Ainos, Inc 10-K for FY2021
Ainos, Inc. (AIMD)
About this 10-K
Ainos, Inc filed this 10-K on March 21, 2022, covering the fiscal year ended December 31, 2021 (FY2021).
Headline figures
Fiscal year ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $594.56K
- up 3489.7% from $16.56K a year earlier
- Net loss
- $3.89M
- compared with a net loss of $1.45M a year earlier
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM
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| 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 | |
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Securities registered under Section 12(b) of the Exchange Act. None.
Securities registered under Section 12(g) of the Exchange Act. Common Stock, Par Value $.01
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. ☐ Yes ☒
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 | | |
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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). ☐ Yes
As of December 31, 2021, there were issued and outstanding 144,379,308 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 21,736,044 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 18, 2022 was
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 set forth in “Management’s 2022 Plan of Operations” as well as those discussed elsewhere in this Form 10-K. The following discussion should be read in conjunction with the 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.
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.
Medtech Solutions
Our portfolio of medtech solutions is currently comprised of the following:
| · | COVID-19 Antigen Rapid Test Kit and Ainos’ Cloud-based Test Management Apps. Our cloud-based test management platform is comprised of an antigen rapid test kit, a personal application, or app, and an enterprise app. We anticipate our management apps will allow individuals and organizations to seamlessly manage tests, trace infections, and share results. As the first commercialized COVID-19 product we sell, we currently market the Ainos COVID-19 antigen rapid test kit in Taiwan under emergency use authorization (“EUA”) issued by the Taiwan Federal and Drug Administration (“TFDA”) in 2021. We market the Ainos COVID-19 antigen rapid test kit under our brand name. The kit is manufactured by TCNT, our product co-developer. See “Part I, Item 1 - Strategic Investment and Business Development with Ainos KY”. We expect TCNT to apply for EUA authorization from the U.S. FDA (“FDA”) in mid-2022 and, if a EUA is issued by the FDA, we intend to market this product in the U.S. |
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| · | COVID-19 Nucleic Acid Test. Our solution consists of a color-changing assay that is compatible with standard Polymerase Chain Reaction (“PCR”) machines and delivers test results within 40 minutes, faster than a typical PCR test turnaround time of a few hours to several days. In addition to our assay’s compatibility with existing PCR equipment, we will also offer portable, low-cost test equipment intended to help medical professionals quickly scale testing capacity. We will market the product under the Ainos brand name, and our co-developer TCNT will manufacture the product. See “Part I, Item 1 - Strategic Investment and Business Development with Ainos KY.” The product is currently under EUA review by the TFDA and we expect TCNT to submit for EUA review by the FDA in mid-2022. |
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| · | VOC POCT – Ainos Flora. Our Ainos Flora device will perform a non-invasive test for female vaginal health and certain sexually transmitted diseases (“STDs”) including vaginitis, gonorrhea and trichomoniasis, within a few minutes. We expect Ainos Flora will provide convenient, discreet, rapid testing in a point-of-care setting which will allow women to self-test at home. We are conducting clinical trials in Taiwan and plan to seek TFDA approval for marketing in Taiwan and FDA 510(k) clearance for marketing in the U.S. in the second quarter of 2022. |
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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 including oral, gastrointestinal, liver, and renal health within minutes. We expect consumers to be empowered to share their self-test results with their physicians through in-person and telehealth medical consultations. We intend to explore commercialization opportunities with third-party technology and manufacturing collaborators as a non-medical, consumer device in the second quarter of 2022. |
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| · | VOC POCT – CHS430. The CHS430 device is intended to provide non-invasive testing for ventilator-associated pneumonia within 10 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. We intend to collaborate with TCNT to conduct clinical trials in Taiwan, after which we expect TCNT to submit applications for TFDA approval for marketing in Taiwan and FDA 510(k) clearance for marketing in the U.S. in 2023. |
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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. We recently initiated a strategic relationship with InnoPharmax, Inc. to jointly develop and market an orally administered cytotoxin-induced complementary combined therapy (“CICCT”) for the treatment of COVID-19 and other potential viral infections. We plan to initiate Phase 2/3 clinical trials for our CICCT treatment in the second quarter of 2022 in Taiwan. We also plan to advance our VELDONA development efforts for disease indications such as thrombocytopenia and Sjögren’s syndrome in 2023. |
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| · | Synthetic RNA (“SRNA”). We are developing a SRNA technology platform in Taiwan. Our initial focus is to develop a potential COVID-19 mRNA vaccine platform using the full-length spike or the RBD gene sequence of the alpha and delta variants as reference sequences. We plan to continue developing these technologies with the goal of initiating clinical trials in Taiwan in 2023. |
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 medical devices, consumer healthcare products and low-dose interferon therapeutics.
In 2022, we are prioritizing the commercialization of our POCT devices, beginning with seeking EUA authorizations for the COVID-19 POCT product candidates and plans to commercialize our other POCT product candidates. As a general strategy, we plan to conduct clinical trials in Taiwan and use the data to apply for TFDA approval and FDA clearance via the 510(k) or comparable pathway. If our products are approved, we plan to work with third-party distributors to market our products in countries where we receive regulatory approval and to seek various business relationships with other medtech companies to market our products. At the same time, we plan to initiate clinical trials for the CICCT and SRNA programs over the course of this year.
Our ability to generate product revenue sufficient to achieve profitability will depend on further successful development and commercialization of one or more of our current or future product candidates and programs. We anticipate our POCT products candidates to potentially generate organic cash flows to support our business while we invest in our other pipeline projects. We expect to continue to incur significant expenses for the next few years as we advance our product candidates through preclinical development, clinical trials and regulatory approval. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution, and legal and regulatory compliance. We may also incur expenses in connection with strategic relationships for the development of additional product candidates. Furthermore, we expect to continue to incur costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses.
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Until we can generate significant revenue from product sales, if ever, we expect to finance our operations with business revenues and proceeds from external sources. We may pursue additional funding that may include our entry into or expansion of borrowing arrangements; research and development incentive payments, government grants, co-financing from pharmaceutical companies and other corporate sources; and potential future collaboration agreements with pharmaceutical companies or other third parties. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization, potential in-licenses or acquisitions plans for one or more of our product candidates.
We are unable to predict the timing or amount of unexpected expenses or when or if we will be able to achieve or maintain profitability due to the numerous risks and uncertainties associated with product development and related legal regulatory requirements. When we are eventually able to generate additional product sales, those sales may not be sufficient to become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
As of December 31, 2021, we had available cash and cash equivalents of 1,751,499. We anticipate business revenues and further potential financial support from outside sources to fund our operations over the next twelve months. We have based this estimate on assumptions that may prove to be wrong and we could exhaust our available capital resources sooner than we expect. See “Part II, Item 7 - Liquidity and Capital Resources” for additional information. To finance our continuing operations, we will need to raise additional capital, which cannot be assured.
Strategic Investment and Business Development with Ainos KY
In order to facilitate our diversification strategy through development and commercialization of an expanded base of product offerings we secured a strategic investor, Ainos KY. In December 2020, we entered into a Securities Purchase Agreement pursuant to which, on April 15, 2021, in exchange for 100,000,000 shares of our common stock, we acquired intellectual property assets from Ainos KY valued at approximately $20,000,000. Through this relationship, we have implemented several strategic initiatives over the past year to augment our product development pipeline and achieve a strengthened financial position. The foregoing description of the Securities Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Agreement, a copy of which was filed with the SEC on December 30, 2020 as Exhibit 2.1 in our Form 8-K, is attached as Exhibit 10(i) to this Form 10-K, which is incorporated by this reference. A copy of our Form 8-K reporting the closing of the SPA transaction filed on April 21, 2021 with the SEC is attached hereto as Exhibit 10(ii) and is incorporated herein by this reference.
The following are highlights of recent major corporate milestones that we believe will serve as catalysts for us to develop and commercialize a multi-faceted product portfolio pipeline over the next several years:
| · | On June 14, 2021, we became the master sales and marketing agent for the Ainos COVID-19 antigen rapid test kit and Ainos nucleic acid test kit under a Sales and Marketing Agreement by and between our Company and Ainos KY effective May 28, 2020 to May 27, 2025, respectively. Under the Agreement we are authorized to sell and market the products in Taiwan, designate third-party distributors, and are entitled to 60% profit share on net results of such sales after costs. The foregoing description of the Sales and Marketing Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Agreement, a copy of which is attached as Exhibit 10(iii) to this Form 10-K, which is incorporated by this reference. We generated $568,164 in revenue from sales of the Ainos COVID-19 antigen rapid test kit in Taiwan as of the end of 2021. |
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| · | On November 18, 2021, Ainos KY agreed to increase its strategic investment to further bolster our POCT business through an Asset Purchase Agreement pursuant to which we acquired additional intellectual property and equipment assets 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. As payment for the assets, in January 2022, we issued to Ainos KY a non-interest bearing Convertible Note in the principal amount of $26,000,000. See “– Liquidity and Capital Resources” for additional information. The foregoing description of the Asset Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Agreement, a copy of which was filed with the SEC on November 22, 2022 as Exhibit 2.1 in our Form 8-K, is attached as Exhibit 10(iv) to this Form 10-K, which is incorporated by this reference. A copy of our Form 8-K reporting the closing of the transaction filed on February 3, 2022 with the SEC is attached hereto as Exhibit 10(v) and is incorporated herein by this reference. |
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| · | On December 7, 2021, we entered into a strategic relationship with InnoPharmax, Inc., a biopharmaceutical company focused on new oral drug formulations, to jointly develop and promote an orally administered CICCT for the treatment of COVID-19 and potentially other viral infections. The CICCT initiative leverages our interferon clinical data on influenza and integrates our interferon therapeutic platform, VELDONA, and InnoPharmax’s antiviral drug, GemOral. The foregoing description of the Oral Antiviral Therapy Development and Sales Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Agreement, a copy of which is attached as Exhibit 10(vi) to this Form 10-K, which is incorporated by this reference. A copy of our Form 8-K reporting our agreement with InnoPharmax filed on December 8, 2021 with the SEC is attached hereto as Exhibit 10(vii) and is incorporated herein by this reference. |
Impact of COVID-19 on Our Business
The COVID-19 pandemic presented us an opportunity to grow our business in 2021. We began selling and recording product revenue for Ainos COVID-19 antigen rapid test kits in June 2021 after TCNT obtained TFDA EUA in the same month. Between June and December 2021, we generated $568,164 of revenues from the Ainos COVID-19 antigen rapid test kit.
In 2021, substantially all of our operating revenue came from the sale of the Ainos COVID-19 antigen rapid test kits in Taiwan. COVID-19 infection rates have been well controlled in Taiwan. According to Taiwan Centers for Disease Control (“Taiwan CDC”), total cases in Taiwan were just 17,029 as of December 31, 2021. Over the same period, total cases in the U.S. were around 54,800,000. As a result, the total revenues we generated from our Ainos COVID-19 antigen rapid test kits were fewer than we had anticipated. We intend to broaden our market reach if TCNT successfully obtains regulatory clearance in the U.S. or other countries.
We believe affordable, easy-to-use, rapid COVID-19 testing will continue to be in demand at least in the short-term. We anticipate our management apps, when used with the Ainos antigen rapid test kit, will allow individuals and organizations to effectively manage tests, trace infections, and share results. We also anticipate the Ainos COVID-19 nucleic acid test can help medical professionals quickly scale testing capacity if the product receives regulatory clearance.
We are continuing to monitor the potential impact of the pandemic, but we cannot be certain the future impact on our business, financial condition, results of operations and prospects. Depending on developments relating to the pandemic, including the emergence of new variants, the pandemic may affect our ability to initiate and complete research studies, delay the initiation of our future research studies, disrupt regulatory activities or have other adverse effects on our business, results of operations, financial condition and prospects.
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 62 patents, of which 43 are active patents and 19 are pending patent approval as more particularly described in Exhibit 99(i) attached hereto and incorporated by this reference.
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.
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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. We were issued with a EUA from TFDA for distribution of our Ainos SARS-CoV-2 Antigen Rapid Test Kit on June 7, 2021.
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 FDA when the device it markets has or may have caused or contributed to a death or serious injury. The FDA 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 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.
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 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.
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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.
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.
On January 31, 2020, the Secretary of HHS issued a declaration of a public health emergency related to COVID-19. On February 4, 2020, HHS determined that COVID-19 represents a public health emergency that has a significant potential to affect national security or the health and security of U.S. citizens living abroad and, subsequently, declared on March 24, 2020, that circumstances exist to justify the authorization of emergency use of medical devices, including alternative products used as medical devices, during the COVID-19 pandemic, subject to the terms of any authorization as issued by the FDA. On February 29, 2020, the FDA issued an immediately in effect guidance with policy specific to development of in vitro point-of-care tests during the COVID-19 public health emergency. This guidance was updated on March 16, 2020, May 4, 2020 and May 11, 2020. We received an EUA from the FDA for the Ainos COVID-19 antigen rapid test kit on November 17, 2020.
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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.
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. For example, in November 2018, FDA officials announced forthcoming steps that the FDA intends to take to modernize the premarket notification pathway under Section 510(k) of the FDCA. Among other things, the FDA announced that it planned to develop proposals to drive manufacturers utilizing the 510(k) pathway toward the use of newer predicates. These proposals included plans to potentially sunset certain older devices that were used as predicates under the 510(k) clearance pathway, and to potentially publish a list of devices that have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 years old. In May 2019, the FDA solicited public feedback on these proposals. The FDA requested public feedback on whether it should consider certain actions that might require new authority, such as whether to sunset certain older devices that were used as predicates under the 510(k) clearance pathway. These proposals have not yet been finalized or adopted, and the FDA may work with Congress to implement such proposals through legislation.
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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.
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; |
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| · | 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.
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.
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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.
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.
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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. For example, the Budget Control Act of 2011, among other things, included reductions to CMS payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030 unless additional Congressional action is taken. The CARES Act and other COVID-19 relief legislation suspended the 2% Medicare sequester from May 1, 2020 through March 31, 2021. Additionally, the American Taxpayer Relief Act of 2012, among other things, reduced CMS payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
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, 2021, we had 34 full-time employees and 1 part-time employee. Of these 17 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 operation 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. 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. Presently, the Company has 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 Business and Strategy
Risks related to our limited operating history, financial position, and need for additional capital
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 minimal revenue to date. Additionally, we expect to continue to incur operating losses until we are able to commercialize or license our products. These operating losses have adversely affected and are likely to continue to adversely affect our working capital, total assets and stockholders’ deficit. We have generated operating losses of $3,867,426 and $1,440,435 in the twelve months ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had net operating carryforwards of approximately $20,747,517 for federal income tax purposes expiring in 2022 through 2041. 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 medium term 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; |
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| · | 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. |
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. We currently have a very small number of customers for the Ainos COVID-19 antigen rapid test kits in Taiwan. We may not be able to successfully acquire new customers in a timely manner or at all. 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, the failure of the Ainos COVID-19 antigen rapid test kits to gain market acceptance or retain regulatory authorization under our EUA in Taiwan 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; |
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| · | 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. |
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.
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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.
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 have generated little product revenues to date. Until, and if, we receive approval from the TFDA, FDA and other regulatory authorities for our product candidates, we cannot sell our products and will not have product revenues. We had cash and cash equivalents of approximately $1,751,499 as of December 31, 2021, 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.
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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 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; |
| · | 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. 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.
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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; |
| · | 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. 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; |
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| · | 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.
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, 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, 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.
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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.
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 medical device products, 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. |
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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.
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.
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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.
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.
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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.
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 pharmaceutical, medical and preventive medicine related products for which we are designated as TCNT’s exclusive sales agent. 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.
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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.
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.
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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.
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.
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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.
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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.
Risks related to related to our business
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 doubt in their audit opinion for our financial statements for the year ended December 31, 2021 about our ability to continue as a going concern. We have generated minimal revenue and have suffered recurring losses totaling $10,300,000 since inception. In order to obtain the necessary capital to sustain operations, management’s plans include, among other things, the possibility of pursuing new equity sales and/or making additional debt borrowings, There can be no assurances, however, that we will be successful in obtaining additional financing, or that such financing will be available on favorable term, if at all. If we are unable to obtain financing in the amounts and on terms deemed acceptable, the business and future success may be adversely affected and we may cease operations.
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.
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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.
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.
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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
An active trading market for our common stock may not develop and the market price of our common stock could be volatile.
Our common stock is currently quoted on the OTCPK, one of the OTC Markets Group over-the counter markets.
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 2021, 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. |
Upon closing of the Securities Purchase Agreement transaction with Ainos KY in April 2021, the Company acquired numerous patent assets. On November 18, 2021, we entered into an Asset Purchase Agreement with Ainos KY to acquire additional patent assets. If we fail to integrate the 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 be subject to regulatory scrutiny and a loss of public confidence, which could have a material adverse effect on our business and our stock price. In addition, if we do not 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.
ITEM 2. DESCRIPTION OF PROPERTY.
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 at New Taipei City, Taiwan (“R.O.C.”) under a three year office lease contract from June 2021 to May 2024. The office space is 1,250 square feet. We also have staff at a product development facility of approximately 8,517 square feet located in Miaoli County, Taiwan, pursuant to our Product Development Agreement with TCNT.
ITEM 3. LEGAL PROCEEDINGS.
There are currently no legal proceedings involving the Company.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
| 33 |
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock is traded on the OTC Markets PINK under the symbol “AIMD.”
Holders of Common Stock
We have 300,000,000 shares of voting common shares authorized for issuance. As of December 31, 2021, a total of 163,915,625 shares of common stock were either issued (144,379,308), reserved for conversion of convertible debt to stock (17,213,700), reserved for future issuance of RSUs for non-employee directors (1,320,000), held for future exercise of stock options (550,000) and shares reserved for warrant conversion (452,617).
From January 1, 2021 to December 31, 2021, we granted common stock to the following:
| · | On April 7, 2021, we issued 48,077 shares of common stock to Stephen T. Chen and/or Stephen T. Chen and Virginia M. Chen, Trustees, Stephen T. & Virginia M. Chen Living Trust Dated April 12, 2018 (“Chen”) as partial compensation payable for the period January 1, 2021 through March 31, 2021 under the Employment Agreement by and between the Company and Chen effective January 1, 2021 (“Chen Agreement”). |
|
|
|
| · | On April 7, 2021, we issued 5,769 shares of common stock to Bernard Cohen (“Cohen”) as partial compensation payable for the period January 1, 2021 through March 31, 2021 under the Employment Agreement by and between the Company and Cohen effective January 1, 2021 (“Cohen Agreement”). |
|
|
|
| · | On April 7, 2021, we issued 11,538 shares of common stock to Lawrence Lin (“Lin”) as compensation payable for the period January 1, 2021 through March 31, 2021 under the Consulting Agreement by and between the Company and Lin’s company, i2China Management Group, LLC, effective April 15, 2018 (“Lin Agreement”), as amended and made effective on January 1, 2020 (“Lin Amendment”). |
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|
|
| · | On April 7, 2021, we issued 109,038 shares of common stock to John Junyong Lee as compensation payable for the period January 1, 2021 through March 31, 2021 under the Legal Retainer Agreement by and between the Company and Lee effective June 21, 2019 (“Lee Agreement”). |
|
|
|
| · | On April 15, 2021, we consummated the Securities Purchase Agreement and issued 100,000,000 shares of common stock at $0.20 per share to Ainos KY in exchange for certain patent assignments. |
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|
| · | On June 30, 2021, we issued 5,342 shares of common stock as compensation payable for the period April 1, 2021 through April 15, 2021 under the Chen Agreement as amended by Amendment No. 2 that extended the termination date to April 15, 2021. |
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|
| · | On June 30, 2021, we issued 107 shares of common stock to Bernard Cohen as compensation payable for the period April 1, 2021 through April 5, 2021 under the Cohen Agreement as amended by Amendment No. 1 that extended the termination date to April 5, 2021. |
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|
| · | On June 30, 2021, we issued 3,846 shares of common stock to Lawrence Lin as compensation payable for the period April 1, 2021 through June 30, 2021 under the Lin Agreement and Lin Amendment. |
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|
| · | On June 30, 2021, we issued 21,926 shares of common stock to John Junyong Lee as compensation payable for the period April 1, 2021 through June 30, 2021 under the Lee Agreement. |
| 34 |
| · | On July 30, 2021, we issued 20,000 shares of voting common stock to Ya-Ju (“Maggie Wang”), previously a branch manager of the Company’s Taiwan branch office. The Company received payment of $7,600 ($0.38 per share) in accordance to a Stock Option Agreement under the Company’s 2018 Employee Stock Option Plan. |
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|
| · | On July 30, 2021, we issued 150,400 shares of voting common stock to Daniel Fisher, previously a Company board director. The Company received payment of $57,152 ($0.38 per share) in accordance to a Stock Option Agreement under the Company’s 2018 Officers, Directors, Employees and Consultants Nonqualified Stock Option Plan. |
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|
| · | On December 27, 2021, we issued 1,491,953 shares of common stock to Top Calibre Corporation (“TCC”) resulting from an assignment of convertible promissory notes from Dr. Stephen T. Chen to TCC under that certain Assignment Agreement by and between Dr. Stephen T. Chen and TCC, dated December 15, 2021 (“TCC Agreement”). Convertible promissory notes #3.19, #4.19, #6.20, #7.20, #10.21 and #11.21 were exercised at its entirety at a strike price of $0.25 per share based on a combined aggregate principal and accrued interest amount of $372,988. |
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| · | On December 27, 2021, we issued 413,368 shares of common stock to i2China Management Group LLC (“i2China”) resulting from a notice of demand from i2China to initiate the conversion of convertible promissory notes #5.19, #8.20a, and #11 exercised at its entirety at a strike price of $0.25 per share based on a combined aggregate principal and accrued interest amount of $103,342. |
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| · | On December 27, 2021, we issued 2,946 shares of common stock to Lawrence Lin as compensation payable for the period July 1, 2021 through August 1, 2021 under the Lin Agreement and Lin Amendment. |
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| · | On December 27, 2021, we issued 28,826 shares of common stock to John Junyong Lee as compensation payable for the period July 1, 2021 through September 31, 2021 under the Lee Agreement. |
We did not pay any dividends to its common stock shareholders in 2021 and has no plans to do so in the immediate future.
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, 2021 and 2020 and none are outstanding as of the Balance Sheet date of this report.
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
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.
| 35 |
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 1,000,000 shares which will be reserved for issuance upon exercise of options.
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 $0.38 per share and the options are exercisable during a period of ten years from the date of grant, where the options vest 20% annually over five years, commencing one year from date of grant.
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 550,000 shares of common stock remained outstanding. Copies of the 2018-ESOP and the 2018 Stock Option Agreement – Employee Plan are attached hereto as Exhibit 10(viii) and Exhibit 10(ix), respectively, and are incorporated herein by this reference.
2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan (the “2018-NQSOP”)
On September 26, 2018, the Board adopted the Company 2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan (the “2018-NQSOP”), formerly referred to as the “Amarillo Biosciences, Inc., 2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan” in prior filings. The 2018-NQSOP provides for the grant of nonqualified incentive stock options to employees. The 2018-NQSOP is administered by the Board or by the Compensation Committee as constituted from time to time. The maximum number of shares of common stock which may be issued under the 2018-NQSOP is 4,000,000 which will be reserved for issuance upon exercise of options. The option price for the nonqualified options is $0.38[1] exercisable for a period of ten years, with a vesting period of five years at 20% per year commencing one year from date of grant.
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. As of December 31, 2021, options to acquire 550,000 shares of common stock remained outstanding. Copies of the 2018-NQSOP and the 2018 Stock Option Agreement – Nonqualified Stock Option are attached hereto as Exhibit 10(x) and Exhibit 10(xi), respectively, and are incorporated herein by this reference.
Equity Compensation Plans Information:
Stock Plans 1 |
| Issue Date Range |
| Total Options Authorized |
|
| Options Issued |
|
| Options Remaining2 |
| |||
2018 Employee Stock Option Plan3, 4 |
| 9/26/18 – 9/26/28 |
|
| 1,000,000 |
|
|
| 950,000 |
|
|
| 0 |
|
2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan3 |
| 9/26/18 – 9/26/28 |
|
| 4,000,000 |
|
|
| 4,495,000 | 5 |
|
| 0 |
|
____________
1 The Board of Directors has approved all stock, stock option and stock warrant issuances.
2 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.
3 Details of the option plans are also disclosed in Financial Statements footnote 8, Stock Options and Stock Plans.
4 On September 26, 2019, all qualified options under the 2018-ESOP became non-qualified options since the 2018-ESOP was not ratified by the Company’s shareholders within one year of adoption.
5 3,844,600 non-qualified options were forfeited as of July 15, 2021, while an additional 500,000 non-qualified options were reissued on August 1, 2021.
____________
1 See footnote 4 above.
| 36 |
A summary of option activity for the years ended December 31, 2020 and December 31, 2021 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, 2019 |
|
| 850,000 |
|
|
| 3,807,000 |
|
| $ | 0.38 |
|
| 8 years |
|
|
| - |
| |
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Expired or Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balance December 31, 2020 |
|
| 850,000 |
|
|
| 3,807,000 |
|
| $ | 0.38 |
|
| 7 years |
|
|
|
|
| |
Granted 2021 |
|
| - |
|
|
| 500,000 |
|
| $ | 0.38 |
|
| 10 years |
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|
|
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| |
Exercised |
|
| 20,000 |
|
|
| 150,400 |
|
| $ | 0.38 |
|
|
| - |
|
|
| - |
|
Expired or Forfeited |
|
| 780,000 |
|
|
| 3,656,600 |
|
| $ | 0.38 |
|
|
| - |
|
|
| - |
|
Balance December 31, 2021 |
|
| 50,000 |
|
|
| 500,000 |
|
| $ | 0.38 |
|
| 9.33 years |
|
|
| - |
| |
Vested as of December 31, 2021 |
|
| 30,000 |
|
|
| 0 |
|
| $ | 0.38 |
|
| 9.33 years |
|
|
| - |
| |
____________
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 $953,604 in unrecognized option expense that will be recognized over the next 1.75 years.
2021 Employee Stock Purchase Plan (the “2021 ESPP”)
On September 28, 2021, the Board 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 750,000 shares. Such shares may be authorized but unissued shares, treasury shares or shares purchased in the open market. The Plan is be subject to approval by the Company’s stockholders within twelve months after the date of Board approval. The Plan will become effective on the date that stockholder approval is obtained, and will continue in effect until it expires on the tenth anniversary of the effective date of the Plan, unless terminated earlier. A copy of the 2021 ESPP is attached hereto as Exhibit 10(xii) and is incorporated herein by this reference.
2021 Stock Incentive Plan (the “2021 SIP”)
On September 28, 2021, the Board 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 20,000,000 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 10,000,000 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). A copy of the 2021 SIP is attached hereto as Exhibit 10(xiii) and is incorporated herein by this reference.
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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 330,000 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.
| 1. | Annual Board Service Retainer: | |
|
| (a) | All Eligible Directors: $12,000 |
|
| (b) | Chairperson of the Board: $14,000 |
| 2. | Annual Committee Chair Service Retainer: | |
|
| (a) | Chairperson of the Audit Committee: $7,000 |
|
| (b) | Chairperson of the Compensation Committee: $4,500 |
| 3. | Annual Committee Member Service Retainer: | |
|
| (a) | Member of the Audit Committee: $4,000 |
|
| (b) | Member of the Compensation Committee: $3,000 |
Capitalized terms in this summary are defined in the Plan. A copy of the 2021 NEDCP is attached hereto as Exhibit 10(iv) and is incorporated herein by this reference.
