asset Purchase Agreement”), as modified by an Amended and Restated Asset Purchase Agreement dated as of January 29, 2022 (the “Amended Asset Purchase Agreement”). Pursuant to assist with its pharmaceutical division. Thethe Asset Purchase Agreement, the Company agrees to pay Dr. Chen 50,000 New Taiwan Dollars (NTD) per monthacquired certain intellectual property assets and certain manufacturing, testing, and office equipment for a periodtotal purchase price of one year for his services. With over 30 years of pharmaceutical professional experience, we expect Dr. Chen to provide technical assistance on our pharmaceutical development initiatives, analyze results from second phase interferon studies for Thrombocytopenia, and contribute$26,000,000. Pursuant to the protocol designAsset Purchase Agreement, the Company agreed to hire certain employees of Ainos KY who are responsible for research and development of the third phaseIP Assets and/or Equipment on terms at least equal to the compensation arrangements undertaken by Ainos KY. From and after the closing, we will have no responsibility, duty or liability with respect to any employee benefit plans of interferon development focusedAinos KY. As payment of the purchase price, we issued to Ainos KY a Convertible Promissory Note in the principal amount of $26,000,000 upon closing on Sjögren’s syndrome. Lastly, we expect that Dr. Chen will provide assistanceJanuary 30, 2022 (the “APA Convertible Note”). Refer to Note 7 of the Notes to Financial Statements for our mass commercial production of low-dose interferon products.more information.
| Table of Contents |
Related Party Working Capital
All convertible and other notes payable were issued either as a result of financing or deferred compensation provided by related parties. As of March 31, 2022 and December 31, 2021, the convertible and non-convertible notes payable for related parties totaled $4,355,931 and $3,505,931, respectively. Refer to Note 6 and 7 of the Notes to Financial Statements for more information.
Purchase related to COVID-19 Antigen Rapid Test Kits
We incurred costs associated with finished goods, raw materials and manufacturing fees for Covid-19 antigen rapid test kits from TCNT pursuant to a Sales and Marketing Agreement, totaling $386,412 for the three months ended March 31, 2022. There were no purchases from TCNT during the same period last year.
Product Co-development Agreement
Pursuant to the five-year product co-development agreement effective on August 1, 2021 with TCNT (the “Product Co-Development Agreement”) we incurred development expenses totaling $167,422 for the three months ended March 31, 2022 of which $109,131 is in accrued payable as of March 31, 2022.
Promissory Note Extension Agreement
On March 17, 2022, we executed a Promissory Note Extension Agreement with Ainos KY in which the due dates for certain convertible notes enumerated as #12.21 to #24.21 issued by the Company to Ainos KY were extended to February 28, 2023 (the “Promissory Note Extension Agreement”). The total unpaid principal for these extended period convertible notes amount to $3,000,000 in the aggregate. Refer to Footnote 1 of Note 6 of the Notes to Financial Statements for more information.
9. Subsequent Events.
On April 11, 2022, we issued to ASE Test Inc., a minority owner of Ainos KY, a convertible note in the principal amount of $500,000 due on March 30, 2027 (the “ASE Note”). The convertible note will automatically convert into shares of our common stock immediately prior to the closing of any public offering of our common stock as a result of which our common stock will be listed on a U.S. stock exchange. The conversion price, subject to certain adjustments, will be 80% of the initial public offering price of the offering.
| 12 |
| Table of Contents |
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.
OVERVIEWSome of the statements in this report are “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding our current beliefs, goals and expectations about matters such as our expected financial position and operating results, our business strategy and our financing plans. The forward-looking statements in this report are not based on historical facts, but rather reflect the current expectations of our management concerning future results and events. The forward-looking statements generally can be identified by the use of terms such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “may,” “guidance,” “estimate,” “potential,” “outlook,” “target,” “forecast,” “likely” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals are, or may be, forward-looking statements.
The Company
Ainos, Inc. (the “Company”) is a Texas corporation incorporated in 1984 engaged in the discoveryForward-looking statements involve known and development of pharmaceuticals, medical devicesunknown risks, uncertainties and preventative medicine. The Company currently has offices in the United States and Taiwan. The Company operates a branch office in Taiwan registered as AINOS, INC. TAIWAN BRANCH.
Our Business Divisions
We operate through three business divisions: Pharmaceutical, Medical Devices and Preventive Medicine. Our Preventive Medicine Division was formerly the Consumer Product Division.
Pharmaceutical: Low-dose lozenge interferon alpha (IFN-α) Research. Our core pharmaceutical drug development platform, VELDONA (Very Low-Dose Oral Interferon Alpha), is the result of more than thirty years of clinical research on low-dose non-injectable interferon alpha (IFN-α), which has been shownother factors that may cause our actual results, performance or achievements to be effective in trials against a varietydifferent from any future results, performance and achievements expressed or implied by these statements. We cannot guarantee that our forward-looking statements will turn out to be correct or that our beliefs and goals will not change. Our actual results could be very different from and worse than our expectations for various reasons. These forward-looking statements are not guarantees of diseases, including thrombocytopenia, Sjögren’s syndrome, hepatitis C, influenza, HIV, SARS,future performance and other conditions ranging from genital wartsinvolve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data, or methods which may be incorrect or imprecise and we may not be able to canker sores. Shifting to a more focused approach, we plan to conduct further clinical trials of VELDONA on thrombocytopeniarealize them. We do not guarantee that the transactions and Sjögren’s syndrome.
Medical Devices: Our previous focus on insulin infusion therapy under our SMART (Simultaneous Metabolic Activation & Restoration Therapy) treatment resulted in the development of a prototype novel insulin pulsatile pump. Our pump prototype delivers insulin intravenously in pulses,events described will happen as opposed to the typical subcutaneous route of administration, in order to more closely imitate how the pancreas secretes insulin in healthy non-diabetics. The pump requires additional stages of development and is subject to further studies. Meanwhile, we have expanded our product lines to include COVID-19 diagnostics and VOC diagnostics. Going forward we plan to accelerate commercialization of these new products following receipt of the applicable regulatory approval.
Preventive Medicine: We have restructured our former Consumer Product Division into a Preventive Medicine Division to expand our focus on treatments to prevent disease. Our previous efforts in the sale and marketing of liposomal nutraceutical and food supplements lacked synergies with our focus on specific disease indications and pharmaceutical treatment potentials. While we continue to believe in the efficacy of nutrition as a primary contributor to human health, we restructured this division in the third quarter of 2021 in order to incorporate a broader perspective centered on preventative interventions and to pivot towards more cutting-edge, revolutionary technologies. Going forward we are seeking new efforts on SRNA-based therapeutics development, to truly effect medical approachesdescribed (or that prevent the advancement of diseases. Our focusthey will be on fundamental research and development of vaccines with the intent to seek out-licensing opportunities and strategic partnerships when appropriate.
Our Medtech Transformationhappen at all).
The COVID-19 pandemic has fundamentally changed the healthcarefollowing factors, among others, could cause actual results and medical industries. Digital transformation of healthcare is underwayfuture events to provide access to quality healthcare with reduced physical contact. As a result, telehealth adoption has substantially accelerated. We believe that better telehealth service requires enhanced telehealth-enabled diagnostics, and therefore we anticipate the need for rapid, convenient, low-cost, cloud-connected digital diagnostics. In addition, the recent commercialization of mRNA COVID-19 vaccines suggests SRNA's has established SRNA’s promising potential in expediting pharmaceutical innovation. In order to meet these structural changes, we are transforming to a diversified medtech company.
We envision playing a major rolediffer materially from those set forth or contemplated in the digital healthcare revolution through an evolution in artificial intelligence, enabled by our AI Nose platform. We believe our AI Nose technology platform can potentially enable the eventual utilization of smell digitization for a plethora of applications, beginning with healthcare volatile organic compound (VOC) diagnostics. In our view, VOCs within the human body can be digitally profiled to facilitate personalized medicine. We refer to the digital identification of VOCs as “Smell ID.” As we train our AI algorithm with more Smell ID data, we believe we can provide more value-added service to our customers.
Our Strategic Partner
Ainos, Inc., a Cayman Islands incorporated company (“Ainos KY”), acquired majority ownership and management of the Company earlier this year. Under a Securities Purchase Agreement that closed on April 15, 2021 (the “Ainos KY Transaction”), we acquired intellectual properties valued at approximately $20 million that included VOC AI algorithms, digital nose technology, and a pipeline of innovative point-of-care testing (POCT) diagnostic technologies for a myriad of diseases including COVID-19, vaginitis and certain sexual transmitted diseases (STD), pneumonia and helicobacter pylori (h. pylori).
We expect that our newly-acquired in vitro POCTs can generate organic cash flows to support our business while we invest in our Pharmaceutical and Preventive Medicine Divisions. We have successfully commercialized our Ainos Covid-19 Test Kit this year in Taiwan and plan to commercialize other new in-vitro POCT diagnostics over the next several years if our products receive regulatory approval.
Ainos KY has also provided financial and management resources to supplement our business management capacity and operations. The current Board of Directors represents a broad spectrum of scientific, management, legal, and financial expertise that will be necessary to implement our business plans. After closing the Ainos KY Transaction, the Company engaged additional management resources including Mr. Chun-Hsien Tsai as Chairman and CEO, Ms. Hui-Lan (Celia) Wu as CFO and Mr. Chih-Heng (Jack) Lu as Head of Corporate Development, retained key management and legal staff.
Ainos Transformational Technologies
The intellectual property and other assets acquired from Ainos KY address key gaps in our former business model and provide a foundation for a more holistic drug and medical device development program.
First, by infusing the Company with VOC + AI algorithms and digital nose technology, we are now positioned to transition from our treatment-driven model for medical interventions to a more proactive diagnostic-driven pharmaceutical, medical device, and preventative medicine business plan. Ainos’ VOC AI assets are central to our telehealth friendly, point-of-care diagnostic-driven approaches throughout our Company’s product development program.
VOC Diagnostics. Volatile organic compounds (VOCs) profiles measured in exhaled breath as well as from headspaces of feces or urine samples are a source of information with respect to disease detection. Emerging advances in analytical technologies in the detection and measurement of VOCs in clinical matrices have generated increasing interest for their use in evaluating the diagnostic potential of VOCs for different diseases. VOCs represent a wide range of stable chemicals, are volatile at ambient temperature (may emit odors), and are detectable in exhaled breath, urine, feces, and sweat. Testing clinical samples for VOCs offers an option for developing rapid and potentially inexpensive disease screening tools. Most of the studies on volatile biomarkers have been carried out on exhaled-breath samples, although other clinical matrices, such as urine and feces, have also been investigated. Analysis of breath samples for testing of volatiles can be performed frequently in follow-up studies and may reflect disease progression and be helpful in monitoring therapeutic intervention. Moreover, breath tests are noninvasive and thus suitable for critically ill patients in intensive care units and small children.
