Ainos(US:AIMD)2021-11-14 16:00PART I: FINANCIAL INFORMATION ITEM 1. Financial Statements Ainos, Inc.'s unaudited financial statements detail significant changes from the Ainos KY Transaction, including increased assets, cash, and operating losses Balance Sheets Balance Sheet Highlights (Unaudited) | Metric | September 30, 2021 | December 31, 2020 | | :--------------------------------- | :------------------- | :------------------ | | Cash and cash equivalents | $706,931 | $22,245 | | Total current assets | $884,814 | $76,413 | | Patents, net | $19,011,337 | $180,628 | | Total assets | $19,993,626 | $260,290 | | Total current liabilities | $2,821,977 | $1,098,568 | | Total liabilities | $2,857,266 | $1,098,568 | | Total stockholders' equity (deficit) | $17,136,360 | $(838,278) | Statements of Operations Statements of Operations (Unaudited) - Three Months Ended September 30 | Metric | 2021 | 2020 | | :------------------------------------- | :----------- | :------- | | Revenues | $363,052 | $192 | | Cost of revenues | $103,638 | $123 | | Gross margin | $259,414 | $69 | | Research and development expenses | $646,798 | $- | | Selling, general and administrative expenses | $795,958 | $321,153 | | Total operating expense | $1,442,756 | $321,153 | | Operating loss | $(1,183,342) | $(321,084) | | Net loss | $(1,160,110) | $(323,285) | Statements of Operations (Unaudited) - Nine Months Ended September 30 | Metric | 2021 | 2020 | | :------------------------------------- | :----------- | :------- | | Revenues | $568,164 | $15,876 | | Cost of revenues | $174,395 | $11,221 | | Gross margin | $393,769 | $4,655 | | Research and development expenses | $646,798 | $389 | | Selling, general and administrative expenses | $2,178,969 | $1,001,893 | | Total operating expense | $2,825,767 | $1,002,282 | | Operating loss | $(2,431,998) | $(997,627) | | Net loss | $(2,443,891) | $(1,002,130) | Statements of Stockholders' Equity (Deficit) – Three Months Stockholders' Equity (Deficit) - Three Months Ended September 30 | Metric | September 30, 2021 | September 30, 2020 | | :------------------------------------- | :------------------- | :------------------- | | Common Stock Shares Outstanding | 142,442,215 | 40,916,351 | | Common Stock Par Value | $1,424,422 | $409,164 | | Additional Paid-in Capital | $24,369,245 | $4,586,068 | | Accumulated Deficit | $(8,664,145) | $(5,771,762) | | Total Stockholders' Equity (Deficit) | $17,136,360 | $(776,530) | - Net loss for the three months ended September 30, 2021, was $(1,160,110)10183 Statements of Stockholders' Equity (Deficit) – Nine Months Stockholders' Equity (Deficit) - Nine Months Ended September 30 | Metric | September 30, 2021 | December 31, 2020 | | :------------------------------------- | :------------------- | :------------------ | | Common Stock Shares Outstanding | 142,442,215 | 42,066,172 | | Common Stock Par Value | $1,424,422 | $420,661 | | Additional Paid-in Capital | $24,369,245 | $4,961,315 | | Accumulated Deficit | $(8,664,145) | $(6,220,254) | | Total Stockholders' Equity (Deficit) | $17,136,360 | $(838,278) | - Issuance of stock for Patent assets contributed $20,000,000 to additional paid-in capital in 202112185 - Net loss for the nine months ended September 30, 2021, was $(2,443,891)12185 Condensed Statements of Cash Flows Condensed Statements of Cash Flows (Unaudited) - Nine Months Ended September 30 | Metric | 2021 | 2020 | | :------------------------------------------ | :----------- | :----------- | | Net cash used in operating activities | $(569,150) | $(244,967) | | Net cash flows used in investing activities | $(43,340) | $(1,891) | | Net cash provided by financing activities | $1,290,129 | $85,000 | | Net change in cash and cash equivalents | $677,639 | $(325,272) | | Cash and cash equivalents at end of period | $706,931 | $83,767 | - Non-cash transaction: Stock issued for acquisition of patents amounted to $20,000,000 in 202114187 Notes to Financial Statements - Ainos, Inc. is a diversified healthcare company focused on R&D and sales/marketing of pharmaceutical and biotech products, operating through Pharmaceutical, Medical Devices, and Preventive Medicine Divisions151617188189190 - The company's financial condition significantly improved as of September 30, 2021, with total stockholder's equity increasing to $17,136,360 from a negative $838,278 at December 31, 2020, and cash