Ainos, Inc 10-K for FY2022
Ainos, Inc. (AIMD)
About this 10-K
Ainos, Inc filed this 10-K on April 3, 2023, covering the fiscal year ended December 31, 2022 (FY2022).
Headline figures
Fiscal year ended December 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $3.52M
- up 492.0% from $594.56K a year earlier
- Net loss
- $14.01M
- compared with a net loss of $3.89M a year earlier
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM
(Mark One)
| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the Fiscal Year Ended
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| Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] Commission File Number |
(Exact name of registrant as specified in its charter) |
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Securities registered under Section 12(b) of the Exchange Act.
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
The (Nasdaq Capital Market) | ||
Common Stock Purchase Warrants | AIMDW | The Nasdaq Stock Market LLC (Nasdaq Capital Market) |
Securities registered under Section 12(g) of the Exchange Act. None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒
Indicate by check mark whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. ☐ Yes ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 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. ☒
Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
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 accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
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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).
As of December 31, 2022, there were issued and outstanding 20,011,602 shares of the registrant’s common stock, par value $0.01, which is the only class of common or voting stock of the registrant. As of that date, the aggregate market value of 5,068,644 shares of common stock held by non-affiliates of the registrant was approximately $
The number of shares of the Registrant’s common stock issued and outstanding as of March 31, 2023 was
The Company’s registration statement related to its underwritten public offering (“Offering”) was declared effective on August 8, 2022, and the Company’s common stock and warrants began trading on the Nasdaq Capital Market (“Nasdaq”) on August 9, 2022 under the trading symbols “AIMD” and “AIMDW”, respectively. The Company completed its underwritten public offering of an aggregated 780,000 units at a public offering price of $4.25 per unit. Each unit issued in the offering consisted of one share of common stock and one warrant to purchase one share of common stock at an exercise price of $4.25.
In connection with the Offering, the Company’s board of directors on April 29, 2022 and our shareholders on May 16, 2022 approved a 1-for-15 reverse stock split (the “Reverse Stock Split”) of the Company’s common stock and each series of its redeemable convertible notes to be consummated prior to the effectiveness of the Offering The par value and authorized shares of the Company’s common stock were not adjusted as a result of the Reverse Stock Split. All issued and outstanding common stock, RSUs, warrants and options to purchase common stock and per share amounts contained in the financial statements have been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented.
The Company filed an amended Restated Certificate of Formation with the Secretary of State of Texas on August 8, 2022 that effectuated the Reverse Stock Split.
TABLE OF CONTENTS
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PART I
The following contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those discussed in the forward-looking statements as a result of certain factors, including those discussed elsewhere in this Form 10-K. The following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this Form 10-K.
ITEM 1. BUSINESS.
Overview
Ainos Inc., formerly 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.
We have historically been involved in extensive research and development of low-dose oral interferon as a therapeutic. We continue to develop our VELDONA platform and other pharmaceutical platforms and recently have acquired intellectual properties to expand our POCT business. In 2021 and 2022, we acquired significant intellectual property from our majority shareholder, Ainos KY, to expand our potential product portfolio into Volatile Organic Compounds (“VOC”) and COVID-19 POCTs.
Our Medtech Solutions
Our solutions are currently comprised of the following:
| · | COVID-19 Antigen Rapid Test Kit. As the first commercialized COVID-19 product we sell, we currently market COVID-19 antigen rapid test kits in Taiwan under emergency use authorization (“EUA”) issued by the Taiwan Federal and Drug Administration (“TFDA”) for healthcare professional use and for self-test use. We also offer companion test management apps for the tests kits for healthcare professional use. We market the test kits under the Ainos brand name. The kit is manufactured by TCNT, our product co-developer. |
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| · | VOC POCT – Ainos Flora. Our Ainos Flora device, currently under clinical study in Taiwan, is intended to perform a non-invasive test for female vaginal health and certain common sexually transmitted diseases (“STDs”) within a few minutes. We are developing a companion app that enables users to conveniently manage test results. We believe Ainos Flora provides connected, convenient, discreet, rapid testing in a point-of-care setting. |
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| · | VOC POCT – Ainos Pen. Our Ainos Pen device is a cloud-connected, multi-purpose, portable breath analyzer that is intended to monitor health conditions within minutes. We expect consumers to be empowered to share their test results with their physicians through in-person and telehealth medical consultations. |
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| · | VOC POCT – CHS430. The CHS430 device is intended to provide non-invasive testing for ventilator-associated pneumonia within few minutes, as compared to current standard of care invasive culture tests that typically take more than two days to provide results. We plan to be the exclusive sales agent for CHS430, pursuant to our Product Development Agreement with our co-developer, TCNT, who will manufacture the product. |
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| · | Very Low-Dose Oral Interferon Alpha (“VELDONA”). VELDONA is a low-dose oral interferon alpha (“IFN-α”) formulation based on our nearly four decades of research on IFN-α’s broad treatment applications. Our pipeline candidates include oral treatment for COVID-19 for human, feline chronic gingivostomatitis (FCGS) and canine atopic dermatitis (CAD). We also intend to explore various business opportunities, including outlicensing, to advance other candidates including thrombocytopenia, Sjögren’s syndrome, aphthous stomatitis, chemotherapy-induced stomatitis, influenza, and the common cold. |
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| · | Synthetic RNA (“SRNA”). We are developing a SRNA technology platform in Taiwan with a long-term goal of developing next-generating precision treatments and rapid tests. |
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Business Strategies
An integral part of our operating strategy is to 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 POCT products and low-dose interferon therapeutics.
In 2023, we are prioritizing the commercialization of our lead VOC POCT candidate, Ainos Flora, and pursue outlicensing of our VELDONA candidates. As a general strategy, we plan to conduct clinical trials in Taiwan and use the data to apply for TFDA approval and, if applicable, FDA clearance for our product candidates. If our products are approved, we plan to either work with third-party distributors to market our products in applicable countries or seek various business relationships with other companies to advance our products to eventual commercialization.
Patents and Proprietary Rights
The Company has built an extensive patent portfolio of intellectual property consisting of patents related to VOC technologies, POCT products, and low-dose orally administered interferon that encompass method of use or treatment, and/or composition of matter and manufacturing. The Company presently owns a total of 63 patents, of which 50 are active patents and 13 are pending patent approval.
There are no current patent litigation proceedings involving the Company.
Government Regulation
Regulation of Medical Devices in Taiwan
Our product candidates and operations are subject to the Taiwan Medical Devices Act and its implementation regulations (collectively the “Taiwan MDA”), which govern the development, design, pre-clinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, import, export, adverse event reporting, advertising, promotion, marketing and distribution of medical devices. Under the Taiwan MDA, medical devices, depending on the degree of risk associated with each medical device and the extent of manufacturer and regulatory control needed to provide reasonable assurance of its safety and effectiveness, will be subject to differentiated level of review and examination of TFDA before marketing the device. Unless an exemption applies, each medical device requires either (a) an approval granted by TFDA or (b) a registration with TFDA before launching distribution or marketing in Taiwan. The latter is a simplified premarket review process applicable to some medical devices classified as “lower risk level” items listed in the TFDA announcement. Our product candidates are not on the list of “lower risk level” and the approval of TFDA will be required for us to launch distribution or marketing of such products in Taiwan.
Additionally, the TFDA may grant emergency use authorizations (“EUA”) to allow commercial distribution of medical devices intended to address the public health emergency during public emergencies. The TFDA needs to assess the potential effectiveness of such medical device on a case-by-case basis using a risk-benefit analysis and will require the submission of pre-clinical studies and clinical trials. The TFDA also may revise or revoke an issued EUA if the circumstances justifying such granting no longer exist, the criteria for its granting of EUA are no longer met, or other circumstances make a revision or revocation appropriate to protect the public health or safety. TCNT received EUA from TFDA for distribution of the Ainos SARS-CoV-2 Antigen Rapid Test Kit on June 7, 2021, which we distribute.
Concerning the post-marketing regulatory requirements apply, a company engaging in medical devices business will be required to follow stringent design, testing, control, documentation, and other quality assurance procedures during all aspects of the design and manufacturing process and report to TFDA when the device it markets has or may have caused or contributed to a death or serious injury. The TFDA also has broad discretion to take compliance and enforcement actions, such as requiring a safety surveillance report to be submitted regularly for review, ordering corrections, and conducting on-site inspection if it has any regulatory concerns. Failure to comply with applicable requirements under the Taiwan MDA may subject a device and/or manufacturers, including us, to a variety of administrative sanctions, such as the TFDA’s refusal to approve pending premarket applications, mandatory product recalls, import detentions, business suspension or license/listing cancellation, administrative fines up to NT$50,000,000, product seizures and destruction, civil monetary penalties and/or criminal prosecution and criminal penalties up to NT$50,000,000. Any company engaging in medical devices business may be additionally subject to ten times the criminal fines for each violation made by its authorized representative and/or employees.
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Personal Data Protection Laws in Taiwan
Under the Taiwan Personal Data Protection Act (“PDPA”), each individual or governmental or non-governmental agencies, including our affiliate in Taiwan, should be subject to certain requirements and restrictions for collecting, processing or using personal data. The definition of “personal data” is extended to cover a broad scope, including name, birthday, ID, special features, fingerprints, marriage status, family, education, occupation, medical records, medical history, genetic information, sex life, health examination report, criminal records, contact information, financial status, social activities, and any other data which is sufficient to directly or indirectly identify a specific person. Due to the nature of the use of medical devices, our operation and the operation of our partners might collect, process, or use the data pertaining to a person’s medical records and healthcare, genetics (collectively, sensitive data), which is subject to stricter scrutiny. Generally, we can only obtain such sensitive data when the person consents in writing or electronically. Furthermore, in September 2021, the TFDA published the draft bill of Regulations Governing Security Measures of the Personal Information File for the Business of Wholesale of Medical Devices and Retail Sale of Medical Apparatus authorized under the PDPA, which requires the medical devices wholesalers and retailers to adopt necessary data security/protection measures, and establish prevention and reporting mechanisms in relation to any data breach. The draft bill also empowers the TFDA to conduct regular inspections and audits. If we fail to comply with the PDPA, we may be subject to serious punishment for civil claims, criminal offenses and administrative liabilities: the ceiling of the aggregate compensation amount for damages payable in a single case will be up to NT$200,000,000 or the actual value of loss arising from our violation provided the amount of actual value of such loss is higher than NT$200,000,000; the defendant may be subject to an imprisonment of up to five years; and the penalty for administrative liabilities will be up to NT$500,000 for each violation, and may be imposed consecutively if such violation continues.
Regulation of Veterinary Drugs in Taiwan
Our veterinary product candidates are subject laws and regulations in Taiwan including, but not limited to, the Veterinary Drugs Control Act, Enforcement Rules under the Veterinary Control Act, Guidelines of Good Manuacture Practice for Veterinary Drug Manufacturers, and Taiwan Regulations for Pet Foods and Supplements. The laws and regulations govern, among other things, product design and development, pre-clinical and clinical testing, quality testing, manufacturing, packaging, labeling, storage, record keeping and reporting, clearance or approval, marketing, sales and distribution, promotion and advertising, import and export and post-marketing surveillance.
Under Taiwan law, a “veterinary drug” refers to one of the following substances in the form of bulk chemical compound, formulated preparation, or over the counter drug: Biologics specifically made for preventing and treating animal diseases based on microbiology, immunology or molecular biology; Antibiotics specifically made for preventing and treating animal diseases; Diagnostics announced and designated by the central competent authority for the diagnosis of animal diseases; and drugs that enhance or regulate animal physical functions specifically for preventing and treating animal diseases.
The competent authorities with licensing and enforcement authority under the Veterinary Drugs Control Act include the Council of Agriculture of the central government, the municipal government of a special municipality, or a local city or county.
Regulation of Medical Devices in the United States
Our product candidates and operations are subject to extensive and ongoing regulation by the FDA under the Federal Food, Drug, and Cosmetic Act of 1938 and its implementing regulations, collectively referred to as the FDCA, as well as other federal and state regulatory bodies in the United States. The laws and regulations govern, among other things, product design and development, pre-clinical and clinical testing, manufacturing, packaging, labeling, storage, record keeping and reporting, clearance or approval, marketing, distribution, promotion, import and export and post-marketing surveillance.
The FDA regulates the development, design, pre-clinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, import, export, adverse event reporting, advertising, promotion, marketing and distribution of medical devices in the United States to ensure that medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the requirements of the FDCA. Failure to comply with applicable requirements may subject a device and/or its manufacturer to a variety of administrative sanctions, such as FDA refusal to approve pending premarket applications, issuance of warning letters, mandatory product recalls, import detentions, civil monetary penalties, and/or judicial sanctions, such as product seizures, injunctions, and criminal prosecution.
FDA Premarket Clearance and Approval Requirements
Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA clearance of a 510(k) premarket notification, approval of a premarket approval, or PMA, or grant of a de novo request for classification. During public emergencies, FDA also may grant emergency use authorizations to allow commercial distribution of devices intended to address the public health emergency. Under the FDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent of manufacturer and regulatory control needed to provide reasonable assurance of its safety and effectiveness.
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Class I devices include those with the lowest risk to the patient and are those for which safety and effectiveness can be reasonably assured by adherence to the FDA’s “general controls” for medical devices. Some Class I or low risk devices also require premarket clearance by the FDA through the 510(k) premarket notification process described below.
Class II devices are moderate risk devices that require premarket review and clearance by the FDA through the 510(k) premarket notification process, though certain Class II devices are exempt from this premarket review process. Unless a specific exemption applies, 510(k) premarket notification submissions are subject to user fees. If the FDA determines that the device, or its intended use, is not substantially equivalent to a legally marketed device, the FDA will place the device, or the particular use of the device, into Class III, and the device sponsor must then fulfill more rigorous premarketing requirements.
Class III devices include devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices and devices deemed not substantially equivalent to a predicate device following a 510(k) submission. Submission and FDA approval of a PMA application is required before marketing of a Class III device. As with 510(k) submissions, unless an exemption applies, PMA submissions are subject to user fees.
Emergency Use Authorization
In emergency situations, such as a pandemic, the FDA has the authority to allow unapproved medical products or unapproved uses of cleared or approved medical products to be used in an emergency to diagnose, treat, or prevent serious or life-threatening diseases or conditions caused by chemical, biological, radiological, or nuclear warfare threat agents when there are no adequate, approved, and available alternatives.
Under this authority, the FDA may issue an EUA for an unapproved device if the following four statutory criteria have been met: (1) a serious or life-threatening condition exists; (2) evidence of effectiveness of the device exists; (3) a risk-benefit analysis shows that the benefits of the product outweigh the risks; and (4) no other alternatives exist for diagnosing, preventing, or treating the disease or condition.
Once issued, an EUA will remain in effect and generally terminate on the earlier of (1) the determination by the Secretary of Health and Human Services that the public health emergency has ceased or (2) a change in the approval status of the product such that the authorized use(s) of the product are no longer unapproved. After the EUA is no longer valid, the product is no longer considered to be legally marketed and one of the FDA’s non-emergency premarket pathways would be necessary to resume or continue distribution of the subject product.
The FDA also may revise or revoke an EUA if the circumstances justifying its issuance no longer exist, the criteria for its issuance are no longer met, or other circumstances make a revision or revocation appropriate to protect the public health or safety.
510(k) Clearance Marketing Pathway
Our current products are class II and, but for the immediate ability to seek an EUA, would be subject to premarket notification and clearance under section 510(k) of the FDCA. To obtain 510(k) clearance for a medical device, an applicant must submit to the FDA a 510(k) submission demonstrating that the proposed device is “substantially equivalent” to a legally marketed device, known as a “predicate device.” A showing of substantial equivalence sometimes, but not always, requires clinical data. Once the 510(k) submission is accepted for review, by regulation, the FDA has 90 calendar days to review and issue a determination. As a practical matter, clearance may take and often takes longer. Upon review, the FDA may require additional information, including clinical data, to make a determination regarding substantial equivalence. In addition, the FDA collects user fees for certain medical device submissions and annual fees and for medical device establishments. For fiscal year 2020, the standard user fee for a 510(k) premarket notification application is $11,594.
Before the FDA will accept a 510(k) submission for substantive review, the FDA will first assess whether the submission satisfies a minimum threshold of acceptability. If the FDA determines that the 510(k) submission is incomplete, the FDA will issue a “Refuse to Accept” letter which generally outlines the information the FDA believes is necessary to permit a substantive review and to reach a determination regarding substantial equivalence. An applicant must submit the requested information within 180 days before the FDA will proceed with additional review of the submission.
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If the FDA agrees that the device is substantially equivalent to a predicate device currently on the market, it will grant 510(k) clearance to commercially market the device. If the FDA determines that the device is “not substantially equivalent” to a previously cleared device, for example, due to a finding of a lack of a predicate device, that the device has a new intended use or different technological characteristics that raise different questions of safety or effectiveness when the device is compared to the cited predicate device, the device is automatically designated as a Class III device. The device sponsor must then fulfill more rigorous PMA requirements, or can request a risk-based classification determination for the device in accordance with the “de novo” process, which is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device. If the FDA determines that the information provided in a 510(k) submission is insufficient to demonstrate substantial equivalence to the predicate device, the FDA generally identifies the specific information that needs to be provided so that the FDA may complete its evaluation of substantial equivalence, and such information may be provided within the time allotted by the FDA or in a new 510(k) submission should the original 510(k) submission have been withdrawn.
After a device receives 510(k) marketing clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification in its intended use, will require a new 510(k) marketing clearance or, depending on the modification, PMA approval. The determination as to whether or not a modification could significantly affect the device’s safety or effectiveness is initially left to the manufacturer using available FDA guidance. Many minor modifications today are accomplished by a “letter to file” in which the manufacturer documents the rationale for the change and why a new 510(k) submission is not required. However, the FDA may review such letters to file to evaluate the regulatory status of the modified product at any time and may require the manufacturer to cease marketing and recall the modified device until 510(k) marketing clearance or PMA approval is obtained. The manufacturer may also be subject to significant regulatory fines or penalties.
Over the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process for their products.
PMA Approval Pathway
A PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process. The PMA must be supported by extensive data, including data from pre-clinical studies and clinical trials. Review may take anywhere from 180 days to several years. An advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not accept the panel’s recommendation. In addition, the FDA will generally conduct a pre-approval inspection of the applicant or its third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with the QSR.
The FDA will approve the new device for commercial distribution if it determines that the data and information in the PMA constitute valid scientific evidence and that there is reasonable assurance that the device is safe and effective for its intended use(s). The FDA may approve a PMA with post-approval conditions, it may also condition PMA approval on some form of post-market surveillance. Failure to comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval.
None of our test kits are currently approved under a PMA, nor are we currently seeking approval under a PMA for the Ainos COVID-19 antigen rapid test kit. However, we may in the future develop devices which will require the approval of a PMA.
De novo Classification
Medical device types that the FDA has not previously classified as Class I, II or III are automatically classified into Class III regardless of the level of risk they pose. To market low to moderate risk medical devices that are automatically placed into Class III due to the absence of a predicate device, a manufacturer may request a de novo down-classification on the basis that the device presents low or moderate risk, rather than requiring the submission and approval of a PMA application. In the event the FDA determines the data and information submitted demonstrate that general controls or general and special controls are adequate to provide reasonable assurance of safety and effectiveness, the FDA will grant the de novo request for classification. When the FDA grants a de novo request for classification, the device is granted marketing authorization and further can serve as a predicate for future devices of that type, through a 510(k) premarket notification.
We are not currently seeking a de novo classification for the Ainos COVID-19 antigen rapid test kit or any device in development.
Clinical Trials
Clinical trials are typically required to support a PMA, oftentimes for a de novo request for classification, and are sometimes required to support a 510(k) submission. All clinical investigations of devices to determine safety and effectiveness must be conducted in accordance with the FDA’s investigational device exemption, or IDE, regulations which govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. The clinical trials must be approved by, and conducted under the oversight of, an Institutional Review Board, or IRB, for each clinical site. If an IDE application is approved by the FDA and one or more IRBs, clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA.
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If the device is considered a ”non-significant risk,” IDE submission to FDA is not required. Instead, only approval from the IRB overseeing the investigation at each clinical trial site is required. After a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons.
Post-market Regulation
After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply. These include:
| · | Establishment registration and device listing with the FDA; |
| · | QSR requirements, which require manufacturers and contract manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation, and other quality assurance procedures during all aspects of the design and manufacturing process; |
| · | Labeling regulations and FDA prohibitions against the promotion of investigational products, or “off-label” uses of cleared or approved products; |
| · | Clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices; |
| · | Medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; |
| · | Post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device. |
The FDA has broad regulatory compliance and enforcement powers. If the FDA determines that we failed to comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions:
| · | untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; |
| · | customer notifications for repair, replacement, refunds; |
| · | recall, withdrawal, administrative detention, or seizure of our test kits; |
| · | operating restrictions or partial suspension or total shutdown of production; |
| · | refusal of or delay in granting our requests for 510(k) clearance or PMA approval of new test kits or modified test kits; |
| · | withdrawing 510(k) clearance or PMA approvals that are already granted; |
| · | refusal to grant export approval for our test kits; or |
| · | criminal prosecution. |
Health Insurance Portability and Accountability Act
We are subject to compliance with the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Healthcare Information Technology for Economic and Clinical Health Act of 2009, or HIPAA, among other things, established federal protection for the privacy and security of protected health information, or PHI. The HIPAA privacy regulations protect PHI by limiting its use and disclosure, giving patients the right to access certain information about them, and limiting most disclosures of PHI to the minimum amount necessary to accomplish an intended purpose. The HIPAA security standards require the adoption of administrative, physical, and technical safeguards and the adoption of written security policies and procedures.
In addition, various states, such as California and Massachusetts, have implemented similar privacy and security laws and regulations. The interplay of federal and state laws may be subject to varying interpretations by courts and government agencies, creating complex compliance issues. The compliance requirements of these laws, including additional breach reporting requirements, and the penalties for violation vary widely, and new privacy and security laws in this area are evolving. Requirements of these laws and penalties for violations vary widely.
Failure to comply with HIPAA, Healthcare Information Technology for Economic and Clinical Health Act of 2009 or their implementing regulations, and similar state laws, may result in significant penalties, including civil, criminal and administrative penalties, fines, imprisonment and exclusion from participation in federal or state healthcare programs, and the curtailment or restructuring of our operations.
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U.S. Federal, State and Foreign Fraud and Abuse Laws
The U.S. federal and state governments have enacted, and actively enforce, a number of laws to address fraud and abuse in federal healthcare programs. Our business is subject to compliance with these laws.
Anti-Kickback Statutes
The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully soliciting, offering, receiving or paying remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual, or the purchase, order, arrangement for, or recommendation of, items or services for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare or Medicaid. Many states have adopted laws similar to the federal Anti-Kickback Statute. Some of these state prohibitions apply to referral of recipients for healthcare products or services reimbursed by any source, not only government healthcare programs, and may apply to payments made directly by the patient.
Government officials have focused their enforcement efforts on the marketing of healthcare services and products, among other activities, and recently have brought cases against companies, and certain individual sales, marketing and executive personnel, for allegedly offering unlawful inducements to potential or existing customers in an attempt to procure their business.
Federal False Claims Laws
The FCA prohibits any person or entity, among other things, to knowingly present, or cause to be presented, a false or fraudulent claim for payment of government funds and knowingly making, using or causing to be made or used, a false record or statement to get a false claim paid or to avoid, decrease or conceal an obligation to pay money to the federal government. The qui tam provisions of the FCA allow a private individual to bring actions on behalf of the federal government alleging that the defendant has violated the FCA and to share in any monetary recovery. In addition, various states have enacted false claims laws analogous to the FCA, and many of these state laws apply where a claim is submitted to any third-party payor and not only a federal healthcare program.
Violations of the FCA may result in treble damages and significant mandatory penalties, civil monetary penalties, and violators may be subject to exclusion from participation in federal healthcare programs such as Medicare and Medicaid. Many medical device manufacturers and healthcare companies have reached substantial financial settlements with the federal government for a variety of alleged improper activities and have entered into corporate integrity agreements with OIG, under which the companies undertake certain compliance, certification and reporting obligations, to avoid exclusion from federal health care program.
Our activities, including those relating to the reporting of discount and rebate information and other information affecting federal, state and third-party reimbursement of our test kits (once approved) and the sale and marketing of our test kits (once approved), may be subject to scrutiny under the federal Anti-Kickback Statute and the FCA. We are also subject to other criminal federal laws that prohibit making false or fictitious claims and false statements to the federal government.
HIPAA Fraud Statute
HIPAA, among other things, imposes criminal liability for knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and creates federal criminal laws that prohibit knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal healthcare Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation.
Open Payments
The federal Physician Payments Sunshine Act, implemented as the Open Payments Program, requires certain manufacturers of drugs, medical devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually to CMS information related to payments and other “transfers of value” to physicians, and teaching hospitals, and requires applicable manufacturers to report annually ownership and investment interests held by physicians and their immediate family members. Beginning in 2022, applicable manufacturers will also be required to report information and transfers of value provided (beginning in 2021) to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives. Failure to submit timely, accurate and complete reports may result in substantial monetary penalties. We are subject to the Open Payments Program and the information we disclose may lead to greater scrutiny, which may result in modifications to established practices and additional costs. Additionally, similar reporting requirements have also been enacted on the state level domestically, and an increasing number of countries worldwide either have adopted or are considering similar laws requiring transparency of interactions with healthcare professionals.
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Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act of 1977, or FCPA, prohibits any U.S. individual or business from paying, offering or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring them to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, if any, and to devise and maintain an adequate system of internal accounting controls for international operations.
U.S. Health Reform
Changes in healthcare policy could increase our costs, decrease our revenue and impact sales of and reimbursement for our current and future products once approved. The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our test kits profitably once approved. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. Current and future legislative proposals to further reform healthcare or reduce healthcare costs may limit coverage of or lower reimbursement for the procedures associated with the use of our test kits once approved. The cost containment measures that payors and providers are instituting and the effect of any healthcare reform initiative implemented in the future could impact our revenue from the sale of our test kits once approved.
