Ainos(AIMD) - 2022 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Ainos, Inc. for the three months ended March 31, 2022 and 2021, including the balance sheets, statements of operations, comprehensive loss, stockholders' equity (deficit), and cash flows, along with accompanying notes detailing the company's organization, financial condition, and significant transactions Condensed Consolidated Balance Sheets The balance sheet shows a slight decrease in total assets from December 31, 2021, to March 31, 2022, primarily due to a significant reclassification of related party payables to non-current convertible notes, which dramatically reduced current liabilities while increasing long-term liabilities Condensed Consolidated Balance Sheets (Unaudited) | Item | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Assets | | | | Cash and cash equivalents | $1,871,349 | $1,751,499 | | Inventory | $337,805 | $- | | Total current assets | $3,023,059 | $2,217,697 | | Intangible assets, net | $36,214,023 | $37,329,191 | | Total assets | $40,736,264 | $40,822,161 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $5,729,516 | $30,594,799 | | Convertible notes payable - noncurrent | $26,900,000 | $- | | Total long term liabilities | $26,924,152 | $30,255 | | Total liabilities | $32,653,668 | $30,625,054 | | Total stockholders' equity | $8,082,596 | $10,197,107 | | Total liabilities and stockholders' equity | $40,736,264 | $40,822,161 | Condensed Consolidated Statements of Operations The company experienced a significant increase in revenue and gross margin in Q1 2022 compared to Q1 2021, primarily driven by sales of COVID-19 Antigen Rapid Test Kits. However, a substantial increase in research and development expenses led to a much larger operating and net loss Condensed Consolidated Statements of Operations (Unaudited) | Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenues | $87,200 | $2,121 | | Cost of revenues | $(41,078) | $(1,249) | | Gross margin | $46,122 | $872 | | Research and development expenses | $1,577,454 | $- | | Selling, general and administrative expenses | $551,730 | $522,981 | | Total operating expenses | $2,129,184 | $522,981 | | Operating loss | $(2,083,062) | $(522,109) | | Interest expenses, net | $(16,687) | $(11,897) | | Net loss | $(2,099,895) | $(534,006) | | Basic and diluted net loss per average share | $(0.01) | $(0.01) | | Weighted average common shares outstanding | 144,379,308 | 42,066,172 | Condensed Consolidated Statements of Comprehensive Loss The comprehensive loss for Q1 2022 significantly increased compared to Q1 2021, primarily due to the higher net loss and a negative translation adjustment Condensed Consolidated Statements of Comprehensive Loss (Unaudited) | Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(2,099,895) | $(534,006) | | Other comprehensive loss: | | | | Translation adjustment | $(58,059) | $- | | Comprehensive loss | $(2,157,954) | $(534,006) | Condensed Consolidated Statements of Stockholders' Equity (Deficit) Stockholders' equity decreased from December 31, 2021, to March 31, 2022, mainly due to the net loss incurred during the period and a negative translation adjustment, partially offset by share-based compensation Condensed Consolidated Statements of Stockholders' Equity (Deficit) (Unaudited) | Item | Balance at Dec 31, 2021 | Share-based compensation | Net loss | Translation Adjustment | Balance at Mar 31, 2022 | | :------------------------------------ | :---------------------- | :----------------------- | :--------- | :--------------------- | :---------------------- | | Common Shares | 144,379,308 | - | - | - | 144,379,308 | | Common Stock Amount | $1,443,793 | - | - | - | $1,443,793 | | Additional Paid-in Capital | $18,856,430 | $43,443 | - | - | $18,899,873 | | Accumulated Deficit | $(10,108,916) | - | $(2,099,895) | - | $(12,208,811) | | Other comprehensive loss (Translation adjustment) | $5,800 | - | - | $(58,059) | $(52,259) | | Total Stockholders' Equity (Deficit) | $10,197,107 | $43,443 | $(2,099,895) | $(58,059) | $8,082,596 | Condensed Consolidated Statements of Cash Flows Cash and cash equivalents increased slightly in Q1 2022, with significant cash used in operating and investing activities being offset by substantial cash provided by financing activities, primarily from convertible and other notes payable Condensed Consolidated Statements of Cash Flows (Unaudited) | Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(1,389,889) | $(211,737) | | Net cash used in investing activities | $(135,899) | $- | | Net cash provided by financing activities | $1,644,884 | $198,869 | | Net change in cash | $119,096 | $(12,868) | | Cash and cash equivalents at beginning of period | $1,751,499 | $22,245 | | Cash and cash