Ainos, Inc 10-Q for FY2022 Q3
Ainos, Inc. (AIMD)
About this 10-Q
Ainos, Inc filed this 10-Q on November 14, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.76M
- up 384.2% from $363.05K a year earlier
- Net loss
- $7.82M
- compared with a net loss of $1.16M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM
_______________________________
(Mark One) | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from____to____ Commission File No.
(Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
( | ||
(Address and telephone number, including area code, of registrant’s principal executive offices) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
|
| Emerging growth company |
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. D
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
AINOS, INC.
INDEX
| 2 |
| Table of Contents |
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Ainos, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
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| September 30 |
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| December 31 |
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| 2022 |
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| 2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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Accounts receivable |
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Inventory |
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Other current assets |
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Total current assets |
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Intangible assets, net |
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Property and equipment, net |
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Other Assets |
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Total assets |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Convertible notes payable |
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Notes payable |
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Accrued expenses and other current liabilities |
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Payables -related party |
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Total current liabilities |
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Long term liability: |
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Operating lease liabilities-non-current |
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Total liabilities |
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Stockholders’ equity |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Translation adjustment |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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See accompanying notes to condensed consolidated financial statements.
| 3 |
| Table of Contents |
Ainos, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
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| Three months ended September 30 |
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| Nine months ended September 30 |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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Revenues |
| $ |
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| $ |
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| $ |
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Cost of revenues |
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Gross profit |
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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 and expenses |
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Interest income and expenses, net |
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Other income and expenses, net |
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Total non-operating income and expenses, net |
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Net loss |
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Net loss per common shares-basic and diluted |
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Weighted average common shares outstanding– basic and diluted |
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See accompanying notes to condensed consolidated financial statements.
| 4 |
| Table of Contents |
Ainos, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
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| Three months ended September 30 |
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| Nine months ended September 30 |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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Net loss |
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| $ | ( | ) |
| $ | ( | ) |
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Other comprehensive loss: |
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Translation adjustment |
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Comprehensive loss |
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See accompanying notes to condensed consolidated financial statements
| 5 |
| Table of Contents |
Ainos, Inc.
Statements of Stockholders’ Equity (Deficit)
For the three months ended September 30, 2022 and 2021
(Unaudited)
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| Preferred Stock |
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| Common Stock |
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| Additional Paid in |
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| Accumulated |
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| Translation |
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| Total Stockholders’ Equity |
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| Shares |
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| Par Value |
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| Shares |
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| Par Value |
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| Capital | Deficit | Adjustment | (Deficit) |
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Balance at June 30, 2022 |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) |
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Issuance of stock upon offering, net of issuance cost |
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Conversion of convertible notes into common stock |
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Share-based compensation |
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| - |
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| - |
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Net loss |
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| - |
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Translation adjustment |
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Balance at September 30, 2022 |
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| $ |
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Balance at June 30, 2021 |
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Issuance of stock for option |
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Share-based compensation |
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Net loss |
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Translation adjustment |
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Balance at September 30, 2021 |
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| $ |
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See accompanying notes to condensed consolidated financial statements.
| 6 |
| Table of Contents |
Ainos, Inc.
Statements of Stockholders’ Equity (Deficit)
For the nine months ended September 30, 2022 and 2021
(Unaudited)
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| Preferred Stock |
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| Common Stock |
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| Additional Paid in |
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| Accumulated |
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| Translation |
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| Total Stockholders’ Equity |
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| Shares |
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| Par Value |
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| Par Value |
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| Capital | Deficit | Adjustment | (Deficit) |
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Balance at December 31, 2021 |
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| $ |
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| $ |
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Issuance of stock upon offering, net of issuance cost |
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| - |
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Conversion of convertible notes into common stock |
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Share-based compensation |
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Net loss |
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Translation adjustment |
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Balance at September 30, 2022 |
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Balance at December 31, 2020 |
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Issuance of stock for compensation |
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Issuance of stock for acquisition of patents |
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Issuance of stock for option |
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Share-based compensation |
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Net loss |
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Translation adjustment |
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Balance at September 30, 2021 |
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See accompanying notes to condensed consolidated financial statements.
| 7 |
| Table of Contents |
Ainos, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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| Nine months ended September 30, |
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Cash flows from operating activities: |
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Net loss |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Share-based compensation expense |
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Stock issued for compensation |
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Loss on disposal of fixed property and equipment |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventory |
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Other current assets |
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Accrued expenses and other current liabilities |
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Net cash used in operating activities |
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Cash flows from investing activities: |
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Payments to acquire properties and equipment |
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Proceeds from disposal of properties and equipment |
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Increase in refundable deposits and others |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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Payments of lease liabilities |
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Proceeds from convertible notes payable-non-current |
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Proceeds from convertible notes payable |
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Proceeds from notes payable |
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Principal payments on notes payable |
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Net proceeds from Uplisting in Nasdaq |
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Proceeds from exercise of share options |
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Net cash provided by financing activities |
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Effect from foreign currency exchange |
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Net increase in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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Supplemental Cash Flow Information: |
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Cash paid for interest |
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Supplemental disclosures of noncash financing and investing activities: |
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Stock issued for compensation, warrant and option expense |
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Stock issued for acquisition of patents |
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Issuance of convertible notes for payables-related party |
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Conversion of convertible notes and accrued interest into common stock |
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ROU leased assets and obligation |
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Payment to acquire properties and equipment: |
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Acquisition of property and equipment |
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Increase in prepaid for equipment |
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Decrease in payables for equipment |
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Total payments |
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See accompanying notes to condensed consolidated financial statements.
| 8 |
| Table of Contents |
Ainos, Inc.
