Notes to Financial Statements
(Unaudited)
1.
Organization and Business. Ainos, Inc.,
formerly known as Amarillo Biosciences, Inc. (the "Company") is a
diversified healthcare company engaged in the discovery and
development of pharmaceutical and biotech products. The Company is
a Texas corporation which was formed in 1984.
2.
The Company
primarily operates through three divisions: Pharmaceutical,
Medical and Consumer. The Pharmaceutical division leverages
our extensive library of clinical research by applying the
Company's experience in the use of low-dose non-injectable
interferon (IFN) for the treatment of neoplastic, viral, and
fibrotic diseases. The Company seeks to engage in patent licensing
and commercialization opportunities with global partners. The
Medical division is focused on developing technology to treat
metabolism related diseases such as type-1 and type-2 diabetes in
Asia. The Consumer division includes a range of nutraceutical and
food supplement products that utilize a unique liposomal delivery
system. The Company currently has offices in the United
States and Taiwan. The Company operates in Taiwan under the
name AMARILLO BIOSCIENCES, INC. TAIWAN BRANCH.
3.
Basis of presentation. The accompanying
consolidated financial statements, which should be read in
conjunction with the audited financial statements and footnotes
included in the Company's Form 10-K for the year ended December 31,
2020, as filed with the Securities and Exchange Commission on March
30, 2021 attached hereto as Exhibit 13 and which is incorporated by
this reference, have been prepared in accordance with accounting
principles generally accepted in the United States for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by accounting principles
generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 2021, are not
necessarily indicative of the results that may be expected for the
full year ending December 31, 2021.
4.
Financial Condition. These financial
statements have been prepared in accordance with United States
generally accepted accounting principles, on a going concern basis,
which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business.
The Company has not yet achieved sustained operating income, and
its operations are funded primarily from related-party convertible
debt and equity financings. However, losses are anticipated in the
ongoing development of its business and there can be no assurance
that the Company will be able to achieve or maintain
profitability.
The
continuing operations of the Company and the recoverability of the
carrying value of assets is dependent upon the ability of the
Company to obtain necessary financing to fund its working capital
requirements, and upon future profitable operations. 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 that might
result from the outcome of this uncertainty.
There
can be no assurance that 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.
The issuances of additional equity securities by the Company may
result in dilution in the equity interests of its current
stockholders. Obtaining commercial loans, assuming those loans
would be available, will increase the Company's liabilities and
future cash commitments. If the Company is unable to obtain
financing in the amounts and on terms deemed acceptable, the
business and future success may be adversely affected and the
Company may cease operations. These factors raise substantial doubt
regarding our ability to continue as a going concern.
5.
Common Stock. The shareholders have
authorized 100,000,000 shares of voting common shares for issuance.
On March 31, 2021, a total of 51,383,130 shares of common stock
were either issued (42,066,172), reserved for conversion of
convertible debt to stock (4,032,919), issuance to two Company
officers and consultants as compensation (174,422), and held for
future exercise of nonqualified options and warrants
(5,109,617).
We have
not paid any dividends to our common stock shareholders to date,
and have no plans to do so in the immediate future.
6.
Convertible Notes Payable and Other Related
Party Notes Payable. As of December 31, 2020, the amount of
convertible debt principal, on the Company’s balance sheet
was $953,001. The total balance of the principal for convertible
promissory notes as of March 31, 2021, is $915,016. This amount
consisted of the following convertible promissory notes payable to
Dr. Stephen T. Chen, Chairman, CEO, President, and CFO, and
i2China, a consultant, as shown in the table below.
|
|
|
|
|
Note 1 -
Chen
|
$0.1680
|
0.75%
|
$114,026
|
$114,026
|
Note 2 -
Chen
|
$0.1875
|
0.65%
|
$262,500
|
$262,500
|
Note 3.19 -
Chen
|
$0.2500
|
1.85%
|
$39,620
|
$39,620
|
Note 4.19 -
Chen
|
$0.2500
|
1.61%
|
$14,879
|
$14,879
|
Note 5.19 –
i2China
|
$0.2500
|
1.85%
|
$16,000
|
$16,000
|
Note 6.20 -
Chen
|
$0.2500
|
1.85%
|
$216,600
|
$216,600
|
Note 7.20 -
Chen
|
$0.2500
|
1.60%
|
$23,366
|
$23,366
|
Note 8.20a –
i2China
|
$0.2500
|
1.85%
|
$48,000
|
$48,000
|
Note 8.20b –
i2China
|
$0.2500
|
1.85%
|
$84,000
|
$84,000
|
Note 9.21 -
Chen
|
N/A
|
0.13%
|
$236,854
|
$134,010
|
Note 10.21 –
Chen
|
$0.2500
|
1.85%
|
$59,025
|
-
|
Note 11 –
i2China
|
$0.2500
|
1.85%
|
$37,000
|
-
|
Total
Convertible Notes (including accrued Interest) – Related
Party
|
$1,151,870
|
$953,001
|
Dr.
