Ainos(AIMD) - 2023 Q4 - Annual Report

FORM 10-K Filing Information Details Ainos, Inc.'s Form 10-K filing for FY2023, identifying it as a non-accelerated and smaller reporting company Filing Details and Registrant Status Details Ainos, Inc.'s Form 10-K filing for FY2023, identifying it as a non-accelerated and smaller reporting company - Ainos, Inc. filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2023[2] Filer Status | Filer Status | Indication | | :---------------------- | :--------- | | Large accelerated filer | ☐ | | Accelerated filer | ☐ | | Non-accelerated filer | ☒ | | Smaller reporting company | ☒ | | Emerging growth company | ☐ | - As of March 7, 2024, there were 5,954,317 shares of common stock outstanding and the aggregate market value of common stock held by non-affiliates was approximately $5,219,651.2 as of June 30, 2023[7] PART I ITEM 1. BUSINESS Ainos, Inc. is a diversified healthcare company pivoting from COVID-19 POCTs to VELDONA therapeutics and AI Nose-powered VOC POCTs, leveraging a capital-efficient model - Ainos, Inc. is a diversified healthcare company focused on developing novel point-of-care testing (POCT), very low-dose interferon alpha (VELDONA) therapeutics, and synthetic RNA-driven preventative medicine[13] - The company's product pipeline includes commercial-stage VELDONA Pet cytoprotein supplements, clinical-stage VELDONA human therapeutics, and telehealth-friendly POCTs powered by the AI Nose technology platform[13] - Ainos is pivoting from COVID-19 POCT sales to commercialize POCTs that detect volatile organic compounds (VOC) using its AI Nose technology, with Ainos Flora as a lead candidate for female vaginal health and STIs[15] Overview & Technologies Ainos, Inc. specializes in VELDONA-based therapeutics and AI Nose-powered POCTs, with VELDONA enhancing autoimmunity and AI Nose detecting VOCs for health monitoring - VELDONA formulation, delivered as a low-dose lozenge, is designed to enhance autoimmunity to resist virus damages, potentially reducing side effects of high-dose interferon[16] - 68 human clinical trials have been conducted with low-dose oral IFNα, including 63 Phase 2, 3 Phase 1, and 2 Phase 3 studies[17] - The AI Nose technology platform consists of a 'digital nose' for VOC detection, a trained AI algorithm for analysis, and a 'Smell ID' for cloud-based digital profile storage[23] Product Pipeline Ainos's pipeline includes commercial VELDONA Pet supplements, clinical VELDONA human drugs (e.g., oral warts, common cold), and VOC POCTs like Ainos Flora and Ainos Pen - VELDONA Pet supplements were launched in Taiwan in Q2 2023, addressing various health issues in dogs and cats[21][26] - VELDONA human drug candidates include treatments for oral warts in HIV-seropositive patients (granted Orphan Drug Designation by U.S. FDA), common cold, influenza, Sjögren's syndrome, and mild COVID-19 symptoms, with Phase 2 studies completed for most[20][26] - VOC POCT candidates include Ainos Flora for female vaginal health and STIs, and Ainos Pen as a cloud-connected, multi-purpose portable breath analyzer. A broader VOC sensing platform is co-developed with Nisshinbo Micro Devices Inc. (NISD) and Taiwan Inabata Sangyo Co[26][27] Business Model & Operations Ainos uses a capital-efficient model with R&D in Taiwan, outsourced manufacturing, and third-party distribution for global and local sales - The company's R&D and operating center is in Taiwan, providing access to high-caliber talent while maintaining cost-effectiveness[28] - Manufacturing is outsourced to third parties, including TCNT for POCTs and some VELDONA Pet supplements, and Swiss Pharmaceutical Co., Ltd. for VELDONA human drugs[29] - Distribution relationships are established with Inabata & Co. Ltd. (worldwide, preferred in Japan) and Topmed International Biotech Co., Ltd. (VELDONA Pet in Taiwan)[30] Intellectual Property & Employees Ainos holds 54 issued patents and 16 pending applications, primarily for VOC/POCT technologies, and employs 46 full-time staff, mostly in Taiwan R&D IP Portfolio (as of Dec 31, 2023) | IP Type | Issued Patents (as of Dec 31, 2023) | Pending Applications | | :-------------------------------- | :------------------------------------ | :------------------- | | Total Patents | 54 | 16 | | VOC and POCT technologies | 47 | | | Interferon technologies | 4 | | | Smart drug injection technology | 3 | | | Foreign Patents | 47 | | | U.S. Patents | 7 | | - The company owns a registered trademark for VELDONA and VELDONA Pet supplements in Taiwan, with additional trademark applications in other countries[32] Employee Count (as of Dec 31, 2023) | Employee Count (as of Dec 31, 2023) | Number | | :---------------------------------- | :----- | | Total Full-time Employees | 46 | | Research and Development | 26 | | Location | Majority in Taiwan | Additional Information Ainos, Inc., formerly Amarillo Biosciences, Inc., emerged from Chapter 11, renamed in 2021, and began Nasdaq trading in 2022 after two reverse stock splits - The company, formerly Amarillo Biosciences, Inc., emerged from Chapter 11 bankruptcy in January 2015 and renamed to Ainos, Inc. in April 2021[35] - Common stock and warrants began trading on the Nasdaq Capital Market under symbols 'AIMD' and 'AIMDW' on August 9, 2022[36] - The company effectuated a 1-for-15 reverse stock split on August 8, 2022, and a 1-for-5 reverse stock split on December 14, 2023[36] Government Regulation Ainos's products face extensive government regulations in Taiwan and the U.S., covering medical devices, drugs, data protection, and anti-fraud laws, with non-compliance risking severe sanctions - Taiwan's Medical Devices Act and Personal Data Protection Act (PDPA) govern product development, marketing, and data handling, with stricter scrutiny for sensitive medical data[39][42] - U.S. FDA regulates medical devices (Class I, II, III, 510(k), PMA, de novo, EUA) and drugs/biologics (preclinical, clinical trials, BLA/NDA approval), with strict post-market requirements[46][48][72][79] - The company is subject to U.S. federal and state fraud and abuse laws (Anti-Kickback, False Claims, HIPAA Fraud, Open Payments) and the Foreign Corrupt Practices Act (FCPA), with potential for significant penalties for non-compliance[87][89][90][93][94][95] ITEM 1A. RISK FACTORS Ainos faces significant risks including operating losses, capital dependence, product development uncertainty, regulatory hurdles, third-party reliance, IP protection challenges, and intense market competition - The company has a history of operating losses ($13.2 million in 2023, $14.0 million in 2022) and cumulative losses of $37.9 million as of Dec 31, 2023, with substantial doubt about its ability to continue as a going concern[100][213] - Success is highly dependent on successful development, regulatory approval, and commercialization of product candidates (VELDONA, POCTs), which is a lengthy, expensive, and uncertain process[117][125][135] - Reliance on third parties for manufacturing, sales, and marketing increases risks of delays, insufficient supplies, and inability to commercialize products effectively[150][161] - Protecting intellectual property globally is challenging due to varying laws and potential for infringement, invalidation, or costly litigation[167][171][176] - The pet health supplement and POCT markets are highly competitive, with larger competitors having greater resources, potentially impacting market share and profitability[194][196][199] Financial & Capital Risks Ainos has a history of operating losses and accumulated deficits, requiring substantial additional capital to fund operations and product development, with funding failure risking delays or dilution Operating and Cumulative Losses | Metric | 2023 (USD) | 2022 (USD) | | :-------------------- | :--------- | :--------- | | Operating Losses | $13,206,396 | $13,976,212 | | Cumulative Losses | $37,886,155 | $24,115,606 | | Revenue (COVID-19 kits) | $102,256 | $3,519,627 | - The company ceased sales of COVID-19 antigen rapid test kits in early 2024, with VELDONA Pet anticipated as the primary future revenue source until other candidates are commercialized[102][103][104] - Ainos requires additional capital to fund operations, product development, and commercialization, and may face delays or be forced to discontinue activities if funding is not secured on favorable terms, potentially leading to stockholder dilution[110][111][113] Product Development & Regulatory Risks Product development is lengthy, expensive, and uncertain, with risks of clinical trial delays, regulatory approval challenges, market acceptance issues, and significant product liability exposure - Product candidates are in different stages of clinical development and may not achieve expected efficacy or safety, with no guarantee of successful commercialization[118][119] - Clinical trials are expensive and lengthy, subject to delays from regulatory suspensions, enrollment challenges, supply issues, or unforeseen events, which could harm commercial prospects and increase costs[125][126][131] - Obtaining marketing approval is expensive, time-consuming, and uncertain across jurisdictions, and even approved products may fail to gain market acceptance due to efficacy, price, convenience, or competition[135][136][137][141] - The company faces inherent product liability risks from clinical testing and commercialization, which could lead to substantial liabilities, decreased demand, and reputational damage, potentially exceeding insurance coverage[144][146] Third-Party Reliance Risks Ainos relies heavily on third parties for manufacturing and distribution, risking supply issues, quality problems, and commercialization hurdles, alongside potential misconduct and partnership underperformance - The company outsources all manufacturing to third parties (e.g., TCNT, Swiss Pharmaceutical Co., Ltd.), increasing risks of manufacturing capacity issues, quality problems, and supply delays[150][151][153] - Limited internal marketing capabilities necessitate reliance on third-party distributors, and failure to expand or effectively manage these relationships could hinder product commercialization and revenue generation[161][162] - Misconduct by employees, contractors, or partners (e.g., non-compliance with regulations, fraud) could result in regulatory sanctions, reputational damage, and significant financial impact[163][164] - Strategic partnerships or licensing arrangements may not realize expected benefits, could incur significant costs, dilute stockholder value, or delay product development if partners do not prioritize Ainos's candidates[165][166] Intellectual Property & Data Privacy Risks Ainos faces global IP protection challenges due to varying patent laws, costly and uncertain patent maintenance, trade secret vulnerabilities, and risks from evolving patent laws or competitor claims - Intellectual property rights vary globally, making it difficult to protect patents and prevent infringement in all countries, especially where enforcement is weaker[167][169][170] - Obtaining and maintaining patent protection is costly and complex, with risks that patent applications may not issue, issued patents may be challenged or invalidated, or competitors may circumvent them[171][172][175] - Reliance on trade secret protection is vulnerable to breaches of confidentiality agreements or independent development by competitors, potentially harming the company's competitive position[183][184][185][186] - Changes in U.S. or foreign patent laws could diminish the value of patents, and the company may face lawsuits for wrongful use of competitors' trade secrets, leading to substantial costs and operational disruptions[189][190] Operational & Market Competition Risks Ainos faces operational risks from growth management, talent retention, intense competition in pet health and POCT markets, uncertain R&D outcomes, brand quality issues, and global health epidemics - Future growth requires increasing company size and employee base, which could strain management and resources if not effectively managed[191] - Retention of key executives and attraction of qualified scientific, clinical, and marketing