The implementation of the Affordable Care Act in the United States, for example, has changed healthcare financing and delivery by both governmental and private insurers substantially, and affected medical device manufacturers significantly. In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.
We believe that there will continue to be proposals by legislators at both the federal and state levels, regulators and third-party payors to reduce costs and potentially affect individual healthcare benefits. Certain of these changes could impose additional limitations on the rates we will be able to charge for our current and future products or the amounts of reimbursement available for our current and future products from governmental agencies or third-party payors.
Employees
As of December 31, 2022, we had 43 full-time employees. Of these, 27 employees, a majority of our employees, are dedicated to research and development. Our employees are primarily located in Taiwan with some of our employees located in California. None of our employees are represented by a labor union or are a party to a collective bargaining agreement and we believe that we have good relations with our employees. We plan to continue expand our manpower in research development, sales and marketing, and general operations to support our business programs.
Executive Officers
Chun-Hsien Tsai. Mr. Tsai has served as our Chairman of the Board of Directors, President, Chief Executive Officer, and as a director since April 15, 2021. From April 15, 2021 until August 11, 2021, he also served as Chief Financial Officer. He concurrently serves as the CEO and Chairman of the Board of Directors of Ainos KY, as the Chairman of the Board of Directors of Taiwan Carbon Nano Technology Co., and as the Chief Executive Officer and director of AI Nose Corporation. Mr. Tsai has served as Chairman and CEO of Taiwan Carbon Nano Technology since July 2018, as a director and President of Ainos KY since October 2017, and in each of his other roles since 2012. In his capacity as the Chief Executive Officer of Taiwan Carbon Nano Technology Co., Mr. Tsai oversaw the completion of the world’s first carbon nanotube reactor. Mr. Tsai also currently serves as a member of the Taiwan Energy Storage Alliance and a member of the China Alternative Energy Association. Mr. Tsai owns more than 150 patents. Mr. Chun-Hsien Tsai is the brother of Mr. Chung-Yi Tsai and Mr. Chun-Jung Tsai. He is also the husband of Ms. Ting-Chuan Lee.
Hui-Lan Wu. Ms. Wu has served as our Chief Financial Officer since August 11, 2021. She has nearly 30 years of accounting, audit and management consulting experience. Before joining Ainos, Ms. Wu was a partner at KPMG Taiwan where she provided audit services to private and public companies in the technology, medical and chemical material sectors. She has mentored startup companies at the Center of Industry Accelerator and Patent Strategy at the National Yang Ming Chiao Tung University, and iLab Accelerator in Taiwan. Ms. Wu has devoted herself to promote impact investing in Taiwan. She received her Executive MBA from National Yang Ming Chiao Tung University and is a Certified Public Accountant in Taiwan and China.
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Lawrence K. Lin. Mr. Lin has served as Executive Vice President of Operations since August 1, 2021. Prior to his appointment, Mr. Lin served as Executive Advisor to the previous CEO and chairman of the Company and provided executive management consulting for Aquahelio Resources LLC, an unaffiliated company, through i2China Management Group, LLC. Mr. Lin brings more than 30 years of global cross-border strategic management consulting and financial investment experience at leading institutional corporates, such as Andersen Consulting, Salomon Smith Barney, and Credit Suisse First Boston. Mr. Lin has managed investment assets across several geographical locations, including the U.S., China and Taiwan, and advised on many private capital and structured public equity transactions for issuers in real estate, healthcare and consumer sectors. He spent nearly 15 years as an entrepreneur managing an independent Shanghai-based advisory and merchant banking practice where he completed numerous corporate acquisition and investment financing advisory mandates. Mr. Lin has a dual MBA in Finance & International Business from New York University- Stern School of Business.
Consultants
From time to time, the Company engages consultants as needed for specific areas of responsibility. During 2022, the Company engaged the following consultants: John Junyong Lee, Esq. - Chief Legal Counsel & Corporate Secretary, Dr. Stephen T. Chen – Pharmaceutical Development Consultant, Dr. Manfred Beilharz – Clinical Studies Advisor and Ms. Chien-Hsuan Huang – Product Development Consultant.
ITEM 1A. RISK FACTORS.
Please carefully consider 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.
Risks related to our limited operating history, financial position, and need for additional capital
We have a history of operating losses that are expected to continue for the foreseeable future, and we are unable to predict the extent of future losses, or whether we will generate significant revenues or achieve or sustain profitability.
We are focused on product development and have generated $3,519,627 and $594,563 in revenues from COVID-19 antigen test kit sales in 2022 and 2021, respectively. We expect to continue to incur operating losses until we are able to commercialize or license our other products. These operating losses have adversely affected and are likely to continue to adversely affect our working capital, total assets and stockholders’ equity. We have generated operating losses of $13,976,212 and $3,867,426 in the year ended December 31, 2022 and 2021, respectively. As of December 31, 2022 and December 31, 2021, we had cumulative losses of $24,115,606 and $10,108,916, respectively. We expect to make substantial expenditures and incur increasing operating costs in the future and our accumulated deficit will increase significantly as we expand development and clinical trial activities for our product candidates. Because of the risks and uncertainties associated with product development, we are unable to predict the extent of any future losses, whether we will ever generate significant revenues or if we will ever achieve or sustain profitability.
We believe that our cash on hand, along with the anticipated net proceeds from products and additional financing, will enable us to fund our operations over the short and medium terms based on our current plan. We are dependent on obtaining, and are continuing to pursue, necessary funding from outside sources, including obtaining additional funding from the issuance of securities in order to continue our operations. Without adequate funding, we may not be able to meet our obligations. The successful commercialization of any of our products will require us to perform a variety of functions, including:
| · | continuing to undertake preclinical and clinical development; |
| · | engaging in the development of product candidate formulations and manufacturing processes; |
| · | interacting with the applicable regulatory authorities and pursuing other required steps for regulatory approval; |
| · | engaging with payors and other pricing and reimbursement authorities; |
| · | submitting marketing applications to and receiving approval from the applicable regulatory authorities; and |
| · | manufacturing the applicable products and product candidates in accordance with regulatory requirements and, if ultimately approved, conducting sales and marketing activities in accordance with health care, Taiwan Food and Drug Administration, or TFDA, U.S. Food and Drug Administration, or FDA, and similar foreign regulatory authority laws and regulations. |
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Our revenue for at least the near term will almost exclusively depend on sales of the Ainos COVID-19 test kits until we can develop, obtain regulatory clearance or other appropriate authorization for, and commercialize additional product candidates.
We expect that sales of the Ainos COVID-19 antigen rapid test kits will account for majority of our revenue until at least such time as we can commercialize additional tests or other products. As a result, our ability to execute our growth strategy and become profitable in the near term will depend upon consumer adoption of the Ainos COVID-19 test kits. COVID-19 infection is moderating and we currently have a very small number of customers for the Ainos COVID-19 antigen rapid test kits in Taiwan. If infection rates remain low and if we are unable to expand our customer base, we may not be able to increase our revenue. Adoption and use of the Ainos COVID-19 antigen rapid test kits will depend on several factors, including, but not limited to the accuracy, affordability and ease of use of our product as compared to other products and products that compete with the Ainos COVID-19 antigen rapid test kits.
Because we expect virtually all of our revenue for at least the near term to be generated from sales of the Ainos COVID-19 antigen rapid test kits in Taiwan, our the failure to increase sales volume or retain regulatory authorization under our EUA in Taiwan for the Ainos COVID-19 antigen rapid test kits may have a material adverse effect on our business, operating results and financial condition.
We have generated very little revenue from product sales and may never become profitable.
Our ability to generate product sales and achieve profitability depends on our ability, alone or with collaborative partners, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize our current and future product candidates. Our product candidates will require additional clinical, manufacturing, and non-clinical development, regulatory approval, commercial manufacturing arrangements, establishment of a commercial organization, significant marketing efforts, and further investment before we generate significant product sales.
We cannot assure you that we will meet our timelines for our development programs, which may be delayed or not completed for a number of reasons. Our ability to generate future revenues from product sales depends heavily on our, or our collaborators’ ability to successfully:
| · | complete research and obtain favorable results from preclinical and clinical development of our current and future product candidates, including addressing any clinical holds that may be placed on our development activities by regulatory authorities; |
| · | seek and obtain regulatory and marketing approvals for any of our product candidates for which we complete clinical trials, as well as their manufacturing facilities; |
| · | launch and commercialize any of our product candidates for which we obtain regulatory and marketing approval by establishing a sales force, marketing, and distribution infrastructure or, alternatively, collaborating with a commercialization partner; |
| · | qualify for coverage and establish adequate reimbursement by government and third-party payors for any of our product candidates for which we obtain regulatory and marketing approval; |
| · | develop, maintain, and enhance a sustainable, scalable, reproducible, and transferable manufacturing process for the product candidates we may develop; |
| · | establish and maintain supply and manufacturing capabilities or capacities internally or with third parties that can provide adequate, in both amount and quality, products, and services to support clinical development and the market demand for any of our product candidates for which we obtain regulatory and marketing approval; |
| · | obtain market acceptance of current or any future product candidates and effectively compete to establish market share; |
| · | maintain a continued acceptable safety and efficacy profile of our product candidates following launch; |
| · | address competing technological and market developments; |
| · | implement internal systems and infrastructure, as needed; |
| · | negotiate favorable terms in any collaboration, licensing, or other arrangements into which we may enter and performing our obligations in such collaborations; |
| · | maintain, protect, enforce, defend, and expand our portfolio of intellectual property rights, including patents, trade secrets, and know-how; |
| · | avoid and defend against third-party interference, infringement, and other intellectual property claims; and |
| · | attract, hire, and retain qualified personnel. |
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Even if one or more of our current and future product candidates are approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond our expectations if we are required by the TFDA, the FDA or other regulatory authorities to perform clinical and other studies in addition to those that we currently anticipate. If we are required to conduct additional clinical trials or other testing of our product candidates that we develop beyond those that we currently expect, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive, or if there are safety concerns, we may be delayed in obtaining marketing approval for our product candidates, not obtain marketing approval at all, or obtain more limited approvals. Even if we are able to generate revenues from the sale of any approved product candidates, we may not become profitable and may need to obtain additional funding to continue operations.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of the Company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our Company also could cause you to lose all or part of your investment.
Our business, operations and clinical development plans and timelines and supply chain could be adversely affected by the effects of epidemics, including the ongoing COVID-19 pandemic.
Our business could be adversely affected by health epidemics wherever we have clinical trial sites or other business operations. In addition, health epidemics could cause significant disruption in the operations of third-party manufacturers, contract research organizations and other third parties upon whom we rely. For example, the COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting employees, patients, communities and business operations, as well as the U.S. economy and financial markets. Many geographic regions have imposed, or in the future may impose, “shelter-in-place” orders, quarantines or similar orders or restrictions to control the spread of COVID-19. These measures may negatively impact productivity, disrupt our business and delay our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.
We are dependent on a worldwide supply chain for products to be used in our clinical trials and, if approved by the regulatory authorities, for commercialization. Quarantines, shelter-in-place and similar government orders, or the expectation that such orders, shutdowns or other restrictions could occur, whether related to COVID-19 or other infectious diseases, could impact personnel at third-party manufacturing facilities in the United States and other countries, or the availability or cost of materials, which could disrupt our supply chain. For example, any manufacturing supply interruption of any product candidate could adversely affect our ability to conduct ongoing and future clinical trials of such product candidate. In addition, closures of transportation carriers and modal hubs could materially impact our clinical development and any future commercialization timelines.
If our relationships with our suppliers or other vendors are terminated or scaled back as a result of the COVID-19 pandemic or other health epidemics, we may not be able to enter into arrangements with alternative suppliers or vendors or do so on commercially reasonable terms or in a timely manner. Switching or adding additional suppliers or vendors involves substantial cost and requires management time and focus. In addition, there is a natural transition period when a new supplier or vendor commences work. As a result, delays could generally occur, which could adversely impact our ability to meet our desired clinical development and any future commercialization timelines. See “Risks Related to Our Dependence on Third Parties.”
In addition, our clinical trials may be affected by the COVID-19 pandemic. Clinical site initiation and patient enrollment may be delayed due to prioritization of hospital resources toward the COVID-19 pandemic or concerns among patients about participating in clinical trials during a pandemic and public health measures imposed by the respective national governments of countries in which the clinical sites are located. Some patients may have difficulty following certain aspects of clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Similarly, our inability to successfully recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 or experience additional restrictions by their institutions, city or state governments could adversely impact our clinical trial operations.
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 future research studies, disrupt regulatory activities or have other adverse effects on our business, results of operations, financial condition and prospects.
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The global pandemic of COVID-19 continues to evolve rapidly. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, healthcare systems or the global economy as a whole. However, these effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely.
We need to raise additional capital to operate our business. If we fail to obtain the capital necessary to fund our operations, we will be unable to continue or complete our product development.
We are a company primarily focused on product development and our product revenues may not sufficient to fund our operations. Until, and if, we receive approval from the TFDA, FDA and other regulatory authorities for our product candidates, our revenues generated from products may be limited. We had cash and cash equivalents of $1,853,362 as of December 31, 2022, and we will need to continue to seek capital from time to time to continue to capitalize the development and commercialization of our product candidates and to acquire and develop other product candidates. Our actual capital requirements will depend on many factors. For instance, our business or operations may change in a manner that would consume available funds more rapidly than anticipated and substantial additional funding may be required to maintain operations, fund expansion, develop new or enhanced products, acquire complementary products, business or technologies or otherwise respond to competitive pressures and opportunities, such as a change in the regulatory environment or a change in COVID-19 treatment modalities. If we experience unanticipated cash requirements, we may need to seek additional sources of financing, which may not be available on favorable terms, if at all.
However, we may not be able to secure funding when we need it or on favorable terms. If we cannot raise adequate funds to satisfy our capital requirements, we will have to delay, scale-back or eliminate our research and development activities, clinical studies or future operations, we may be unable to complete planned nonclinical studies and clinical trials or obtain approval of our product candidates from the TFDA and FDA and other regulatory authorities. In addition, we could be forced to discontinue product development, reduce or forego sales and marketing efforts and attractive business opportunities, reduce overhead, or discontinue operations. We may also be required to obtain funds through arrangements with collaborators, which arrangements may require us to relinquish rights to certain technologies or products that we otherwise would not consider relinquishing, including rights to future product candidates or certain major geographic markets. We may further have to license our technology to others. This could result in sharing revenues which we might otherwise retain for ourselves. Any of these actions may harm our business, financial condition and results of operations.
The amount of capital we may need depends on many factors, including the progress, timing and scope of our product development programs; the progress, timing and scope of our nonclinical studies and clinical trials; the time and cost necessary to obtain regulatory approvals; the time and cost necessary to further develop manufacturing processes and arrange for contract manufacturing; our ability to enter into and maintain collaborative, licensing and other commercial relationships; and our partners’ commitment of time and resources to the development and commercialization of our products.
We may be unable to access the capital markets and even if we can raise additional funding, we may be required to do so on terms that are dilutive to you.
The capital markets have been unpredictable in the recent past for unprofitable companies such as ours. The amount of capital that a company such as ours is able to raise often depends on variables that are beyond our control. As a result, we cannot assure you that we will be able to secure financing on terms attractive to us, or at all. If we are able to consummate a financing arrangement, the amount raised may not be sufficient to meet our future needs. If adequate funds are not available on acceptable terms, or at all, our business, results of operations, financial condition and our continued viability will be materially adversely affected.
Our operating results may fluctuate significantly, which will make our future results difficult to predict and could cause our results to fall below expectations.
Our quarterly and annual operating results may fluctuate significantly, which will make it difficult for us to predict our future results. These fluctuations may occur due to a variety of factors, many of which are outside of our control and may be difficult to predict, including:
| · | the scalability of our COVID-19 test sales which is dependent on the severity of COVID-19 infections |
| · | the timing and cost of, and level of investment in, research, development and commercialization activities, which may change from time to time; |
| · | the timing and status of enrollment for our clinical trials; |
| · | the timing of regulatory approvals, if any, in the United States and internationally; |
| · | the timing of expanding our operational, financial and management systems and personnel, including personnel to support our clinical development, quality control, manufacturing and commercialization efforts and our operations as a public company; |
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| · | the cost of manufacturing, as well as building out our supply chain, which may vary depending on the quantity produced, and the terms of any agreements we enter into with third-party suppliers; |
| · | the timing and amount of any milestone, royalty or other payments due under any current or future collaboration or license agreement; |
| · | coverage and reimbursement policies with respect to any future approved products, and potential future drugs that compete with our products; |
| · | the timing and cost to establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any products for which we may obtain marketing approval and intend to commercialize on our own or jointly with current or future collaborators; |
| · | expenditures that we may incur to acquire, develop or commercialize additional products and technologies; |
| · | the level of demand for any future approved products, which may vary significantly over time; |
| · | future accounting pronouncements or changes in accounting principles or our accounting policies; and |
| · | the timing and success or failure of nonclinical studies and clinical trials for our product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or collaboration partners. |
The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance.
Risks related to product development and regulatory process
We are early in our development efforts of some of our product candidates, and our business is dependent on the successful development of our current and future product candidates. If we are unable to advance our current or future product candidates through clinical trials, obtain marketing approval and ultimately commercialize any product candidates we develop, or experience significant delays in doing so, our business will be materially harmed.
Our product candidates are in different stages of clinical development. Our current and future product candidates may never achieve expected levels of efficacy or an acceptable safety profile. Our use of clinically validated targets to pursue treatments does not guarantee efficacy or safety or necessarily reduce the risk that our current or future product candidates will not achieve expected levels of efficacy or an acceptable safety profile.
The success of our business, including our ability to finance our Company and generate revenue from products in the future will depend heavily on the successful development and eventual commercialization of our product candidates, which may never occur. Our current product candidates, and any future product candidates we develop, will require additional nonclinical and clinical development, management of clinical, nonclinical and manufacturing activities, marketing approval in the United States and other markets, obtaining sufficient manufacturing supply for both clinical development and commercial production, building of a commercial organization, and substantial investment and significant marketing efforts before we generate any revenues from product sales.
As a company, we have limited experience in preparing, submitting and prosecuting regulatory filings. We have no prior experience in developing or securing regulatory approvals for veterinary drugs or treatments. If we do not receive regulatory approvals for current or future product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approval to market a product candidate, our revenue will depend, in part, upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights, as well as the availability of competitive products, third-party reimbursement and adoption by physicians.
We plan to seek regulatory approval to commercialize our product candidates both in the United States and in select foreign countries. While the scope of regulatory approval in other countries is generally similar to that in the United States, in order to obtain separate regulatory approval in other countries we must comply with numerous and varying regulatory requirements of such countries. We may be required to expend significant resources to obtain regulatory approval and to comply with ongoing regulations in these jurisdictions.
The success of our current and future product candidates will depend on many factors, which may include the following:
| · | sufficiency of our financial and other resources to complete the necessary nonclinical studies and clinical trials, and our ability to raise any additional required capital on acceptable terms, or at all; |
| · | the timely and successful completion of our nonclinical studies and clinical trials for which the TFDA, FDA, or any comparable foreign regulatory authority, agree with the design, endpoints, or implementation; |
| · | receipt of regulatory approvals or authorizations to conduct future clinical trials or other studies beyond those planned to support approval of our product candidates; |
| · | successful enrollment and completion of clinical trials; |
| · | successful data from our clinical program that supports an acceptable risk-benefit profile of our product candidates in the intended populations; |
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| · | timely receipt and maintenance of marketing approvals from applicable regulatory authorities; |
| · | establishing, scaling up and scaling out, either alone or with third-party manufacturers, cGMP compliant manufacturing capabilities of clinical supply for our clinical trials and commercial manufacturing (including licensure), if any of our product candidates are approved; |
| · | entry into collaborations to further the development of our product candidates in select indications or geographies; |
| · | obtaining and maintaining regulatory exclusivity for our product candidates as well as establishing competitive positioning amongst other therapies; and |
| · | successfully launching commercial sales of our product candidates and obtaining and maintaining healthcare coverage and reimbursement from third party payors, if approved. |
If we are not successful with respect to one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully obtain regulatory approval of or commercialize the product candidates we develop, which would materially harm our business. If we do not receive marketing approvals for our current or future product candidates, we may not be able to continue our operations. Even if regulatory approvals are obtained, we may never be able to successfully commercialize any products. Accordingly, we cannot provide assurances that we will be able to generate sufficient revenue through the sale of products to continue our business.
If the FDA or other regulatory bodies revoke or terminate our Emergence Use Authorization (“EUA”) or other regulatory authorizations for Ainos COVID-19 test kits, we will be required to stop commercialization of COVID-19 test kits unless we, or our manufacturing collaborators, can obtain 510(k) or other clearance or approval for our COVID-19 test and its currently authorized uses.
Taiwan Carbon Nano Technology (“TCNT”), our manufacturing collaborator and our affiliate company, intend to submit EUAs to the FDA for Ainos COVID-19 test kits. We cannot predict if TCNT’s submission will be approved or, if approved, how long either of the EUAs will remain in effect, and TCNT may not receive advance notice from the TFDA or FDA regarding revocation of either or both of our EUAs. If EUAs are terminated or TCNT’s submissions are not accepted, we will be required to cease commercialization of Ainos COVID-19 test kits in the United States, unless and until TCNT has obtained marketing authorization from the FDA through another regulatory pathway, possibly requiring us to obtain a 510(k) or other marketing authorization from the FDA for the Ainos COVID-19 test kits. Changing policies and regulatory requirements could limit, delay or prevent further commercialization of Ainos COVID-19 test kits and could materially adversely impact our business, financial condition, results of operations and future prospects.
Clinical product development involves a lengthy and expensive process, with uncertain outcomes. We may experience delays in completing, or ultimately be unable to complete, the development and commercialization of our current and future product candidates, which could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our business, financial condition, results of operations and prospects.
To obtain the requisite regulatory approvals to commercialize any of our product candidates, we must demonstrate that our products are safe and effective in humans and animals with respect to our veterinary drug candidates in Taiwan. Clinical trials are expensive and can take many years to complete, and their outcomes are inherently uncertain. We may experience delays in completing current and future clinical trials. We may also experience numerous unforeseen events prior to, during, or as a result of our nonclinical studies or clinical trials that could delay or prevent our ability to receive marketing approval or commercialize the product candidates we develop, including:
| · | regulators, Institutional Review Boards (“IRBs”) or ethics committees may not authorize us to conduct the clinical study; |
| · | we may experience delays due to challenges with third-party contractors and contract research organizations (“CROs”), including negotiating agreement terms, compliance with regulatory requirements, compliance with clinical trial protocols; |
| · | it may be difficult to enroll a sufficient number of suitable patients, or enrollment may be slower than we anticipate or participants may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate; |
| · | the supply or quality of materials for product candidates we develop or other materials necessary to conduct clinical trials may be insufficient or inadequate; and |
| · | we may experience disruptions by man-made or natural disasters or public health pandemics or epidemics or other business interruptions, including the current COVID-19 pandemic and future outbreaks of the disease. |
We could encounter delays if a current or future clinical trial is suspended or terminated by us, by the TFDA, FDA or other regulatory authorities and/or review boards. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the TFDA, FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues, failure to demonstrate a benefit from using a product, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of marketing approval of our product candidates.
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If we experience termination or delays in the completion of any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates may be delayed. In addition, any delays in completing our clinical trials will likely increase our costs, slow down our product candidate development and approval process and impact our ability to commence product sales and generate revenues. Significant clinical trial delays could also allow our competitors to bring products to market before we do, shorten any periods during which we may have the exclusive right to commercialize our product candidates, impair our ability to commercialize our product candidates and harm our business and results of operations.
Any of these occurrences may harm our business, financial condition and prospects significantly. Delays in clinical product development present material uncertainty and risk with respect to our clinical trials, business, and financial condition.
We and our collaboration partners have conducted and intend to conduct clinical trials for selected product candidates at sites outside the United States, and for any of our product candidates for which we seek approval in the United States, the FDA may not accept data from trials conducted in such locations or may require additional U.S.-based trials.
We and our collaboration partners have conducted and plan to continue to conduct, clinical trials outside the United States, particularly in Taiwan. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of these data is subject to certain conditions imposed by the FDA. There can be no assurance that the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept the data from any clinical trials that we or our collaboration partners conduct outside the United States, it would likely result in the need for additional clinical trials, which would be costly and time-consuming and delay or permanently halt our ability to develop and market these or other product candidates in the United States. In other jurisdictions, for instance, in Taiwan, there is a similar risk regarding the acceptability of clinical trial data conducted outside of that jurisdiction.
Our long-term prospects depend in part upon discovering, developing and commercializing additional products, including POCT testing devices and VELDONA candidates, which may fail in development or suffer delays that adversely affect their commercial viability.
Our future operating results are dependent on our ability to successfully discover, develop, obtain regulatory approval for and commercialize product candidates, including POCT testing devices and VELDONA candidates, beyond those we currently have in development. The success of a product candidate is unknown and initial product development success may not result in a viable commercial product. The product development process may require changes in manufacturing methods and formulation/design or additional validation testing. We may also make changes as we work to optimize our manufacturing processes, but we cannot be sure that even minor changes in our processes will result in products that are safe and effective or that will be approved for commercial sale. If a product candidate fails to develop as expected, or we experience additional and/or unforeseen development costs and/or delays, we could face additional costs and/or loss of expected future revenue, which would adversely affect our current financial position and future prospects may be adversely affected.
Even if we complete the necessary nonclinical studies and clinical trials, the marketing approval process is expensive, time consuming and uncertain, which may prevent us or any of our future collaboration partners from obtaining approvals for the commercialization of our current product candidates and any other product candidate we develop.