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.
| 38 |
2020-1 Private Placement
On May 11, 2020, the Company’s Board of Directors unanimously approved a Consent Resolution enacting the 2020-1 Private Placement Memorandum and Subscription of Non-Distributive Intent (“PPM Offering”). The PPM Offering was approved for the sale of a maximum of 5,208,334 common shares to raise an aggregate amount not to exceed $1,000,000. The stated use of proceeds was for commercialization of technologies and operating expenses. The PPM Offering was to be completed not later than July 31, 2020. On November 30, 2020, the Company Board of Directors approved the extension of the 2020-1 Private Placement Package until March 31, 2021. With the exception of the new closing date, all terms and conditions of the 2021-1 Private Placement Package remain the same. From January 1, 2021 to December 31, 2021 no sales of our securities were made under the PPM Offering.
RSU, Stock Options and Warrants
Pursuant to the 2021-NEDCP, four non-employee directors of the Company are entitled to 330,000 Restricted Stock Units (“RSUs”) upon their appointment to the Board on April 15, 2021. The RSUs are held in reserve pending approval of the 2021 Stock Incentive Plan by our shareholders.
In respect to the 2018-NQSOP, directors, officers, employees and consultants did not exercise any stock options in 2020. In 2021, one employee and one director exercised stock options as follows:
| · | On July 30, 2021, the Company issued 20,000 shares of voting common stock to Ya-Ju (“Maggie Wang”), previously a branch manager of the Company’s Taiwan branch office. The Company received payment of $7,600 ($0.38 per share). |
|
|
|
| · | On July 30, 2021, the Company issued 150,400 shares of voting common stock to Daniel Fisher, previously a Company board director. The Company received payment of $57,152 ($0.38 per share). |
As of December 31, 2021, there is only one warrant certificate outstanding between the Company and i2China Management Group, LLC, deemed for the purposes of related party transactions to be a related party of the company from August 1, 2021 to December 1, 2021, effective from November 25, 2020 until November 25, 2025. The warrant entitles the holder to purchase 452,617 shares of common stock at an exercise price of $0.27 per share. The warrant was valued at $70,608 and will be expensed over sixty (60) months. The Company used the Black-Scholes option pricing model to value the warrants with the following assumptions applied: (1) Volatility – 201%; (2) Term – 5 years (3) Discount Rate – 0.39%.
No warrants were exercised in 2020 or 2021.
Convertible Notes Payable
All convertible notes payable were issued either as a result of financing or deferred compensation provided by executives of the Company. As of December 31, 2021 and December 31, 2020, convertible notes payable totaled $3,376,526 and $734,991, respectively; including convertible notes payable for related parties totaling $3,376,526 and $670,991, respectively. For additional information, refer to Note 4 under Notes to Financial Statements.
| 39 |
The details of the convertible notes payable are shown in the table below:
Payee | No. | Effective Date | Due Date | From Effective | Following Maturity | Conversion Rate | Issuing Purpose | 1/1/2021 | Addition | Payment | 12/31/2021 | Accrued Interest |
Convertible notes payable: | ||||||||||||
Stephen Chen | #1.16 | 1/30/2016 | Payable on demand | 0.75% | NA | $ 0.17 | working capital | 114,026 | 114,026 | 5,839 | ||
Stephen Chen | #2.16 | 3/18/2016 | Payable on demand | 0.65% | NA | $ 0.19 | working capital | 262,500 | 262,500 | 9,878 | ||
Stephen Chen | #3.19 | 9/1/2019 | 9/1/2020 | 1.85% | 10% | $ 0.25 | salary | 39,620 | (39,620) | 0 | 0 | |
Stephen Chen | #4.19 | 12/1/2019 | 12/31/2020 | 1.61% | 10% | $ 0.25 | working capital | 14,879 | (14,879) | 0 | 0 | |
Stephen Chen | #6.20 | 1/1/2020 | 1/1/2021 | 1.85% | 10% | $ 0.25 | salary | 216,600 | (216,600) | 0 | 0 | |
Stephen Chen | #7.20 | 1/1/2020 | 1/2/2021 | 1.60% | 10% | $ 0.25 | working capital | 23,366 | (23,366) | 0 | 0 | |
Stephen Chen | #10.21 | 1/1/2021 | 4/1/2021 | 1.85% | 1.85% | $ 0.25 | salary | 59,025 | (59,025) | 0 | 0 | |
Stephen Chen | #11.21 | 4/1/2021 | 5/1/2021 | 1.85% | 10% | $ 0.25 | salary | 10,000 | (10,000) | 0 | 0 | |
670,991 | 69,025 | (363,490) | 376,526 | 15,717 | ||||||||
Ainos KY | #12.21 | 4/27/2021 | 10/27/2021 | 1.85% | NA | $ 0.20 | working capital | 15,000 | 15,000 | 189 | ||
Ainos KY | #13.21 | 5/5/2021 | 11/5/2021 | 1.85% | NA | $ 0.20 | working capital | 20,000 | 20,000 | 243 | ||
Ainos KY | #14.21 | 5/25/2021 | 11/25/2021 | 1.85% | NA | $ 0.20 | working capital | 30,000 | 30,000 | 335 | ||
Ainos KY | #15.21 | 5/28/2021 | 11/28/2021 | 1.85% | NA | $ 0.20 | working capital | 35,000 | 35,000 | 385 | ||
Ainos KY | #16.21 | 6/9/2021 | 12/9/2021 | 1.85% | NA | $ 0.20 | working capital | 300,000 | 300,000 | 3,117 | ||
Ainos KY | #17.21 | 6/21/2021 | 12/21/2021 | 1.85% | NA | $ 0.20 | working capital | 107,000 | 107,000 | 1,047 | ||
Ainos KY | #18.21 | 7/2/2021 | 1/2/2022 | 1.85% | NA | $ 0.20 | working capital | 54,000 | 54,000 | 498 | ||
Ainos KY | #19.21 | 9/1/2021 | 3/1/2022 | 1.85% | NA | $ 0.20 | working capital | 120,000 | 120,000 | 742 | ||
Ainos KY | #20.21 | 9/28/2021 | 3/28/2022 | 1.85% | NA | $ 0.20 | working capital | 300,000 | 300,000 | 1,429 | ||
Ainos KY | #21.21 | 11/10/2021 | 5/10/2022 | 1.85% | NA | $ 0.20 | working capital | 50,000 | 50,000 | 129 | ||
Ainos KY | #22.21 | 11/25/2021 | 11/25/2022 | 1.85% | NA | $ 0.20 | working capital | 450,000 | 450,000 | 798 | ||
Ainos KY | #23.21 | 11/29/2021 | 5/29/2022 | 1.85% | NA | $ 0.20 | working capital | 300,000 | 300,000 | 471 | ||
Ainos KY | #24.21 | 12/29/2021 | 6/29/2022 | 1.85% | NA | $ 0.20 | working capital | 1,219,000 | 1,219,000 | 124 | ||
0 | 3,000,000 | 0 | 3,000,000 | 9,507 | ||||||||
Total convertible notes payable- related parties | 670,991 | 3,069,025 | (363,490) | 3,376,526 | 25,224 | |||||||
i2 China | #5.19 | 9/1/2019 | 9/1/2020 | 1.85% | 10% | $ 0.25 | consulting fee | 16,000 | (16,000) | 0 | 0 | |
i2 China | #8a.20 | 1/1/2020 | 1/1/2021 | 1.85% | 10% | $ 0.25 | consulting fee | 48,000 | (48,000) | 0 | 0 | |
i2 China | #11.21 | 1/1/2020 | 4/1/2021 | 1.85% | 10% | $ 0.25 | consulting fee | 37,000 | (37,000) | 0 | 0 | |
Total convertible notes payable- non-related party | 64,000 | 37,000 | (101,000) | 0 | 0 | |||||||
Total Convertible notes payable | 734,991 | 3,106,025 | (464,490) | 3,376,526 | 25,224 | |||||||
| 40 |
All of the aforementioned convertible promissory notes are unsecured and due on demand upon maturity. We 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.
The convertible promissory notes are convertible on demand. The following convertible notes due to Dr. 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 $372,988 were assigned by the holder to Top Calibre Corporation, a British Virgin Islands corporation, and subsequently converted in common stock of our company at a conversion price of $0.25 per share on December 27, 2021. No convertible notes were assigned in 2020.
During 2021, the Company received convertible note funding from Dr. Stephen T. Chen and Ainos KY totaling $69,025 and $3,000,000, respectively. Amounts owed to Dr. Stephen T. Chen of $150,000 were repaid. In 2020, the Company received convertible note funding from Dr. Stephen T. Chen totaling $239,966.
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 promissory notes were made during on September 1, 2021. Interest waived on these convertible promissory notes, since inception to December 31, 2021, totaled $27,963.
The total convertible notes interest expense for 2021 and 2020 totaled $19,832 and $8,101 respectively; the cumulative related accrued interest as of December 31, 2021 and 2020 were $25,224 and $18,940, respectively.
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 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”.
Overview
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.
| 41 |
Medtech Solutions
Our portfolio of medtech solutions is currently comprised of the following:
| · | COVID-19 Antigen Rapid Test Kit and Ainos’ Cloud-based Test Management Apps. Our cloud-based test management platform is comprised of an antigen rapid test kit, a personal application, or app, and an enterprise app. We anticipate our management apps will allow individuals and organizations to seamlessly manage tests, trace infections, and share results. As the first commercialized COVID-19 product we sell, we currently market the Ainos COVID-19 antigen rapid test kit in Taiwan under emergency use authorization (“EUA”) issued by the Taiwan Federal and Drug Administration (“TFDA”) in 2021. We market the Ainos COVID-19 antigen rapid test kit under our brand name. The kit is manufactured by TCNT, our product co-developer. See “Part I, Item 1 - Strategic Investment and Business Development with Ainos KY”. We expect TCNT to apply for EUA authorization from the U.S. FDA (“FDA”) in mid-2022 and, if a EUA is issued by the FDA, we intend to market this product in the U.S. |
|
|
|
| · | COVID-19 Nucleic Acid Test. Our solution consists of a color-changing assay that is compatible with standard Polymerase Chain Reaction (“PCR”) machines and delivers test results within 40 minutes, faster than a typical PCR test turnaround time of a few hours to several days. In addition to our assay’s compatibility with existing PCR equipment, we will also offer portable, low-cost test equipment intended to help medical professionals quickly scale testing capacity. We will market the product under the Ainos brand name, and our co-developer TCNT will manufacture the product. See “Part I, Item 1 - Strategic Investment and Business Development with Ainos KY.” The product is currently under EUA review by the TFDA and we expect TCNT to submit for EUA review by the FDA in mid-2022. |
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|
|
| · | VOC POCT – Ainos Flora. Our Ainos Flora device will perform a non-invasive test for female vaginal health and certain sexually transmitted diseases (“STDs”) including vaginitis, gonorrhea and trichomoniasis, within a few minutes. We expect Ainos Flora will provide convenient, discreet, rapid testing in a point-of-care setting which will allow women to self-test at home. We are conducting clinical trials in Taiwan and plan to seek TFDA approval for marketing in Taiwan and FDA 510(k) clearance for marketing in the U.S. in the second quarter of 2022. |
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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 including oral, gastrointestinal, liver, and renal health within minutes. We expect consumers to be empowered to share their self-test results with their physicians through in-person and telehealth medical consultations. We intend to explore commercialization opportunities with third-party technology and manufacturing collaborators as a non-medical, consumer device in the second quarter of 2022. |
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| · | VOC POCT – CHS430. The CHS430 device is intended to provide non-invasive testing for ventilator-associated pneumonia within 10 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. We intend to collaborate with TCNT to conduct clinical trials in Taiwan, after which we expect TCNT to submit applications for TFDA approval for marketing in Taiwan and FDA 510(k) clearance for marketing in the U.S. in 2023. |
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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. We recently initiated a strategic relationship with InnoPharmax, Inc. to jointly develop and market an orally administered cytotoxin-induced complementary combined therapy (“CICCT”) for the treatment of COVID-19 and other potential viral infections. We plan to initiate Phase 2/3 clinical trials for our CICCT treatment in the second quarter of 2022 in Taiwan. We also plan to advance our VELDONA development efforts for disease indications such as thrombocytopenia and Sjögren’s syndrome in 2023. |
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| · | Synthetic RNA (“SRNA”). We are developing a SRNA technology platform in Taiwan. Our initial focus is to develop a potential COVID-19 mRNA vaccine platform using the full-length spike or the RBD gene sequence of the alpha and delta variants as reference sequences. We plan to continue developing these technologies with the goal of initiating clinical trials in Taiwan in 2023. |
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 medical devices, consumer healthcare products and low-dose interferon therapeutics.
In 2022, we are prioritizing the commercialization of our POCT devices, beginning with seeking EUA authorizations for the COVID-19 POCT product candidates and plans to commercialize our other POCT product candidates. As a general strategy, we plan to conduct clinical trials in Taiwan and use the data to apply for TFDA approval and FDA clearance via the 510(k) or comparable pathway. If our products are approved, we plan to work with third-party distributors to market our products in countries where we receive regulatory approval and to seek various business relationships with other medtech companies to market our products. At the same time, we plan to initiate clinical trials for the CICCT and SRNA programs over the course of this year.
| 42 |
Our ability to generate product revenue sufficient to achieve profitability will depend on further successful development and commercialization of one or more of our current or future product candidates and programs. We anticipate our POCT products candidates to potentially generate organic cash flows to support our business while we invest in our other pipeline projects. We expect to continue to incur significant expenses for the next few years as we advance our product candidates through preclinical development, clinical trials and regulatory approval. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution, and legal and regulatory compliance. We may also incur expenses in connection with strategic relationships for the development of additional product candidates. Furthermore, we expect to continue to incur costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses.
Until we can generate significant revenue from product sales, if ever, we expect to finance our operations with business revenues and proceeds from external sources. We may pursue additional funding that may include our entry into or expansion of borrowing arrangements; research and development incentive payments, government grants, co-financing from pharmaceutical companies and other corporate sources; and potential future collaboration agreements with pharmaceutical companies or other third parties. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization, potential in-licenses or acquisitions plans for one or more of our product candidates.
We are unable to predict the timing or amount of unexpected expenses or when or if we will be able to achieve or maintain profitability due to the numerous risks and uncertainties associated with product development and related legal regulatory requirements. When we are eventually able to generate additional product sales, those sales may not be sufficient to become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
As of December 31, 2021, we had available cash and cash equivalents of 1,751,499. We anticipate business revenues and further potential financial support from outside sources to fund our operations over the next twelve months. We have based this estimate on assumptions that may prove to be wrong and we could exhaust our available capital resources sooner than we expect. See “Part II, Item 7 - Liquidity and Capital Resources” for additional information. To finance our continuing operations, we will need to raise additional capital, which cannot be assured.
Strategic Investment and Business Development with Ainos KY
In order to facilitate our diversification strategy through development and commercialization of an expanded base of product offerings we secured a strategic investor, Ainos KY. In December 2020, we entered into a Securities Purchase Agreement pursuant to which, on April 15, 2021, in exchange for 100,000,000 shares of our common stock, we acquired intellectual property assets from Ainos KY valued at approximately $20,000,000. Through this relationship, we have implemented several strategic initiatives over the past year to augment our product development pipeline and achieve a strengthened financial position.
The following are highlights of recent major corporate milestones that we believe will serve as catalysts for us to develop and commercialize a multi-faceted product portfolio pipeline over the next several years:
| · | On June 14, 2021, we became the master sales and marketing agent for the Ainos COVID-19 antigen rapid test kit and Ainos nucleic acid test kit. We generated $568,164 in revenue from sales of the Ainos COVID-19 antigen rapid test kit in Taiwan as of the end of 2021. |
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| · | On November 18, 2021, Ainos KY agreed to increase its strategic investment to further bolster our POCT business through an Asset Purchase Agreement pursuant to which we acquired additional intellectual property and equipment assets 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. As payment for the assets, in January 2022, we issued to Ainos KY a non-interest bearing Convertible Note in the principal amount of $26,000,000. See “– Liquidity and Capital Resources” for additional information. |
| 43 |
| · | On December 7, 2021, we entered into a strategic relationship with InnoPharmax, Inc., a biopharmaceutical company focused on new oral drug formulations, to jointly develop and promote an orally administered CICCT for the treatment of COVID-19 and potentially other viral infections. The CICCT initiative leverages our interferon clinical data on influenza and integrates our interferon therapeutic platform, VELDONA, and InnoPharmax’s antiviral drug, GemOral. |
Impact of COVID-19 on Our Business
The COVID-19 pandemic presented us an opportunity to grow our business in 2021. We began selling and recording product revenue for Ainos COVID-19 antigen rapid test kits in June 2021 after TCNT obtained TFDA EUA in the same month. Between June and December 2021, we generated about $568,164 of revenues from the Ainos COVID-19 antigen rapid test kit.
In 2021, substantially all of our operating revenue came from the sale of the Ainos COVID-19 antigen rapid test kits in Taiwan. COVID-19 infection rates have been well controlled in Taiwan. According to Taiwan Centers for Disease Control (“Taiwan CDC”), total cases in Taiwan were just 17,029 as of December 31, 2021. Over the same period, total cases in the U.S. were around 54,800,000. As a result, the total revenues we generated from our Ainos COVID-19 antigen rapid test kits were fewer than we had anticipated. We intend to broaden our market reach if TCNT successfully obtains regulatory clearance in the U.S. or other countries.
We believe affordable, easy-to-use, rapid COVID-19 testing will continue to be in demand at least in the short-term. We anticipate our management apps, when used with the Ainos antigen rapid test kit, will allow individuals and organizations to effectively manage tests, trace infections, and share results. We also anticipate the Ainos COVID-19 nucleic acid test can help medical professionals quickly scale testing capacity if the product receives regulatory clearance.
We are continuing to monitor the potential impact of the pandemic, but we cannot be certain the future impact on our business, financial condition, results of operations and prospects. Depending on developments relating to the pandemic, including the emergence of new variants, the pandemic may affect our ability to initiate and complete research studies, delay the initiation of our future research studies, disrupt regulatory activities or have other adverse effects on our business, results of operations, financial condition and prospects.
Results of Operations
The following table sets forth the significant components of our results of operations for the periods presented.
|
| Years ended December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Revenues |
|
| 594,563 |
|
|
| 16,563 |
|
Cost of revenues |
|
| (184,181 | ) |
|
| (11,277 | ) |
Gross margin |
|
| 410,382 |
|
|
| 5,286 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Research and development expenses |
|
| 1,920,645 |
|
|
| 389 |
|
Selling, general and administrative expenses |
|
| 2,357,163 |
|
|
| 1,445,332 |
|
Total operating expenses |
|
| 4,277,808 |
|
|
| 1,445,721 |
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (3,867,426 | ) |
|
| (1,440,435 | ) |
|
|
|
|
|
|
|
|
|
Non-operating income and expenses |
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (18,689 | ) |
|
| (10,185 | ) |
Other Losses |
|
| (2,547 | ) |
|
| (3 | ) |
|
|
| (21,236 | ) |
|
| (10,188 | ) |
Net loss |
|
| (3,888,661 | ) |
|
| (1,450,623 | ) |
| 44 |
Comparison of the Year ended December 31, 2021 and 2020
The following table summarizes our results of operations for the years ended December 31, 2021 and 2020.
|
| Years ended December 31, |
|
| Change |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| Amount |
|
| % |
| ||||
Revenues |
|
| 594,563 |
|
|
| 16,563 |
|
|
| 578,000 |
|
|
| 3,490 | % |
Cost of revenues |
|
| (184,181 | ) |
|
| (11,277 | ) |
|
| (172,904 | ) |
|
| 1,533 | % |
Gross margin |
|
| 410,382 |
|
|
| 5,286 |
|
|
| 405,096 |
|
|
| 7,664 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses |
|
| 1,920,645 |
|
|
| 389 |
|
|
| 1,920,256 |
|
|
| 493,639 | % |
Selling, general and administrative expenses |
|
| 2,357,163 |
|
|
| 1,445,332 |
|
|
| 911,831 |
|
|
| 63 | % |
|
|
| 4,277,808 |
|
|
| 1,445,721 |
|
|
| 2,832,087 |
|
|
| 196 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (3,867,426 | ) |
|
| (1,440,435 | ) |
|
| (2,426,991 | ) |
|
| 168 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (18,689 | ) |
|
| (10,185 | ) |
|
| (8,504 | ) |
|
| 83 | % |
Other Losses |
|
| (2,547 | ) |
|
| (3 | ) |
|
| (2,544 | ) |
|
| 84,802 | % |
|
|
| (21,236 | ) |
|
| (10,188 | ) |
|
| (11,048 | ) |
|
| 108 | % |
Net loss |
|
| (3,888,661 | ) |
|
| (1,450,623 | ) |
|
| (2,438,038 | ) |
|
| 168 | % |
Revenues, Costs and Gross Margins
Net revenues for 2021 and 2020 were $594,563 and $16,563, respectively. In 2021, we substantially increased revenues by 3,490%, primarily because we began selling the Ainos COVID-19 antigen rapid test kits in June 2021 in Taiwan. Substantially all revenues in 2021 were from the sale of the test kits. All revenues in 2020 were from sales of nutraceutical products.
Cost of revenues for 2021 and 2020 were $184,181 and $11,277, respectively, representing a 1,533% increase year-over-year. The increase was primarily attributable to increased business activity relating to the test kits. Gross profits rose to $410,382 from $5,286, an improvement of $405,096, or 7,664%. Gross margin for 2021 rose to 69% from 32% for 2020, driven by improved product sales resulting from our Ainos COVID-19 antigen rapid test kits.
Research and Development (“R&D”) Expenses
Research and development expenses for 2021 and 2020 were $1,920,645 and $389, an increase of 493,639% and $1,920,256, respectively. The increase is associated with higher R&D personnel costs and more expense for technology development and technical license fees. The main components include: costs associated with increased R&D personnel ($214,712), costs associated with technology development (approximately $277,000) and costs associated with intellectual property, including amortization of acquired intellectual properties ($1,264,865). 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.
| 45 |
Selling, General and Administrative Expenses
Selling, general and administration expense increased to $2,357,163 in 2021 from $1,445,332 in 2020, an increase of 63% and $912,000, respectively. Selling expense increased by approximately $191,000 or 100% due to increased sales and marketing staffing (approximately $76,000) and fees to distributors (approximately $103,000). Administrative expense increased by about 50% amounting to approximately $721,000. Our expenses increased primarily due to increased professional service fees related to the Ainos KY Transaction and corporate governance matters (approximately $298,000) and the increased amortization of acquired intellectual properties (approximately $725,000). The increased administrative expenses were offset by a decrease of personnel expense (approximately $350,000) associated with departure of former directors and officers.
Operating Loss
While our gross profits improved by $405,096 in 2021 compared to $5,286 in 2020, 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 2021 increased to $3,867,426 from $1,440,435 in 2020.
Liquidity and Capital Resources
As of December 31, 2021, we had cash and cash equivalents of $1,751,499, representing an increase from $22,245 as of December 31, 2020. The increase is primarily attributable to revenues from sales of our Ainos COVID-19 antigen rapid test kit in Taiwan and working capital loans.
Major Transactions in 2021
The following is a summary of our major transactions in 2021.
Securities Purchase Agreement
On April 15, 2021, we closed on a Securities Purchase Agreement with Ainos KY. Pursuant to the Securities Purchase Agreement, we issued 100,000,000 shares of common stock at $0.20 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.
Ainos COVID-19 Test Kit Sales and Marketing Agreement with Ainos KY
On June 14, 2021, we entered into an exclusive agreement with Ainos KY to serve as the master sales and marketing agent for the Ainos COVID-19 Antigen Rapid Test Kit and the Ainos COVID-19 Nucleic Acid Test, which were developed by our co-developer TCNT. On June 7, 2021, the TFDA issued an emergency use authorization to TCNT for the Ainos COVID-19 Antigen Rapid Test Kit, which is being marketed and sold under the Ainos brand in Taiwan. As TCNT secures regulatory authorizations from foreign regulatory agencies, we expect to partner with regional distributors to promote sales in other strategic markets. We purchased $183,444 of the Ainos COVID-19 Antigen Rapid Test Kit inventory from TCNT for the year ended December 31, 2021 and $0 in 2020.
Ainos – TCNT Product Development Agreement
On August 1, 2021, we entered into a five-year Product Development Agreement with TCNT. Pursuant to the agreement, both parties will endeavor to work together to co-develop pharmaceutical, medical and preventive medicine related products, with the Company being the exclusive sales agent. Under the agreement, we will bear the cost associated with product development and TCNT will make accessible its personnel and facilities. Under the agreement, we incurred product development expenses totaling $205,883 as of December 31, 2021 and accrued payable of $65,156 as of December 31, 2021. We incurred $0 in product development expenses in 2020.
Asset Purchase Agreement
On November 18, 2021, we entered into an Asset Purchase Agreement with Ainos KY, as amended by an Amended and Restated Asset Purchase Agreement dated as of January 29, 2022. Pursuant to the Asset Purchase Agreement, we acquired intellectual property and manufacturing, testing, and office equipment for a total purchase price of $26,000,000. Pursuant to the Asset Purchase Agreement, we also agreed to hire certain employees of Ainos KY on terms equal to the compensation arrangements undertaken by Ainos KY. From and after the closing, we have no responsibility, duty or liability with respect to any employee benefit plans of Ainos KY.
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Under the Asset Purchase Agreement, we issued to Ainos KY a non-interest bearing convertible promissory note in the principal amount of $26,000,000. The principal sum of the convertible note is payable in cash on January 30, 2027, although we may prepay in whole or in part without penalty. If not earlier repaid, the convertible note will be converted into shares of our common stock or such other securities or property for which the convertible note may become convertible, immediately prior to the closing of any public offering of our common stock as result of which our common stock will be listed on a U.S. stock exchange. The conversion price, subject to certain adjustments, will be 80% of the initial public offering price of such offering. We incurred $26,000,000 as account payable related to the Asset Purchase Agreement as we booked the related assets in 2021.
Other Liquidity and Capital Resource Factors
Our total cash and cash equivalents were $1,751,499 for 2021 and $22,245 for 2020, representing an increase of $1,729,254 mainly attributable to financing activities. Our net cash from financing activities increased to $3,154,373 for 2021 from $120,000 for 2020 due to the issuance of additional convertible notes to certain related parties in 2021. Our total convertible notes payable and other notes payable to related parties increased to $3,589,931 in 2021 from $953,001 in 2020.
We incurred net operating outflow of $1,249,977 for 2021 and $499,551 for 2020. While our revenues grew in 2021, our acquisition of intellectual property, increased staffing, and investment in research and developments increased our expenses and resulted in higher net losses ($3,888,661). These higher net losses were partially offset by increased amortization for acquisition of intellectual property to $2,044,447 for 2021 from $14,698 for 2020.
In 2021, in accordance with the SPA, Ainos KY provided us $3,000,000 in working capital advances. In exchange for the advances, we issued convertible notes in the aggregate principal amount of $3,000,000 with an interest rate of 1.85% per annum. The notes have maturity dates ranging from October 2021 to June 2022. They are convertible at Ainos KY’s election into shares of our common stock at a conversion price of $0.20 per share.