Stephen T. Chen, Chairman, CEO, President, and CFO, and i2China
Management Group, LLC, the Company’s management consultant,
elected to defer cash compensation during a period of development
and fundraising. The parties received convertible promissory notes
in consideration of the deferrals.
On
January 1, 2020, the Company issued Note #6.20 for deferred
compensation to Dr. Stephen T. Chen, Chairman, CEO, President, and
CFO, in the amount of $216,600, the maximum amount of cash
compensation that could be deferred for 2020. The Note is payable
on January 1, 2021, or on demand and bears interest at the
AFR1 short-term rate of 1.85%. The note is an
advancing note with a maximum limit of $216,600 whereby the Company
promises to repay the aggregate Principal Amount advanced to date
up to the stated maximum amount at Maturity.
The
Company may request and the payee shall advance up to $9,025 on the
15th and last day of each month until the note matures. The Note
may be convertible in whole or in part at a conversion price of
$0.25 per share into the Company’s common voting stock. All
shares issued are to be restricted subject to Rule 144 promulgated
under the U.S. Securities Act of 1933. The Company may prepay the
Note in whole or in part at any time without penalty.
On
January 1, 2020, the Company issued Note #7.20 to Dr. Stephen T.
Chen for deferred reimbursement of expenses advanced on behalf of
the Company for $30,000, the maximum amount of reimbursable expense
that could be deferred. Actual reimbursable expenses deferred is
$23,366. The Note is payable on January 1, 2021, or on demand and
bears interest at the AFR1 short-term rate of
1.60%. The note is an advancing note with a maximum limit of
$30,000 whereby the Company promises to repay the aggregate
Principal Amount advanced to date up to the stated maximum amount
at Maturity. The Company may request and the payee shall advance
against the Note, until Maturity, the amount submitted on a
completed and approved reimbursement form along with documentation
of the amount to be advanced. The Note may be convertible in whole
or in part at a conversion price of $0.25 per share into the
Companuy’s common voting stock. All shares issued are to be
restricted subject to Rule 144 promulgated under the U.S.
Securities Act of 1933. The Company may prepay the Note in whole or
in part at any time without penalty.
On
January 1, 2020, the Company issued Note #8.20 for deferred
compensation to i2China Management Group, LLC in the amount of
$48,000, the maximum amount of cash compensation that could be
deferred in 2020. The Note is payable on January 1, 2021, or on
demand and bears interest at the AFR1 short-term rate of
1.85%. The note is an advancing note with a maximum limit of
$48,000 whereby the Company promises to repay the aggregate
Principal Amount advanced to date up to the stated maximum amount
at Maturity. The Company may request and the payee shall advance up
to $4,000 on the last day of each month until the note matures. The
Note may be convertible in whole or in part at a conversion price
of $0.25 per share.
On
January 1, 2021, the Company issued Note #10.21 for deferred
compensation to Dr. Stephen T. Chen, Chairman, CEO, President, and
CFO, in the amount of $59,025. The Note is payable on April 1,
2021, or on demand and bears interest at the AFR short-term rate of
1.85%. The note is an advancing note with a maximum limit of
$59,025 whereby the Company promises to repay the aggregate
Principal Amount advanced to date up to the stated maximum amount
at Maturity. The Company may request and the payee shall advance up
to $9,025 on the 15th and last day of each month until the note
matures. The Note may be convertible in whole or in part at a
conversion price of $0.25 per share into the Company’s common
voting stock.
__________
1 Applicable Federal Rate - the minimum
interest rate that the Internal Revenue Service (IRS) allows for
private loans. The IRS publishes a monthly set of
interest rates that the agency considers the minimum
market rate for loans, whereas, interest rates less than
the AFR would have tax implications.