Any current or future product candidates, including medical device products, we may develop and the activities associated with their development and commercialization, including their design, testing, manufacture, recordkeeping, labeling, storage, approval, advertising, promotion, sale, and distribution, are subject to comprehensive regulation by the FDA and other regulatory authorities in the United States and by comparable authorities in Taiwan and other countries. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate in a given jurisdiction. It is possible that some of our current or future product candidates will not obtain regulatory approval in the jurisdiction we are targeting. We have limited experience in filing and supporting the applications necessary to gain marketing approvals, but we expect to rely on third-party CROs or regulatory consultants to assist us in this process. Securing regulatory approval requires the submission of extensive applications to the various regulatory authorities. Product candidates we develop may not be effective or may prove to have adverse characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use.
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The process of obtaining marketing approvals, in Taiwan, the United States and other jurisdictions, is expensive, may take many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity, and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries may refuse to accept any application or may decide that our data are insufficient for approval and require additional nonclinical, clinical or other studies. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments. If we experience delays in obtaining marketing approval or if we fail to obtain marketing approval of any current or future product candidates we may develop, the commercial prospects for those product candidates may be harmed, and our ability to generate revenues will be materially impaired.
Even if a current or future product candidate, including POCT and VELDONA, receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.
If any current or future product candidate we develop receives marketing approval, whether as a single agent or in combination with other therapies, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors, and others in the medical community, or such participants may prefer existing treatment options. If the product candidates we develop, including medical device products, do not achieve an adequate level of market acceptance, we may not generate expected levels of revenues associated with such products, which may prevent those products from becoming profitable. The degree of market acceptance of any product candidate, if approved for commercial sale, will depend on a number of factors, including:
| · | efficacy and potential advantages compared to alternative tools; |
| · | the ability to offer our products, if approved, for sale at competitive prices; |
| · | convenience and ease of use; |
| · | the willingness of the target market to adopt new technologies; and |
| · | the strength of marketing and distribution support. |
The total addressable market opportunity for our current and future products may be much smaller than we estimate.
Our estimates of the total addressable market for our product candidates are based on internal and third-party estimates as well as a number of significant assumptions. Market opportunity estimates and growth forecasts included in this report are subject to significant uncertainty and are based on assumptions and estimates. These estimates, which have been derived from a variety of sources, including market research and our own internal estimates, may prove to be incorrect. Further, the continued development of, and approval or authorizations for, vaccines and therapeutic treatments may affect these market opportunity estimates. Our market opportunity may also be limited by new POCT tests or other products that enter the market. If any of our estimates prove to be inaccurate, the market opportunity for platform and products could be significantly less than we estimate. If this turns out to be the case, our potential for growth may be limited and our business and future prospects may be materially adversely affected.
We may not obtain approval for our product candidates in any jurisdictions.
Approval of a product candidate in one jurisdiction by a regulatory authority, such as the TFDA or FDA, does not ensure approval of such product candidate by regulatory authorities in other countries or jurisdictions. Commercialization of our product candidates will be subject to the regulatory requirements governing marketing authorization in the jurisdiction in which they are sold.
Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and more onerous than, those in Taiwan and the United States, including additional nonclinical studies or clinical trials. In many countries outside Taiwan and United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for any product candidates, if approved, is also subject to approval. For example, obtaining approval for our product candidates in the European Union (the EU) from the European Commission following the opinion of the EMA, would be a lengthy and expensive process. The EMA may limit the indications for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming additional clinical trials or reporting as conditions of approval. Approval of certain product candidates outside of Taiwan and the United States, particularly those that target diseases that are more prevalent outside of the United States, will be particularly important to the commercial success of such product candidates. Obtaining regulatory approvals in various jurisdictions and complying with the regulatory requirements of multiple jurisdictions could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our product candidates in certain countries.
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Even if we are able to commercialize any product candidates, such products may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which would harm our business.
The regulations that govern marketing approvals, pricing and reimbursement for new products vary widely from country to country. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing approval is granted. As a result, we might obtain marketing approval for a product candidate in a particular country, but then be subject to price regulations that delay our commercial launch of the product candidate. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval. Our ability to successfully commercialize any product candidates, whether as a single agent or in combination, will also depend in part on the extent to which coverage and reimbursement for these product candidates and related treatments is available from government authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, and establish reimbursement levels. It is difficult to predict at this time what government authorities and third-party payors may decide with respect to coverage and reimbursement for our programs (if approved).
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities, particularly in the European Union, and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular products and requiring substitutions of generic products and/or biosimilars. Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of any approved products.
We face an inherent risk of product liability as a result of the clinical testing of product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if any product candidate we develop is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of any approved products. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
| · | decreased demand for any approved product; |
| · | injury to our reputation; |
| · | withdrawal of clinical trial participants; |
| · | initiation of investigations by regulators; |
| · | costs to defend litigation; |
| · | a diversion of management’s time and our resources; |
| · | substantial monetary payments to trial participants or patients; |
| · | product recalls, withdrawals or labeling, marketing or promotional restrictions; |
| · | loss of revenue; |
| · | exhaustion of any available insurance and our capital resources; |
| · | adverse effects to our results of operations and business; |
| · | the inability to commercialize any product candidate; and |
| · | a decline in our share price. |
Our inability to obtain sufficient product liability insurance at an acceptable cost or at all to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop, alone or with collaboration partners.
Additionally, insurance coverage is increasingly expensive. We may not be able to maintain insurance, including product liability insurance at a reasonable cost or in an amount adequate to satisfy any liability that may arise, if at all, that could have an adverse effect on our business and financial condition. Our product liability insurance policy contains various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Similar challenges to obtaining coverage and reimbursement will apply to companion POCTs that we or our collaborators may develop. Even if our agreements with current or future collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.
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Our employees, independent contractors, principal investigators, consultants, commercial partners, and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of employee fraud or other misconduct. We cannot ensure that our compliance controls, policies, and procedures will in every instance protect us from acts committed by our employees, agents, contractors, or collaborators that would violate the laws or regulations of the jurisdictions in which we operate, including, without limitation, employment, foreign corrupt practices, trade restrictions and sanctions, environmental, competition, and patient privacy and other privacy laws and regulations. Misconduct by employees could include failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards we may establish, comply with federal and state healthcare fraud and abuse laws and regulations, report financial information or data accurately, or disclose unauthorized activities to us, or similar requirements and laws of regulatory authorities in other jurisdictions. In particular, sales, marketing, and business arrangements in the healthcare industry in the US and other jurisdictions are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, labeling, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.
If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a material and adverse effect on our business, financial condition, results of operations and prospects, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, individual imprisonment, disgorgement of profits, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, additional reporting or oversight obligations if we become subject to a corporate integrity agreement or other agreement to resolve allegations of noncompliance with the law, and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and pursue our strategy.
Any disruption in our research and development facility could adversely affect our business, financial condition and results of operations.
Our facility may be affected by natural or man-made disasters. We are vulnerable to damage from other types of disasters, including power loss, attacks from extremist organizations, fires, floods, and similar events. If our facilities are affected by a natural or man-made disaster, we may be forced to curtail our operations and/or rely on third-parties to perform some or all of our research and development activities. Although we believe we possess adequate insurance in light of our current operations, such insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all. In the future, we may choose to expand our operations in either our existing facilities or in new facilities.
Our business and operations would be adversely affected in the event that our computer systems or those of our partners, contract research organizations, contractors, consultants or other third parties we work with were to suffer system failures, cyber-attacks, loss of data or other security incidents.
Despite the implementation of security measures, our computer systems, as well as those of our partners, contract research organizations, contractors, consultants, law and accounting firms and other third parties we work with, may sustain damage from computer viruses, unauthorized access, data breaches, phishing attacks, ransomware attacks, denial-of-service attacks, cybercriminals, natural disasters, terrorism, war and telecommunication and electrical failures. We rely on our partners and third-party providers to implement effective security measures and identify and correct for any such failures, deficiencies or breaches. The risks of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments and cyber-terrorists, have increased significantly and are becoming increasingly difficult to detect.
If a failure, accident or security breach were to occur and cause interruptions in our operations, or the operations of our partners or third-party providers, it could result in a misappropriation of confidential information, including our intellectual property or financial information or clinical trial participant personal data, a material disruption or delay in our drug development programs, and/or significant monetary losses. For example, the loss of preclinical or clinical trial data from completed, ongoing or planned trials, or chemistry, manufacturing and controls data for our product candidates could result in delays in regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Any such breach, loss or compromise of clinical trial participant personal data may also subject us to civil fines and penalties under the privacy laws of the European Union or other countries as well as state and federal privacy laws in the United States.
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Risks related to reliance on third parties
We rely substantially on Taiwan Carbon Nano Technology (“TCNT”), an affiliate of our Company, to co-develop products.
We rely substantially, and intend to continue to rely substantially on, TNCT to co-develop our products. Our Product Development Agreement (“TCNT Agreement”) with TCNT is effective until mid-2026.
Any termination or loss of rights under the TCNT Agreement would harm our ability to commercialize, sell and distribute product candidates, which in turn would have a material adverse effect on our business, operating results and prospects. If we were to lose our rights under the TCNT Agreement, we believe it would be difficult for us to find an alternative development partner. In addition, to the extent TCNT or the alternative manufacturer has not secured applicable regulatory approvals, we would have to expend significant resources to obtain regulatory approvals that may never be obtained or require several years to obtain, which could significantly delay commercialization. We may be unable to raise additional capital to fund our operations during this extended time on terms acceptable to us or at all. In addition, if we were to commercialize product candidates and later experience manufacturing delays as a result of a dispute with TCNT or otherwise, the supply of our products could be harmed.
In addition, the manufacture of medical devices and pharmaceutical products are complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. It may be difficult to predict the cost of manufacturing our products. TCNT may not be able to manufacture our products at expected prices. There may also be unforeseen occurrences that increase our costs, such as increased prices of the components of our products, changes to labor costs or less favorable terms with third-party suppliers or contract manufacturing partners.
In addition, quarantines, shelter-in-place and similar government orders related to COVID-19 or other infectious diseases, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, could impact personnel at TCNT’s facilities. Further, TCNT may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If TCNT were to encounter any of these difficulties, or otherwise fail to comply with its contractual obligations, our ability to commercialize our products would be jeopardized.
We currently have limited marketing capabilities. If we are unable to expand sales and marketing capabilities on our own or through third parties, or are delayed in establishing these capabilities, we will be unable to successfully commercialize our product candidates, if approved, or generate product revenue.
We currently have limited marketing capabilities. To commercialize our product candidates, if approved, in the United States and other jurisdictions we seek to enter, we must expand our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. There are significant risks involved in building and managing a sales organization, including our ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing, distribution and pricing/reimbursement/access capabilities would impact adversely the commercialization of these products.
To commercialize our products, we also intend to leverage the commercial infrastructure of our preferred distributor in Japan and non-exclusive global distributor, Inabata, which will provide us with resources and expertise in certain areas that are greater than we could initially build ourselves. We may choose to collaborate with additional third parties in various countries that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize our product candidates, especially in other countries where we currently do not have a foreign legal presence. The inability to commercialize successfully our product candidates, either on our own or through collaborations with one or more third parties, would harm our business, financial condition, operating results and prospects.
Our employees, independent contractors, consultants, commercial or strategic partners, principal investigators or CROs may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could have a material adverse effect on our business.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees, independent contractors, consultants, commercial partners, principal investigators, contract manufacturing organizations or CROs could include intentional, reckless, negligent, or unintentional failures to comply with TFDA or FDA regulations, comply with applicable fraud and abuse laws, provide accurate information to the TFDA or FDA, properly calculate pricing information required by federal programs, report financial information or data accurately or disclose unauthorized activities to us. This misconduct could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter this type of misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Moreover, it is possible for a whistleblower to pursue a False Claims Act case against us even if the government considers the claim unmeritorious and declines to intervene, which could require us to incur costs defending against such a claim. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, financial condition, results of operations, stock price and prospects, including the imposition of significant fines or other sanctions.
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We may form or seek strategic partnerships in the future, and we may not realize the benefits of such alliances or licensing arrangements.
From time to time, we may form or seek strategic partnerships, create joint ventures or collaborations or enter into licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates and any future product candidates that we may develop. Any such relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business. These relationships also may result in a delay in the development of our product candidates if we become dependent upon the other party and such other party does not prioritize the development of our product candidates relative to its other development activities. Additionally, any joint ventures, collaborations, or licensing arrangements would be subject to the same product candidate development and compliance risks and obligations as we would be if we were to develop the product candidate on our own. Should any third party with which we enter into any of these arrangements not comply with the applicable regulatory requirements, we or they may be subject to regulatory enforcement action and we or they may be delayed or prevented from obtaining marketing approval for the applicable product candidate.
In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangement for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort, and third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy. If we license products or acquire businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture. Any licensed products or acquired businesses may also subject us to the risk of regulatory enforcement should the product or business not be compliant with applicable regulatory requirements. We cannot be certain that, following a strategic transaction or licensing arrangement, we will achieve the revenue or specific net income that justifies such a transaction.
Risks related to intellectual property, patents, and data privacy
Intellectual property rights vary across foreign jurisdictions, and we may not be able to protect our intellectual property rights throughout the world.
We cannot assure you that any intellectual property rights that we currently have or may receive can be successfully asserted in the future or that they will not be invalidated, circumvented or challenged. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent, as do the laws of the United States. Our means of protecting any proprietary rights we may receive in the United States or abroad may not be adequate. Filing, prosecuting, maintaining, defending and enforcing patents on our product candidates in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly developing countries, and the breadth of patent claims allowed can be inconsistent. In addition, the laws of some foreign countries may not protect our intellectual property rights to the same extent as the laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their own products and may export otherwise infringing products to territories where we have patents, but enforcement rights are not as strong as those in the United States. These products may compete with our product candidates and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
We do not have patent rights in certain foreign countries in which a market may exist in the future. Moreover, in foreign jurisdictions where we do have patent rights, proceedings to enforce such rights could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Thus, we may not be able to stop a competitor from marketing and selling in foreign countries products that are the same as or similar to our product.
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Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of some countries do not favor the enforcement or protection of patents, trade secrets and other intellectual property, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our intellectual property rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful.
Many foreign countries, including some EU countries, India, Japan, and China, have compulsory licensing laws under which a patent owner may be compelled under specified circumstances to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In those countries, we may have limited remedies if patents are infringed or if we are compelled to grant a license to a third party, which could materially diminish the value of the applicable patents and limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license, which could adversely affect our business, financial condition, results of operations and prospects.
If we and our collaborators are unable to obtain and maintain sufficient patent and other intellectual property protection for our product candidates and technology, our competitors could develop and commercialize products and technology similar or identical to ours, and we may not be able to compete effectively in our market or successfully commercialize any product candidates we may develop.
Our success depends in significant part on our ability and the ability of our current or future collaborators and licensors to obtain, maintain, enforce and defend patents and other intellectual property rights with respect to our product candidates and technology and to operate our business without infringing, misappropriating, or otherwise violating the intellectual property rights of others. If we and our current or future collaborators and licensors are unable to obtain and maintain sufficient intellectual property protection for our product candidates or other future product candidates that we may identify, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors and other third parties could develop and commercialize product candidates similar or identical to ours, and our ability to successfully commercialize our product candidates and other product candidates that we may pursue may be impaired.
The process of applying for patent protection itself is time consuming and expensive and we cannot assure you that we have prepared or will be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. In addition, our patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, for example, with respect to proper priority claims, inventorship, claim scope or patent term adjustments. We can provide no assurance that any of our current or future patent applications will result in issued patents or that any issued patents will provide us with any competitive advantage. We cannot be certain that there is no invalidating prior art of which we and the patent examiner are unaware or that our interpretation of the relevance of prior art is correct. Failure to obtain issued patents could have a material adverse effect on our ability to develop and commercialize our product candidates. Even if our patent applications do issue as patents, third parties may be able to challenge the validity and enforceability of our patents on a variety of grounds, including that such third party’s patents and patent applications have an earlier priority date, and if such challenges are successful we may be required to obtain one or more licenses from such third parties, or be prohibited from commercializing our product candidates. We may not be able to obtain these licenses on acceptable or commercially reasonable terms, if at all, or these licenses may be non-exclusive, which could result in our competitors using the same intellectual property.
We seek to protect our proprietary positions by, among other things, filing patent applications in the United States and in relevant foreign jurisdictions related to our current product candidates and other future product candidates that we may identify. Obtaining, maintaining, defending and enforcing pharmaceutical patents is costly, time consuming and complex, and we may not be able to file and prosecute all necessary or desirable patent applications, or maintain, enforce and license any patents that may issue from such patent applications, at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, under certain of our license or collaboration agreements, we may not have the right to control the preparation, filing, prosecution and maintenance of patent applications, or to maintain the rights to patents licensed to or from third parties.
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Although we enter into confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, collaborators, CROs, contract manufacturers, consultants, advisors and other third parties, any of these parties may breach these agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. Further, we may not be aware of all third-party intellectual property rights potentially relating to our product candidates. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions.
The patent position of biotech companies generally is highly uncertain, involves complex legal, technological and factual questions and has, in recent years, been the subject of much debate and litigation throughout the world. The subject matter claimed in a patent application can be significantly reduced or eliminated before the patent issues, if at all, and its scope can be reinterpreted or narrowed after issuance. Therefore, our pending and future patent applications may not result in patents being issued in relevant jurisdictions that protect our product candidates, in whole or in part, or that effectively prevent others from commercializing competitive product candidates, and even if our patent applications issue as patents in relevant jurisdictions, they may not issue in a form that will provide us with any meaningful protection for our product candidates or technology, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Additionally, our competitors may be able to circumvent our patents by challenging their validity or by developing similar or alternative product candidates or technologies in a non-infringing manner. The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. An adverse determination in any such submission, proceeding or litigation could result in loss of exclusivity or ability to sell our products free from infringing the patents of third parties, patent claims being narrowed, invalidated or held unenforceable, in whole or in part, and limitation of the scope or duration of the patents directed to our product candidates, all of which could limit our ability to stop others from using or commercializing similar or identical product candidates or technology to compete directly with us, without payment to us, or result in our inability to manufacture or commercialize product candidates or approved products (if any) without infringing third-party patent rights. In addition, if the breadth or strength of the claims of our patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates, or could have a material adverse effect on our ability to raise funds necessary to continue our research programs or clinical trials. Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming and unsuccessful, and issued patents directed towards our technology and product candidates could be found invalid or unenforceable if challenged.
Competitors and other third parties may infringe or otherwise violate our issued patents or other intellectual property or the patents or other intellectual property of our licensors and collaborators. In addition, our patents or the patents of our licensors and collaborators may become involved in inventorship or priority disputes. To counter infringement or other unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. Significantly, our pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issue from such applications. Our ability to enforce patent rights also depends on our ability to detect infringement. It may be difficult to detect infringers who do not advertise the components or methods that are used in connection with their products and services. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product or service. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents or that our patents are invalid or unenforceable. In a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology. An adverse result in any litigation proceeding could put one or more of our owned or licensed patents at risk of being invalidated, held unenforceable or interpreted narrowly. We may find it impractical or undesirable to enforce our intellectual property against some third parties.
If we were to initiate legal proceedings against a third party to enforce a patent directed to our product candidates, or one of our future product candidates, the defendant could counterclaim that our patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement or insufficient written description. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution. Third parties may also raise similar claims before the USPTO or an equivalent foreign body, even outside the context of litigation. Such proceedings could result in the revocation of, cancellation of, or amendment to our patents in such a way that they no longer cover our technology or any product candidates that we may develop. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent rights directed towards the applicable product candidates or technology related to the patent rendered invalid or unenforceable. Such a loss of patent rights would materially harm our business, financial condition, results of operations and prospects.
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Interference and/or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be materially harmed if the prevailing party does not offer us a license on commercially reasonable terms. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.
Some of our competitors are larger than we are and have substantially greater resources. They are, therefore, likely to be able to sustain the costs of complex patent litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing, misappropriating or otherwise violating our intellectual property. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims could result in substantial costs and diversion of management resources, which could harm our business. In addition, the uncertainties associated with litigation could compromise our ability to raise the funds necessary to continue our clinical trials, continue our internal research programs, or in-license needed technology or other product candidates. There could also be public announcements of the results of the hearing, motions, or other interim proceedings or developments. If securities analysts or investors perceive those results to be negative, it could cause the price of shares of our common stock to decline. Any of the foregoing events could harm our business, financial condition, results of operation and prospects.
Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance fees on issued patents often must be paid to the USPTO and foreign patent agencies over the lifetime of the patent. While an unintentional lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our product or procedures, we may not be able to stop a competitor from marketing products that are the same as or similar to our product and technologies.
Patents have a limited lifespan. The terms of individual patents depend upon the legal term for patents in the countries in which they are granted. In most countries, including the United States, if all maintenance fees are timely paid, the natural expiration of a utility patent is generally 20 years from its earliest non-provisional filing date in the applicable country. However, the actual protection afforded by a patent varies from country to country, and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent. Various extensions including patent term extension, or PTE, and patent term adjustment, or PTA, may be available, but the lives of such extensions, and the protections they afford, are limited. Even if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products, including biosimilars and generics. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting our product candidates might expire before or shortly after we or our partners commercialize those candidates. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be harmed.
In addition to seeking patents for our technologies and product candidates, we also rely on trade secret protection, as well as confidentiality agreements, non-disclosure agreements and invention assignment agreements with our employees, consultants and third-parties, to protect our know-how and other confidential and proprietary information, especially where we do not believe patent protection is appropriate or obtainable.
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It is our policy to require our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors, and other third parties to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements generally provide that all confidential information concerning our business or financial affairs developed by or made known to an individual or entity during the course of that party’s relationship with us is to be kept confidential and not disclosed to third parties, except in certain specified circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual, and that are related to our current or planned business or research and development or made during normal working hours, on our premises or using our equipment or proprietary information, are our exclusive property. In the case of consultants and other third-party service providers, the agreements provide us with certain rights to all inventions arising from the services provided to us by those individuals or entities. However, we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technologies and processes. Additionally, the assignment of intellectual property rights may not be self-executing, or assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. We may not be able to obtain adequate remedies for any breaches of such agreements. Ultimately, enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive, and time-consuming, and the outcome is unpredictable.
In addition to contractual measures, we try to protect the confidential nature of our proprietary information through other appropriate precautions, such as physical and technological security measures. However, trade secrets and know-how can be difficult to protect. These measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor, and any recourse we might take against this type of misconduct may not provide an adequate remedy to protect our interests fully. In addition, our trade secrets may be independently developed by others in a manner that could prevent us from receiving legal recourse. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any of that information was independently developed by a competitor, our competitive position could be harmed.
In addition, courts inside and outside the United States are sometimes less willing or unwilling to protect trade secrets. If we choose to go to court to stop a third party from using any of our trade secrets, we may incur substantial costs and we cannot guarantee a successful outcome. Even if we are successful, these types of lawsuits may consume significant amounts of our time and other resources. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.
We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our competitors or are in breach of non-competition or non-solicitation agreements with our competitors.
We could in the future be subject to claims that we or our employees have inadvertently or otherwise used or disclosed alleged trade secrets or other proprietary information of former employers, competitors, or other third parties. Although we endeavor to ensure that our employees and consultants do not use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us, we may in the future be subject to claims that we caused an employee to breach the terms of his or her non-competition or non-solicitation agreement, or that we or these individuals have, inadvertently or otherwise, used or disclosed the alleged trade secrets or other proprietary information of a former employer or competitor. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and could be a distraction to management. If our defense to those claims fails, in addition to paying monetary damages, a court could prohibit us from using technologies or features that are essential to our product, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers or other third parties. An inability to incorporate technologies or features that are important or essential to our product may prevent us from selling our product. In addition, we may lose valuable intellectual property rights or personnel. Moreover, any such litigation or the threat thereof may adversely affect our ability to hire employees or contract with independent sales representatives. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our product.
Changes in U.S. patent law, or laws in other countries, could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
As is the case with other pharmaceutical and biotech companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry involve a high degree of technological and legal complexity. Therefore, obtaining and enforcing pharmaceutical patents is costly, time consuming and inherently uncertain. Changes in either the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property and may increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. We cannot predict the breadth of claims that may be allowed or enforced in our patents or in our licensor’s patents. In addition, Congress or other foreign legislative bodies may pass patent reform legislation that is unfavorable to us. For example, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty regarding our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the U.S. federal courts, the USPTO, or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patent and the patents we might obtain or license in the future. Additionally, the application and interpretation of China’s intellectual property right laws and the procedures and standards for granting patents, copyrights, know-how or other intellectual property rights in China are still evolving and are uncertain, and we cannot assure you that PRC courts or regulatory authorities would agree with our analysis. If we were found to have violated the intellectual property rights of others, we may be subject to liability and penalties for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. As a result, our business and results of operations may be materially and adversely affected.
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Risks related to our business
We will need to increase the size of our Company and may not effectively manage our growth.
Our success will depend upon growing our business and our employee base. Over the next twelve months, we plan to add additional employees to assist us with research and development and our commercialization efforts. Our future growth, if any, may cause a significant strain on our management, and our operational, financial and other resources. Our ability to manage our growth effectively will require us to implement and improve our operational, financial and management systems and to expand, train, manage and motivate our employees. These demands may require the hiring of additional management personnel and the development of additional expertise by management. Any increase in resources devoted to research and product development without a corresponding increase in our operational, financial and management systems could have a material adverse effect on our business, financial condition, and results of operations.
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on the research and development, clinical, financial, operational and other business expertise of our executive officers, as well as the other principal members of our management, scientific and clinical teams. Although we have entered into employment agreements with our executive officers, each of them may terminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees. Recruiting and retaining qualified scientific, clinical, manufacturing, accounting, legal and sales and marketing personnel will also be critical to our success.
The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain marketing approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. Our success as a public company also depends on implementing and maintaining internal controls and the accuracy and timeliness of our financial reporting. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.
The point-of-care testing (“POCT”) market is extremely competitive and rapidly evolving, making it difficult to evaluate our business and future prospects.