Notes to Financial Statements
(Unaudited)
1. Organization and Business
Ainos, Inc., a Texas corporation formerly known as Amarillo Biosciences, Inc. (the “Company”, “we” or “us”), is engaged in developing medical technologies for point-of-care (“POCT”) testing and safe and novel medical treatment for a broad range of disease indications. Since our inception in 1984, we have concentrated our resources on business planning, raising capital, research and clinical development activities for our programs, securing related intellectual property and commercialization of proprietary therapeutics using low-dose non-injectable interferon (“IFN”). In addition to our core IFN technology, we are committed to developing a diversified healthcare business portfolio to include medical devices and consumer healthcare products. Although we have historically been involved in extensive pharmaceutical research and development of low-dose oral interferon as a therapeutic, we are prioritizing the commercialization of medical devices as part of our diversification strategy. Since April 15, 2021, we have acquired significant intellectual property from our majority shareholder, Ainos, Inc., a Cayman Islands corporation (“Ainos KY”), to expand our potential product portfolio into Volatile Organic Compounds (“VOC”) POCTs and COVID-19 POCTs. We expect our underlying intellectual property to enable us to expedite the commercialization of our medical device pipeline, beginning with the Ainos-branded COVID-19 POCT product candidates.
2. Underwritten Public Offering
The Company’s registration statement related to its underwritten public offering (“Offering”) was declared effective on August 8, 2022, and the Company’s common stock and warrants began trading on the Nasdaq Capital Market (“Nasdaq”) on August 9, 2022 under the trading symbols “AIMD” and “AIMDW”, respectively. The Company completed its underwritten public offering of an aggregated
In connection with the Offering, the Company’s board of directors on April 29, 2022 and our shareholders on May 16, 2022 approved a 1-for-15 reverse stock split (the “Reverse Stock Split”) of the Company’s common stock and each series of its redeemable convertible notes to be consummated prior to the effectiveness of the Offering The par value and authorized shares of the Company’s common stock were not adjusted as a result of the Reverse Stock Split. All issued and outstanding common stock, RSUs, warrants and options to purchase common stock and per share amounts contained in the financial statements have been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented.
The Company filed an amended Restated Certificate of Formation with the Secretary of State of Texas on August 8, 2022 that effectuated the Reverse Stock Split.
Additional information regarding the Offering and Reverse Stock Split can be found below in Note 5 of the Notes to Financial Statements.
3. Basis of presentation
The accompanying consolidated financial statements, which should be read in conjunction with the audited financial statements and footnotes included in the Company’s Form 10-K/A for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2022 and the un-audited financial statements and footnotes included in the Company’s Form 10-Q for the quarter ending June 30, 2022 as filed with the SEC on August 15, 2022, have been prepared in accordance with the Generally Accepted Accounting Principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by for audited financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months and nine months ended September 30, 2022, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022.
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4. Financial Condition
These financial statements have been prepared in accordance with GAAP, on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has generated revenues from sales of COVID-19 antigen test kits since the second quarter of 2021. However, losses are anticipated in the ongoing development of its business and there can be no assurance that the Company will be able to achieve or maintain profitability. The Company’s operations have been funded primarily from related-party convertible debt and equity financings. In addition, the Company received additional funding through the Offering concurrent with an uplisting to the Nasdaq Capital Markets, as described in Note 5.
The continuing operations of the Company and the recoverability of the carrying value of assets is dependent upon the ability of the Company to obtain necessary financing to fund its working capital requirements, and upon future profitable operations. The accompanying financial statements do not include any adjustments relative to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.
There can be no assurance that capital will be available as necessary to meet the Company’s working capital requirements or, if the capital is available, that it will be on terms acceptable to the Company. The issuances of additional equity securities by the Company may result in dilution in the equity interests of its current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase the Company’s liabilities and future cash commitments. If the Company is unable to obtain financing in the amounts and on terms deemed acceptable, the business and future success may be adversely affected and the Company may cease operations. These factors may raise uncertainty regarding our ability to continue as a going concern.
5. Stockholders’ Equity
Reverse Stock Split
On May 16, 2022 our shareholders approved a reverse stock split proposal and on August 8, 2022 the Board approved a 1-for-15 reverse stock split (the “Reverse Stock Split”) of the Company’s common stock and each series of its redeemable convertible notes to be consummated prior to the effectiveness of the Company’s underwritten public offering (“Offering”) on August 9, 2022. The par value and authorized shares of the Company’s common stock were not adjusted as a result of the Reverse Stock Split. All issued and outstanding common stock, RSUs, warrants and options to purchase common stock and per share amounts contained in the financial statements have been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented.
The Company filed an amended Restated Certificate of Formation with the Secretary of State of Texas on August 8, 2022 that effectuated the Reverse Stock Split.
Preferred Stock
We have
Common Stock
As of September 30, 2022, we have
Underwritten Public Offering
The Company’s registration statement related to its
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The Company received aggregate net proceeds of approximately $
The Company granted its
Upon completion of the Offering, convertible notes outstanding in the principal amount of $
We have not paid any dividends to our common stock shareholders to date and have no plans to do so in the immediate future.
6. Equity Incentive 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. Qualified options automatically became non-qualified options effective September 26, 2019 and was governed under the 2018-NQSOP described below because the plan was not ratified by our shareholders. The maximum number of shares of common stock authorized under the plan was
Effective as of October 6, 2021, with the adoption by the Board of the 2021 SIP, no further awards may be granted under the 2018-ESOP.