AI Nose Technology Platform. Our AI Nose technology platform comprises the key building block of our VOC-based approaches. AI Nose’s main technology pillars include the digital nose sensor array, our proprietary VOC AI analytics, Smell ID, and our Company’s extensive knowhow of VOC-based medical device engineering. Our technology digitally profiles each VOC as a Smell ID and as more Smell IDs are collected for individuals, we may be able to build personalized medical treatment based on this data.
Our early efforts to develop a diabetes-focused insulin pump have significantly expanded into a more comprehensive development of a wide range of innovative point-of-care testing (POCT) diagnostic technologies, starting with our recent launch of the Ainos COVID-19 Antigen Test Kit in Taiwan.
COVID-19 Antigen Test Kit. On June 14, 2021 we entered into an exclusive agreement to serve as the master sales and marketing agent for the Ainos SARS-CoV-2 Antigen Rapid Test Kit (“Ainos Covid-19 Test Kit”) for Taiwan Carbon Nano Corporation (“TCNT”), the majority shareholder of Ainos KY. The Ainos COVID-19 Test Kit has been granted the CE mark, enabling us to market the product in Europe. On June 7, 2021, the Taiwan Food and Drug Administration (“TFDA”) granted emergency use authorization for the Ainos COVID-19 Test Kit for use by healthcare professionals in Taiwan.
The Ainos Covid-19 Test Kit uses an antigen rapid test technology jointly developed by Taiwan’s National Health Research Institutes (“NHRI”), National Defense Medical Center (“NDMC”), and TCNT. Our test kit features a smartphone-based test management function, which can be accessed through a data matrix code. The data matrix code stores each test kit’s unique ID. Each user will be able to store the results directly to the individual’s mobile phone.
Continuous personalized testing and community-wide tracing capabilities are fully integrated in our rapid test kit designs by leveraging smart phone applications and cloud-based technologies.
We developed a comprehensive, end-to-end, cloud-based COVID-19 management platform that allows individuals and organizations to manage tests and trace infection effectively. Our platform is comprised of our test kits, a consumer app and an enterprise app.
We aim to empower our customers and telehealth practitioners with rapid, accurate and non-invasive tools to monitor health with our Ainos Flora, Ainos Pen and CHS340 VAP rapid test devices.
Ainos Flora. We designed our iF-award winning Ainos Flora to empower patients to effortlessly, non-invasively and quickly test their vaginal health at home. Through specialized digital nose sensor arrays and A.I. algorithms, Ainos Flora is designed to detect vaginal infection and common STDs (including bacterial vaginosis, fungus infection, gonorrhea and trichomoniasis) in minutes. Ainos Flora is portable, handheld, and enables remote monitoring by designated medical professionals. Patients can store test results in a mobile app. Ainos Flora is designed to give women back control of monitoring their personal health.
Ainos Pen. Conventional breathalyzers are typically single-purpose and primarily designed to test for alcohol and drug use. Ainos Pen is a multi-purpose, cloud-connected breathalyzer intended for routine health monitoring. By enabling self-care at home, we anticipate Ainos Pen will create new applications for the telehealth ecosystem by allowing its users to non-invasively monitor their health. Ainos Pen securely stores test data in a complimentary mobile app with the ability to upload test data to a cloud server for access by designated healthcare providers. Through telehealth and A.I. analytics, patients can provide comprehensive and long-term health data to their healthcare providers.
CHS430 VAP Rapid Test. Ventilator-associated pneumonia (VAP) is one of the most frequent ICU-acquired infections. Reported prevalence varies widely from 5% to 40%. Causes of VAP include prolonged duration of mechanical ventilation or endotracheal intubation. The estimated mortality of VAP is around 10%, with higher mortality rates in surgical ICU patients and in patients with mid-range severity scores at admission. CHS430 is a patented portable breathalyzer that connects into a respirator’s y-connector and detects VAP within 10 minutes. It is designed to screen VAP infections and the likely causation pathogen. A specialized sensor array and algorithms quickly identify infections and the most common bacterial species related to VAP. The device is easy to operate with the press of a button. The sensor array inside the device is designed to be periodically replaced.
Our Divisions and Product Lines
As part of our medtech transformation strategy, we reclassified our divisions into the Pharmaceutical Division, Medical Device Division and Preventive Medicine Division.
Our Pharmaceutical Division researches and develops drug therapeutics that support the human immune system and address persistent diseases.
VELDONA Pharmaceutical Drug Development Program
Since our inception we have engaged in the research of low-dose non-injectable interferon delivered through nasal, oral mucosal, topical and transdermal pathways and in liquid, ointment or lozenge forms. Our core pharmaceutical drug development platform, VELDONA (Very Low-Dose Oral Interferon Alpha), is predicated on a comprehensive library of scientific clinical data for low-dose non-injectable interferon, including more than 100 clinical and pre-clinical animal and human studies conducted over several decades that we believe substantiates its safety and efficacy. We have an accomplished track record of completing numerous late-stage clinical trials for a variety of disease indications and also own several active patents associated with the treatment of thrombocytopenia, related to the prevention of viral recurrence of hepatitis C.
Ainos differentiates itself from other interferon drug developers through the distinct advantage of owning a proprietary library of over sixty late-stage clinical studies and trials aggregated over decades of research experience. The VELDONA platform leverages our research of numerous disease indications where we have established safety data for the use of low-dose non-injectable interferon from over thirty years of clinical studies and trials without any adverse side effects from low-dose interferon. We believe we have a higher likelihood to potentially accelerate clinical trials without the need to substantiate safety data through preliminary trials normally required for new drug applications.
We believe that low-dose non-injectable interferon therapeutics have broad potential applications for new drugs and nutraceuticals that address infectious diseases, autoimmune diseases and cancer. It has anti-proliferative effects which can be targeted at rapidly spreading viruses or rapidly dividing cancer cells. We believe VELDONA is a safe, universal and multi-functional product that is a well-suited for the prevention and treatment of viral infections. We have developed a proprietary formulation for the production of an IFN-α lozenge that can be administered sublingually as a small tablet in doses ten-thousand times less than FDA-approved high-dose injectable interferon therapies, which we believe may dramatically reduce side effects. The VELDONA lozenge is also stable at room temperature, which makes them easy and inexpensive to transport, store and administer.
Interferon-alpha (IFN-α)
Ainos currently focuses primarily on therapeutic applications of interferon-alpha (IFN-α). Interferons are a family of natural occurring proteins that can be used to potentially treat many diseases that involve the immune system – for example, cancers, hepatitis, AIDS, multiple sclerosis (MS), genital and perianal warts, and granulomatous disease. IFN-α is a key modulator in our innate immune response to viral infection. Almost every cell in the body can produce interferon when under attack, but research indicates that interferon seems especially important in the cells that form the frontline defense with the external environment, such as the oral and nasal mucosa. Its anti-viral effects include inhibition of viral replication, destruction of virus-infected cells, and activation of other, important immune cells. IFN-α also has anti-proliferative effects which can be targeted at rapidly spreading viruses or rapidly dividing cancer cells.
High-dose systemically administered IFN-α has been used alone or in combination to treat a variety of diseases, including hepatitis C, polycythemia vera, and adult T-cell leukemia/lymphoma (ATLL). While IFN-α has powerful anti-viral and anti-proliferative actions, its therapeutic success has been limited by a host of adverse effects some of which are life-threatening, such as neutropenia and thrombocytopenia. Our research with low-dose oral IFN-α in animal and human clinical trials has shown promise to deliver equal or superior efficacy to that of high-dose systemic IFN-α without the associated adverse effects. A significantly lower dose of IFN-α and its absorbance across the mucous membrane of the oral cavity, more closely mimics our innate immune response. Our oral IFN-α lozenges, VELDONA, exert both local and systemic effects, but at such low doses that the adverse events which plague high dose injectable IFN are not an issue. In fact, low-dose oral IFN-α has even been shown to reverse some of the adverse effects of thrombocytopenia directly caused by high-dose IFN. The Company is in prime position to meet this need having secured several patents for the treatment of thrombocytopenia using orally administered IFN-α.
We have aggregated many years of testing in the use of low-dose oral IFN-α for applications ranging from the common cold and warts to cancers and HIV. The therapeutic diversity of IFN-α stems from its ability to induce the transcription of hundreds of genes that stimulate the immune system. These genes effect numerous parts of the innate and adaptive immune system, including antigen processing and presentation, leukocyte migration, lymphocyte activation, immune effector and modulation functions, apoptosis, hematopoiesis, enzymatic destruction of viral RNA. In the past, we typically used natural human cell interferon in clinical trials as this was the specific form manufactured by our previous investment partner, Hayashibara Co., Ltd. We are now considering a substitute form of recombinant interferon product to replace natural human cell interferon and plan on conducting pilot studies to establish efficacy prior to advancing further clinical trials for our target disease indications.
Much clinical trial research has already evidenced recombinant interferon to be effective in adjuvant cancer therapies and FDA-approved high-dose injectable recombinant interferon alfa-2b treatments have been used globally to treat a multitude of disease indications such as AIDS-related Kaposi sarcoma, lymphoma, hairy cell leukemia and melanoma. In fact, interferon alpha (IFN-α), a cytokine that is responsible for regulating and activating the immune response, was the first cancer immunotherapy approved by the FDA in 1986. This helps support a higher level of certainty that recombinant interferon should demonstrate a desired level of efficacy, especially given that low-dose IFN-α is delivered as a miniscule dose compared to high-dose injectable IFN-α treatments. We plan to conduct pilot clinical trials starting in the first half of 2022 to validate newly-sourced interferon material and pursue several disease indications including thrombocytopenia, and Sjögren’s syndrome. We intend to continue exploring the modernization of interferon technology by researching new sources and types of interferon and are looking into methods of new interferon production, preparation, and purification methods.
Clinical Trials for Key Disease Indications
We plan to orchestrate a concerted effort with research and medical expert supporters of the VELDONA drug program to facilitate the advancement of various low-dose IFN-α formulations and delivery modalities. We own proprietary clinical data on previously studied indications that can potentially be delivered to market at minimal clinical trial cost. The Company plans to resume clinical studies for key disease indications. In the near term, we will seek to advance our drug program with a particular focus on conducting clinical trials for two disease indications – thrombocytopenia and Sjögren’s syndrome. We believe these two indications can reach late-stage trials with the highest probability of successful approval in the shortest time. At any time during the drug development stage, the Company aims to out-license the intellectual property, ultimately acquiring global approvals for various disease indications.