The market for POCT testing is extremely competitive. Further, the POCT testing industry, as well as the manner in which healthcare services are delivered more broadly, is currently experiencing rapid change, technological and scientific breakthroughs, new product introductions and enhancements and evolving industry standards, as well as the emergence of telehealth and other changes in the way healthcare services are delivered. All of these factors could affect the degree to which our products gain market acceptance or approval or result in our products being less marketable or becoming obsolete. Our future success will depend on our ability to successfully compete with established and new market participants and to keep pace with scientific and technological changes and the evolving needs of customers and the healthcare marketplace.
We will be required to continuously enhance our products and develop new tests to keep pace with evolving standards of care. If we do not update our products to keep pace with technological and scientific advances, our products could become obsolete and sales of our products could decline or fail to grow as expected.
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Many of our current or potential competitors, either alone or with their collaboration partners, have significantly greater financial resources and expertise than we do in research and development, manufacturing, obtaining regulatory clearances and approvals and regulatory compliance, and sales and distribution. Mergers and acquisitions involving POCT testing or other healthcare companies may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies or customer networks. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize POCT products or services that are more accurate, more convenient to use or more cost-effective than our products. Our competitors also may obtain FDA or other regulatory clearance or approval for their products more rapidly than we may obtain clearance or able to enter a particular market.
Further, some of our competitors’ products may be sold at prices that may be lower than our pricing, which could adversely affect our sales or force us to reduce our prices, which could harm our revenue, operating income or market share. If we are unable to compete successfully, we may be unable to increase or sustain our revenue or achieve profitability and our future growth prospects may be materially harmed.
Central labs continue to represent the most significant portion of the POCT testing market, and as a result we will be competing against very large and well-established lab companies such as Quest POCTs, Inc. and Laboratory Corporation of America. These companies have also expanded beyond centralized laboratory testing into home sample collection. In addition, we also face intense competition from other companies that develop or already have molecular tests, whether at point-of-care or at-home, as well as companies that have or are developing antigen and antibody tests.
To remain competitive, we will need to develop improvements to our products and other offerings. We cannot assure you that we will be able to successfully compete in the marketplace or develop and commercialize new tests or improvements to our products and other offerings on a timely basis. Our competitors may develop and commercialize competing or alternative products or services and improvements faster than we are able to do so, which would negatively affect our ability to increase or sustain our revenue or achieve profitability and could materially adversely affect our future growth prospects.
Research and development of drug candidates as VELDONA is extremely expensive and complex and its difficult to evaluate the likelihood of the outcome of clinical trials, regulatory approvals, and our business and future prospects.
The discovery and development of new products such as our VELDONA candidates, as well as the development of additional uses for existing products, are necessary for the continued strength of our business. Our product lines must be replenished over time to offset revenue losses when products lose exclusivity or market share, as well as to provide for earnings growth, primarily through internal R&D or through collaborations, acquisitions, JVs, licensing or other arrangements. Growth depends in large part on our ability to identify and develop new products or new indications for existing products that address unmet medical needs and receive reimbursement from payers. However, balancing current growth, investment for future growth and the delivery of shareholder return remains a major challenge. The costs of product development continue to be high, as are regulatory requirements in many therapeutic areas, which may affect the number of candidates we are able to fund as well as the sustainability of the R&D portfolio. Decisions made early in the development process of a drug or vaccine candidate can have a substantial impact on the marketing strategy and payer reimbursement possibilities if the candidate receives regulatory approval. We try to plan clinical trials prudently and to reasonably anticipate and address challenges, but there is no assurance that an optimal balance between trial conduct, speed and desired outcome will be achieved.
Additionally, our product candidates can fail at any stage of the R&D process, and may not receive regulatory approval even after many years of R&D. We may fail to correctly identify indications for which our science is promising or allocate R&D investment resources efficiently, and failure to invest in the right technology platforms, therapeutic areas, product classes, geographic markets and/or licensing opportunities could adversely impact the productivity of our pipeline. Further, even if we identify areas with the greatest commercial potential, the scientific approach may not succeed despite the significant investment required for R&D, and the product may not be as competitive as expected because of the highly dynamic market environment and the hurdles in terms of access and reimbursement. For example, our VELDONA product candidates are based on a novel technology with only a few gene therapies approved to date, which makes it difficult to predict the time and cost of development and the ability to obtain regulatory approval. Further, our VELDONA therapies may face difficulties in gaining the acceptance of patients or the medical community.
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Our business activities are subject to the Foreign Corrupt Practices Act, or the FCPA, and similar anti-bribery and anti-corruption laws of other countries in which we operate, including Taiwan, w as well as U.S. and certain foreign export controls, trade sanctions, and import laws and regulations. Compliance with these legal requirements could limit our ability to compete in foreign markets and subject us to liability if we violate them.
Our business activities are subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate. The FCPA generally prohibits companies and their employees and third party intermediaries from offering, promising, giving or authorizing the provision of anything of value, either directly or indirectly, to a non-U.S. government official in order to influence official action or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. There is no certainty that all of our employees, agents or contractors, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, disgorgement, and other sanctions and remedial measures, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our international activities, our ability to attract and retain employees and our business, prospects, operating results and financial condition.
In addition, our products and technology may be subject to applicable foreign export controls, trade sanctions and import laws and regulations. Governmental regulation of the import or export of our products and technology, or our failure to obtain any required import or export authorization for our products, when applicable, could harm our international sales and adversely affect our revenue. Compliance with applicable regulatory requirements regarding the export of our products may create delays in the introduction of our products in international markets or, in some cases, prevent the export of our products to some countries altogether. If we fail to comply with export and import regulations and such economic sanctions, penalties could be imposed, including fines and/or denial of certain export privileges. Moreover, any new export or import restrictions, new legislation or shifting approaches in the enforcement or scope of existing regulations, or in the countries, persons, or products targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export our products to existing or potential customers with international operations. Any decreased use of our products or limitation on our ability to export or sell access to our products would likely adversely affect our business.
Risks related to our securities
Our financial statements disclose that there is substantial doubt regarding our ability to continue as a going concern, in which case you could lose your investment.
Our independent registered public accounting firm, PWR CPA, LLP, has expressed substantial doubt about our ability to continue as a going concern in their audit opinion of our financial statements for the year ended December 31, 2022. See audit report for more information. You could lose your investment if we cease operations.
An active trading market for our common stock may not develop and the market price of our common stock and warrants could be volatile.
Our common stock and warrants are currently quoted on the Nasdaq Capital Market.
The trading market for our common stock in the future could be subject to wide fluctuations in response to several factors, including, but not limited to:
| · | actual or anticipated variations in our results of operations; |
| · | our ability or inability to generate revenues or profit; |
| · | the number of shares in our public float; and |
| · | increased competition. |
Furthermore, our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our common stock. Additionally, moving forward we anticipate having a limited number of shares in our public float, and as a result, there could be extreme fluctuations in the price of our common stock.
We do not intend to pay dividends for the foreseeable future and, as a result, our ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
We have not declared or paid any cash dividends on our capital stock in 2022, and we do not intend to pay any cash dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and may be restricted by the terms of any then-current credit facility. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
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We have acquired, and may in the future acquire, assets and technologies as part of our business strategy. If we acquire companies or technologies in the future, they could prove difficult to integrate, disrupt our business, dilute stockholder value, and adversely affect our operating results and the value of our common stock.
As part of our business strategy, we may acquire, enter into joint ventures with, or make investments in complementary or synergistic companies, services, and technologies in the future. Acquisitions and investments involve numerous risks, including without limitation:
| · | difficulties in identifying and acquiring products, technologies, proprietary rights or businesses that will help our business; |
| · | difficulties in integrating operations, technologies, services, and personnel; |
| · | diversion of financial and managerial resources from existing operations; |
| · | the risk of entering new development activities and markets in which we have little to no experience; |
| · | risks related to the assumption of known and unknown liabilities; |
| · | risks related to our ability to raise sufficient capital to fund additional operating activities; and |
| · | the issuance of our securities as partial or full payment for any acquisitions and investments could result in material dilution to our existing stockholders. |
If we fail to integrate our patent assets into our operations, or if we fail to properly evaluate other acquisitions or investments, we may not achieve the anticipated benefits of any such acquisitions, we may incur costs in excess of what we anticipate, and management resources and attention may be diverted from other necessary or valuable activities.
Any failure to maintain effective internal control over financial reporting could harm us.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. If our management is unable to conclude that we have effective internal control over financial reporting, or to certify the effectiveness of such controls, or if material weaknesses in our internal controls are identified in the future, we could have difficulty in timely and accurately reporting our financial results and could be subject to regulatory scrutiny and a loss of public confidence, any of which could have a material adverse effect on our business and our stock price. Our management has concluded there were deficiencies in the design and implementation of our internal controls as of December 31, 2021. If we are unable to remediate the deficiencies identified adequately or otherwise fail to maintain adequate financial and management personnel, processes and controls, we may not be able to manage our business effectively or accurately report our financial performance on a timely basis, which could cause a decline in our common stock price and adversely affect our results of operations and financial condition.
Our issuance of additional capital stock in connection with financings, acquisitions, investments, our 2021 Stock Incentive Plan or otherwise will dilute all other stockholders.
We may need to raise additional capital through equity and debt financings in order to fund our operations. If we raise capital through equity financings in the future, that will result in dilution to all other stockholders. We also expect to grant equity awards to employees, directors, and consultants under our 2021 Stock Incentive Plan. As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies and issue equity securities to pay for any such acquisition or investment. These, and any additional such issuances of capital stock will cause stockholders to experience significant dilution of their ownership interests and the per-share value of our common stock to decline.
Our stock price has in the past and may in the future fail to meet minimum requirements for continued listing on the Nasdaq Capital Market. Our ability to publicly or privately sell equity securities and the liquidity of our common stock could be adversely affected if we are delisted from the Nasdaq Capital Market or if we are unable to transfer our listing to another stock market.
On January 5, 2023, the Company received a deficiency letter from the Nasdaq Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, for the last 30 consecutive business days, the closing bid price for the Company’s common stock has been below the minimum $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). The Nasdaq deficiency letter has no immediate effect on the listing of the Company’s common stock, and its common stock will continue to trade on The Nasdaq Capital Market under the symbol “AIMD” at this time.
If the Company does not regain compliance with the Minimum Bid Price Requirement by July 5, 2023, the Company may be afforded a second 180 calendar day period to regain compliance. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, except for the Minimum Bid Price Requirement. In addition, the Company would be required to notify Nasdaq of its intent to cure the deficiency during the second compliance period. If the Company meets these requirements, Nasdaq will inform the Company that it has been granted an additional 180 calendar days. However, if it appears to Staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice that the Company’s securities are subject to delisting.
There can be no assurance that we will continue to maintain compliance with the requirements for listing our common stock on Nasdaq. Any potential delisting of our common stock from the Nasdaq Capital Market would likely result in decreased liquidity and increased volatility for our common stock and would adversely affect our ability to raise additional capital or to enter into strategic transactions. Any potential delisting of our common stock from the Nasdaq Capital Market would also make it more difficult for our stockholders to sell our common stock in the public market.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. DESCRIPTION OF PROPERTY.
Our executive and administrative offices are located at San Diego, California and in Taiwan. Additionally, we have a product development facility in Taiwan.
ITEM 3. LEGAL PROCEEDINGS.
There are currently no legal proceedings involving the Company.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Effective August 9, 2022, our common stock and warrants began trading on the Nasdaq Capital Market under the symbols “AIMD” and “AIMDW”, respectively. Prior to August 9, 2022, the Company’s common stock traded on the OTCPK.
In connection with the Offering, the Company’s board of directors on April 29, 2022 and our shareholders on May 16, 2022 approved a 1-for-15 reverse stock split (the “Reverse Stock Split”) of the Company’s common stock and each series of its redeemable convertible notes to be consummated prior to the effectiveness of the Offering The par value and authorized shares of the Company’s common stock were not adjusted as a result of the Reverse Stock Split. All issued and outstanding common stock, RSUs, warrants and options to purchase common stock and per share amounts contained in the financial statements have been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented.
The Company filed an amended Restated Certificate of Formation with the Secretary of State of Texas on August 8, 2022 that effectuated the Reverse Stock Split.
Holders of Common Stock
We have 300,000,000 shares of voting common shares authorized for issuance. As of December 31, 2022, a total of 21,959,797 shares of common stock were either issued (20,011,602), reserved for conversion of convertible debt to stock (145,355), reserved for RSUs awarded (800,000), held for future exercise of stock options (36,666) and shares reserved for warrant conversion (966,174).
Preferred Stock
The Company has 10,000,000 shares of preferred stock authorized for issuance.
No shares of preferred stock were outstanding as of December 31, 2022 and none are outstanding as of the date of the Balance Sheet in this report.
Stock Performance Graph
Not applicable.
Recent Sales of Unregistered Securities
None.
Use of Proceeds From Registered Securities
On August 8, 2022, we closed on our underwritten public offering of 780,000 units at a public offering price of $4.25 per unit (the “IPO”). Each unit issued in the offering consisted of one share of common stock and one warrant to purchase one share of common stock at an exercise price of $4.25. The common stock and warrants were immediately separable and were issued separately. The common stock and warrants began trading on the Nasdaq Capital Market on August 9, 2022, under the symbols “AIMD” and “AIMDW,” respectively. Ainos received gross proceeds of approximately $3.3 million, before deducting underwriting discounts and commissions and other estimated offering expenses. In connection with the offering, the Company effectuated a reverse split of its issued and outstanding common stock at a ratio of 1-for-15. The reverse stock split became effective at 8 p.m., Eastern Time, on August 8, 2022.
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As part of its offering Ainos granted its underwriters a 45-day option to purchase up to an additional 117,000 shares of common stock and/or up to an additional 117,000 warrants at the public offering price to cover over-allotments. The underwriters partially exercised its option to purchase an additional 117,000 warrants at $0.01/warrant.
Maxim Group LLC acted as sole book-running manager for the offering. Brookline Capital Markets, a division of Arcadia Securities, LLC acted as co-manager for the offering.
The offering was conducted pursuant to the Company’s registration statement on Form S-1 (Registration No. 333-264527) that was previously filed with Securities and Exchange Commission (“SEC”), and declared effective on August 8, 2022.
Issuer Purchases of Equity Securities
None.
Dividends
We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on any of our capital stock. We do not anticipate paying any dividends in the foreseeable future, and we currently intend to retain all available funds and any future earnings for use in the operation of our business, to finance the growth and development of our business and for future repayment of debt. Future determinations as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our operating results, financial condition, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.
Transfer Agent
American Stock Transfer and Trust Company is the Company’s transfer agent.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this Item regarding equity compensation plans is incorporated by reference to the information set forth in Part III, Item 12 of this Annual Report.
Recent Sales of Unregistered Securities
None of the following transactions involved any underwriters, underwriting discounts or commissions, or any public offering unless specified otherwise. Unless otherwise specified below, we believe these transactions were exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act (and Regulation D promulgated thereunder), or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or under benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed on the share certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about us. The sales of these securities were made without any general solicitation or advertising.
ITEM 6. [RESERVED]
This item is not applicable to smaller reporting companies.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this Form 10-K. This discussion contains forward-looking statements based on current expectations, which involve uncertainties. Actual results and the timing of events could differ materially from the forward-looking statements as a result of a number of factors, including those discussed in “Item 1A. Risk Factors.”
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Overview
Our Company and Business
Ainos Inc., formerly 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.
We have historically been involved in extensive research and development of low-dose oral interferon as a therapeutic. We continue to develop our VELDONA platform and other pharmaceutical platforms and recently have acquired intellectual properties to expand our POCT business. In 2021 and 2022, we acquired significant intellectual property from our majority shareholder, Ainos KY, to expand our potential product portfolio into Volatile Organic Compounds (“VOC”) and COVID-19 POCTs.
Key Developments in 2022
The following are highlights of major corporate milestones in 2022 that we believe will serve as catalysts for us to develop and commercialize our product pipeline over the next several years:
| · | In 2021, we acquired intellectual property assets from Ainos KY valued at approximately $20,000,000 to augment our product development pipeline. Subsequently, in 2022 we acquired additional intellectual property and equipment assets from Ainos KY valued at approximately $26,000,000 including technical know-how, medical device manufacturing, testing and office equipment in Taiwan and hired certain of Ainos KY’s R&D personnel. |
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| · | In June 2022, we began marketing the Ainos COVID-19 antigen test kit for self-test use under an Emergency Use Authorization (“EUA”) issued by the TFDA on June 13, 2022 to TCNT, the manufacturer and product co-developer of the test in conjunction with Ainos. |
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| · | In August 2022, we signed a Master Service Agreement with Swiss Pharmaceutical Co., Ltd. (Taiwan) (“Swiss Pharma”). Pursuant to the agreement, Swiss Pharma will test, manufacture, and package the Company’s VELDONA “GMP Clinical Batch” and “GMP Commercial Batch” product candidates for the Company’s planned clinical trials under both Pharmaceutical Inspection Co-operation Scheme Good Manufacturing Practice (“PIC/S GMP”) and U.S. FDA Current Good Manufacturing Practice regulations. This relationship with Swiss Pharma is intended to develop our VELDONA product candidates and enable us to effectively increase our manufacturing capabilities for VELDONA for our clinical trials, including testing, quality inspection, labeling, and packaging. |
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| · | In August 2022, we uplisted to Nasdaq Capital Market and concurently completed an underwritten public offering of 780,000 units at a public offering price of $4.25 per unit. In connection with the offering, we effectuated a reverse split of our common stock at a ratio of 1-for-15. |
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| · | In August 2022, we submitted Investigational New Drug Application to the U.S. FDA for our planned Phase 2 study of VELDONA formulation against mild COVID-19 symptoms. |
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| · | In September 2022, we announced positive results from additional preclinical study of VELDONA formulation against COVID-19 variant virus – Omicron. |
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| · | In November 2022, we published preclinical data demonstrating VELDONA formulation’s potential as treatment candidates for feline chronic gingivostomatitis (FCGS) and canine atopic dermatitis (CAD). |
Impact of COVID-19 on Our Business
The COVID-19 pandemic presented us an opportunity to grow our COVID-19 antigen test business. Substantially all of our operating revenue came from the sale of the Ainos COVID-19 antigen rapid test kits in Taiwan. While in the short-term demand for rapid COVID-19 testing is expected, market conditions are unpredictable. Given our available resources, we intend continue marketing the COVID-19 test kit primarily in Taiwan.
We believe that during the COVID-19 pandemic, consumers have been increasingly familiar with at-home tests. Moving forward, people may seek additional at-home tests to manage other infections as quickly as possible. Home self-testing and self-collection have been increasingly available for other infections such as vaginal or sexually transmitted infections. We believe this new user behaviour, supported by variety of telehealth platforms, will become increasingly supportive to our other POCT products as COVID-19 becomes endemic.
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Due to evolving market dynamics with COVID testing and the current financial environment, we decided to discontinue investment in commercializing the COVID-19 nucleic acid test program. We intend to evaluate our nucleic acid test technology for potential applications for other disease indications. At the same time, we plan to prioritize our other long-term growth programs, including Ainos Flora and our VELONDA candidates. We intend to actively explore out-licensing opportunities for our VELDONA candidates to accelerate return of our investments.
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 future research studies, disrupt regulatory activities or have other adverse effects on our business, results of operations, financial condition and prospects.
Financial Summary of Fiscal Year 2022
A discussion regarding our results of operations and financial conditio for fiscal year 2022 compared to fiscal year 2021 is presented below. A discussion regarding our results of operations and financial condition for fiscal year 2021 compared to fiscal year 2020 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Results of Operations
The following table summarizes our results of operations for the years ended December 31, 2022 and 2021.
|
| Years ended December 31, |
|
| Change |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| Amount |
|
| % |
| ||||
Revenues |
|
| 3,519,627 |
|
|
| 594,563 |
|
|
| 2,925,064 |
|
|
| 492 | % |
Cost of revenues |
|
| (2,114,284 | ) |
|
| (184,181 | ) |
|
| (1,930,103 | ) |
|
| 1,048 | % |
Gross profits |
|
| 1,405,343 |
|
|
| 410,382 |
|
|
| 994,961 |
|
|
| 242 | % |
|
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|
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|
|
|
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|
|
|
|
Operating expenses: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses |
|
| 6,845,964 |
|
|
| 1,920,645 |
|
|
| 4,925,319 |
|
|
| 256 | % |
Selling, general and administrative expenses |
|
| 8,535,591 |
|
|
| 2,357,163 |
|
|
| 6,178,428 |
|
|
| 262 | % |
|
|
| 15,381,555 |
|
|
| 4,277,808 |
|
|
| 11,103,747 |
|
|
| 260 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (13,976,212 | ) |
|
| (3,867,426 | ) |
|
| (10,108,786 | ) |
|
| 261 | % |
|
|
|
|
|
|
|
|
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|
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Non-operating income and expenses |
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|
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|
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|
|
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Interest expense, net |
|
| (53,528 | ) |
|
| (18,689 | ) |
|
| (34,839 | ) |
|
| 186 | % |
Other income and (expenses), net |
|
| 23,050 |
|
|
| (2,547 | ) |
|
| 25,597 |
|
| (1005 | %) | |
|
|
| (30,478 | ) |
|
| (21,236 | ) |
|
| (9,242 | ) |
|
| 44 | % |
Net loss |
|
| (14,006,690 | ) |
|
| (3,888,661 | ) |
|
| (10,118,029 | ) |
|
| 260 | % |
Revenues
Net revenues for 2022 and 2021 were $3,519,627 and $594,563, respectively. In 2022, we substantially increased revenues by 492%, consistent with a corresponding increase in sales volume of our COVID-19 Antigen Self-Test Kit in Taiwan.
Costs and Gross Profits
Cost of revenues for 2022 and 2021 were $2,114,284 and $184,181, respectively, representing a 1,048% increase year-over-year. The increase was primarily attributable to increased business activity relating to the test kits.
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Gross profits rose to $1,405,343 from $410,382, an improvement of $994,961, or 242%. Gross margin rate for 2022 decreased to 40% from 69% for 2021, as a result of a shift in the Company’s revenue mix. To align with the Taiwan government’s infection control policy, we generated more revenue from the COVID-19 Antigen Self-Test Kit beginning in the third quarter of 2022. In comparison, the majority of our revenue during the comparable period had been previously generated from sales of our COVID-19 Rapid Test Kit for use by healthcare professionals. We did not sell the self-test kit in 2021.
Research and Development Expenses
Following the strategic investment by Ainos KY, since August 2021 we have increased research and development staffing to develop our product candidates including POCTs, VELDONA and SRNA research.
Research and development expenses for 2022 and 2021 were $6,845,964 and $1,920,645, an increase of $4,925,319, or 256%. The increase is associated with higher amortization of intellectual property assets, staffing, experimental materials, service fee for CRO and animal study, co-development research with the universitity lab and other companies
When excluding share-based compensation, depreciation and amortization expenses, R&D expenses increased to US$2,134,935 from US$655,706 over the year of 2022.
Selling, General and Administrative Expenses
Selling, general and administration expense increased to $8,535,591 in 2022 from $2,357,163 in 2021, an increase of $6,178,428, or 262%. which included the share-based compensation approximately $6,394,000. Aside from share-based compensation expense, SG&A expense mainly consisted of staffing, legal, audit, consulting, and professional service expenses.
When excluding share-based compensation, depreciation and amortization expenses, SG&A expenses increased to US$2,062,046 from US$1,404,811 over the year of 2022.
Operating Loss
While our gross profits improved by $994,961 in 2022 compared to $405,096 in 2021, we incurred additional operating expenses as we continue to invest resources to execute our growth strategy and product roadmap. As a result, our operating loss in 2022 increased to $13,976,212 from $3,867,426 in 2021.
Liquidity and Capital Resources
As of December 31, 2022, we had cash and cash equivalents of $1,853,362, representing an increase from $1,751,499 as of December 31, 2021. The increase is primarily attributable to revenues from sales of our Ainos COVID-19 antigen rapid test kit in Taiwan and proceeds from financing activities..
The following table summarizes our cash flows at the end of December 31, 2022 and 2021:
|
| Year Ended December 31, |
| |||||
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| 2022 |
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| 2021 |
| ||
Net cash used in operating activities |
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| (3,021,183 | ) |
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| (1,249,977 | ) |
Net cash used in investing activities |
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| (630,178 | ) |
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| (180,517 | ) |
Net cash provided by financing activities |
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| 3,831,245 |
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| 3,154,373 |
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Operating activities
While our revenues grew in 2022 due to sales of Ainos COVID-19 test kits, we increased investment in staffing, activities of research and developments and working capital, resulting in a higher net operating outflow. Changes in working capital were primarily driven by increases in trade receivables and inventories due to rapid growth of revenue.
As a result, cash expenditures for operating activities in 2022 and 2021 were $3,021,183 and $1,249,977, respectively.
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Investing activities
Cash used in investing activities were $630,178 and $180,517 for the year of 2022 and 2021, respectively, attributed to the acquisition of R&D equipment and office facilities.
Financing activities
In 2022, we raised $3,831,245 from financing activities including through issuance of convertible notes, notes payable and our uplisting to the Nasdaq Capital Market; in 2021, we raised $3,154,373 which primarily from issuance of convertible notes. Refer to Note 4, 5 and 7 to the Consolidated Financial Statements of this Annual Report on Form 10-K for further discussion.
As a result of the conversion of convertible notes in conjunction with our IPO in 2022, our total liabilities decreased significantly. As of December 31, 2022 and 2021, total liabilities were $2,481,008 and $30,625,054, respectively; and debt ratios were 7% and 75%, respectively.
Sources of Liquidity
In 2023, we are prioritizing the commercialization of our lead VOC POCT candidate, Ainos Flora, and pursue outlicensing of our VELDONA candidates. In terms of expenditure, we intend to increase staffing for general administration, marketing and technology development purpose
At December 31, 2022, we had available cash and cash equivalents of $1,853,362. The Company anticipates that its business revenues and external fundraising will be sufficient to support the Company’s operations over the next twelve months.