increasing to $706,931 from $22,245, largely due to the Ainos KY Transaction and sales of the Ainos Covid-19 Test Kit2122194195 Convertible and Other Notes Payable (Principal Balance) | Payee | September 30, 2021 | December 31, 2020 | | :-------------------------------- | :------------------- | :------------------ | | Dr. Stephen T. Chen (Related Party) | $1,019,193 | $805,001 | | Ainos KY (Affiliated Company) | $981,000 | $0 | | i2China Management Group LLC | $185,000 | $148,000 | | Total | $2,185,193 | $953,001 | Note: $45,875 in interest on matured, unpaid amounts for related party notes was waived during Q3 2021 - Significant related party transactions include financial support from Ainos KY ($981,000 convertible note), inventory purchases from TCNT ($173,657), product co-development with TCNT ($117,386 in costs), product sales to ASE Technology Holding ($185,376), and common stock issued as compensation to Dr. Stephen T. Chen and Bernard Cohen ($36,500 total)3334353637206207208209210 - Subsequent events include engaging PricewaterhouseCoopers (PWC) for audit and advisory services, Board approval of new committees (Compensation, Audit), employee stock plans, director compensation policy, and corporate governance policies, and engaging former CEO Dr. Stephen T. Chen as a consultant for the pharmaceutical division383940211212213 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Ainos, Inc.'s financial condition and operational results, highlighting its medtech transformation and the impact of the Ainos KY Transaction Overview - Ainos, Inc. is a Texas corporation engaged in the discovery and development of pharmaceuticals, medical devices, and preventative medicine, with offices in the US and Taiwan42215 - The company operates three business divisions: Pharmaceutical (low-dose oral interferon alpha research), Medical Devices (insulin pump, COVID-19, and VOC diagnostics), and a restructured Preventive Medicine (sRNA-based therapeutics)434445216217218 - Ainos is undergoing a 'medtech transformation' driven by the COVID-19 pandemic, focusing on telehealth-enabled diagnostics and sRNA's potential in pharmaceutical innovation, aiming to leverage its AI Nose platform for volatile organic compound (VOC) diagnostics and personalized medicine ('Smell ID')4648219221 - The Ainos KY Transaction (April 15, 2021) involved the acquisition of intellectual properties valued at approximately $20 million, including VOC AI algorithms, digital nose technology, and POCT diagnostics for various diseases, and provided financial and management resources4950222223 Our Business Divisions and Product Lines - The Pharmaceutical Division's VELDONA platform focuses on low-dose non-injectable interferon alpha (IFN-α) for thrombocytopenia and Sjögren's syndrome, leveraging over thirty years of clinical data and planning to resume late-stage clinical trials in late 202259606162636465666768697071232233234235236237238239240241242243244 - The Medical Device Division develops cloud-connected Point-of-Care Testing (POCT) diagnostics, including the Ainos COVID-19 Antigen Test Kit (launched in Taiwan, CE mark for Europe, with smartphone-based management apps), and VOC-based POCTs like Ainos Flora (vaginal health/STDs), Ainos Pen (multipurpose breathalyzer), and CHS430 VAP Rapid Test (ventilator-associated pneumonia detection)7273747576777879808182838485868788899091929394959697245246247248249250251252253254255256257258259260261262263264265266267268269270 - The Preventive Medicine Division is establishing an sRNA technology platform for 2nd generation COVID-19 mRNA vaccines (short-term) and therapeutic RNA drugs for inflammatory diseases and cancers (long-term), focusing on R&D and strategic partnerships9899100101271272273274 Manufacturing and Intellectual Property - Ainos operates an asset-light manufacturing model, primarily partnering with Taiwan Carbon Nano Technology Corporation (TCNT) for POCT products, leveraging TCNT's ISO and GMP certifications102103275276 - The company owns eleven issued patents and two pending, with license rights in Japan and China for two patents. Newly acquired patents from the Ainos KY transaction include gas sensors and medical ventilators for pneumonia detection, forming the basis for next-generation rapid test kits104105106277278279 Regulatory Environment - Products with health claims in the U.S. require FDA approval, involving