equivalents at end of period | $1,871,349 | $9,377 | | Issuance of convertible notes for payables - related party | $26,000,000 | $- | Notes to Financial Statements The notes provide crucial context to the financial statements, detailing the company's business transformation towards medical devices, its going concern status, significant debt issuances (including related party convertible notes), and subsequent events like additional convertible note offerings 1. Organization and Business Ainos, Inc. is a Texas corporation focused on developing medical technologies for point-of-care (POCT) testing and novel medical treatments. The company is diversifying from its historical pharmaceutical R&D in low-dose interferon to prioritize commercialization of medical devices, including VOC and COVID-19 POCTs, leveraging intellectual property acquired from its majority shareholder, Ainos KY - Ainos, Inc. is engaged in developing medical technologies for point-of-care (POCT) testing and medical treatments[15][91] - The company is prioritizing the commercialization of medical devices, expanding its portfolio into Volatile Organic Compounds (VOC) POCTs and COVID-19 POCTs through intellectual property acquisition from its majority shareholder, Ainos KY[15][91] 2. Basis of presentation The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information, including only normal recurring adjustments. The operating results for Q1 2022 are not indicative of the full year's expected results - Financial statements are unaudited and prepared in accordance with GAAP for interim information, with only normal recurring adjustments included[16][92] - Operating results for Q1 2022 are not necessarily indicative of the full year ending December 31, 2022[16][92] 3. Financial Condition The company's financial statements are prepared on a going concern basis, but it has not achieved sustained operating income and relies on related-party convertible debt and equity financings. The ability to continue operations is dependent on securing necessary financing and achieving future profitability, raising substantial doubt about its ability to continue as a going concern - The company has not achieved sustained operating income and is funded primarily by related-party convertible debt and equity financings[17][93] - The ability to continue as a going concern is dependent on obtaining necessary financing and achieving future profitable operations, which raises substantial doubt[18][94][95] 4. Common Stock As of March 31, 2022, Ainos, Inc. had 144,379,308 shares of common stock issued and outstanding, with additional shares reserved for conversion of convertible debt, RSUs, stock options, and warrants. The company has $26.9 million in outstanding convertible notes that can convert to common stock at 80% of the public offering price upon national exchange listing - As of March 31, 2022, 144,379,308 shares of common stock were issued and outstanding[19][95] - A total of 163,987,550 shares of common stock were either issued or reserved for various conversions and issuances[19][95] - Outstanding convertible notes totaling $26.9 million are convertible into common stock at 80% of the public offering price upon national exchange listing[19][95] 5. Preferred Stock The company has 10,000,000 shares of preferred stock authorized, but no shares were outstanding as of March 31, 2022 - 10,000,000 shares of preferred stock are authorized, but none were outstanding as of March 31, 2022[20][96] 6. Current Convertible Notes Payable and Other Notes Payable Current convertible and other notes payable increased to $4,389,931 as of March 31, 2022, from $3,589,931 at December 31, 2021. This increase includes new non-convertible notes from Ainos KY and an extension of maturity dates for existing convertible notes from Ainos KY to February 28, 2023 Current Convertible Notes Payable and Other Notes Payable | Category | As of 12/31/2021 | Additions | Payments | As of 3/31/2022 | Accrued Interest (3/31/2022) | | :------------------------------------ | :--------------- | :-------- | :------- | :-------------- | :--------------------------- | | Total convertible notes payable - related parties | $3,376,526 | $- | $- | $3,376,526 | $39,540 | | Non-convertible notes payable - related party | $129,405 | $800,000 | $- | $929,405 | $1,489 | | Non-convertible notes payable - non-related party | $84,000 | $- | $- | $84,000 | $3,527 | | Total convertible and non-convertible notes | $3,589,931 | $800,000 | $- | $4,389,931 | $44,556 | | Total interest expense (Q1 2022) | | | | $15,883 | | | Total interest expense (Q1 2021) | | | | $11,897 | | - On March 17, 2022, the due dates for $3,000,000 in convertible notes from Ainos KY were extended to February 28, 