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, including, as required, additional external financing from our majority shareholder, in order to further implement its business plan. Based on current operating plans, the Company estimates that it will need to raise additional capital to fund its operationsproduct development activities, and planned clinical trials.. However, if such financing is not available when needed and at adequate levels, the Company will need to reevaluate its operating plan.
Uses of Liquidity
Our primary uses of cash are to fund our operations as we continue to grow our business. We may require a significant amount of cash to fund capital expenditures, inventory purchases and timing of accounts receivable as we grow our commercial infrastructure. We may continue to incur operating losses in the near term as our operating expenses will be increased to support the growth of our business. We expect that our selling, general and administrative expenses, and research and development expenses will continue to increase as we seek additional regulatory approvals and further develop test kits, increase our test kit manufacturing volume, expand our marketing efforts and increase our internal sales force to drive increased adoption of our test kits and VELDONA products. We may also have cash requirements related to capital expenditures to support the planned growth of our business, including investments in corporate facilities and equipment.
Going Concern
The Company’s consolidated financial statements have been prepared in accordance with U.S. 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. At December 31, 2022, we had available cash and cash equivalents of $1,853,362. We anticipate business revenues and potential financial support from outside sources to fund our operations over the next twelve months.
The Company has generated revenues from sales of COVID-19 antigen test kits since the second quarter of 2021. Net revenues for 2022 and 2021 were $3,519,627 and $594,563, respectively, substantially increased revenues by 492%, which verifies the excellent detection performance of the product . However, due to the uncertainties to the progression Iof COVID-19 infection, there can be no assurance that we can continue grow the COVID-19 test business. 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 and VELDONA candidates to potentially generate organic cash flows to support our business operation. 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 additional expenses associated with increased headcount and product development. Furthermore, we expect to incur more general and administrative expenses associated with operating as a public company, including significant legal, accounting, investor relations and other expenses.
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Until we can generate significant revenue from product sales, the Company intends to seek additional funding through equity offerings or borrowing arrangements or licensing agreements or strategic alliances to implement its business plan. The issuances of additional equity securities by the Company may result in dilution in the equity interests of its current stockholders. Obtaining commercial loans may increase the Company’s liabilities and future cash commitments.
We are unable to predict the timing or amount of unexpected expenses or when or if we will be able to increase significant revenue due to the numerous risks and uncertainties associated with product development and related legal regulatory requirements, and when we are eventually able to generate additional product sales or licensing income, those revenue may not be sufficient to become profitable. Furthermore, fundraising of emerging company is extremely challenging due to the high uncertainty of the overall economic environment at present. There can be no assurance that the revenue will be generated in time or capital will be available as necessary to meet the Company’s working capital requirements or, if the capital is available, that it will be on terms acceptable to the Company.
If the company is unable to generate cash inflow from operating activities in the near future, and cannot complete fundraising with sufficient amount and acceptable terms, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern, but 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. See the audit report for related information.
Critical Accounting Policies and Estimate
For a discussion of significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements, see Notes 1, “Organization and Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements included elsewhere in this document.
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America and the Company’s discussion and analysis of its financial condition and operating results requires the Company’s management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.
We believe that the following critical policies affect our judgments and estimates used in preparation of our consolidated financial statements:
Long-Lived Asset Impairment
We regularly evaluate long-lived assets, including property, equipment, and intangible assets subject to amortization, for impairment in accordance with Accounting Codification Standards (ASC) 360-10-35-17 thru 35-35, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which requires us to review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable and exceeds its fair value. ASC 360-10-35-21 provides guidelines to test long-lived assets for recoverability whenever events or circumstances indicates that its carrying value may not be recoverable. Based on our assessment of the events and circumstances, we concluded there is no impairment of our long-lived assets during the year ended December 31, 2022. If circumstances related to our long-lived assets change, we may record an impairment charge in the future.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as of December 31, 2022.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and notes of the Company are set forth beginning on page F-1 immediately following the signature page of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 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’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’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.
Management’s Report on Internal Control Over Financial Reporting
Management of the Company, including the principal executive and financial officers, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Criteria”). Our internal controls are designed to provide reasonable assurance as to the reliability of our financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that:
| i. | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| ii. | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
| iii. | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management of the Company assessed the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the 2013 framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Based on this assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2022 and that its remediation plan implemented since December 31, 2021 was effective.
Changes in Internal Control Over Financial Reporting
In 2022, we expanded our corporate operations at our Taiwan branch office. We continue to implement an ERP system in our Taiwan branch office to manage and control our operational infrastructure, and enhance the reliability of our financial data.
Additionally, in 2022 we have gradually increased the personnel resources dedicated to and the professional quality of financial report preparation. Similarly, our management team’s oversight of our reporting is supplemented by oversight of our Audit Committee. Going forward we expect to further increase our internal corporate resources focused on improving the design, implementation, and monitoring of our internal control systems.
ITEM 9B. OTHER INFORMATION
On January 5, 2023, the Company received a deficiency letter from the Nasdaq Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, for the last 30 consecutive business days, the closing bid price for the Company’s common stock has been below the minimum $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). The Nasdaq deficiency letter has no immediate effect on the listing of the Company’s common stock, and its common stock will continue to trade on The Nasdaq Capital Market under the symbol “AIMD” at this time.
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been given 180 calendar days, or until July 5, 2023, to regain compliance with the Minimum Bid Price Requirement. If at any time before July 5, 2023, the bid price of the Company’s common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, the Staff will provide written confirmation that the Company has achieved compliance.
If the Company does not regain compliance with the Minimum Bid Price Requirement by July 5, 2023, the Company may be afforded a second 180 calendar day period to regain compliance. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, except for the Minimum Bid Price Requirement. In addition, the Company would be required to notify Nasdaq of its intent to cure the deficiency during the second compliance period. If the Company meets these requirements, Nasdaq will inform the Company that it has been granted an additional 180 calendar days. However, if it appears to Staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice that the Company’s securities are subject to delisting.
The Company intends to monitor the closing bid price of its common stock and may, if appropriate, consider available options to regain compliance with the Minimum Bid Price Requirement. However, there can be no assurance that the Company will be able to regain compliance with the Minimum Bid Price Requirement or will otherwise be in compliance with other Nasdaq Listing Rules.
On January 10, 2023 the Company filed a Form 8-K with the SEC disclosing the herein matters.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
As of December 31, 2022, the directors and executive officers of the Company were as follows:
Name | Age | Position |
Chun-Hsien Tsai | 53 | Chairman, President & Chief Executive Officer |
Hui-Lan Wu | 62 | Chief Financial Officer |
Lawrence K. Lin | 54 | Executive Vice President of Operations |
Wen-Han Chang | 59 | Director |
Yao-Chung Chiang | 69 | Director |
Pao-Sheng Wei | 65 | Director |
Ting-Chuan Lee | 39 | Director |
Chun-Jung Tsai | 51 | Director |
Chung-Yi Tsai | 46 | Director |
Chun-Hsien Tsai. Mr. Tsai has served as our Chairman of the Board of Directors, President, Chief Executive Officer, and as a director since April 15, 2021. From April 15, 2021 until August 11, 2021, he also served as Chief Financial Officer. He concurrently serves as the CEO and Chairman of the Board of Directors of Ainos KY, as the Chairman of the Board of Directors of Taiwan Carbon Nano Technology Co., and as the Chief Executive Officer and director of AI Nose Corporation. Mr. Tsai has served as Chairman and CEO of Taiwan Carbon Nano Technology since July 2018, as a director and President of Ainos KY since October 2017, and in each of his other roles since 2012. In his capacity as the Chief Executive Officer of Taiwan Carbon Nano Technology Co., Mr. Tsai oversaw the completion of the world’s first carbon nanotube reactor. Mr. Tsai also currently serves as a member of the Taiwan Energy Storage Alliance and a member of the China Alternative Energy Association. Mr. Tsai owns more than 150 patents. Mr. Chun-Hsien Tsai is the brother of Mr. Chung-Yi Tsai and Mr. Chun-Jung Tsai. He is also the husband of Ms. Ting-Chuan Lee.
Hui-Lan Wu. Ms. Wu has served as our Chief Financial Officer since August 11, 2021. She has nearly 30 years of accounting, audit and management consulting experience. Before joining Ainos, Ms. Wu was a partner at KPMG Taiwan where she provided audit services to private and public companies in the technology, medical and chemical material sectors. She has mentored startup companies at the Center of Industry Accelerator and Patent Strategy at the National Yang Ming Chiao Tung University, and iLab Accelerator in Taiwan. Ms. Wu has devoted herself to promote impact investing in Taiwan. She received her Executive MBA from National Yang Ming Chiao Tung University and is a Certified Public Accountant in Taiwan and China.
Lawrence K. Lin. Mr. Lin has served as Executive Vice President of Operations since August 1, 2021. Prior to his appointment, Mr. Lin served as Executive Advisor to the previous CEO and chairman of the Company and provided executive management consulting for Aquahelio Resources LLC, an unaffiliated company, through i2China Management Group, LLC. Mr. Lin brings more than 30 years of global cross-border strategic management consulting and financial investment experience at leading institutional corporates, such as Andersen Consulting, Salomon Smith Barney, and Credit Suisse First Boston. Mr. Lin has managed investment assets across several geographical locations, including the U.S., China and Taiwan, and advised on many private capital and structured public equity transactions for issuers in real estate, healthcare and consumer sectors. He spent nearly 15 years as an entrepreneur managing an independent Shanghai-based advisory and merchant banking practice where he completed numerous corporate acquisition and investment financing advisory mandates. Mr. Lin has a dual MBA in Finance & International Business from New York University- Stern School of Business.
Wen-Han Chang. Mr. Chang has served as a member of the Company’s Board of Directors since April 2021. He concurrently serves as the chairperson of our Compensation Committee and a member of our Audit Committee since August 2021. He also currently serves as the President of the Health Intelligent Medical Technology Development Society, the President of the Taiwan Society of Health Technology and Intelligence Medicine, and the Executive Director of the Taiwan Society of Geriatric Emergency & Critical Care Medicine. In addition, Mr. Chang is an Honorary President of the Taiwan Society of Engineering Technology and Practical Medicine, a Director on the board of directors of the Taiwan Society of Emergency Medicine, a Director on the board of directors of the Taiwan Society of Emergency Management Medicine, and a Supervisor of the Emergency and Critical Care Medicine Society. From September 2015 to May 2019, Mr. Change served as a Vice President General at Mackay Memorial Hospital.
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Yao-Chung Chiang. Mr. Chiang has served as a member of the Company’s Board of Directors since April 2021. He concurrently serves as a member of our Audit Committee since August 2021. He is also the current Chairman of the board of directors of the Taiwan High Speed Rail Corporation. Mr. Chiang has previously served as the Chairman of the board of directors for the China Steel Chemical Corporation, Kaohsiung Rapid Transit Corporation, China Steel Corporation and China Airlines. Mr. Chiang holds a Ph.D. in Mechanical Engineering from the University of Wisconsin-Madison and a master’s degree in Mechanical Engineering from the National Cheung Kung University.
Pao-Sheng Wei. Mr. serves as a director of the Company, Chairperson of the Audit Committee of the Board of Directors and in which he serves the Audit Committee Financial Expert, and as a member of the Compensation Committee. In addition to his roles in the Company, he also is an Independent Director of Nuvoton Technology Corporation from June 2022 to present, which is not affiliated with the Company. Prior to joining the Board, Mr. Wei was Chairman of KGI Bank, a subsidiary of China Development Financial Holding Company from September 2014 to June 2022, when he retired as Chairman. He also served as Chairman of the Taiwan offices of AIG Investments, AIG General Insurance, KGI Securities, respectively. In addition to his executive leadership in banking, securities, and insurance, Mr. Wei was a securities regulator as the Division Director of Corporate Finance of the Securities and Futures Bureau of the Financial Supervisory Commission, R.O.C. (Taiwan). Mr. Wei earned his MBA from the George Washington University in Washington D.C., USA in 1991.
Ting-Chuan Lee. Ms. Lee has served as a member of the Company’s Board of Directors since April 2021. She has served as a director on the board of directors of Taiwan Carbon Nano Technology Co. since 2012. From 2012 to 2017, Ms. Lee served as the Chairman of the board of directors of Taiwan Carbon Nano Technology Co. Ms. Lee holds a master’s degree of science from the National Taiwan University and a bachelor’s of science degree from the National Cheung Kung University. Ms. Lee is the spouse of Mr. Chung-Hsien Tsai.
Chun-Jung Tsai. Mr. Tsai has served as a member of our Board of Directors since April 2021. Mr. Tsai is also a member of the board of directors of Ainos KY. He concurrently serves as the Executive Director of Ainos, Inc., a Cayman Islands corporation and as the Executive Director of Taiwan Carbon Nano Technology Co. In his capacity as the Executive Director of Taiwan Carbon Nano Technology Co., Mr. Tsai oversaw the completion of the world’s first carbon nanotube reactor. Mr. Chun-Jung Tsai is the brother of Mr. Chun-Hsien Tsai and Mr. Chung-Yi Tsai.
Chung-Yi Tsai. Mr. Tsai has served as a member of our Board of Directors since April 2021 and of the Board of Directors of TCNT since 2012. He has served as the Executive Business Manager in the Automotive Business Unit of Maxim Integrated since November 2019, where he manages the high voltage (off battery) power management ICs for automotive ADAs & safety, information, telematics & head unit applications. From October 2013 through November 2019, Mr. Tsai served as a Senior Product Marketing Manager in the Battery & Optical Business Unit of Intersil Corporation. In such role, Mr. Tsai managed computer core power, battery charger and USB/USB power delivery product lines focused on computing and consumer markets. Mr. Chung-Yi Tsai is the brother of Mr. Chun-Hsien Tsai and Mr. Chun-Jung Tsai.
Officers are elected by the Board of Directors and serve at the discretion of the Board.
Audit Committee
Our Audit Committee consists of Mr. Wen-Han Chang, Mr. Yao-Chung Chiang and Pao-Sheng Wei, each of whom has been determined to be “independent” under applicable independence standards, the Board of Director’s Corporate Governance Policies and the Charter of our Audit Committee. Pao-Sheng Wei currently serves as Chairperson of our Audit Committee. Our Board has determined that each of the members of the Audit Committee is able to read and understand fundamental financial statements, including the Company’s balance sheet, statement of operations and cash flow statement.
In addition, our Board has determined that Pao-Sheng Wei, Mr. Wen-Han Chang and Mr. Yao-Chung Chiang qualify as “audit committee financial experts” as defined by applicable SEC regulations.
The duties and responsibilities of the Audit Committee are set forth in its charter, which may be found on the Corporate Governance page of our Investor Relations website, include the following:
| · | selecting our independent registered public accounting firm and reviewing its qualifications, independence and performance; |
| · | reviewing the audit plans of our internal auditors and any significant reports prepared by our internal auditors as well as management’s responses; |
| · | in consultation with management and the Company’s internal and external auditors, reviewing the Company’s guidelines and policies with respect to risk assessment, risk management and internal financial and disclosure controls; and |
| · | reviewing any material written communications between the independent registered public accounting firm and management, including any management or internal control letter issued or proposed to be issued by the independent registered public accounting firm and management’s response, if any. |
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From time to time, the Company may engage an independent internal control auditor who consults with the Company on its existing internal controls and possible changes or augmentations to those controls.
Compensation Committee
Our Compensation Committee currently consists of Wen-Han Chang and Pao-Sheng Wei. Mr. Chang currently serves as the Chairperson of our Compensation Committee. The duties and responsibilities of the Compensation Committee are set forth in its charter, which may be on the Corporate Governance page of our Investor Relations website, include the following:
| · | reviewing, modifying (as needed) and approving the salary, variable compensation, equity compensation and any other compensation and terms of employment of the Company’s Chief Executive Officer; |
| · | reviewing and approving corporate performance goals, the structure and method for determining the terms of overall executive variable compensation or other compensatory plans, method of determination of individual goals for executives and other senior management, and payment of individual executive variable compensation to the extent such variable compensation contains a discretionary component; and |
| · | reviewing, modifying (as needed) and approving the Company’s overall compensation plans and structure, including the Company’s overall compensation philosophy. |
Director Independence
Ainos KY controls, and is expected to continue to control, a majority of the voting power of the Common Stock. As a result, Ainos KY is able to elect all of the directors of the Company. Our Board of Directors has determined that Mr. Chang, Mr. Chiang and Mr. Wei are “independent directors” as determined under the standards of the Nasdaq Stock Market. The Board has adopted Nasdaq’s standards as its metric for director independence.
Code of Business Conduct and Ethics
We adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer or persons performing similar functions. A copy of the code is posted on our corporate website at www.ainos.com and was filed in our Form 8-K as Exhibit 14.1 with the SEC on August 26, 2021 and is attached hereto as Exhibit 14.1 and is incorporated herein by this reference. In addition, we intend to post on our website all disclosures that are required by law or listing standards concerning any amendments to, or waivers from, any provision of the code. The information contained in, or accessible through, our website does not constitute a part of this report. We have included our website address in this report solely as an inactive textual reference.
Compliance with Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires directors and officers of the Company and persons who own more than 10% of the Company’s common stock to file with the Securities and Exchange Commission (the “Commission”) initial reports of ownership and reports of changes in ownership of the common stock. Directors, officers and more than 10% shareholders are required by the Exchange Act to furnish the Company with copies of all Section 16(a) forms they file.
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To the Company’s knowledge based solely on a review of the copies of such reports furnished to the Company, the following persons have failed to file, on a timely basis, the identified reports required by the Exchange Act during the most recent fiscal year:
Name and Principal Position | Number of Late Reports | Known Failures to File a Required Form |
Ainos KY, majority shareholder | 0 | 0 |
Chun-Hsien Tsai, Chairman of the Board, Chief Executive Officer, and President | 0 | 0 |
Dr. Stephen T. Chen, Shareholder | 0 | 0 |
Hung Lan Lee | 0 | 0 |
Hui-Lan Wu, Chief Financial Officer* | 2 | 0 |
Lawrence K. Lin, Executive Vice President | 0 | 0 |
Wen-Han Chang, Director | 0 | 0 |
Yao-Chung Chiang, Director | 0 | 0 |
Pao-Sheng Wei, Director | 0 | 0 |
Ting-Chuan Lee, Director | 0 | 0 |
Chun-Jung Tsai, Director | 0 | 0 |
Chung-Yi Tsai, Director | 0 | 0 |
* Hui-Lan Wu, Chief Financial Officer, was appointed effective August 11, 2021, filed Form 3 on January 6, 2022 and filed Form 4 on January 6, 2022 due to delays in obtaining a Form ID and related EDGAR access code.
ITEM 11. EXECUTIVE COMPENSATION.
As a “smaller reporting company” under SEC rules, our named executive officers during the fiscal year January 1, 2022 through December 31, 2022 (collectively, the “Named Executive Officers”) were as follows:
| · | Mr. Chun-Hsien Tsai, Chairman, President & Chief Executive Officer; |
| · | Ms. Hui-Lan Wu, Chief Financial Officer; and |
| · | Mr. Lawrence K. Lin, Executive Vice President of Operations. |
No other executive officers received total annual compensation during the fiscal year ended December 31, 2022 in excess of $100,000.
Summary Compensation Table
The following table provides information regarding the total compensation awarded to, earned by, and paid to our named executive officers for services rendered to us for the years set forth below. The amounts below for Stock Awards and Option Awards and reflect the grant date fair value of these awards:
Name and Principal Position |
| Year |
| Salary ($) |
|
| Bonus ($) |
|
| Stock Awards ($) |
|
| Options Awards ($) |
|
| Total ($) |
| |||||
Chun-Hsien Tsai(1) Chief Executive Officer |
| 2022 |
|
| 100,296 |
|
|
| 16,667 |
|
|
| 3,699,996 |
|
|
| — |
|
|
| 3,816,959 |
|
|
| 2021 |
|
| 45,044 |
|
|
| 18,014 |
|
|
| — |
|
|
| — |
|
|
| 63,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hui-Lan Wu(2) Chief Financial Officer |
| 2022 |
|
| 92,104 |
|
|
| 15,333 |
|
|
| 1,479,996 |
|
|
| — |
|
|
| 1,587,433 |
|
|
| 2021 |
|
| 41,449 |
|
|
| 11,034 |
|
|
| — |
|
|
| — |
|
|
| 52,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence K. Lin(3) EVP Operations |
| 2022 |
|
| 133,018 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 133,018 |
|
|
| 2021 |
|
| 60,000 |
|
|
| — |
|
|
| — |
|
|
| 468,950 |
|
|
| 528,950 |
|
| (1) | Mr. Chun-Hsieh Tsai was appointed Chairman of the Board, Chief Executive Officer and President, effective as of April 15, 2021. |
| (2) | Ms. Hui-Lan (Celia) Wu was appointed Chief Financial Officer, effective as of August 11, 2021. |
| (3) | Mr. Lawrence K. Lin was appointed Executive Vice-President of Operations, effective as of August 1, 2021. Previously, as a consultant to the Company, Mr. Lin indirectly owns 30,174 warrants issued on November 25, 2020 to i2China Management Group, LLC, of which Mr. Lin is the sole member. |
Employment Arrangements
Effective April 15, 2021, our Board appointed Mr. Chun-Hsien Tsai to serve as Chief Executive Officer. Mr. Tsai will receive a monthly salary of 250,000 NT$ (equivalent to approximately $8,929), a year-end bonus of two months’ salary, and a variable compensation based on Company profit targets decided by the Company’s Compensation Committee, and payable as 10% to 100% of total annual compensation in the form of cash, securities and/or other discretionary remuneration. An initial equity grant to Mr. Tsai will be determined by the Compensation Committee at a later date. Other benefits, including labor insurance, health insurance and other benefits, will be based on local regulations and the Company’s policies.
Effective August 11, 2021, our Board appointed Ms. Hui-Lan (“Celia”) Wu to serve as Chief Financial Officer. Ms. Wu will receive a monthly salary of 230,000 NT$ (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% to 100% 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.
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Effective August 1, 2021, we entered into an employment contract with Mr. Lawrence K. Lin in connection with his election as Executive Vice President of Operations (the “LL Agreement”). The LL Agreement is effective for three years and may be extended for an additional years on the same terms and conditions upon mutual agreement. Under the LL Agreement, Mr. Lin will receive a monthly salary of $12,000, vesting stock options for 33,333 shares in the Company’s 2018 Officers, Directors, Employees and Consultants Non-Qualified Stock Option Plan, and a bonus of 10,000 shares in the Company’s common stock upon the Company’s successful listing on a Major National Exchange (as defined in the LL Agreement), and normal and customary benefits available to the Company’s employees. Mr. Lin is the sole member of i2China Management Group, LLC (“i2China”), a consultant previously engaged by the Company. Mr. Lin indirectly owns 30,174 warrants issued on November 25, 2020 to i2China; and a non-convertible note issued to i2China on January 1, 2020 with a principal amount of $84,000.
Outstanding Equity Awards at Fiscal Year-End
The table below sets forth information regarding outstanding equity awards held by our named executive officers as of December 31, 2022. The amounts below for RSU and Options Awards reflect the grant date fair value of these awards:
Name |
| Grant Date |
| Award Type |
| First Vesting Date |
| No. Exercisable/ Outstanding |
| No. Unexercisable/ Unvested |
| Option Exercise Price |
| Option Expiration Date |
| Market Value ($) |
|
Chun-Hsien Tsai |
| 7/28/2022 |
| RSU |
| 9/30/2022 |
| 333,333 |
| - |
| - |
| - |
| 3,699,996 |
|
|
| 10/24/2022 |
| RSU |
| 4/24/2023 |
| - |
| 50,000 |
|
|
|
|
| 62,500 |
|
Hui-Lan Wu |
| 7/28/2022 |
| RSU |
| 9/30/2022 |
| 133,333 |
| - |
| - |
| - |
| 1,479,996 |
|
|
| 10/24/2022 |
| RSU |
| 4/24/2023 |
| - |
| 35,000 |
|
|
|
|
| 43,750 |
|
Lawrence K. Lin(1) |
| 8/1/2021 |
| Option |
| 8/1/2022 |
| 11,111 |
| 22,222 |
| 5.70 |
| 07/31/31 |
| 468,950 |
|
| (1) | Previously, as a consultant to the Company, Mr. Lawrence K. Lin indirectly owns 30,174 warrants issued on November 25, 2020 to i2China Management Group, LLC, of which Mr. Lin is the sole member. |
Option Grants in 2022
No option grants were awarded in 2022.
Non-Employee Director Compensation for Last Fiscal Year
The following table provides information regarding the total compensation that was earned by or paid to each of our non-employee directors during the year ended December 31, 2021. Mr. Chun-Hsien Tsai, our Chief Executive Officer, did not receive any additional compensation for his service as the Chairman of the Board. The amounts below for Option Awards and Stock Awards reflect the grant date fair value of these awards:
Name(1) |
| Fees Earned or Paid in Cash ($) |
|
| Option Awards ($) |
|
| Stock Awards ($) |
|
| All Other Compensation ($) |
|
| Total ($) |
| |||||
Wen-Han Chang |
|
| 26,801 |
|
|
| - |
|
|
| 244,200 |
|
|
| - |
|
|
| 271,001 |
|
Yao-Chung Chiang |
|
| 21,907 |
|
|
| - |
|
|
| 244,200 |
|
|
| - |
|
|
| 266,107 |
|
Pao-Sheng Wei |
|
| 5,545 |
|
|
| - |
|
|
| 244,200 |
|
|
| - |
|
|
| 249,745 |
|
Chung-Yi Tsai |
|
| 17,556 |
|
|
| - |
|
|
| 244,200 |
|
|
| - |
|
|
| 261,756 |
|
| (1) | The amounts reported represent the grant date fair value of the RSUs awarded to the non-employee directors in the year ended December 31, 2022. |
Pursuant to the 2021-NEDCP, four non-employee directors of the Company are entitled to 22,000 Restricted Stock Units (“RSUs”) upon their appointment to the Board on April 15, 2021.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Beneficial Ownership of Certain Owners and Management
The following table sets forth certain information regarding beneficial ownership of our common stock as of December 31, 2022:
| · | by each person, or group of affiliated persons, known by us to own beneficially 5% or more of any class of our voting securities; |
| · | by each of our Named Executive Officers; |
| · | by each of our directors; and |
| · | by all our current executive officers and directors as a group. |
As of December 31, 2022, there were 20,011,602 shares of common stock issued and outstanding.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to our common stock. Shares of common stock subject to stock options, convertible notes and debentures and warrants that are currently exercisable or convertible, or exercisable or convertible within 60 days of December 31, 2022, are deemed to be outstanding for purposes of computing the percentage ownership of that person but are not treated as outstanding for computing the percentage ownership of any other person. Unless indicated below, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable.