On
January 1, 2021, the Company issued Note #11 for deferred
compensation to i2China Management Group, LLC in the amount of
$37,000. The Note is payable on April 1, 2021, or on demand and
bears interest at the AFR1 short-term rate of
1.85%. The note is an advancing note with a maximum limit of
$37,000 whereby the Company promises to repay the aggregate
Principal Amount advanced to date up to the stated maximum amount
at Maturity. The Company may request and the payee shall advance up
to $11,000 on the last day of each month until the note matures.
The Note may be convertible in whole or in part at a conversion
price of $0.25 per share.
The notes are unsecured and are due on
demand. All shares issued on conversion are to be restricted
subject to Rule 144 promulgated under the U.S. Securities Act of
1933. The Company may prepay the notes in whole or in part at any
time without penalty. The convertible notes due to Dr. Chen are
related party notes.
7.
Other Related Party Transactions. Other
than the aforementioned convertible notes activity, there were no
related party transactions that occurred during the period from
January 1, 2021 to March 31, 2021.
On April 1, 2021, the Company issued Note #11.21
for deferred compensation to Dr. Stephen T. Chen, Chairman, CEO,
President, and CFO, in the amount of $18,050. The Note
is payable on May 1, 2021, or on demand and bears interest at the
AFR[1] short-term
rate of 1.85%. The note is an advancing note with a
maximum limit of $18,050 whereby the Company promises to repay the
aggregate Principal Amount advanced to date up to the stated
maximum amount at Maturity. The Company may request and the payee
shall advance up to $9,025 on the 15th and last day of each month
until the note matures. The Note may be convertible in
whole or in part at a conversion price of $0.25 per share into the
Company’s common voting stock.
On April 15, 2021, the Company consummated
its Securities Purchase Agreement dated December 24, 2020
(“Ainos Agreement”) with a strategic investor, Ainos,
Inc., a Cayman Islands corporation (“Investor”) focused
on advanced technology diagnostic medical devices and artificial
intelligence consumer healthcare solutions. Investor develops and
manufactures point-of-care testing (“POCT”) rapid test
kit products that include diagnostics for COVID-19 (SARS CoV2
Antigen Rapid Test), pneumonia, vaginal infection and helicobacter
pylori (H. pylori) bacterial infection. Investor POCT delivers test
results rapidly utilizing biosensors and artificial intelligence
algorithms for volatile organic compound (VOC)
analysis. Pursuant to the
Agreement, the Company issued 100,000,000 shares of common stock at
$0.20 per share to Investor in exchange for certain patent
assignments, increased its authorized
common stock to 300,000,000 shares, and changed the Company’s
name to “Ainos, Inc.” The Company’s prior
Board of Directors resigned and seven (7) new board members were
elected by our shareholders. In
connection with the consummation of the transaction, Mr. Chun-Hsien
Tsai was appointed to serve as the Company’s Chairman of
Board, President, Chief Executive Officer and Chief Financial
Officer. Mr. Chia-Hsi Chen was
appointed to serve as the Company’s Chief Operating Officer
effective as of April 15, 2021 but thereafter resigned effective as
of April 28, 2021. Immediately
after the consummation of the transaction and the issuance of the
shares to the Investor, the Investor ownership in the Company is
approximately 70.30% of the issued and outstanding shares of common
stock of the Company. The foregoing description of the
closing of the Ainos Agreement is not complete and is qualified in
its entirety by the Form 8-K filed by the Company with the SEC on
April 21, 2021, attached hereto as Exhibit 99.2 and which is
incorporated herein by reference.
On April 27, 2021, the Company issued Note #12.21
for a short-term loan for working capital purposes from Ainos,
Inc., a Cayman Islands Corporation in the amount of
$15,000. The Note is payable on October 27, 2021, or on
demand and bears interest at the AFR1 short-term
rate of 1.85%. The note has a maximum limit of $15,000
whereby the Company promises to repay the aggregate Principal
Amount to date up to the stated maximum amount at
Maturity. The Note may be convertible in whole or in
part at a conversion price of $0.20 per share.
On
April 28, 2021, Mr. Chia-Hsi Chen resigned as the Company’s
Chief Operating Officer as of April 28, 2021 as reported by the
Form 8-K filed by the Company with the SEC on May 3, 2021, attached
hereto as Exhibit 99.3 and which is incorporated by
reference.