rigorous preclinical testing, clinical trials, IND submission, NDA approval, and manufacturing inspections. Alternative paths like 505(b)(2) and Orphan Drug Designation may be pursued108109110111281282283284 - Medical devices require FDA clearance via Premarket Notification 510(k) (for substantial equivalence) or Premarket Approval (PMA) for new or Class III devices, which is a more stringent scientific review process112113114115116285286287288289 - Foreign regulations also govern clinical trials and commercial sales, with varying approval processes and requirements, and changes in these policies could impact the company's operations117118290291 Employees and Consultants - As of September 30, 2021, the company had 27 employees, a significant increase from 4 in 2020, with R&D employees comprising approximately 33% of the total workforce. The company plans to further increase R&D human resources119292 - Key personnel retained post-Ainos Transaction include Lawrence Lin (EVP Operations) and John Junyong Lee (Chief Legal Counsel and Corporate Secretary)122295 Results of Operation for Quarter Ended September 30, 2021 and 2020 Financial Performance - Three Months Ended September 30 | Metric | 2021 | 2020 | | :------------------------------------- | :----------- | :------- | | Revenues | $363,052 | $192 | | Cost of revenues | $103,638 | $123 | | Gross margin | $259,414 | $69 | | Research and development expenses | $646,798 | $- | | Selling, general and administrative expenses | $795,958 | $321,153 | | Operating loss | $(1,183,343) | $(321,084) | | Net loss | $(1,161,110) | $(323,285) | - Revenue growth was primarily driven by sales of the Ainos Covid-19 Test Kit, with 64% sold through distribution channels120293 - Increased R&D expenses were due to Covid-19 Test Kit development, AI Nose pen mold, expanded R&D staffing, and amortization of acquired intellectual properties120124293297 - Increased SG&A expenses were associated with marketing the Ainos Covid-19 Test Kit, Ainos KY Transaction expenses, employee salaries, and professional service fees127300 Results of Operation for the Nine months Ended September 30, 2021 and 2020 Financial Performance - Nine Months Ended September 30 | Metric | 2021 | 2020 | | :------------------------------------- | :----------- | :----------- | | Revenues | $568,164 | $15,876 | | Cost of revenues | $174,395 | $11,221 | | Gross margin | $393,769 | $4,655 | | Research and development expenses | $646,798 | $389 | | Selling, general and administrative expenses | $2,178,969 | $1,001,893 | | Operating loss | $(2,431,998) | $(997,627) | | Net loss | $(2,443,891) | $(1,002,130) | - Revenue growth was primarily from sales of the Ainos Covid-19 Test Kits, with 62% sold through distribution channels131304 - R&D costs increased significantly due to patent purchases under the Ainos KY Transaction and new product development and research expenses131304 - SG&A expenses rose due to increased marketing for the Ainos Covid-19 Test Kit, Ainos KY Transaction expenses, higher employee salaries, and professional service fees132305 Liquidity and Capital Resources Liquidity and Capital Resources | Metric | September 30, 2021 | September 30, 2020 | December 31, 2020 | | :-------------------------- | :------------------- | :------------------- | :------------------ | | Cash | $706,931 | $83,767 | $22,245 | | Working Capital Deficit | $1,937,163 | $919,880 | $1,022,155 | - The company anticipates business revenues and potential financial support from Ainos KY to fund operations for the next twelve months but may need to raise additional capital through equity or debt if necessary136309 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Ainos, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is exempt from providing market risk disclosures as it qualifies as a 'smaller reporting company'137310 ITEM 4. Controls and Procedures Management confirmed effective disclosure controls and internal financial reporting as of September 30, 2021, with no material COVID-19 impact - Disclosure controls and procedures were evaluated as effective at the reasonable assurance level as of September 30, 2021138311 - Management concluded that internal control over financial reporting was effective at the reasonable assurance level as of September 30, 2021139312 - No material impact on internal controls over financial reporting was