Except as otherwise indicated, the address of each stockholder is c/o Ainos, Inc. at 8880 Rio San Diego Drive, Suite 800, San Diego, CA, 92108.
Name of Beneficial Owner |
| Shares of Common Stock Beneficially Owned |
|
| Percentage of Shares of Common Stock Beneficially Owned |
| ||
|
|
|
|
|
|
| ||
Security Ownership of Certain Beneficial Owners: |
|
|
|
|
|
| ||
Ainos, Inc. (“Ainos KY”) (1) |
|
| 14,032,200 |
|
|
| 70.12 | % |
Dr. Stephen T. Chen |
|
| 627,101 |
|
|
| 3.11 | % |
|
|
|
|
|
|
|
|
|
Security Ownership of Management and Directors: |
|
|
|
|
|
|
|
|
Chun-Hsien Tsai |
|
| 355,598 |
|
|
| 1.78 | % |
Hui-Lan Wu(2) |
|
| 163,438 |
|
|
| 0.82 | % |
Lawrence K. Lin(3) |
|
| 85,724 |
|
|
| 0.43 | % |
Chung-Yi Tsai |
|
| 7,333 |
|
|
| 0.04 | % |
Chun-Jung Tsai |
|
| - |
|
|
| - |
|
Ting-Chuan Lee |
|
| - |
|
|
| - |
|
Wen-Han Chang(4) |
|
| 273,999 |
|
|
| 1.37 | % |
Yao-Chung Chiang(5) |
|
| 17,333 |
|
|
| 0.09 | % |
Pao-Sheng Wei |
|
| 7,333 |
|
|
| 0.04 | % |
Executive officers and directors as a group - 9 persons |
|
| 910,758 |
|
|
| 4.55 | % |
| (1) | Our majority shareholder, Ainos KY, a Cayman Islands company, has a total beneficial ownership of 14,032,200 shares through the following: (i) 13,326,081 shares owned by Ainos KY and (ii) 706,119 shares subject to a Voting Agreement dated December 9, 2021 with Stephen T. Chen, Virginia M. Chen, the Stephen T. Chen and Virginia M. Chen Living Trust, dated April 12, 2018, and Hung Lan Lee. Ainos KY’s beneficial ownership may fluctuate due to the effect of this Voting Agreement with Chen and Lee which grants Chen and Lee authority to sell or transfer 25% of their respective shares in private transactions (including sales, gifts, or any other transfers) annually. TCNT owns a majority of the outstanding voting securities of Ainos KY and, accordingly, may be deemed, for purposes of Section 13(d) of the Exchange Act, to share beneficial ownership of the shares held by Ainos KY. TCNT’s address is 10F-2, No. 66, Shengyi 5th Rd., Zhubei City, Hsinchu County 30261, Taiwan (R.O.C.). |
|
|
|
| (2) | Hui-Lan Wu has a total beneficial ownership of 163,438 shares which includes 133,333 vested RSUs, 11,200 shares of common stock, and an additional 18,905 shares of common stock indirectly through her daughter, Ms. Yun-Han Liao. |
|
|
|
| (3) | Lawrence K. Lin has a total beneficial ownership of 85,724 shares through the following: (i) 16,881 shares under Mr. Lin’s name; (ii) 27,558 shares beneficially owned by i2China Management Group, LLC (“i2China), of which he is the sole member; and (iii) 30,174 shares reserved for warrants, beneficially owned by i2China on demand; and (iv) 11,111 options vested from the 2018 NQSOP. |
|
|
|
| (4) | Wen-Han Chang has a total beneficially ownership of 273,999 shares, which includes 7,333 vested RSUs and 266,666 in common stock indirectly through his spouse, Chien-Hsuan Huang. |
|
|
|
| (5) | Yao-Chung Chiang has a total beneficiary ownership of 17,333 shares, which includes 7,333 vested RSUs and 10,000 common stock indirectly through his spouse, Hsiu-Hwei Tsai Chiang. |
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Equity Compensation Plans Summary
Stock Plans 1 |
| Issue Date Range |
| Total Stock & Options Authorized |
|
| Options Issued2 |
|
| Options Remaining3 |
|
| Stock Awards Issued |
|
| Stock Awards Remaining |
| |||||
2018 Employee Stock Option Plan4 |
| 9/26/18–9/26/28 |
|
| 66,666 |
|
|
| 63,333 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan4 |
| 9/26/18–9/26/28 |
|
| 266,666 |
|
|
| 266,333 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
2021 Employee Stock Purchase Plan |
| 5/16/22–5/16/32 |
|
| 50,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 50,000 |
|
2021 Stock Incentive Plan |
| 5/16/22–5/16/32 |
|
| 1,618,639 |
|
|
|
|
|
|
|
|
|
|
| 1,333,333 |
|
|
| 285,3065 |
|
1 The Board of Directors has approved all stock, stock option and stock warrant issuances.
2 As of December 31, 2022, there were 11,360 stock options that have been exercised, 36,666 stock options remain either vested or unvested, and an aggregate 285,306 stock options of the 333,333 total stock options authorized from the 2018 Employee Stock Option Plan and 2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan were forfeited.
3 Effective October 6, 2021, no further stock option issuance from 2018-ESOP and 2018-NQSOP as per provision in newly adopted 2021 Stock Incentive Plan.
4 On September 26, 2019, all qualified options under the 2018-ESOP became non-qualified options as a result of the 2018-ESOP not being ratified by the Company’s shareholders within one year of adoption.
5 An aggregate 285,306 stock options forfeited from the 2018 Employee Stock Option Plan and 2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan were applied to increase the 2021 Stock Incentive Plan, in accordance with the 2021 Stock Incentive Plan that was adopted by the Board of Directors on October 6, 2021.
A summary of option activity for the years ended December 31, 2021 and December 31, 2022 are presented below.
Date |
| Number of Options 1Qualified |
|
| Number of Options Nonqualified |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Term |
|
| Aggregate Intrinsic Value |
| |||||
Balance December 31, 2020 |
|
| 56,666 |
|
|
| 253,800 |
|
| $ | 5.70 |
|
| 7 yrs |
|
|
| - |
| |
Granted 2021 |
|
|
|
|
|
| 33,333 |
|
| $ | 5.70 |
|
| 9 yrs |
|
|
| - |
| |
Exercised |
|
| 1,333 |
|
|
| 10,026 |
|
| $ | 5.70 |
|
|
| - |
|
|
| - |
|
Expired or Forfeited |
|
| 62,000 |
|
|
| 223,306 |
|
| $ | 5.70 |
|
|
| - |
|
|
| - |
|
Balance December 31, 2021 |
|
| 3,333 |
|
|
| 33,333 |
|
| $ | 5.70 |
|
| 6 yrs |
|
|
| - |
| |
Granted 2022 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Expired or Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balance December 31, 2022 |
|
| 3,333 |
|
|
| 33,333 |
|
| $ | 5.70 |
|
| 8.55 yrs |
|
|
| - |
| |
Exercisable at December 31, 2022 |
|
| 2,666 |
|
|
| 11,111 |
|
| $ | 5.70 |
|
| 5.74 yrs |
|
|
| - |
| |
1 Because the 2018 Employee Stock Option Plan was not ratified by the Company’s shareholders, the qualified options became non-qualified on September 26, 2019. These totals remain separated since the two different plans are still in existence.
The Company used the Black-Scholes option pricing model to value the option awards with the following assumptions applied: (1) Volatility – 276%; (2) Term – 5 years was chosen although the full option term is 10 years to be more commensurate with the 5-year vesting portion of the plan; (3) Discount – 2.96%.
As of December 31, 2021, there is $410,022 in unrecognized option expense that will be recognized over the next 2.58 years.
| 45 |
| Table of Contents |
2018 Employee Stock Option Plan (the “2018-ESOP”)
On September 26, 2018, the Board adopted the Company 2018 Employee Stock Option Plan (the “2018-ESOP”), formerly referred to as the “Amarillo Biosciences, Inc., 2018 Employee Stock Option Plan” in prior filings. Effective as of October 6, 2021, with the adoption by the Board of the 2021 SIP, no further awards may be granted under the 2018-ESOP. As of December 31, 2021, options to acquire 36,666 shares of common stock remained outstanding.
2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan (the “2018-NQSOP”)
On September 26, 2018, the Board adopted the Company 2018 Employee Stock Option Plan (the “2018-ESOP”), formerly referred to as the “Amarillo Biosciences, Inc., 2018 Employee Stock Option Plan” in prior filings.Effective as of October 6, 2021, with the adoption by the Board of the 2021 SIP, no further awards may be granted under the 2018-NQSOP.
2021 Employee Stock Purchase Plan (the “2021 ESPP”)
On September 28, 2021, the Board and on May 16, 2022 our shareholders, respectively, approved the 2021 Employee Stock Purchase Plan (the “2021 ESPP” or “Plan”). The purpose of the 2021 ESPP is to provide an opportunity for eligible employees of the company and its designated companies (as defined in the Plan) to purchase common stock at a discount through voluntary contributions, thereby attracting, retaining and rewarding such persons and strengthening the mutuality of interest between such persons and the Company’s stockholders. The Company intends for offerings under the Plan to qualify as an “employee stock purchase plan” under Section 423 of the Code; provided, that the Plan administrator may also authorize the grant of rights under offerings that are not intended to comply with the requirements of Section 423, pursuant to any rules, procedures, agreements, appendices, or sub-plans adopted by the administrator. Subject to adjustments as provided in the Plan, the maximum number of shares of common stock that may be issued under the Plan may not exceed 50,000 shares. The Plan will continue in effect until it expires on the tenth anniversary of the effective date of the Plan, unless terminated earlier.
2021 Stock Incentive Plan (the “2021 SIP”)
On September 28, 2021, the Board and on May 16, 2022 our shareholders, respectively, approved the 2021 Stock Incentive Plan (the “2021 SIP” or “Plan”). The purpose of the 2021 SIP is to provide a means through which the Company, and the other members of the Company Group, defined by Section 2(n) of the Plan as the Company and its subsidiaries, and any other affiliate of the Company designated as a member of the Company Group by the Committee, may attract and retain key personnel, and to provide a means whereby directors, officers, employees, consultants and advisors of the Company and the other members of the Company Group can acquire and maintain an equity interest in the Company, or be paid incentive compensation measured by reference to the value of common stock, thereby strengthening their commitment to the interests of the Company Group and aligning their interests with those of the Company’s stockholders. The types of awards that may be granted from the Plan include individually or collectively, any Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Dividend Equivalent Rights and Other Equity-Based Award granted under the Plan. The expiration date of the Plan, on and after which date no awards may be granted, will be the tenth anniversary of the date of Board approval of the Plan, provided, however, that such expiration will not affect awards then outstanding, and the terms and conditions of the Plan will continue to apply to such Awards. The aggregate number of shares which may be issued pursuant to awards under the Plan is 1,333,333 shares of Common Stock (the “Plan Share Reserve”), subject to adjustments as provided in the Plan. The number of shares underlying any award granted under 2018 ESOP or 2018 NQSOP (the “Prior Plans”) that expires, terminates or is canceled or forfeited for any reason whatsoever under the terms of the Prior Plans, will increase the Plan Share Reserve. Each Award granted under the Plan will reduce the Plan Share Reserve by the number of shares underlying the award. No more than 666,666 shares may be issued in the aggregate pursuant to the exercise of incentive stock options granted under the Plan. The maximum number of shares subject to awards granted during a single fiscal year to any non-employee director, taken together with any cash fees paid to such director during the fiscal year, will not exceed $600,000 in total value (calculating the value of any such awards based on their grant date fair value for financial reporting purposes).
Restricted Stock Units
RSUs entitle the recipient to be paid out an equal number of common stock upon vesting. The fair value of RSUs is based on market price of the underlying stock on the date of grant. A summary of the Company’s RSU activity and related information for the year ended December 31, 2022 is as follows:
|
| Number of RSUs |
|
| Weighted-Average Grant Date Fair Value Per RSU |
| ||
Balance as of December 31, 2021 |
|
| - |
|
| $ | N/A |
|
RSUs granted |
|
| 1,333,332 |
|
| $ | 5.89 |
|
RSUs vested |
|
| (533,332 | ) |
| $ | 11.10 |
|
RSUs canceled |
|
| - |
|
| $ | N/A |
|
Balance as of December 31, 2022 |
|
| 800,000 |
|
| $ | 2.42 |
|
| 46 |
| Table of Contents |
The grant date fair value of RSUs awards that vested in the year ended December 31, 2022 was $5.9 million, and the fair value as of the respective vesting dates of RSU was $1 million for 2022.
Non-Employee Director Compensation Policy (the “2021 NEDCP”)
On September 28, 2021, the Company’s Board of Directors adopted the Company’s Non-Employee Director Compensation Policy (the “2021 NEDCP” or “Policy”). On appointment to the Board, and without any further action of the Board or Compensation Committee of the Board, at the close of business on the day of such appointment, each Non-Employee Director will automatically receive an award of 22,000 restricted stock units (“RSUs”) over Common Stock (the “Appointment Grant”). The Appointment Grant shall vest in three equal annual installments, with the first installment vesting on the last day of the six-month period commencing on the grant date and each subsequent installment vesting on the last day of the six-month period commencing on the next two subsequent anniversaries of the grant date, subject to the Director’s continuous service with us on each applicable vesting date. The RSUs shall be granted pursuant to the Company’s 2021 Stock Incentive Plan and shall be subject to such other provisions set forth in the agreement evidencing the award of the RSUs, in the form adopted from time to time by the Board or the Compensation Committee of the Board.
In addition to the RSU grants, each member of the Board of who is not an employee of the Company or any of subsidiaries will receive the cash compensation set forth below for service on the Board. The annual cash compensation amounts will be payable in equal quarterly installments, in arrears following the end of each quarter in which the service occurred, pro-rated for any partial months of service. All annual cash fees are vested upon payment.
Annual Board Service Retainer: |
|
|
| |
All Eligible Directors: |
| $ | 12,000 |
|
Chairperson of the Board: |
| $ | 14,000 |
|
Annual Committee Chair Service Retainer: |
|
|
|
|
Chairperson of the Audit Committee: |
| $ | 7,000 |
|
Chairperson of the Compensation Committee: |
| $ | 4,500 |
|
Annual Committee Member Service Retainer: |
|
|
|
|
Member of the Audit Committee: |
| $ | 4,000 |
|
Member of the Compensation Committee: |
| $ | 3,000 |
|
Share-Based Compensation
The share-based compensation for the year ended December 31, 2022 and 2021 were $258,977 and ($218,216), respectively; and compensation for the year ended December 31, 2022 and 2021 were $6,421,879 and ($10,6833), respectively.
As of December 31, 2022, the total unrecognized compensation cost related to outstanding RSUs, stock options and warrant was $1,197,230, which the Company expects to recognize over a weighted-average period of 1.61 years.
| · | From January 1, 2022 to December 31, 2022, we granted Restricted Stock Units (RSUs) to the following: |
|
|
|
| · | On July 28, 2022, we granted 333,333 RSUs to Chun-Hsien Tsai, Chief Executive Officer, as compensation pursuant to a Mandate Agreement by and between the Company and Mr. Tsai effective March 17, 2022. The entire 333,333 RSUs became fully vested as of September 30, 2022 and the underlying securities comprised of 333,333 common stock were issued on October 26, 2022. |
|
|
|
| · | On July 28, 2022, we granted 133,333 RSUs to Hui-Lan Wu, Chief Financial Officer, as compensation pursuant to a Mandate Agreement by and between the Company and Ms. Wu effective March 17, 2022. The entire 133,333 RSUs became fully vested as of September 30, 2022 and the underlying securities comprised of 133,333 common stock were issued on October 26, 2022. |
|
|
|
| · | On July 28, 2022, we granted 66,666 RSUs to Chih-Heng Lu, Director of Corporate Developoment, as compensation pursuant to a Mandate Agreement by and between the Company and Mr. Lu effective March 17, 2022. The entire 66,666 RSUs became fully vested as of September 30, 2022 and the underlying securities comprised of 66,666 common stock were issued on October 26, 2022. |
|
|
|
| · | On July 28, 2022, we granted 88,000 RSUs in aggregate and 22,000 RSUs each to non-employee Directors, Chung-Yi Tsai, Wen-Han Chang, Yao-Chung Chiang, and Pao-Sheng Wei as compensation in accordance with the Company’s Non-Employee Director Compensation Policy that was adopted by the Board of Directors on October 6, 2021. The RSU grants vest over three equal annual installments, with the first vesting period being January 31, 2023. |
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| Table of Contents |
| · | On October 15, 2022, we granted 487,000 RSUs in aggregate to non-executive Company employees as compensation in accordance with the Company’s 2021 Stock Incentive Plan that was adopted by the Board of Directors on October 6, 2021. These grants vest over four equal annual installments, with the first vesting period being April 15, 2023. |
|
|
|
| · | On October 24, 2022, we granted 50,000 RSUs to Chun-Hsien Tsai, Chief Executive Officer, as compensation in accordance with the 2021 Stock Incentive Plan that was adopted by the Board of Directors on October 6, 2021. This grant will vest over four equal annual installments, with the first vesting period being April 24, 2023. |
|
|
|
| · | On October 24, 2022, we granted 35,000 RSUs to Hui-Lan Wu, Chief Executive Officer, as compensation in accordance with the 2021 Stock Incentive Plan that was adopted by the Board of Directors on October 6, 2021. This grant will vest over four equal annual installments, with the first vesting period being April 24, 2023. |
|
|
|
| · | On November 14, 2022, we granted 140,000 RSUs in aggregate to employee Directors, Chung-Jung Tsai and Ting-Chuan Lee as compensation in accordance with the 2021 Stock Incentive Plan that was adopted by the Board of Directors on October 6, 2021. These grants will vest over four equal annual installments, with the first vesting period being May 15, 2023. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The following is a summary of related party transactions in 2022 and 2021 to which we have been a participant in which the amount involved exceeded or will exceed the lesser of $120,000 or 1% of the average of our total assets as of December 31, 2022 and 2021, and in which any of our directors, executive officers or holders of more than 5% of our capital stock, or any of our directors, executive officers or holders of more than 5% of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest, other than compensation arrangements which are described in Part II, Item 5 “Market for the Registrant’s Common Equity and Related Shareholder Matters, and Issuer Purchases of Equity Securities, and Part III, Item 11 “Executive Compensation.”
Name of the related party | Relationship | Description |
Taiwan Carbon Nano Technology Corporation (“TCNT”) | Affiliated company | TCNT is the majority shareholder of Ainos KY |
|
|
|
Ainos, Inc. (Cayman Island) (“Ainos KY”) | Affiliated company | Ainos KY is the majority shareholder of the Company |
|
|
|
ASE Technology Holding | Affiliated company | Sole owner of ASE Test Inc. which is Ainos KY’s board member and has more than 10% of the voting rights in Ainos KY
|
Dr. Stephen T. Chen | Ainos’ former Chairman, President, CEO and CFO | Shareholder with more than 5% of the Company voting rights in 2022 and 2021 |
Purchase of intangible assets and equipment
Securities Purchase Agreement
On April 15, 2021, we consummated the Securities Purchase Agreement in the amount of $20,000,000 with Ainos KY. Pursuant to the Securities Purchase Agreement, we issued 6,666,666 shares of common stock at $3.00 per share to Ainos KY in exchange for certain patent assignments, increased its authorized common stock to 300,000,000 shares, and changed the Company’s name to “Ainos, Inc.” Immediately after the consummation of the transaction Ainos KY owned approximately 70.30% of the Company’s issued and outstanding shares of common stock. See Note 3 for the related information of the transaction.
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| Table of Contents |
Asset Purchase Agreement
Ainos KY and the Company entered into an Asset Purchase Agreement dated as of 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 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 that included $24,886,023 for intangible intellectual property assets and $1,113,977 for equipments. As consideration we issued to Ainos KY a Convertible Promissory Note in the principal amount of $26,000,000 upon closing on January 30, 2022 (the “APA Convertible Note”).
As part of the Asset Purchase Agreement, we agreed to hire certain employees of Ainos KY who are responsible for research and development of the IP 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 Ainos KY.
We closed the transaction on January 30, 2022 and issued a convertible note to Ainos KY for the payment. See Notes 2, 3, 5 and 11 for the related information of the transaction.
Working Capital Advances
Except for $26,000,000 issued for the payment of “Amended Asset Purchase Agreement, all other convertible and other notes payable were issued either as a result of financing or deferred compensation provided by shareholders.
In the 2022 and 2021, Ainos KY provided working capital advances in the form of convertible note and non-convertible note financing in the aggregate amount of $800,000 and $3,000,000, respectively. As of December 31, 2022 and 2021, the convertible and non-convertible notes payable for Ainos KY totaled $800,000 and $3,000,000, respectively.
ASE Test, Inc. (the “ASE”), an affiliate of the Company, provided a working capital advance in the form of a convertible note financing in the principal amount of $500,000 in 2022.
The convertible notes and related accrued interest of Ainos KY and ASE as of August 8, 2022 in the aggregate total amount of $29,542,959 were converted to common stock upon the uplisting to Nasdaq on August 9, 2022.
In the 2022 and 2021, Dr. Stephen T. Chen provided working capital advances in the form of convertible note and non-convertible note financing in the aggregate amount of $0 and $214,420, respectively; and were redeemed for cash in the aggregate amount of $150,000 and $129,405, respectively. As of December 31, 2022 and, 2021, the convertible and non-convertible notes payable to Dr. Stephen T. Chen were $376,526 and $505,931, respectively.
Refer to Notes 4, 5 and 7 for more information regarding above convertible notes and other notes payable .
Purchase and Sales
Ainos COVID-19 Test Kits Sales and Marketing Agreement with Ainos KY
On June 14, 2021, we entered into an exclusive agreement to serve as the master sales and marketing agent for the Ainos COVID-19 Antigen Rapid Test Kit and COVID-19 Nucleic Acid Test Kit with Ainos KY (the “Sales and Marketing Agreement”) which was developed by Taiwan Carbon Nano Technology Corporation (the “TCNT”), an affiliate of the Company. On June 7, 2021, the Taiwan Food and Drug Administration (the “TFDA”) approved emergency use authorization to TCNT for the Ainos COVID-19 Antigen Rapid Test Kit that will be sold and marketed under the “Ainos” brand in Taiwan. On June 21, 2022, we began marketing the Ainos SARS-CoV-2 Antigen Rapid Self-Test (“COVID-19 Antigen Self-Test Kit”) under a separate EUA issued by the TFDA to TCNT on June 13, 2022. As TCNT secures regulatory authorizations from foreign regulatory agencies, the Company expects to partner with regional distributors to promote sales in other strategic markets.
We incurred costs associated with finished goods, raw materials and manufacturing fees for Covid-19 antigen rapid test kits from TCNT pursuant to the Sales and Marketing Agreement, totaling $1,968,291 and $183,444 for the year ended December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, the accounts payable to TCNT were $24,365 and $0, respectively.
| 49 |
| Table of Contents |
COVID-19 Antigen Rapid Test Kits Sales
We sold Covid-19 antigen rapid test kits to ASE Technology Holding, an affiliate of the Company, totaling $2,855,205 and $209,468 for the year ended December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, the accounts receivable to ASE Technology Holding were $177,795 and $0, respectively.
Product Co-development Agreement
Pursuant to the five-year product co-development agreement (the “Product Co-Development Agreement”) with TCNT, effective on August 1, 2021 we incurred development expenses totaling $618,522 and $205,583 for the years ended December 31, 2022 and 2021 included in the Research and Development expense in the Statement of Operations. As of December 31, 2022 and 2021, the accrued payables were $70,113 and $65,156, respectively.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Audit Fees
On October 4, 2021, we engaged PricewaterhouseCoopers, Taiwan (“PWC”) as independent accountants of Ainos Inc. Taiwan Branch (“Audit Engagement”). 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 (“PWR”).
The aggregate fees billed by our independent auditors for professional services rendered for the audit of our annual financial statements, and for the review of quarterly financial statements for the fiscal years ended December 31, 2022 and 2021, were:
|
| 2022 |
|
| 2021 |
| ||
PWR |
| $ | 47,500 |
|
| $ | 35,500 |
|
PWC |
| $ | 67,000 |
|
| $ | 34,600 |
|
Audit fees incurred by the Company were pre-approved by the Board of Directors.
Audit Related Fees: None.
Tax Fees
We have engaged Johnson & Sheldon, PLLC as our certified public accountant for corporate tax preparation and filing, with the incurred fees of $9,220 in 2022 and $5,975 in 2021, respectively.
The Company engaged PWC under separate agreements dated October 4, 2021 in respect to compliance with Taiwan corporate income tax requirements for the tax years ending December 31, 2022 and 2021 (“Taiwan Tax Engagement”). The incurred fees for the Taiwan Tax Engagement billed by PWC in 2022 were $6,000.
All Other Fees: None.
We do not use the auditors for financial information system design and implementation. Such services, which include designing or implementing a system that aggregates source data underlying the financial statements or that generates information that is significant to our financial statements, are provided internally or by other service providers. We do not engage the auditors to provide compliance outsourcing services.
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”).
The Board of Directors has considered the nature and amount of fees billed by PWR and PWC and believes that the provision of services for activities unrelated to the audit is compatible with maintaining PWR and PWC’s independence.
