Ainos(AIMD) - 2022 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for the period ended June 30, 2022, show a significant increase in revenue driven by COVID-19 test kit sales, offset by a substantial rise in operating expenses, leading to a larger net loss and a decrease in stockholders' equity, while cash remained stable due to financing activities Condensed Consolidated Balance Sheets | Financial Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $40,413,042 | $40,822,161 | | Total Current Assets | $3,698,896 | $2,217,697 | | Intangible Assets, net | $35,086,424 | $37,329,191 | | Total Liabilities | $34,406,722 | $30,625,054 | | Total Current Liabilities | $6,988,399 | $30,594,799 | | Total Long Term Liabilities | $27,418,323 | $30,255 | | Total Stockholders' Equity | $6,006,320 | $10,197,107 | - Total liabilities increased primarily due to the addition of $27.4 million in non-current convertible notes payable as of June 30, 2022, which were not present at the end of 2021[6] - Total stockholders' equity decreased from $10.2 million to $6.0 million, driven by a net loss of $4.05 million for the six-month period, which increased the accumulated deficit[7][13] Condensed Consolidated Statements of Operations | Metric (Six Months Ended June 30) | 2022 | 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $723,828 | $205,113 | +252.9% | | Gross Profit | $363,786 | $134,356 | +170.8% | | Research and Development Expenses | $3,212,310 | $0 | N/A | | Total Operating Expenses | $4,391,144 | $1,383,011 | +217.5% | | Operating Loss | ($4,027,358) | ($1,248,655) | +222.5% | | Net Loss | ($4,053,927) | ($1,283,781) | +215.8% | | Basic and Diluted Net Loss Per Share | ($0.03) | ($0.02) | +50.0% | - The significant increase in net loss for the first six months of 2022 was primarily driven by the introduction of $3.2 million in Research and Development expenses, which were not incurred in the same period of 2021[8] Condensed Consolidated Statements of Cash Flows | Cash Flow Activity (Six Months Ended June 30) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,619,153) | ($42,926) | | Net cash used in investing activities | ($424,557) | ($23,276) | | Net cash provided by financing activities | $2,189,875 | $650,595 | | Cash and cash equivalents at end of period | $1,753,877 | $606,638 | - Financing activities in H1 2022 provided $2.19 million in cash, primarily from $1.4 million in convertible notes and $0.8 million in other notes payable, which was significantly higher than the $0.65 million raised in H1 2021[16] - The company executed significant non-cash activities, including issuing a $26 million convertible note for an asset purchase in 2022 and issuing $20 million in stock for patent acquisition in 2021[16] Notes to Financial Statements The notes detail the company's shift towards commercializing medical devices, particularly point-of-care tests (POCTs), highlighting a going concern uncertainty dependent on future financing and profitability, significant current ($4.4M) and non-current ($27.4M) debt primarily from convertible notes, extensive related-party transactions, and key subsequent events including a Nasdaq public offering, a 1-for-15 reverse stock split, and the conversion of over $30 million in debt to equity in August 2022 - The company is prioritizing the commercialization of medical devices, including Volatile Organic Compounds (VOC) POCTs and COVID-19 POCTs, acquired through intellectual property from its majority shareholder, Ainos KY[17] - The company's ability to continue as a going concern is dependent on obtaining necessary financing to fund working capital and achieving future profitable operations[20][21] - As of June 30, 2022, the company had $27.4 million in non-current convertible notes, including a $26 million note issued to Ainos KY for an asset purchase and $1.4 million in 'March 2027 Convertible Notes'[26][27][28] - Subsequent to the quarter end, in August 2022, the company completed a public offering on Nasdaq, executed a 1-for-15 reverse stock split, and converted approximately $30.4 million of convertible notes into common stock[39][40] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic shift to commercializing point-of-care test (POCT) devices, leveraging intellectual property from its majority shareholder, noting significant revenue growth from COVID-19 test kits in Taiwan, but also a substantial increase in R&D expenses leading to sharp rises in operating and net losses for both the second quarter and first half of 2022 compared to 2021, with liquidity supported by cash reserves, test kit sales, debt financing, and a subsequent public offering in August 2022 providing additional net proceeds of approximately $2.1 million Overview and Strategy - The company is prioritizing the commercialization of medical devices, particularly POCTs, as part of a diversification strategy away from its historical focus on low-dose oral interferon[48] - The product portfolio includes COVID-19 Antigen and Nucleic Acid tests, VOC POCTs (Ainos Flora, Ainos Pen, CHS430), Very