On
May 5, 2021, the Company issued Note #13.21 for a short-term loan
for working capital purposes from Ainos, Inc., a Cayman Islands
Corporation in the amount of $20,000. The Note is
payable on November 5, 2021, or on demand and bears interest at the
Applicable Federal Rate (short-term rate) of
1.85%. The note has a maximum limit of $20,000 whereby
the Company promises to repay the aggregate Principal Amount to
date up to the stated maximum amount at Maturity. The
Note may be convertible in whole or in part at a conversion price
of $0.20 per share.
Notes #11.21,
#12.21, and #13.21 are
un-secured and are due on demand. All shares issued on conversion are to be
restricted subject to Rule 144 promulgated under the U.S.
Securities Act of 1933. The Company may prepay the notes
in whole or in part at any time without penalty. The convertible
notes due to Dr. Chen and Ainos, Inc., a Cayman Islands Corporation
are related party notes.
ITEM
2.
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with our
financial statements and the notes thereto which appear elsewhere
in this report. The results shown herein are not necessarily
indicative of the results to be expected in any future
periods.
Overview
Ainos,
Inc. (the "Company”) is a Texas corporation formed in 1984
engaged in developing biologics for the treatment of human and
animal diseases. Our current focus is research aimed at the
treatment of human disease indications, particularly influenza,
hepatitis C, thrombocytopenia, and other indications using
interferon (IFN) alpha that is administered in a proprietary
low-dose non-injectable form. In addition to its core technology
the Company is working to expand the Company’s current focus
into a diversified healthcare business portfolio in order to
generate new revenue streams.
The
Company presently owns eight issued patents with two
patents pending. This collection consists of patents with claims
that encompass method of use or treatment, and/or composition of
matter and manufacturing as well as design utility and/or
invention. Of the eight issued patents, four patents are related to
the low-dose oral delivery of interferon, one patent is for a
product promoting oral health, and three patents are associated
with treatment of metabolic disorders.
The
Company primarily operates three business units: the Medical,
Pharmaceutical, and Consumer Product Divisions. Historically, the
Company has focused on R&D involving low-dose, orally
administered lozenges containing the natural immune system
activator interferon-alpha as a treatment for a variety of disease
indications. The Company owns a proprietary library of over thirty
years of scientific and clinical data on the human and animal
applications of low-dose oral interferon. Through the
Pharmaceutical Division, the Company seeks to out-license or
leverage in other ways its core technology by forming partnerships
to develop current and new discoveries and commercialize the
resulting products.
An
integral part of the company’s operating strategy is to
create multiple revenue streams through the implementation of
programs (including but not limited to in-licensing) of medical and
healthcare products and therapeutics. The Medical Division and
Consumer Products Division facilitate the enhancement of these
revenue streams. These programs will be the catalysts that allow
the Company to enter markets in Taiwan, Hong Kong, China, and other
Asian countries for the distribution of new medical and healthcare
products.
Over
the past several years the Company has focused its research efforts
towards the development of a novel pulsatile insulin pump infusion
therapy in Taiwan that consists of delivering insulin intravenously
in pulses, as opposed to the typical subcutaneous route of
administration, in order to more closely imitate how the pancreas
secretes insulin in healthy non-diabetics. The Company plans to
offer an innovative and comprehensive diabetes treatment that
provides solutions to all stages of diabetes from pre-diabetes
through late-stage diabetes with advanced complications. The
Company intends to target Taiwan first as an R&D base and
demonstration platform in Greater China, and subsequently establish
a licensing platform for clinics in Greater China. The Consumer
Product Division is presently focused on sales of liposomal
nutraceuticals and food supplements that include Vitamin C,
Glutathione, CoQ10, Curcumin/Resveratrol, DHA, and a
Multi-Vitamin.
The
Company maintains a representative branch office in Taiwan –
Amarillo Biosciences, Inc. (the “Taiwan Branch”) to
increase the Company's presence in Taiwan and to serve as an
operational hub to access growing Asian markets.