Accountant Approval Policy
Before an accountant is engaged by the Company to perform audit or non-audit services, the accountant must be approved by the Company’s Audit Committee or the Executive Committee in the absence of an Audit Committee. We filed the Charter of the Audit Committee of the Board of Directors in our Form 10-Q with the SEC on November 15, 2021 which describes the committee’s pre-approval policies and procedures, attached hereto as Exhibit 99(ii) and is incorporated by this reference.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
| 51 |
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EXHIBIT INDEX
| INCORPORATED BY REFERENCE | |||||||||
EXHIBIT NUMBER | DESCRIPTION | FILED WITH THIS FORM 10-K | FILING DATE WITH SEC | FORM | EXH # | HYPERLINK TO FILINGS | ||||
|
|
|
|
|
|
| ||||
Restated Certificate of Formation of the Company, dated April 15, 2021
|
| 4/21/2021 | 8-K | 3.1 | Restated Certificate of Formation of the Company, dated April 15, 2021
| |||||
Certificate of Amendment to the Restated Certificate of Formation, dated August 8, 2022
|
| 8/12/2022 | 8-K | 3.1 | Certificate of Amendment, dated August 8 2022
| |||||
Amended and Restated Bylaws of the Company, effective September 28, 2022
|
| 10/4/2022 | 8-K | 3.2 | Amended and Restated Bylaws, effective September 28, 2022
| |||||
X |
| |||||||||
4.1(b) | Form of Underwriter’s Warrant |
|
|
|
| Form of Warrant
| ||||
4.1(c) | Form of Warrant Agency Agreement
|
| 8/2/2022 | S-1/A | 4.1 | Form of Warrant Agency Agreement
| ||||
| 4/16/2019 | 10-K | 10.72 | 2018 Employee Stock Option Plan | ||||||
| 4/16/2019 | 10-K | 10.75 | Stock Option Agreement – Employee Plan | ||||||
2018 Officer, Directors, Employees and Consultants Nonqualified Stock Option Plan * |
| 4/16/2019 | 10-K | 10.73 | 2018 Officer, Directors, Employees and Consultants Nonqualified Stock Option Plan | |||||
| 4/16/2019 | 10-K | 10.74 | Stock Option Agreement – Nonqualified Stock Option | ||||||
| 6/1/2022 | 14C-DEF | App A | 2021 ESPP | ||||||
| 6/1/2022 | 14C-DEF | App B | 2021 SIP | ||||||
| 4/15/2022 | 10-K/A | 10(xiv) | Non-Employee Director Compensation Policy | ||||||
| 8/26/2021 | 8-K | 14.1 | Code of Ethics | ||||||
Consent of PWR CPA LLP, independent registered accounting firm | X |
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| |||||
X |
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| ||||||
Certification of Chief Executive Officer Pursuant to Rule 13a-15(e) or Rule 15d-15(e) | X |
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| |||||
Certification of Chief Financial Officer Pursuant to Rule 13a-15(e) or Rule 15d-15(e) | X |
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| |||||
| X |
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| |||||
| 11/15/2021 | 10-Q | 99.3 | |||||||
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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| ||||
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.
ITEM 16. FORM 10-K SUMMARY.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the 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: March 31, 2023 | By: | /s/ Chun-Hsien Tsai |
|
|
| Chun-Hsien Tsai, Chairman of the Board, |
|
|
| Chief Executive Officer |
|
|
|
|
|
| By: | /s/ Hui-Lan Wu |
|
| Hui-Lan Wu, Chief Financial Officer |
| |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature |
| Title |
| Date |
|
|
|
|
|
/s/ Chun-Hsien Tsai |
| Chairman of the Board and Chief Executive Officer |
| March 31, 2023 |
Chun-Hsien Tsai |
|
|
| |
|
|
|
| |
/s/ Hui-Lan Wu |
| Chief Financial Officer |
| March 31, 2023 |
Hui-Lan Wu |
|
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|
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|
|
|
|
/s/ Wen-Han Chang |
| Director |
| March 31, 2023 |
Wen-Han Chang |
|
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|
|
By: Chun-Hsien Tsai, Attorney in fact |
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|
|
/s/ Yao-Chung Chiang |
| Director |
| March 31, 2023 |
Yao-Chung Chiang |
|
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|
|
By: Chun-Hsien Tsai, Attorney in fact |
|
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|
|
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|
|
/s/ Pao-Sheng Wei |
| Director |
| March 31, 2023 |
Pao-Sheng Wei |
|
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By: Chun-Hsien Tsai, Attorney in fact |
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/s/ Ting-Chuan Lee |
| Director |
| March 31, 2023 |
Ting-Chuan Lee |
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By: Chun-Hsien Tsai, Attorney in fact |
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/s/ Chun-Jung Tsai |
| Director |
| March 31, 2023 |
Chun-Jung Tsai |
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By: Chun-Hsien Tsai, Attorney in fact |
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/s/ Chung-Yi Tsai |
| Director |
| March 31, 2023 |
Chung-Yi Tsai |
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By: Chun-Hsien Tsai, Attorney in fact |
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| 53 |
| Table of Contents |
Ainos, Inc.
Financial Statements
Years ended December 31, 2022 and 2021
Contents
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| F-2 |
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| F-4 |
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| F-5 |
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| F-7 |
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| F-8 |
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| F-9 |
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| F-1 |
| Table of Contents |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Ainos, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Ainos, Inc. (the Company) as of December 31, 2022 and 2021, and the related statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, the Company’s absence of significant revenues, recurring losses from operations, and its need for additional financing in order to fund its projected loss in 2022 raise substantial doubt about its ability to continue as a going concern. These 2022 financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Critical Audit Matters
Critical audit matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. As discussed in the notes to the financial statements, the Company acquired certain finite life intellectual properties from a related party. These intellectual properties were capitalized and are amortized over their estimated useful lives. The Company assessed whether events and circumstances indicate the carrying amount of these assets may not be fully recoverable. Given the audit effort in evaluating management’s judgements of the indicators of impairment and the required degree of auditor judgment, we determined it was a critical audit matter.
| F-2 |
| Table of Contents |
How the Critical Audit Matter was addressed in the audit
Our principal audit procedures related to the Company’s assessment of impairment included, amongst others:
| · | We evaluaed management’s significant accounting policies related to intangible assets for reasonableness |
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| · | We evaluated the Company’s assumptions used to evaluate the indicators of impairment |
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| · | We evaluated the Company’s relevant financial statement presentation and disclosures for consistency with our knowledge of the accounting standard. |
/s/
PCAOB # | |
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We have served as the Company’s auditor since 2020. | |
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Houston, Texas | |
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March 31, 2023 | |
| F-3 |
| Table of Contents |
Ainos, Inc.
Consolidated Balance Sheets
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| December 31, |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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Inventory |
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Other current assets |
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Total current assets |
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Intangible assets, net |
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Property and equipment, net |
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Other assets |
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Total assets |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Convertible notes payable |
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Notes payable |
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Accrued expenses and other current liabilities |
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Payables - related party |
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Total current liabilities |
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Long term liabilities: |
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Operating lease liabilities- non-current |
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Total liabilities |
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Stockholders’ Equity |
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Preferred stock, $ |
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authorized; none issued |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Translation adjustment |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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See accompanying notes to consolidated financial statements.
| F-4 |
| Table of Contents |
Ainos, Inc.
Consolidated Statements of Operations
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Revenues |
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Cost of revenues |
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Gross profits |
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Operating expenses: |
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Research and development expenses |
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Selling, general and administrative expenses |
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Total operating expenses |
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Operating loss |
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Non-operating income (expenses), net |
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Interest expense, net |
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Other income (expenses), net |
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Total non-operating income (expenses), net |
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Net loss |
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Net loss per common shares - basic and diluted |
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| F-5 |
| Table of Contents |
Ainos, Inc.
Consolidated Statements of Comprehensive Loss
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Net loss |
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Other comprehensive loss: |
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Comprehensive loss |
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See accompanying notes to consolidated financial statements.
| F-6 |
| Table of Contents |
Ainos, Inc.
Statements of Stockholders’ Equity
Years Ended December 31, 2022 and 2021
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Balance at December 31, 2021 |
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Issuance of stock upon offering, net of issuance cost |
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Issuance of stock for Stock Incentive Plan |
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Write off APIC of share-based compensation when vesting RSU |
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Conversion of convertible notes into common stock |
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Net Loss |
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Balance at December 31, 2022 |
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Balance at December 31, 2020 |
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Issuance of stock for acquisition of patents |
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Issuance of stock for compensation |
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Issuance of stock for option |
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Acquisition of intangibleassets and equipment |
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Conversion of convertible notes into common stocks |
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Net loss |
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Balance at December 31, 2021 |
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See accompanying notes to consolidated financial statements.
| F-7 |
| Table of Contents |
Ainos, Inc.
Consolidated Statements of Cash Flows
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Cash flows from Operating Activities : |
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Net loss |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Share-based compensation expense |
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Loss on disposal of property, plant and equipment |
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Changes in operating assets and liabilities: |
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Inventory |
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Accrued expenses and others current liabilities |
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Cash flows from Investing Activities : |
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Increase in refundable deposits and others |
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Net cash used in investing activities |
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Cash flows from Financing Activities : |
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Proceeds from convertible notes payable - non-current |
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Proceeds from notes payable |
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Proceeds from exercise of stock options |
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Effect from foreign currency exchange |
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Cash and cash equivalents at end of period |
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Supplemental Cash Flow Information |
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Supplemental disclosures of noncash financing and investing activities: |
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Conversion of convertible notes and accrued interest into common stock |
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Acquisition of intangible assets and equipment |
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| F-8 |
| Table of Contents |
Ainos, Inc.
Notes to Financial Statements
December 31, 2022 and 2021
1. Organization and Summary of Significant Accounting Policies
Organization and Business
We are 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 KY, to expand our potential product portfolio into Volatile Organic Compounds (“VOC”) and COVID-19 POCTs. This includes 51 issued and pending patents related to VOC technologies and 3 issued patents for COVID-19 POCT products. 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.
Underwritten Public Offering
The Company’s registration statement related to its underwritten public offering (“Offering”) was declared effective on August 8, 2022, and the Company’s common stock and warrants began trading on the Nasdaq Capital Market (“Nasdaq”) on August 9, 2022 under the trading symbols “AIMD” and “AIMDW”, respectively. The Company completed its underwritten public offering of an aggregated
In connection with the Offering, the Company’s board of directors on April 29, 2022 and our shareholders on May 16, 2022 approved a 1-for-15 reverse stock split (the “Reverse Stock Split”) of the Company’s common stock and each series of its redeemable convertible notes to be consummated prior to the effectiveness of the period after Offering The par value and authorized shares of the Company’s common stock were not adjusted as a result of the Reverse Stock Split. All issued and outstanding common stock, RSUs, warrants and options to purchase common stock and per share amounts contained in the financial statements have been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented.
The Company filed an amended Restated Certificate of Formation with the Secretary of State of Texas on August 8, 2022 that effectuated the Reverse Stock Split.
Additional information regarding the Offering and Reverse Stock Split can be found below in Note 5 of the Notes to Financial Statements.
Basis of Accounting
The basis is United States generally accepted accounting policies (“U.S. GAAP”).
Going Concern
The Company’s consolidated financial statements have been prepared in accordance with U.S. 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. At December 31, 2022, we had available cash and cash equivalents of $
| F-9 |
| Table of Contents |
The Company has generated revenues from sales of COVID-19 antigen test kits since the second quarter of 2021. Net revenues for 2022 and 2021 were $
Until we can generate significant revenue from product sales, the Company intends to seek additional funding through equity offerings or borrowing arrangements or licensing agreements or strategic alliances to implement its business plan. Please refer to the Subsequent Events section. The issuances of additional equity securities by the Company may result in dilution in the equity interests of its current stockholders. Obtaining commercial loans may increase the Company’s liabilities and future cash commitments.
We are unable to predict the timing or amount of unexpected expenses or when or if we will be able to increase significant revenue due to the numerous risks and uncertainties associated with product development and related legal regulatory requirements, and when we are eventually able to generate additional product sales or licensing income, those revenue may not be sufficient to become profitable. Furthermore, fundraising of emerging company is extremely challenging due to the high uncertainty of the overall economic environment at present. There can be no assurance that the revenue will be generated in time or capital will be available as necessary to meet the Company’s working capital requirements or, if the capital is available, that it will be on terms acceptable to the Company.
If the company is unable to generate cash inflow from operating activities in the near future, and cannot complete fundraising with sufficient amount and acceptable terms, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern, but 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. See the audit report for related information.
Fair Value of Financial Instruments
Under the Financial Account Standards Board Accounting Standards Codification (“FASB ASC”), we are permitted to elect to measure financial instruments and certain other items at fair value, with the change in fair value recorded in earnings. We elected not to measure any eligible items using the fair value option. Consistent with the Fair Value Measurement Topic of the FASB ASC, we implemented guidelines relating to the disclosure of our methodology for periodic measurement of our assets and liabilities recorded at fair market value.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-tier fair value hierarchy prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
| · | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; |
| · | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| · | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one more significant inputs or significant value drivers are unobservable. |
Our Level 1 assets and liabilities primarily include our cash and cash equivalents. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. The carrying amounts of accounts receivable, prepaid expense, accounts payable, accrued liabilities, advances from investors, and notes payable approximate fair value due to the immediate or short-term maturities of these financial instruments.
Stock-Based Compensation
Stock-based compensation expense is recorded in accordance with FASB ASC Topic 718, Compensation – Stock Compensation, for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is the vesting period. The Company has adopted the simplified method to account for forfeitures of employee awards as they occur and as a result, we will record compensation cost assuming all option holders will complete the requisite service period. If an employee forfeits an award because they fail to complete the requisite service period, we will reverse compensation cost previously recognized in the period the award is forfeited.
| F-10 |
| Table of Contents |
Cash and Cash Equivalents
The Company classifies investments as cash equivalents if the original maturity of an investment is three months or less.
Revenue Recognition
We account for revenue from contracts with customers in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (“Topic 606”).” The unit of account in Topic 606 is a performance obligation, which is a promise in a contract to transfer to a customer either a distinct good or service (or bundle of goods or services) or a series of distinct goods or services provided at a point in time or over a period of time. Topic 606 requires that a contract’s transaction price, which is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, is to be allocated to each performance obligation in the contract based on relative standalone selling prices and recognized as revenue when (point in time) or as (over time) the performance obligation is satisfied.
Total revenues include sales of products to customers, net of discounts or allowances, if any, and include freight and delivery costs billed to customers. Revenues for product sales are recognized when control of the promised good is transferred to unaffiliated customers, typically when finished products are shipped. Shipping costs are deemed fulfillment costs and are not recognized as a separate performance obligation.
Allowance for Doubtful Accounts
The Company establishes an allowance for doubtful accounts to ensure trade and notes receivable are not overstated due to non-collectability. The Company’s allowance is based on a variety of factors, including age of the receivable, significant one-time events, historical experience, and other risk considerations. The Company had no material accounts receivable and no allowance at December 31, 2022 or 2021.
Inventory
Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. The Company continually assesses the appropriateness of inventory valuations giving consideration to slow-moving, non-saleable, out-of-date or close-dated inventory.
Property and Equipment
Property and equipment are stated on the basis of historical cost less accumulated depreciation. Depreciation is provided using the straight-line method over the two to seven year estimated useful lives of the assets.
Patents and Patent Expenditures
The Company holds patent license agreements and maintains patents that are owned by the Company. All patent license agreements remain in effect over the life of the underlying patents. The Company accounts for intangible assets at either their historical cost or allocated purchase prices at asset acquisition and the patent license fee is being amortized over the estimated life of the patent using the straight-line method. Patent fees and legal fees associated with the issuance of new owned patents are capitalized and amortized over the estimated
Income Taxes
The asset and liability approach is used to account for income taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Company records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized.
Research and Development
Internal research and development (“R&D”) costs are expensed as incurred. Clinical trial costs incurred by third parties are expensed as the contracted work is performed. Where contingent milestone payments are due to third parties under research and development collaborations, prior to regulatory approval, the payment obligations are expensed when the milestone results are achieved. Payments made to third parties subsequent to regulatory approval are capitalized as intangible assets and amortized to cost of products sold over the remaining useful life of the related product.
| F-11 |
| Table of Contents |
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates include the valuation of our patent intangible assets, including impairment considerations, legal and contractual contingencies and share-based compensation. Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ from those estimates.
Basic and Diluted Net Income (Loss) Per Share
The basic earnings (loss) per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the weighted average number of common shares issued and outstanding during the year. The diluted earnings (loss) per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted as of the first year for any potentially dilutive debt or equity.
As of December 31, 2022, potentially dilutive shares are not included in the calculation of fully diluted net loss per share as the effect with a net loss would be antidilutive.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist principally of cash. The Company has cash balances in a single U.S. financial institution which, from time to time, could exceed the federally insured limit of $
No loss has been incurred related to the aforementioned concentration of cash.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on its estimate of expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and clarify the implementation guidance. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates”, which amended the effective date of the various topics. As the Company is a smaller reporting company, the provisions of ASU 2016-13 and the related amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 (quarter ending September 30, 2023 for the Company). Entities are required to apply these changes through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company does not expect the adoption of ASU 2016- 13 to have a significant impact on the Company’s consolidated financial statements.
On July 1, 2021, the Company adopted ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”) to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of U.S. GAAP. Most amendments within ASU 2019-12 are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The adoption of ASU 2019-12 did not have a significant impact on the Company’s consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements. Most of the newer standards issued represent technical corrections to the accounting literature or application to specific industries which have no effect on the Company’s consolidated financial statements.
| F-12 |
| Table of Contents |
2. Property and Equipment, net
Property and equipment are stated at cost less accumulated depreciation and consist of the following at December 31, 2022 and 2021:
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| December 31, |
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| 2021 |
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Machinery and equipment |
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Furniture and fixture |
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Construction in process |
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Total cost |
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Less: accumulated depreciation |
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Property and equipment, net |
| $ |
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| $ |
| ||
Depreciation expense for the year ended December 31, 2022 and 2021 was $
Construction in process for the year ended December 31, 2021 was $
We acquired machinery and equipment in the amount of $
The increase of furniture and fixture in 2022 was mainly related to a new office.
3. Intangible assets, net
Intangible assets are stated at cost less accumulated amortization and consist of the following at December 31, 2022 and 2021:
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| December 31, |
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| 2022 |
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| 2021 |
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Patents and technology |
| $ |
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| $ |
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Less: accumulated amortization |
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Patents and technology, net |
| $ |
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| $ |
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Amortization expense amounted to $
We acquired intellectual properties related to VOC and COVID-19 technologies amounted $
Estimated future amortization expense is as follows:
2023 |
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2024 |
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2025 |
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2026 |
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2027 |
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Thereafter |
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Total expense |
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| F-13 |
| Table of Contents |
4. Current Convertible Notes Payable and Other Notes Payable
As of December 31, 2022, 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 1/1/2022 | Addition | Converted/Payment | As of 12/31/2022 | Accrued Interest |
Convertible notes payable: | ||||||||||||
Stephen Chen | #1.16 | NA | $ | working capital | - | - | ||||||
Stephen Chen | #2.16 | NA | $ | working capital | - | - | ||||||
- | - | |||||||||||
Ainos KY | #12.21 | NA | $ | working capital | - | ( | - | - | ||||
Ainos KY | #13.21 | NA | $ | working capital | - | ( | - | - | ||||
Ainos KY | #14.21 | NA | $ | working capital | - | ( | - | - | ||||
Ainos KY | #15.21 | NA | $ | working capital | - | ( | - | - | ||||
Ainos KY | #16.21 | NA | $ | working capital | - | ( | - | - | ||||
Ainos KY | #17.21 | NA | $ | working capital | - | ( | - | - | ||||
Ainos KY | #18.21 | NA | $ | working capital | - | ( | - | - | ||||
Ainos KY | #19.21 | NA | $ | working capital | - | ( | - | - | ||||
Ainos KY | #20.21 | NA | $ | working capital | - | ( | - | - | ||||
Ainos KY | #21.21 | NA | $ | working capital | - | ( | - | - | ||||
Ainos KY | #22.21 | NA | $ | working capital | - | ( | - | - | ||||
Ainos KY | #23.21 | NA | $ | working capital | - | ( | - | - | ||||
Ainos KY | #24.21 | NA | $ | working capital | - | ( | - | - | ||||
- | ( | - | - | |||||||||
Total convertible notes payable- related parties | 3,376,526 | - | ( | |||||||||
Non-Convertible Notes Payable: | ||||||||||||
#9.21 | 4/14/2021 | NA | working capital | - | ( | - | - | |||||
Ainos KY | #26.22 (2) | N/A | NA | working capital |
- |
|
- |
|
| |||
Notes payable-related party | ( | |||||||||||
i2 China | #8b.20 | NA | consulting fee |
- | - | |||||||
Note payable- non-related party | - | - | ||||||||||
Total notes payable | 213,405 | ( | ||||||||||
Total convertible and non-convertible | ( | |||||||||||
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 Payee has the option to convert some or all of the unpaid principal and accrued interest to our common voting stock.
| F-14 |
| Table of Contents |
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 $
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 amounted to $
As of December 31, 2022, the amount of current convertible and other notes payable totaled $
The total interest expense of convertible notes payable and other notes payable for the year ended 2022 was $
As of December 31, 2021, 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 1/1/2021 | Addition | Converted/Payment | As of 12/31/2021 | Accrued Interest |
Convertible notes payable: | ||||||||||||
Stephen Chen | #1.16 | NA | $ | working capital | 114,026 | - | - | |||||
Stephen Chen | #2.16 | NA | $ | working capital | - | - | 9,878 | |||||
Stephen Chen | #3.19 | $ | salary |
- |
( |
- |
- | |||||
Stephen Chen | #4.19 | $ | working capital | - |
( |
- |
- | |||||
Stephen Chen | #6.20 | $ | salary |
- |
( |
- |
- | |||||
Stephen Chen | #7.20 | $ | working capital | - |
( |
- |
- | |||||
Stephen Chen | #10.21 | $ | salary | - |
|
( |
- |
- | ||||
Stephen Chen | #11.21 | $ | salary | - |
( |
- |
- | |||||
|
|
|
|
|
|
|
| 670,991 | ( | 15,717 | ||
Ainos KY | #12.21 | NA | $ | working capital | - | - | ||||||
Ainos KY | #13.21 | NA | $ | working capital | - |
|
- |
|
| |||
Ainos KY | #14.21 | NA | $ | working capital | - |
- |
|
| ||||
Ainos KY | #15.21 | NA | $ | working capital | - |
|
- |
|
| |||
Ainos KY | #16.21 | NA | $ | working capital | - | - | ||||||
Ainos KY | #17.21 | NA | $ | working capital | - |
|
- |
|
| |||
Ainos KY | #18.21 | NA | $ | working capital | - |
- |
|
| ||||
Ainos KY | #19.21 | NA | $ | working capital | - |
|
- |
|
| |||
Ainos KY | #20.21 | NA | $ | working capital | - |
- |
|
| ||||
Ainos KY | #21.21 | NA | $ | working capital | - |
|
- |
|
| |||
Ainos KY | #22.21 | NA | $ | working capital | - | - | ||||||
Ainos KY | #23.21 | NA | $ | working capital | - |
|
- |
300,000 |
| |||
Ainos KY | #24.21 | NA | $ | working capital | - |
- |
|
| ||||
|
|
|
|
|
|
|
| - | 3,000,000 | - | 9,507 | |
|
|
| Total convertible notes payable- related parties | 670,991 | ( | |||||||
i2 China | #5.19 | $ | Consulting fee |
- |
( |
- |
- | |||||
i2 China | #8a.20 | $ | Consulting fee | - |
( |
- |
- | |||||
i2 China | #11.21 | $ | Consulting fee | - |
|
( |
- |
- | ||||
|
|
| Total convertible notes payable- non-related party | ( | - | - | ||||||
Y3s |
|
| Total Convertible notes payable | ( | ||||||||
Notes payable: |
|
|
|
|
|
|
|
|
|
|
| |
Stephen Chen | #9.21 | NA | working capital |
|
( |
|
312 | |||||
|
|
|
| Notes payable-related party | ( | 129,405 | 312 | |||||
i2 China | #8b.20 | 1/1/2020 | NA | Consulting fee |
- |
- |
|
| ||||
|
|
|
| Notes payable- non-related party | - | - | ||||||
|
|
|
|
| Total notes payable | ( | 213,405 | |||||
|
|
| Total convertible and non-convertible | 953,001 | ( | 28,673 | ||||||
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 Payee has the option to convert some or all of the unpaid principal and accrued interest to our common voting stock.
| F-15 |
| Table of Contents |
The convertible promissory notes are convertible on demand. The following convertible notes due to Stephen T. Chen – Notes 3.19, 4.19, 6.20, 7.20, 10.21, and 11.21 -- with a total principal and accrued interest amount of $
During 2021, the Company received funding from Dr. Stephen T. Chen and Ainos KY totaling $
Note holders, i2China Management Group, LLC (“i2China”) and Dr. Stephen T. Chen (together the “Payees”), agreed to waive their 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 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 and other notes payable were made during on September 1, 2021. Interest waived totaled $
As of December 31, 2021, the amount of current convertible and other notes payable totaled $
The total interest expense for 2021 was $
5. Non-Current Convertible Notes Payable.
APA Convertible Note
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 Note 6. The principal sum of the APA Convertible Note is payable in cash on January 30, 2027, although prepayment is permitted in whole or in part without penalty. The APA Convertible Note was noninterest bearing.
| F-16 |
| Table of Contents |
March 2027 Convertible Notes
The Company issued Convertible Notes pursuant to certain Convertible Note Purchase Agreements under Regulation S. The transactions are more particularly described below:
| · | $ |
| · | $ |
| · | $ |
The above Convertible Notes totaling $
The Principal Amounts of the March 2027 Convertible Notes were payable in cash on March 30, 2027, although the Company was permitted to prepay the Convertible Notes in whole or in part without penalty. The March 2027 Convertible Notes were non-interest bearing.
