Ainos, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; unaudited. Ainos, formerly Amarillo Biosciences, is a healthcare company with pharmaceutical, medical-device/diagnostics, and consumer-product activities. The filing reflects a major change in ownership and strategy following the April 15, 2021 closing of its transaction with Ainos KY.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $202,992 | $484 | $205,113 | $15,684 |
| Gross profit | $133,484 | $192 | $134,356 | $4,586 |
| Gross margin | 65.8% | 39.7% | 65.5% | 29.2% |
| Operating expenses | $860,030 | $300,861 | $1,383,011 | $681,129 |
| Operating loss | $(726,546) | $(300,669) | $(1,248,655) | $(676,543) |
| Net loss | $(749,774) | $(301,966) | $(1,283,781) | $(678,845) |
| Basic and diluted loss per share | $(0.01) | $(0.02) | $(0.02) | $(0.02) |
- Q2 revenue primarily came from Taiwan sales of the Ainos-branded COVID-19 antigen rapid test kit, which began in June. Six-month revenue rose $189,429 year over year; management attributed the increase to those kit sales.
- SG&A rose 186% in Q2 and 103% for the first half, largely reflecting transaction-related costs and newly initiated operations. No R&D expense was recorded in the first half of 2021.
- At June 30, cash was $606,638, versus $22,245 at December 31, 2020. Six-month operating cash use was $44,726; investing cash use was $23,276; financing provided $652,395, entirely reported as proceeds from related-party convertible notes.
- Working capital was a deficit of $1,506,762. Current liabilities were $2,376,232, including $1,526,420 of related-party notes, $185,000 of other notes, and a $333,763 contract liability. Total notes principal was $1,711,421, up from $953,001 at year-end; the notes are unsecured and due on demand, with conversion rights on certain notes.
- Total assets were $20,622,372, including $19,668,879 in patents, compared with $260,290 at year-end. Total liabilities were $2,416,815. Stockholders’ equity was $18,205,557, versus a deficit of $838,278 at year-end.
Material changes and transactions
- Ainos KY acquired approximately 70.3% of outstanding common shares through the April transaction. Ainos issued 100 million shares, valued at $20 million, in exchange for patent assets; the issuance accounts for the sharp rise in reported patent assets and equity. Common shares outstanding increased from 42,066,172 at year-end to 142,271,815 at June 30.
- The company changed its name from Amarillo Biosciences to Ainos, increased authorized common shares to 300 million, relocated its main office, and adopted the ticker AIMD. New management and directors took office; former CEO/Chairman Stephen Chen’s employment and board service ended in April.
- COVID-19 test kits received Taiwan emergency-use authorization for TCNT, the manufacturer, and Ainos became the master sales and marketing agent. The filing describes potential additional diagnostics and markets, subject to regulatory approvals.
Outlook, risks, and contingencies
- Management said it expects business revenue and potential financial support to fund operations over the next 12 months, but offered no quantified revenue or earnings guidance. It expects the burn rate to rise with increased activity; the reported 2021 average monthly burn rate was approximately $100,000.
- Ainos KY may use commercially reasonable efforts to arrange up to $3 million in additional working-capital support, as a loan or additional shares. Management also intends to explore capital raising. Neither funding availability nor the success of business plans is assured; further equity could dilute shareholders, while borrowing would increase liabilities and cash commitments.
- The filing identifies recurring losses and negative operating cash flows and states that continuation as a going concern depends on future operations and financing. It warns that required capital may not be available on acceptable terms.
- Key operating risks include regulatory approval and commercialization, competition, international operations, and supply dependence. The former interferon supplier stopped manufacturing; a replacement source is needed. Ainos sources its COVID-19 kits exclusively from related party TCNT, so disruption could affect sales and planned products.
- Most product programs remain developmental or subject to regulatory approval. Taiwan authorization for the COVID-19 kit is described as granted to TCNT; U.S. authorization was only contemplated for future application. The SMART pump and therapy were not approved for marketing.
- The company reported no known legal proceedings or claims as of the report date. Management concluded disclosure controls and internal control over financial reporting were effective at the reasonable-assurance level; the interim report had no auditor attestation of internal controls.
Important facts for investors to verify
- Whether COVID-19 kit sales continue, collections are made on the $139,747 of receivables, and the $333,763 contract liability is converted to revenue through completed shipments.
- Actual cash burn, runway, and the availability, terms, and timing of any additional Ainos KY support or other financing.
- Conversion, repayment, maturity, and related-party terms for the $1.71 million notes, including the company’s expectation that some holders may convert.
- The valuation, ownership, and commercial prospects of the $20 million patent assets, as well as the associated dilution and Ainos KY’s controlling stake.
- Regulatory status and supply continuity for the test kit, and progress in replacing the interferon supplier and advancing other product programs.
- The filing contains inconsistent figures: its notes state June 30 equity of $18,205,607, while the balance sheet and equity statement report $18,205,557; the financial-condition discussion also gives current liabilities as $2,355,665, versus $2,376,232 on the balance sheet. Investors should confirm the correct amounts.