Thrombocytopenia
In a 2014 data study, “Efficacy of Low Dose Oral Interferon-alpha in Preventing Hepatitis C Relapse,” was published based on a phase 2 clinical trial of 169 hepatitis C patients conducted at Chang Gung Hospital in Taiwan that found VELDONA to reduce the relapse rate of hepatitis C and improve the function of platelets. In connection with this study, Ainos received four thrombocytopenia related patents. Low-dose oral IFN-α can contribute to reversing the immunosuppressive tumor microenvironment and prevent some of the dangerous side-effects of chemotherapy such as thrombocytopenia. We will leverage our previous clinical trial experience to prepare a well-designed protocol to test whether VELDONA is effective in treating thrombocytopenia and determine whether it can continue the next-stage trials.
Sjögren’s Syndrome
The Company intends to resume late-stage clinical trials in late 2022 for Sjögren’s syndrome, an immune system disorder characterized by dry eyes and dry mouth. We previously reached two phase 3 trials in 2003 but were unable to conduct the final FDA-mandated studies for drug approval due to capital constraints (“Treatment of primary Sjögren’s syndrome with low-dose human interferon alfa administered by the oromucosal route: combined phase III results”). Ainos will reference its previous research to design an efficient phase 3 study based on previous FDA guidance.
In respect to its VELDONA program, the Company owns three (3) patents issued in the U.S. and one (1) issued in Taiwan as follows:forward-looking statements:
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· | possible changes in capital structure, financial condition, future working capital needs and other financial items; | |
· | our expectations of the reliability, accuracy and performance of our products and services; | |
· | our ability to obtain additional funds for our operations; | |
· | unforeseen changes in the course of research and development activities and in clinical trials; | |
· | our ability to obtain and maintain regulatory authorizations, clearances or approvals for our tests and other product candidates, including EUAs (“Emergency Use Authorizations”) for our COVID-19 test or other product candidates; | |
· | our ability to successfully build out our sales and marketing infrastructure, the costs and success of our marketing efforts, and our ability to promote our brand; | |
· | our ability to establish demand for our products and services and expand geographically; | |
· | our intellectual property position and our expectations regarding our ability to obtain and maintain intellectual property protection; | |
· | our ability to effectively manage our expected growth, including our ability to retain and recruit personnel, and maintain our culture; | |
· | possible changes in cost, timing and progress of development, preclinical studies, clinical trials and regulatory submissions; | |
· | the rate and degree of market acceptance of any approved product candidates; | |
· | the impact of applicable U.S. | |
· | our ability to implement, maintain and improve effective internal controls and remediate material weaknesses. |
Any forward-looking statements in this report are made only as of the date hereof and, except as may be required by law, we do not have any obligation to publicly update any forward-looking statements contained in this report to reflect subsequent events or circumstances.
Overview
Ainos, Inc., a Texas corporation formerly known as Amarillo Biosciences, Inc. (the "Company", "we" or "us"), is engaged in developing medical technologies for point-of-care (“POCT”) testing and safe and novel medical treatment for a broad range of disease indications. Since our inception in 1984, we have concentrated our resources on business planning, raising capital, research and clinical development activities for our programs, securing related intellectual property and commercialization of proprietary therapeutics using low-dose non-injectable interferon (“IFN”). In addition to our core IFN technology, we are committed to developing a diversified healthcare business portfolio to include medical devices and consumer healthcare products.
Although we have historically been involved in extensive pharmaceutical research and development of low-dose oral interferon as a therapeutic, we are prioritizing the commercialization of medical devices as part of our diversification strategy. Since the beginning of 2021, we have acquired significant intellectual property from our majority shareholder, Ainos, Inc., a Cayman Islands corporation (“Ainos KY”), to expand our potential product portfolio into Volatile Organic Compounds (“VOC”) and COVID-19 POCTs. We expect our underlying intellectual property to enable us to expedite the commercialization of our medical device pipeline, beginning with Ainos-branded COVID-19 POCT product candidates.
Our portfolio of products
Our portfolio of products is currently comprised of the following:
· | COVID-19 Antigen Rapid Test Kit and Ainos’ Cloud-based Test Management Apps. Our cloud-based test management platform is comprised of an antigen rapid test kit, a personal application, or app, and an enterprise app. We anticipate our management apps will allow individuals and organizations to seamlessly manage tests, trace infections, and share results. As the first commercialized COVID-19 product we sell, we currently market the Ainos COVID-19 antigen rapid test kit in Taiwan under emergency use authorization (“EUA”) issued | |
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The Company continues to seek to expand its patent licensing and commercialization opportunities for VELDONA with global partners. The Company’s licensing, development and commercialization of its VELDONA patents and research library are subject to approval by the FDA and other regulatory agencies in the U.S., and other regulatory agencies for use and marketing in other countries.
Our Medical Device Division focuses on research and development of novel medical devices.
Innovations in point-of-care testing
We develop, market, and sell various easy-to-use, cloud-connected POCT diagnostics for infectious disease indications. Our product pipeline target indications include COVID-19, vaginitis, certain sexually transmitted diseases (STD), ventilator-associated pneumonia (VAP), and helicobacter pylori (H. pylori). We categorize our POCT portfolio into the following:
COVID-19 POCT. This category currently includes an antigen rapid test kit based on lateral flow immunoassay technology, a molecular test kit based on reverse transcription loop-mediated isothermal amplification (“RT-LAMP”) technology, and test management apps for personal and enterprise users. The COVID-19 antigen test kit includes professional-use and at-home SKUs. The professional SKU targets the professional healthcare segment, while at-home SKUs aims the at-home self-testing segment. We also offer a cloud-based test management platform with a personal app as well as an enterprise app. Our molecular tests comprised of test kit assay and a low-cost portable tester.
VOC-based POCT. This category employs digital nose sensors and AI algorithms to detect and analyze VOC biomarkers for rapid detection of infectious disease and everyday self-care. We further implement wireless and secured cloud technologies to enable seamless, easy-to-use test data transmission to the telehealth community. Our target disease indications include vaginitis, STD, VAP, and H. pylori. We anticipate that our near-term revenue stream for VOC-based POCTs will mainly come from hardware sales. Longer-term, we plan to introduce a subscription-based analytics service to our customers, and when sales of medical devices reach scale, we anticipate subscription revenue to create substantial operating cash flow.
The opportunities of digital nose innovation
The digital nose, also known as the electric nose (e-nose) or, more generally, gas sensor, is a more scalable technology to analyze VOCs in a clinical setting, in our view. Comprised of gas sensors, the digital nose electronically mimics the human nose and the advancement in semiconductor manufacturing technologies allow digital noses to be made small, and at low cost. When combined with a pattern recognition algorithm, the digital nose directly detects components of different VOCs present in a gas mixture, which eliminates the need for complex preprocessing steps. A digital nose can be customized for specific applications using an array of sensors, which can detect volatile components included in a predetermined VOC profile. With the help of algorithms and other electronic components such as microprocessors, and wireless technologies, the digital nose can convert a VOC profile into unique digital signals that can be understood by many electric devices, which may enable a digital nose to be quickly developed into many easy-to-use, affordable, portable, cloud-connected POCTs for a wide range of diseases. We believe these potential new tools could facilitate new telehealth services previously unavailable.
Our AI Nose technology platform
Our AI Nose technology platform comprises the key building block of our VOC-based POCT. AI Nose’s main technology pillars include the digital nose sensor array, our proprietary VOC AI analytics, Smell ID, and the Company’s extensive knowhow of VOC-based medical device engineering. Our technology digitally profiles each VOC as a Smell ID and as more Smell IDs are collected for individuals, we may be able to build personalized medical treatment based on this data. We believe Smell ID’s long-term potential goes beyond healthcare. As we populate AI with more Smell ID, we believe we may eventually enable the AI Nose to detect smell in the broader, non-healthcare settings.
COVID-19 Antigen Test Kit
Antigen test kits have been vital in testing COVID-19 at high frequency, large scale, and at low cost. Most EUA-approved test kits claim nearly identical value propositions and these essential functions are already commoditized. In our opinion, helping communities to better store and report the test results, and assisting organizations to better trace infection are critical attributes as countries try to reopen their economies. Unfortunately, few COVID-19 antigen test kits in the market provide these services. While testing labs are required to report their findings, many at-home tests are not required to report results to the health authorities.
We have developed a comprehensive, end-to-end, cloud-based platform that allows individuals and organizations to manage tests and trace infection effectively. Our platform is comprised of our test kit, a consumer app and an enterprise app. Consumers can visually see the test result on our test kit without using the app. We launched a free, consumer-friendly app called the Ainos Antigen Rapid Test App, available on iOS and Android. The app is currently available in Taiwan and we plan to roll out to additional countries in which we receive authorization to market, if approved. The app provides a simple and comprehensive interface platform to manage test results with the following vital services:
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Our Ainos Enterprise App is a centralized, cloud-based COVID-19 test management platform designed for public and private institutions. With this app, institutions can centrally manage and trace COVID-19 testing. The key features are:
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COVID-19 Nucleic Acid Test Kit
COVID-19 testing methods generally fall into three categories: molecular tests, antigen tests and antibody tests. The molecular test features the best accuracy. Current molecular tests rely on centralized laboratory testing, and face complex sample transportation, logistics, and throughput challenges. As a result, molecular test results can take from two to 14 days, require highly trained technicians to operate complex instruments and are generally expensive. These attributes present challenges to the rollout of testing capacity at the scale needed to meet current global demand. Lastly, effectively tracking molecular test results is difficult, as reporting is often conducted manually.
Based on our proprietary reverse transcription loop-mediated isothermal amplification (RT-LAMP) technology, Ainos has developed a fast and affordable molecular test. It consists of a color-changing assay that is compatible with standard PCR machines and portable, low-cost equipment. We offer the following functionality to our customers and when combined, we believe that they enable accurate, fast, cost-effective COVID-19 management.
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Ainos Flora – discreet, telehealth-enabled STD tests in your hands
Invasive sampling is essential in the diagnosis of certain sexually transmitted diseases (STDs), such as vaginitis, gonorrhea, chlamydia and trichomoniasis. Pelvic exams are conducted primarily in an outpatient setting as they require the trained operation of specialized instruments.
Conventional testing methods, including pelvic exams, have several disadvantages. First, while the pelvic test/whiff test is quick, the wait time at the outpatient clinic is often long. Second, patients commonly feel anxiety before and during the pelvic exam. Third, the pelvic test and pH test cannot by themselves provide a definitive diagnosis. Fourth, the laboratory culture test takes a few hours to a few days to complete. Fifth, the pelvic exam is vulnerable to healthcare disputes. Lastly, the overall inconvenience may discourage follow-up visits and treatments. These shortcomings have two critical implications. First, crowded hospitals and clinics and long wait times may amplify patients’ anxiety levels. This may discourage patients with STD-suspected infections from getting tested or cause delays in seeking medical help. This may increase the risk of patients with mild symptoms unknowingly contributing to the spread of STDs. Second, it implies that the STD testing market size could be larger than reported by market research data.