personnel are critical for success in a highly competitive talent market[192][193] - The pet health supplement and POCT markets are highly competitive, with larger, more established players potentially leading to price reductions, increased costs, and loss of market share for Ainos[194][195][196][199][200][201] - R&D for VELDONA candidates is expensive and complex, with uncertain outcomes and potential difficulties in gaining market acceptance for novel technologies[203][204] - Failure to develop and maintain brand image or product quality, especially with the rise of social media, could negatively impact financial success[205][207] - Health epidemics (e.g., COVID-19) can adversely affect business operations, clinical development timelines, and supply chains[208] Securities & Governance Risks Ainos faces going concern doubts, stock price volatility, no dividends, acquisition integration risks, internal control failures, and potential Nasdaq delisting, all impacting investor value - The company's independent auditor has expressed substantial doubt about its ability to continue as a going concern, indicating a risk of investment loss[213] - The market price of common stock could be volatile due to operational results, revenue generation, public float, and competition. The company does not intend to pay dividends, making stock price appreciation the sole source of investor return[216][217] - Future acquisitions or investments carry risks of integration difficulties, business disruption, stockholder dilution, and adverse effects on operating results[218][219][221] - Failure to maintain effective internal control over financial reporting could lead to difficulties in accurate financial reporting, regulatory scrutiny, and a decline in stock price[220] - The company has previously faced Nasdaq minimum bid price compliance issues and potential delisting could adversely affect stock liquidity and capital raising ability[223][224] ITEM 1B. UNRESOLVED STAFF COMMENTS No unresolved staff comments are reported - No unresolved staff comments were reported[225] ITEM 1C. CYBERSECURITY Ainos has established cybersecurity risk management policies and processes, with board oversight, and reported no material challenges in 2023 - The company has established policies and processes for assessing, identifying, and managing material cybersecurity risks[226] - IT leadership reports to the CEO to manage risk assessment and mitigation, while the Board of Directors, through the audit committee, monitors and assesses strategic cybersecurity risk[227][230][231] - No cybersecurity challenges materially impaired operations or financial standing during the fiscal year ended December 31, 2023[229] ITEM 2. DESCRIPTION OF PROPERTY Ainos maintains administrative offices in California and Taiwan, with its product development facility located in Taiwan - Administrative offices are located in San Diego, California, and Taiwan[232] - The product development facility is located in Taiwan[232] ITEM 3. LEGAL PROCEEDINGS No legal proceedings are currently involving the company - No legal proceedings are currently involving the Company[233] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - This item is not applicable[234] PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Ainos's common stock and warrants trade on Nasdaq, undergoing reverse stock splits for compliance; the company has not paid dividends and retains earnings for growth - Common stock and public warrants began trading on the Nasdaq Capital Market on August 9, 2022, under symbols 'AIMD' and 'AIMDW'[236] - The company effectuated a 1-for-15 reverse stock split on August 8, 2022, and a 1-for-5 reverse stock split on December 14, 2023, to comply with Nasdaq's minimum bid price requirement[237] - As of March 7, 2024, there were approximately 254 shareholders of record[239] - The company has never declared or paid cash dividends and does not anticipate doing so in the foreseeable future, intending to retain all funds for business operations and growth[243] ITEM 6. [RESERVED] This item is reserved and contains no information ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Ainos, Inc. is a diversified healthcare company pivoting from COVID-19 test kits to VELDONA and VOC POCTs, reporting a $13.8 million net loss in 2023, and facing substantial doubt about its going concern ability - Key developments in 2023 included initiating the second phase of VOC sensing platform co-development, completing GMP clinical batch manufacturing for VELDONA, planning Phase III clinical studies for VELDONA oral warts treatment (Orphan Drug Designation), and commencing VELDONA Pet supplement shipments in Taiwan[251][252][253][254] - The company is pivoting away from COVID-19 antigen rapid test kit sales, which were the main revenue source in 2023, to focus on VELDONA Pet, Ainos Flora, and the VOC sensing platform[256] Key Financial Highlights (2023 vs. 2022) | Metric | 2023 (USD) | 2022 (USD) | Change (USD) | Change (%) | | :------------------------------------------------- | :--------- | :--------- | :----------- | :--------- | | Revenues | $122,112 | $3,519,627 | $(3,397,515) | (97%) | | Cost of revenues | $(375,845) | $(2,114,284)| $1,738,439 | (82%) | | Gross (loss) Profit | $(253,733) | $1,405,343 | $(1,659,076) | (118%) | | Research and development expenses | $7,317,388 | $6,845,964 | $471,424 | 7% | | Selling, general and administrative expenses | $5,635,275 | $8,535,591 | $(2,900,316) | (34%) | | Operating Loss | $(13,206,396)| $(13,976,212)| $769,816 | (6%) | | Net Loss | $(13,770,549)| $(14,006,690)| $236,141 | (2%) | - The net loss decreased by 2% in 2023, primarily due to a reduction in share-based compensation expense, despite a gross loss from product sales[276] - As of December 31, 2023, cash and cash equivalents were $1,885,628. The company anticipates financing operations through existing cash, business revenues, and additional equity/debt financing, but substantial doubt exists about its ability to continue as a going concern[277][283][288] Overview & Key Developments Ainos, Inc. focuses