Ainos, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Ainos is a healthcare company spanning pharmaceuticals, medical devices and preventive medicine. After the April 2021 Ainos KY transaction, the company shifted toward diagnostics and medtech, alongside its existing drug-development programs.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $363,052 | $192 | $568,164 | $15,876 |
| Gross profit | $259,414 | $69 | $393,769 | $4,655 |
| Gross margin | 71.5% | 35.9% | 69.3% | 29.3% |
| Operating expenses | $1,442,756 | $321,153 | $2,825,767 | $1,002,282 |
| Operating loss | $1,183,342 | $321,084 | $2,431,998 | $997,627 |
| Net loss | $1,160,110 | $323,285 | $2,443,891 | $1,002,130 |
Revenue growth followed the June launch of the Ainos COVID-19 antigen test kit in Taiwan. For the quarter, 64% of kit sales were through distribution channels; for the nine-month period, the filing reports 62%. Reported gross margin improved, but revenue remained small relative to research and operating costs.
- Cash and liquidity: Cash was $706,931 at September 30, 2021, versus $22,245 at December 31, 2020. Current assets were $884,814 and current liabilities $2,821,977, leaving a $1,937,163 working-capital deficit.
- Cash flow: Operating activities used $569,150 in the first nine months; investing activities used $43,340; financing activities provided $1,290,129. Ending cash was $706,931.
- Debt: The balance sheet reports $2,185,193 in convertible notes, principally related-party notes. Notes are unsecured and due on demand. Related-party lenders include Ainos KY and former chairman Stephen Chen.
- Equity and assets: Stockholders’ equity was $17,136,360, compared with a deficit of $838,278 at year-end 2020. Patents were reported at $19,011,337, following a $20 million stock-funded patent/IP acquisition. Common shares outstanding rose from 42,066,172 to 142,442,215.
Changes, outlook and risks
- Operating expenses rose substantially as the company expanded R&D, marketing, staffing and corporate/legal functions after the Ainos KY transaction. Q3 R&D was $646,798; nine-month SG&A was $2,178,969.
- Management expects revenue and potential financial support from Ainos KY and other entities to fund operations over the next 12 months, but gives no quantified revenue or profitability guidance. It may need additional equity or debt financing; availability and terms are uncertain and equity issuance could dilute shareholders.
- Management planned pilot studies using newly sourced interferon in the first half of 2022, further work on thrombocytopenia, and resumption of late-stage Sjögren’s syndrome trials in late 2022. These plans depend on funding, supply and regulatory requirements.
- Further diagnostic commercialization is contingent on regulatory approvals. The COVID-19 test kit is sourced exclusively from related party TCNT; the company also relies on TCNT for manufacturing and product development. Management disclosed that its long-time interferon producer stopped manufacturing, creating a supply risk for VELDONA development.
- The filing highlights recurring losses and negative operating cash flow, competition, execution and growth risks, regulatory uncertainty, international-operating risks, and dependence on commercial partners. It does not report known legal proceedings as of the filing date.
- Management reported disclosure controls and internal control over financial reporting effective at the reasonable-assurance level. The filing notes that the auditor did not attest to internal controls.
- Subsequent events included PwC Taiwan audit and advisory engagements, board-approved governance and compensation plans, and Dr. Chen’s November 2021 consulting engagement at NTD 50,000 per month for one year.
Important facts for investors to verify
- Whether COVID-19 test-kit sales can grow and generate cash sufficient to offset operating losses and working-capital needs.
- Availability and timing of financing or further support from Ainos KY, and the terms and dilution implications of any capital raise.
- Repayment, conversion or extension terms for unsecured notes due on demand, particularly related-party balances.
- Support for the $20 million patent/IP valuation, ownership and licensing rights, and future recoverability of the large patent asset.
- Regulatory milestones and clinical evidence for diagnostic products and VELDONA, including replacement interferon supply.
- Related-party arrangements with TCNT, Ainos KY and other affiliates, including manufacturing, co-development, sales and financing terms.
- The filing contains inconsistent figures: the MD&A gives Q3 net loss as $1,161,110, while the financial statements report $1,160,110; note disclosures also show differing total-debt amounts. Investors should consult the filed financial statements and subsequent filings for clarification.