Injectable
high-dose interferon is FDA-approved to treat some neoplastic,
viral and autoimmune diseases. Many patients experience
moderate to severe side-effects causing them to discontinue
injectable interferon therapy. Our core technology is primarily
based on low-dose non-injectable interferon-alpha that is delivered
into the oral cavity as a lozenge in low doses. The lozenge
dissolves in the mouth where interferon binds to surface (mucosal)
cells in the mouth and throat, resulting in activation of hundreds
of genes in the peripheral blood that stimulate the immune
system. Human studies have shown that oral interferon is
safe and effective against viral and neoplastic diseases. Oral
interferon is given in concentrations 10,000 times less than that
usually given by injection. The Company’s low-dose
formulation results in almost no side effects, in contrast to high
dose injectable interferon, which causes adverse effects in at
least 50% of recipients.
Governmental
or FDA approval is required for low-dose oral interferon. We
believe that our technology is sound and can be commercialized for
various indications. Due to lack of appropriate interferon supply
in the market over the past several years, we have been
unsuccessful at such commercialization to date. However, as a
result of Covid-19, Chinese government health authorities have
recommended use of anti-AIDS drugs and interferon. The Company
believes this has brought renewed attention in the importance of
incorporating low-dose interferon as a treatment to help stem the
pandemic. In light of these circumstances, the Company is uniquely
positioned to potentially develop safe, low-dose
interferon.
While
the pharmaceutical industry is creating and marketing new and
effective anti-viral medications, there still exists opportunities
to develop and commercialize low-dose interferon as a safer
anti-viral treatment for influenza, hepatitis, and other conditions
caused by viruses such as genital warts and canker sores.
Interferon also has powerful cytotoxic effects which in combination
with its immune stimulating activities could play a role in the
rapidly expanding field of cancer immunotherapy. Other demonstrated
effects of interferon offer opportunities to commercialize low-dose
interferon for the treatment of Thrombocytopenia and chronic cough
in lung diseases such as COPD and Idiopathic Pulmonary Fibrosis
(IPF). The Company has the opportunity to capitalize on its
relationship channels in the Asian markets to explore sources of
raw materials, capital, production facilities, and to target a
significant and growing sales market.
Ainos, Inc. Securities Purchase Agreement
On
December 24, 2020, the Company entered into a Securities Purchase
Agreement (“Ainos Agreement”) with Ainos, Inc., a
Cayman Islands corporation (“Purchaser”) and certain
principal shareholders of the Company including (i) Stephen T.
Chen, individually and as Trustee of the Stephen T. Chen and
Virginia M. Chen Living Trust, dated April 12, 2018, (ii) Virginia
M. Chen, individually and as Trustee of the Stephen T. Chen and
Virginia M. Chen Living Trust, dated April 12, 2018, and (iii) Hung
Lan Lee (collectively, “Principal
Shareholders”).
Pursuant
to the Ainos Agreement, upon the closing of the transactions
contemplated thereby (the “Closing”), the Company will
acquire certain patent assets (the “Patent Assets”) by
issuing 100,000,000 shares of common stock (the
“Shares”) valued at $0.20 to Purchaser. The
Patent Assets encompass technologies relating to development and
manufacturing of point-of-care testing rapid test kit products that
include diagnostics for COVID-19 (SARS CoV2 Antigen Rapid Test),
pneumonia, vaginal infection and helicobacter pylori (H. pylori)
bacterial infection. The Company anticipates that the Shares
issued to the Purchaser will represent approximately 70.30% of the
issued and outstanding shares of common stock of the Company and
effect a change of control in the Company at the Closing. The
Ainos Agreement provides for certain registration rights to the
Purchaser regarding the Shares.
The
foregoing description of the Ainos Agreement is not complete and is
qualified in its entirety by the text of the agreement, which is
included as Exhibit 2.1 to the Form 8-K filed by the Company with
the SEC on December 30, 2020, which is incorporated herein by
reference.
On
December 18, 2020, the Company Board, and on January 25, 2021, the
holders owning a majority of the shares of common stock of the
Company as of the record date of January 22, 2021 approved certain
Company actions required under the Ainos Agreement. The Company
filed a Form 14-C definitive information statement regarding the
majority stockholder approval of the Company actions required for
closing the Ainos transaction on March 19, 2021, which is
incorporated herein by reference, and completed mailing of the
information statements to its shareholders on March 26, 2021. The
Company expects the Closing to occur on or after April 15, 2021,
subject to the terms and conditions of the Ainos
Agreement.