on POCTs and VELDONA therapeutics, with 2023 milestones including VOC sensing platform co-development, VELDONA GMP manufacturing, and VELDONA Pet shipments - Ainos, Inc. is a diversified healthcare company focused on developing novel point-of-care testing (POCT), very low-dose interferon alpha (VELDONA) therapeutics, and synthetic RNA-driven preventative medicine[250] - In December 2023, the company initiated the second phase of co-development for a VOC sensing platform with Nisshinbo Micro Devices Inc. and Taiwan Inabata Sangyo Co[251] - In November 2023, a GMP clinical batch of VELDONA investigational new drugs was manufactured, and the company plans to pursue a pre-IND meeting with the U.S. FDA for planned Phase III clinical studies for oral warts in HIV-seropositive patients, for which it has Orphan Drug Designation[252][253] - VELDONA Pet cytoprotein supplements commenced shipping in Taiwan in Q3 2023, following its launch in Q2 2023, and a distribution agreement was signed with Topmed International Biotech Co., Ltd. in March 2023[254][255] Factors Affecting Business & Recent Financing Ainos is shifting focus to VELDONA Pet and VOC POCTs, with success dependent on market adoption and co-development, securing $3 million in convertible notes in 2023 and an additional $1.75 million in 2024 - The company is pivoting away from COVID-19 antigen rapid test kits, with near-term priorities including VELDONA Pet sales and marketing, advancing Ainos Flora, co-developing the VOC sensing platform, and advancing VELDONA human drug candidates[256] - Consumer familiarity with at-home tests post-COVID-19 is expected to facilitate adoption of other POCT candidates like Ainos Flora[258] - In September and December 2023, Ainos closed a $3 million private placement of senior secured convertible notes with Lind Global Fund II LP, with an additional $1.75 million financing announced in January 2024[261] - On March 13, 2023, the company issued and sold two convertible promissory notes totaling $3 million to certain investors[262] - A 1-for-5 reverse stock split was effectuated on December 14, 2023, as authorized by shareholders[263] Results of Operations Ainos reported a 97% revenue decline and gross loss in 2023 due to reduced COVID-19 test kit sales, with net loss decreasing 2% due to lower share-based compensation Results of Operations (Years ended December 31) | Metric | 2023 (USD) | 2022 (USD) | Change (USD) | Change (%) | | :--------------------------------------- | :--------- | :--------- | :----------- | :--------- | | Revenues | $122,112 | $3,519,627 | $(3,397,515) | (97%) | | Cost of revenues | $(375,845) | $(2,114,284)| $1,738,439 | (82%) | | Gross (loss) Profit | $(253,733) | $1,405,343 | $(1,659,076) | (118%) | | Research and development expenses | $7,317,388 | $6,845,964 | $471,424 | 7% | | Selling, general and administrative expenses | $5,635,275 | $8,535,591 | $(2,900,316) | (34%) | | Operating Loss | $(13,206,396)| $(13,976,212)| $769,816 | (6%) | | Net Loss | $(13,770,549)| $(14,006,690)| $236,141 | (2%) | - Revenue decreased by 97% in 2023 due to a substantial slowdown in COVID-19 test kit sales and a decline in selling price and volume[265] - R&D expenses increased by 7% due to impairment loss on COVID-19 POCT equipment and increased staffing, partially offset by decreased clinical trial fees[268] - SG&A expenses decreased by 34% primarily due to lower share-based compensation, despite increased professional expenses for public company listing[270][271] - Net loss decreased by 2% in 2023, mainly attributable to the decrease in share-based compensation expense, offsetting the gross loss from product sales[276] Liquidity and Capital Resources Ainos had $1.89 million cash as of December 31, 2023, with increased cash used in operations and provided by financing, but faces substantial doubt about its going concern ability Cash Flow Summary (Years ended December 31) | Cash Flow Activity | 2023 (USD) | 2022 (USD) | Change (USD) | Change (%) | | :-------------------------------- | :--------- | :--------- | :----------- | :--------- | | Net cash used in operating activities | $(4,694,668)| $(3,040,737)| $(1,653,931) | 54% | | Net cash used in investing activities | $(101,525) | $(630,178) | $528,653 | 84% | | Net cash provided by financing activities | $4,923,673 | $3,850,799 | $1,072,874 | 28% | - Cash and cash equivalents were $1,885,628 as of December 31, 2023[277] - Financing activities in 2023 included $3.8 million from convertible notes and $3 million from senior secured convertible notes, partially offset by repayments and issuance costs[281][282] - The company expects increased spending on clinical trials for VOC POCT and VELDONA drug candidates, and sales and marketing for VELDONA Pet[284] - Substantial doubt exists about the company's ability to continue as a going concern due to recurring net operating losses and an accumulated deficit of $37,886,155 as of December 31, 2023[288] Critical Accounting Policies and Estimates Ainos's financial statements rely on critical accounting policies and estimates, particularly for intangible asset impairment testing, with no impairment recorded for VOC POCT assets in Q4 2023 - Critical accounting policies involve significant estimates and assumptions, including useful lives of property and equipment, valuation of stock options/warrants/convertible notes, impairment testing of intangible assets, inventory losses, and sales returns[290][430] - In Q4 2023, an impairment test for VOC POCT related intangible assets was conducted, and based on undiscounted cash flow analysis, no impairment loss was recorded[293] - Estimates for undiscounted cash flow involved significant judgment regarding commercialization timing, estimated selling price, sales volume, and future cash outflows for product development and sales[294][439] Off-Balance Sheet Arrangements Ainos had no off-balance sheet arrangements as of December 31, 2023 - The company had no off-balance sheet arrangements as of December 31, 2023[295] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This item is