Ainos, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; financial statements are unaudited. Ainos develops point-of-care (POCT) testing products and medical treatments, and says it is prioritizing medical-device commercialization. Its reported Q1 product revenue primarily came from COVID-19 antigen rapid test kits sold in Taiwan.
Financial results and position
| Metric | Q1 2022 / March 31, 2022 | Comparable period / December 31, 2021 |
|---|---|---|
| Revenue | $87,200 | $2,121 in Q1 2021 |
| Gross profit | $46,122 | $872 in Q1 2021 |
| Operating expenses | $2,129,184 | $522,981 in Q1 2021 |
| Operating loss | $(2,083,062) | $(522,109) in Q1 2021 |
| Net loss | $(2,099,895) | $(534,006) in Q1 2021 |
| Operating cash flow | $(1,389,889) | $(211,737) in Q1 2021 |
| Cash and cash equivalents | $1,871,349 | $1,751,499 |
| Total assets | $40,736,264 | $40,822,161 |
| Total liabilities | $32,653,668 | $30,625,054 |
| Stockholders’ equity | $8,082,596 | $10,197,107 |
Cost of revenue was $41,078 in Q1 2022 versus $1,249 in Q1 2021. Research and development expense was $1,577,454, compared with none reported in Q1 2021; SG&A was $551,730, up 6%. Interest expense was $16,687. Basic and diluted loss per share was $0.01 in both periods; weighted-average shares increased to 144,379,308 from 42,066,172.
Investing activities used $135,899, primarily for property and equipment. Financing activities provided $1,644,884, including proceeds from notes. Cash increased by $119,096 during the quarter, with a $754 foreign-exchange effect.
Material changes and unusual items
- Revenue rose from a small prior-year base as the company shifted from liposomal nutraceutical sales to COVID-19 test-kit sales. Management reported Q1 2022 revenue of $87,200 from Ainos-branded antigen kits.
- The company completed a $26 million asset purchase from its majority shareholder, Ainos KY, on January 30, 2022, for intellectual property and manufacturing, testing, and office equipment. It issued a non-interest-bearing convertible note due in 2027 as payment. The note is classified as noncurrent.
- At March 31, 2022, current convertible notes payable were $3,376,526 and other notes payable were $1,013,405; noncurrent convertible notes were $26.9 million. Certain $3 million related-party convertible notes were extended to February 28, 2023. The $800,000 related-party non-convertible note issued in March is due in 2023.
- The company issued $900,000 of non-interest-bearing convertible notes in Q1, generally convertible at 80% of the price in a qualifying U.S.-listed public offering. After quarter-end, it issued a further $500,000 convertible note to ASE Test Inc., due in 2027 and subject to similar offering-related conversion terms.
- Intangible assets, net, were $36.2 million at quarter-end. The balance sheet also reported $337,805 of inventory, versus none at year-end.
Outlook, risks, and contingencies
No quantified financial guidance is provided. Management expects continued R&D and commercialization spending, including on POCT products, clinical trials, regulatory clearances, marketing, and product development. Its pipeline includes COVID-19 tests, VOC testing devices, VELDONA, and synthetic RNA programs. The company markets its antigen kit in Taiwan under local emergency use authorization; further regulatory authorization and commercial success are not assured.
Management said cash, business revenues, potential stock sales, and debt financing were expected to fund operations for the next 12 months, but cautioned that assumptions may prove incorrect and additional capital is needed. The filing states that recurring losses and dependence on financing raise substantial doubt about Ainos’s ability to continue as a going concern; failure to obtain acceptable financing could force it to reduce or discontinue operations. Additional equity financing could dilute shareholders.
Other cited risks include demand changes as the pandemic evolves, product reliability and acceptance, research and clinical development uncertainty, regulatory approvals, sales infrastructure, intellectual-property protection, and the ability to recruit and retain staff. The company reported no material legal proceedings and no material changes to the risk factors in its latest Form 10-K/A. Management concluded disclosure controls were effective at March 31, 2022, while continuing remediation of previously identified internal-control deficiencies.
Important facts for investors to verify
- Whether test-kit sales and demand persist, and whether the company can diversify revenue beyond COVID-19 products.
- Available cash, operating cash burn, financing needs, and progress toward resolving the stated going-concern uncertainty.
- Terms and potential dilution from the $26 million related-party convertible note, other convertible notes, and any future equity offering.
- Regulatory status, clinical progress, and commercialization timelines for the company’s product candidates.
- Progress in implementing the internal-control remediation plan and any subsequent changes to control effectiveness.