Between January 2016 and April 2021, we issued multiple convertible promissory notes to Mr. Stephen Chen, our former Chairman, CEO and CFO, for deferred compensation and working capital loans. The total principal of these convertible promissory notes decreased to $376,526 in December 2021 from $670,991 in 2020. In 2021, Mr. Chen assigned certain notes and the assigned notes were subsequently converted into our common shares.
As of December 31, 2021, we had negative working capital, incurred recurring losses and recurring negative cash flow from operating activities, and an increase in our cumulative liabilities. Accordingly, there is substantial doubt as to our ability to continue as a going concern. See Note 1 to the Financial Statements included herein for more information. Our ability to continue operations depends on our success in generating and increasing revenues as well as our ability to secure external financing, when necessary, to fund strategic objectives. We expect to continue to incur losses for the immediate future and will need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities.
We anticipate business revenues and further potential financial support from our majority shareholder, Ainos KY, or others, to fund our operations over the next twelve months. However, there can be no assurance that we will be successful in our efforts to make us profitable. If these efforts are not successful, we may need to raise additional capital through the issuance of equity securities, debt financings or other sources in order to further implement our business plan or we will need to reevaluate our business plan and operating budgets.
In 2022 we intend to focus on commercializing our POCT medical devices and developing our CICCT program. Our near-term liquidity requirements will include expenses for clinical trials, regulatory clearances, and marketing to commercialize our POCT devices, including the Ainos COVID-19 Nucleic Acid Test, the Ainos Flora, the Ainos Pen and our CICCT program. We also intend to increase staffing for general administration, marketing and technology development purposes.
On March 4, 2022, we issued a non-convertible note to Ainos KY in the principal amount of $800,000, at a 1.85% per annum interest rate, with a maturity date of February 28, 2023. We intend to use the proceeds from the note for working capital.
In 2023 and beyond, we intend to invest in research and development and clinical trial spending to advance our VELDONA development efforts for disease indications such as thrombocytopenia and Sjögren’s syndrome. We also plan on investing in clinical trials and regulatory approval for the CHS430 device, in collaboration with TCNT, and clinical trial expenses for our SRNA program.
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Critical Accounting Policies
For a discussion of accounting policies considered to be critical given they involve estimates and judgments made by management and are important for our investors’ understanding of our operating results and financial condition, see the Notes to the Financial Statements included elsewhere in this document.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements as of December 31, 2021.
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 financial statements 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.
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, 2021. 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. Based on the evaluation of our disclosure controls and procedures as of December 31, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective at the reasonable assurance level as of December 31, 2021.
Changes in Internal Control Over Financial Reporting
We have not experienced any material impact to our internal controls over financial reporting even though our workforce continues to primarily work-from-home due to COVID-19. We are continually monitoring and assessing the COVID-19 situation and its impact on our internal controls.
ITEM 9B. OTHER INFORMATON
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
| 48 |
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
As of December 31, 2021, the directors and executive officers of the Company were as follows:
Name |
| Age |
| Position |
Chun-Hsien Tsai |
| 52 |
| Chairman, President & Chief Executive Officer |
Hui-Lan Wu |
| 61 |
| Chief Financial Officer |
Lawrence K. Lin |
| 53 |
| Executive Vice President of Operations |
Wen-Han Chang |
| 58 |
| Director |
Yao-Chung Chiang |
| 68 |
| Director |
Hsiu-Chen Chiu |
| 46 |
| Director |
Ting-Chuan Lee |
| 38 |
| Director |
Chun-Jung Tsai |
| 50 |
| Director |
Chung-Yi Tsai |
| 45 |
| 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. 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.
| 49 |
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.
Hsiu-Chen Chiu. Ms. Chiu has served as a member of the Company’s Board of Directors since April 2021. She concurrently serves as the chairperson of our Audit Committee since August 2021. She is currently an Attorney-at-Law at the DaSheng International Law Firm, with certifications to practice law in both China and Taiwan, including Taiwan patent and trademark matters. Ms. Chiu received her Ph.D. from Tsinghua University in China and her LL.M. from the National Cheng-Chi University in Taiwan.
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. 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.
The Company’s directors are elected at the annual meeting of shareholders to hold office until the annual meeting of shareholders for the ensuing year or until their successors have been duly elected and qualified. Directors receive compensation of $1,000 per day for attendance at meetings, $250 per day for regularly scheduled teleconference meetings, and are reimbursed for any out-of-pocket expenses in connection with their attendance at meetings.
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 Ms. Hsiu-Chen Chiu, 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. Ms. Chiu 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.
| 50 |
In addition, our Board has determined that Mr. Wen-Han Chang and Mr. Yao-Chung Chiang qualify as “audit committee financial experts” as defined by applicable SEC regulations. The Board reached its conclusion as to Mr. Chang and Mr. Chiang qualification based on, among other things:
| · | Mr. Chang served as vice president of a medical center in Taiwan and chairperson of many medical associations and foundations with executive oversight of complex financial transactions and accounting and audit compliance matters. |
| · | Mr. Chiang served as Chairman of multiple publicly-listed companies in Taiwan including Taiwan High Speed Rail Corporation, China Airlines, China Steel Corporation, and China Steel Chemical Corporation. Mr. Chiang has extensive experience in financial oversight. |
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. |
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 Ms. Hsiu-Chen Chiu. 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 Ms. Chiu 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 5.05 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.
| 51 |
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.
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 |
|
Hsiu-Chen Chiu, 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, 2021 through December 31, 2021 (collectively, the “Named Executive Officers”) were as follows:
| · | Mr. Chun-Hsien Tsai, Chairman, President & Chief Executive Officer; |
| · | Ms. Hui-Lan Wu, Chief Financial Officer; |
| · | Mr. Lawrence K. Lin, Executive Vice President of Operations; |
| · | Dr. Stephen T. Chen, our former Chairman of the Board, President, Chief Executive Officer and Chief Financial Officer; and |
| · | Bernard Cohen, our former Vice President – Administration. |
No other executive officers received total annual compensation during the fiscal year ended December 31, 2021 in excess of $100,000.
| 52 |
Summary Compensation Table
The following table sets forth certain information relating to the total compensation earned for services rendered to us in all capacities by our Named Executive Officer:
Name and Principal Position |
| Year |
| Salary ($) |
|
| Bonus ($) |
|
| Stock Awards ($) |
|
| Options Awards ($) |
|
| Total ($) |
| |||||
Chun-Hsien Tsai(1) |
| 2021 |
|
| 45,044 |
|
|
| 18,014 |
|
|
| — |
|
|
| — |
|
|
| 63,058 |
|
Chairman of the Board & Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hui-Lan Wu(2) |
| 2021 |
|
| 41,449 |
|
|
| 11,034 |
|
|
| — |
|
|
| — |
|
|
| 52,483 |
|
Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence K. Lin(3) |
| 2021 |
|
| 60,000 |
|
|
| — |
|
|
| — |
|
|
| 468,950 |
|
|
| 528,950 |
|
EVP Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Stephen T. Chen(4) |
| 2021 |
|
| 975 |
|
|
| — |
|
|
| 33,333 |
|
|
| — |
|
|
| 34,308 |
|
Former Chairman of the Board, President, Chief Executive Officer and Chief Financial Officer |
| 2020 |
|
| 240,975 |
|
|
| — |
|
|
| 100,000 |
|
|
| — |
|
|
| 340,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernard Cohen(5) |
| 2021 |
|
| 18,846 |
|
|
| — |
|
|
| 3,167 |
|
|
| — |
|
|
| 22,013 |
|
Former VP - Administration |
| 2020 |
|
| 71,085 |
|
|
| — |
|
|
| 12,000 |
|
|
| — |
|
|
| 83,085 |
|
| (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. Mr. Lin indirectly owns 452,617 warrants issued on November 25, 2020 to i2China Management Group, LLC (“i2China”), of which Mr. Lin is the sole member; a non-convertible note issued to i2China on January 1, 2020 with a principal amount of $84,000; and convertible notes issued to i2China with a total principal and accrued interest amount of $103,342 that were converted into 413,368 shares of common stock on December 27, 2021 at a conversion price of $0.25 per share. |
| (4) | Dr. Chen resigned as Chairman of the Board, President, Chief Executive Officer and Chief Financial Officer, effective as of April 15, 2021. |
| (5) | Mr. Cohen resigned as Vice President – Administration, effective as of April 15, 2021. |
Employment Arrangements
Effective April 15, 2021, our Board appointed Mr. Chun-Hsien Tsai to serve as Chief Executive Officer. Mr. Tsai will receive a monthly salary of 250,000 NT$ (equivalent to approximately $8,929), a year-end bonus of two months’ salary, and a variable compensation based on Company profit targets decided by the Company’s Compensation Committee, and payable as 10-30% of total annual compensation in the form of cash, securities and/or other discretionary remuneration. An initial equity grant to Mr. Tsai will be determined by the Compensation Committee at a later date. Other benefits, including labor insurance, health insurance and other benefits, will be based on local regulations and the Company’s policies.
Effective August 11, 2021, our Board appointed Ms. Hui-Lan (“Celia”) Wu to serve as Chief Financial Officer. Ms. Wu will receive a monthly salary of 230,000 NT$ (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 10-30% of total annual compensation in the form of cash, securities and/or other discretionary remuneration. An initial equity grant to Ms. Wu will be determined by the Compensation Committee at a later date. Other benefits, including labor insurance, health insurance and other benefits, will be based on local regulations and the Company’s policies.
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 500,000 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 452,617 warrants issued on November 25, 2020 to i2China; a non-convertible note issued to i2China on January 1, 2020 with a principal amount of $84,000; and convertible notes issued to i2China with a total principal and accrued interest amount of $103,342, that were converted into 413,368 shares of common stock on December 27, 2021 at a conversion price of $0.25 per share
| 53 |
We previously hired Dr. Stephen T. Chen under an employment contract for the period January 1, 2018 through December 31, 2020 (“Prior Chen Contract”). On January 1, 2021 an employment agreement for a 3-month term was executed reflecting the same material terms and conditions of the Prior Chen Contract which includes (i) a $240,000 annual salary, (ii) $100,000 in Company shares payable quarterly based on the average share price of the closing quotes for the one month preceding issuance (referred to in the table as “Other Compensation”), (iii) certain employee benefits available to the our employees, and (iv) reimbursement of expenses made on behalf of the Company. The Company and Dr. Chen also executed a Settlement Agreement and Mutual General Release made effective December 24, 2020 covering any employment-related claims arising under the Prior Chen Contract. The Company and Dr. Chen also entered into an Intellectual Property Assignment Agreement made effective January 19, 2021 whereby Dr. Chen has assigned all right, title, and interest to certain patents, trademarks, and other intellectual property created or developed during Dr. Chen’s employment with the Company.
We previously hired Mr. Cohen under an employment contract for the period January 1, 2018 through December 31, 2020 (“Prior Cohen Contract”). On January 1, 2021, an employment agreement for a 3-month term was executed reflecting the same material terms and conditions of the Prior Cohen Contract which includes, (i) a $70,000 annual salary, (ii) $1,000 per month in Company shares paid monthly based on the average share price of the closing quotes for the one month preceding issuance (referred to in the table as “Other Compensation”), (iii) certain employee benefits available to the Company’s employees, and (iv) reimbursement of expenses made on behalf of the Company. The Company and Mr. Cohen also executed a Settlement Agreement and Mutual General Release made effective December 24, 2020 covering any employment-related claims arising under the Prior Cohen Contract. The Company and Mr. Cohen also entered into an Intellectual Property Assignment Agreement made effective January 19, 2021 whereby Mr. Cohen has assigned all right, title, and interest to certain patents, trademarks, and other intellectual property created or developed during Mr. Cohen’s employment with the Company.
Outstanding Equity Awards at Fiscal Year-End
Name and Principal Position |
| No. of securities underlying unexercised options (#) exercisable |
|
| No. of securities underlying unexercised options (#) unexercisable |
|
| Equity incentive plan awards: number of securities underlying unexercised unearned option (#) |
|
| Option exercise price ($) |
|
| Option expiration date |
| |||||
Chun-Hsien Tsai |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Chairman of the Board & Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hui-Lan Wu |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence K. Lin(1) |
|
| - |
|
|
| 500,000 |
|
|
| - |
|
|
| 0.38 |
|
| 07/31/31 |
| |
EVP Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Stephen T. Chen |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Former Chairman of the Board, President, Chief Executive Officer and Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernard Cohen |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Former VP - Administration |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) | Mr. Lawrence K. Lin indirectly owns 452,617 warrants issued on November 25, 2020 to i2China Management Group, LLC (“i2China”), of which Mr. Lin is the sole member; a non-convertible note issued to i2China on January 1, 2020 with a principal amount of $84,000; and convertible notes issued to i2China with a total principal and accrued interest amount of $103,342 that were converted into 413,368 shares of common stock on December 27, 2021 at a conversion price of $0.25 per share. |
| 54 |
Option Grants in 2021
On August 1, 2021, Lawrence Lin was hired as our Executive Vice President of Operations and in recognition for Mr. Lin’s prior services he was granted non-qualified stock options for 500,000 shares in the Company’s voting common stock under the 2018-NQSOP that will vest over a period of 3 years from August 1, 2021 through July 31, 2024. In accordance to the 2018-NQSOP, the stock options are exercisable at $0.38 per share within 10 years of August 1, 2021.
Director Compensation for Last Fiscal Year
The following table summarizes the total compensation we paid to our non-employee directors for the fiscal year ended December 31, 2021:
Name(1) |
| Fees Earned or Paid in Cash ($) |
|
| Stock Awards ($) |
|
| Option Awards ($) |
|
| Total ($) |
| ||||
Wen-Han Chang |
|
| 14,659 |
|
|
| - |
|
|
| - |
|
|
| 14,659 |
|
Yao-Chung Chiang |
|
| 11,441 |
|
|
| - |
|
|
| - |
|
|
| 11,441 |
|
Hsiu-Chen Chiu |
|
| 15,732 |
|
|
| - |
|
|
| - |
|
|
| 15,732 |
|
Chung-Yi Tsai |
|
| 8,581 |
|
|
| - |
|
|
| - |
|
|
| 8,581 |
|
Yasushi Chikagami(2) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Daniel Fisher(2) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Nicholas Moren(2) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Edward L. Morris(2) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Dr. Beatrice Liu(2) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| (1) | Mr. Chun-Hsien Tsai, Chairman of the Board, not listed here, is also Chief Executive Officer and does not receive additional compensation for this service on the Board. |
| (2) | Mr. Chikagami, Mr. Fisher, Mr. Moren, Mr. Morris and Ms. Liu resigned from the Board, effective as of April 15, 2021. |
Pursuant to the 2021-NEDCP, four non-employee directors of the Company are entitled to 330,000 Restricted Stock Units (“RSUs”) upon their appointment to the Board on April 15, 2021. The RSUs are held in reserve pending approval of the 2021 Stock Incentive Plan by our shareholders.
Directors receive $1,000 compensation for attendance at directors’ meetings and $250 for regularly scheduled teleconference meetings. There were no regularly scheduled meetings during 2021 for which the attendance or teleconference fee was due to directors. The Board enacted corporate actions through written consent and special meetings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding beneficial ownership of our common stock as of December 31, 2021:
| · | 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, 2021, there were 144,379,308 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, 2021, 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.
| 55 |
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(1) |
| ||
|
|
|
|
|
|
| ||
Security Ownership of Certain Beneficial Owners: |
|
|
|
|
|
| ||
Ainos, Inc. (“Ainos KY”) (2) |
|
| 125,461,117 |
|
|
| 77.64 | % |
Dr. Stephen T. Chen |
|
| 10,076,901 |
|
|
| 6.88 | % |
|
|
|
|
|
|
|
|
|
Security Ownership of Management and Directors: |
|
|
|
|
|
|
|
|
Chun-Hsien Tsai |
|
| - |
|
|
| - |
|
Hui-Lan Wu |
|
| - |
|
|
| - |
|
Lawrence K. Lin(3) |
|
| 1,119,208 |
|
|
| 0.77 | % |
Chung-Yi Tsai |
|
| - |
|
|
| - |
|
Chun-Jung Tsai |
|
| - |
|
|
| - |
|
Ting-Chuan Lee |
|
| - |
|
|
| - |
|
Wen-Han Chang |
|
| - |
|
|
| - |
|
Yao-Chung Chiang |
|
| - |
|
|
| - |
|
Hsiu-Chen Chiu |
|
| 3,001,500 |
|
|
| 2.08 | % |
Executive officers and directors as a group - 9 persons |
|
| 4,120,708 |
|
|
| 2.85 | % |
| (1) | As of December 31, 2021, applicable percentage ownership is based on 163,915,625 shares of common stock consisting of 144,379,308 shares issued; shares reserved for note conversions 17,213,700; shares reserved for future issuance of RSUs for non-employee directors 1,320,000; held for future exercise of stock options 550,000; and shares reserved for warrant conversion 452,617. |
| (2) | Our majority shareholder, Ainos KY, controls approximately 77.64% of the voting power of our common stock. Ainos KY’s voting power calculation reflects its ownership in the common stock of our company in addition to the effect of 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. |
| (3) | Lawrence K. Lin has a total beneficial ownership of 1,119,208 shares through the following: (i) 253,223 shares under Mr. Lin’s name; (ii) 413,368 shares beneficially owned by i2China Management Group, LLC (“i2China), of which he is the sole member; and (iii) 452,617 shares reserved for warrants, beneficially owned by i2China on demand. |
Change in Control
Ainos KY acquired a majority of the voting common stock of the Company upon closing the SPA on April 15, 2021 and thereafter entered into the Ainos KY Voting Agreement. The net result of both transactions resulted in Ainos KY obtaining 77.64% voting power of the common stock of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The following is a summary of related party transactions in 2021 and 2020 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, 2021 and 2020, 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 2021 and 2020 |
| 56 |
Purchase of intangible assets and equipment
Securities Purchase Agreement
On April 15, 2021, we consummated the Securities Purchase Agreement with Ainos KY. Pursuant to the Securities Purchase Agreement, we issued 100,000,000 shares of common stock at $0.20 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.
Asset Purchase Agreement
On November 18, 2021, we entered into an Asset Purchase Agreement as modified by an Amended and Restated Asset Purchase Agreement dated as of January 29, 2022 (the “Asset Purchase Agreement”) with Ainos KY. We closed the transaction on January 30, 2022. See Notes 2, 3, and 12 of our Notes to Financial Statements for a discussion of the transaction.
Pursuant to the Asset Purchase Agreement, we acquired certain intellectual property assets set forth on Exhibit A of the Agreement (the “IP Assets”) and certain manufacturing, testing, and office equipment set forth on Exhibit B of the Agreement (the “Equipment”) for a total purchase price of $26,000,000 (the “Purchase Price”). The Purchase Price included $24,886,023 of for intangible intellectual property assets and $1,113,977 in equipment. As payment of the purchase price, we issued to Ainos KY a Convertible Promissory Note in the principal amount of $26,000,000 (the “Convertible Note”) upon closing on January 30, 2022.
Certain employees of Ainos KY were transferred to the Company as set forth in Exhibit D of the Agreement (the “Employees”) 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 the Seller. From and after the Closing, we will have no responsibility, duty or liability with respect to any employee benefit plans of Ainos KY.
The principal sum of the Convertible Note is payable in cash on January 30, 2027, although we may prepay the Convertible Note in whole or in part without penalty. The Convertible Note is non-interest bearing. If not earlier repaid, the Convertible Note will be converted into shares of common stock, $0.01 par value per share (the “Common Stock”), of the Company, or such other securities or property for which the Convertible Note may become convertible, immediately prior to the closing of any public offering of the Company’s common stock as result of which the Company’s common stock will be listed on a U.S. stock exchange. The conversion price, subject to certain adjustments described in Section 2(b) of the Convertible Note, will be 80% of the initial public offering, if any, price of the offering. For more information, please refer to the disclosure in Notes 2, 3 and 12 of our Notes to Financial Statements.
Related Party Financing
All convertible and other notes payable were issued either as a result of financing or deferred compensation provided by shareholders. As of December 31, 2021 and December 31, 2020, the convertible notes payable and non-convertible notes payable for related parties totaled $3,505,931 and $805,001, respectively. Refer to Notes 4 and 5 of our Notes to Financial Statements, which are incorporated herein by this reference, for more information.
Other transactions
COVID-19 Test Kits Sales and Marketing Agreement with Ainos KY
On June 14, 2021, we entered into an exclusive agreement with Ainos KY to serve as the master sales and marketing agent for the Ainos COVID-19 antigen rapid test kit and COVID-19 nucleic acid test kits which are manufactured by TCNT. On June 7, 2021, the TFDA issued an 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. As TCNT secures regulatory authorizations from foreign regulatory agencies, we expect to partner with regional distributors to promote sales in other strategic markets. We purchased $183,444 of COVID-19 antigen rapid test kit inventory from TCNT for the year ended December 31, 2021 and $0 in 2020.
| 57 |
Ainos – TCNT Product Development
On August 1, 2021, we entered into a five-year product development agreement with TCNT. Pursuant to the agreement both parties will endeavor to work together to develop pharmaceutical, medical and preventive medicine related products, with the Company being the exclusive sales agent. We will bear the cost associated with product development and TCNT will make accessible its personnel and facilities. Both parties shall each jointly own the intellectual property rights of all research results of the co-development collaboration. As a result, we incurred product development expenses totaling $205,883 as of December 31, 2021 and accrued payable of $65,156 as of December 31, 2021 and $0 in product development expenses in 2020.
COVID-19 Antigen Rapid Test Kits Sales
We sold Covid-19 antigen rapid test kits to ASE Technology Holding totaling $209,468 for the year ended December 31, 2021 and $0 in 2020.
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, PWR 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, 2021 and 2020, were:
|
| 2021 |
|
| 2020 |
| ||
PWR |
| $ | 35,500 |
|
| $ | 35,000 |
|
PWC |
| $ | 34,600 |
|
| $ | 0 |
|
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 $5,975 in 2021 and $4,730 in 2020, 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, 2021 and 2022 (“Taiwan Tax Engagement”). The incurred fees for the Taiwan Tax Engagement billed by PWC in 2021 were $2,400.
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.
| 58 |
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Report of Independent Registered Public Accounting Firm |
|
|
|
Consolidated Balance Sheets as of December 31, 2021 and 2020 |
|
|
|
Consolidated Statements of Operations for the years ended December 31, 2021 and 2020 |
|
|
|
Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2021 and 2020 |
|
|
|
Statements of Cash Flows for the years ended December 31, 2021 and 2020 |
|
|
|
Notes to Financial Statements for the years ended December 31, 2021 and 2020 |
|
EXHIBIT INDEX
|
|
|
| INCORPORATED BY REFERENCE | ||||||||
EXHIBIT NUMBER |
| DESCRIPTION |
| FILED WITH THIS FORM 10-K |
| FILING DATE WITH SEC |
| FORM |
| EXH # |
| HYPERLINK TO FILINGS |
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1(i) |
| Restated Certificate of Formation of the Company, dated and filed July 27, 2015 |
|
|
| 3/30/2016 |
| 10-K |
| 3.i. |
| Restated Certificate of Formation of the Company, dated and filed July 27, 2015. |
3.1(ii) |
| Bylaws of the Company, as amended July 10, 2015 |
|
|
| 3/30/2016 |
| 10-K |
| 3.ii. |
| |
4.1(i) |
| Specimen Common Stock Certificate |
|
|
| 8/8/1996 |
| SB-2 |
| 4.1 |
| |
4.1(ii) |
| Form of Underwriter’s Warrant |
|
|
| 8/8/1996 |
| SB-2 |
| 4.2 |
| |
10(i) |
| Securities Purchase Agreement |
|
|
| 12/30/2020 |
| 8-K |
| 2.1 |
| https://www.sec.gov/Archives/edgar/data/1014763/000165495420014016/amar_ex2-1.htm |
10(ii) |
| Form 8-K Reporting Closing of Securities Purchase Agreement |
|
|
| 4/21/2021 |
| 8-K |
|
|
| https://www.sec.gov/Archives/edgar/data/1014763/000165495421004461/amar_8k.htm |
10(iii) |
| Sales and Marketing Agreement + |
| X |
|
|
|
|
|
|
|
|
10(iv) |
| Asset Purchase Agreement |
|
|
| 11/22/2021 |
| 8-K |
| 2.1 |
| https://www.sec.gov/Archives/edgar/data/1014763/000165495421012513/aimd_ex21.htm |
| 59 |
10(v) |
| Form 8-K Reporting Closing of Asset Purchase Agreement |
|
|
| 2/3/2022 |
| 8-K |
|
|
| https://www.sec.gov/ix?doc=/Archives/edgar/data/0001014763/000165495422001066/aimd_8k.htm |
10(vi) |
| Oral Antiviral Therapy Development and Sales Agreement between the Company and InnoPharmax, Inc. dated December 7, 2021 |
| X |
|
|
|
|
|
|
|
|
10(vii) |
| Form 8-K Reporting Oral Antiviral Therapy Development and Sales Agreement between the Company and InnoPharmax, Inc. dated December 7, 2021 |
|
|
| 12/8/2021 |
|
|
|
|
| https://www.sec.gov/ix?doc=/Archives/edgar/data/1014763/000165495421012947/aimd_8k.htm |
10(viii) |
| 2018 Employee Stock Option Plan * |
|
|
| 4/16/2019 |
| 10-K |
| 10.72 |
| |
10.1(ix) |
| 2018 Stock Option Agreement – Employee Plan * |
|
|
| 4/16/2019 |
| 10-K |
| 10.75 |
| |
10(x) |
| 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 |
10(xi) |
| 2018 Stock Option Agreement – Nonqualified Stock Option * |
|
|
| 4/16/2019 |
| 10-K |
| 10.74 |
| |
10(xii) |
| 2021 Employee Stock Purchase Plan * |
| X |
|
|
|
|
|
|
|
|
10(xiii) |
| 2021 Stock Incentive Plan * |
| X |
|
|
|
|
|
|
|
|
10(xiv) |
| Non-Employee Director Compensation Policy * |
| X |
|
|
|
|
|
|
|
|
14.1 |
| Code of Ethics |
|
|
| 8/26/2021 |
| 8-K |
| 5.05 |
| https://www.sec.gov/Archives/edgar/data/1014763/000165495421009457/amar_ex141.htm |
23.1 |
| Consent of PWR CPA LLP, independent registered accounting firm |
| X |
| 3/18/2022 |
| 10-K |
| 23.1 |
|
|
31.1 |
| Certification of Chief Executive Officer Pursuant to Rule 13a-15(e) or Rule 15d-15(e) |
| X |
| 3/18/2022 |
| 10-K |
| 31.1 |
|
|
32.1 |
| 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 |
| X |
| 3/18/2022 |
| 10-K |
| 32.1 |
|
|
99(i) |
| Exhibit List of Company Patents |
| X |
|
|
|
|
|
|
|
|
99(ii) |
| Charter of the Audit Committee of the Board |
|
|
|
|
| 10-Q |
| 99.3 |
| https://www.sec.gov/Archives/edgar/data/0001014763/000165495421012154/aimd_ex993.htm |
101.INS |
| XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the XBRL document. |
| X |
|
|
|
|
|
|
|
|
| 60 |
101.SCH |
| XBRL Taxonomy Extension Schema Document |
| X |
|
|
|
|
|
|
|
|
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase |
| X |
|
|
|
|
|
|
|
|
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase |
| X |
|
|
|
|
|
|
|
|
101.LAB |
| XBRL Taxonomy Extension Label Linkbase |
| X |
|
|
|
|
|
|
|
|
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase |
| X |
|
|
|
|
|
|
|
|
104.1 |
| Cover Page Interactive Data File |
| X |
|
|
|
|
|
|
|
|
The exhibits listed in the Exhibit Index are filed or incorporated by reference as part of this filing.