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
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 September 30, 2022, options to acquire
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2021 Employee Stock Purchase Plan
On September 28, 2021, the Board and on May 16, 2022 our shareholders, respectively, approved the 2021 Employee Stock Purchase Plan (the “2021 ESPP” or “Plan”). The purpose of the 2021 ESPP is to provide an opportunity for eligible employees of the company and its designated companies (as defined in the Plan) to purchase common stock at a discount through voluntary contributions, thereby attracting, retaining and rewarding such persons and strengthening the mutuality of interest between such persons and the Company’s stockholders. The Company intends for offerings under the Plan to qualify as an “employee stock purchase plan” under Section 423 of the Code; provided, that the Plan administrator may also authorize the grant of rights under offerings that are not intended to comply with the requirements of Section 423, pursuant to any rules, procedures, agreements, appendices, or sub-plans adopted by the administrator. Subject to adjustments as provided in the Plan, the maximum number of shares of common stock that may be issued under the Plan may not exceed
2021 Stock Incentive Plan
On September 28, 2021, the Board and on May 16, 2022 our shareholders, respectively, approved the 2021 Stock Incentive Plan (the “2021 SIP” or “Plan”). The purpose of the 2021 SIP is to provide a means through which the Company, and the other members of the Company Group, defined by Section 2(n) of the Plan as the Company and its subsidiaries, and any other affiliate of the Company designated as a member of the Company Group by the Committee, may attract and retain key personnel, and to provide a means whereby directors, officers, employees, consultants and advisors of the Company and the other members of the Company Group can acquire and maintain an equity interest in the Company, or be paid incentive compensation measured by reference to the value of common stock, thereby strengthening their commitment to the interests of the Company Group and aligning their interests with those of the Company’s stockholders. The types of awards that may be granted from the Plan include individually or collectively, any Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Dividend Equivalent Rights and Other Equity-Based Award granted under the Plan. The 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
On July 28, 2022, the Company granted
Restricted Stock Units
RSUs entitle the recipient to be paid out an equal number of common stock shares upon vesting. The fair value of RSUs is based on market price of the underlying stock on the date of grant. A summary of the Company’s RSU activity and related information for the nine months ended September 30, 2022 is as follows:
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| Number of RSUs |
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| Weighted- Average Grant Date Fair Value Per RSU |
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Balance as of December 31,2021 |
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| - |
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| $ | N/A |
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RSUs granted |
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|
|
| $ |
| ||
RSUs vested |
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| ( | ) |
| $ |
| |
RSUs canceled |
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| - |
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| $ | N/A |
|
Balance as of September 30, 2022 |
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|
|
| $ |
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The aggregate fair value of RSU awards that vested in the three- and nine-month periods ended September 30, 2022 was $
Warrants
As of September 30, 2022, following warrants are outstanding:
Pursuant to the Offering on August 9, 2022, the Company issued
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Pursuant to an underwriting agreement, dated August 8, 2022, by and between the Company and Maxim Group LLC (“Maxim”), as representative of the underwriters, Maxim partially exercised the option to purchase
Pursuant to the underwriting agreement the Company issued representative warrants to the Maxim, as representative of the underwriters, to purchase
On November 25, 2020, the Company issued a warrant to i2China Management Group, LLC, a related party of the Company since August 1, 2021. The warrant entitles the holder to purchase
Share-Based Compensation
The share-based compensation for the three months ended September 30, 2022 and 2021 were $
As of September 30, 2022, the total unrecognized compensation cost related to outstanding RSUs, stock options and warrant was $
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7. Current Convertible Notes Payable and Other Notes Payable
As of September 30, 2022, the details of the convertible notes payable and other notes payable are shown in the table below:
Payee | No. | Effective Date | Due Date | From Effective | Following Maturity | Conversion Rate | Issuing Purpose | As of 12/31/2021 | Addition | Converted/ Payment | As of 9/30/2022 | Accrued Interest | |
Convertible Notes Payable: | |||||||||||||
Stephen Chen | #1.16 | N/A | $ | working capital | - | - | |||||||
Stephen Chen | #2.16 | N/A | $ | working capital | - | - | |||||||
- | - | ||||||||||||
Ainos KY | #12.21 | N/A | $ | working capital | ( | ||||||||
Ainos KY | #13.21 | N/A | $ | working capital | ( | ||||||||
Ainos KY | #14.21 | N/A | $ | working capital | ( | ||||||||
Ainos KY | #15.21 | N/A | $ | working capital | ( | - | |||||||
Ainos KY | #16.21 | N/A | $ | working capital | ( | ||||||||
Ainos KY | #17.21 | N/A | $ | working capital | ( | ||||||||
Ainos KY | #18.21 | N/A | $ | working capital | ( | ||||||||
Ainos KY | #19.21 | N/A | $ | working capital | ( | - | |||||||
Ainos KY | #20.21 | N/A | $ | working capital | ( | - | |||||||
Ainos KY | #21.21 | N/A | $ | working capital | ( | - | |||||||
Ainos KY | #22.21 | N/A | $ | working capital | ( | - | |||||||
Ainos KY | #23.21 | N/A | $ | working capital | ( | ||||||||
Ainos KY | #24.21 | N/A | $ | working capital | ( | ||||||||
|
|
|
|
|
|
|
| ( | - | - | |||
Total convertible notes payable- related parties | ( | ||||||||||||
Non-Convertible Notes Payable: | |||||||||||||
Stephen Chen | #9.21 | N/A | N/A | working capital | ( | -- | |||||||
Ainos KY | #26.22 (2) | N/A | N/A | working capital | - | ||||||||
Non-convertible notes payable-related party | ( | 800,000 | |||||||||||
i2 China | #8b.20 | N/A | N/A | consulting fee | - | - | |||||||
|
|
| Non-Convertible Notes payable- non-related party | ||||||||||
|
|
| Total non-convertible notes payable | 800,000 | ( | ||||||||
Total convertible and non-convertible | ( | ||||||||||||
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Notes:
(1) | On March 17, 2022, we executed a Promissory Note Extension Agreement with Ainos KY in which the due dates for certain convertible notes enumerated as #12.21 to #24.21 issued by the Company to Ainos KY were extended to February 28, 2023. The total unpaid principal for these extended period convertible notes amounted to $ |
(2) | On March 11, 2022, the Board approved a Non-Convertible Note dated March 4, 2022 in favor of Ainos KY with a principal amount of $ |
All of the aforementioned convertible promissory notes and other notes payable are unsecured and due on demand upon maturity. The Company may prepay the notes in whole or in part at any time. The holder of convertible notes has the option to convert some or all of the unpaid principal and accrued interest to our common voting stock.