We have designed our iF-award winning Ainos Flora to empower patients to effortlessly, non-invasively and quickly test their vaginal health at home. Through specialized digital nose sensor arrays and A.I. pattern recognition, Ainos Flora is designed to detect vaginal infection and common STDs (including bacterial vaginosis, fungus infection, gonorrhea and trichomoniasis) in minutes. Ainos Flora is portable, handheld, and enables remote monitoring by designated medical professionals. Patients can store test results in a mobile app.
Flora is designed to give women back control of monitoring their personal health with the following clinical and commercial benefits:
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Ainos Pen – a multipurpose breathalyzer for everyday telehealth
Conventional breathalyzers are typically single-purpose and primarily designed to test for alcohol and drug use. Ainos Pen is a multi-purpose, cloud-connected breathalyzer intended for routine health monitoring. By enabling self-care at home, we anticipate Ainos Pen will create new applications for the telehealth ecosystem by allowing users to non-invasively monitor their health. Ainos Pen securely stores test data in a complimentary mobile app with the ability to upload test data to a cloud server for access by designated healthcare providers. Through telehealth and A.I. analytics, patients can provide comprehensive and long-term health information for their healthcare providers.
Ainos Pen brings easy-to-use testing in a sleek pocket-sized form factor. This portable breath analyzer identifies VOCs from human breath in minutes and our A.I. algorithms. We designed the Ainos Pen to detect total VOC, eCO2, carbon monoxide, ethanol, hydrogen sulfide, and ammonia. Inside the Ainos Pen, the digital nose sensor technology can be built to specifications for monitoring various health conditions, such as halitosis (bad breath), gastrointestinal, liver, renal health, and smoking habits. Additional functions can potentially be created as we identify more new VOC biomarkers.
CHS430: ventilator-associated pneumonia (VAP) detection within 10 minutes
Ventilator-associated pneumonia (VAP) is one of the most frequent ICU-acquired infections. Reported prevalence varies widely from 5% to 40%. Causes of VAP include prolonged duration of mechanical ventilation or endotracheal intubation. The estimated mortality of VAP is around 10%, with higher mortality rates in surgical ICU patients and in patients with mid-range severity scores at admission. VAP also imposes a significant economic burden.
In our opinion, the current diagnosis of VAP is inefficient in method and speed, which complicates treatment, prevention and affects patient outcomes. The first step of diagnosis relies on clinical evaluation (e.g. evaluation of symptoms, use of a Clinical Pulmonary Infection Score (“CPIS”) and chest x-rays) and culture analysis. However, no single clinical criterion is sufficient to provide a definitive diagnosis. The second step of diagnosis is to perform microbiological sampling for culture analysis. However, sampling techniques for VAPs can be confusing. Culture analysis is a complex and slow process that increases the risk of antibiotics overuse. Performing culture analysis requires trained clinicians while sampling is often invasive and poses a threat to intensive care unit (ICU) patients who are already physically and emotionally vulnerable. Culture test results are often delayed, and during the wait time, healthcare providers may prescribe broad-spectrum antibiotics empirically, which may lead to poor patient outcome. The prescription of broad-spectrum antibiotics prior to a diagnosis raises the risk of antibiotic resistance, as studies suggest that VAP accounts for nearly 50% of all antibiotic consumption in ICUs in the United States.
CHS430 is a patented portable breathalyzer that connects into to the y-connector of a respirator and detects VAP within 10 minutes. It is designed to screen VAP infections and the likely causation pathogen, subject to further clinical validation. The device quickly screens a patient’s breath VOC using an AI-powered digital nose. A specialized sensor array and algorithms quickly identify infections and the most common bacterial species related to VAP. The sensor array inside the device is designed to be periodically replaced. The device also requires regular maintenance.
CHS430 is intended for use by medical professionals, particularly in critical care centers and ICUs. We believe the device serves as a rapid screening tool and enables faster, better decision making by critical care providers.
Key benefits include:
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AI Nose – healthcare digital nose for consumer electrics
We are developing a highly integrated multi-element digital nose sensor module, called the AI Nose. AI Nose is comprised of four sensor chips and an integrated digital processing chip. The sensor chip’s structure utilizes a complex semiconductor manufacturing process called microelectromechanical systems (MEMS).
We are developing AI Nose to introduce powerful VOC detection to the healthcare market. Each module can work alone or in arrays. We also designed the module’s form factor to be small enough so that it can be adopted into mobile devices such as smartphones. We believe that the AI Noise offers a great companion technology for medtech innovators to launch the next generation of healthcare devices. AI Nose can detect breath VOCs or environmental VOCs at the parts-per billion (ppb) level. Because exhaled VOCs are produced at the ppb level, we believe AI Nose is an ideal solution to monitor health.
Our digital nose technology learns to recognize scent in much the same way human learn to smell. In the presence of a VOC, AI Nose generates a digital signal corresponding to the incoming VOC’s unique profile (“the Smell ID”). As we collect and populate our database with more Smell IDs, we can train AI Nose to be smarter and more accurate. Combined with a subscription-based service, we plan to provide analytic and monitoring services to our customers.
Our Preventive Medicine Division is dedicated to developing innovative technologies that prevent disease, disability, and death while promoting health and well-being.
sRNA research initiative
Ainos is in the process of establishing a synthetic RNA (SRNA) technology platform capable of producing messenger RNAs (mRNAs) and/or short inhibitory RNAs (siRNAs) for potential vaccine development and disease treatment. Based on this platform, our short-term goal is to research and develop 2nd generation COVID-19 mRNA vaccines. Our long-term goal is to develop therapeutic RNA drugs featuring the use of mRNA and siRNA as genetic modulators for effective control of aberrant immune or genetic disorders.
We believe effective production of RNA based vaccines or therapeutics through SRNA platform represents promising potential for numerous biomedical applications and disease prevention. Although clinical implementation of SRNAs as drugs to treat human diseases is still rare, we believe this is changing as clinical application of mRNAs are proving to be successful in expressing functional protein antigens and inducing protective neutralizing antibodies against the SARS-CoV-2 virus. As RNA’s fabrication, purification, and cellular delivery technologies continue to advance, we anticipate increased interest in the use of RNA-based vaccines or therapeutics to treat various human diseases for two reasons. First, SRNAs are cost-effective and simple to manufacture. Second, SRNAs can be rapidly developed as personalized drugs for most clinical and inherited diseases.
Due to the continuous outbreaks and the emergent SARS-CoV-2 variants, our short-term goal focuses on developing 2nd generation SARS-CoV-2 vaccines using a synthetic mRNA-based platform. We plan to use the full-length spike gene sequence of the British alpha variant (lineage B1.1.7) and the Indian delta variant (lineage B.1.617.2) as reference sequences to generate mRNA vaccines with 6 proline mutations. We also plan to adopt sequence modifications and codon optimization of the mRNA vaccines. We will test vaccine delivery with a liposome of known formulation and evaluate the immunization through intramuscular (systemic) and nasal (mucosal) routs in mice. We anticipate the research will generate a T helper 1 (Th1) biased immune response with potent neutralization antibody and effector CD8 T cell response. In addition, relevant recombinant spike proteins will be produced in Baculovirus expression systems. These proteins can be used as alternative immunogens, immunostimulatory adjuvants, or antigens to develop therapeutic monoclonal antibodies.
Our long-term vision is to enable treatment of inflammatory diseases and cancers. We will generate mRNAs and/or siRNAs critical for immune modulations or tumor suppression. These mRNAs may express tumor suppressors, cancer-associated antigens, or immune agonists, while siRNAs may be used to degrade disease associated genes of aberrant expression.
We plan to focus on the research and development of the technology. In addition, we intend to explore strategic partnership opportunities upon completion of phase 1 clinical trial(s).
Our asset-light manufacturing model
We operate an asset light business model that allows us to fully dedicate resources towards technological innovation and business development. We believe this strategy allows us to optimize capital and stay cost competitive by working with suppliers in Asia.
Taiwan Carbon Nano Technology Corporation (TCNT) is our primary manufacturing partner. On August 1, 2021, we entered into a Product Co-development Agreement with TCNT. Pursuant to the agreement, TCNT will manufacture our POCT products. TCNT operates its facilities in conformance with a variety of International Organization for Standardization (ISO) and Good Manufacturing Practice (GMP) certifications, with most of our healthcare facilities’ quality management systems meeting ISO 13485. Based on our design of the AI Nose module and our co-developed manufacturing process, TCNT subcontracts to other semiconductor manufacturers including a specialized contract manufacturer that produces our sensors and an outsourced semiconductor assembly and testing company, or “OSAT” company, that assembles our sensors into a highly miniaturized module and tests the functionality.
We expect that the following five (5) Patent Assets assigned to the Company as a result of the Ainos transaction will form the basis for the next generation of the Company’s rapid test kit products:
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The Company’s development and commercialization of its rapid test kit products are subject to approval by the FDA and other regulatory agencies in the U.S., and other regulatory agencies for use and marketing in other countries.
Patents and Proprietary Rights
Since inception, the Company has worked to build an extensive patent portfolio for the medical diagnosis and treatment of persistent diseases. This portfolio consists of patents with claims that encompass method of use or treatment, and/or composition of matter and manufacturing. As listed in this Overview section, the Company presently owns eleven (11) issued patents with two patents pending and license rights in Japan and China for two (2) patents under patent licensing agreements. There are no current patent litigation proceedings involving the Company.
Cost of Compliance with Environmental Regulations
The Company incurred no costs to comply with environment regulations during the timeframe of this report.
United States Regulation
Before products with health claims can be marketed in the United States, they must receive approval from the U.S. Food and Drug Administration (“FDA”). To receive this approval, any drug must undergo rigorous preclinical testing and clinical trials that demonstrate the product candidate’s safety and effectiveness for each indicated use. This extensive regulatory process controls, among other things, the development, testing, manufacture, safety, efficacy, record keeping, labeling, storage, approval, advertising, promotion, sale, and distribution of pharmaceutical products.
In general, before any ethical pharmaceutical product can be marketed in the United States, the FDA will require the following process:
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Substantial financial resources are necessary to fund the research, clinical trials, and related activities necessary to satisfy FDA requirements or similar requirements of state, local, and foreign regulatory agencies. At such time as the Company undertakes to commercialize any of its products, all necessary preclinical testing, clinical trials, data review, and approval steps will be judiciously executed to insure that the product satisfies all regulatory requirements at all levels.