+ Schedules (as similar attachments) have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K.
* Indicates a management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY.
None.
| 61 |
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. | |||
Date: March 21, 2022 | By: | /s/ Chun-Hsien Tsai | |
|
| Chun-Hsien Tsai, Chairman of the Board, | |
| Chief Executive Officer and 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 |
| March 21, 2022 |
Chun-Hsien Tsai |
| Chief Executive Officer |
|
|
|
|
|
| |
/s/ Hui-Lan Wu |
| Chief Financial Officer |
| March 21, 2022 |
Hui-Lan Wu |
|
|
|
|
|
|
|
|
|
/s/ Wen-Han Chang |
| Director |
| March 21, 2022 |
Wen-Han Chang |
|
|
|
|
|
|
|
|
|
/s/ Yao-Chung Chiang |
| Director |
| March 21, 2022 |
Yao-Chung Chiang |
|
|
|
|
|
|
|
|
|
/s/ Hsiu-Chen Chiu |
| Director |
| March 21, 2022 |
Hsiu-Chen Chiu |
|
|
|
|
|
|
|
|
|
/s/ Ting-Chuan Lee |
| Director |
| March 21, 2022 |
Ting-Chuan Lee |
|
|
|
|
|
|
|
|
|
/s/ Chun-Jung Tsai |
| Director |
| March 21, 2022 |
Chun-Jung Tsai |
|
|
|
|
|
|
|
|
|
/s/ Chung-Yi Tsai |
| Director |
| March 21, 2022 |
Chung-Yi Tsai |
|
|
|
|
| 62 |
Ainos, Inc.
Financial Statements
Years ended December 31, 2021 and 2020
Contents
| F-1 |
| |
|
|
| |
| F-2 |
| |
|
|
| |
| F-3 |
| |
|
|
|
|
| F-4 |
| |
|
|
| |
| F-5 |
| |
|
|
| |
| F-6 |
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Ainos, Inc. (formerly Amarillo Bioscience, Inc.)
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Ainos, Inc. (formerly Amarillo Biosciences, Inc.) (the Company) as of December 31, 2021 and 2020, and the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, 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 2021 raise substantial doubt about its ability to continue as a going concern. These 2020 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 negative working capital at December 31, 2021, 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.
| F-1 |
| Table of Contents |
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. We determined that there are no critical audit matters.
/s/
PCAOB #
We have served as the Company’s auditor since 2020.
Houston, Texas
March 18, 2022
| F-2 |
| Table of Contents |
Ainos, Inc.
Balance Sheets
|
| December 31, |
| |||||
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| 2021 |
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| 2020 |
| ||
Assets |
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| ||
Current assets: |
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| ||
Cash and cash equivalents |
| $ |
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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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| $ |
| ||
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Liabilities and Stockholders’ Equity (Deficit) |
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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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Operating lease liabilities- non-current |
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Total liabilities |
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Stockholders’ Equity (Deficit) |
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Preferred stock, $ |
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Authorized shares – |
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Issued and outstanding shares – |
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Common stock, $ |
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Authorized shares – |
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Issued and outstanding shares – |
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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 (deficit) |
|
|
|
|
| ( | ) | |
Total liabilities and stockholders’ equity (deficit) |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these financial statements.
| F-3 |
| Table of Contents |
Ainos, Inc.
Statements of Operations
|
| Years ended December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Revenues |
| $ |
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| $ |
| ||
Cost of revenues |
|
| ( | ) |
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| ( | ) |
Gross margin |
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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 |
|
| ( | ) |
|
| ( | ) |
Other losses |
|
| ( | ) |
|
| ( | ) |
Total non-operating income (expenses), net |
|
| ( | ) |
|
| ( | ) |
Net loss |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
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|
|
Basic and diluted net loss per average share available to common shareholders |
| $ | ( | ) |
| $ | ( | ) |
|
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|
|
|
|
|
|
Weighted average common shares outstanding – basic and diluted |
|
|
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|
| ||
The accompanying notes are an integral part of these financial statements.
| F-4 |
| Table of Contents |
Ainos, Inc.
Statements of Stockholders’ Equity (Deficit)
Years Ended December 31, 2021 and 2020
|
| Preferred Stock |
|
| Common Stock |
|
| Additional Paid in |
|
| Accumulated |
|
| Translation |
|
| Total Stockholders’ |
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital | Deficit | Adjustment | Equity (Deficit) |
| ||||||||||||||
Balance December 31, 2020 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||||
Conversion of convertible notes into common stock |
|
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| ||||||
Issuance of common stock for intangible assets |
|
| - |
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| |||||||
Issuance of stock for compensation |
|
| - |
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| |||||||
Issuance of stock for options |
|
| - |
|
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|
|
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|
|
|
|
|
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| |||||||
Share-based compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | ||||
Acquisition of intangible assets and equipment |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | ||||
Net Loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||
Translation adjustment |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance December 31, 2021 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| ||||||
Balance December 31, 2019 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | (156.682 | ) | |||||
Issuance of stock for compensation |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Issuance of stock for cash |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Share-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
|
| ||
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| ( | ) |
|
| - |
|
|
| ( | ) |
Balance at December 31, 2020 |
|
| - |
|
| $ | - |
|
|
| 42,066,172 |
|
| $ | 420,662 |
|
| $ | 4,961,315 |
|
| $ | (6,220,255 | ) |
| $ | - |
|
| $ | (838,278 | ) |
The accompanying notes are an integral part of these financial statements.
| F-5 |
| Table of Contents |
Ainos, Inc.
Statements of Cash Flows
|
| Year Ended December 31 |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash flows from Operating Activities : |
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
| ||
Share-based compensation expense |
|
| ( | ) |
|
|
| |
Stock issued for compensation |
|
|
|
|
|
| ||
Loss on disposal of property, plant and equipment |
|
|
|
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Inventory |
|
|
|
|
|
| ||
Prepaid expense and other current assets |
|
| (415,054 | ) |
|
| (19,020 | ) |
Accounts payable and accrued expenses |
|
|
|
|
|
| ||
Contract liabilities |
|
|
|
|
|
| ||
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
Cash flows from Investing Activities : |
|
|
|
|
|
|
|
|
Patent purchases |
|
|
|
|
| (7,243 | ) | |
Acquisition of property, plant and equipment |
|
| ( | ) |
|
|
| |
Increase in refundable deposits and others |
|
| ( | ) |
|
|
| |
Net cash used in investing activities |
|
| ( | ) |
|
| ( | ) |
Cash flows from Financing Activities : |
|
|
|
|
|
|
|
|
Proceeds from convertible note payable – related party |
|
|
|
|
|
| ||
Payments of other note payable |
|
| ( | ) |
|
|
| |
Proceeds from exercise of stock options |
|
|
|
|
|
| ||
Payments of lease liabilities |
|
| ( | ) |
|
|
| |
Net cash provided by financing activities |
|
|
|
|
|
| ||
Net change in cash |
|
|
|
|
| ( | ) | |
Effect from foreign currency exchange |
|
|
|
|
|
| ||
Cash and cash equivalents at beginning of period |
|
|
|
|
|
| ||
Cash and cash equivalents at end of period |
| $ |
|
| $ | 22,245 |
| |
Supplemental Cash Flow Information |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ |
|
| $ |
| ||
Supplemental disclosures of noncash financing and investing activities: |
|
|
|
|
|
|
|
|
Stock issued for subscription |
| $ |
|
| $ |
| ||
Stock issued for patent cost and accrued liabilities |
| $ |
|
| $ |
| ||
Conversion of convertible notes and accrued interest into common stock |
| $ |
|
| $ |
| ||
ROU leased assets |
| $ |
|
| $ |
| ||
Acquisition of intangible assets and equipment |
| $ |
|
|
|
| ||
Decrease of additional paid in capital |
| $ |
|
|
|
| ||
Issuance of common stock and increase of current liability |
| $ |
|
|
|
| ||
The accompanying notes are an integral part of these financial statements.
| F-6 |
| Table of Contents |
Ainos, Inc.
Notes to Financial Statements
December 31, 2021 and 2020
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.
Basis of Accounting
The basis is United States generally accepted accounting policies (“U.S. GAAP”).
Going Concern
These financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has generated minimal revenue and has suffered recurring losses totaling $
In order to obtain the necessary capital to sustain operations, management’s plans include, among other things, the possibility of pursuing new equity sales and/or making additional debt borrowings, There can be no assurances, however, that the Company will be successful in obtaining additional financing, or that such financing will be available on favorable term, if at all. Obtaining commercial loans, assuming those loans would be available, will increase the Company’s liabilities and future cash commitments. If the Company is unable to obtain financing in the amounts and on terms deemed acceptable, the business and future success may be adversely affected and the Company may cease operations. These factors raise substantial doubt regarding our ability to continue as a going concern. The accompanying financial statements do not include any adjustments relative to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.
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.
| F-7 |
| Table of Contents |
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.
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, 2021 or 2020.
| F-8 |
| Table of Contents |
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. Accordingly, 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.
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. 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, 2021, 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.
| F-9 |
| Table of Contents |
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
There have been no new accounting pronouncements issued or adopted during the year ended December 31, 2021 that are of significance to us.
2. Property and Equipment, net
Property and equipment are stated at cost less accumulated depreciation and consist of the following at December 31, 2021 and 2020:
|
| December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Machinery and equipment |
| $ |
|
| $ |
| ||
Furniture and fixture |
|
|
|
|
|
| ||
Construction in process |
|
|
|
|
|
| ||
Total cost |
|
|
|
|
|
| ||
Less: accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Property and equipment, net |
| $ |
|
| $ |
| ||
Depreciation expense for the year ended December 31, 2021 and 2020 was $
Net property and equipment were $
3. Intangible assets, net
Intangible assets are stated at cost less accumulated amortization and consist of the following at December 31, 2021 and 2020:
|
| December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Patents and technology |
| $ |
|
| $ |
| ||
Less: accumulated amortization |
|
| ( | ) |
|
| ( | ) |
Patents and technology, net |
| $ |
|
| $ |
| ||
Amortization expense amounted to $
Patents were $
| F-10 |
| Table of Contents |
Estimated future amortization expense is as follows:
2022 |
|
|
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 |
|
|
| |
Thereafter |
|
|
| |
Total expense |
| $ |
|
4. Convertible Notes Payable and Other Notes Payable All convertible and other notes payable were issued either as a result of financing or deferred compensation provided by executives of the Company. As of December 31, 2021 and December 31, 2020, convertible and other notes payable totaled $
| F-11 |
| Table of Contents |
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 | 1/1/2021 | Addition | Payment | 12/31/2021 | Accrued Interest |
Convertible notes payable: | ||||||||||||
Stephen Chen | #1.16 | NA | $ | working capital | ||||||||
Stephen Chen | #2.16 | NA | $ | working capital | ||||||||
Stephen Chen | #3.19 | $ | salary | ( | 0 | |||||||
Stephen Chen | #4.19 | $ | working capital | ( | 0 | |||||||
Stephen Chen | #6.20 | $ | salary | ( | 0 | |||||||
Stephen Chen | #7.20 | $ | working capital | ( | 0 | |||||||
Stephen Chen | #10.21 | $ | salary | ( | 0 | |||||||
Stephen Chen | #11.21 | $ | salary | ( | 0 | |||||||
( | ||||||||||||
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 | $ 0.20 | 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 | ||||||||
0 | 0 | |||||||||||
Total convertible notes payable- related parties | ( | |||||||||||
i2 China | #5.19 | $ | consulting fee | ( | 0 | 0 | ||||||
i2 China | #8a.20 | $ | consulting fee | ( | 0 | |||||||
i2 China | #11.21 | $ | consulting fee | ( | 0 | 0 | ||||||
Total convertible notes payable- non-related party | ( | 0 | 0 | |||||||||
Total Convertible notes payable | ( | |||||||||||
Notes payable: | ||||||||||||
Stephen Chen | #9.21 | NA | working capital | ( | ||||||||
Notes payable-related party | ( | |||||||||||
i2 China | #8b.20 | NA | consulting fee | |||||||||
Notes payable- non-related party | 0 | 0 | ||||||||||
Total notes payable | ( | |||||||||||
Total convertible and non-convertible | ( | |||||||||||
| F-12 |
| Table of Contents |
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.
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 $
The total interest expense for 2021 and 2020 totaled $
5. Related Party Transactions
The following is a summary of related party transactions in 2021 and 2020 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, 2021 and 2020, and in which any of our directors, executive officers or holders of more than
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| F-13 |
| Table of Contents |
Purchase of intangible assets and equipment
Securities Purchase Agreement
On April 15, 2021, we consummated the Securities Purchase Agreement with Ainos KY. Pursuant to the Securities Purchase Agreement, we issued
Asset Purchase Agreement
On November 18, 2021, we entered into an Asset Purchase Agreement as modified by an Amended and Restated Asset Purchase Agreement dated as of January 29, 2022 (the “Asset Purchase Agreement”) with Ainos KY. We closed the transaction on January 30, 2022. See Notes 2, 3, and 12 for a discussion of the transaction.
Related Party Financing
All convertible and other notes payable were issued either as a result of financing or deferred compensation provided by shareholders. As of December 31, 2021 and 2020, the convertible notes payable and non-convertible notes payable for related parties totaled $
Other transactions
COVID-19 Test Kits Sales and Marketing Agreement with Ainos KY
On June 14, 2021, we entered into an exclusive agreement with Ainos KY to serve as the master sales and marketing agent for the Ainos COVID-19 antigen rapid test kit and COVID-19 nucleic acid test kits which are manufactured by TCNT. On June 7, 2021, the TFDA issued an 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. As TCNT secures regulatory authorizations from foreign regulatory agencies, we expect to partner with regional distributors to promote sales in other strategic markets. We purchased $
Ainos – TCNT Product Development
On August 1, 2021, we entered into a five-year product development agreement with TCNT. Pursuant to the agreement both parties will endeavor to work together to develop pharmaceutical, medical and preventive medicine related products, with the Company being the exclusive sales agent. We will bear the cost associated with product development and TCNT will make accessible its personnel and facilities. Both parties shall each jointly own the intellectual property rights of all research results of the co-development collaboration. As a result, we incurred product development expenses totaling $
COVID-19 Antigen Rapid Test Kits Sales
We sold Covid-19 antigen rapid test kits to ASE Technology Holding totaling $
6. Common Stock
We have
| F-14 |
| Table of Contents |
From January 1, 2021 to December 31, 2021, we granted common stock to the following:
| · | On April 7, 2021, we issued |
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| · | On April 7, 2021, we issued |
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| · | On April 7, 2021, we issued |
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| · | On April 7, 2021, we issued |
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| · | On April 15, 2021, we consummated the Securities Purchase Agreement and issued |
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| · | On June 30, 2021, we issued |
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| · | On June 30, 2021, we issued |
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| · | On June 30, 2021, we issued |
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| · | On June 30, 2021, we issued |
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| · | On July 30, 2021, we issued |
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| · | On July 30, 2021, we issued |
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| · | On December 27, 2021, we issued |
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| · | On December 27, 2021, we issued |
| F-15 |
| Table of Contents |
| · | On December 27, 2021, we issued |
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| · | On December 27, 2021, we issued |
We did not pay any dividends to its common stock shareholders in 2021 and has no plans to do so in the immediate future.
7. Preferred Stock
We have
No shares of preferred stock were outstanding as of December 31, 2021 and 2020 and none are outstanding as of the date of this report.
8. Stock Option and Stock Plans
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. As of December 31, 2021, options to acquire
2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan (the “2018-NQSOP”)
On September 26, 2018, the Board adopted the Company 2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan (the “2018-NQSOP”), formerly referred to as the “Amarillo Biosciences, Inc., 2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan” in prior filings. The 2018-NQSOP provides for the grant of nonqualified incentive stock options to employees. The 2018-NQSOP is administered by the Board or by the Compensation Committee as constituted from time to time. The maximum number of shares of common stock which may be issued under the 2018-NQSOP is
| F-16 |
| Table of Contents |
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. As of December 31, 2021, options to acquire
Equity Compensation Plans Information:
Stock Plans 1 |
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2018 Employee Stock Option Plan3, 4 |
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2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan3 |
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____________
1 The Board of Directors has approved all stock, stock option and stock warrant issuances.
2 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.
3 Details of the option plans are also disclosed in Financial Statements footnote 8, Stock Options and Stock Plans.
4 On September 26, 2019, all qualified options under the 2018-ESOP became non-qualified options since the 2018-ESOP was not ratified by the Company’s shareholders within one year of adoption.
5 3,844,600 non-qualified options were forfeited as of July 15, 2021, while an additional 500,000 non-qualified options were reissued on August 1, 2021.
A summary of option activity for the years ended December 31, 2020 and December 31, 2021 are presented below.
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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 –
____________
2 See footnote 4 above.
| F-17 |
| Table of Contents |
As of December 31, 2021, there is $
2021 Employee Stock Purchase Plan
On September 28, 2021, the Board 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
2021 Stock Incentive Plan
On September 28, 2021, the Board 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.
9. Warrants
As of December 31, 2021, there is only one warrant certificate outstanding between the Company and i2China Management Group, LLC, deemed for the purposes of related party transactions to be a related party of the company from August 1, 2021 to December 1, 2021, effective from November 25, 2020 until November 25, 2025. The warrant entitles the holder to purchase
No warrants were exercised in 2020 or 2021.
| F-18 |
| Table of Contents |
10. Income Taxes
The Company accounts for income taxes under FASB Accounting Standard Codification ASC 740, Income Taxes. ASC 740 requires use of the liability method. ASC 740 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized.
Income tax expense (benefit) attributable to income from continuing operations differed from the amounts computed by applying the U.S. Federal income tax of
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The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2021 and 2020, are presented below:
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At December 31, 2021, we estimate net operating loss carryforwards of approximately $
As of December 31, 2021, the Company had open tax years of 2020, 2019 and 2018 which are subject to examination by tax authorities.
11. 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.
| F-19 |
| Table of Contents |
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. The office space is
We have several construction work related contracts to build out our office and lab facilities in Taiwan. As of December 31, 2021, the total contract amount and outstanding contract amount for construction in progress were approximately US$
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
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 additional years on the same terms and conditions upon mutual agreement. Under the LL Agreement, Mr. Lin will receive a monthly salary of $
| F-20 |
| Table of Contents |
We previously hired Dr. Stephen T. Chen under an employment contract for the period January 1, 2018 through December 31, 2020 (“Prior Chen Contract”). On January 1, 2021 an employment agreement for a 3-month term was executed reflecting the same material terms and conditions of the Prior Chen Contract which includes (i) a $
We previously hired Mr. Cohen under an employment contract for the period January 1, 2018 through December 31, 2020 (“Prior Cohen Contract”). On January 1, 2021 an employment agreement for a 3-month term was executed reflecting the same material terms and conditions of the Prior Cohen Contract which includes, (i) a $
12. Subsequent Events
Asset Purchase Agreement
Ainos KY and the Company entered into an Asset Purchase Agreement dated as of November 18, 2021 as modified by an Amended and Restated Asset Purchase Agreement dated as of January 29, 2022 (the “Asset Purchase Agreement”). Pursuant to the Asset Purchase Agreement, the Company acquired certain intellectual property assets (the “IP Assets”) and certain manufacturing, testing, and office equipment (the “Equipment”) for a total purchase price of $
Pursuant to the Asset Purchase Agreement, the Company agreed to hire certain employees of Ainos KY (the “Employees”) 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.
As payment of the purchase price, we issued to Ainos KY a Convertible Promissory Note in the principal amount of $
The principal sum of the Convertible Note is payable in cash on
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 with Ainos KY dated March 17, 2022. Pursuant to the Agreement, the due dates for certain convertible notes enumerated as #12.21 to #24.21 issued by the Company to Ainos KY was extended to February 28, 2023. As of December 31, 2021 the total unpaid principal amount of $
| F-21 |
EXHIBIT 10(iii)
SALES AND MARKETING AGREEMENT
THIS SALES AND MARKETING AGREEMENT (“Agreement”) is made on June 14, 2021 (“Effective Date”) by and between Ainos, Inc., a Cayman Islands corporation (“Ainos KY”), and Ainos, Inc., a Texas corporation (“Ainos USA”), sometimes referred to herein, collectively as the “Parties” and individually as a “Party”.
RECITALS
A. Taiwan Carbon Nano Technology Corporation., a Republic of China company (“TCNT”), developed a SARS-CoV-2 Antigen Rapid Test Kit (“Covid-19 Test Kit”) and is in the process of developing a Loop-mediated isothermal amplification polymerase chain reaction Test (“LAMP PCR Test”) (collectively referred to herein as the “Products”);
B. On or about June 7, 2021, the Taiwan Food and Drug Administration (“TFDA”) granted emergency use authorization for the Covid-19 Test Kit that will be sold and marketed under the “Ainos” brand initially in the Republic of China (“Taiwan”) and, once regulatory authorizations are secured from foreign regulatory agencies, in other global markets (“Other Territories”);
C. TCNT and/or Ainos KY applied for authorization of the LAMP PCR Test which application is pending;
D. TNCT and Ainos KY entered into that certain Covid-19 Rapid Screening Re-agent Kit and Nucleic Acid Testing Cooperative Development and Exclusive Sales Agency Contract effective May 28, 2020 to May 27, 2025 (“Test Kit Contract Dates”) and as further described and shown in Exhibit A, attached hereto and incorporated herein by reference (“Test Kit Contract”).
B. TNCT is a majority shareholder and corporate parent of Ainos KY; and Ainos KY is a majority shareholder of Ainos USA.
C. The Parties desire to set forth their agreement to effectuate the Test Kit Contract, and other related matters, all in accordance with the terms and conditions hereafter set forth.
AGREEMENT
In consideration of the mutual promises and covenants contained in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
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| 1. | Exclusive Sales and Marketing Appointment. Ainos KY hereby appoints Ainos USA as the exclusive sales and marketing agent for the Products in Taiwan and Other Territories. |
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| 2. | Assignment and Assumption. Ainos KY hereby assigns all of its right, title and interest in the revenues derived from the sales of the Products to Ainos USA, and Ainos USA hereby assumes all of the duties, responsibilities and undertakings of Ainos KY for sales and marketing of the Products under the Test Kit Contract. |
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| 3. | Ainos USA Implementation. Ainos USA will be responsible for providing sufficient sales, marketing, and logistical personnel necessary to implement its duties under this Agreement as follows: |
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| a. | Products Sales in Taiwan. The Taiwan Branch Office of Ainos USA is designated for the sales and marketing of the Product in Taiwan; and |
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| b. | Products Sales in Other Territories. Ainos USA will designate third-party distributors of the Products in the Other Territories. |
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| 4. | Allocation of Revenues and Costs. The sales revenue and costs of goods sold, inclusive of personnel, indirect and direct costs related to the sales and marketing of the Product shall be accounted as follows: |
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| a. | Products Sales in Taiwan. The Taiwan Branch Office of Ainos USA shall be responsible for accounting for all revenues and costs related to the sales and marketing of the Product in Taiwan, including research and development costs; and |
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| b. | Products Sales in Other Territories. Ainos USA will designate third-party distributors of the Products in the Other Territories and any revenues and costs will be reflected in the accounting records of Ainos USA. |
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| c. | Revenue Share. The Parties acknowledge that under the Test Kit Contract, TCNT and Ainos KY is entitled to 40% and 60% profit share, respectively, of sales profits of the Product. Pursuant to this Agreement, any profit share granted to Ainos KY under the Test Kit Contract are hereby assigned to Ainos USA. |
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| 5. | Reservation of Rights. The Parties acknowledge that under the Test Kit Contract TCNT and Ainos KY reserved to themselves certain rights and this Agreement is not intended as an assignment or assumption of any such rights. Without limiting the generality of the foregoing the following is a summary of reserved rights, with parenthetical references to the relevant articles and sections under the Test Kit Contract: |
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| a. | Ainos KY shall be the sole owner of the equipment used for the production of the Products (Article 2, Section 1); |
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| b. | Any technical and intellectual property rights held by TCNT and Ainos KY prior to the Test Kit Contract Dates are reserved by the respective parties (Article 4, Section 1); |
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| c. | Any technical and intellectual property rights created during the Test Kit Contract Dates and made pursuant to such agreement shall be jointly owned, 50%/50%, by TCNT and Ainos KY respectively (Article 4, Section 2); |
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| d. | All personnel of TCNT and Ainos KY employed or engaged to further the Test Kit Contract shall assign any technical and intellectual property rights created under the Test Kit Contract (Article 4, Section 3); |
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| e. | Ainos KY is granted the right to register patents and other intellectual property rights arising under the Test Kit Contract provided that it bears all related expenses for the application, registration, defense and maintenance of such registrations and rights (Article 5); and |
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| f. | All books, equipment, instruments, software and hardware purchased in the execution of the Test Kit Contract shall be owned by Ainos KY (Article 6). |
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| 6. | Compliance with Test Kit Contract. |
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| 6.1 | Ainos KY shall comply, to the extent of its scope of responsibilities hereunder, with the terms and conditions of the Test Kit Contract. Without limiting the generality of the foregoing, specifically: |
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| a. | Providing production equipment and personnel within TCNT’s facilities (Article 2, Section 1); |
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| b. | Underwriting research and development costs (Article 2, Section 2); |
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| c. | Responsibility for taxes and fees in accordance with the Test Kit Contract and its scope of activities performed thereunder (Article 3); |
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| d. | Maintaining confidentiality obligations (Article 7); |
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| e. | Compliance with laws, regulations, intellectual property rights (Article 8); |
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| f. | Assignment of obligations (Article 9); |
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| g. | Termination or cancellation terms (Article 10); |
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| h. | Compensation for damages (Article 11); |
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| i. | Governing law (Article 12); and |
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| j. | Dispute resolution (Article 13). |
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| 6.2 | Ainos USA shall comply, to the extent of its scope of responsibilities hereunder, with the terms and conditions of the Test Kit Contract. Without limiting the generality of the foregoing, specifically: |
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| a. | Responsibility for taxes and fees in accordance with the Test Kit Contract and its scope of activities performed thereunder (Article 3); |
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| b. | Maintaining confidentiality obligations (Article 7); |
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| c. | Compliance with laws, regulations, intellectual property rights (Article 8); |
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| d. | Assignment of obligations (Article 9); |
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| e. | Termination or cancellation terms (Article 10); |
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| f. | Compensation for damages (Article 11); |
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| g. | Governing law (Article 12); and |
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| h. | Dispute resolution (Article 13). |
| 7. | Indemnification. Each Party (as Indemnitor) agrees to indemnify and defend the other Party (as Indemnitee), and its respective successors and assigns, against any and all claims, actions, or demands, costs or expense, including reasonable attorney's fees, arising out of or in any way connected to any activities of the Indemnitor, its personnel, agents, representatives, successors, or assigns, arising out of its performance under this Agreement, including, without limitation, any claims resulting from the negligence or willful misconduct of the Indemnitor, as the case may be. |
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| 8. | Representations and Warranties. Each Party represents and warrants to the other Parties as follows: (a) that it has the capacity to enter into and perform this Agreement; (b) that the execution, delivery and performance of this Agreement will not violate any order of any court, any organizational document applicable to such Party or any other instrument to which such Party is a party, or be in conflict with or result in a breach of or constitute a default under any other agreement or instrument; (c) to the best knowledge of each Party, there is no law rule or regulation, or any judgment, decree or court order or order of a governmental authority that would be contravened by the execution, delivery, performance or enforcement of this Agreement; and (d) this Agreement has been duly executed and delivered by it and is valid and binding upon it and enforceable against it in accordance with its terms, subject to the limitations of applicable bankruptcy, insolvency, moratorium and other similar laws affecting generally the rights and remedies of creditors and secured parties. |
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| 9. | Entire Agreement. This Agreement represents the entire agreement between the Parties regarding the subject matter thereof. Any amendments or modifications to this Agreement shall only be effective in a writing executed by the Parties. Exhibit A is incorporated herein by this reference. |
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth hereinabove.
| AINOS KY: Ainos, Inc., a Cayman Islands corporation | AINOS USA: Ainos, Inc., a Texas corporation | ||||
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| By: | /S/ Chun-Hsien Tsai | By: | /S/ John Junyong Lee | ||
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| Chun-Hsien Tsai President | John Junyong Lee, Esq. Corporate Secretary, Chief Legal Counsel | |||
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EXHIBIT A
Covid-19 Rapid Screening Re-agent Kit and Nucleic Acid Testing Cooperative Development and Exclusive Sales Agency Contract effective May 28, 2020 to May 27, 2025
(ATTACHED)
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EXHIBIT 10 (vi)
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Appendix 4
This document is the English translation of the Chinese version. In case of discrepancies between Chinese and English versions, the Chinese version shall prevail.