not applicable to Ainos, Inc. as a 'smaller reporting company' - This item is not applicable to a 'smaller reporting company'[296] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data for Ainos, Inc. are presented starting on page F-1 - The financial statements and notes are set forth beginning on page F-1[297] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No changes in or disagreements with accountants on accounting and financial disclosure were reported - No changes in or disagreements with accountants on accounting and financial disclosure were reported[298] ITEM 9A. CONTROLS AND PROCEDURES Ainos's management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with new procedures for VELDONA Pet sales returns - As of December 31, 2023, disclosure controls and procedures were deemed effective[298] - Management concluded that internal control over financial reporting was effective as of December 31, 2023, based on the 2013 COSO Framework[299] - New procedures and internal controls were built in Q4 2023 to monitor returns for VELDONA Pet cytoprotein supplements, affecting revenue recognition timing and amount[301] ITEM 9B. OTHER INFORMATION No other information is reported under this item - No other information was reported[302] ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS This item is not applicable to the company - This item is not applicable[303] PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE Ainos's Board comprises seven directors, including CEO Chun-Hsien Tsai, with independent Audit and Compensation Committees, and has adopted a Code of Conduct and Insider Trading Policy Directors and Executive Officers (as of March 7, 2024) | Name | Age | Position | | :--------------- | :-- | :------------------------------------- | | Chun-Hsien Tsai | 54 | Chairman, President & Chief Executive Officer | | Wen-Han Chang | 61 | Director | | Yao-Chung Chiang | 72 | Director | | Pao-Sheng Wei | 66 | Director | | Ting-Chuan Lee | 41 | Director | | Chun-Jung Tsai | 52 | Director | | Chung-Yi Tsai | 48 | Director | | Meng-Lin Sung | 51 | Chief Financial Officer | | Lawrence K. Lin | 55 | Executive Vice President of Operations | - The Board of Directors consists of 7 members, with 1 female and 6 male directors, all identified as Asian[319][320] - The Audit Committee (Wen-Han Chang, Yao-Chung Chiang, Pao-Sheng Wei) and Compensation Committee (Wen-Han Chang, Pao-Sheng Wei) are composed solely of independent directors[321][324] - The company has adopted a written Code of Business Conduct and Ethics and an Insider Trading Policy[325][326] - All Section 16(a) reports were filed on a timely basis during the most recent fiscal year[331] ITEM 11. EXECUTIVE COMPENSATION Executive compensation for 2023 included significant stock awards for CEO Chun-Hsien Tsai ($1.17 million) and CFO Meng-Lin Sung ($218,910), with non-employee directors receiving $1.04 million primarily in stock awards Summary Compensation Table (Named Executive Officers) | Name and principal position | Year | Salary ($) | Bonus ($) | Stock awards ($) | Options awards ($) | All other compensation ($) | Total ($) | | :-------------------------- | :--- | :--------- | :-------- | :--------------- | :----------------- | :------------------------- | :-------- | | Chun-Hsien Tsai | 2023 | 95,912 | 16,212 | 1,172,899 | - | - | 1,285,023 | | President & Chief Executive Officer | 2022 | 101,650 | 17,145 | 3,762,496 | - | - | 3,881,291 | | Meng-Lin Sung | 2023 | 57,363 | 9,728 | 218,910 | - | - | 286,001 | | Chief Financial Officer | 2022 | - | - | - | - | - | - | | Lawrence K. Lin | 2023 | 144,000 | - | 14,790 | - | - | 158,790 | | EVP of Operations | 2022 | 144,000 | - | - | - | - | 144,000 | - Chun-Hsien Tsai's 2023 compensation included a special stock award of $162,250 for his service as chairman[332] - Meng-Lin Sung was appointed CFO in May 2023 and received a special stock award as a sign-on bonus[333][335] Outstanding Equity Awards at December 31, 2023 (Selected Executives) | Name | Unexercised Options () | Vested RSUs () | Unvested RSUs () | | :-------------- | :---------------------- | :-------------- | :---------------- | | Chun-Hsien Tsai | - | 7,000 | 174,000 | | Meng-Ling, Sung | - | 7,000 | - | | Lawrence K. Lin | 4,444 (exercisable) | 2,400 | - | Director Compensation Table (Non-Executive Directors, 2023) | Name | Fees earned or paid in cash ($) | Stock awards ($) | Total ($) | | :--------------- | :------------------------------ | :--------------- | :-------- | | Wen-Han Chang | 20,500 | 162,250 | 182,750 | | Yao-Chung Chiang | 16,000 | 162,250 | 178,250 | | Pao-Sheng Wei | 22,000 | 162,250 | 184,250 | | Chung-Yi Tsai | 12,000 | 162,250 | 174,250 | | Chung-Jung Tsai | - | 162,250 | 162,250 | | Ting-Chuan Lee | - | 162,250 | 162,250 | | Total | 70,500 | 973,500 | 1,044,000 | - Non-employee directors receive annual cash retainers and an Appointment Grant of 4,400 restricted stock units (RSUs) vesting over three years[343][345][346] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Ainos Inc. (Cayman Islands) is the largest beneficial owner with 50.84% of common stock, while directors and executives hold 13.08%, with equity compensation plans reserving shares for future issuance Security Ownership (as of March 7, 2024) | Name of beneficial owner | Number of shares beneficially owned | Percentage of shares of common stock | | :----------------------- | :---------------------------------- | :----------------------------------- | | Ainos Inc. ("Ainos KY") | 3,027,487 | 50.84% | | All Directors and Executive Officers as a Group (9 persons) | 779,085 | 13.08% | Equity Compensation Plan Information (as of December 31, 2023) | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | :------------------------------------------------ | :-------------------------------------------------------------------------------- | :------------------------------------------------------------------------------ | :------------------------------------------------------------------------------------------------------------------------------------------------ | | Equity