Ainos, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet amounts are as of March 31, 2023, compared with December 31, 2022. The company develops point-of-care testing products and low-dose interferon therapies. Q1 revenue came from COVID-19 antigen rapid test kits. Financial statements are unaudited.
Key financial results
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $49,164 | $87,200; down 44% |
| Cost of revenue | $100,848 | $41,078 |
| Gross profit (loss) / margin | $(51,684) / approximately (105)% | $46,122 / approximately 53% |
| Operating expenses | $2,461,348 | $2,129,184; up 16% |
| Operating loss | $(2,513,032) | $(2,083,062); loss increased 21% |
| Net loss | $(2,520,475); $(0.13) per share | $(2,099,895); $(0.22) per share |
| Operating cash flow | $(1,427,427) | $(1,389,889) |
| Cash and cash equivalents | $1,146,132 | $1,853,362 at Dec. 31, 2022 |
| Total liabilities | $4,369,819 | $2,481,008 at Dec. 31, 2022 |
| Current assets / current liabilities | $3,633,123 / $1,866,543 | $2,845,917 / $2,472,912 at Dec. 31, 2022 |
Q1 investing cash outflow was $72,483; financing provided $795,198, including $1 million of convertible-note proceeds and $200,000 of note repayments. Cash declined by $707,230 during the quarter. The company reported $42,826 of inventory write-downs and $22,602 of unallocated manufacturing overhead; it said gross profit excluding those items was $13,744.
Material changes and management commentary
- Revenue fell as COVID-19 infections slowed in Taiwan. Management said substantially all operating revenue was from COVID-19 test kits, making revenue vulnerable to changing demand and the product’s emergency-use authorization status.
- R&D expense rose 8% to $1,698,883, and SG&A rose 38% to $762,465. Management attributed increases largely to product-development investment and, for SG&A, share-based compensation. Share-based compensation was $220,832 versus $43,443 a year earlier.
- Management’s 2023 priorities include commercializing Ainos Flora, pursuing VELDONA out-licensing, marketing VELDONA as a pet supplement initially in Taiwan, and advancing POCT and other development programs. The filing provides no quantitative revenue, earnings, or cash-flow guidance.
- The company reported substantial doubt about its ability to continue as a going concern if it cannot generate operating cash or obtain sufficient financing on acceptable terms. Management anticipated funding operations for the next 12 months through cash, business revenue, and potential external financing, but stated there is no assurance financing will be available.
Debt, funding, risks, and unusual items
- At quarter-end, current notes payable totaled $1,060,526, including $376,526 of related-party convertible notes and $684,000 of other notes. Noncurrent convertible notes were $2.5 million, bearing 6% annual compounded interest, unsecured, convertible at $1.50 per share, and due two years after issuance.
- The March 2023 note agreements describe up to $3 million in principal: $2 million from ASE Test, Inc. in tranches subject partly to business benchmarks, and $1 million from Li-Kuo Lee. The filing says $2.5 million had been purchased by quarter-end, including $1.5 million from ASE recorded as a receivable; the remaining $500,000 ASE tranche was contingent on benchmarks. The cash-flow statement reports $1 million of convertible-note proceeds.
- The balance sheet shows $1.5 million of related-party other receivables at March 31, 2023, versus none at year-end. This receivable and the differing descriptions of note funding merit review.
- Related-party relationships include financing and commercial/development arrangements with affiliates, including Ainos KY, ASE Test, and TCNT. The filing reports no material legal proceedings and no material changes to the risk factors in the 2022 Form 10-K.
- Subsequent events included approval of a restated stock incentive plan effective May 1, 2023, with a reserve tied to up to 20% of prior-year-end outstanding common shares, and issuance of 29,332 shares to four non-employee directors on April 10, 2023.
Important facts for investors to verify
- Cash runway, financing needs, and the availability and terms of additional funding, given the going-concern warning and Q1 operating cash burn.
- Collection and terms of the $1.5 million related-party receivable, the amount of note proceeds actually received, and whether ASE’s contingent $500,000 tranche is funded.
- Durability of COVID-19 test-kit demand and applicable regulatory authorizations, given the revenue decline and negative reported gross margin.
- Development, clinical, and regulatory milestones and financing requirements for Ainos Flora, VELDONA, and other pipeline programs.
- Potential dilution from convertible notes, warrants, and the expanded stock incentive plan.