The current convertible notes payable and accrued interest of Ainos KY as of August 8, 2022 in the aggregate total amount of $
As of September 30, 2022 and December 31, 2021, the amount of current convertible and other notes payable totaled $
The total interest expense of convertible notes payable and other notes payable for the nine months ended September 30, 2022 and 2021 were $
8. Non-Current Convertible Notes Payable.
APA Convertible Note
On January 30, 2022, we issued to Ainos KY a Convertible Promissory Note in the principal amount of $
March 2027 Convertible Notes
The Company issued Convertible Notes pursuant to certain Convertible Note Purchase Agreements under Regulation S. The transactions are more particularly described below:
| · | $ |
|
|
|
| · | $ |
|
|
|
| · | $ |
|
|
|
| · | The above Convertible Notes totaling $ |
The Principal Amounts of the March 2027 Convertible Notes were payable in cash on March 30, 2027, although the Company was permitted to prepay the Convertible Notes in whole or in part without penalty. The March 2027 Convertible Notes were non-interest bearing.
The non-current convertible notes payable as of August 9, 2022 in the aggregate total amount of $
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9. Related Party Transactions. The following is a summary of related party transactions that met our disclosure threshold for the nine months ended September 30, 2022 and 2021:
Purchase of intangible assets and equipment
Securities Purchase Agreement
On April 15, 2021, we consummated a Securities Purchase Agreement with Ainos KY. Pursuant to the Securities Purchase Agreement, we issued
Asset Purchase Agreement
Ainos KY and the Company entered into an Asset Purchase Agreement dated as of November 18, 2021 (the “Asset Purchase Agreement”), as modified by an Amended and Restated Asset Purchase Agreement dated as of January 29, 2022 (the “Amended Asset Purchase Agreement”).
Pursuant to the Asset Purchase Agreement, we acquired certain intellectual property assets and certain manufacturing, testing, and office equipment for a total purchase price of $
As part of the Asset Purchase Agreement, we agreed to hire certain employees of Ainos KY who are responsible for research and development of the IP Assets and/or Equipment on terms at least equal to the compensation arrangements undertaken by Ainos KY. From and after the closing, we will have no responsibility, duty or liability with respect to any employee benefit plans of Ainos KY.
Working Capital Advances
All convertible and other notes payable were issued either as a result of financing or deferred compensation provided by shareholders.
In the first three quarters of 2022 and 2021, Ainos KY provided working capital advances in the form of convertible note and non-convertible note financing in the aggregate amount of $
ASE Test, Inc. (the “ASE”), an affiliate of the Company, provided a working capital advance in the form of a convertible note financing in the principal amount of $
The convertible notes and related accrued interest of Ainos KY and ASE as of August 8, 2022 in the aggregate total amount of $
In the first three quarters of 2021, Dr. Stephen T. Chen provided working capital advances in the form of convertible note and non-convertible note financing in the aggregate amount of $
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Purchase and Sales
Ainos COVID-19 Test Kits Sales and Marketing Agreement with Ainos KY
On June 14, 2021, we entered into an exclusive agreement to serve as the master sales and marketing agent for the Ainos COVID-19 Antigen Rapid Test Kit and COVID-19 Nucleic Acid Test Kit with Ainos KY (the “Sales and Marketing Agreement”) which was developed by Taiwan Carbon Nano Technology Corporation (the “TCNT”), an affiliate of the Company. On June 7, 2021, the Taiwan Food and Drug Administration (the “TFDA”) approved emergency use authorization to TCNT for the Ainos COVID-19 Antigen Rapid Test Kit that will be sold and marketed under the “Ainos” brand in Taiwan. On June 21, 2022, we began marketing the Ainos SARS-CoV-2 Antigen Rapid Self-Test (“COVID-19 Antigen Self-Test Kit”) under a separate EUA issued by the TFDA to TCNT on June 13, 2022. As TCNT secures regulatory authorizations from foreign regulatory agencies, the Company expects to partner with regional distributors to promote sales in other strategic markets.
We incurred costs associated with finished goods, raw materials and manufacturing fees for Covid-19 antigen rapid test kits from TCNT pursuant to the Sales and Marketing Agreement, totaling $
COVID-19 Antigen Rapid Test Kits Sales
We sold Covid-19 antigen rapid test kits to ASE Technology Holding, an affiliate of the Company, totaling $
Product Co-development Agreement
Pursuant to the five-year product co-development agreement (the “Product Co-Development Agreement”) with TCNT, effective on August 1, 2021 we incurred development expenses totaling $
10. Subsequent Events.
In accordance with the respective employment agreements entered into by each of the employees, the Company issued
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our financial statements and the notes thereto which appear elsewhere in this report. The results shown herein are not necessarily indicative of the results to be expected in any future periods.
Some of the statements in this report are “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding our current beliefs, goals and expectations about matters such as our expected financial position and operating results, our business strategy and our financing plans. The forward-looking statements in this report are not based on historical facts, but rather reflect the current expectations of our management concerning future results and events. The forward-looking statements generally can be identified by the use of terms such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “may,” “guidance,” “estimate,” “potential,” “outlook,” “target,” “forecast,” “likely” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals are, or may be, forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be different from any future results, performance and achievements expressed or implied by these statements. We cannot guarantee that our forward-looking statements will turn out to be correct or that our beliefs and goals will not change. Our actual results could be very different from and worse than our expectations for various reasons. These forward-looking statements are not guarantees of future performance and involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data, or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all).
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The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
| · | the extent and duration of the COVID-19 pandemic and the impact of the end of the COVID-19 pandemic on our business and our expectations regarding customer and user demand for our COVID-19 test kits; |
| · | possible changes in capital structure, financial condition, future working capital needs and other financial items; |
| · | our expectations of the reliability, accuracy and performance of our products and services; |
| · | our ability to obtain additional funds for our operations; |
| · | unforeseen changes in the course of research and development activities and in clinical trials; |
| · | our ability to obtain and maintain regulatory authorizations, clearances or approvals for our tests and other product candidates, including EUAs (“Emergency Use Authorizations”) for our COVID-19 test kits or other product candidates; |
| · | our ability to successfully build out our sales and marketing infrastructure, the costs and success of our marketing efforts, and our ability to promote our brand; |
| · | our ability to establish demand for our products and services and expand geographically; |
| · | our intellectual property position and our expectations regarding our ability to obtain and maintain intellectual property protection; |
| · | our ability to effectively manage our expected growth, including our ability to retain and recruit personnel, and maintain our culture; |
| · | possible changes in cost, timing and progress of development, preclinical studies, clinical trials and regulatory submissions; |
| · | the rate and degree of market acceptance of any approved product candidates; |
| · | the impact of applicable U.S., Taiwanese and international laws and regulations; and |
| · | our ability to implement, maintain and improve effective internal controls and remediate material weaknesses. |
Any forward-looking statements in this report are made only as of the date hereof and, except as may be required by law, we do not have any obligation to publicly update any forward-looking statements contained in this report to reflect subsequent events or circumstances.