The non-current convertible notes payable as of August 9, 2022 in the aggregate total amount of $
6. Related Party Transactions
The following is a summary of related party transactions in 2022 and 2021 to which we have been a participant in which the amount involved exceeded or will exceed the lesser of $120,000 or 1% of the average of our total assets as of December 31, 2022 and 2021, and in which any of our directors, executive officers or holders of more than 5% of our capital stock, or any of our directors, executive officers or holders of more than 5% of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest, other than compensation arrangements which are described in Part II, Item 5 “Market for the Registrant’s Common Equity and Related Shareholder Matters, and Issuer Purchases of Equity Securities, and Part III, Item 11 “Executive Compensation.”
Name of the related party | Relationship | Description |
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Purchase of intangible assets and equipment
Securities Purchase Agreement
On April 15, 2021, we consummated the Securities Purchase Agreement in the amount of $
| F-17 |
| Table of Contents |
Asset Purchase Agreement
Ainos KY and the Company entered into an Asset Purchase Agreement dated as of 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 the Asset Purchase Agreement, we acquired certain intellectual property assets and certain manufacturing, testing, and office equipment for a total purchase price of $
As part of the Asset Purchase Agreement, we agreed to hire certain employees of Ainos KY who are responsible for research and development of the IP 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 Ainos KY.
We closed the transaction on January 30, 2022 and issued a convertible note to Ainos KY for the payment. See Notes 2, 3, 5 and 11 for the related information of the transaction.
Working Capital Advances
Except for $26,000,000 issued for the payment of “Amended Asset Purchase Agreement, all other convertible and other notes payable were issued either as a result of financing or deferred compensation provided by shareholders.
In the 2022 and 2021, Ainos KY provided working capital advances in the form of convertible note and non-convertible note financing in the aggregate amount of $
ASE Test, Inc. (the “ASE”), an affiliate of the Company, provided a working capital advance in the form of a convertible note financing in the principal amount of $
The convertible notes and related accrued interest of Ainos KY and ASE as of August 8, 2022 in the aggregate total amount of $
In the 2022 and 2021, Dr. Stephen T. Chen provided working capital advances in the form of convertible note and non-convertible note financing in the aggregate amount of $
Refer to Notes 4, 5 and 7 for more information regarding above convertible notes and other notes payable .
Purchase and Sales
Ainos COVID-19 Test Kits Sales and Marketing Agreement with Ainos KY
On June 14, 2021, we entered into an exclusive agreement to serve as the master sales and marketing agent for the Ainos COVID-19 Antigen Rapid Test Kit and COVID-19 Nucleic Acid Test Kit with Ainos KY (the “Sales and Marketing Agreement”) which was developed by Taiwan Carbon Nano Technology Corporation (the “TCNT”), an affiliate of the Company. On June 7, 2021, the Taiwan Food and Drug Administration (the “TFDA”) approved emergency use authorization to TCNT for the Ainos COVID-19 Antigen Rapid Test Kit that will be sold and marketed under the “Ainos” brand in Taiwan. On June 21, 2022, we began marketing the Ainos SARS-CoV-2 Antigen Rapid Self-Test (“COVID-19 Antigen Self-Test Kit”) under a separate EUA issued by the TFDA to TCNT on June 13, 2022. As TCNT secures regulatory authorizations from foreign regulatory agencies, the Company expects to partner with regional distributors to promote sales in other strategic markets.
We incurred costs associated with finished goods, raw materials and manufacturing fees for Covid-19 antigen rapid test kits from TCNT pursuant to the Sales and Marketing Agreement, totaling $
| F-18 |
| Table of Contents |
COVID-19 Antigen Rapid Test Kits Sales
We sold Covid-19 antigen rapid test kits to ASE Technology Holding, an affiliate of the Company, totaling $
Product Co-development Agreement
Pursuant to the five-year product co-development agreement (the “Product Co-Development Agreement”) with TCNT, effective on August 1, 2021 we incurred development expenses totaling $
7. Stockholders’ Equity
Reverse Stock Split
On April 29, 2022, the Company’s board of directors and on May 16, 2022 our shareholders approved a 1-for-15 reverse stock split (the “Reverse Stock Split”) of the Company’s common stock and each series of its redeemable convertible notes to be consummated prior to the effectiveness of the Company’s underwritten public offering (“Offering”) on August 9, 2022. The par value and authorized shares of the Company’s common stock were not adjusted as a result of the Reverse Stock Split. All issued and outstanding common stock, RSUs, warrants and options to purchase common stock and per share amounts contained in the financial statements have been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented.
The Company filed an amended Restated Certificate of Formation with the Secretary of State of Texas on August 8, 2022 that effectuated the Reverse Stock Split.
Preferred Stock
The Company has
Common Stock
Holders of common stock are entitled to one vote per share, and to receive dividends and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to stockholders.
The Company has reserved authorized shares of common stock for future issuance at December 31, 2022 and 2021 as follows:
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Public Offering of Common Stock and Warrants
The Company’s registration statement related to its
| F-19 |
| Table of Contents |
The Company received aggregate net proceeds of approximately $
On August 11, 2022, the Company agreed to issue to the Representative of the
Expected term (years) |
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Expected volatility |
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Expected dividends |
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Risk free interest rate |
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Since these warrants were issued as direct offering costs associated with the offering, the Company has accounted for these warrants as both a charge and increase to additional paid-in capital, resulting in a net effect on stockholders’ equity of $0.
Pursuant to the customary FINRA rules, the Representative’s Warrants are subject to a lock-up agreement pursuant to which the Representative will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will it engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the effective date of the registration statement referenced below.
Upon completion of the Offering, convertible notes outstanding in the principal amount of $
Warrants
A summary of the status of the Company’s warrants and changes are presented in the following table:
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Warrants outstanding at beginning of year |
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Issued |
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Warrants outstanding at end of year |
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Exercisable at end of year |
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The following table summarizes information about warrants outstanding at December 31, 2022:
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| Outstanding Warrants |
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| Exercisable |
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Exercise Price |
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| December 31, 2022 |
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| $ | 3.98 |
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| 4.25 |
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| 4.25 |
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| 4.68 |
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On November 25, 2020, the Company issued a warrant to i2China Management Group, LLC, a related party of the Company since August 1, 2021. The warrant entitles the holder to purchase
Pursuant to the Offering on August 9, 2022, the Company issued
| F-20 |
| Table of Contents |
Pursuant to an underwriting agreement, dated August 8, 2022, by and between the Company and Maxim Group LLC (“Maxim”), as representative of the underwriters, Maxim partially exercised the option to purchase
Pursuant to the underwriting agreement the Company issued representative warrants to the Maxim, as representative of the underwriters, to purchase 39,000 shares of common stock at an exercise price of $
Stock Incentive Plan
See footnote 8 for the information of Stock Incentive Plan
Acquisition of patents
See footnote 6 for the information of issuance common stock for acquisition of patents.
Dividends
We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on any of our capital stock. We do not anticipate paying any dividends in the foreseeable future, and we currently intend to retain all available funds and any future earnings for use in the operation of our business, to finance the growth and development of our business and for future repayment of debt. Future determinations as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our operating results, financial condition, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.
8. Share-Based Compensation
Equity incentive plans were summarized as follows:
Stock incentive Plans 1 |
| Issue Date Range |
| Total Stock & Options Authorized |
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| Options Granted2 |
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| Options Remaining3 |
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| Stock Awards Granted |
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| Stock Awards Remaining |
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2018 Employee Stock Option Plan4 |
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2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan4 |
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2021 Employee Stock Purchase Plan |
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| 50,000 |
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2021 Stock Incentive Plan |
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| 5 | ||||
1 The Board of Directors has approved all stock, stock option and stock warrant issuances.
2 As of December 31, 2022,
3 Effective October 6, 2021, no further stock option issuance from 2018-ESOP and 2018-NQSOP as per provision in newly adopted 2021 Stock Incentive Plan.
4 On September 26, 2019, all qualified options under the 2018-ESOP became non-qualified options as a result of the 2018-ESOP not being ratified by the Company’s shareholders within one year of adoption.
5 An aggregate
| F-21 |
| Table of Contents |
2018 Employee Stock Option Plan (the “2018-ESOP”)
On September 26, 2018, the Board adopted the Company 2018 Employee Stock Option Plan (the “2018-ESOP”), formerly referred to as the “Amarillo Biosciences, Inc., 2018 Employee Stock Option Plan” in prior filings. The 2018-ESOP provides for the grant of Qualified Incentive Stock Options to the Company’s employees. The Board, in its adoption of the 2018-ESOP, directed the Officers to submit the 2018-ESOP to the shareholders for ratification and approval at the next scheduled shareholders meeting. Failure of the ratification and approval of the 2018-ESOP within one year of the effective date renders the qualified options to become nonqualified options for purposes of the U.S Internal Revenue Code. A stockholders meeting was not convened within the one year period and, as a result, any qualified options automatically became non-qualified options effective September 26, 2019.
The 2018-ESOP is administered by the Board or by a committee of directors appointed by the Board (the “Compensation Committee”) as constituted from time to time. The maximum number of shares of common stock which may be issued under the 2018-ESOP is
The option price per share of common stock deliverable upon the exercise of an incentive stock option is 100% of the fair market value of a share on the date of grant. The option price is $
Effective as of October 6, 2021, with the adoption by the Board of the 2021 SIP, no further awards may be granted under the 2018-ESOP and as discussed above because our shareholders did not approved the 2018-ESOP any qualified options automatically became non-qualified options effective September 26, 2019.
2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan (the “2018-NQSOP”)
On September 26, 2018, the Board adopted the Company 2018 Employee Stock Option Plan (the “2018-ESOP”), formerly referred to as the “Amarillo Biosciences, Inc., 2018 Employee Stock Option Plan” in prior filings. The 2018-ESOP provides for the grant of Qualified Incentive Stock Options to the Company’s employees. Qualified options automatically became non-qualified options effective September 26, 2019 and was governed under the 2018-NQSOP described below because the plan was not ratified by our shareholders. The maximum number of shares of common stock authorized under the plan was
Effective as of October 6, 2021, with the adoption by the Board of the 2021 SIP, no further awards may be granted under the 2018-NQSOP and the
2021 Employee Stock Purchase Plan (the “2021 ESPP”)
On September 28, 2021 and on May 16, 2022 the Board and our shareholders, respectively, approved the 2021 Employee Stock Purchase Plan (the “2021 ESPP” or “Plan”). The purpose of the 2021 ESPP is to provide an opportunity for eligible employees of the company and its designated companies (as defined in the Plan) to purchase common stock at a discount through voluntary contributions, thereby attracting, retaining and rewarding such persons and strengthening the mutuality of interest between such persons and the Company’s stockholders. The Company intends for offerings under the Plan to qualify as an “employee stock purchase plan” under Section 423 of the Code; provided, that the Plan administrator may also authorize the grant of rights under offerings that are not intended to comply with the requirements of Section 423, pursuant to any rules, procedures, agreements, appendices, or sub-plans adopted by the administrator. Subject to adjustments as provided in the Plan, the maximum number of shares of common stock that may be issued under the Plan may not exceed
| F-22 |
| Table of Contents |
2021 Stock Incentive Plan (the “2021 SIP”)
On September 28, 2021 and on May 16, 2022 the Board and our shareholders, respectively, approved the 2021 Stock Incentive Plan (the “2021 SIP” or “Plan”). The purpose of the 2021 SIP is to provide a means through which the Company, and the other members of the Company Group, defined by Section 2(n) of the Plan as the Company and its subsidiaries, and any other affiliate of the Company designated as a member of the Company Group by the Committee, may attract and retain key personnel, and to provide a means whereby directors, officers, employees, consultants and advisors of the Company and the other members of the Company Group can acquire and maintain an equity interest in the Company, or be paid incentive compensation measured by reference to the value of common stock, thereby strengthening their commitment to the interests of the Company Group and aligning their interests with those of the Company’s stockholders. The types of awards that may be granted from the Plan include individually or collectively, any Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Dividend Equivalent Rights and Other Equity-Based Award granted under the Plan. The Plan will be effective upon shareholder approval. The expiration date of the Plan, on and after which date no awards may be granted, will be the tenth anniversary of the date of Board approval of the Plan, provided, however, that such expiration will not affect awards then outstanding, and the terms and conditions of the Plan will continue to apply to such Awards. The aggregate number of shares which may be issued pursuant to awards under the Plan is
Non-Employee Director Compensation Policy (the “2021 NEDCP”)
On September 28, 2021, the Company’s Board of Directors adopted the Company’s Non-Employee Director Compensation Policy (the “2021 NEDCP” or “Policy”). On appointment to the Board, and without any further action of the Board or Compensation Committee of the Board, at the close of business on the day of such appointment, each Non-Employee Director will automatically receive an award of
In addition to the RSU grants, each member of the Board of who is not an employee of the Company or any of subsidiaries will receive the cash compensation set forth below for service on the Board. The annual cash compensation amounts will be payable in equal quarterly installments, in arrears following the end of each quarter in which the service occurred, pro-rated for any partial months of service. All annual cash fees are vested upon payment.
| 1. | Annual Board Service Retainer: |
| (a) | All Eligible Directors: $ |
| (b) | Chairperson of the Board: $ |
| 2. | Annual Committee Chair Service Retainer: |
| (a) | Chairperson of the Audit Committee: $ |
| (b) | Chairperson of the Compensation Committee: $ |
| 3. | Annual Committee Member Service Retainer: |
| (a) | Member of the Audit Committee: $ |
| (b) | Member of the Compensation Committee: $ |
Restricted Stock Units
RSUs entitle the recipient to be paid out an equal number of common stock upon vesting. The fair value of RSUs is based on market price of the underlying stock on the date of grant. A summary of the Company’s RSU activity and related information for the year ended December 31, 2022 is as follows:
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| Number of RSUs |
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| Weighted-Average Grant Date Fair Value Per RSU |
| ||
Balance as of December 31, 2021 |
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| - |
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| $ | N/A |
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RSUs granted |
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| $ |
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RSUs vested |
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| ( | ) |
| $ |
| |
RSUs canceled |
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| - |
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| $ | N/A |
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Balance as of December 31, 2022 |
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| $ |
| ||
The grant date fair value of RSUs awards that vested in the year ended December 31, 2022 was $
| F-23 |
| Table of Contents |
Stock Options
A summary of option activity for the years ended December 31, 2022 and 2021 are presented below.
Date |
| Number of Options 1Qualified |
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| Number of Options Nonqualified |
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| Weighted Average Exercise Price |
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| Weighted Average Remaining Contractual Term |
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| Aggregate Intrinsic Value |
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Balance at December 31, 2020 |
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| $ |
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| - |
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Granted |
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| - |
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| $ |
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| - |
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Exercised |
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| $ |
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| - |
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| - |
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Expired or Forfeited |
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| $ |
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| - |
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| - |
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Balance at December 31, 2021 |
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| $ |
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| - |
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Granted |
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| - |
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| - |
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| - |
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| - |
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Exercised |
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| - |
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| - |
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| - |
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| - |
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Expired or Forfeited |
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| - |
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| - |
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| - |
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| - |
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Balance at December 31, 2022 |
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| 3,333 |
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| $ |
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| - |
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Exercisable at December 31, 2022 |
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| $ | 5.70 |
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| - |
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1 Because the 2018 Employee Stock Option Plan was not ratified by the Company’s shareholders, the qualified options became non-qualified on September 26, 2019. These totals remain separated since the two different plans are still in existence.
The Company used the Black-Scholes option pricing model to value the option awards with the following assumptions applied: (1) Volatility –
Share-Based Compensation
The share-based compensation for the year ended December 31, 2022 and 2021 were $
As of December 31, 2022, the total unrecognized compensation cost related to outstanding RSUs, stock options and warrant was $
As of December 31, 2021, there is $
9. Income Taxes
The Company accounts for taxes based on income under FASB Accounting Standard Codification ASC 740, Income Taxes. ASC 740 requires use of the liability method. ASC 740 establishes standards of financial accounting and reporting for the tax consequences of “revenues, expenses, gains, or losses that are included in taxable income.” The ASC Master Glossary defines taxable income as “the excess of taxable revenues over tax deductible expenses and exemptions for the year as defined by the governmental taxing authority.”
The components of the net loss reported in these financial statements consist of the following:
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| December 31, 2022 |
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| December 31, 2021 |
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Components of Net Operating Loss |
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United States |
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| ( | ) |
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| ( | ) |
Taiwan |
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| ( | ) |
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| ( | ) |
Total |
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| ( | ) |
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| ( | ) |
The components of the provision (benefit) for income taxes consist of the following:
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| December 31, 2022 |
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| December 31, 2021 |
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Components of the Provision (Benefit) for Income Taxes |
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Current - Federal and State |
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Deferred - Federal |
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Deferred - State |
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Total |
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Change in Valuation Allowance |
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| ( | ) |
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| ( | ) |
Income Tax Expense |
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The asset and liability approach is used to account for income taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Company records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized. The effect of a change in tax rates or laws on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date of the rate change. A valuation allowance is established to reduce the deferred tax assets to the amount that are more likely than not to be realized from operations.
Tax benefits of uncertain tax positions are recognized only if it is more likely than not that the Company will be able to sustain a position taken on an income tax return. Interest and penalties, if any, related to unrecognized tax benefits would be recognized as income tax expense.
| F-24 |
| Table of Contents |
The components of the Company’s deferred tax asset and liabilities are as follows:
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| December 31, 2022 |
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| December 31, 2021 |
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Deferred Tax Assets (Liabilities) |
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Net Operating Loss Carryover |
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Share-Based Compensation |
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Research and Development Expenses |
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Depreciation and Allowance |
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Others |
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Valuation Allowance |
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Total |
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The Company has a valuation allowance against the full amount of its net deferred tax assets due to the uncertainty of realization of the deferred tax assets due to the operating loss history of the Company. The Company currently provides a valuation allowance against deferred taxes when it is more likely than not that some portion, or all of its deferred tax assets will not be realized. The valuation allowance could be reduced or eliminated based on future earnings and future estimates of taxable income.
A reconciliation of the statutory tax rates to the effective tax rates applicable to the Company is as follows:
|
| December 31, 2022 |
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| December 31, 2021 |
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Reconciliation of Statutory Tax Rate to Effective Tax Rate |
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Statutory Federal Income Tax Rate |
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| % |
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| % | ||
Change in Valuation Allowance |
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| ( | )% |
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| ( | )% |
Effective Income Tax Rate |
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| % | ||
At December 31, 2022, we estimate net operating loss carryforwards of approximately $
As of December 31, 2022, the Company had open tax years of 2021, 2020, 2019 and 2018 which are subject to examination by tax authorities.
10. Commitments and Contingencies
Lease and contract commitment
Our executive and administrative offices in the U.S. are located at 8880 Rio San Diego Drive, Suite 800, San Diego, CA 92108. The lease term began on April 1, 2021 as a semi-annual term and automatically renewed currently as a month-to-month renewal agreement.
Our Taiwan branch office is located in New Taipei City, Taiwan (“R.O.C.”) under a three-year office lease contract from June 2021 to May 2024. We also have staff at a product development facility located in Zhubei City, Taiwan, pursuant to our Product Development Agreement with TCNT.
Litigation
We not at this time involved in any legal proceedings.
Officer Compensation
Effective April 15, 2021, our Board appointed Mr. Chun-Hsien Tsai to serve as Chief Executive Officer. Mr. Tsai will receive a monthly salary of
Effective August 11, 2021, our Board appointed Ms. Hui-Lan (“Celia”) Wu to serve as Chief Financial Officer. Ms. Wu will receive a monthly salary of
| F-25 |
| Table of Contents |
Effective August 1, 2021, we entered into an employment contract with Mr. Lawrence K. Lin in connection with his election as Executive Vice President of Operations (the “LL Agreement”). The LL Agreement is effective for three years and may be extended for an additional years on the same terms and conditions upon mutual agreement. Under the LL Agreement, Mr. Lin will receive a monthly salary of $
11. Subsequent Events
Regulation S Convertible Notes
On March 13, 2023, we entered into two convertible note purchase agreements made pursuant to Regulation S of the Securities Act of 1933 relating to the sale of convertible notes, under which the Company issued and sold two convertible promissory notes (the "Notes") in a principal amount of US$
Nasdaq Deficiency Notice
On January 5, 2023, the Company received a deficiency letter from the Nasdaq Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, for the last 30 consecutive business days, the closing bid price for the Company’s common stock has been below the minimum $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). The Nasdaq deficiency letter has no immediate effect on the listing of the Company’s common stock, and its common stock will continue to trade on The Nasdaq Capital Market under the symbol “AIMD” at this time.
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been given 180 calendar days, or until July 5, 2023, to regain compliance with the Minimum Bid Price Requirement. If at any time before July 5, 2023, the bid price of the Company’s common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, the Staff will provide written confirmation that the Company has achieved compliance.
If the Company does not regain compliance with the Minimum Bid Price Requirement by July 5, 2023, the Company may be afforded a second 180 calendar day period to regain compliance. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, except for the Minimum Bid Price Requirement. In addition, the Company would be required to notify Nasdaq of its intent to cure the deficiency during the second compliance period. If the Company meets these requirements, Nasdaq will inform the Company that it has been granted an additional 180 calendar days. However, if it appears to Staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice that the Company’s securities are subject to delisting.
The Company intends to monitor the closing bid price of its common stock and may, if appropriate, consider available options to regain compliance with the Minimum Bid Price Requirement. However, there can be no assurance that the Company will be able to regain compliance with the Minimum Bid Price Requirement or will otherwise be in compliance with other Nasdaq Listing Rules.
On January 10, 2023 the Company filed a Form 8-K with the SEC disclosing the herein matters.
| F-26 |
EXHIBIT 4.1
EXHIBIT 23.1
We hereby consent to the incorporation by reference in the Form 10-K of Ainos, Inc. (the “Company”) of our audit opinion report dated March 31, 2023, with respect to the financial statements of the Company included in this Annual Report on Form 10-K for the two-year period ended on December 31, 2022 and December 31, 2021. We also consent to the references to us under the headings “Expert” in such Annual Report.
/s/ PWR CPA, LLP
PCAOB #6686
Houston, Texas
March 31, 2023
EXHIBIT 24.1
AINOS, INC.
POWER OF ATTORNEY
WHEREAS, AINOS, INC., a Texas corporation (hereinafter referred to as the “Company”), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K for the period ending December 31, 2022 (the “Form 10-K”).
NOW, THEREFORE, the undersigned members of the Board of Directors do hereby appoint Chun-Hsien Tsai and Hui-Lan Wu and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign the Form 10-K and any and all amendments to the Form 10-K, and to file the same, with all exhibits thereto and all documents in connection therewith, making such changes in the Form 10-K as such person or persons so acting deems appropriate, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 31st day of March 2022.
| /S/ Chun-Hsien Tsai |
| /S/ Wen-Han Chang |
|
| Chun-Hsien Tsai |
| Wen-Han Chang |
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| /S/ Chung-Yi Tsai |
| /S/ Pao-Sheng Wei |
|
| Chung-Yi Tsai |
| Pao-Sheng Wei |
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| /S/ Chung-Jung Tsai |
| /S/ Yao-Chung Chiang |
|
| Chung-Jung Tsai |
| Yao-Chung Chiang |
|
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| /S/ Ting-Chuan Lee |
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| Ting-Chuan Lee |
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|
AINOS INC BOARD OF DIRECTORS POWER OF ATTORNEY
Form 10-K for the quarter ended December 31, 2022
Page 1 of 2
| 1 |
| SEEN AND ACCEPTED: |
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| /S/ Chun-Hsien Tsai |
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| Chun-Hsien Tsai |
| Chairman of the Board, President and Chief Executive Officer |
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| /S/ Hui-Lan Wu |
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| Hui-Lan Wu |
| Chief Financial Officer |
|
AINOS INC BOARD OF DIRECTORS POWER OF ATTORNEY
Form 10-K for the quarter ended December 31, 2022
Page 2 of 2
| 2 |
EXHIBIT 31.1
CEO Certification
CERTIFICATION PURSUANT TO RULE 13a-14(a) AND 15d-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Chun-Hsien Tsai, certify that:
| 1. | I have reviewed this annual report on Form 10-K of Ainos, Inc.; |
|
|
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
| 3. | Based on my knowledge, the financial statements and other financial information included in this report, fairly present, in all material respects, the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; |
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|
|
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors: |
|
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and |
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| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: March 31, 2023 | /s/Chun-Hsien Tsai | ||
|
|
| Chun-Hsien Tsai Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer) |
EXHIBIT 31.2
CFO Certification
CERTIFICATION PURSUANT TO RULE 13a-14(a) AND 15d-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Hui-Lan Wu, certify that:
| 1. | I have reviewed this annual report on Form 10-K of Ainos, Inc.; |
|
|
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
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| 3. | Based on my knowledge, the financial statements and other financial information included in this report, fairly present, in all material respects, the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; |
|
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|
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
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| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors: |
|
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| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and |
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| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: March 31, 2023 | /s/ Hui-Lan Wu | ||
|
|
| Hui-Lan Wu Chief Financial Officer (Principal Financial Officer) |
EXHIBIT 32.1
CEO 1350 Certification
CERTIFICATION OF
PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Ainos, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certify that to the best of our knowledge:
|
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
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|
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| March 31, 2023 | /s/ Chun-Hsien Tsai |
| Chief Executive Officer, President and Chairman of the Board |
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| Chun-Hsien Tsai |
| (Principal Executive Officer) |
A signed original of this written statement required by Section 906 has been provided to Ainos, Inc. and will be retained by Ainos, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CFO 1350 Certification
CERTIFICATION OF
PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Ainos, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certify that to the best of our knowledge:
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| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| March 31, 2023 | /s/ Hui-Lan Wu |
| Chief Financial Officer (Principal Financial Officer) |
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| Hui-Lan Wu |
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A signed original of this written statement required by Section 906 has been provided to Ainos, Inc. and will be retained by Ainos, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.