Patents and Proprietary Rights
Since
inception, the Company has worked to build an extensive patent
portfolio for low-dose orally administered interferon. This
portfolio consists of patents with claims that encompass method of
use or treatment, and/or composition of matter and manufacturing.
As listed below, the Company presently owns eight issued
patents with two patents pending.
ACTIVE PATENTS:
"TREATMENT
OF THROMBOCYTOPENIA USING ORALLY ADMINISTERED INTERFERON" as
described and claimed in U.S. Patent No. 9,526,694 B2 issued
December 27, 2016, Owned. Expiration: April 2033.
“TREATMENT
OF THROMBOCYTOPENIA USING ORALLY ADMINISTERED INTERFERON" as
described and claimed in U.S. Patent No. 9,750,786 B2 issued
September 5, 2017, Owned. Expiration: April 2033.
“TREATMENT
OF THROMBOCYTOPENIA USING ORALLY ADMINISTERED INTERFERON" as
described and claimed in U.S. Patent No. 9,839,672 B2 issued
December 12, 2017, Owned. Expiration: April 2033.
"TREATMENT
OF THROMBOCYTOPENIA USING ORALLY ADMINISTERED INTERFERON" as
described and claimed in TAIWAN Patent No. I592165 issued July 21,
2017, Owned. Expiration: May 2033.
"COMPOSITION
AND METHOD FOR PROMOTING ORAL HEALTH" as described and claimed in
U.S. Patent No. 6,656,920 B2 issued December 2003, Owned.
Expiration: April 2021.
“SMART DRUG INJECTION DEVICE” as described and claimed
in TAIWAN invention patent application number 108137797, Owned,
Issued: November 27, 2020, Expiration: October 18,
2039
“SMART DRUG INJECTION DEVICE” as described and claimed
in TAIWAN design utility model patent application number 108213819,
Owned, Issued: December 12, 2019, Expiration: November 11,
2038.
“SMART DRUG INJECTION DEVICE” as described and claimed
in CHINA design utility model patent application number
201921808292.6, Owned, Issued: July 28, 2020, Expiration: June 27,
2039.
“SMART DRUG INJECTION DEVICE” as described and claimed
in CHINA invention patent application number 201911024619.5,
Pending.
“SMART DRUG INJECTION DEVICE” as described and claimed
in US invention patent application number 17/069,418,
Pending.
There
are no current patent litigation proceedings involving the
Company.
Cost of Compliance with Environmental Regulations
The
Company incurred no costs to comply with environment regulations
during the timeframe of this report.
United States Regulation
Before
products with health claims can be marketed in the United States,
they must receive approval from the U.S. Food and Drug
Administration (“FDA”). To receive this approval, any
drug must undergo rigorous preclinical testing and clinical trials
that demonstrate the product candidate’s safety and
effectiveness for each indicated use. This extensive regulatory
process controls, among other things, the development, testing,
manufacture, safety, efficacy, record keeping, labeling, storage,
approval, advertising, promotion, sale, and distribution of
pharmaceutical products.
In
general, before any ethical pharmaceutical product can be marketed
in the United States, the FDA will require the following
process:
●
|
Preclinical
laboratory and animal tests;
|
●
|
Submission
of an investigational new drug application, or IND, which must
become effective before human clinical trials may
begin;
|
●
|
Adequate
and well-controlled human clinical trials to establish the safety
and efficacy of the proposed drug for its intended
use;
|
●
|
Pre-approval
inspection of manufacturing facilities and selected clinical
investigators;
|
●
|
Submission
of a New Drug Application (NDA) to the FDA; and
|
●
|
FDA
approval of an NDA, or of an NDA supplement (for subsequent
indications or other modifications, including a change in location
of the manufacturing facility).
|
Substantial
financial resources are necessary to fund the research, clinical
trials, and related activities necessary to satisfy FDA
requirements or similar requirements of state, local, and foreign
regulatory agencies. At such time as the Company undertakes to
commercialize any of its products, all necessary preclinical
testing, clinical trials, data review, and approval steps will be
judiciously executed to insure that the product satisfies all
regulatory requirements at all levels.