For a further discussion of these and other factors that could impact our future results, performance or transactions, see Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2021 filed with the SEC on April 15, 2022.
Overview
Ainos, Inc., a Texas corporation formerly known as Amarillo Biosciences, Inc. (the “Company”, “we” or “us”), is engaged in developing medical technologies for point-of-care (“POCT”) testing and safe and novel medical treatment for a broad range of disease indications. Since our inception in 1984, we have concentrated our resources on business planning, raising capital, research and clinical development activities for our programs, securing related intellectual property and commercialization of proprietary therapeutics using low-dose non-injectable interferon (“IFN”). In addition to our core IFN technology, we are committed to developing a diversified healthcare business portfolio to include medical devices and consumer healthcare products.
Although we have historically been involved in extensive pharmaceutical research and development of low-dose oral interferon as a therapeutic, we are prioritizing the commercialization of medical devices as part of our diversification strategy. Since the beginning of 2021, we have acquired significant intellectual property from our majority shareholder, Ainos, Inc., a Cayman Islands corporation (“Ainos KY”), to expand our potential product portfolio into Volatile Organic Compounds (“VOC”) and COVID-19 POCTs. We expect our underlying intellectual property to enable us to expedite the commercialization of our medical device pipeline, beginning with Ainos-branded COVID-19 POCT product candidates.
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Our Portfolio of Products
Our portfolio of products is currently comprised of the following:
| · | COVID-19 Antigen Rapid Test Kit and Ainos’ Cloud-based Test Management Apps. Our cloud-based test management platform is comprised of an antigen rapid test kit, a personal application, or app, and an enterprise app. We anticipate our management apps will allow individuals and organizations to seamlessly manage tests, trace infections, and share results. As the first commercialized COVID-19 product we sell, we currently market the Ainos COVID-19 antigen rapid test kit in Taiwan under emergency use authorization (“EUA”) issued by the Taiwan Federal and Drug Administration (“TFDA”). We market the Ainos COVID-19 antigen rapid test kit under our brand name. The kit is manufactured by TCNT, our product co-developer. |
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|
|
| · | VOC POCT – Ainos Flora. Our Ainos Flora device, currently under clinical study in Taiwan, is intended to perform a non-invasive test for female vaginal health and certain sexually transmitted diseases (“STDs”) including chlamydia, 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. |
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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. |
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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. |
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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 have recently completed our own animal studies for oral treatment of COVID-19 and potential other viral infections. Subsequently, we are now conducting studies based on the VELDONA-only program. We also intend to explore opportunities to advance our other candidates including thrombocytopenia, Sjögren’s syndrome, aphthous stomatitis, chemotherapy-induced stomatitis, influenza, and the common cold. |
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| · | Synthetic RNA (“SRNA”). We are developing a SRNA technology platform in Taiwan. 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. |
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.
As a general strategy, we plan to conduct clinical trials in Taiwan and use the data to apply for TFDA approval and FDA clearance 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 VELDONA and SRNA programs over the course of this year.
We signed a Master Service Agreement with Swiss Pharmaceutical Co., Ltd. (Taiwan) (“Swiss Pharma”). Pursuant to the agreement, Swiss Pharma will test, manufacture, and package the Company’s VELDONA “GMP Clinical Batch” and “GMP Commercial Batch” product candidates for the Company’s planned clinical trials under both Pharmaceutical Inspection Co-operation Scheme Good Manufacturing Practice (“PIC/S GMP”) and U.S. Food & Drug Administration (“U.S. FDA”) Current Good Manufacturing Practice regulations. This relationship with Swiss Pharma is intended to develop the Company’s VELDONA product candidates and enable us to effectively increase our manufacturing capabilities for VELDONA for our clinical trials, including testing, quality inspection, labeling, and packaging.
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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. In the near-term, we expect the COVID-19 antigen test kits to generate organic cash flows 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 revenues, 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 September 30, 2022, we had available cash and cash equivalents of $2,417,147. We anticipate business revenues and further potential financial support from external sources to fund our operations over the next twelve months. We have based this estimate on assumptions that may prove to be incorrect and we could exhaust our available capital resources sooner than we expect. See “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for additional information. To finance our continuing operations, we will need to raise additional capital, which cannot be assured.
Impact of COVID-19 on Our Business
The COVID-19 pandemic presented us an opportunity to grow our COVID-19 antigen test business. Substantially all of our operating revenue came from the sale of the Ainos COVID-19 antigen rapid test kits in Taiwan. We intend to broaden our market reach if TCNT, our product co-developer and manufacturing partner, successfully obtains regulatory clearance in the U.S. or other countries.
We believe affordable, easy-to-use, rapid COVID-19 testing will continue to be in demand at least in the short-term.
Due to evolving market dynamics with COVID testing and the current financial environment, we decided to discontinue investment in commercializing the COVID-19 nucleic acid test program. We intend to evaluate our nucleic acid test technology for potential applications for other disease indications. At the same time, we continue to develop our other long-term programs, including Ainos Flora and our VELDONA candidates. We intend to actively explore out-licensing opportunities for our VELDONA candidates to accelerate return of our investments.
We are continuing to monitor the potential impact of the pandemic, but we cannot be certain the future impact on our business, financial condition, results of operations and prospects. Depending on developments relating to the pandemic, including the emergence of new variants, the pandemic may affect our ability to initiate and complete research studies, delay the initiation of our future research studies, disrupt regulatory activities or have other adverse effects on our business, results of operations, financial condition and prospects.
