The following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this Form 10-K. This discussion contains forward-looking statements based on current expectations, which involve uncertainties. Actual results and the timing of events could differ materially from the forward-looking statements as a result of a number of factors, including those discussed in "Item 1A. Risk Factors."
32 Table of Contents Overview Our Company and Business
We have historically been involved in extensive research and development of low-dose oral interferon as a therapeutic. We continue to develop our VELDONA platform and other pharmaceutical platforms and recently have acquired intellectual properties to expand our POCT business. In 2021 and 2022, we acquired significant intellectual property from our majority shareholder, Ainos KY, to expand our potential product portfolio into Volatile Organic Compounds ("VOC") and COVID-19 POCTs.
Key Developments in 2022
The following are highlights of major corporate milestones in 2022 that we believe will serve as catalysts for us to develop and commercialize our product pipeline over the next several years:
· In 2021, we acquired intellectual property assets from Ainos KY valued at approximately$20,000,000 to augment our product development pipeline. Subsequently, in 2022 we acquired additional intellectual property and equipment assets from Ainos KY valued at approximately$26,000,000 including technical know-how, medical device manufacturing, testing and office equipment inTaiwan and hired certain of Ainos KY's R&D personnel. · InJune 2022 , we began marketing the Ainos COVID-19 antigen test kit for self-test use under an Emergency Use Authorization ("EUA") issued by the TFDA onJune 13, 2022 to TCNT, the manufacturer and product co-developer of the test in conjunction with Ainos. · InAugust 2022 , we signed a Master Service Agreement with SwissPharmaceutical Co., Ltd. (Taiwan ) ("Swiss Pharma"). Pursuant to the agreement, Swiss Pharma will test, manufacture, and package the Company's VELDONA "GMP Clinical Batch" and "GMP Commercial Batch" product candidates for the Company's planned clinical trials under both Pharmaceutical Inspection Co-operation Scheme Good Manufacturing Practice ("PIC/S GMP") andU.S. FDA Current Good Manufacturing Practice regulations. This relationship with Swiss Pharma is intended to develop our VELDONA product candidates and enable us to effectively increase our manufacturing capabilities for VELDONA for our clinical trials, including testing, quality inspection, labeling, and packaging. · InAugust 2022 , we uplisted to Nasdaq Capital Market and concurently completed an underwritten public offering of 780,000 units at a public offering price of$4.25 per unit. In connection with the offering, we effectuated a reverse split of our common stock at a ratio of 1-for-15. · InAugust 2022 , we submitted Investigational New Drug Application to theU.S. FDA for our planned Phase 2 study of VELDONA formulation against mild COVID-19 symptoms. · InSeptember 2022 , we announced positive results from additional preclinical study of VELDONA formulation against COVID-19 variant virus - Omicron. · InNovember 2022 , we published preclinical data demonstrating VELDONA formulation's potential as treatment candidates for feline chronic gingivostomatitis (FCGS) and canine atopic dermatitis (CAD).
Impact of COVID-19 on Our Business
The COVID-19 pandemic presented us an opportunity to grow our COVID-19 antigen
test business. Substantially all of our operating revenue came from the sale of
the Ainos COVID-19 antigen rapid test kits in
We believe that during the COVID-19 pandemic, consumers have been increasingly familiar with at-home tests. Moving forward, people may seek additional at-home tests to manage other infections as quickly as possible. Home self-testing and self-collection have been increasingly available for other infections such as vaginal or sexually transmitted infections. We believe this new user behaviour, supported by variety of telehealth platforms, will become increasingly supportive to our other POCT products as COVID-19 becomes endemic.
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Due to evolving market dynamics with COVID testing and the current financial environment, we decided to discontinue investment in commercializing the COVID-19 nucleic acid test program. We intend to evaluate our nucleic acid test technology for potential applications for other disease indications. At the same time, we plan to prioritize our other long-term growth programs, including Ainos Flora and our VELONDA candidates. We intend to actively explore out-licensing opportunities for our VELDONA candidates to accelerate return of our investments.
We are continuing to monitor the potential impact of the pandemic, but we cannot be certain the future impact on our business, financial condition, results of operations and prospects. Depending on developments relating to the pandemic, including the emergence of new variants, the pandemic may affect our ability to initiate and complete research studies, delay the initiation of our future research studies, disrupt regulatory activities or have other adverse effects on our business, results of operations, financial condition and prospects.