2023[21][97] - On March 11, 2022, a non-convertible note of $800,000 was approved in favor of Ainos KY, with a 1.85% interest rate and a maturity date of February 28, 2023[22][98] 7. Non-Current Convertible Notes Payable Non-current convertible notes payable increased significantly to $26,900,000 as of March 31, 2022, from $0 at December 31, 2021. This includes a $26,000,000 non-interest bearing APA Convertible Note issued to Ainos KY for an asset purchase, due in January 2027, and $900,000 in additional convertible notes issued in Q1 2022 with similar terms Non-Current Convertible Notes Payable | Item | March 31, 2022 | December 31, 2021 | | :------------------------------------ | :------------- | :---------------- | | Non-current convertible notes payable | $26,900,000 | $- | - A $26,000,000 non-interest bearing Convertible Promissory Note (APA Convertible Note) was issued to Ainos KY on January 30, 2022, for an asset purchase, due January 30, 2027[24][100] - An additional $900,000 in convertible notes were issued in Q1 2022 with similar non-interest bearing terms and a March 30, 2027 maturity[25][26][101][102] 8. Related Party Transactions Significant related party transactions in Q1 2022 include the acquisition of intellectual property and equipment from Ainos KY for $26,000,000, paid via a convertible promissory note. Related parties also provided working capital through convertible and non-convertible notes totaling $4,355,931 as of March 31, 2022. The company also incurred costs for COVID-19 test kits and co-development expenses with TCNT, a product co-developer - The company acquired intellectual property assets and equipment from Ainos KY for $26,000,000, paid by issuing an APA Convertible Note[26][102] - Convertible and non-convertible notes payable from related parties totaled $4,355,931 as of March 31, 2022[27][103] - Incurred $386,412 for COVID-19 antigen rapid test kits and $167,422 in development expenses under a co-development agreement with TCNT[27][28][103][104] 9. Subsequent Events Subsequent to the quarter end, on April 11, 2022, the company issued a $500,000 convertible note to ASE Test Inc., a minority owner of Ainos KY, due March 30, 2027, with conversion terms similar to other convertible notes - On April 11, 2022, a $500,000 convertible note was issued to ASE Test Inc., a minority owner of Ainos KY, due March 30, 2027[29][105] - The ASE Note is convertible into common stock at 80% of the public offering price upon national exchange listing[29][105] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of Ainos, Inc.'s business, its product portfolio, the impact of COVID-19, and a detailed analysis of its financial performance for Q1 2022 compared to Q1 2021, highlighting increased revenues from COVID-19 test kits but also significantly higher R&D expenses leading to increased net losses. It also discusses the company's liquidity and capital resources, emphasizing reliance on external financing and future commercialization plans Overview Ainos, Inc. is transitioning its focus from traditional pharmaceutical R&D to the commercialization of medical devices, particularly Point-of-Care (POCT) tests for VOCs and COVID-19, leveraging acquired intellectual property. The company aims to generate multiple revenue streams and expects significant expenses for product development and commercialization, relying on business revenues and external funding to achieve profitability - Ainos, Inc. is developing medical technologies for POCT testing and medical treatments, shifting focus from low-dose interferon therapeutics to medical devices[35][111] - The company acquired significant intellectual property from Ainos KY to expand its product portfolio into VOC and COVID-19 POCTs, aiming to expedite commercialization[36][112] - The operating strategy involves creating multiple revenue streams through commercializing its product portfolio, leveraging intellectual property, and seeking strategic relationships[39][115] Our portfolio of products Ainos, Inc.'s product portfolio includes COVID-19 Antigen Rapid Test Kits (marketed in Taiwan under EUA) and Nucleic Acid Tests, VOC POCT devices (Ainos Flora for vaginal health and Ainos Pen for breath analysis), CHS430 for ventilator-associated pneumonia, Very Low-Dose Oral Interferon Alpha (VELDONA) for viral infections, and Synthetic RNA (SRNA) technology for a potential COVID-19 mRNA vaccine - COVID-19 Antigen Rapid Test Kit and Cloud-based Test Management Apps: Marketed in Taiwan under EUA, manufactured by TCNT[37][113] - COVID-19 Nucleic Acid Test: Color-changing assay compatible with PCR machines, delivering results within 40 minutes, with portable equipment options[38][114] - VOC POCT – Ainos Flora: Non-invasive test for female vaginal health