Results of Operation for Quarter Ended September 30, 2022 (“Q3 2022”) and 2021 (“Q3 2021”)
Revenues
Revenues increased by 384.2% to US$1,757,774 in the third quarter of 2022 from US$363,052 in the same period of 2021, driven by increased sales of the Company’s COVID-19 Antigen Self-Test Kits in Taiwan. An increase in the number of COVID-19 cases in Taiwan and increased acceptance of our highly accurate self-test kit contributed to the strong performance.
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Costs and Gross Profit
Cost of revenues was US$1,176,032 in the third quarter of 2022, compared with US$103,638 in the same period of 2021. Such increase was consistent with the corresponding increase in sales volume, as the Company shipped more of its COVID-19 Antigen Self-Test Kits.
In the third quarter of 2022, gross profit was US$581,742, representing a 33.1% gross margin, compared to US$259,414, or a 71.5% gross margin a year ago. The decline in gross margin was driven by a shift in the Company’s revenue mix. To align with Taiwan’s infection control policy, we generated more revenue from the COVID-19 Antigen Self-Test Kit in the third quarter. In comparison, the majority of our revenue during the comparable period had been generated from sales of our COVID-19 Rapid Test Kit for use by healthcare professionals. The self-test kit accounted for all our business in the third quarter, compared to 7% in the previous quarter.
Research and Development Expenses
Compared to $646,798 in Q3 2021, R&D expenses in Q3 2022 were $1,834,786, mainly consisting of amortization expense of intellectual property assets, staffing, experimental materials, service fee for CRO and animal study, co-development research with labs of universities and other companies. In Q3 2022, we committed additional funding toward our VELDONA development.
When excluding depreciation and amortization expenses, R&D expenses increased to US$628,367 from US$401,526 over the same period.
Selling, General and Administration Expenses
Selling, general and administrative expenses in Q3 2022 were $6,569,227, compared to $795,958 in Q3 2021. Aside from share-based compensation expense, SG&A expense mainly consisted of staffing, legal, audit, consulting, and professional service expenses.
Our share-based compensation expenses related to the Company’s 2018-ESOP, 2018-NQSOP, employee-related Warrants, and 2021 Stock Incentive Plan was $6,076,017 and $19,322 in Q3 2022 and Q3 2021, respectively.
When excluding depreciation and amortization expenses and share-based compensation, SG&A expenses increased to US$489,838 from US$358,063 over the same period.
Operating Loss
The Company’s operating loss was $7,822,271 and $1,183,342 in Q3 2022 and Q3 2021, respectively, reflecting a $6,638,929 (561%) increase in operating losses between the reporting periods, which was driven by R&D expenses and share-based compensation.
Net Loss
Net loss attributable to common stock shareholders was $7,821,756 in Q3 2022 compared to $1,160,110 in Q3 2021, resulting in a $6,661,646 (574%) increase in net losses. The net losses are attributable to increased R&D expenses and share-based compensation.
Results of Operation for the Nine months Ended September 30, 2022 and 2021
Revenues
Revenues increased by 337% to US$2,481,602 in the first nine months ended September 30, 2022 from US$568,164 in the same period of 2021, driven by increased sales of the Company’s COVID-19 Antigen Self-Test Kits in Taiwan. An increase in the number of COVID-19 cases in Taiwan and increased acceptance of our highly accurate self-test kit contributed to the strong performance.
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Costs and Gross Profit
Cost of revenues was US$1,536,074 in the first nine months ended September 2022, compared with US$174,395 in the same period of 2021. Such increase was consistent with the corresponding increase in sales volume, as the Company shipped more of its COVID-19 Antigen Self-Test Kits.
In the first nine months ended September 30, 2022, gross profit was US$945,528, representing a 38.1% gross margin, compared to US$393,769, or a 69.3% gross margin in the same period in 2021. The decline in gross margin was driven by a shift in the Company’s revenue mix.
Research and Development Expenses
Research and development expenses of $5,047,096 were incurred for the first nine months of 2022, compared to $646,798 for the first nine months of 2021, an increase of $4,400,298. Nevertheless, the first six months of 2021, the R&D expense is $0. The increase in 2022 was primarily due to amortization expense of intellectual property assets, staffing experimental materials, service fee for CRO and animal study, co-development research with labs of universities and other companies.
When excluding depreciation and amortization expenses, R&D expenses increased to US$1,548,711 from US$211,506 over the same period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses of $7,748,060 were incurred for the first nine months of 2022, compared to $2,178,969 for the first nine months of 2021, an increase of $5,569,091 (256%). The mainly S&A expenses of the first nine months 2022 and 2021 are the same as Q3 2022 and Q3 2021, and the reasons for expenses increase are also the same. Please refer to the analysis in preceding paragraph.
When excluding depreciation and amortization expenses and share-based compensation, SG&A expenses increased to US$1,523,223 from US$1,089,176 over the same period.
Operating Loss
In the first nine months period ended September 30, 2022, the Company’s operating loss was $11,849,628 compared to an operating loss for the first nine months period ended September 30, 2021 of $2,431,998, a $9,417,630 (387%) increase. Our operating losses are mainly attributable to additional R&D expenses and share-based compensation expense, in line with the Company’s product development initiatives and human resource policy.
Net Loss
The Net Loss for the first nine months of 2022, increased to $11,875,682 from $2,443,891 in 2021, an increase of $9,431,791 (386%) for the period. The major constituents of the increase in net loss are the increases in R&D expenses in the first nine months of 2022 and share-based compensation expense in the third quarter of 2022.
Liquidity and Capital Resources
As of September 30, 2022 and December 31, 2021, the Company had available cash of $2,417,147 and $1,751,499, respectively.
The following table summarizes our cash flows at the end of September 30, 2022:
|
| Nine Months Ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net cash used in operating activities |
|
| (2,405,741 | ) |
|
| (569,150 | ) |
Net cash used in investing activities |
|
| (665,079 | ) |
|
| (43,340 | ) |
Net cash provided by financing activities |
|
| 3,835,903 |
|
|
| 1,290,129 |
|
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Operating activities:
While our revenues grew in the first nine months of 2022 due to sales of Ainos COVID-19 test kits, we increased investment in research and developments and working capital, resulting in a higher net operating outflow.