Oral Antiviral Therapy
Development and Sales Agreement
Party A: Ainos Inc. (O.T.C.: AIMD)
Address: 8880 Rio San Diego Drive, Suite 800 San Diego, CA 92108, U.S.A.
Party B: INNOPHARMAX (4172. T.W.O.)
Address: 9F., No.22, Ln. 478, Ruiguang Rd., Neihu Dist., Taipei City 11492, Taiwan (R.O.C.)
| I. | SCOPE AND PURPOSE |
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| 1. | Party A and Parity B agree to integrate existing technologies and drugs as combined therapy to cooperate on the following activities: conducting preclinical research, conducting clinical trials for regulatory approvals; applying for regulatory approvals; manufacturing of products; cross-licensing and, under the principle of profit-sharing, developing disease indications caused by viral infection, including clinical trials for COVID-19 treatment, and obtaining regulatory approval in various countries around the world, and marketing the product upon product approval. |
| II. | DESIGNATED DRUGS UNDER COOPERATION |
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| 1. | Party A's Product: VELDONA, an orally administered, safe, low-dose interferon drug that enhances the human body's immune system. Detailed specification is provided in Annex I. |
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| 2. | Party B's Product: GemOral, an orally administered, powerful treatment for all forms of indications caused by viral infections, including COVID-19. Detailed specification is provided in Annex II. |
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| III. | COOPERATION |
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| 1. | As shown in Article 2, the drugs provided by both parties to the cooperative project shall be combined and used in clinical trials for inspection and registration initiated by Party A for application verification. Annex III includes the drug dosage and clinical implementation methods evaluated and discussed by both parties. |
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| 2. | Preclinical Research: Conduct animal trials and academic clinical trials with 20-30 positive cases to confirm the safety and efficacy of the combined therapy. The parties will equally share the costs. |
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| 3. | If the preclinical animal trials demonstrate significant results and the academic clinical trial confirms safety and efficacy, Party B agrees that Party A is responsible for conducting clinical trials to obtain regulatory approvals or emergency use authorization. The parties agree that Party A will fully fund the costs, and Party B is obligated to provide technical support and obtain regulatory approvals. |
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| 4. | Party A will be responsible for the marketing activities under this Cooperation when the combined therapy is approved. |
| IV. | PROFIT-SHARING |
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| 1. | Profit from product sales: Party A and Part B will share 50% of profits, calculated as the net sales deducting direct manufacturing costs, packaging costs, shipping costs, insurance, customs duties, tariffs, excise tax, value-added tax, each side will get 50%. In principle, profits are calculated once a month and paid by cash remittance in the following month. |
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| Definitions: |
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| 1) | Net Sales refers to revenues deducting returns and discounts; |
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| 2) | Manufacturing costs include the cost of raw materials, the cost of transportation of raw materials, and the cost of manufacturing and packaging by contract manufacturers; |
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| 3) | Shipping costs refer to the cost of shipping the drugs from the manufacturing facilities to one of the designated countries or warehouses; |
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| 4) | Insurance cost mainly refers to the liability insurance |
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| 2. | Other profits: Regional licensing is allowed with the written consent of both parties. In the event of successful licensing, the parties, in principle, will equally share the license fee and the subsequent milestone payments and royalties. If one party completes a licensing, the parties agree to allocate 5% of upfront payment to the party who completes the licensing as a broker fee. |
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| 3. | With the written consent of both parties, the parties may adjust the profit-sharing ratio, definition, or formula according to the actual operating conditions after the drug is commercially launched. |
| V. | MANUFACTURING AND RESPONSIBILITY |
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| 1. | Clinical medicine: Party A ships finished goods to Party B's own or designed G.M.P. (or Q.M.S.) factory for combined packaging. Party B will manage and guarantee the quality of the packaged medicine. |
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| 2. | Post-market medicine: Since the production of post-market medicine may occur in various locations and specifications may change, the parties will confirm the details and sign manufacturing and quality control agreements before the production for drug inspection and registration. |
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| In principle, Party A is responsible for global sales and marketing, shipping and delivery, payment collection, insurance, and after-sales service. Party B is responsible for quality control of R&D, disease indication development, and manufacturing. |
| VI. | ACCOUNTING AND AUDIT |
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| 1. | Both parties agree to comply with the accounting standards. Each year, both parties may negotiate that either party will appoint an accountant to complete the accounting review and reporting work for this Cooperation. |
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| VII. | BRANDING And Labelling |
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| 1. | Product of this Cooperation shall be co-branded by the parties or by the brand name jointly operated by both parties. |
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| 2. | Without the written consent of one of the parties, neither party shall conduct any marketing in the name of the other party or use any of the contents of this Cooperation or infringe the other party's rights and others. |
| VIII. | TECHNOLOGY AND PATENT LICENSING |
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| 1. | The parties agree to authorize the relevant technology that the other party should use in this Cooperation free of charge within the scope of this Cooperation, but the authorized use scope is limited to the scope of the cooperation purpose and cannot be used for other purposes. |
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| 2. | Both parties shall ensure that their technologies are owned by themselves or have not infringed on the rights and interests of others. If there are any legal issues, Party A and Party B shall deal with them on their own and have nothing to do with the other party. |
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| 3. | If either party damages the other party's rights, it shall try its best to eliminate and compensate the injured party for all losses. |
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| 4. | Both parties shall jointly own any new patent from this Cooperation, and both parties shall bear the application and subsequent maintenance costs. |
| IX. | NON-COMPETE |
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| 1. | Without the other party's written permission, the parties shall not separately develop the same or similar drugs in this Cooperation within the scope of this contract for the benefit of the third party and perform any form of authorization or marketing activities for the indications caused by the virus infection. |
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| 2. | Both parties have the first priority to negotiate the purchase or transfer of this cooperation content with the other party on the same terms. |
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| X. | CONFIDENTIALITY |
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| (1) | Definition of confidential information |
Confidential information is non-public information disclosed by either party to the other party. Confidential information includes but is not limited to:
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| 1. | All technical and operational information of Party A and Party B |
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| 2. | Financial information and financial statements of Party A and Party B |
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| 3. | Party A and Party B's business policies or operating information |
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| 4. | Contract information between Party A and Party B and related vendors |
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| 5. | The information itself or its content has been indicated or can be reasonably judged to be confidential or trade secret |
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| 6. | Information disclosed by a third party, but any party has the obligation of confidentiality |
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| 7. | Both parties negotiate the facts of this Cooperation. |
Confidential information includes information that either party physically exposes to the other party, written or copied documents, computer disks, audiotapes, or videotapes that humans or machines can interpret.
Confidential information includes information disclosed orally or otherwise by either party to another party, which was found to be confidential at the time of disclosure.
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| (2) | Obligations of confidentiality |
The parties undertake that for confidential information, either party itself, all its directors, managers or employees involved in this Cooperation or appointed external consultants shall maintain its confidentiality with the attention of a good manager, without the prior written consent of either party, and the other party shall not keep the confidential information:
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| 1. | Provide, deliver, disclose, or transfer in any way or for any reason to a third party or its affiliates |
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| 2. | Provide, deliver, disclose, or transfer in any way or for any reason to a third party or its affiliates |
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| 3. | Unauthorized use of work content not specified or entrusted by this Cooperation |
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| 4. | Copy, photograph, or otherwise copy all or part of the content without authorization |
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| 5. | Provide third-party use or reference in any way. |
Both parties undertake to take the necessary and strict confidentiality measures for confidential information to avoid leakage. However, when either party requests confidential information from the law or relevant government agencies, it shall comply with all legal provisions and notify the other party in writing within a reasonable time prior to disclosure, and shall consult the other party on feasible measures to avoid or reduce the level of the disclosure; Or if disclosure of confidential information is required, the other party should first confirm the consistency of the disclosure information.
The parties undertake that their principals, directors, managers, employees participating in this Cooperation or appointed external consultants shall limit the use or use of confidential information to the need to participate in or conduct this Cooperation, and shall require all participants or persons involved in or aware of this Cooperation, including but not limited to their directors, managers, employees or external consultants, to issue a written commitment to confidentiality and to comply with the confidentiality obligations of this commitment.
Both parties agree that both parties shall be liable for joint and several liability for unauthorized or breach of confidential information by their employees, external consultants, or third parties.
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| (3) | The return of confidential information |
No party may copy confidential information without authorization, except for reasonable needs arising from the execution of this cooperation case.
Either party may notify the other party in writing at any time of the return of all confidential information provided by this Cooperation, and upon receipt of such written notice, the other party shall immediately return the requesting party all relevant records or records of confidential information obtained by the requesting party in any form, and shall not retain any original, copies or electronic files.
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| (4) | Ownership of confidential information |
Any intellectual property rights derived from the confidential information provided by either party and derived from the confidential information provided by the other party shall be owned by the provider.
The joint patents produced by the Cooperation between the two parties are jointly owned by both parties.
Except for the right to use as regulated by this contract, confidential information provided by either party is not granted to the other party with any license or right.
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| (5) | Damages |
If either party violates the agreement of this confidentiality, the other party may request the breaching party to pay the other party a total of 10 million U.S. dollars in punitive damages to the other party if either party has other damages and shall compensate the other party for the losses suffered as a result, and bear the attorney's fees arising from the execution of the right claim for the contract.
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| XI. | EFFECTIVE AND CONTINUING |
This contract shall take effect from the date of signing, with a limitation period of 20 years, and the parties shall negotiate the extension of the contract six months before the expiration of the contract.
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| XII. | FORCE MAJEURE |
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| 1. | If either party is unable to perform this contract due to force majeure causes such as natural disasters, war, official or regulatory requirements, strikes, and its derivative factors, it shall immediately notify the other party and shall take all necessary measures to resume the performance of this contract. Upon receipt of the notice, the parties may suspend the performance of this contract to the extent necessary for the duration of force majeure. If more than 30 days after the commencement of the force majeure clause, the notifying party is unable to resume the performance of this contractual obligation, it is able to terminate the contract in writing. |
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| XIII. | TERMINATION |
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| 1. | Both parties are obliged to implement the contents of Article III of this agreement, and if either party does not perform any execution actions within a one-year period, the other party shall apply written notification of the obligation to execute, and if no relevant execution content is carried out in the following year, the contract shall be terminated. After termination, the original rights of the drugs belonging to both parties will be returned to the original property rights, the joint property rights part of the separate settlement of the letter of intent. |
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| 2. | If any party to this contract violates its obligations under this agreement, the other party may notify one of the breaching parties in writing periodically of the time limit for correction, which has not improved beyond the time limit and may terminate the contract in writing. And the termination of the contract may wish to harm one of the non-defaulting party in accordance with the right to claim damages that have occurred, to the other party to claim damages. |
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| XIV. | AMENDMENT |
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| 1. | The contents of the contract or rights and obligations The relevant details agree: This contract shall be added, deleted, or modified in writing by mutual consent and shall take effect after the responsible or authorized representative of both parties has signed it in writing. |
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| 2. | Change of party information: If one of the parties to the contract has any change in its name, address, authorized representative, or other relevant information, it shall complete the written document of the change of information and notify the other party with the relevant confirmation document; otherwise it shall not be subject to the matter after the change. |
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| XV. | GOVERNING LAW |
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| 1. | Party A and Party B shall include group companies, parent companies, subsidiaries, and affiliated companies defined by legal and accounting standards. |
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| 2. | The validity and interpretation of this contract shall follow the laws of the Republic of China. |
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| 3. | For disputes and litigation arising from this contract, the Taipei District Court shall be the court of first instance jurisdiction. |
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| 4. | If there are any matters not covered in the content of this contract, it shall be handled by other relevant laws and regulations of the Republic of China. |
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| 5. | The English translation of this contract is shown in Annex 4. In case of discrepancies between Chinese and English, the Chinese shall prevail. |
According to this agreement, this agreement shall be formally signed by the duly authorized representatives of the following parties:
AINOS, I.N.C.
(Signature)
Tsai, Chun-Hsien
Title: Chairman and C.E.O.
Company compendium: 58184202
INNOPHARMAX INC
(Signature)
Lin, Chih Hui
Title: Chairman
Company compendium:27964549
DATE: December 7, 2021
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EXHIBIT 10(xii)
Ainos, INC.
2021 EMPLOYEE STOCK PURCHASE PLAN
(As Adopted by the Board of Directors of the Company on October 6, 2021,
and approved by the stockholders of the Company on [•], 2021)
1. Definitions.
(a) “Administrator” means the Committee or, subject to Applicable Law, a subcommittee of the Committee or one or more of the Company’s officers or management team appointed by the Board or Committee to administer the day-to-day operations of the Plan.
(b) “Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 promulgated under the Exchange Act. The Board shall have the authority to determine the time or times at which “Affiliate” status is determined within the foregoing definition.
(c) “Applicable Law” means the requirements relating to the administration of equity-based awards under state corporate laws, U.S. federal and state securities laws, the Code, the rules of any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any non-U.S. jurisdiction where rights are, or will be, granted under the Plan.
(d) “Board” means the board of directors of the Company.
(e) “Code” means the U.S. Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or U.S. Treasury Regulation thereunder shall include such section or regulation, any regulation or other official applicable guidance promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(f) “Committee” means the Compensation Committee of the Board or any properly delegated subcommittee thereof. If no Compensation Committee or subcommittee thereof exists, the term “Committee” shall be deemed to refer to the Board for all purposes under the Plan.
(g) “Common Stock” means the common stock, $0.01 par value, of the Company, as the same may be converted, changed, reclassified or exchanged.
(h) “Company” means Ainos, Inc., a Texas corporation, or any successor to all or substantially all of the Company’s business that adopts the Plan.
(i) “Contributions” means the amount of Eligible Pay contributed by a Participant through payroll deductions or other payments that the Administrator may permit a Participant to make to fund the exercise of rights to purchase Shares granted pursuant to the Plan.
(j) “Change in Control” means:
(i) the acquisition (whether by purchase, merger, consolidation, combination or other similar transaction) by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% (on a fully diluted basis) of either (A) the then outstanding Shares, taking into account as outstanding for this purpose such Common Stock issuable upon the exercise of options or warrants, the conversion of convertible stock or debt, and the exercise of any similar right to acquire such Common Stock; or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; provided, however, that for purposes of this Plan, the following acquisitions shall not constitute a Change in Control: (I) any acquisition by the Company or any Affiliate of the Company; and (II) any acquisition by any employee benefit plan sponsored or maintained by the Company or any Affiliate of the Company;;
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(ii) during any period of twelve (12) months, individuals who, at the beginning of such period, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date the Plan becomes effective, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-12 of Regulation 14A promulgated under the Exchange Act, with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director; or
(iii) the sale, transfer or other disposition of all or substantially all of the assets of the Company and its Affiliates (taken as a whole) to any Person that is not an Affiliate of the Company.
Notwithstanding anything to the contrary in the foregoing, a transaction shall not constitute a Change in Control if it is effected for the purpose of changing the place of incorporation or form of organization of the ultimate parent entity (including where the Company is succeeded by an issuer incorporated under the laws of another state, country or foreign government for such purpose and whether or not the Company remains in existence following such transaction) where all or substantially all of the persons or group that beneficially own all or substantially all of the combined voting power of the Company’s voting securities immediately prior to the transaction beneficially own all or substantially all of the combined voting power of the Company in substantially the same proportions of their ownership after the transaction.
(k) “Designated Company” means any Parent, Subsidiary or Affiliate, whether now existing or existing in the future, that has been designated by the Administrator from time to time in its sole discretion as eligible to participate in the Plan. The Administrator may designate any Parent, Subsidiary or Affiliate as a Designated Company in a Non-423 Offering. For purposes of a Section 423 Offering, only the Company and any Parent or Subsidiary may be Designated Companies; provided, however, that at any given time, a Parent or Subsidiary that is a Designated Company under a Section 423 Offering shall not be a Designated Company under a Non-423 Offering.
(l) “Eligible Employee” means any person providing services to the Company or a Designated Company in an employee-employer relationship who meets such other initial service requirement specified by the Administrator pursuant to Section 5(c)(A). For purposes of clarity, the term “Eligible Employee” shall not include the following, regardless of any subsequent reclassification as an employee by the Company or a Designated Company, any governmental agency, or any court: (i) any independent contractor; (ii) any consultant; (iii) any individual performing services for the Company or a Designated Company who has entered into an independent contractor or consultant agreement with the Company or a Designated Company; (iv) any individual performing services for the Company or a Designated Company under a purchase order, a supplier agreement or any other agreement that the Company or a Designated Company enters into for services; (v) any individual classified by the Company or a Designated Company as contract labor (such as contractors, contract employees, job shoppers), regardless of length of service; (vi) any individual whose base wage or salary is not processed for payment by the payroll department(s) or payroll provider(s) of the Company or a Designated Company; and (vii) any leased employee within the meaning of Code Section 414(n), including such persons leased from a professional employer organization. The Administrator shall have exclusive discretion to determine whether an individual is an Eligible Employee for purposes of the Plan.
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(m) “Eligible Pay” means, unless otherwise provided by the Committee, the following amounts paid by the Company or any Parent, Subsidiary or Affiliate to the Eligible Employee (other than amounts paid after termination of employment date, even if such amounts are paid for pre-termination date services), including (i) base salary or wages (including 13th/14th month payments or similar concepts under local law, whether such payments are characterized as base salary, bonus or otherwise under local law), cash bonuses, and (ii) any portion of such amounts voluntarily deferred or reduced by the Eligible Employee (A) under any employee benefit plan of the Company or a Parent, Subsidiary or Affiliate available to all levels of employees on a non-discriminatory basis upon satisfaction of eligibility requirements, and (B) under any deferral plan of the Company (provided such amounts would not otherwise have been excluded had they not been deferred); but excluding (iii) relocation pay, severance payments, cash allowances for a stated purpose (such as a medical or car allowance), income derived from stock options, stock appreciation rights, restricted stock units or other equity-based awards, the cost of employee benefits paid for by the Company, imputed income arising under any Company group insurance or benefit program, contributions made by the Company under any employee benefit plan, and similar items of compensation. For Eligible Employees in the U.S., Eligible Pay shall include elective amounts that are not includible in gross income of the Eligible Employee by reason of Sections 125, 132(f)(4), 402(e)(3), 402(h) or 403(b) of the Code. The Administrator shall have discretion to determine the application of this definition to Eligible Employees outside the U.S.
(n) “Enrollment Period” means the period during which an Eligible Employee may elect to participate in the Plan, with such period occurring before the first day of each Offering Period, as prescribed by the Administrator.
(o) “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, or any successor law thereto, and the regulations promulgated thereunder.
(p) “Fair Market Value” means, as of any given date, (i) if the Common Stock is listed on a national securities exchange, the closing sales price of the Common Stock reported on the primary exchange on which the Common Stock is listed and traded on such date, or, if there are no such sales on that date, then on the last preceding date on which such sales were reported; (ii) if the Common Stock is not listed on any national securities exchange but is quoted in an inter-dealer quotation system on a last sale basis, the average between the closing bid price and ask price reported on such date, or, if there is no such sale on that date, then on the last preceding date on which a sale was reported; or (iii) if the Common Stock is not listed on a national securities exchange or quoted in an inter-dealer quotation system on a last sale basis, the amount determined by the Committee acting in good faith.
(q) “Non-423 Offering” has the meaning ascribed to it in Section 2.
(r) “Offering” means a Section 423 Offering or a Non-423 Offering of a right to purchase Shares under the Plan during an Offering Period as further described in Section 6. Unless otherwise determined by the Administrator, each Offering under the Plan in which Eligible Employees of one or more Designated Companies may participate shall be deemed a separate offering for purposes of Section 423 of the Code, even if the dates of the applicable Offering Periods of each such Offering are identical, and the provisions of the Plan shall separately apply to each Offering. With respect to Section 423 Offerings, the terms of separate Offerings need not be identical provided that all Eligible Employees granted purchase rights in a particular Offering shall have the same rights and privileges, except as otherwise may be permitted by Code Section 423; a Non-423 Offering need not satisfy such requirements.
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(s) “Offering Period” means the periods established in accordance with Section 6 during which rights to purchase Shares may be granted pursuant to the Plan and Shares may be purchased on one or more Purchase Dates. The duration and timing of Offering Periods may be changed pursuant to Sections 6 and 17.
(t) “Parent” means a parent corporation of the Company, whether now or hereafter existing, as “parent corporation” is defined in Section 424(e) of the Code.
(u) “Participant” means an Eligible Employee who elects to participate in the Plan.
(v) “Person” means any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act).
(w) “Plan” means this Ainos, Inc. 2021 Employee Stock Purchase Plan, as may be amended from time to time.
(x) “Purchase Date” means the last Trading Day of each Purchase Period (or such other Trading Day as the Administrator may determine).
(y) “Purchase Period” means a period of time within an Offering Period, as may be specified by the Administrator in accordance with Section 6, generally beginning on the first Trading Day of each Offering Period and ending on a Purchase Date. An Offering Period may consist of one or more Purchase Periods.
(z) “Purchase Price” means the purchase price at which Shares may be acquired on a Purchase Date and which shall be set by the Administrator; provided, however, that the Purchase Price for a Section 423 Offering shall not be less than eighty-five percent (85%) of the lesser of (i) the Fair Market Value of the Shares on the first Trading Day of the Offering Period or (ii) the Fair Market Value of the Shares on the Purchase Date. Unless otherwise determined by the Administrator prior to the commencement of an Offering Period, the Purchase Price shall be eighty-five percent (85%) of the lesser of (A) the Fair Market Value of the Shares on the first Trading Day of the Offering Period or (B) the Fair Market Value of the Shares on the Purchase Date.
(aa) “Section 423 Offering” has the meaning ascribed to it in Section 2.
(bb) “Shares” means the shares of Common Stock.
(cc) “Subsidiary” means a subsidiary corporation of the Company, whether now or hereafter existing, as “subsidiary corporation” is defined in Section 424(f) of the Code.
(dd) “Tax-Related Items” means any U.S. federal, state, and/or local taxes and/or any non-U.S. taxes (including, without limitation, income tax, social insurance contributions (or similar contributions), payroll tax, fringe benefits tax, payment on account, employment tax, stamp tax and any other tax or tax-related item arising in relation to the Participant’s participation in the Plan and legally applicable to a Participant, including any employer liability for which the Participant is liable pursuant to Applicable Laws or an agreement entered into under the Plan.
(ee) “Trading Day” means a day on which the principal exchange that Shares are listed on is open for trading.
(ff) “U.S.” means the United States of America.
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2. Purpose of the Plan. The purpose of the Plan is to provide an opportunity for Eligible Employees of the Company and its Designated Companies 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 (each, a “Section 423 Offering”); provided, however, that the Administrator may also authorize the grant of rights under offerings of the Plan that are not intended to comply with the requirements of Section 423 of the Code, pursuant to any rules, procedures, agreements, appendices, or sub-plans adopted by the Administrator for such purpose (each, a “Non-423 Offering”).
3. Number of Reserved Shares. Subject to adjustment pursuant to Section 16 hereof, the maximum number of shares of Common Stock that may be issued under the Plan shall not exceed 750,000 shares of Common Stock Such Shares may be authorized but unissued Shares, treasury Shares or Shares purchased in the open market. For avoidance of doubt, up to the maximum number of Shares reserved under this Section 3 may be used to satisfy purchases of Shares under Section 423 Offerings and any remaining portion of such maximum number of Shares may be used to satisfy purchases of Shares under Non-423 Offerings. For the avoidance of doubt, Shares withheld to satisfy Tax-Related Items shall not reduce the number of Shares available for sale pursuant to the Plan and shall again be made available for sale pursuant to the Plan.
4. Administration of the Plan.
(a) Committee as Administrator. The Plan shall be administered by the Committee. Notwithstanding anything in the Plan to the contrary, subject to Applicable Law, any authority or responsibility that, under the terms of the Plan, may be exercised by the Committee may alternatively be exercised by the Board. Subject to Applicable Law, no member of the Board or Committee (or its delegates) shall be liable for any good faith action or determination made in connection with the operation, administration or interpretation of the Plan. In the performance of its responsibilities with respect to the Plan, the Committee shall be entitled to rely upon, and no member of the Committee shall be liable for any action taken or not taken in reliance upon, information and/or advice furnished by the Company’s officers or employees, the Company’s accountants, the Company’s counsel and any other party that the Committee deems necessary.
(b) Powers of the Administrator. The Administrator shall have full power and authority to administer the Plan, including, without limitation, the authority to (i) construe, interpret, reconcile any inconsistency in, correct any default in and supply any omission in, and apply the terms of the Plan and any enrollment form or other instrument or agreement relating to the Plan, (ii) determine eligibility and adjudicate all disputed claims filed under the Plan, including whether Eligible Employees will participate in a Section 423 Offering or a Non-423 Offering and which Subsidiaries and Affiliates of the Company (or Parent, if applicable) will be Designated Companies participating in either a Section 423 Offering or a Non-423 Offering (within the limits of the Plan), (iii) determine the terms and conditions of any right to purchase Shares under the Plan, (iv) establish, amend, suspend or waive such rules and regulations and appoint such agents as it deems appropriate for the proper administration of the Plan, (v) amend an outstanding right to purchase Shares, including any amendments to a right that may be necessary for purposes of effecting a transaction contemplated under Section 16 hereof (including, but not limited to, an amendment to the class or type of stock that may be issued pursuant to the exercise of a right or the Purchase Price applicable to a right), provided that the amended right otherwise conforms to the terms of the Plan, and (vi) make any other determination and take any other action that the Administrator deems necessary or desirable for the administration of the Plan, including, without limitation, the adoption of any such rules, procedures, agreements, appendices, or sub-plans (collectively, “Sub-Plans”) as are necessary or appropriate to permit the participation in the Plan by employees who are citizens or residents in jurisdictions other than the U.S. or employed outside the U.S., as further set forth in Section 4(c) below.