505(b)(2)
The Company has historically followed and will continue to follow the traditional approval process for New Drugs as set out in Section 505(b)(1) of the Federal Food, Drug, and Cosmetic Act. If an alternative path to FDA approval for new or improved formulations of previously approved products is scientifically and economically feasible and beneficial to the Company and the public, the Company may choose to follow this alternative path as established by section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act. This section of the Act permits the applicant to rely on certain preclinical or clinical studies conducted for an approved product as some of the information required for approval and for which the applicant has not obtained a right of reference. The process of approval under 505(b)(2) will be followed as judiciously as 505(b)(1) or any regulation.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States. The Company may choose to seek approval for a product satisfying the definition of an Orphan Drug if that product can be used to treat such an indication. Orphan drug designation does not convey any advantage in or shorten the duration or rigidity of the regulatory review and approval process.
Similarly, substantial financial resources are necessary to fund the research, design, testing, fabrication and related activities necessary to satisfy FDA requirements or similar requirements of state, local, and foreign regulatory agencies for medical devices. The Company may seek to obtain FDA clearance for the sales, marketing, and use of its novel pulsatile insulin pump for the U.S. market after obtaining FDA approvals under one of the following regulatory approvals:
Premarket Notification 510(k)
Each person who intends to market in the U.S., a Class I, II, and III device intended for human use, for which a Premarket Approval application (“PMA”) is not required, must submit a 510(k) to FDA unless the device is exempt from 510(k) requirements of the Federal Food, Drug, and Cosmetic Act (the “FD&C Act”) and does not exceed the limitations of exemptions in .9 of the device classification regulation chapters (e.g., 21 CFR 862.9, 21 CFR 864.9).
If the Company’s novel pulsatile insulin pump is determined to be similar to one already cleared for the U.S. market, the Company will seek FDA clearance under 510(k) at least 90 days before the device is marketed. A 510(k) application requires demonstration of substantial equivalence to another legally U.S. marketed device. Substantial equivalence means that the new device is as safe and effective as the predicate. Documented laboratory testing among other submissions will be required and if the Company’s device features significant alterations from predecessor devices the Company may be required to present results from clinical trials.
Premarket Approval (PMA)
Alternatively, if the Company’s device is deemed to be completely new to the U.S. market or classified as a Class III device, the Company will be required to apply for PMA approval. The Medical Device Amendments of 1976 to the FD&C Act established three regulatory classes for medical devices. The three classes are based on the degree of control necessary to assure that the various types of devices are safe and effective. The most regulated devices are in Class III. The amendments define a Class III device as one that supports or sustains human life or is of substantial importance in preventing impairment of human health or presents a potential, unreasonable risk of illness or injury.
Under Section 515 of the FD&C Act, all devices placed into Class III are subject to premarket approval requirements. Premarket approval by FDA is the required process of scientific review to ensure the safety and effectiveness of Class III devices.
Foreign Regulation
In addition to regulations in the United States, a variety of foreign regulations govern clinical trials and commercial sales and distribution of products in foreign countries. Whether or not the Company obtains FDA approval for a product, the Company must obtain approval of a product by the comparable regulatory authorities of foreign countries before the Company can commence clinical trials or market the product in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.
The policies of the FDA and foreign regulatory authorities may change and additional government regulations may be enacted which could prevent or delay regulatory approval of investigational drugs or approval of new diseases for existing products and could also increase the cost of regulatory compliance. It is not possible to predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the United States or abroad.
Employees and Consultants
As of September 30, 2021, the Company had a total of twenty-seven employees, compared to four in the same period 2020. Research and development employees currently represent approximately 33% of our total employees. In the future, we plan to increase research and development human resources to support our various technology development efforts.
Following the consummation of the Ainos Transaction, the Company retained key personnel in its U.S. office to ensure continuity in its operations and as a foundation for future growth:
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The CompanyAn integral part of our operating strategy is actively interviewingto create multiple revenue streams through commercializing our product portfolio and leveraging our intellectual property patents, including potentially out-licensing or forming strategic relationships to develop our medical devices, consumer healthcare products and low-dose interferon therapeutics.
In 2022, we are prioritizing the commercialization of our POCT devices, beginning with seeking EUA authorizations for the COVID-19 POCT product candidates and plans to commercialize our other POCT product candidates. As a general strategy, we plan to conduct clinical trials in Taiwan and use the data to apply for TFDA approval and FDA clearance via the 510(k) or comparable pathway. If our products are approved, we plan to work with third-party distributors to market our products in countries where we receive regulatory approval and to seek various business relationships with other medtech companies to market our products. At the same time, we plan to initiate clinical trials for the CICCT and SRNA programs over the course of this year.
Our ability to generate product revenue sufficient to achieve profitability will depend on further successful development and commercialization of one or more of our current or future product candidates and programs. We anticipate our POCT products candidates to potentially generate organic cash flows to support our business while we invest in our other pipeline projects. We expect to continue to incur significant expenses for the next few years as we advance our product candidates through preclinical development, clinical trials and regulatory approval. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution, and legal and regulatory compliance. We may also incur expenses in connection with strategic relationships for the development of additional product candidates. Furthermore, we expect to continue to incur costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses.
Until we can generate significant revenue from product sales, if ever, we expect to finance our operations with business revenues and proceeds from external sources. We may pursue additional funding that may include our entry into or expansion of borrowing arrangements; research and development management, manufacturing,incentive payments, government grants, co-financing from pharmaceutical companies and salesother corporate sources; and marketing personnelpotential future collaboration agreements with pharmaceutical companies or other third parties. We may be unable to broaden itsraise additional funds or enter into such other agreements or arrangements when needed on favorable terms. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization, potential in-licenses or acquisitions plans for one or more of our product and service lines and market reach.candidates.
Results of Operation for Quarter Ended September 30, 2021 and 2020
Revenues, Costs and Gross Margins
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| Three months ended September 30, |
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| 2021 |
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| 2020 |
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Revenues |
| $ | 363,052 |
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| $ | 192 |
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Cost of revenues |
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| (103,638 | ) |
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| (123 | ) |
Gross margin |
| $ | 259,414 |
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| $ | 69 |
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Revenues forWe are unable to predict the quarter ended September 30, 2021 was $363,052, comparedtiming or amount of unexpected expenses or when or if we will be able to $192 inachieve or maintain profitability due to the same period of 2020. Cost of revenues was $103,638, comparednumerous risks and uncertainties associated with product development and related legal regulatory requirements. When we are eventually able to $123 in the same period of 2020. Gross margin was $259,414, comparedgenerate additional product sales, those sales may not be sufficient to $69 in the same period of 2020. The Company began sales of its Ainos Covid-19 Test Kits in June this year, of which 64% were sold through distribution channelsbecome profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and the remaining 36% mainly soldbe forced to enterprises, schools and medical institutions.reduce or terminate our operations.
ResearchAs of March 31, 2022, we had available cash and Development Expensescash equivalents of $1,871,349. We anticipate business revenues and further potential financial support from external sources to fund our operations over the next twelve months. We have based this estimate on assumptions that may prove to be incorrect and we could exhaust our available capital resources sooner than we expect. See ”Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for additional information. To finance our continuing operations, we will need to raise additional capital, which cannot be assured.
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| Three months ended September 30, |
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| 2021 |
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| 2020 |
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Research and development expenses |
| $ | 646,798 |
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Impact of COVID-19 on Our Business
DuringThe COVID-19 pandemic presented us an opportunity to grow our business. Substantially all of our operating revenue came from the quarter ended September 30, 2021, the Company’s research and development expenses increased to $646,798 primarily due to spending on testing and developmentsale of the Ainos Covid-19 Test KitCOVID-19 antigen rapid test kits in Taiwan. We intend to broaden our market reach if TCNT, our product co-developer and a moldmanufacturing partner, successfully obtains regulatory clearance in the U.S. or other countries.
We believe affordable, easy-to-use, rapid COVID-19 testing will continue to be in demand at least in the short-term. We anticipate our management apps, when used for manufacturingwith the Ainos antigen rapid test kit, will allow individuals and organizations to effectively manage tests, trace infections, and share results. We also anticipate the Ainos COVID-19 nucleic acid test can help medical professionals quickly scale testing capacity if the product receives regulatory clearance.
We are continuing to monitor the potential impact of the pandemic, but we cannot be certain the future impact on our business, financial condition, results of operations and prospects. Depending on developments relating to the pandemic, including the emergence of new variants, the pandemic may affect our ability to initiate and complete research studies, delay the initiation of our AI Nose pen product.future research studies, disrupt regulatory activities or have other adverse effects on our business, results of operations, financial condition and prospects.
Since AugustResults of Operations for Quarter Ended March 31, 2022 (“Q1 2022”) and March 31, 2021 in support of our medtech transformation we have begun expanding our research and development staffing and committed additional resources into technology and product developments across our Pharmaceutical, Medical Device and Preventive Medicine divisions. As a result, we incurred increased R&D expenses that reflect increased salary for R&D personnel, amortization of acquired intellectual properties, as well as expenses for technology development and technology license fees.(“Q1 2021”):
ForRevenues. The Company reported $87,200 in revenue in Q1 2022 from product sales of the Pharmaceutical Division, we have established a focused approachAinos COVID-19 Antigen Rapid Test Kits. Revenue from product sales in Q1 2021 was $2,121 generated from sales of liposomal nutraceuticals. The cost of sales relating to our core pharmaceutical drug development platform, VELDONA (Very Low-Dose Oral Interferon Alpha). We plan to analyze and explore new applications for VELDONA to optimize business opportunities. To execute this new approach, we plan to conduct further clinical trials of VELDONA for thrombocytopenia and Sjögren’s syndrome, for which we are deploying key resources that include staffing, capital and securing strategic business relationships with various partners, including biotech companies and medical research centers.
For the Medical Device Division, we have implemented a product roadmap for our diagnostics business. We are focused on establishing partnerships for technology development, clinical trials and business developmentsales in order to facilitate our product launch schedule.
For the Preventive Medicine Division, we have set up a research initiative for SRNA technologies to truly effect medical approaches that prevent the advancement of diseases. Our focus is on fundamental research and development of vaccines with the intent to seek out-licensing opportunities and strategic partnerships when appropriate. We have invested in additional staffing, and initiated product development partnerships with medical centers and universities for our mRNA vaccine research initiative.