Cash expenditures for operating activities in the first nine months of 2022 and 2021 were $2,405,741 and $569,150, respectively.
Investing activities:
Cash used in investing activities increased in the first nine months of 2022 compared to cash used in the same period in 2021 were $665,079 and $43,340, respectively, attributed to the acquisition of R&D equipment and office facilities.
Financing activities:
Cash provided by financing activities increased in the first nine months in 2022 compared to cash provided in the same period in 2021 were $3,835,903 and $1,290,129, respectively, which primarily reflects higher proceeds from convertible notes and notes payable amounted to $838,403 and net proceeds from uplisting amounted to $1,780,204.
Our total liabilities decreased significantly due to the Offering and the conversion of the majority of outstanding convertible notes into common stock. As of September 30, 2022 and December 31, 2021, total liabilities were $2,655,752 and $30,625,054, and debt ratios were 7% and 75%, respectively.
In 2022 we intend to focus on commercializing our POCT candidates and developing our VELDONA-based COVID-19 oral treatment program. Our near-term liquidity requirements will include expenses for clinical trials, repayment of debt not converted into equity, regulatory clearances, and marketing to commercialize our POCT devices and our VELDONA-based COVID-19 oral treatment program. We also intend to increase staffing for general administration, marketing and technology development purposes.
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 our POCT devices, in collaboration with TCNT, and clinical trial expenses for our SRNA program.
The Company anticipates that its cash reserves, business revenues from the Ainos COVID-19 test kits, sales of its common stock, and debt financing through convertible and non-convertible notes are sufficient to fund the Company’s operations over the next twelve months. There can be no assurance that we will be successful in our efforts to make the Company profitable. If those efforts are not successful, the Company may raise additional capital through the issuance of equity securities, debt financings or other sources in order to further implement its business plan, including, as required, additional external financing from our majority shareholder. However, if such financing is not available when needed and at adequate levels, the Company will need to reevaluate its operating plan.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company,” we are not required to provide the information under this Item 3.
ITEM 4. Controls and Procedures
Disclosure Controls and Procedures
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 the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
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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). As previously disclosed in our Form 10-K/A for the year ended December 31, 2021, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2021. As a result of such review as of December 31, 2021, we identified certain deficiencies in the design and implementation of our internal controls with respect to reporting and implemented a remediation plan.
During the first nine months of 2022, as part of our remediation plan and procedures, we have been implementing the following changes:
| · | Increasing staff resources dedicated to internal controls and reporting including the hiring of a full-time accounting assistant for the CFO who is dedicated to financial reporting; |
| · | Specifically delegating roles and responsibilities for each participant in compiling and reviewing our reports including designating a single-point of contact for consolidating data inputs and delegation of key reporting elements to relevant department leads; |
| · | Designating an executive team to review all narrative disclosures, including potential changes thereto. The executive team is comprised of the CEO, CFO, Director of Corporate Development, Executive Vice President of Operations, and Chief Legal Counsel; |
| · | Establishing a final review process with our Chief Executive Officer and Chief Financial Officer prior to finalizing and filing our reports. At each stage of preparing financial reports the executive team conducts a review of draft materials and discusses the results in telephone conferences; and |
| · | Establishing an executive review team to approve the final EDGAR version and IXBRL data file for our reports. As described above, the executive team meets and confers to review the final financial reports that are then submitted to the Audit Committee and Board for final approval prior to filing. |
During the remainder of 2022, we will continue to implement our remediation plan. In connection with such plan, we expect to further increase our internal corporate resources focused on improving the design, implementation and monitoring of our internal control systems.
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. As of the date of this report, we were not aware of any material legal proceedings or claims involving the Company.
ITEM 1A. Risk Factors.
There are no material changes to the risk factors as previously disclosed in our Form S-1/A (Amendment No. 3) filed with the SEC on July 27, 2022.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
2021 Asset Purchase Agreement
On November 18, 2021, we entered into the Asset Purchase Agreement with Ainos KY, our majority shareholder. We closed the transaction on January 30, 2022. Pursuant to the Asset Purchase Agreement, we acquired certain intellectual property assets and certain manufacturing, testing, and office equipment for a total purchase price of $26,000,000. As payment of the Purchase Price, at the closing on January 30, 2022, the Company issued to Ainos KY the APA Convertible Note, a convertible promissory note in the principal amount of $26,000,000.
On August 9, 2022, the APA Convertible Note was converted into 7,647,058 shares of our common stock (on a post-split basis) at a conversion price equal to $3.40, or 80% of the per unit public offering price of our offering that closed on August 9, 2022.
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2021 – 2022 Ainos KY Working Capital Advances
In 2021, Ainos KY provided working capital advances in the form of convertible note financing in the aggregate amount of $3,000,000. The working capital convertible notes issued in 2021 bear interest at the AFR short-term rate of 1.85% and may be convertible in whole or in part at a conversion price of $3.00 per share, subject to adjustment. On March 17, 2022, we executed a Promissory Note Extension with Ainos KY dated March 17, 2022, pursuant to which the maturity dates for the convertible notes issued in 2021 to Ainos KY were extended to February 28, 2023. On August 9, 2022, the notes in the aggregate principal amount of $3,000,000 plus accrued interest of $42,959 were converted by Ainos KY into a total of 1,014,319 shares of our common stock.
In March 2022, Ainos KY provided us a working capital advance in the form of a non-convertible note financing in the principal amount of $800,000, at a 1.85% per annum interest rate, with a maturity date of February 28, 2023.