Low-Dose Oral Interferon Alpha (VELDONA), and a Synthetic RNA (SRNA) platform[49][50][51] - The general strategy for 2022 is to conduct clinical trials in Taiwan, use the data to apply for TFDA and FDA approval, and then partner with third-party distributors for marketing[54] Results of Operations | Metric (Three Months Ended June 30) | Q2 2022 | Q2 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $636,627 | $202,992 | +213.6% | | Gross Profit | $317,664 | $133,484 | +138.0% | | R&D Expenses | $1,634,856 | $0 | N/A | | Operating Loss | ($1,944,295) | ($726,546) | +167.6% | | Net Loss | ($1,954,032) | ($749,774) | +160.6% | | Metric (Six Months Ended June 30) | H1 2022 | H1 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $723,828 | $205,113 | +252.9% | | Gross Profit | $363,786 | $134,356 | +170.8% | | R&D Expenses | $3,212,310 | $0 | N/A | | Operating Loss | ($4,027,358) | ($1,248,655) | +222.5% | | Net Loss | ($4,053,927) | ($1,283,781) | +215.8% | - The increase in operating and net losses in 2022 is mainly attributable to new R&D expenses for product development initiatives, including amortization of intellectual property, staffing, and co-development research[62][64][67] Liquidity and Capital Resources - As of June 30, 2022, the company had cash and cash equivalents of $1,753,877, nearly unchanged from $1,751,499 at year-end 2021[70] - Net cash used in operating activities increased significantly to $1.62 million in H1 2022 from $43k in H1 2021, due to higher operating expenses from increased staffing and R&D investment[71][72] - The company raised $2.19 million from financing activities in H1 2022, primarily through $1.4 million in convertible notes and $0.8 million in non-convertible notes[74] - Following the quarter, the company received net proceeds of approximately $2.1 million from its public offering in August 2022 and converted over $30 million in debt to equity[76] Quantitative and Qualitative Disclosures About Market Risk As a "smaller reporting company," Ainos, Inc. is not required to provide the information for this item - The company is not required to provide quantitative and qualitative disclosures about market risk because it qualifies as a "smaller reporting company"[78] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, and the company is actively implementing a remediation plan for previously identified deficiencies in internal control over financial reporting, which includes increasing staff resources, delegating responsibilities, and establishing more robust review processes for financial reports - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[78] - The company is implementing a remediation plan for deficiencies in internal control over financial reporting identified as of December 31, 2021[79] - Remediation efforts in H1 2022 include hiring additional accounting staff, delegating reporting roles, and establishing a multi-level executive review process for all disclosures and financial reports before filing[80] PART II: OTHER INFORMATION Legal Proceedings As of the date of this report, the company was not aware of any material legal proceedings or claims involving the company - The company reports no material legal proceedings or claims as of the filing date[82] Risk Factors There have been 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 have occurred since the annual report filing on April 15, 2022[83] Unregistered Sales of Equity Securities and Use of Proceeds The company details several unregistered sales of securities, primarily convertible notes, including a $26 million convertible note issued to majority shareholder Ainos KY for an asset purchase, additional working capital advances from Ainos KY, and $1.4 million in convertible notes issued pursuant to Regulation S, all of which were subsequently converted into common stock in August 2022 in connection with the company's public offering - On January 30, 2022, the company issued a $26 million convertible promissory note (the "APA Convertible Note") to Ainos KY as payment for an asset purchase[83] - The company received working capital advances from Ainos KY, including $3 million in convertible notes in 2021 and an $800,000 non-convertible note in March 2022[85][86] - In March and April 2022, the company issued a total of $1.4 million in convertible notes (the "March 2027 Convertible Notes") pursuant to Regulation S[87][88] - In August 2022, the APA Convertible Note, the March 2027 Convertible Notes, and $3 million of other convertible notes were all converted into shares of common stock[84][85][89] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[89] Exhibits This section provides an index of all exhibits filed with the report, including corporate governance documents, material agreements such as a Convertible Note Purchase Agreement, and certifications from the CEO and CFO - The exhibit index lists key documents filed with the 10-Q, including the CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and a Convertible Note Purchase Agreement with ASE Test, Inc. (Exhibit 10.1)[90][91]