Selling, General and Administration Expenses
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| Three months ended September 30, |
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| 2021 |
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| 2020 |
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Selling, general and administrative expenses |
| $ | 795,958 |
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| $ | 321,153 |
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Our selling, general and administration expenseQ1 2022 was $795,958,$41,078 compared to $321,153$1,249 in Q1 2021. Gross profit from product sales in Q1 2022 was $46,122 as compared to $872 in Q1 2021. Gross profits generated from product sales increased by $45,250 between Q1 2022 and the same quarter in the same periodprevious year. In 2021, the Company discontinued sales of 2020. The increase was associated with increased marketing expensesliposomal nutraceuticals and instead plans to focus on sales of our Ainos Covid-19 Test Kit, expenses related toPOCTs, including the Ainos KY Transaction, an increase of employee salaries and professional service fees for corporate governance and legal compliance matters.COVID-19 Antigen Test Kit.
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Operating Loss
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| Three months ended September 30, |
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| 2021 |
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| 2020 |
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Operating loss |
| $ | (1,183,343 | ) |
| $ | (321,084 | ) |
Our operating loss was $1,183,343Research and Development Expenses. R&D expenses in Q1 2022 were $1,577,454 mainly consisting of amortization expense of intellectual property assets, staffing and co-development research. There were no R&D expenses during the thirdsame quarter in 2021. We expect that our R&D expenses will increase over time as we further product development of 2021, comparedour POCT and other product candidates. In addition to increasing our in-house R&D staffing, we also contribute R&D funding under our co-development agreements with Taiwan Carbon Nano Technology (“TCNT”), our manufacturing collaborator and our affiliate company, for POCT products and InnoPharmax, Inc. to jointly develop and promote an operating loss of $321,084 in the same period of 2020 as a result of expenses associated with the Ainos KY Transaction and newly-initiated operational activities.
Net Loss
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| Three months ended September 30, |
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| 2021 |
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| 2020 |
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Net loss |
| $ | (1,161,110 | ) |
| $ | (323,285 | ) |
Net loss was $1,161,110orally administered CICCT for the three months ended September 30, 2021, compared to $323,285 in the same periodtreatment of 2020.COVID-19 and potentially other viral infections.
Results of Operation for the Nine months Ended September 30, 2021 and 2020
Revenues, Costs and Gross Margins
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| Nine months ended September 30, |
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| 2021 |
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| 2020 |
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Revenues |
| $ | 568,164 |
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| $ | 15,876 |
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Cost of revenues |
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| (174,395 | ) |
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| (11,221 | ) |
Gross margin |
| $ | 393,769 |
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| $ | 4,655 |
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Revenues for the first nine months of 2021 were $568,164, compared to $15,876 in the same period of 2020. Cost of revenue was $174,395 compared to $11,221 in the same period of 2020. Gross margin was $393,769 compared to $4,655 in the same period 2020. The Company began sales of its Ainos Covid-19 Test Kits in June 2021, of which 62% are sold through distribution channels and the remaining 38% mainly sold to enterprises, schools and medical institutions.
Research and Development Expenses
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| Nine months ended September 30, |
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| 2021 |
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| 2020 |
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Research and development expenses |
| $ | 646,798 |
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| $ | 389 | |
Research and development cost for the nine months of 2021 was $646,798, compared to $389 in the same period of 2020. The increase was due to the purchase of patents under the Ainos KY Transaction and associated new product development and research expenses.
Selling, General and Administrative ExpensesExpenses. Selling, general and administrative expenses were $551,730 and $522,981 in Q1 2022 and Q1 2021, respectively. The $28,749 (6%) increase was largely due to increased expenses associated with staffing and consulting.
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| 2021 |
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| 2020 |
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Selling, general and administrative expenses |
| $ | 2,178,969 |
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| $ | 1,001,893 |
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Operating Loss. The Company's operating loss was $2,083,062 and $522,109 in Q1 2022 and Q1 2021, respectively, reflecting a $1,560,953 (299%) increase in operating losses between the reporting periods. As stated in our discussion about R&D expenses, our operating losses are mainly attributable to additional R&D expenses in line with the Company's product development initiatives.
Interest Expense. In Q1 2022 interest expense was $16,687 compared to $11,897 in Q1 2021, due to accrued interest for convertible and other debt notes issued by the Company.
Net Loss. Net loss attributable to common stock shareholders was $2,099,895, in Q1 2022 compared to $534,006 in Q1 2021, resulting in a $1,565,889 (293%) increase in net losses attributable to our shareholder of common stock. The net losses are attributable to increased R&D expenses in line with the Company's product development plans.
Liquidity and Capital Resources
As of March 31, 2022 and December 31, 2021, the Company had available cash of $1,871,349 and $1,751,499, respectively. The following table summarizes our cash flows for the first quarter of 2022:
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| Three Months Ended March 31, |
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| 2022 |
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| 2021 |
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Net cash used in operating activities |
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| (1,389,889 | ) |
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| (211,737 | ) |
Net cash used in investing activities |
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| (135,899 | ) |
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| – |
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Net cash provided by financing activities |
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| 1,644,884 |
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| 198,869 |
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Selling, general and administrative expenses were $2,178,969 for the nine months ended September 30, 2021,Operating activities:
Cash used in operating activities increased in Q1 2022 compared to $1,001,893Q1 of 2021, due to higher net loss and negative working capital. We incurred net operating outflow of $1,389,889 for Q1 2022 and $211,737 for Q1 2021. While our revenues grew in Q1 2022 due to sales of the Ainos COVID-19 test kits, our acquisition of intellectual property and equipment, increased staffing, and investment in research and developments increased our expenses and resulted in higher net losses of $2,099,895. These higher net losses were partially offset by increased amortization and depreciation for acquisition of intellectual property and equipment to $1,168,773 for Q1 2022 from $3,905 for Q1 2021. Negative working capital primarily resulted from the increase of inventories due to upcoming anticipated sales activities and the increase of other current assets primarily due to the preparation for a potential public offering for which we filed a Registration Statement on Form S-1 under the Securities Act of 1944, as amended, on April 28, 2022.
Investing activities:
Cash used in investing activities increased in Q1 2022 compared to cash used in Q1 2021, driven by the acquisition of R&D equipment, and building out existing facilities.
Financing activities:
Cash provided by financing activities increased in Q1 2022 compared to cash provided in Q1 2021, which primarily reflects higher proceeds from convertible notes payable and notes payable. For a discussion of the notes, see “Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.”
As of March 31, 2022, the principal amount of our convertible and other notes payable due within the next 12 months was $3,376,526 and $1,013,405, respectively. The holders of these notes waived their rights to the unpaid default interest under the notes in Q3 2021. See footnotes 4 and 6 of consolidated financial statements for more information related to convertible and other notes payable. In March 2022, we issued a non-convertible note in the same periodprincipal amount of 2020.$800,000 due in March 2023.
On January 30, 2022, we issued a noninterest-bearing Convertible Promissory Note in the principal amount of $26,000,000 (the “APA Convertible Note”) in connection with the closing under the Asset Purchase Agreement. The increase was associatedprincipal amount of the APA Convertible Note is due in January 2027. If not earlier repaid, the APA Convertible Note will be converted into shares of our common stock immediately prior to the closing of any public offering of our common stock as a result of which our common stock will be listed on a U.S. stock exchange.
In addition, in the first quarter of 2022, we executed $900,000 of convertible notes with increased marketingterms that are substantially similar to the terms of the APA Convertible Note.
In 2022 we intend to focus on commercializing our POCT medical devices and developing our CICCT program. Our near-term liquidity requirements will include expenses for clinical trials, repayment of debt not converted into equity, regulatory clearances, and marketing to commercialize our POCT devices, including the Ainos Covid-19COVID-19 Nucleic Acid Test, Kit, expenses related to the Ainos KY Transaction, anFlora, the Ainos Pen and our CICCT program. We also intend to increase of employee salaries,staffing for general administration, marketing and professional service fees for corporate governance and legal compliance matters.technology development purposes.
Operating Loss
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| Nine months ended September 30 |
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| 2021 |
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| 2020 |
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Operating loss |
| $ | (2,431,998 | ) |
| $ | (997,627 | ) |
Company operating loss was $2,431,998 for the nine months ended September 30, 2021, compared with $997,927In 2023 and beyond, we intend to invest in the same period of 2020. This was the result of an increase of sales, research and development and newly-initiated operational expenses.
Net Loss
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| Nine months ended September 30, |
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| 2021 |
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| 2020 |
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Net loss |
| $ | (2,443,891 | ) |
| $ | (1,002,130 | ) |
Net loss was $2,443,891clinical trial spending to advance our VELDONA development efforts for disease indications such as thrombocytopenia and Sjögren’s syndrome. We also plan on investing in clinical trials and regulatory approval for the nine months ended September 30, 2021, compared to $1,002,130CHS430 device, in the same period of 2020.
Liquiditycollaboration with TCNT, and Capital Resources
As of September 30, 2021, the Company had available cash of $706,931 whereas it had a cash position of $83,767clinical trial expenses for the same period in 2020 and $22,245 as of December 31, 2020. The Company had a working capital deficit of $1,937,163 at the end of September 30, 2021, and a working capital deficit of $919,880 for the same period in 2020, an increase of 111%. As of December 31, 2020, working capital was a deficit of $1,022,155.our SRNA program.
The Company anticipates that its cash reserves, business revenues from the Ainos COVID-19 test kits, sales of its common stock, and potential financial supportdebt financing through convertible and non-convertible notes are sufficient to fund the Company’s operations over the next twelve months. As the number of reported COVID cases has been increasing in Taiwan, we anticipate demand for the test kits to increase, at least in the short term. There can be no assurance that we will be successful in our efforts to make the Company profitable. If those efforts are not successful, the Company may raise additional capital through the issuance of equity securities, debt financings or other sources in order to further implement its business plan.plan, including, as required, additional external financing from our majority shareholder. However, if such financing is not available when needed and at adequate levels, the Company will need to reevaluate its operating plan.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company,” we are not required to provide the information under this Item 3.
ITEM 4. Controls and Procedures
Disclosure Controls and Procedures
At the end of the period covered by this report, ourOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021.the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC'sSEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company'scompany’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
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Management's Report on
Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). UnderAs previously disclosed in our Form 10-K/A for the year ended December 31, 2021, under the supervision and with the participation of our management, including our principal executive officerChief Executive Officer and principal financial officer,Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective at the reasonable assurance level as of September 30,December 31, 2021.
Changes As a result of such review as of December 31, 2021, we identified certain deficiencies in Internal Control Over Financial Reporting
We have not experienced any material impact tothe design and implementation of our internal controls over financialwith respect to reporting even though our workforce continues to primarily work-from-home due to COVID-19. We are continually monitoring and assessing the COVID-19 situation and its impact on our internal controls.implemented a remediation plan.