Financial Summary of Fiscal Year 2022
A discussion regarding our results of operations and financial conditio for
fiscal year 2022 compared to fiscal year 2021 is presented below. A discussion
regarding our results of operations and financial condition for fiscal year 2021
compared to fiscal year 2020 can be found under Item 7 in our Annual Report on
Form 10-K for the fiscal year ended
Results of Operations The following table summarizes our results of operations for the years endedDecember 31, 2022 and 2021. Years ended December 31, Change 2022 2021 Amount % Revenues 3,519,627 594,563 2,925,064 492 % Cost of revenues (2,114,284 ) (184,181 ) (1,930,103 ) 1,048 % Gross profits 1,405,343 410,382 994,961 242 % Operating expenses: Research and development expenses 6,845,964 1,920,645 4,925,319 256 % Selling, general and administrative expenses 8,535,591 2,357,163 6,178,428 262 % 15,381,555 4,277,808 11,103,747 260 % Operating loss (13,976,212 ) (3,867,426 ) (10,108,786 ) 261 % Non-operating income and expenses Interest expense, net (53,528 ) (18,689 ) (34,839 ) 186 % Other income and (expenses), (1005 %) net 23,050 (2,547 ) 25,597 (30,478 ) (21,236 ) (9,242 ) 44 % Net loss (14,006,690 ) (3,888,661 ) (10,118,029 ) 260 % Revenues
Net revenues for 2022 and 2021 were
Costs and Gross Profits
Cost of revenues for 2022 and 2021 were
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Gross profits rose to
Research and Development Expenses
Following the strategic investment by Ainos KY, since
Research and development expenses for 2022 and 2021 were
When excluding share-based compensation, depreciation and amortization expenses,
R&D expenses increased to
Selling, General and Administrative Expenses
Selling, general and administration expense increased to
When excluding share-based compensation, depreciation and amortization expenses,
SG&A expenses increased to
Operating Loss
While our gross profits improved by
Liquidity and Capital Resources
As of
The following table summarizes our cash flows at the end ofDecember 31, 2022 and 2021: Year EndedDecember 31, 2022 2021
Net cash used in operating activities (3,021,183 ) (1,249,977 ) Net cash used in investing activities
(630,178 ) (180,517 )
Net cash provided by financing activities 3,831,245 3,154,373
Operating activities
While our revenues grew in 2022 due to sales of Ainos COVID-19 test kits, we increased investment in staffing, activities of research and developments and working capital, resulting in a higher net operating outflow. Changes in working capital were primarily driven by increases in trade receivables and inventories due to rapid growth of revenue.
As a result, cash expenditures for operating activities in 2022 and 2021 were
35 Table of Contents Investing activities
Cash used in investing activities were
Financing activities
In 2022, we raised
As a result of the conversion of convertible notes in conjunction with our IPO
in 2022, our total liabilities decreased significantly. As of
Sources of Liquidity
In 2023, we are prioritizing the commercialization of our lead VOC POCT candidate, Ainos Flora, and pursue outlicensing of our VELDONA candidates. In terms of expenditure, we intend to increase staffing for general administration, marketing and technology development purpose
At
There can be no assurance that we will be successful in our efforts to make the Company profitable. If those efforts are not successful, the Company may raise additional capital through the issuance of equity securities, debt financings or other sources, including, as required, additional external financing from our majority shareholder, in order to further implement its business plan. Based on current operating plans, the Company estimates that it will need to raise additional capital to fund its operationsproduct development activities, and planned clinical trials.. However, if such financing is not available when needed and at adequate levels, the Company will need to reevaluate its operating plan.
Uses of Liquidity
Our primary uses of cash are to fund our operations as we continue to grow our business. We may require a significant amount of cash to fund capital expenditures, inventory purchases and timing of accounts receivable as we grow our commercial infrastructure. We may continue to incur operating losses in the near term as our operating expenses will be increased to support the growth of our business. We expect that our selling, general and administrative expenses, and research and development expenses will continue to increase as we seek additional regulatory approvals and further develop test kits, increase our test kit manufacturing volume, expand our marketing efforts and increase our internal sales force to drive increased adoption of our test kits and VELDONA products. We may also have cash requirements related to capital expenditures to support the planned growth of our business, including investments in corporate facilities and equipment.
Going Concern
The Company's consolidated financial statements have been prepared in accordance
with
The Company has generated revenues from sales of COVID-19 antigen test kits
since the second quarter of 2021. Net revenues for 2022 and 2021 were
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Until we can generate significant revenue from product sales, the Company intends to seek additional funding through equity offerings or borrowing arrangements or licensing agreements or strategic alliances to implement its business plan. The issuances of additional equity securities by the Company may result in dilution in the equity interests of its current stockholders. Obtaining commercial loans may increase the Company's liabilities and future cash commitments.
We are unable to predict the timing or amount of unexpected expenses or when or if we will be able to increase significant revenue due to the numerous risks and uncertainties associated with product development and related legal regulatory requirements, and when we are eventually able to generate additional product sales or licensing income, those revenue may not be sufficient to become profitable. Furthermore, fundraising of emerging company is extremely challenging due to the high uncertainty of the overall economic environment at present. There can be no assurance that the revenue will be generated in time or capital will be available as necessary to meet the Company's working capital requirements or, if the capital is available, that it will be on terms acceptable to the Company.
If the company is unable to generate cash inflow from operating activities in the near future, and cannot complete fundraising with sufficient amount and acceptable terms, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. These factors raise substantial doubt about the Company's ability to continue as a going concern, but the accompanying financial statements do not include any adjustments relative to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities. See the audit report for related information.
Critical Accounting Policies and Estimate
For a discussion of significant accounting policies and methods used in the preparation of the Company's consolidated financial statements, see Notes 1, "Organization and Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included elsewhere in this document.
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in
We believe that the following critical policies affect our judgments and estimates used in preparation of our consolidated financial statements:
Long-Lived Asset Impairment
We regularly evaluate long-lived assets, including property, equipment, and
intangible assets subject to amortization, for impairment in accordance with
Accounting Codification Standards (ASC) 360-10-35-17 thru 35-35, "Accounting for
the Impairment or Disposal of Long-Lived Assets," which requires us to review
our long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset might not be recoverable and
exceeds its fair value. ASC 360-10-35-21 provides guidelines to test long-lived
assets for recoverability whenever events or circumstances indicates that its
carrying value may not be recoverable. Based on our assessment of the events and
circumstances, we concluded there is no impairment of our long-lived assets
during the year ended
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as of
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