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(c) Non-U.S. Sub-Plans. Notwithstanding any provision to the contrary in this Plan, the Administrator may adopt such Sub-Plans relating to the operation and administration of the Plan to accommodate local laws, customs and procedures for jurisdictions outside of the U.S., the terms of which Sub-Plans may take precedence over other provisions of this Plan, with the exception of Section 3 hereof, but unless otherwise superseded by the terms of such Sub-Plan, the provisions of this Plan shall govern the operation of such Sub-Plan. To the extent inconsistent with the requirements of Section 423, any such Sub-Plan shall be considered part of a Non-423 Offering, and purchase rights granted thereunder shall not be required by the terms of the Plan to comply with Section 423 of the Code. Without limiting the generality of the foregoing, the Administrator is authorized to adopt Sub-Plans for particular non-U.S. jurisdictions that modify the terms of the Plan to meet applicable local requirements, customs or procedures regarding, without limitation, (i) eligibility to participate, (ii) the definition of Eligible Pay, (iii) the dates and duration of Offering Periods or other periods during which Participants may make Contributions towards the purchase of Shares, (iv) the method of determining the Purchase Price and the discount from Fair Market Value at which Shares may be purchased, (v) any minimum or maximum amount of Contributions a Participant may make in an Offering Period or other specified period under the applicable Sub-Plan, (vi) the treatment of purchase rights upon a Change in Control or a change in capitalization of the Company, (vii) the handling of payroll deductions and the methods for making Contributions by means other than payroll deductions, (viii) establishment of bank, building society or trust accounts to hold Contributions, (ix) payment of interest, (x) conversion of local currency, (xi) obligations to pay payroll tax, (xii) determination of beneficiary designation requirements, (xiii) withholding procedures, and (xiv) handling of Share issuances.
(d) Binding Authority. All determinations by the Administrator in carrying out and administering the Plan and in construing and interpreting the Plan and any enrollment form or other instrument or agreement relating to the Plan shall be made in the Administrator’s sole discretion and shall be final, binding and conclusive for all purposes and upon all interested persons.
(e) Delegation of Authority. To the extent not prohibited by Applicable Law, the Committee may, from time to time, delegate some or all of its authority under the Plan to a subcommittee or subcommittees of the Committee, to one or more of the other parties comprising the “Administrator” hereunder, or to other persons or groups of persons as it deems necessary, appropriate or advisable under conditions or limitations that it may set at or after the time of the delegation. For purposes of the Plan, reference to the Administrator shall be deemed to include any subcommittee, subcommittees, or other persons or groups of persons to whom the Committee delegates authority pursuant to this Section 4(e).
5. Eligible Employees.
(a) General. Any individual who is an Eligible Employee as of the commencement of an Offering Period shall be eligible to participate in the Plan, subject to the requirements of Section 7.
(b) Non-U.S. Employees. An Eligible Employee who works for a Designated Company and is a citizen or resident of a jurisdiction other than the U.S. (without regard to whether such individual also is a citizen or resident of the U.S. or is a resident alien (within the meaning of Section 7701(b)(1)(A) of the Code)) may be excluded from participation in the Plan or an Offering if the participation of such Eligible Employee is prohibited under the laws of the applicable jurisdiction or if complying with the laws of the applicable jurisdiction would cause the Plan or a Section 423 Offering to violate Section 423 of the Code. In the case of a Non-423 Offering, an Eligible Employee (or group of Eligible Employees) may be excluded from participation in the Plan or an Offering if the Administrator has determined, in its sole discretion, that participation of such Eligible Employee(s) is not advisable or practicable for any reason.
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(c) Limitations. Notwithstanding any provisions of the Plan to the contrary, no Eligible Employee shall be granted a right to purchase Shares under a Section 423 Offering (i) to the extent that, immediately after the grant, such Eligible Employee (or any other person whose stock would be attributed to such Eligible Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding rights to purchase capital stock possessing five percent (5%) or more of the combined voting power or value of all classes of the capital stock of the Company or of any Parent or Subsidiary of the Company, or (ii) to the extent that his or her rights to purchase capital stock under all employee stock purchase plans of the Company and any Parent and Subsidiaries accrues at a rate that exceeds Twenty-Five Thousand Dollars (US$25,000) worth of such stock (determined at the fair market value of the shares of such stock at the time such right is granted) for each calendar year in which such purchase right is outstanding. The Administrator, in its discretion, from time to time may, prior to an Enrollment Period for all purchase rights to be granted in an Offering, determine (on a uniform and nondiscriminatory basis for Section 423 Offerings) that the definition of Eligible Employee will or will not include an individual if he or she: (A) has not completed at least two (2) years of service since his or her last hire date (or such lesser period of time as may be determined by the Administrator in its discretion), (B) customarily works not more than twenty (20) hours per week (or such lesser period of time as may be determined by the Administrator in its discretion), (C) customarily works not more than five (5) months per calendar year (or such lesser period of time as may be determined by the Administrator in its discretion), (D) is a highly compensated employee within the meaning of Section 414(q) of the Code, or (E) is a highly compensated employee within the meaning of Section 414(q) of the Code with compensation above a certain level or who is an officer or subject to the disclosure requirements of Section 16(a) of the Exchange Act, provided the exclusion is applied with respect to each Section 423 Offering in an identical manner to all highly compensated individuals of the Designated Company whose employees are participating in that Offering.
6. Offering Periods. The Plan shall be implemented by consecutive or overlapping Offering Periods, as specified by the Administrator, with a new Offering Period commencing on the first Trading Day of the relevant Offering Period and terminating on the last Trading Day of the relevant Offering Period. The Offering Periods shall (a) consist of one or more Purchase Periods of a duration specified by the Administrator, and (b) be of a duration, and commence on the dates, specified by the Administrator prior to the scheduled beginning of the applicable Offering Period, provided that each Offering Period may not have a duration exceeding twenty-seven (27) months. For the avoidance of any doubt, the Administrator has authority to establish the terms that shall apply to the Offering Periods in accordance with the provisions contemplated in this Section 6 without stockholder approval. To the extent that the Administrator establishes Offering Periods with multiple Purchase Periods or overlapping Offering Periods, in each case, with a Purchase Price based (in part) on the Fair Market Value of a Share on the first Trading Day of an Offering Period, the Administrator shall have discretion to structure an Offering Period so that if the Fair Market Value of a Share on the first Trading Day of the Offering Period in which a Participant is currently enrolled is higher than the Fair Market Value of a Share on the first Trading Day of any subsequent Offering Period, the Company shall automatically enroll such Participant in the subsequent Offering Period and shall terminate his or her participation in such original Offering Period.
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7. Election to Participate and Payroll Deductions. An Eligible Employee may elect to participate in an Offering under the Plan during any Enrollment Period. Any such election shall be made by completing the online enrollment process through the Company’s designated Plan broker or, to the extent specified by the Administrator, by completing and submitting an enrollment form to the Administrator during such Enrollment Period, authorizing Contributions in whole percentages from one percent (1%) to fifteen percent (15%) of the Eligible Employee’s Eligible Pay for the Purchase Period within the Offering Period to which the deduction applies. A Participant may elect to increase or decrease the rate of such Contributions during any subsequent Enrollment Period by submitting the appropriate form online through the Company’s designated Plan broker or, to the extent specified by the Administrator, to the Administrator, provided that no change in Contributions shall be permitted to the extent that such change would result in total Contributions exceeding fifteen percent (15%) of the Eligible Employee’s Eligible Pay, or such other maximum amount as may be determined by the Administrator with respect to a subsequent Offering Period. During a Purchase Period, a Participant may not increase his or her rate of Contributions and may decrease the rate of Contributions only one (1) time. Notwithstanding the foregoing, a Participant may reduce the rate of his or her Contributions to zero percent (0%) at any time during a Purchase Period. Any change to a Participant’s rate of Contributions during a Purchase Period will become effective as soon as possible after the Participant’s submission of an amended enrollment form (either through the Company’s online Plan enrollment process or by submitting the appropriate form to the Administrator). If a Participant reduces his or her rate of Contributions to zero percent (0%) during an Offering Period, the Contributions made by the Participant prior to such reduction will be applied to the purchase of Shares on the next Purchase Date, but if the Participant does not increase such rate of Contributions above zero percent (0%) prior to the commencement of the next subsequent Offering Period under the Plan, such action will be treated as the Participant’s withdrawal from the Plan in accordance with Section 14 hereof. Once an Eligible Employee elects to participate in an Offering Period, then such Participant shall automatically participate in the Offering Period commencing immediately following the last day of such prior Offering Period at the same rate of Contributions as was in effect in the prior Offering Period unless the Participant elects to increase or decrease the rate of Contributions or withdraws or is deemed to withdraw from this Plan as described above in this Section 7. A Participant who is automatically enrolled in a subsequent Offering Period pursuant to this Section 7 is not required to file any additional documentation in order to continue participation in the Plan; provided, however, that participation in the subsequent Offering Period shall be governed by the terms and conditions of the Plan in effect at the beginning of such Offering Period, subject to the Participant’s right to withdraw from the Plan in accordance with Section 14 below. The Administrator has the authority to change the rules set forth in this Section 7 regarding participation in the Plan.
8. Contributions. The Company shall establish an account in the form of a bookkeeping entry for each Participant for the purpose of tracking Contributions made by each Participant during the Offering Period, and shall credit all Contributions made by each Participant to such account. The Company shall not be obligated to segregate the Contributions from the general funds of the Company or any Designated Company nor shall any interest be paid on such Contributions, unless otherwise determined by the Administrator or required by Applicable Law. All Contributions received by the Company for Shares sold by the Company on any Purchase Date pursuant to this Plan may be used for any corporate purpose.
9. Limitation on Number of Shares That an Employee May Purchase. Subject to the limitations set forth in Section 5(c), each Participant shall have the right to purchase as many whole Shares as may be purchased with the Contributions credited to his or her account as of the last day of the Offering Period (or such other date as the Administrator may determine) at the Purchase Price applicable to such Offering Period; provided, however, that a Participant may not purchase in excess of two thousand, five hundred (2,500) Shares under the Plan per Offering Period or such other maximum number of Shares as may be established for an Offering Period by the Administrator (in each case subject to adjustment pursuant to Section 16 hereof). Any amount remaining in a Participant’s account that was not applied to the purchase of Shares on a Purchase Date because it was not sufficient to purchase a whole Share shall be carried forward for the purchase of Shares on the following Purchase Date. However, any amounts not applied to the purchase of Shares during an Offering Period for any reason other than as described in the foregoing sentence shall not be carried forward to any subsequent Offering Period and shall instead be refunded, without interest, as soon as practicable following the Purchase Date, except as otherwise determined by the Administrator or required by Applicable Law.
10. Taxes. At the time a Participant’s purchase right is exercised, in whole or in part, or at the time a Participant disposes of some or all of the Shares acquired under the Plan, or at the time of any other taxable event, the Participant shall make adequate provision for any Tax-Related Items. In their sole discretion, the Company or the Designated Company that employs the Participant may satisfy any obligation to withhold Tax-Related Items by (a) withholding from the Participant’s wages or other compensation, (b) withholding a number of Shares otherwise issuable in connection with the purchase of Shares under the Plan, (c) withholding from proceeds from the sale of Shares issued upon purchase, either through a voluntary sale or a mandatory sale arranged by the Company, (d) requiring the Participant to make a cash payment (by check or wire transfer) to the Company or another Designated Company equal to the amount of the Tax-Related Items, or (e) any other method determined by the Company that is permissible under Applicable Law.
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11. Brokerage Accounts or Plan Share Accounts. By enrolling in the Plan, each Participant shall be deemed to have authorized the establishment of a brokerage account on his or her behalf at a securities brokerage firm selected by the Administrator. Alternatively, the Administrator may provide for Plan share accounts for each Participant to be established by the Company or by an outside entity selected by the Administrator which is not a brokerage firm. Shares purchased by a Participant pursuant to the Plan shall be held in the Participant’s brokerage or Plan share account. The Company may require that Shares be retained in such brokerage or Plan share account for a designated period of time, and/or may establish procedures to permit tracking of dispositions of Shares.
12. Rights as a Stockholder. A Participant shall have no rights as a stockholder with respect to Shares subject to any rights granted under this Plan or any Shares deliverable under this Plan unless and until recorded in the books of the brokerage firm selected by the Administrator or, as applicable, the Company, its transfer agent, stock plan administrator or such other outside entity which is not a brokerage firm.
13. Rights Not Transferable. Rights granted under this Plan are not transferable by a Participant other than by will or the laws of descent and distribution, and are exercisable during a Participant’s lifetime only by the Participant.
14. Withdrawals. A Participant may withdraw from an Offering by submitting the appropriate form online through the Company’s designated Plan broker or, to the extent determined by the Administrator, to the Administrator. A notice of withdrawal must be received no later than the last day of the month immediately preceding the month of the Purchase Date or by such other deadline as may be prescribed by the Administrator. Upon receipt of such notice, automatic deductions of Contributions on behalf of the Participant shall be discontinued commencing with the payroll period immediately following the effective date of the notice of withdrawal, and such Participant shall not be eligible to participate in the Plan until the next Enrollment Period. Any Contributions credited to the account of any Participant who withdraws from an Offering according to the procedures and timing set forth in this Section 14 shall be refunded as soon as practicable without interest, except as otherwise determined by the Administrator or required by Applicable Law.
15. Termination of Employment; Leave of Absence.
(a) General. Upon a Participant ceasing to be an Eligible Employee for any reason prior to a Purchase Date, Contributions for such Participant shall be discontinued and any Contributions then credited to the Participant’s account shall be refunded as soon as practicable, without interest, except as otherwise determined by the Administrator or required by Applicable Law.
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(b) Leave of Absence. Subject to the discretion of the Administrator, if a Participant is granted a paid leave of absence, payroll deductions on behalf of the Participant shall continue and any Contributions credited to the Participant’s account may be used to purchase Shares as provided under the Plan. If a Participant is granted an unpaid leave of absence, payroll deductions on behalf of the Participant shall be discontinued and no other Contributions shall be permitted (unless otherwise determined by the Administrator (on a uniform and nondiscriminatory basis for Section 423 Offerings) or required by Applicable Law), but any Contributions then credited to the Participant’s account may be used to purchase Shares on the next applicable Purchase Date. Where the period of leave exceeds three (3) months and the Participant’s right to reemployment is not guaranteed by statute or by contract, for purposes of Section 423 Offerings, the employment relationship shall be deemed to have terminated three (3) months and one (1) day following the commencement of such leave.
(c) Transfer of Employment. Unless otherwise determined by the Administrator or required by Applicable Law, a Participant whose employment transfers or whose employment terminates with an immediate rehire (with no break in service) by or between the Company or a Designated Company shall not be treated as having terminated employment for purposes of participating in the Plan or an Offering; however, if a Participant transfers from a Section 423 Offering to a Non-423 Offering, the exercise of the Participant’s purchase right will be qualified under the Section 423 Offering only to the extent that such exercise complies with Code Section 423. If a Participant transfers from a Non-423 Offering to a Section 423 Offering, the exercise of the Participant’s purchase right will remain non-qualified under the Non-423 Offering. The Administrator may establish additional or different rules to govern transfers of employment for purposes of participation in the Plan or an Offering, consistent with the applicable requirements of Section 423 of the Code.
16. Adjustment Provisions.
(a) Changes in Capitalization. In the event of any change affecting the number, class, value, or terms of the shares of Common Stock resulting from a recapitalization, stock split, reverse stock split, stock dividend, spinoff, split up, combination, reclassification or exchange of Shares, merger, consolidation, rights offering, separation, reorganization or liquidation or any other change in the corporate structure or Shares, including any extraordinary dividend or extraordinary distribution (but excluding any regular cash dividend), then the Committee, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, shall, in such manner as it may deem equitable, adjust the number and class of Common Stock that may be delivered under the Plan (including the numerical limits of Sections 3 and 9), the Purchase Price per Share and the number of shares of Common Stock covered by each right under the Plan that has not yet been exercised. For the avoidance of doubt, the Committee may not delegate its authority to make adjustments pursuant to this Section 16(a). Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to a purchase right.
(b) Change in Control. In the event of a Change in Control, each outstanding right to purchase Shares shall be equitably adjusted and assumed or an equivalent right to purchase Shares substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event that the successor corporation in a Change in Control refuses to assume or substitute for the purchase right or the successor corporation is not a publicly traded corporation, the Offering Period then in progress shall be shortened by setting a New Purchase Date and shall end on the New Purchase Date. The “New Purchase Date” shall be a Trading Day determined by the Administrator, in its discretion, which occurs before the date of the consummation of the Company’s proposed Change in Control. The Administrator shall notify each Participant in writing, at least ten (10) Trading Days prior to the New Purchase Date (or such other date as may be specified by the Administrator), that the Purchase Date for the Participant’s purchase right has been changed to the New Purchase Date and that Shares shall be purchased automatically for the Participant on the New Purchase Date, unless the Participant has withdrawn from the Offering prior to such date, as provided in Section 14 hereof.
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17. Amendments and Termination of the Plan. The Board or the Committee may amend the Plan at any time, provided that if stockholder approval is required pursuant to Applicable Law, then no such amendment shall be effective unless approved by the Company’s stockholders within such time period as may be required. The Board may suspend the Plan or discontinue the Plan at any time, including shortening an Offering Period in connection with a spin-off or other similar corporate event. Upon termination of the Plan, all Contributions shall cease and all Contributions then credited to a Participant’s account shall be equitably applied to the purchase of whole Shares then available for sale, and any remaining amounts shall be promptly refunded, without interest (unless required by Applicable Law), to Participants. For the avoidance of doubt, the Board or Committee, as applicable herein, may not delegate its authority to make amendments to or suspend the operation of the Plan pursuant to this Section 17.
18. Stockholder Approval; Effective Date; Plan Term. The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted by the Board. Such stockholder approval shall be obtained in the manner and to the degree required under Applicable Law. The Plan shall become effective on the date that stockholder approval of the Plan, as contemplated in this Section 18, is obtained, and shall continue in effect until it expires on the tenth (10th) anniversary of the effective date of the Plan, unless terminated earlier in accordance with Section 17 hereof. Any Offering Periods that are outstanding upon the expiration of the Plan shall continue in effect in accordance with their terms through the final Purchase Period in the outstanding Offering Period.
19. Conditions Upon Issuance of Shares. Notwithstanding any other provision of the Plan, unless there is an available exemption from any registration, qualification or other legal or regulatory requirement applicable to the Shares, the Company shall not be required to deliver any Shares issuable upon exercise of a right under the Plan prior to (i) the completion of any registration or qualification of the Shares under any local, state, federal or non-U.S. securities or exchange control law or under rulings or regulations of any governmental regulatory body, or (ii) obtaining any approval or other clearance from any local, state, federal or non-U.S. governmental agency, which registration, qualification or approval the Administrator, in its absolute discretion, deems necessary or advisable. The Company is under no obligation to register or qualify the Shares with any state or non-U.S. securities commission or other governmental body, or to seek approval or clearance from any governmental authority for the issuance or sale of the Shares. If, pursuant to this Section 19, the Administrator determines that the Shares will not be issued to any Participant, any Contributions credited to such Participant’s account shall be promptly refunded, without interest (unless required by Applicable Law), to the Participant, without any liability to the Company or any of its Subsidiaries or Affiliates (or any Parent, if applicable).
20. Code Section 409A; Tax Qualification.
(a) Code Section 409A. Rights to purchase Shares granted under a Section 423 Offering are exempt from the application of Section 409A of the Code and rights to purchase Shares granted under a Non-423 Offering are intended to be exempt from Section 409A of the Code pursuant to the “short-term deferral” exemption contained therein. In furtherance of the foregoing and notwithstanding any provision in the Plan to the contrary, if the Administrator determines that a right granted under the Plan may be subject to Section 409A of the Code or that any provision in the Plan would cause a right under the Plan to be subject to Section 409A of the Code, the Administrator may amend the terms of the Plan and/or of an outstanding right granted under the Plan, or take such other action the Administrator determines is necessary or appropriate, in each case, without the Participant’s consent, to exempt any outstanding right or future right that may be granted under the Plan from or to allow any such rights to comply with Section 409A of the Code, but only to the extent any such amendments or action by the Administrator would not violate Section 409A of the Code. Notwithstanding the foregoing, the Company shall have no liability to a Participant or any other party if the right to purchase Shares under the Plan that is intended to be exempt from or compliant with Section 409A of the Code is not so exempt or compliant or for any action taken by the Administrator with respect thereto. The Company makes no representation that the right to purchase Shares under the Plan is compliant with Section 409A of the Code.
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(b) Tax Qualification. Although the Company may endeavor to (i) qualify a right to purchase Shares for favorable tax treatment under the laws of the U.S. or jurisdictions outside of the U.S. or (ii) avoid adverse tax treatment (e.g., under Section 409A of the Code), the Company makes no representation to that effect and expressly disavows any covenant to maintain favorable or avoid unfavorable tax treatment, notwithstanding anything to the contrary in this Plan, including Section 20(a) hereof. The Company shall be unconstrained in its corporate activities without regard to the potential negative tax impact on Participants under the Plan.
21. No Employment Rights. Participation in the Plan shall not be construed as giving any Participant the right to be retained as an employee of the Company, a Subsidiary, or one of its Affiliates or Parent, as applicable. Furthermore, if the Company, a Subsidiary, or an Affiliate (or Parent, if applicable) dismisses a Participant from employment, no liability or claim shall arise under the Plan.
22. Governing Law; Choice of Forum. Except to the extent that provisions of this Plan are governed by applicable provisions of the Code or any other substantive provision of U.S. federal law, this Plan shall be governed by and construed in accordance with the internal laws of the State of Texas without giving effect to the conflict of laws principles thereof. The Company and each Participant, as a condition to such Participant’s participation in the Plan, hereby irrevocably submit to the exclusive jurisdiction of any state or U.S. federal court located in the state of Texas over any suit, action or proceeding arising out of or relating to or concerning the Plan. The Company and each Participant, as a condition to such Participant’s participation in the Plan, acknowledge that the forum designated by this Section 22 has a reasonable relation to the Plan and to the relationship between such Participant and the Company. Notwithstanding the foregoing, nothing in the Plan shall preclude the Company from bringing any action or proceeding in any other court for the purpose of enforcing the provisions of this Section 22. The agreement by the Company and each Participant as to forum is independent of the law that may be applied in the action, and the Company and each Participant, as a condition to such Participant’s participation in the Plan, (i) agree to such forum even if the forum may under applicable law choose to apply non-forum law, (ii) hereby waive, to the fullest extent permitted by applicable law, any objection which the Company or such Participant now or hereafter may have to personal jurisdiction or to the laying of venue of any such suit, action or proceeding in any court referred to in this Section 22, (iii) undertake not to commence any action arising out of or relating to or concerning the Plan in any forum other than the forum described in this Section 22 and (iv) agree that, to the fullest extent permitted by applicable law, a final and non-appealable judgment in any such suit, action or proceeding in any such court shall be conclusive and binding upon the Company and each Participant.
23. Waiver of Jury Trial. Each Participant waives any right such Participant may have to trial by jury in respect of any litigation based on, arising out of, under or in connection with the Plan.
24. Headings. Headings are given to the sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan.
25. Expenses. Unless otherwise set forth in the Plan or determined by the Administrator, all expenses of administering the Plan, including expenses incurred in connection with the purchase of Shares for sale to Participants, shall be borne by the Company and its Subsidiaries or Affiliates (or any Parent, if applicable).
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EXHIBIT 10(xiii)
AINOS, INC.
2021 STOCK INCENTIVE PLAN
(As Adopted by the Board of Directors of the Company on October 6, 2021,
and approved by the stockholders of the Company on [•], 2021)
1. Purpose. The purpose of the Ainos, Inc. 2021 Stock Incentive Plan is to provide a means through which the Company, and the other members of the Company Group, 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 welfare of the Company Group and aligning their interests with those of the Company’s stockholders.
2. Definitions. The following definitions shall be applicable throughout the Plan.
(a) “Adjustment Event” has the meaning given to such term in Section 11(a) of the Plan.
(b) “Affiliate” means any Person that directly or indirectly controls, is controlled by or is under common control with the Company. The term “control” (including, with correlative meaning, the terms “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting or other securities, by contract or otherwise.
(c) “Applicable Laws” means applicable laws, rules, regulations and the requirements relating to the administration of equity-based awards, and the related Shares under U.S. state corporate laws, U.S. federal and state and non-U.S. securities laws, the Code, the rules and regulations of any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any non-U.S. country or jurisdiction where Awards are, or will be, granted under the Plan or where Participants reside or provide services, as such laws, rules, regulations and requirements shall be in place from time to time..
(d) “Award” means, 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.
(e) “Award Agreement” means the document or documents by which each Award is evidenced, electronically or otherwise.
(f) “Board” means the Board of Directors of the Company.
(g) “Cause” means, as to any Participant, unless the applicable Award Agreement states otherwise, (i) “Cause,” as defined in any employment or consulting agreement between the Participant and the Service Recipient in effect at the time of such Termination; or (ii) in the absence of any such employment or consulting agreement (or the absence of any definition of “Cause” contained therein), the Participant’s (A) willful neglect in the performance of the Participant’s duties for the Service Recipient or willful or repeated failure or refusal to perform such duties; (B) engagement in conduct in connection with the Participant’s employment or service with the Service Recipient, which results in, or could reasonably be expected to result in, material harm to the business or reputation of the Company or any other member of the Company Group; (C) conviction of, or plea of guilty or no contest to, (I) any felony; or (II) any other crime that results in, or could reasonably be expected to result in, material harm to the business or reputation of the Company or any other member of the Company Group; (D) material violation of the written policies of the Service Recipient, including, but not limited to, those relating to sexual harassment or the disclosure or misuse of confidential information, or those set forth in the manuals or statements of policy of the Service Recipient; (E) fraud or misappropriation, embezzlement or misuse of funds or property belonging to the Company or any other member of the Company Group; or (F) act of personal dishonesty that involves personal profit in connection with the Participant’s employment or service to the Service Recipient.
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(h) “Change in Control” means:
(i) the acquisition (whether by purchase, merger, consolidation, combination or other similar transaction) by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% (on a fully diluted basis) of either (A) the then outstanding Shares, taking into account as outstanding for this purpose such Common Stock issuable upon the exercise of options or warrants, the conversion of convertible stock or debt, and the exercise of any similar right to acquire such Common Stock; or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; provided, however, that for purposes of this Plan, the following acquisitions shall not constitute a Change in Control: (I) any acquisition by the Company or any Affiliate of the Company; (II) any acquisition by any employee benefit plan sponsored or maintained by the Company or any Affiliate of the Company; and (III) in respect of an Award held by a particular Participant, any acquisition by the Participant or any group of Persons including the Participant (or any entity controlled by the Participant or any group of Persons including the Participant);
(ii) during any period of twelve (12) months, individuals who, at the beginning of such period, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the Effective Date, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-12 of Regulation 14A promulgated under the Exchange Act, with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director; or
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(iii) the sale, transfer or other disposition of all or substantially all of the assets of the Company Group (taken as a whole) to any Person that is not an Affiliate of the Company.
Notwithstanding anything to the contrary in the foregoing, a transaction shall not constitute a Change in Control if it is effected for the purpose of changing the place of incorporation or form of organization of the ultimate parent entity (including where the Company is succeeded by an issuer incorporated under the laws of another state, country or foreign government for such purpose and whether or not the Company remains in existence following such transaction) where all or substantially all of the persons or group that beneficially own all or substantially all of the combined voting power of the Company’s voting securities immediately prior to the transaction beneficially own all or substantially all of the combined voting power of the Company in substantially the same proportions of their ownership after the transaction.