ThisDuring the first quarter report does not include an attestation report of 2022, as part of our remediation plan and procedures, we began implementing the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit the company to provide only management's report in this quarter report.following changes:
· | Increasing staff resources dedicated to internal controls and reporting including the hiring of a full-time accounting assistant for the CFO who is dedicated to financial reporting; | |
· | Specifically delegating roles and responsibilities for each participant in compiling and reviewing our reports including designating a single-point of | |
· | Designating an executive team to review all narrative disclosures, including potential changes thereto. The executive team is comprised of the CEO, CFO, Director of Corporate Development, Executive Vice President of Operations, and Chief Legal Counsel; | |
· | Establishing a final review process with our Chief Executive Officer and Chief Financial Officer prior to finalizing and filing our reports. At each stage of preparing financial reports the executive team conducts a review of draft materials and discusses the results in telephone conferences; and | |
· | Establishing an executive review team to approve the final EDGAR version and IXBRL data file for our reports. As described above, the executive team meets and confers to review the final financial reports that are then submitted to the Audit Committee and Board for final approval prior to filing. |
During the remainder of 2022, we will continue to implement our remediation plan. In connection with such plan, we expect to further increase our internal corporate resources focused on improving the design, implementation and monitoring of our internal control systems.
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 suchmaterial legal proceedings or claims against us.
ITEM 1A. Risk Factors.
Please carefully considerinvolving the following discussion of significant factors, events, and uncertainties that make an investment in our securities risky. The events and consequences discussed in these risk factors could, in circumstances we may or may not be able to accurately predict, recognize, or control, have a material adverse effect on our business, growth, reputation, prospects, financial condition, operating results (including components of our financial results), cash flows, liquidity, and stock price. These risk factors do not identify all risks that we face; our operations could also be affected by factors, events, or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations. In addition, the global economic climate amplifies many of these risks.
We Face Intense Competition
The pharmaceutical industry is an expanding and rapidly changing industry characterized by intense competition. The Company believes that our ability to compete will be dependent in large part upon our ability to successfully operate business lines, continue recapitalization, and steadily enhance and improve our core technology products. In order to do so, we must effectively utilize and expand our research and development capabilities and, once developed, quickly convert new technology into products and processes, which can then be commercialized. Competition is based primarily on scientific and technological superiority, technical support, availability of patent protection, access to adequate capital, the ability to develop, acquire and market products and processes successfully, the ability to obtain governmental approvals and the ability to serve the particular needs of commercial customers. Corporations and institutions with greater resources therefore, have a significant competitive advantage.
Our potential competitors include entities that develop and produce therapeutic agents and/or medical devices for treatment of human and animal disease. These include numerous public and private academic and research organizations and pharmaceutical and biotechnology companies pursuing production of, among other things, biologics from cell cultures, genetically engineered drugs and natural and chemically synthesized drugs. Many of these potential competitors have substantially greater capital resources, research and development capabilities, manufacturing and marketing resources. Competitors may succeed in developing products or processes that are more effective or less costly or that gain regulatory approval prior to our products. The Company expects that the number of competitors and potential competitors will increase as more anti-viral and cytotoxic products receive commercial marketing approvals from the FDA or analogous foreign regulatory agencies. Any of these competitors may be more successful in manufacturing, marketing and distributing its products.
Our Expansion Places a Significant Strain on our Management, Operational, Financial, and Other Resources
Increasing our product and service offerings will require scaling our management, financial and research and development resources. The complexity of the current focus of our business on innovative biotechnologies and treatments, digital health, and diagnostic point-of-care testing can place significant strain on our management, personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions, and our expansion increases these factors. Failure to manage growth effectively could damage our reputation, limit our growth, and negatively affect our operating results.Company.
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Our Expansion into New Products, Services, Technologies, and Geographic Regions Subjects Us to Additional RisksITEM 1A. Risk Factors.
We may have limited orThere are no experience in our newer market segments, and our customers may not adopt our product or service offerings. These offerings, which can present new and difficult technology challenges, may subject usmaterial changes to claims if customers of these offerings experience service disruptions or failures or other quality issues. In addition, profitability, if any, in our newer activities may not meet our expectations, and we may not be successful enough in these newer activities to recoup our investments in them. Failure to realize the benefits of amounts we invest in new technologies, products, or services could resultrisk factors as previously disclosed in the value of those investments being written down or written off.
Our International Operations Expose Uscompany’s Form 10-K/A in response to a Number of Risks
We have relatively little operating experience and may not benefit from any first-to-market advantages or otherwise succeed. It is costly to establish, develop, and maintain international operations, sales and marketing channels, and research and development and licensing capacity. Our international operations may not become profitable on a sustained basis.
In addition to risks described elsewhere in this section, our international sales and operations are subject to a number of risks, including:
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Our Commercial Agreements, Strategic Alliances, and Other Business Relationships Expose Us to Risks
Our business growth depends on commercial agreements, strategic alliances, and business relationships. Under these agreements, we provide access to our research library and clinical data as part of licensing and sales and marketing agreements. These arrangements are complex and require substantial infrastructure capacity, personnel, and other resource commitments, which may limit the amount of business we can service. We may not be able to implement, maintain, and develop the components of these commercial relationships, which may include research and development, clinical trials, diagnostic software and hardware design, and engaging third parties to perform services.
Our licensing agreements may be dependent on the volume of another company’s sales. Therefore, when the other company’s offerings are not successful, the compensation we receive may be lower than expected or the agreement may be terminated. Moreover, we may not be able to enter into additional or alternative commercial relationships and strategic alliances on favorable terms. We also may be subject to claims from businesses to which we provide these services if we are unsuccessful in implementing, maintaining, or developing these services.
We Face Supply Risk
We are vulnerable to supply risks. The Company’s long-time human interferon producer is no longer manufacturing interferon. Plans for further clinical trials and commercialization of a low-dose interferon product are dependent upon identifying a new source of interferon. The Company has secured a supply partner for current needs but will continue to actively seek new alternative suppliers and explore additional sourcing options. Procuring a new source of interferon may require additional studies to compare results to the Company’s research and further clinical trials may have to be performed. The Company’s inability to secure interferon supplies may adversely affect our operating results.
The Company is the master sales and marketing agent for the Ainos Covid-19 Test Kit developed by Taiwan Carbon Nano Corporation (“TCNT”), a related party. The Company sources the Ainos Covid-19 Test Kit exclusively from TCNT. TCNT currently manufactures the Covid-19 Test Kit in Taiwan. Any unexpected supply disruption by TCNT may adversely affect our business results.
We plan to develop, sell, and/or market other rapid test kit products with a focus on point-of-care diagnostic medical devices. We may continue to rely on TCNT to manufacture these devices. Any unplanned supply risk at TCNT may negatively affect our future business plan.
Government Regulation Is Evolving and Unfavorable Changes Could Harm Our Business
We are subject to general business regulations and laws, as well as regulations and laws specifically governing biologics, pharmaceuticals, and medical devices and treatments. A large number of jurisdictions regulate our operations, and the extent, nature, and scope of such regulations is evolving and expanding as the scopePart I - Item 1A of our businesses expands. We are regularly subject to formal and informal reviews and investigations by governments and regulatory authorities under existing laws, regulations, or interpretations or pursuing new and novel approaches to regulate our operations. Unfavorable regulations, laws, decisions, or interpretations by government or regulatory authorities applying those laws and regulations, or inquiries, investigations, or enforcement actions threatened or initiated by them, could cause us to incur substantial costs, expose us to unanticipated civil and criminal liability or penalties (including substantial monetary fines), diminishannual report filed with the demand for, or availability of, our products and services, increase our cost of doing business, require us to change our business practices in a manner materially adverse to our business, damage our reputation, impede our growth, or otherwise have a material effectSEC on our operations.April 15, 2022.
Claims, Litigation, Government Investigations, and Other Proceedings May Adversely Affect Our Business and Results of Operations
As a company focusing on diagnostics and treatments for a wide range of human health care needs, we may be subject to actual and threatened claims, litigation, reviews, investigations, and other proceedings, including proceedings by governments and regulatory authorities, involving a wide range of issues, including patent and other intellectual property matters, taxes, labor and employment, competition and antitrust, privacy and data protection, product liability, consumer protection, commercial disputes, goods and services offered by us and by third parties, and other matters. Any of these types of proceedings can have an adverse effect on us because of legal costs, disruption of our operations, diversion of management resources, negative publicity, and other factors. The outcomes of these matters are inherently unpredictable and subject to significant uncertainties.
Our results of operations may be negatively impacted by the COVID-19 outbreak
To date the outbreak has not had a material adverse impact on our operations. The future impact of the outbreak is highly uncertain and cannot be predicted, and there is no assurance that the outbreak will not have a material adverse impact on the future results of the Company.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None2021 Asset Purchase Agreement
On November 18, 2021, we entered into the Asset Purchase Agreement with Ainos KY, our majority shareholder. We closed the transaction on January 30, 2022. Pursuant to the Asset Purchase Agreement, we acquired certain intellectual property assets and certain manufacturing, testing, and office equipment for a total purchase price of $26,000,000). As payment of the Purchase Price, at the closing on January 30, 2022, the Company issued to Ainos KY the APA Convertible Note, a convertible promissory note in the principal amount of $26,000,000.
The principal sum of the APA Convertible Note is payable in cash on January 30, 2027, although we may prepay the APA Convertible Note in whole or in part without penalty. The APA Convertible Note is non-interest bearing. The APA Convertible Note will be automatically converted into shares of our common stock immediately prior to the closing of this offering at a conversion price equal to 80% of the per Unit public offering price.
2021 – 2022 Ainos KY Working Capital Advances
In 2021, Ainos KY provided working capital advances in the form of convertible note financing in the aggregate amount of $3,000,000. The working capital convertible notes issued in 2021 bear interest at the AFR short-term rate of 1.85% and may be convertible in whole or in part at a conversion price of $0.20 per share, subject to adjustment. On March 17, 2022, we executed a Promissory Note Extension with Ainos KY dated March 17, 2022, pursuant to which the maturity dates for the convertible notes issued in 2021 to Ainos KY were extended to February 28, 2023.
In March 2022, Ainos KY provided us a working capital advance in the form of a non-convertible note financing in the principal amount of $800,000, at a 1.85% per annum interest rate, with a maturity date of February 28, 2023.