compensation plans approved by security holders | 961,638 | $28.50 | 10,875 | | Equity compensation plans not approved by security holders | 6,034 | $19.88 | - | | Total | 967,672 | | 10,875 | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Ainos has significant related party transactions, including a $26 million IP acquisition from Ainos KY and substantial agreements with TCNT, and operates as a 'controlled company' due to Ainos KY's majority voting power - In 2022, Ainos acquired $26 million in intellectual property and equipment from Ainos KY, its controlling shareholder, in exchange for a convertible promissory note[359][360] - Ainos KY provided $800,000 in working capital advances in March 2022, with $530,000 repaid in 2023[361] - The company incurred $46,635 (2023) and $1,968,291 (2022) in manufacturing costs for COVID-19 test kits from TCNT under a sales and marketing agreement[365] - Product development expenses with TCNT were $368,372 (2023) and $618,522 (2022)[366] - Sales of COVID-19 test kits to ASE's affiliates totaled $33,388 (2023) and $2,855,205 (2022)[368] - Ainos is a 'controlled company' due to Ainos KY holding majority voting power, granting exemptions from certain Nasdaq independent director requirements[370] ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES KCCW Accountancy Corp. was appointed as Ainos's principal accounting firm in Q1 2023, with audit fees of $135,000 for 2023 and $60,000 for the 2022 re-audit, all pre-approved - KCCW Accountancy Corp. was appointed as the principal accounting firm in Q1 2023[371] Audit Fees Billed by KCCW Accountancy Corp. | Service | Amount (USD) | | :-------------------------------- | :----------- | | 2023 Annual Financial Statement Audit | $135,000 | | 2022 Annual Financial Statement Re-audit | $60,000 | - All audit fees were pre-approved by the Audit Committee of the Board of Directors[371] - No audit-related fees, tax fees, or other fees were reported[372][373] PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES This section lists the financial statements and supplementary data, including the Independent Auditor's Report, Balance Sheets, Statements of Operations, and Cash Flows - The report includes the Report of Independent Registered Public Accounting Firm, Balance Sheets, Statements of Operations, Statements of Comprehensive Loss, Statements of Stockholders' Equity (Deficit), Statements of Cash Flows, and Notes to Financial Statements[373] EXHIBIT INDEX The Exhibit Index provides a comprehensive list of all documents filed with the Form 10-K, including organizational documents, securities forms, and various agreements - The Exhibit Index lists various documents, including Restated Certificate of Formation, Amended and Restated Bylaws, Forms of Common Stock Certificate and Warrant, Convertible Promissory Notes, Security Agreements, Employment Agreements, Product Development Agreements, Code of Ethics, and Insider Trading Policy[375][376][377][378][379][380][381] ITEM 16. FORM 10-K SUMMARY No Form 10-K summary is provided - No Form 10-K summary is provided[383] SIGNATURES The report is duly signed by Ainos, Inc.'s Chairman, President, CEO, CFO, and all directors on March 8, 2024 - The report is signed by Chun-Hsien Tsai (Chairman, President, and CEO) and Meng-Lin Sung (CFO) on March 8, 2024[386] - All directors, including Wen-Han Chang, Yao-Chung Chiang, Pao-Sheng Wei, Ting-Chuan Lee, Chun-Jung Tsai, and Chung-Yi Tsai, also signed the report on March 8, 2024[387] Financial Statements Report of Independent Registered Public Accounting Firm KCCW Accountancy Corp. issued an unqualified opinion on Ainos, Inc.'s 2023 and 2022 financial statements, but noted substantial doubt about the company's going concern ability due to recurring losses - KCCW Accountancy Corp. issued an unqualified opinion on the financial statements for 2023 and 2022[392] - The auditor expressed substantial doubt about the company's ability to continue as a going concern due to recurring losses and negative operating cash flow[393] - Critical audit matters included the assessment of impairment of intangible assets and the fair value valuation of senior secured convertible notes, both involving challenging, subjective, or complex judgments[397][398][399] Balance Sheets Ainos, Inc.'s balance sheet as of December 31, 2023, shows total assets of $31.84 million, increased liabilities of $7.39 million, and decreased stockholders' equity of $24.45 million Balance Sheet Summary (as of December 31) | Metric | 2023 (USD) | 2022 (USD) | | :-------------------------------- | :--------- | :--------- | | Total assets | $31,841,804| $37,109,014| | Total liabilities | $7,394,223 | $2,481,008 | | Total stockholders' equity | $24,447,581| $34,628,006| - Current assets decreased from $2.85 million in 2022 to $2.47 million in 2023, mainly due to reductions in accounts receivable and inventory[403] - The significant increase in total liabilities is primarily attributable to $2.65 million in senior secured convertible notes and $3 million in noncurrent convertible notes in 2023[406] - Accumulated deficit increased from $24.12 million in 2022 to $37.89 million in 2023[406] Statements of Operations Ainos, Inc. reported a net loss of $13.77 million in 2023, with revenue declining 97% and a gross loss, while operating expenses decreased due to lower SG&A Statements of Operations Summary (Years ended December 31) | Metric | 2023 (USD) | 2022 (USD) | | :--------------------------------------- | :--------- | :--------- | | Revenues | $122,112 | $3,519,627 | | Gross (losses) profits | $(253,733) | $1,405,343 | | Total operating expenses | $12,952,663| $15,381,555| | Loss from operating | $(13,206,396)| $(13,976,212)| | Total non-operating expenses, net | $(563,353) | $(30,478) | | Net loss | $(13,770,549)| $(14,006,690)| | Net loss per common share - basic and diluted | $(3.36) | $(5.14) | - Revenue decreased by 97% in 2023, leading to a gross loss, primarily due to reduced sales of COVID-19 antigen rapid test kits[408] - Operating expenses decreased by 16%, driven by a 