Ainos, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The filing reflects the company before the April 2021 transaction that shifted its business toward point-of-care diagnostics and changed its name to Ainos, Inc. Financial statements are unaudited; amounts below are in U.S. dollars.
Business context and results
Before the transaction, the company focused on low-dose oral interferon, diabetes-related medical technology, and consumer nutraceuticals. It reported only nutraceutical sales in the quarter and no research and development expense in either Q1 2021 or Q1 2020.
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $2,121 | $15,200 | Down $13,079 |
| Gross profit | $872 | $4,394 | Down $3,522 |
| Gross margin | 41.1% | 28.9% | Higher, on substantially lower sales |
| SG&A expense | $522,981 | $380,268 | Up $142,713 (38%) |
| Operating loss | $(522,109) | $(375,874) | Loss widened $146,235 (39%) |
| Interest expense, net | $(11,897) | $(1,005) | Expense increased, mainly accrued convertible-note interest |
| Net loss | $(534,006) | $(376,879) | Loss widened $157,127 (42%) |
| Basic and diluted loss per share | $(0.01) | $(0.01) | No change as reported |
Management attributed higher SG&A and the larger net loss mainly to costs associated with processing the Securities Purchase Agreement with Ainos, Inc. Gross profit was minimal relative to operating expenses.
Cash, liquidity, and obligations
- Cash and cash equivalents were $9,377 at March 31, 2021, down from $22,245 at December 31, 2020 and $289,557 at March 31, 2020.
- Operating activities used $115,712 in cash, compared with $119,482 in Q1 2020. A related-party note provided $102,844; cash declined by $12,868 during the quarter.
- Working capital deficit was $1,458,151, versus $1,022,155 at December 31, 2020. Total current liabilities were $1,500,418 against current assets of $42,267.
- Current liabilities included $915,016 of related-party convertible notes and $236,854 of related-party notes payable, in addition to $348,548 of accounts payable and accrued expenses. The notes are unsecured and due on demand. The filing separately lists total related-party note balances, including accrued interest, of $1,151,870.
- Stockholders’ deficit was $1,278,179. The company had 42,066,172 common shares outstanding at March 31, 2021; 142,240,594 were reported outstanding as of May 14, 2021.
Outlook, risks, and material developments
- Going concern: Management said the company had not achieved sustained operating income and depended primarily on related-party convertible debt and equity financing. The filing states that these conditions raise substantial doubt about its ability to continue as a going concern; failure to obtain acceptable financing could lead it to cease operations.
- Funding needs: Management estimated short-term project development needs of $3 million to $6 million, depending on project terms. It reported an average monthly burn rate of about $65,000 in 2020 and expected a similar range going forward. No revenue or profitability guidance was provided.
- April 15 transaction: After quarter-end, the company closed its agreement with Cayman Islands-based Ainos, Inc., issuing 100 million common shares valued at $0.20 per share in exchange for patent assets relating to rapid diagnostic tests. The transaction increased authorized common shares from 100 million to 300 million, resulted in the investor owning approximately 70.30% of outstanding shares, and included a change in company name and board and executive leadership. The filing says the acquired technologies include point-of-care tests for COVID-19, pneumonia, vaginal infection, and H. pylori.
- Subsequent financing: The company disclosed additional short-term related-party loans after quarter-end: $15,000 on April 27 and $20,000 on May 5, both convertible at $0.20 per share and due on demand. It also disclosed an $18,050 deferred-compensation note issued April 1.
- Operating and regulatory risks: The company said its former interferon supplier had stopped manufacturing, putting further trials and commercialization on hold until a new source is secured; a replacement could require additional studies and trials. Pharmaceutical and medical-device products require regulatory approvals and substantial funding. Other stated risks include competition, execution of new businesses and international operations, and reliance on commercial partners.
- Controls and legal matters: Management concluded disclosure controls and internal control over financial reporting were effective at a reasonable assurance level. The company reported no known legal proceedings or claims as of the report date.
Important facts for investors to verify
- Reconcile the reported May 14 share count of 142,240,594 with the 42,066,172 quarter-end shares plus the 100 million transaction shares; confirm the status of the 174,422 shares reserved for officer and consultant compensation described in the notes.
- Confirm the acquired patent assets, transaction terms, ownership and governance changes, and any subsequent operating or financial disclosures.
- Assess near-term liquidity and the availability and terms of financing, particularly given the going-concern warning, minimal cash, project funding estimate, and demand-note obligations.
- Track whether the company secures an interferon supplier and obtains funding and regulatory clearances needed for its legacy programs and newly acquired diagnostic products.
- Clarify related-party note balances and maturities: the balance sheet classifies $915,016 as convertible notes and $236,854 as other related-party notes, while the note disclosure reports $1,151,870 of total related-party note balances including accrued interest.