and STDs, designed for rapid, discreet, point-of-care or home self-testing[38][114] - VOC POCT – Ainos Pen: Cloud-connected, multi-purpose portable breath analyzer for monitoring oral, gastrointestinal, liver, and renal health[39][115] - VOC POCT – CHS430: Non-invasive testing for ventilator-associated pneumonia within 10 minutes, with Ainos as the exclusive sales agent[39][115] - Very Low-Dose Oral Interferon Alpha ("VELDONA"): IFN-α formulation for broad treatment applications, including a strategic relationship with InnoPharmax, Inc. for CICCT for COVID-19 and other viral infections[39][115] - Synthetic RNA ("SRNA"): Developing a technology platform in Taiwan, initially focused on a potential COVID-19 mRNA vaccine platform[39][115] Impact of COVID-19 on Our Business The COVID-19 pandemic has provided a growth opportunity for Ainos, Inc., with substantially all Q1 2022 operating revenue derived from sales of its COVID-19 antigen rapid test kits in Taiwan. The company anticipates continued demand for rapid testing and aims to expand its market reach, while acknowledging potential future impacts of the pandemic on its operations - Substantially all Q1 2022 operating revenue came from sales of Ainos COVID-19 antigen rapid test kits in Taiwan[45][121] - The company believes affordable, easy-to-use, rapid COVID-19 testing will remain in demand in the short-term[45][121] - The company is monitoring the pandemic's potential future impact on its business, financial condition, and operations[46][122] Results of Operations for Quarter Ended March 31, 2022 ("Q1 2022") and March 31, 2021 ("Q1 2021") In Q1 2022, Ainos, Inc. saw a significant increase in revenue and gross profit due to COVID-19 test kit sales, a shift from liposomal nutraceuticals. However, a substantial rise in R&D expenses, primarily from intellectual property amortization and co-development, led to a 299% increase in operating loss and a 293% increase in net loss compared to Q1 2021 Key Financial Results (Q1 2022 vs. Q1 2021) | Item | Q1 2022 | Q1 2021 | Change ($) | Change (%) | | :------------------------------------ | :-------- | :-------- | :--------- | :--------- | | Revenues | $87,200 | $2,121 | $85,079 | 4011% | | Cost of revenues | $41,078 | $1,249 | $39,829 | 3189% | | Gross profit | $46,122 | $872 | $45,250 | 5189% | | Research and Development Expenses | $1,577,454 | $- | $1,577,454 | N/A | | Selling, General and Administrative Expenses | $551,730 | $522,981 | $28,749 | 6% | | Operating Loss | $(2,083,062) | $(522,109) | $(1,560,953) | 299% | | Interest Expense | $(16,687) | $(11,897) | $(4,790) | 40% | | Net Loss | $(2,099,895) | $(534,006) | $(1,565,889) | 293% | - Revenue in Q1 2022 was primarily from sales of Ainos COVID-19 Antigen Rapid Test Kits, a shift from liposomal nutraceuticals sold in Q1 2021[47][123] - Increased R&D expenses were mainly due to amortization of intellectual property assets, staffing, and co-development research[48][124] Liquidity and Capital Resources Ainos, Inc. had $1,871,349 in cash as of March 31, 2022. Cash used in operating activities increased significantly due to higher net loss and negative working capital, while cash provided by financing activities also increased substantially from convertible and other notes payable. The company anticipates funding operations for the next twelve months through cash reserves, business revenues from COVID-19 test kits, stock sales, and debt financing, but acknowledges the need for additional capital and the uncertainty of achieving profitability Cash Flow Summary (Q1 2022 vs. Q1 2021) | Item | Q1 2022 | Q1 2021 | | :------------------------------------ | :------------ | :-------- | | Net cash used in operating activities | $(1,389,889) | $(211,737) | | Net cash used in investing activities | $(135,899) | $- | | Net cash provided by financing activities | $1,644,884 | $198,869 | - Cash used in operating activities increased due to higher net loss and negative working capital, driven by increased inventory and other current assets for a potential public offering[53][129] - Financing activities provided significant cash, primarily from proceeds of convertible notes payable ($850,000) and notes payable ($800,000), including a $26,000,000 noninterest-bearing convertible note for an asset purchase[54][55][130][131] - Near-term liquidity requirements include expenses for clinical trials, debt repayment, regulatory clearances, and marketing for POCT devices and the CICCT program, with plans to invest in VELDONA and SRNA development in 2023 and beyond[56][132] 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 - As a 'smaller reporting company,' Ainos, Inc. is exempt from providing quantitative and qualitative disclosures about market risk[58][134] ITEM 