34% reduction in selling, general and administrative expenses, while research and development expenses increased by 7%[408] - Non-operating expenses increased significantly by 1748% due to $525,643 in issuance costs for senior secured convertible notes and higher interest expense[408] Statements of Comprehensive Loss Ainos, Inc. reported a comprehensive loss of $13.84 million for 2023, including net loss and translation adjustments Statements of Comprehensive Loss Summary (Years ended December 31) | Metric | 2023 (USD) | 2022 (USD) | | :---------------------- | :--------- | :--------- | | Net loss | $(13,770,549)| $(14,006,690)| | Translation adjustment | $(68,820) | $(207,453) | | Comprehensive loss | $(13,839,369)| $(14,214,143)| - The comprehensive loss for 2023 was $13,839,369, which includes a net loss of $13,770,549 and a translation adjustment of $(68,820)[410] Statements of Stockholders' Equity Ainos, Inc.'s total stockholders' equity decreased to $24.45 million in 2023, driven by net loss and translation adjustments, partially offset by stock issuances Statements of Stockholders' Equity Summary (Years ended December 31) | Metric | 2023 (USD) | 2022 (USD) | | :-------------------------------- | :--------- | :--------- | | Common Stock | $46,778 | $40,023 | | Additional Paid-in Capital | $62,555,808| $58,905,242| | Accumulated Deficit | $(37,886,155)| $(24,115,606)| | Accumulated Other Comprehensive Loss - Translation Adjustment | $(270,473) | $(201,653) | | Total Stockholders' Equity | $24,447,581| $34,628,006| - The accumulated deficit increased by $13.77 million in 2023 due to the net loss[413] - Additional paid-in capital increased by $3.65 million, reflecting stock issuances for special stock bonuses, warrants, and share-based compensation[412][413] Statements of Cash Flows Ainos, Inc. reported a net cash increase of $32,266 in 2023, with increased cash used in operations and provided by financing activities from convertible notes Statements of Cash Flows Summary (Years Ended December 31) | Cash Flow Activity | 2023 (USD) | 2022 (USD) | | :-------------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(4,694,668)| $(3,040,737)| | Net cash used in investing activities | $(101,525) | $(630,178) | | Net cash provided by financing activities | $4,923,673 | $3,850,799 | | Net increase in cash and cash equivalents | $32,266 | $101,863 | | Cash and cash equivalents at end of year | $1,885,628 | $1,853,362 | - The increase in cash used in operating activities was primarily due to the net loss in 2023[279] - The decrease in cash used in investing activities was due to lower levels of R&D equipment and office facility acquisitions compared to 2022[280] - Financing activities were boosted by $3.8 million from convertible notes and $3 million from senior secured convertible notes, partially offset by repayments and issuance costs[281][282] Notes to Financial Statements The Notes to Financial Statements detail Ainos, Inc.'s business, accounting policies, financial position, public offering, reverse stock splits, and going concern doubts, covering inventory, debt, equity, and related party transactions - Ainos, Inc. is a diversified healthcare company focused on POCTs, VELDONA therapeutics, and synthetic RNA-driven preventative medicine[418] - The company's common stock and warrants began trading on Nasdaq in August 2022, following a 1-for-15 reverse stock split, and a subsequent 1-for-5 reverse stock split in December 2023[422][423] - Substantial doubt exists about the company's ability to continue as a going concern due to recurring net operating losses and an accumulated deficit of $37,886,155 as of December 31, 2023[429] - Key accounting policies include fair value option for senior secured convertible notes, revenue recognition for product sales (including VELDONA Pet supplements), and share-based compensation[442][445][456][457][458][459][500][509] - Significant related party transactions include intellectual property acquisition from Ainos KY, working capital advances, and product development/manufacturing agreements with TCNT[359][360][361][365][366][518][521][525] 1. Description of Business Ainos, Inc. is a diversified healthcare company focused on POCTs and VELDONA therapeutics, with Nasdaq listing and reverse stock splits, but faces substantial doubt about its going concern ability - Ainos, Inc. is a diversified healthcare company focused on developing novel point-of-care testing (POCT), very low-dose interferon alpha (VELDONA) therapeutics, and synthetic RNA-driven preventative medicine[418] - The company's product portfolio includes VELDONA Pet cytoprotein supplements, clinical-stage VELDONA human therapeutics, and telehealth-friendly POCTs powered by its AI Nose technology platform[418] - Ainos acquired intellectual property from its controlling shareholder, Ainos KY, to expand into POCTs, pivoting from COVID-19 POCT sales to VOC-detecting POCTs like Ainos Flora[420] - The company's common stock and warrants began trading on the Nasdaq Capital Market on August 9, 2022, after a 1-for-15 reverse stock split, followed by a 1-for-5 reverse stock split on December 14, 2023[422][423] - Substantial doubt exists about the company's ability to continue as a going concern due to recurring net operating losses and an accumulated deficit of $37,886,155 as of December 31, 2023[429] 2. Summary of Significant Accounting Policies Ainos's financial statements adhere to GAAP, requiring estimates for asset valuations and impairment, with key policies on inventory, intangible assets, revenue recognition, and share-based compensation, and recent ASU adoptions having no material impact - Financial statements are prepared in conformity with GAAP, requiring estimates for asset useful lives, valuations of stock options, warrants, senior secured convertible notes, intangible asset impairment, inventory losses, and sales returns[430] - The company operates as one operating segment, with revenues and long-term assets primarily based in Taiwan[432][433] - Inventory is stated at the lower of cost or net realizable value, with