experienced due to the COVID-19 work-from-home arrangements140313 PART II: OTHER INFORMATION ITEM 1. Legal Proceedings Ainos, Inc. is not currently aware of any material legal proceedings or claims against it as of the report date - As of the report date, the company was not aware of any material legal proceedings or claims against it141314 ITEM 1A. Risk Factors Ainos, Inc. faces significant business risks including intense competition, operational strains, new product challenges, supply chain vulnerabilities, and regulatory changes - The company faces intense competition in the pharmaceutical and medical device industries from entities with greater resources, requiring continuous innovation and successful commercialization145146318319 - Expansion into innovative biotechnologies, digital health, and point-of-care testing places significant strain on management, operational, financial, and R&D resources147320 - Risks include limited experience in new market segments, potential for customer non-adoption, and challenges in international operations due to local economic/political conditions, government regulation, and foreign currency restrictions148149321322 - Business growth relies on complex commercial agreements and strategic alliances, which require substantial resources and are subject to risks if partners' offerings are unsuccessful or new agreements cannot be secured150151323324 - The company is vulnerable to supply risks, particularly for interferon (due to the former producer ceasing manufacturing) and the Ainos Covid-19 Test Kit (exclusive reliance on TCNT)152153325326 - Evolving government regulations for biologics, pharmaceuticals, and medical devices in multiple jurisdictions could lead to increased costs, liabilities, and adverse impacts on business operations154327 - The company may be subject to claims, litigation, and government investigations, which could result in legal costs, operational disruption, and reputational damage155156328329 - The future impact of the COVID-19 outbreak on the company's operations is highly uncertain and cannot be predicted157330 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period - No unregistered sales of equity securities or use of proceeds were reported330 ITEM 3. Defaults Upon Senior Securities No defaults upon senior securities were reported for the period - No defaults upon senior securities were reported330 ITEM 4. Mine Safety Disclosures Mine safety disclosures are not applicable to Ainos, Inc.'s operations - Mine safety disclosures are not applicable to the company330 ITEM 5. Other Information This section details CEO and CFO compensation, Board adoption of new corporate governance policies, and amendments to company bylaws - Employment offer letters were executed for CEO Chun-Hsien Tsai (monthly salary of NTD 250,000, approx. $8,929, plus bonus) and CFO Hui-Lan Wu (monthly salary of NTD 230,000, approx. $8,214, plus bonus)157158330331 - The Board adopted several corporate governance policies on August 20, 2021, including Rules and Procedures of Board of Directors Meetings, Corporate Governance Policies, and Charters for the Audit and Compensation Committees159332333 - Amendments to the company's Bylaws were approved, specifically Article II, Section 10 regarding director compensation, and the corporate name was updated to 'Ainos, Inc.' from 'AMARILLO CELL CULTURE COMPANY, INCORPORATED'160333 ITEM 6. Exhibits This section lists all exhibits filed or incorporated by reference in the 10-Q report, including corporate organizational documents, certifications, and various board policies - Exhibits include the Restated Certificate of Formation, amended Bylaws, Specimen Common Stock Certificate, CEO and CFO certifications, and various Board policies (e.g., Rules and Procedures of Board of Directors Meetings, Corporate Governance Policies, Audit Committee Charter, Compensation Committee Charter, Insider Trading Policy, Code of Business Conduct and Ethics)160161162163164165166167168169170171172333334335336337338339340341342343344345 Signatures The report is officially signed by the Chairman of the Board and Chief Executive Officer, Chun-Hsien Tsai, and the Chief Financial Officer, Hui-Lan Wu, on November 15, 2021 - The report was signed by Chun-Hsien Tsai, Chairman of the Board and Chief Executive Officer, and Hui-Lan Wu, Chief Financial Officer, on November 15, 2021173346