(i) “Change in Control Consideration” has the meaning given to such term in Section 11(b) of the Plan.
(j) “Code” means the U.S. Internal Revenue Code of 1986, as amended, and any successor thereto. Reference in the Plan to any section of the Code shall be deemed to include any regulations or other interpretative guidance under such section, and any amendments or successor provisions to such section, regulations or guidance.
(k) “Committee” means the Compensation Committee of the Board or any other committee comprised of members of the Board, or any properly delegated subcommittee thereof or, if no such committee or subcommittee thereof exists, the Board.
(l) “Common Stock” means the common stock of the Company, par value USD 0.01 per share (and any stock or other securities into which such Common Stock may be converted or into which it may be exchanged).
(m) “Company” means Ainos, Inc., a Texas corporation, and any successor thereto.
(n) “Company Group” means, collectively, the Company and its Subsidiaries, and any other Affiliate of the Company designated as a member of the Company Group by the Committee.
(o) “Continuing Entity” has the meaning given to such term in Section 11(b) of the Plan.
(p) “Date of Grant” means the date on which the granting of an Award is authorized, or such later date as may be specified in such authorization.
(q) “Designated Foreign Subsidiaries” means all members of the Company Group that are organized under the laws of any jurisdiction other than the United States of America that may be designated by the Board or the Committee from time to time.
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(r) “Detrimental Activity” means any of the following: (i) unauthorized disclosure of any confidential or proprietary information of any member of the Company Group; (ii) any activity that would be grounds to terminate the Participant’s employment or service with the Service Recipient for Cause; or (iii) a breach by the Participant of any noncompetition, nonsolicitation, or other agreement containing restrictive covenants with any member of the Company Group.
(s) “Disability” means, as to any Participant, unless the applicable Award Agreement states otherwise, (i) “Disability,” as defined in any employment or consulting agreement between the Participant and the Service Recipient in effect at the time of such Termination; or (ii) in the absence of any such employment or consulting agreement (or the absence of any definition of “Disability” contained therein), a condition entitling the Participant to receive benefits under a long-term disability plan of the Service Recipient or other member of the Company Group in which such Participant is eligible to participate, or, in the absence of such a plan, the complete and permanent inability of the Participant by reason of illness or accident to perform the duties of the occupation at which the Participant was employed or served when such disability commenced. Any determination of whether Disability exists in the absence of a long-term disability plan shall be made by the Company (or its designee) in its sole and absolute discretion. Notwithstanding the foregoing, (a) for purposes of Incentive Stock Options granted under the Plan, “Disability” means that the Participant is disabled within the meaning of Section 22(e)(3) of the Code, and (b) with respect to an Award that is subject to Section 409A of the Code where the Award is paid or settled on a date or period that is by reference to the Participant’s Disability, no such event will constitute a Disability for purposes of the Plan or any Award Agreement unless such event also constitutes a “disability” as defined under Section 409A of the Code.
(t) “Dividend Equivalent Right” means a right to receive the equivalent value of dividends paid on the Shares with respect to Shares underlying an Award that is a full-value award prior to settlement of the Award in accordance with the provision of Section 13(c).
(u) “Effective Date” means the date that the Plan is approved by the shareholders of the Company.
(v) “Eligible Person” means any (i) individual employed by any member of the Company Group; provided, however, that no such employee covered by a collective bargaining agreement shall be an Eligible Person unless and to the extent that such eligibility is set forth in such collective bargaining agreement or in an agreement or instrument relating thereto; (ii) director or officer of any member of the Company Group; or (iii) consultant or advisor to any member of the Company Group who may be offered securities registrable pursuant to a registration statement on Form S-8 under the Securities Act, who, in the case of each of clauses (i) through (iii) above has entered into an Award Agreement or who has received written notification from the Committee or its designee that they have been selected to participate in the Plan.
(w) “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and any successor thereto. Reference in the Plan to any section of (or rule promulgated under) the Exchange Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.
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(x) “Exercise Price” has the meaning given to such term in Section 7(b) of the Plan.
(y) “Fair Market Value” means, as of any date, the fair market value of a Share, as reasonably determined by the Company, which may include, without limitation, the closing sales price on the trading day immediately prior to or on such date, or a trailing average of previous closing prices prior to such date.
(z) “GAAP” has the meaning given to such term in Section 7(d) of the Plan.
(aa) “Grant Date Fair Market Value” means, as of a Date of Grant, (i) if the Common Stock is listed on a national securities exchange, the closing sales price of the Common Stock reported on the primary exchange on which the Common Stock is listed and traded on such date, or, if there are no such sales on that date, then on the last preceding date on which such sales were reported; (ii) if the Common Stock is not listed on any national securities exchange but is quoted in an inter-dealer quotation system on a last sale basis, the average between the closing bid price and ask price reported on such date, or, if there is no such sale on that date, then on the last preceding date on which a sale was reported; or (iii) if the Common Stock is not listed on a national securities exchange or quoted in an inter-dealer quotation system on a last sale basis, the amount determined by the Committee acting in good faith, under a reasonable methodology and reasonable application in compliance with Section 409A of the Code to the extent such determination is necessary for Awards under the Plan to comply with, or be exempt from, Section 409A of the Code.
(bb) “Immediate Family Members” has the meaning given to such term in Section 13(b) of the Plan.
(cc) “Incentive Stock Option” means an Option which is designated by the Committee as an incentive stock option as described in Section 422 of the Code and otherwise meets the requirements set forth in the Plan.
(dd) “Indemnifiable Person” has the meaning given to such term in Section 4(e) of the Plan.
(ee) “Non-Employee Director” means a member of the Board who is not an employee of any member of the Company Group.
(ff) “Nonqualified Stock Option” means an Option which is not designated by the Committee, or otherwise fails to qualify, as an Incentive Stock Option.
(gg) “Option” means an Award granted under Section 7 of the Plan.
(hh) “Option Period” has the meaning given to such term in Section 7(c) of the Plan.
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(ii) “Other Equity-Based Award” means an Award that is not an Option, Restricted Stock or Restricted Stock Unit, that is granted under Section 10 of the Plan and is (i) payable by delivery of Common Stock, and/or (ii) measured by reference to the value of Common Stock.
(jj) “Participant” means an Eligible Person who has been selected by the Committee to participate in the Plan and has been granted an Award pursuant to the Plan.
(kk) “Performance-Based Award” has the meaning given to such term in Section 11(b) of the Plan.
(ll) “Permitted Transferee” has the meaning given to such term in Section 13(b) of the Plan.
(mm) “Person” means any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act).
(nn) “Plan” means this Ainos, Inc. 2021 Stock Incentive Plan, as it may be amended and/or restated from time to time.
(oo) “Plan Share Reserve” has the meaning given to such term in Section 5(b) of the Plan.
(pp) “Qualifying Director” means a person who is with respect to actions intended to obtain an exemption from Section 16(b) of the Exchange Act pursuant to Rule 16b-3 under the Exchange Act, a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act.
(qq) “Qualifying Termination” means, unless otherwise defined in the Award Agreement, a Termination (i) by the Service Recipient other than for Cause, or (ii) by reason of such Participant’s death or Disability, in each case on or within a twelve (12) months following a Change in Control, or such other period as specified by the Committee.
(rr) “Restricted Period” means the period of time determined by the Committee during which an Award is subject to restrictions, including vesting conditions.
(ss) “Restricted Stock” means Common Stock, subject to certain specified restrictions (which may include, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 8 of the Plan.
(tt) “Restricted Stock Unit” means an unfunded and unsecured promise to deliver Shares, cash, other securities or other property, subject to certain restrictions (which may include, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 8 of the Plan.
(uu) “SAR Base Price” means, as to any Stock Appreciation Right, the price per Share designated as the base value above which appreciation in value is measured.
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(vv) “SEC” means the U.S. Securities and Exchange Commission.
(ww) “Securities Act” means the U.S. Securities Act of 1933, as amended, and any successor thereto. Reference in the Plan to any section of (or rule promulgated under) the Securities Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.
(xx) “Service Recipient” means, with respect to an individual holding a given Award, the member of the Company Group by which the original recipient of such Award is, or following a Termination was most recently, principally employed or to which such original recipient provides, or following a Termination was most recently providing, services, as applicable.
(yy) “Share” means a share of Common Stock.
(zz) “Stock Appreciation Right” or “SAR” means an Other-Equity Based Award designated in an applicable Award Agreement as a stock appreciation right, granted under Section 9 of the Plan.
(aaa) “Subsidiary” means, with respect to any specified Person:
(i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of such entity’s voting securities (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(ii) for purposes of granting Incentive Stock Options, any Person or other entity that qualifies as a “subsidiary corporation” under Section 424(f) of the Code.
(bbb) “Substitute Award” has the meaning given to such term in Section 5(f) of the Plan.
(ccc) “Sub-Plans” means any sub-plan to the Plan that has been adopted by the Board or the Committee for the purpose of (i) accommodating and incorporating the legal and/or regulatory requirements of a Designated Foreign Subsidiary or otherwise outside the U.S. where an Eligible Person is located in order to permit the offering of Awards to such Eligible Person, (ii) to facilitate the administration of the Plan or (iii) to obtain favorable tax treatment that may be available in a jurisdiction where an Eligible Person is located.. Each Sub-Plan shall be designed to comply with Applicable Laws applicable to offerings in the local jurisdictions. Although any Sub-Plan may be designated a separate and independent plan from the Plan in order to comply with Applicable Laws, the Plan Share Reserve and the other limits specified in Section 5 of the Plan shall apply in the aggregate to the Plan and any Sub-Plan adopted hereunder.
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(ddd) “Tax-Related Items” means any U.S. federal, state, and/or local taxes and/or any non-U.S. taxes (including, without limitation, income tax, social insurance contributions (or similar contributions), payroll tax, fringe benefits tax, payment on account, employment tax, stamp tax and any other tax or tax-related item related to participation in the Plan and legally applicable to a Participant, including any employer liability for which the Participant is liable pursuant to Applicable Laws or the applicable Award Agreement.
(eee) “Termination” means the termination of a Participant’s employment or service, as applicable, with the Service Recipient for any reason (including death).
(fff) “U.S.” means the United States of America.
3. Effective Date; Duration. The Plan shall be effective as of the Effective Date. The expiration date of the Plan, on and after which date no Awards may be granted hereunder, shall be the tenth (10th) anniversary of the earlier of the date the Board adopts the Plan and the date the Company’s shareholders approve the Plan; provided, however, that such expiration shall not affect Awards then outstanding, and the terms and conditions of the Plan shall continue to apply to such Awards.
4. Administration.
(a) General. The Committee shall administer the Plan. To the extent required to comply with the provisions of Rule 16b-3 promulgated under the Exchange Act (if the Board is not acting as the Committee under the Plan) it is intended that each member of the Committee shall, at the time such member takes any action with respect to an Award under the Plan that is intended to qualify for the exemptions provided by Rule 16b-3 promulgated under the Exchange Act be a Qualifying Director. However, the fact that a Committee member shall fail to qualify as a Qualifying Director shall not invalidate any Award granted by the Committee that is otherwise validly granted under the Plan.
(b) Committee Authority. Subject to the provisions of the Plan and Applicable Laws, the Committee shall have the sole and plenary authority, in addition to other express powers and authorizations conferred on the Committee by the Plan, to (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number of Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine whether any Award subject to vesting may receive accelerated vesting treatment; (vi) determine whether, to what extent, and under what circumstances Awards may be settled in, or exercised for, cash, Shares, other securities, other Awards or other property, or canceled, forfeited, or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vii) determine whether, to what extent, and under what circumstances the delivery of cash, Shares, other securities, other Awards, or other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the Participant or of the Committee; (viii) interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan and any instrument or agreement relating to, or Award granted under, the Plan; (ix) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Committee shall deem appropriate for the proper administration of the Plan; (x) amend outstanding Awards subject to the provisions of Section 11(b) fo the Plan; adopt Sub-Plans; and (xi) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan, including to accommodate any specific requirements of local laws, regulations, and procedures for any jurisdiction.
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(c) Delegation. Except to the extent prohibited by Applicable Laws, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it. Any such allocation or delegation may be revoked by the Committee at any time. Without limiting the generality of the foregoing, the Committee may delegate to one or more officers of any member of the Company Group, the authority to act on behalf of the Committee with respect to any matter, right, obligation, or election which is the responsibility of, or which is allocated to, the Committee herein, and which may be so delegated as a matter of law, except with respect to grants of Awards to persons (i) who are Non-Employee Directors, or (ii) who are subject to Section 16 of the Exchange Act.
(d) Finality of Decisions. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan, any Award or any Award Agreement shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all Persons, including, without limitation, any member of the Company Group, any Participant, any holder or beneficiary of any Award, and any stockholder of the Company.
(e) Indemnification. No member of the Board, the Committee or any employee or agent of any member of the Company Group (each such Person, an “Indemnifiable Person”) shall be liable for any action taken or omitted to be taken or any determination made with respect to the Plan or any Award hereunder (unless constituting fraud or a willful criminal act or omission). Each Indemnifiable Person shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense (including attorneys’ fees) that may be imposed upon or incurred by such Indemnifiable Person in connection with or resulting from any action, suit or proceeding to which such Indemnifiable Person may be a party or in which such Indemnifiable Person may be involved by reason of any action taken or omitted to be taken or determination made with respect to the Plan or any Award hereunder and against and from any and all amounts paid by such Indemnifiable Person with the Company’s approval, in settlement thereof, or paid by such Indemnifiable Person in satisfaction of any judgment in any such action, suit or proceeding against such Indemnifiable Person, and the Company shall advance to such Indemnifiable Person any such expenses promptly upon written request (which request shall include an undertaking by the Indemnifiable Person to repay the amount of such advance if it shall ultimately be determined, as provided below, that the Indemnifiable Person is not entitled to be indemnified); provided, that the Company shall have the right, at its own expense, to assume and defend any such action, suit or proceeding and once the Company gives notice of its intent to assume the defense, the Company shall have sole control over such defense with counsel of the Company’s choice. The foregoing right of indemnification shall not be available to an Indemnifiable Person to the extent that a final judgment or other final adjudication (in either case not subject to further appeal) binding upon such Indemnifiable Person determines that the acts, omissions or determinations of such Indemnifiable Person giving rise to the indemnification claim resulted from such Indemnifiable Person’s fraud or willful criminal act or omission or that such right of indemnification is otherwise prohibited by law or by the organizational documents of any member of the Company Group. The foregoing right of indemnification shall not be exclusive of or otherwise supersede any other rights of indemnification to which such Indemnifiable Persons may be entitled under the organizational documents of any member of the Company Group, as a matter of law, under an individual indemnification agreement or contract or otherwise, or any other power that the Company may have to indemnify such Indemnifiable Persons or hold such Indemnifiable Persons harmless.
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(f) Board Authority. Notwithstanding anything to the contrary contained in the Plan, the Board may, in its sole discretion, at any time and from time to time, grant Awards and administer the Plan with respect to such Awards. Any such actions by the Board shall be subject to Applicable Laws. In any such case, the Board shall have all the authority granted to the Committee under the Plan.
5. Grant of Awards; Shares Subject to the Plan; Limitations.
(a) Grants. The Committee may, from time to time, grant Awards to one or more Eligible Persons.
(b) Share Reserve. Subject to Section 11 of the Plan, the aggregate number of Shares which may be issued or transferred pursuant to Awards under the Plan shall be equal to 20,000,000 shares of Common Stock (the “Plan Share Reserve”), and from and after the Effective Date, no further grants shall be made under the Prior Plans. Further, the number of Shares underlying any award granted under the Prior Plans that expires, terminates or is canceled or forfeited for any reason whatsoever under the terms of the Prior Plans, shall 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.
(c) Additional Limits. Subject to Section 11 of the Plan, no more than 10,000,000 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 Non-Employee Director during the fiscal year, shall not exceed USD 600,000 in total value (calculating the value of any such Awards based on the grant date fair value of such Awards for financial reporting purposes).
(d) Share Counting. Other than with respect to Substitute Awards, to the extent that an Award expires or is canceled, forfeited, or terminated without issuance to the Participant of the full number of Shares to which the Award related, the unissued shares will be returned for future grant under the Plan. Shares that have actually been issued under the Plan under any Award will not be returned to the Plan and will not become available for issuance under the Plan.. Shares withheld in payment of the Exercise Price or Tax-Related Items with respect to Awards will be returned to the Plan Share Reserve for future grants of Awards under the Plan and shall not reduce the Plan Share Reserve. To the extent an award under the Plan is paid out in cash rather than Shares, such cash payment shall not reduce the number of Shares available for issuance under the Plan Share Reserve
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(e) Source of Shares. Shares issued by the Company in settlement of Awards may be authorized and unissued shares, shares held in the treasury of the Company, shares purchased on the open market or by private purchase or a combination of the foregoing.
(f) Substitute Awards. Awards may, in the sole discretion of the Committee, be granted under the Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity directly or indirectly acquired by the Company or with which the Company combines (“Substitute Awards”). Substitute Awards shall not be counted against the Plan Share Reserve; provided, that Substitute Awards issued in connection with the assumption of, or in substitution for, outstanding options intended to qualify as “incentive stock options” within the meaning of Section 422 of the Code shall be counted against the aggregate number of Shares available for Awards of Incentive Stock Options under the Plan. Subject to applicable stock exchange requirements, available shares under a stockholder-approved plan of an entity directly or indirectly acquired by the Company or with which the Company combines (as appropriately adjusted to reflect the acquisition or combination transaction) may be used for Awards under the Plan and shall not reduce the number of Shares available for issuance under the Plan.
6. Eligibility. Participation in the Plan shall be limited to Eligible Persons.
7. Options.
(a) General. Each Option granted under the Plan shall be evidenced by an Award Agreement, which agreement need not be the same for each Participant. Each Option so granted shall be subject to the conditions set forth in this Section 7, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. All Options granted under the Plan shall be Nonqualified Stock Options unless the applicable Award Agreement expressly states that the Option is intended to be an Incentive Stock Option. Incentive Stock Options shall be granted only to Eligible Persons who are employees of a member of the Company Group, and no Incentive Stock Option shall be granted to any Eligible Person who is ineligible to receive an Incentive Stock Option under the Code. No Option shall be treated as an Incentive Stock Option unless the Plan has been approved by the stockholders of the Company in a manner intended to comply with the stockholder approval requirements of Section 422(b)(1) of the Code, provided that any Option intended to be an Incentive Stock Option shall not fail to be effective solely on account of a failure to obtain such approval, but rather such Option shall be treated as a Nonqualified Stock Option unless and until such approval is obtained. In the case of an Incentive Stock Option, the terms and conditions of such grant shall be subject to, and comply with, such rules as may be prescribed by Section 422 of the Code. If for any reason an Option intended to be an Incentive Stock Option (or any portion thereof) shall not qualify as an Incentive Stock Option, then, to the extent of such nonqualification, such Option or portion thereof shall be regarded as a Nonqualified Stock Option appropriately granted under the Plan.
(b) Exercise Price. Except as otherwise provided by the Committee in the case of Substitute Awards, the exercise price (“Exercise Price”) per Share for each Option shall not be less than 100% of the Grant Date Fair Market Value of such Share; provided, however, that in the case of an Incentive Stock Option granted to an employee who, at the time of the grant of such Option, owns stock representing more than 10% of the voting power of all classes of stock of any member of the Company Group that also qualifies as a “subsidiary corporation” under Section 424(f) of the Code, the Exercise Price per Share shall not be less than 110% of the Grant Date Fair Market Value per Share.
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(c) Vesting and Expiration.
(i) Options shall vest and become exercisable in such manner and on such date or dates or upon such event or events as determined by the Committee.
(ii) Options shall expire upon a date determined by the Committee, not to exceed ten (10) years from the Date of Grant (the “Option Period”); provided, that if the Option Period (other than in the case of an Incentive Stock Option) would expire at a time when trading in the Shares is prohibited by Applicable Laws, then the Option Period shall be automatically extended until the thirtieth (30th) day following the expiration of such prohibition. Notwithstanding the foregoing, in no event shall the Option Period exceed five (5) years from the Date of Grant in the case of an Incentive Stock Option granted to a Participant who on the Date of Grant owns stock representing more than 10% of the voting power of all classes of stock of the Company or any member of the Company Group that qualifies as a “subsidiary corporation” under Section 424(f) of the Code.
(d) Method of Exercise and Form of Payment. No Shares shall be issued pursuant to any exercise of an Option until payment in full of the Exercise Price therefore is received by the Company and the Participant has paid to the Company (or one or more of its Subsidiaries or Affiliates, as applicable) an amount equal to any Tax-Related Items. Options that have become exercisable may be exercised by delivery of a notice of exercise in such form and accordance with such procedures as the Committee may specify from time to time accompanied by payment of the Exercise Price. The Exercise Price shall be payable: (i) in cash, check, cash equivalent and/or Shares valued at the Fair Market Value at the time the Option is exercised (including, pursuant to procedures approved by the Committee, by means of attestation of ownership of a sufficient number of Shares in lieu of actual issuance of such shares to the Company); provided, that such Shares are not subject to any pledge or other security interest and have been held by the Participant for at least six (6) months (or such other period as established from time to time by the Committee in order to avoid adverse accounting treatment applying generally accepted accounting principles (“GAAP”)); or (ii) by such other method as the Committee may permit, in its sole discretion, including, without limitation (A) in other property having a fair market value on the date of exercise equal to the Exercise Price; (B) by means of a broker-assisted “cashless exercise” pursuant to which the Company is delivered (including telephonically to the extent permitted by the Committee) a copy of irrevocable instructions to a stockbroker to sell the Shares otherwise issuable upon the exercise of the Option and to deliver promptly to the Company an amount equal to the Exercise Price; or (C) a “net exercise” procedure effected by withholding the minimum number of Shares otherwise issuable in respect of an Option that are needed to pay the Exercise Price. The permissible methods of payment of the Exercise Price with respect to a particular Option grant may be specified in the applicable Award Agreement. Any fractional Shares shall be settled in cash.
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(e) Notification upon Disqualifying Disposition of an Incentive Stock Option. Each Participant awarded an Incentive Stock Option under the Plan shall notify the Company in writing immediately after the date the Participant makes a disqualifying disposition of any Shares acquired pursuant to the exercise of such Incentive Stock Option. A disqualifying disposition is any disposition (including, without limitation, any sale) of such Shares before the later of (i) the date that is two (2) years after the Date of Grant of the Incentive Stock Option, or (ii) the date that is one (1) year after the date of exercise of the Incentive Stock Option. The Company may, if determined by the Committee and in accordance with procedures established by the Committee, retain possession, as agent for the applicable Participant, of any Shares acquired pursuant to the exercise of an Incentive Stock Option until the end of the period described in the preceding sentence, subject to complying with any instructions from such Participant as to the sale of such Shares.
8. Restricted Stock and Restricted Stock Units.
(a) General. Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by an Award Agreement. Each Restricted Stock and Restricted Stock Unit so granted shall be subject to the conditions set forth in this Section 8, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement.
(b) Book-Entry; Escrow or Similar Arrangement. Upon the grant of Restricted Stock, the Committee shall cause Share(s) to be held in book-entry form subject to the Company’s directions and, if the Committee determines that the Restricted Stock shall be held by the Company or in escrow rather than issued to the Participant pending the release of the applicable restrictions, the Committee may require the Participant to additionally execute and deliver to the Company (i) an escrow agreement satisfactory to the Committee, if applicable; and (ii) the appropriate stock power (endorsed in blank) with respect to the Restricted Stock covered by such agreement. Subject to the restrictions set forth in this Section 8, Section 13(c) of the Plan and the applicable Award Agreement, a Participant generally shall have the rights and privileges of a stockholder as to shares of Restricted Stock, including, without limitation, the right to vote such Restricted Stock. To the extent shares of Restricted Stock are forfeited, all rights of the Participant to such shares and as a stockholder with respect thereto shall terminate without further obligation on the part of the Company. A Participant shall have no rights or privileges as a stockholder as to Restricted Stock Units.
(c) Vesting. Restricted Stock and Restricted Stock Units shall vest, and any applicable Restricted Period shall lapse, in such manner and on such date or dates or upon such event or events as determined by the Committee.
(d) Issuance of Restricted Stock and Settlement of Restricted Stock Units.
(i) Upon the expiration of the Restricted Period with respect to any shares of Restricted Stock, the restrictions set forth in the applicable Award Agreement shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award Agreement. If an escrow arrangement is used, upon such expiration, the Company shall issue to the Participant, or the Participant’s beneficiary, without charge, the shares of Restricted Stock which have not then been forfeited and with respect to which the Restricted Period has expired (rounded down to the nearest full share).
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(ii) Unless otherwise provided by the Committee in an Award Agreement or otherwise, upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units, the Company shall issue to the Participant or the Participant’s beneficiary, without charge, one (1) Share (or other securities or other property, as applicable) for each such outstanding Restricted Stock Unit; provided, however, that the Committee may, in its sole discretion, elect to (A) pay cash or part cash and part Shares in lieu of issuing only Shares in respect of such Restricted Stock Units; or (B) defer the issuance of Shares (or cash or part cash and part Shares, as the case may be) beyond the expiration of the Restricted Period if such extension would not cause adverse tax consequences under Section 409A of the Code. If a cash payment is made in lieu of issuing Shares in respect of such Restricted Stock Units, the amount of such payment shall be equal to the Fair Market Value per Share as of the date upon which the Restricted Stock Units are settled. Unless the Committee provides otherwise, any fractional Shares may be settled in cash or rounded to the next whole number of Shares, in the sole discretion of the Company.
9. STOCK APPRECIATION RIGHTS
(a) General. Each SAR granted under the Plan shall be evidenced by an Award Agreement, which agreement need not be the same for each Participant. Each SAR so granted shall be subject to the conditions set forth in this Section 9, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement.
(b) SAR Base Price. Except as otherwise provided by the Committee in the case of Substitute Awards, the SAR Base Price for each SAR shall not be less than 100% of the Grant Date Fair Market Value of such Share.
(c) Vesting and Expiration.
(i) SARs shall vest and become exercisable in such manner and on such date or dates or upon such event or events as determined by the Committee.
(ii) SARs shall expire upon a date determined by the Committee, not to exceed ten (10) years from the Date of Grant.
(d) Time and Conditions of Exercise. A SAR shall entitle the Participant (or other person entitled to exercise the SAR pursuant to the Plan) to exercise all or a specified portion of the SAR (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount equal to the excess of the aggregate Fair Market Value of the Shares on the date the SAR is exercised over the SAR Base Price, less applicable Tax-Related Items, subject to any limitations the Committee may impose. Payment of the amounts determined under this Section 9(d) shall be in cash, in Shares (based on the Fair Market Value of the Shares as of the date the SAR is exercised) or a combination of both, as determined by the Committee in the Award Agreement. Any fractional Shares shall be settled in cash. SARs that have become exercisable may be exercised by delivery of a notice of exercise to the Company (in such form as the Committee may specify from time to time). Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no dividends or Dividend Equivalent Right shall be paid, and no right to vote or receive dividends or Dividend Equivalent Rights or any other rights as a shareholder shall exist with respect to the Shares subject to a SAR, notwithstanding the exercise of the SAR.