reserves for excess and obsolete inventory recorded in cost of revenues[436] - Intangible assets are amortized over estimated useful lives of 5 to 19 years, and recoverability is evaluated when impairment indicators exist[436][437] - The company elected the fair value option for senior secured convertible notes (Lind Note), valuing it at fair value using a binomial lattice model, with changes recognized in earnings[442][443] - Revenue from product sales (COVID-19 POCT, VELDONA Pet) is recognized when control is transferred to the customer, typically at shipment or delivery[445][446] - Research and development costs and advertising costs are expensed as incurred[449][451] - Share-based compensation expense is measured at grant-date fair value and recognized on a straight-line basis over the vesting period[453] - The company adopted ASU 2016-13 (Credit Losses) and early adopted ASU 2020-06 (Convertible Instruments) in 2023, neither having a material impact on financial statements[461][462] 3. Inventory, net Ainos's net inventory decreased to $167,593 in 2023 due to COVID-19 POCT write-downs and reclassification, with remaining inventory primarily VELDONA Pet supplements Inventory, net (as of December 31) | Category | 2023 (USD) | 2022 (USD) | | :-------------- | :--------- | :--------- | | Raw materials | $92,708 | $393,253 | | Work in process | $1,208 | $111,119 | | Finished goods | $73,677 | $90,850 | | Total | $167,593 | $595,222 | - A loss of $235,047 from excess and obsolete COVID-19 POCT inventory write-downs was recognized in 2023[464] - $255,000 of raw material inventory was reclassified to research and development material in 2023[465] - As of December 31, 2023, $167,593 of inventory was related to VELDONA Pet cytoprotein supplements[465] 4. Intangible assets, net Ainos's net intangible assets decreased to $28.28 million in 2023 due to amortization, with no impairment loss recorded for acquired patents Intangible Assets, net (as of December 31) | Category | 2023 (USD) | 2022 (USD) | | :------------------------ | :--------- | :--------- | | Patents acquired | $39,143,975| $39,143,975| | Others | $227,009 | $227,511 | | Total cost | $39,370,984| $39,371,486| | Less: accumulated amortization | $(11,087,776)| $(6,564,748)| | Intangible assets, net | $28,283,208| $32,806,738| - Amortization expense was $4,523,516 in 2023 and $4,522,002 in 2022[466] - No impairment loss was recorded for intangible assets in 2023 or 2022[466] Estimated Future Amortization Expense | Year | Amount (USD) | | :-------- | :----------- | | 2024 | $4,534,864 | | 2025 | $4,522,512 | | 2026 | $4,522,345 | | 2027 | $4,521,505 | | 2028 | $4,533,858 | | Thereafter| $5,648,124 | | Total | $28,283,208 | 5. Property and Equipment, net Ainos's net property and equipment decreased to $876,572 in 2023, primarily due to a $286,777 impairment loss on COVID-19 POCT equipment and depreciation expenses Property and Equipment, net (as of December 31) | Category | 2023 (USD) | 2022 (USD) | | :-------------------------------- | :--------- | :--------- | | Machinery and equipment | $1,137,352 | $1,063,765 | | Furniture and fixture | $669,502 | $620,064 | | Total cost | $1,806,854 | $1,683,829 | | Less: accumulated depreciation and impairment | $(930,282) | $(308,153) | | Property and equipment, net | $876,572 | $1,375,676| - Depreciation expense was $328,938 in 2023 and $291,706 in 2022[468] - An impairment loss of $286,777 was recognized for COVID-19 POCT related equipment in 2023 and classified as R&D expenses[469] 6. Debts Ainos's total debt increased to $5.96 million in 2023, driven by new convertible notes, including $3 million in March 2025 notes and $2.65 million in fair-valued senior secured convertible notes Debt Summary (as of December 31) | Debt Type | 2023 (USD) | 2022 (USD) | | :------------------------------------------------ | :--------- | :--------- | | Convertible notes payable, related party – current (Chen Note) | - | $376,526 | | Other notes payable, related party – current | $42,000 | $884,000 | | Other notes payable, related party – noncurrent (KY Note) | $270,000 | - | | March 2025 Convertible Notes, related party – noncurrent (ASE Note) | $2,000,000 | - | | March 2025 Convertible Notes – noncurrent (Lee Note) | $1,000,000 | - | | Senior secured convertible notes payable (Lind Note) – at fair value | $2,651,556 | - | | Total | $5,963,556 | $1,260,526 | - The Chen Note was paid off ($114,026) or converted into common stock ($262,500) in 2023[470] - March 2025 Convertible Notes totaling $3 million were issued in March 2023, bearing 6% interest and convertible at $7.50 per share[473][474][475][476] - Senior secured convertible notes (Lind Note) totaling $3 million were issued in September and December 2023, measured at fair value, with a gain of $94,207 recognized in 2023[478][480] - The $26 million APA Convertible Note from Ainos KY and other convertible notes were fully converted to 1,814,627 shares of common stock upon the public offering in August 2022[482][483][485] 7. Stockholders' Equity Ainos increased authorized preferred stock, issued 4,677,787 common shares, including 600,000 as special bonuses in 2023, and has 894,444 warrants outstanding, with no anticipated cash dividends - Authorized preferred stock increased to 50,000,000 shares in November 2023; no shares issued or outstanding[486] - As of December 31, 2023, 4,677,787 common shares were issued, with 3,657,087 shares reserved for conversion of convertible notes, warrants, and share-based compensation awards[488] - In 2023, 600,000 common shares were issued as special stock bonuses to directors, officers, and consultants, valued at $1,947,000[489] - The August 2022 public offering involved 780,000 units (common stock and warrants), generating $1.78 million net proceeds, and resulted in the conversion of $30.4 million in convertible notes to 1,814,627 common shares[491][494] Warrants Outstanding (as of December 31) | Warrant Type | 2023 ( shares) | 2022 ( shares) | | :---------------------------- | :-------------- | :-------------- | | Lind Warrant | 691,244