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2022. The company has also implemented a remediation plan for internal control over financial reporting deficiencies identified in 2021, including increasing staff resources, delegating responsibilities, and establishing executive review processes for financial reporting Disclosure Controls and Procedures The company's management, with CEO and CFO participation, evaluated and concluded that disclosure controls and procedures were effective as of March 31, 2022, ensuring timely and accurate reporting of information required under the Exchange Act - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2022[58][134] - These controls are designed to ensure information required for SEC reports is recorded, processed, summarized, and reported timely[58][134] Internal Control Over Financial Reporting Following identified deficiencies in internal controls over financial reporting as of December 31, 2021, Ainos, Inc. initiated a remediation plan in Q1 2022. This plan includes increasing accounting staff, clearly delegating reporting roles, establishing an executive review team for narrative disclosures and financial reports, and approving final EDGAR/IXBRL files - Deficiencies in internal control over financial reporting were identified as of December 31, 2021, and a remediation plan was implemented in Q1 2022[59][135] - Remediation efforts include increasing staff resources, delegating roles and responsibilities for reporting, and establishing executive review teams for disclosures and final filings[60][136] - The company plans to continue implementing its remediation plan and further increase internal corporate resources throughout 2022[61][137] PART II - OTHER INFORMATION ITEM 1. Legal Proceedings Ainos, Inc. is not currently aware of any material legal proceedings or claims against the company as of the report date, though it may be involved in various lawsuits in the ordinary course of business - As of the report date, the company was not aware of any material legal proceedings or claims[62][138] ITEM 1A. Risk Factors There are no material changes to the risk factors previously disclosed in the company's Form 10-K/A filed on April 15, 2022 - No material changes to risk factors were reported compared to the Form 10-K/A filed on April 15, 2022[63][139] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds Ainos, Inc. engaged in several unregistered sales of equity securities and related transactions. This includes the issuance of a $26,000,000 non-interest bearing convertible promissory note to Ainos KY for an asset purchase, working capital advances from Ainos KY totaling $3,000,000 (convertible notes with extended maturity) and $800,000 (non-convertible note), and an aggregate of $900,000 in convertible notes issued to other purchasers under Regulation S - Issued a $26,000,000 non-interest bearing APA Convertible Note to Ainos KY on January 30, 2022, as payment for intellectual property and equipment[63][139] - Received $3,000,000 in working capital advances from Ainos KY in 2021 via convertible notes, with maturity dates extended to February 28, 2023[64][140] - Received an $800,000 non-convertible working capital advance from Ainos KY in March 2022, due February 28, 2023[65][141] - Issued $900,000 in aggregate convertible notes under Regulation S to various purchasers, including a $50,000 note to the CFO's daughter and $850,000 to other investors, all non-interest bearing and due March 30, 2027[66][67][142][143] ITEM 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities were reported[68][144] ITEM 4. Mine Safety Disclosures This item is not applicable to Ainos, Inc - Mine Safety Disclosures are not applicable to the company[68][144] ITEM 5. Other Information No other information was reported under this item - No other information was reported[68][144] ITEM 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, common stock certificates, asset purchase agreements, various convertible and non-convertible notes, employment agreements, and certifications - The exhibit list includes Restated Certificate of Formation, Amended and Restated Bylaws, Specimen Common Stock Certificate, Amended and Restated Asset Purchase Agreement, Convertible Promissory Notes, Non-Convertible Note, Note Extension Agreement, Employment Agreements, and various certifications (e.g., 31.1, 31.2, 32.1, 32.2)[69][70][71][72][73][74][75][145][146][147][148][149][150][151] Signatures The report is signed by Chun-Hsien Tsai, Chairman of the Board, President, and Chief Executive Officer, and Hui-Lan Wu, Chief Financial Officer, on May 16, 2022 - The report was signed by Chun-Hsien Tsai (Chairman, President, CEO) and Hui-Lan Wu (CFO) on May 16, 2022[76][152]