Convertible Note Offering Pursuant to Regulation S
The Company issued convertible notes pursuant to Regulation S as more particularly described below:
· | Under a Convertible Note Purchase Agreement dated as of March 31, 2022 by and between the Company and Yun-Han Liao (the “Purchaser”). The Purchaser is the daughter of We Hui-Lan, the Company’s Chief Financial Officer. Pursuant to the Agreement the Purchaser paid a total of $50,000 to the Company in exchange for a Convertible Promissory Note issued by the Company in the principal amount of $50,000 (the “Liao Convertible Note”). | |
· | Under those certain Convertible Note Purchase Agreements dated as of March 28, 2022 (the “Regulation S Agreements”) by and between the Company and Chih-Cheng Tsai, Ming-Hsien Lee, Yu-Yuan Hsu, and Top Calibre Corporation, a British Virgin Islands company (collectively the “Regulation S Purchasers”). Pursuant to the Regulation S Agreements, the Purchasers paid a total of $850,000 (the “Principal Amount”) to the Company in exchange for Convertible Promissory Notes issued by the Company in the Principal Amount (together with the Liao Convertible Note, the “Convertible Notes”). | |
The Principal Amount of the Convertible Notes are payable in cash on March 30, 2027, although the Company may prepay the Convertible Notes in whole or in part without penalty. The Convertible Notes are non-interest bearing. If not earlier repaid, the Convertible Notes will be converted into shares of common stock, $0.01 par value per share of the Company, or such other securities or property for which the Convertible Notes may become convertible, immediately prior to the closing of any public offering of the Company’s common stock as result of which the Company’s common stock will be listed on a U.S. stock exchange. The conversion price, subject to certain adjustments, will be eighty percent (80%) of the initial public offering price of the offering. | ||
ITEM 3. Defaults Upon Senior Securities.
None
ITEM 4. Mine Safety Disclosures.
Not applicable
ITEM 5. Other Information.
Employment Offer Letters to CEO and CFO
On August 11, 2021, the Company and the CEO of the Company executed an Offer Letter, subject to mutual agreement of employment terms and conditions and approval of the Board, under which Mr. Tsai was offered a monthly salary of 250,000 New Taiwan Dollars (equivalent to approximately $8,929), a year-end bonus of 2 months’ salary, and a variable compensation based on Company profit targets decided by the Company’s Compensation Committee, and payable as 10-30% of total annual compensation in the form of cash, securities and/or other discretionary remuneration. An initial equity grant to Mr. Tsai will be determined by the Compensation Committee at a later date. Other benefits, including labor insurance, health insurance and other benefits, will be based on local regulations and the Company’s policies.
On August 11, 2021, the Company and the CFO of the Company executed an Offer Letter, subject to mutual agreement of employment terms and approval of the Board, under which Ms. Wu was offered a monthly salary of 230,000 New Taiwan Dollars (equivalent to approximately $8,214), a year-end bonus of 2 months’ salary, and a variable compensation based on Company profit targets decided by the Company’s Compensation Committee, and payable as 10-30% of total annual compensation in the form of cash, securities and/or other discretionary remuneration. An initial equity grant to Ms. Wu will be determined by the Compensation Committee at a later date. Other benefits, including labor insurance, health insurance and other benefits, will be based on local regulations and the Company’s policies.Not applicable
As part of our Board’s commitment to corporate governance, our Company’s Board adopted the following policies governing the Board, the Company, and its Committees:
Board Policies
Rules and Procedures of Board of Directors Meetings, adopted August 20, 2021, incorporated herein by this reference, and attached hereto as Exhibit 99.1;
Corporate Governance Policies of the Board of Directors, adopted August 20, 2021, incorporated herein by this reference, and attached hereto as Exhibit 99.2;
Charter of the Audit Committee of the Board of Directors, adopted August 20, 2021, incorporated herein by this reference, and attached hereto as Exhibit 99.3;
Charter of the Compensation Committee of the Board of Directors, adopted August 20, 2021, incorporated herein by this reference, and attached hereto as Exhibit 99.4;
Insider Trading Policy of the Board of Directors, as amended and adopted August 20, 2021, incorporated herein by this reference, and attached hereto as Exhibit 99.5; and
Code of Business Conduct and Ethics, adopted August 20, 2021, as reported in our Form 8-K, incorporated herein by this reference, filed on August 26, 2021 and attached hereto as Exhibit 99.6
Amendments to Bylaws
The Board of Directors of the Company approved the following amendment to Article II, Section 10 of the Company’s Bylaws effective August 20, 2021, as reported in our Form 8-K, incorporated herein by this reference, filed on August 26, 2021:
“Section 10. Compensation.The Board of Directors may provide for the compensation to members of the Board of Directors upon the recommendation of its Compensation Committee and in accordance with its Compensation Policies; provided, that nothing contained herein shall be construed to preclude any director from serving the Corporation in any other capacity or receiving compensation therefor.” (emphasis added)
Prior to the amendment, Article II, Section 10 of the Company’s Bylaws provided as follows:
“Section 10. Compensation. Directors as such shall not receive any stated salary for their services, but by resolution of the Board a fixed sum and expense of attendance, if any, may be allowed for attendance at such regular or special meetings of the Board; provided, that nothing contained herein shall be construed to preclude any director from serving the Corporation in any other capacity or receiving compensation therefor.”
Additionally, the Board of Directors of the Company approved an administrative amendment to the Company’s Bylaws replacing the Company’s former corporate name, “AMARILLO CELL CULTURE COMPANY, INCORPORATED” to the Company’s current corporate name “Ainos, Inc.”
| Table of Contents |
ITEM 6. Exhibits.
EXHIBIT INDEX
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| INCORPORATED BY REFERENCE | ||||||||
EXHIBIT NUMBER |
| DESCRIPTION |
| FILED WITH THIS FORM 10-K |
| FILING DATE WITH SEC |
| FORM |
| EXH # |
| HYPERLINK TO FILINGS |
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| Restated Certificate of Formation of the Company, dated April 15, 2021 and filed April 21, 2021 |
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| 4/21/2021 |
| 8-K |
| 3. |
| Restated Certificate of Formation of the Company, dated and filed July 27, 2015. | |
|
| X |
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4.1 |
| Specimen Common Stock Certificate |
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| 8/8/1996 |
| SB-2 |
| 4.1 |
| Specimen Common Stock Certificate. |
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| X |
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| Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350 |
| X |
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| Rules and Procedures of Board of Directors Meetings, adopted August 20, 2021 |
| X |
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| Corporate Governance Policies of the Board of Directors, adopted August 20, 2021 |
| X |
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| Charter of the Audit Committee of the Board of Directors, adopted August 20, 2021 |
| X |
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| Charter of the Compensation Committee of the Board of Directors, adopted August 20, 2021 |
| X |
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| Insider Trading Policy of the Board of Directors, as amended and adopted August 20, 2021 |
| X |
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99.6 |
| Code of Business Conduct and Ethics, adopted August 20, 2021 |
|
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| 8/26/21 |
| 8-K |
| 5.05 |
| https://www.sec.gov/ix?doc=/Archives/edgar/data/1014763/000165495421009457/amar_8k.htm |
101.INS |
| XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the XBRL document. |
| X |
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101.SCH |
| XBRL Taxonomy Extension Schema Document |
| X |
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101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase |
| X |
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101.DEF |
| XBRL Taxonomy Extension Definition Linkbase |
| X |
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101.LAB |
| XBRL Taxonomy Extension Label Linkbase |
| X |
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101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase |
| X |
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104.1 |
| Cover Page Interactive Data File |
| X |
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| INCORPORATED BY REFERENCE | |||||
EXHIBIT NUMBER | DESCRIPTION | FILED WITH THIS FORM 10-K | FILING DATE WITH SEC | FORM | EXH # | HYPERLINK TO FILINGS |
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Restated Certificate of Formation of the Company, dated and filed July 27, 2015 |
| 3/30/2016 | 10-K | 3.i. | Restated Certificate of Formation of the Company, dated and filed July 27, 2015. | |
Amended and Restated Bylaws of the Company, effective August 20, 2021 |
| 4/28/2022 | S-1 | 3.2 | https://www.sec.gov/Archives/edgar/data/0001014763/000165495422005505/aimd_ex32.htm | |
| 8/8/1996 | SB-2 | 4.1 | Specimen Common Stock Certificate. | ||
| 2/3/2022 | 8-K | 2.1 | https://www.sec.gov/Archives/edgar/data/0001014763/000165495422001066/aimd_ex21.htm | ||
Convertible Promissory Note, dated as of January 30, 2022, issued by Ainos, Inc. |
| 2/3/2022 | 8-K | 10.1 | https://www.sec.gov/Archives/edgar/data/0001014763/000165495422001066/aimd_ex101.htm | |
| 3/17/2022 | 8-K | 10(i) | https://www.sec.gov/Archives/edgar/data/0001014763/000165495422003341/aimd_ex10i.htm | ||
| 3/17/2022 | 8-K | 10(ii) | https://www.sec.gov/Archives/edgar/data/0001014763/000165495422003341/aimd_ex10ii.htm | ||
Employment Agreement by and between Chun-Hsien Tsai and Ainos, Inc. dated March 17, 2022 |
| 3/17/2022 | 8-K | 10(iii) | https://www.sec.gov/Archives/edgar/data/0001014763/000165495422003341/aimd_ex10iii.htm | |
Employment Agreement by and between Hui-Lan Wu (aka Celia Wu) and Ainos, Inc. dated March 17, 2022 |
| 3/17/2022 | 8-K | 10(iv) | https://www.sec.gov/Archives/edgar/data/0001014763/000165495422003341/aimd_ex10iv.htm | |
Employment Agreement by and between Chih-Heng Jack Lu and Ainos, Inc. dated March 17, 2022 |
| 3/17/2022 | 8-K | 10(v) | https://www.sec.gov/Archives/edgar/data/0001014763/000165495422003341/aimd_ex10v.htm | |
| 4/4/2022 | 8-K | 2.1 | https://www.sec.gov/Archives/edgar/data/0001014763/000165495422004526/aimd_ex21.htm | ||
| 4/4/2022 | 8-K | 10.1 | https://www.sec.gov/Archives/edgar/data/0001014763/000165495422004526/aimd_ex101.htm | ||
X |
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X |
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20 |
| Table of Contents |
X | ||||||
X | ||||||
X | ||||||
100 | XBRL – Related Documents | X | ||||
101.INS | XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the XBRL document. | X | ||||
101.SCH | XBRL Taxonomy Extension Schema Document | X | ||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | X | ||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase | X | ||||
101.LAB | XBRL Taxonomy Extension Label Linkbase | X | ||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | X | ||||
104.1 | Cover Page Interactive Data File | X |
The exhibits listed in the Exhibit Index are filed or incorporated by reference as part of this filing.
+ Schedules (as similar attachments) have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K.
* Indicates a management contract or compensatory plan or arrangement.
| Table of Contents |
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.
| AINOS, INC. |
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Date: | By: |
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| Chun-Hsien Tsai, Chairman of the Board, President, and | |
Chief Executive Officer |
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Date: | By: | /s/ Hui-Lan Wu |
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| Hui-Lan Wu, Chief Financial Officer |
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