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(e) Tandem SARs. A SAR may be granted in connection with an Option, either at the time of grant or at any time thereafter during the term of the Option. A SAR granted in connection with an Option will entitle the holder, upon exercise, to surrender the Option or any portion thereof to the extent unexercised, with respect to the number of Shares as to which such SAR is exercised, and to receive payment of an amount computed as described in Section 9(d). The Option shall, to the extent and when surrendered, cease to be exercisable. A SAR granted in connection with an Option hereunder will have a SAR Base Price equal to the Exercise Price of the Option, will be exercisable at such time or times, and only to the extent, that the related Option is exercisable, and will expire no later than the related Option expires. If a related Option is exercised in whole or in part, then the SAR related to the Shares purchased terminates as of the date of such exercise.
10. Other Equity-Based Awards. The Committee may grant Other Equity-Based Awards under the Plan, denominated in Shares or based upon the value or otherwise related to the Shares, to Eligible Persons, alone or in tandem with other Awards, in such amounts and, dependent on such other conditions as the Committee shall from time to time in its sole discretion determine. Each Other Equity-Based Award granted under the Plan shall be evidenced by an Award Agreement and shall be subject to such conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement.
11. Changes in Capital Structure and Similar Events. Notwithstanding any other provision in this Plan to the contrary, the following provisions shall apply to all Awards granted hereunder:
(a) General. In the event of (i) any dividend (other than regular cash dividends) or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, split-off, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to acquire Shares or other securities of the Company, or other similar corporate transaction or event that affects the Shares (including a Change in Control); or (ii) unusual or nonrecurring events affecting the Company, including changes in Applicable Laws, that the Committee determines, in its sole discretion, could result in substantial dilution or enlargement of the rights intended to be granted to, or available for, Participants (any event in (i) or (ii), an “Adjustment Event”), the Committee shall, in respect of any such Adjustment Event, make such proportionate substitution or adjustment, if any, as it deems equitable, to any or all of (A) the Plan Share Reserve, or any other limit applicable under the Plan with respect to the number of Awards which may be granted hereunder; (B) the number of Shares or other securities of the Company (or number and kind of other securities or other property) which may be issued in respect of Awards or with respect to which Awards may be granted under the Plan or any Sub-Plan; and (C) the terms of any outstanding Award, including, without limitation, (I) the number of Shares or other securities of the Company (or number and kind of other securities or other property) subject to outstanding Awards or to which outstanding Awards relate; (II) the Exercise Price or SAR Base Price with respect to any Option or SAR, as applicable or any amount payable as a condition of issuance of Shares (in the case of any other Award); or (III) any applicable performance measures; provided, that in the case of any “equity restructuring” (within the meaning of the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor pronouncement thereto)), the Committee shall make an equitable or proportionate adjustment to outstanding Awards to reflect such equity restructuring.
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(b) Change in Control. In the event of a Change in Control, without limiting the foregoing and unless otherwise provided in an Award Agreement or determined by the Committee, in its sole discretion, the following provisions shall apply.
(i) Outstanding Awards with Time-Based Vesting. All outstanding Awards subject to vesting based on the Participant’s continued service over a period of time (“Time-Based Awards”) shall be assumed by the surviving or acquiring entity, or its Affiliates (the “Continuing Entity”), or substituted for new cash or equity-based awards of such Continuing Entity, as provided in the merger or acquisition agreement, or if no such assumption or substitution is provided for, all outstanding Time-Based Awards shall become fully vested and, to the extent applicable, exercisable and all forfeiture restrictions on such Awards shall lapse. To the extent that any Time-Based Awards are to be assumed or substituted, the Committee may provide that the vesting of any unvested portion of any one or more of such Awards will automatically accelerate upon a Participant’s Qualifying Termination.
(ii) Outstanding Awards with Performance-Based Vesting. All outstanding unvested Awards subject to vesting based on the achievement of performance criteria (“Performance-Based Awards”) shall vest in accordance with the provisions set forth in the Award Agreement..
(iii) Cancellation of Awards. In connection with a Change in Control, the Committee may, in its sole discretion, but shall not be obligated to, provide for cancellation of all or any portion of any one or more outstanding Awards and payment to the holders of such Awards, with respect to the portion of such Awards that are vested as of such cancellation (including, without limitation, any Awards that would vest in accordance with the terms of such Award or in accordance with this Section 11(b)(i) or (ii) hereof, as applicable), the value of the vested portion of such Awards, if any, as determined by the Committee (which value, if applicable, may be based upon the per-share consideration received or to be received by the holders of the Shares upon the occurrence of the Change in Control (the “Change in Control Consideration”), including, without limitation, in the case of an outstanding Option or SAR, a cash payment in an amount equal to the excess, if any, of the Change in Control Consideration over the per-share Exercise Price or SAR Base Price, as applicable, of such Option or SAR, multiplied by the number of Shares underlying the vested portion of each such Option or SAR. Payments to holders with respect to the vested portion of such cancelled Awards pursuant to this Section 11(b)(iii) shall be made in cash or, in the sole discretion of the Committee, in such other form of consideration necessary for such holders to receive the property, cash, securities, and/or other consideration (or any combination thereof) as such holders would have been entitled to receive upon the occurrence of the Change in Control as if such holders had been, immediately prior to such Change in Control, the holder of the number of Shares covered by the vested portion of such cancelled Awards (less any applicable Exercise Price or SAR Base Price). The unvested portion of any outstanding Award, and the vested portion of any Option or SAR having an Exercise or Strike Price equal to, or in excess of, the Change in Control Consideration, may be canceled and terminated without any payment or consideration therefor.
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For purposes of Section 11(b)(i) above, the assumption or substitution of an Award may include conversion of the Shares underlying such Award into shares of the Continuing Entity, or, subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code, into cash, property or other securities having an equivalent value as the Award, which conversion shall not affect any continued vesting requirements of the Award (other than as provided in Clause (i) above upon a Participant’s Qualifying Termination). For the avoidance of doubt, any such substitution of an Award shall not provide for the acceleration of any vesting requirements of the Award (other than as provided in Clause (i) above upon a Participant’s Qualifying Termination) and no Awards shall vest solely as a result of such assumption or substitution.
(c) Other Requirements. Prior to any payment or adjustment contemplated under this Section 11, the Committee may require a Participant to (i) represent and warrant as to the unencumbered title to the Participant’s Awards; (ii) bear such Participant’s pro rata share of any post-closing indemnity obligations, and be subject to the same post-closing purchase price adjustments, escrow terms, offset rights, holdback terms, and similar conditions as the other holders of Common Stock, subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code; and (iii) deliver customary transfer documentation as reasonably determined by the Committee.
(d) Fractional Shares. Any adjustment provided under this Section 11 may provide for the elimination of any fractional share that might otherwise become subject to an Award.
(e) Binding Effect. Any adjustment, substitution, determination of value or other action taken by the Committee under this Section 11 shall be conclusive and binding for all purposes.
12. Amendments and Termination.
(a) Amendment and Termination of the Plan. The Board or the Committee may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided, that no such amendment, alteration, suspension, discontinuance or termination shall be made without stockholder approval if such approval is necessary to comply with Applicable Laws; provided, further, that any such amendment, alteration, suspension, discontinuance or termination that would materially and adversely affect the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary, except that no such consent shall be required to the extent that the Committee determines, in its sole discretion, that any such action is necessary or desirable to facilitate compliance with Applicable Laws. Notwithstanding the foregoing, no amendment shall be made to Section 12(c) of the Plan without stockholder approval.
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(b) Amendment of Award Agreements. The Committee may, to the extent consistent with the terms of the Plan and any applicable Award Agreement, waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted or the associated Award Agreement, prospectively or retroactively (including after a Participant’s Termination); provided, that, other than pursuant to Section 11, any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely affect the rights of any Participant with respect to any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant, except that no such consent shall be required to the extent that the Committee determines, in its sole discretion, that any such action is necessary or desirable to facilitate compliance with Applicable Laws.
(c) No Repricing. Notwithstanding anything in the Plan to the contrary, without stockholder approval, except as otherwise permitted under Section 11 of the Plan, (i) no amendment or modification may reduce the Exercise Price of any Option or the SAR Base Price of any SAR; (ii) the Committee may not cancel any outstanding Option or SAR and replace it with a new Option or SAR (with a lower Exercise Price or SAR Base Price, as the case may be) or other Award or cash payment that is greater than the intrinsic value (if any) of the cancelled Option or SAR; and (iii) the Committee may not take any other action which is considered a “repricing” for purposes of the stockholder approval rules of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or quoted.
13. General.
(a) Award Agreements. Each Award under the Plan shall be evidenced by an Award Agreement, which shall be delivered to the Participant to whom such Award was granted and shall specify the terms and conditions of the Award and any rules applicable thereto, including, without limitation, the effect on such Award of the death, Disability or Termination of a Participant, or of such other events as may be determined by the Committee. For purposes of the Plan, an Award Agreement may be in any such form (written or electronic) as determined by the Committee (including, without limitation, a Board or Committee resolution, an employment agreement, a notice, a certificate or a letter) evidencing the Award. The Committee need not require an Award Agreement to be signed by the Participant or a duly authorized representative of the Company.
(b) Nontransferability.
(i) Each Award shall be exercisable only by such Participant to whom such Award was granted during the Participant’s lifetime, or, if permissible under Applicable Laws, by the Participant’s legal guardian or representative. No Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant (unless such transfer is specifically required pursuant to a domestic relations order or by Applicable Laws) other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against any member of the Company Group; provided, that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
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(ii) Notwithstanding the foregoing and subject to Applicable Laws, the Committee may, in its sole discretion, permit Awards (other than Incentive Stock Options) to be transferred by a Participant residing in the U.S., without consideration, subject to such rules as the Committee may adopt consistent with any applicable Award Agreement to preserve the purposes of the Plan, to (A) any person who is a “family member” of the Participant, as such term is used in the instructions to Form S-8 under the Securities Act or any successor form of registration statement promulgated by the SEC (collectively, the “Immediate Family Members”); (B) a trust solely for the benefit of the Participant and the Participant’s Immediate Family Members; (C) a partnership or limited liability company whose only partners or stockholders are the Participant and the Participant’s Immediate Family Members; or (D) a beneficiary to whom donations are eligible to be treated as “charitable contributions” for federal income tax purposes (each transferee described in clauses (A), (B), (C) and (D) above is hereinafter referred to as a “Permitted Transferee”); provided, that the Participant gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the Participant in writing that such a transfer would comply with the requirements of the Plan. For the avoidance of doubt, Awards granted to Participants residing outside the U.S. are not transferable to Permitted Transferees.
(iii) The terms of any Award transferred in accordance with clause (ii) above shall apply to the Permitted Transferee and any reference in the Plan, or in any applicable Award Agreement, to a Participant shall be deemed to refer to the Permitted Transferee, except that (A) Permitted Transferees shall not be entitled to transfer any Award, other than by will or the laws of descent and distribution; (B) Permitted Transferees shall not be entitled to exercise any transferred Option unless there shall be in effect a registration statement on an appropriate form covering the Shares to be acquired pursuant to the exercise of such Option if the Committee determines, consistent with any applicable Award Agreement, that such a registration statement is necessary or appropriate; (C) neither the Committee nor the Company shall be required to provide any notice to a Permitted Transferee, whether or not such notice is or would otherwise have been required to be given to the Participant under the Plan or otherwise; and (D) the consequences of a Participant’s Termination under the terms of the Plan and the applicable Award Agreement shall continue to be applied with respect to the Participant, including, without limitation, that an Option shall be exercisable by the Permitted Transferee only to the extent, and for the periods, specified in the Plan and the applicable Award Agreement.
(c) Dividends and Dividend Equivalent Rights.
(i) The Committee may, in its sole discretion, grant Dividend Equivalent Rights, payable in cash, Shares, other securities, other Awards or other property, on a current or deferred basis, on such terms and conditions as may be determined by the Committee in its sole discretion, including, without limitation, payment directly to the Participant, withholding of such amounts by the Company subject to vesting of the Award or reinvestment in additional Shares.
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(ii) Any dividend or Dividend Equivalent Right otherwise payable in respect of any Share of Restricted Stock or Restricted Stock Unit (or other full-value Award) that remains subject to vesting conditions at the time of payment of such dividend shall not be paid to the Participant to the extent the underlying Award does not vest.
(d) Tax Withholding. The Company and its Subsidiaries and Affiliates shall be entitled to withhold, or require a Participant to remit to the Company or one or more of its Subsidiaries or Affiliates, as applicable, the amount of any Tax-Related Items attributable to any Awards. The Company may defer making payment or delivery of Shares under an Award if any such Tax-Related Items may be pending unless and until indemnified to its satisfaction, and the Company shall have no liability to any Participant for exercising the foregoing right. The Committee may, in its sole discretion and subject to such rules as it may adopt, permit or require a Participant to pay all or a portion of the Tax-Related Items arising in connection with an Award by, without limitation: (i) having the Participant pay an amount in cash (by check or wire transfer), (ii) having the Company withhold Shares otherwise issuable pursuant to the Award that have an aggregate Fair Market Value approximately equal to the amount to be withheld, (iii) the delivery of Shares (which are not subject to any pledge or other security interest) that have been both held by the Participant and vested for at least six (6) months (or such other period as established from time to time by the Committee to avoid adverse accounting treatment under applicable accounting standards) having an aggregate Fair Market Value approximately equal to the amount to be withheld, (iii) selling Shares issued pursuant to such Award and having the Company withhold from the proceeds of the sale of such Shares, (v) having the Company or a Subsidiary or Affiliate, as applicable, withhold from any cash compensation payable to the Participant, (vi) requiring the Participant to repay the Company or Subsidiary or Affiliate, as applicable, in cash or in Shares, for Tax-Related Items paid on the Participant’s behalf, or (vii) any other method of withholding determined by the Committee that is permissible under Applicable Laws.
(e) No Claim to Awards; No Rights to Continued Employment; Waiver. No employee of any member of the Company Group, or other Person, shall have any claim or right to be granted an Award under the Plan or, having been selected for the grant of an Award, to be selected for a grant of any other Award. There is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards and the Committee’s determinations and interpretations with respect thereto need not be the same with respect to each Participant and may be made selectively among Participants, whether or not such Participants are similarly situated. Neither the Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ or service of the Service Recipient or any other member of the Company Group, nor shall it be construed as giving any Participant any rights to continued service on the Board. The Service Recipient or any other member of the Company Group may at any time dismiss a Participant from employment or discontinue any consulting relationship, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or any Award Agreement. By accepting an Award under the Plan, a Participant shall thereby be deemed to have waived any claim to continued exercise or vesting of an Award or to damages or severance entitlement related to non-continuation of the Award beyond the period provided under the Plan or any Award Agreement, except to the extent of any provision to the contrary in any written employment contract or other agreement between the Service Recipient and/or any member of the Company Group and the Participant, whether any such agreement is executed before, on or after the Date of Grant.
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(f) International Participants. With respect to Participants who reside or work outside of the U.S., the Committee may, in its sole discretion, amend the terms of the Plan and create or amend Sub-Plans or amend outstanding Awards with respect to such Participants in order to conform such terms with the requirements of local law, to obtain more favorable tax or other treatment for a Participant or any member of the Company Group, or to facilitate administration of the Plan.
(g) Termination. Except as otherwise provided in an Award Agreement, unless determined otherwise by the Committee at any point following such event: (i) neither a temporary absence from employment or service due to illness, vacation or leave of absence nor a transfer from employment or service with one member of the Company Group to employment or service with another member of the Company Group (or vice-versa) shall be considered a Termination; and (ii) if a Participant undergoes a Termination of employment, but such Participant continues to provide services to the Company Group in a non-employee capacity, such change in status shall not be considered a Termination for purposes of the Plan. Further, unless otherwise determined by the Committee, in the event that any Service Recipient ceases to be a member of the Company Group (by reason of sale, divestiture, spin-off or other similar transaction), unless a Participant’s employment or service is transferred to another entity that would constitute a member of the Company Group immediately following such transaction, such Participant shall be deemed to have suffered a Termination hereunder as of the date of the consummation of such transaction.
(h) No Rights as a Stockholder. Except as otherwise specifically provided in the Plan or any Award Agreement, no Person shall be entitled to the privileges of ownership in respect of Shares which are subject to Awards hereunder until such shares have been issued or delivered to such Person.
(i) Government and Other Regulations.
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(i) The obligation of the Company to settle Awards in Shares or other consideration shall be subject to all Applicable Laws and to such approvals by governmental or regulatory agencies as may be required. Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell, and shall be prohibited from offering to sell or selling, any Shares pursuant to an Award unless such Shares have been properly registered for sale pursuant to the Securities Act or other applicable securities laws or unless the Company has received an opinion of counsel (if the Company has requested such an opinion), satisfactory to the Company, that such Shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale under the Securities Act or other applicable securities laws any of the Shares to be offered or sold under the Plan. The Committee shall have the authority to provide that all Shares issued under the Plan shall be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the Plan, the applicable Award Agreement, the Federal securities laws, or the rules, regulations and other requirements of the SEC, any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or quoted and any other Applicable Laws and other requirements, and, without limiting the generality of Section 8 of the Plan, the Committee may cause such Shares issued under the Plan in book-entry form to be held subject to the Company’s instructions or subject to appropriate stop-transfer orders. Notwithstanding any provision in the Plan to the contrary, the Committee reserves the right to add any additional terms or provisions to any Award granted under the Plan that the Committee, in its sole discretion, deems necessary or advisable in order that such Award complies with the legal requirements of any governmental entity or regulatory agency to whose jurisdiction the Award is subject.
(ii) The Committee may cancel an Award or any portion thereof if it determines, in its sole discretion, that legal or contractual restrictions and/or blockage and/or other market considerations would make the Company’s acquisition of Shares from the public markets, the Company’s issuance of Common Stock to the Participant, the Participant’s acquisition of Common Stock from the Company and/or the Participant’s sale of Common Stock to the public markets, illegal, impracticable or inadvisable. If the Committee determines to cancel all or any portion of an Award in accordance with the foregoing, the Company shall, subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code, (A) in the case of Options or SARs, provide the Participant with a cash payment or grant of Shares, subject to deferred vesting and delivery consistent with the vesting restrictions applicable to such Award, equal to the excess of (I) the aggregate Fair Market Value of the Shares subject to such Award or portion thereof canceled (determined as of the applicable exercise date, or the date that the Shares would have been vested or issued, as applicable); over (II) the aggregate Exercise Price or SAR Base Price (in the case of an Option or SAR, respectively) or any amount payable to the Company as a condition of issuance of Shares (in the case of any other Award), or (B) in the case of Restricted Stock, Restricted Stock Units or Other Equity-Based Awards that are full value Awards, provide the Participant with a cash payment or grant of Shares, subject to deferred vesting and delivery consistent with the vesting restrictions applicable to such Award, equal to the value of such Award or the underlying shares in respect thereof.
(j) No Section 83(b) Elections Without Consent of Company. No election under Section 83(b) of the Code or under a similar provision of law may be made unless expressly permitted by the terms of the applicable Award Agreement or by action of the Committee in writing prior to the making of such election. If a Participant, in connection with the acquisition of Shares under the Plan or otherwise, is expressly permitted to make such election and the Participant makes the election, the Participant shall notify the Company of such election within ten (10) days after filing notice of the election with the Internal Revenue Service or other governmental authority, in addition to any filing and notification required pursuant to Section 83(b) of the Code or other applicable provision.
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(k) Payments to Persons Other Than Participants. If the Committee shall find that any Person to whom any amount is payable under the Plan is unable to care for the Participant’s affairs because of illness or accident, or is a minor, or has died, then any payment due to such Person or the Participant’s estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to the Participant’s spouse, child, relative, an institution maintaining or having custody of such Person, or any other Person deemed by the Committee to be a proper recipient on behalf of such Person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor.
(l) Nonexclusivity of the Plan. Neither the adoption of the Plan by the Board nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of equity-based awards otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.
(m) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between any member of the Company Group, on the one hand, and a Participant or other Person, on the other hand. No provision of the Plan or any Award shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company be obligated to maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other service providers under general law.
(n) Reliance on Reports. Each member of the Committee and each member of the Board shall be fully justified in acting or failing to act, as the case may be, and shall not be liable for having so acted or failed to act in good faith, in reliance upon any report made by the independent public accountant of any member of the Company Group and/or any other information furnished in connection with the Plan by any agent of the Company or the Committee or the Board, other than himself or herself.
(o) Relationship to Other Benefits. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company except as otherwise specifically provided in such other plan or as required by Applicable Laws.
(p) Governing Law. The Plan shall be governed by and construed in accordance with the internal laws of the State of Texas applicable to contracts made and performed wholly within the State of Texas, without giving effect to the conflict of laws provisions thereof. EACH PARTICIPANT WHO ACCEPTS AN AWARD IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION, OR OTHER PROCEEDING INSTITUTED BY OR AGAINST SUCH PARTICIPANT IN RESPECT OF THE PARTICIPANT’S RIGHTS OR OBLIGATIONS HEREUNDER.
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(q) Severability. If any provision of the Plan or any Award or Award Agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the Applicable Laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be construed or deemed stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
(r) Obligations Binding on Successors. The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company.
(s) Section 409A of the Code.
(i) Notwithstanding any provision of the Plan or Award Agreement to the contrary, it is intended that the provisions of the Plan comply with Section 409A of the Code, and all provisions of the Plan shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A of the Code. Each Participant is solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on or in respect of such Participant in connection with the Plan (including any taxes and penalties under Section 409A of the Code), and neither the Service Recipient nor any other member of the Company Group shall have any obligation to indemnify or otherwise hold such Participant (or any beneficiary) harmless from any or all of such taxes or penalties. With respect to any Award that is considered “deferred compensation” subject to Section 409A of the Code, references in the Plan to “termination of employment” (and substantially similar phrases) shall mean “separation from service” within the meaning of Section 409A of the Code. For purposes of Section 409A of the Code, each of the payments that may be made in respect of any Award granted under the Plan is designated as separate a payment.
(ii) Notwithstanding anything in the Plan or Award Agreement to the contrary, if a Participant is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, no payments in respect of any Awards that are “deferred compensation” subject to Section 409A of the Code and which would otherwise be payable on the date of or a date or period that is by reference to the Participant’s “separation from service” (as defined in Section 409A of the Code) shall be made to such Participant prior to the date that is six (6) months after the date of such Participant’s “separation from service” or, if earlier, the date of the Participant’s death. Unless the Award Agreement provides otherwise, following any applicable six (6) month delay, all such delayed payments will be paid in a single lump sum on the earliest date permitted under Section 409A of the Code that is also a business day.
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(iii) Unless otherwise provided by the Committee in an Award Agreement or otherwise, in the event that the timing of payments in respect of any Award (that would otherwise be considered “deferred compensation” subject to Section 409A of the Code) would be accelerated upon the occurrence of (A) a Change in Control, no such acceleration shall be permitted unless the event giving rise to the Change in Control satisfies the definition of a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation pursuant to Section 409A of the Code; or (B) a Disability, no such acceleration shall be permitted unless the Disability also satisfies the definition of “Disability” pursuant to Section 409A of the Code.
(t) Clawback/Repayment. All Awards shall be subject to reduction, cancellation, forfeiture or recoupment to the extent necessary to comply with (i) any clawback, forfeiture or other similar policy adopted by the Board or the Committee as in effect at the time of the applicable Award grant; and (ii) Applicable Laws. Further, to the extent that the Participant receives any amount in excess of the amount that the Participant should otherwise have received under the terms of the Award for any reason (including, without limitation, by reason of a financial restatement, mistake in calculations or other administrative error), the Participant shall be required to repay any such excess amount to the Company.
(u) Detrimental Activity. Notwithstanding anything to the contrary contained herein, if a Participant has engaged in any Detrimental Activity, as determined by the Committee, the Committee may, in its sole discretion, provide for one or more of the following:
(i) cancellation of any or all of such Participant’s outstanding Awards; and
(ii) forfeiture and prompt repayment to the Company by the Participant, of any gain realized on the vesting, exercise or settlement of any Awards previously granted to such Participant.
(v) Right of Offset. The Company will have the right to offset against its obligation to deliver Shares (or other property or cash) under the Plan or any Award Agreement any outstanding amounts (including, without limitation, travel and entertainment or advance account balances, loans, repayment obligations under any Awards, or amounts repayable to the Company pursuant to tax equalization, housing, automobile or other employee programs) that the Participant then owes to any member of the Company Group and any amounts the Committee otherwise deems appropriate pursuant to any tax equalization policy or agreement. Notwithstanding the foregoing, if an Award is “deferred compensation” subject to Section 409A of the Code, the Committee will have no right to offset against its obligation to deliver Shares (or other property or cash) under the Plan or any Award Agreement unless such offset can be implemented in a manner that does not subject the Participant to the additional tax imposed under Section 409A of the Code in respect of an outstanding Award.
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(w) Expenses; Titles and Headings. The expenses of administering the Plan shall be borne by the Company Group. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
(x) Compliance With Laws, etc. Notwithstanding the foregoing, in no event shall a Participant be permitted to exercise or be issued Shares under an Award in a manner which the Committee determines would violate the Applicable Laws.
(y) Waiver. A waiver by the Company of breach of any provision of the Plan shall not operate or be construed as a waiver of any other provision of the Plan, or of any subsequent breach by any Participant.
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EXHIBIT 10(xiv)
AINOS, INC.
NON-EMPLOYEE DIRECTOR COMPENSATION POLICY
ADOPTED BY THE BOARD OF DIRECTORS: OCTOBER 6, 2021
Each member of the Board of Directors (the “Board”) of Ainos, Inc. (the “Company”) who is not an employee of the Company or any of subsidiaries (each such member, a “Non-Employee Director”) will receive the compensation described in this Director Compensation Policy (the “Non-Employee Director Compensation Policy”) for his or her Board service.
The Non-Employee Director Compensation Policy may be amended at any time in the sole discretion of the Board or the Compensation Committee of the Board.
ANNUAL CASH COMPENSATION
Each Non-Employee Director 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: $12,000
(b) Chairperson of the Board: $14,000
2. Annual Committee Chair Service Retainer:
(a) Chairperson of the Audit Committee: $7,000
(b) Chairperson of the Compensation Committee: $4,500
3. Annual Committee Member Service Retainer:
(a) Member of the Audit Committee: $4,000
(b) Member of the Compensation Committee: $3, 000
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EQUITY COMPENSATION
(a) Initial Appointment Equity Grant. 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 330,000 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.
(b) Plan Terms. 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.
EXPENSES
The Company will reimburse each Non-Employee Director for ordinary, necessary and reasonable out-of-pocket travel expenses to cover in-person attendance at and participation in Board and committee meetings; provided that the Non-Employee Director timely submit to the Company appropriate documentation substantiating such expenses in accordance with the Company’s travel and expense policy, as in effect from time to time.
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EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
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 18, 2022, 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, 2020 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 21, 2022
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.; |
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| 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 |
| 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 21, 2022 | By: | /s/ Chun-Hsien Tsai | |
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| Chun-Hsien Tsai | |
| Chairman of the Board of Directors, President | |||
| and Chief Executive Officer | |||
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| (Principal Executive Officer) |
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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.; |
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| 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 |
| 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 21, 2022 | By: | /s/ Hui-Lan Wu | |
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| Hui-Lan Wu | |
| Chief Financial Officer (Principal Financial Officer) |
EXHIBIT 32.1
CEO and CFO 1350 Certifications
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, 2021, 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 21, 2022 |
| /s/ Chun-Hsien Tsai |
| Chief Executive Officer, President and Chairman of the Board |
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| Chun-Hsien Tsai |
| (Principal Executive Officer) |
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| March 21, 2022 |
| /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.