Convertible Note Offering Pursuant to Regulation S
The Company issued convertible notes (the “March 2027 Convertible Notes”) pursuant to Regulation S as more particularly described below.
| · | Under a Convertible Note Purchase Agreement dated as of March 31, 2022 by and between the Company and Yun-Han Liao (the “Purchaser”). The Purchaser is the daughter of Hui-Lan Wu, the Company’s Chief Financial Officer. Pursuant to the Agreement the Purchaser paid a total of $50,000 to the Company in exchange for a Convertible Promissory Note issued by the Company in the principal amount of $50,000 (the “Liao Convertible Note”). |
|
|
|
| · | Under those certain Convertible Note Purchase Agreements dated as of March 28, 2022 (the “Regulation S Agreements”) by and between the Company and Chih-Cheng Tsai, Ming-Hsien Lee, Yu-Yuan Hsu, and Top Calibre Corporation, a British Virgin Islands company (collectively the “Regulation S Purchasers”). Pursuant to the Regulation S Agreements, the Purchasers paid a total of $850,000 (the “Principal Amount”) to the Company in exchange for Convertible Promissory Notes issued by the Company in the Principal Amount (together with the Liao Convertible Note, the “Convertible Notes”). |
|
|
|
| · | $500,000 Convertible Note issued on April 11, 2022 to ASE Test Inc., a minority owner of Ainos KY and an affiliate of the Company. |
On August 9, 2022, in connection with the listing of the Company’s common stock on the Nasdaq Capital Market, the March 2027 Convertible Notes were converted into 411,760 shares of our common stock (on a post-split basis) at a conversion price equal to $3.40, or 80% of the per unit public offering price of our Offering.
ITEM 3. Defaults Upon Senior Securities.
None
ITEM 4. Mine Safety Disclosures.
Not applicable
ITEM 5. Other Information.
On September 28, 2022, the Board of Directors of the Company approved an amendment to Article V, Section 1 and 2 of the Company’s Bylaws which, as amended, require that: (a) the ownership interests in the Company, inclusive of its common stock and its preferred stock, shall be either uncertificated or certificated shares, and (b) any certificated shares that have been issued and are outstanding to date shall be deemed to be uncertificated shares only after the certificate is surrendered to the Company in accordance with the requirements of the Board, as may be adopted at its discretion. The Company’s Form 8-K filed on October 4, 2022 and its amended restated Bylaws are incorporated herein by this reference.
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ITEM 6. Exhibits.
EXHIBIT INDEX
| INCORPORATED BY REFERENCE | |||||
EXHIBIT NUMBER | DESCRIPTION | FILED WITH THIS FORM 10-Q | FILING DATE WITH SEC | FORM | EXH # | HYPERLINK TO FILINGS |
3.1(a) | Restated Certificate of Formation of the Company, dated April 15, 2021 | 4/21/2021 | 8-K | 3.1 | Restated Certificate of Formation of the Company, dated April 15, 2021 | |
3.1(b) | Certificate of Amendment to the Restated Certificate of Formation, dated August 8, 2022 | 8/12/2022 | 8-K | 3.1 | ||
3.2 | Amended and Restated Bylaws of the Company, effective September 28, 2022 | 10/4/2022 | 8-K | 3.2 | ||
4.1(a) | Form Common Stock Certificate | X | ||||
4.1(b) | Form of Warrant | 8/2/2022 | S-1/A | 4.1 | ||
4.1(c) | Form of Warrant Agency Agreement | 8/2/2022 | S-1/A | 4.3 | ||
10 | Master Service Agreement with Swiss Pharmaceutical Co., Ltd. (Taiwan) | X | ||||
23.1 | Consent of PWR CPA LLP, independent registered accounting firm | X | ||||
24 | Power of Attorney | X | ||||
Certification of Chief Executive Officer Pursuant to Rule 13a- 14(a) / 15d – 14(a) | X | |||||
Certification of Chief Financial Officer Pursuant to Rule 13a- 14(a) / 15d – 14(a) | X | |||||
X | ||||||
X | ||||||
99.1 | Form 10-K/A for the year ended December 31, 2021 | 4/15/2022 | 10-K/A | |||
100 | XBRL – Related Documents | X | ||||
101.INS | XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the XBRL document. | X | ||||
101.SCH | XBRL Taxonomy Extension Schema Document | X | ||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | X | ||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase | X | ||||
101.LAB | XBRL Taxonomy Extension Label Linkbase | X | ||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | X | ||||
104.1 | Cover Page Interactive Data File | X | ||||
The exhibits listed in the Exhibit Index are filed or incorporated by reference as part of this filing.
+ Schedules (as similar attachments) have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K.
* Indicates a management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AINOS, INC. |
| ||
| By: | /s/ Chun-Hsien Tsai |
|
Date: November 14, 2022 | Chun-Hsien Tsai, Chairman of the Board, AND |
| |
| Chief Executive Officer |
| |
|
| ||
Date: November 14, 2022 | By: | /s/ Hui-Lan Wu |
|
| Hui-Lan Wu, Chief Financial Officer |
| |
| 29 |
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULE 13A- 14(A) / 15D – 14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Chun-Hsien Tsai, certify that:
1. I have reviewed this report on Form 10-Q of Ainos, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of 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 periods covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(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;
(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
(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 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 (or persons performing the equivalent functions):
(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
(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: November 14, 2022 | /s/ Chun-Hsien Tsai |
| |
| Chun-Hsien Tsai, Principal Executive Officer (Chairman of the Board, President, and Chief Executive Officer) |
|
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13A- 14(A) / 15D – 14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Hui-Lan Wu, certify that:
1. I have reviewed this report on Form 10-Q of Ainos, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of 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 periods covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(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;
(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
(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 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 (or persons performing the equivalent functions):
(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
(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: November 14, 2022 | /s/ Hui-Lan Wu |
| |
| Hui-Lan Wu, Principal Financial Officer (Chief Financial Officer) |
|
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Ainos, Inc. on Form 10-Q for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. |
|
| AINOS, INC. |
| |
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|
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| Date: November 14, 2022 | By: | /s/ Chun-Hsien Tsai |
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|
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| Chun-Hsien Tsai, Principal Executive Officer |
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|
|
| (Chairman of the Board, President, and Chief Executive Officer) |
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EXHIBIT 32.2
CERTIFICATION OF 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 Quarterly Report of Ainos, Inc. on Form 10-Q for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. |
| Date: November 14, 2022 | By: | /s/ Hui-Lan Wu |
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|
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| Hui-Lan Wu, Principal Financial Officer |
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|
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| (Chief Financial Officer) |
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