505(b)(2)
The
Company has historically followed and will continue to follow the
traditional approval process for New Drugs as set out in Section
505(b)(1) of the Federal Food, Drug, and Cosmetic Act. If an
alternative path to FDA approval for new or improved formulations
of previously approved products is scientifically and economically
feasible and beneficial to the Company and the public, the Company
may choose to follow this alternative path as established by
section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act. This
section of the Act permits the applicant to rely on certain
preclinical or clinical studies conducted for an approved product
as some of the information required for approval and for which the
applicant has not obtained a right of reference. The process of
approval under 505(b)(2) will be followed as judiciously as
505(b)(1) or any regulation.
Orphan Drug Designation
Under
the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a rare disease or condition, which is
generally a disease or condition that affects fewer than 200,000
individuals in the United States. The Company may choose to seek
approval for a product satisfying the definition of an Orphan Drug
if that product can be used to treat such an indication. Orphan
drug designation does not convey any advantage in or shorten the
duration or rigidity of the regulatory review and approval
process.
Similarly,
substantial financial resources are necessary to fund the research,
design, testing, fabrication and related activities necessary to
satisfy FDA requirements or similar requirements of state, local,
and foreign regulatory agencies for medical devices. The Company
may seek to obtain FDA clearance for the sales, marketing, and use
of its novel pulsatile insulin pump for the U.S. market after
obtaining FDA approvals under one of the following regulatory
approvals:
Premarket Notification 510(k)
Each person who intends to market in the U.S., a Class I, II, and
III device intended for human use, for which a Premarket Approval
application (“PMA”) is not required, must submit a
510(k) to FDA unless the device is exempt from 510(k) requirements
of the Federal Food, Drug, and Cosmetic Act (the “FD&C
Act”) and does not exceed the limitations of exemptions in .9
of the device classification regulation chapters (e.g., 21 CFR
862.9, 21 CFR 864.9).
If the
Company’s novel pulsatile insulin pump is determined to be
similar to one already cleared for the U.S. market, the Company
will seek FDA clearance under 510(k) at least 90 days before the
device is marketed. A
510(k) application requires demonstration of substantial
equivalence to another legally U.S. marketed device. Substantial
equivalence means that the new device is as safe and effective as
the predicate. Documented laboratory testing among other
submissions will be required and if the Company’s device
features significant alterations from predecessor devices the
Company may be required to present results from clinical
trials.
Premarket Approval (PMA)
Alternatively,
if the Company’s device is deemed to be completely new to the
U.S. market or classified as a Class III device, the Company will be required to apply
for PMA approval. The
Medical Device Amendments of 1976 to the FD&C Act established
three regulatory classes for medical devices. The three classes are
based on the degree of control necessary to assure that the various
types of devices are safe and effective. The most regulated devices
are in Class III. The amendments define a Class III device as one
that supports or sustains human life or is of substantial
importance in preventing impairment of human health or presents a
potential, unreasonable risk of illness or
injury.
Under Section 515 of the FD&C Act, all devices placed into
Class III are subject to premarket approval requirements. Premarket
approval by FDA is the required process of scientific review to
ensure the safety and effectiveness of Class III
devices.
Foreign Regulation
In
addition to regulations in the United States, a variety of foreign
regulations govern clinical trials and commercial sales and
distribution of products in foreign countries. Whether or not the
Company obtains FDA approval for a product, the Company must obtain
approval of a product by the comparable regulatory authorities of
foreign countries before the Company can commence clinical trials
or market the product in those countries. The approval process
varies from country to country, and the time may be longer or
shorter than that required for FDA approval. The requirements
governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary greatly from country to
country.
The
policies of the FDA and foreign regulatory authorities may change
and additional government regulations may be enacted which could
prevent or delay regulatory approval of investigational drugs or
approval of new diseases for existing products and could also
increase the cost of regulatory compliance. It is not possible to
predict the likelihood, nature or extent of adverse governmental
regulation that might arise from future legislative or
administrative action, either in the United States or
abroad.
Research and Development
During
the quarter ended March 31, 2021 and the first quarter of 2020, the
Company did not incur research and development
expenses.
Employees
The
Company currently has two full-time employees and two part-time
employees. Of these four employees, two are executive officers and
two work in administrative capacities.
Stephen T. Chen: Chairman, Chief Executive Officer (CEO), President
and Chief Operating Officer (COO), and Chief Financial Officer
(CFO). Dr. Chen was named Chairman of the Board in February 2012,
and he has been a director of the Company since February 1996. He
currently executes the management functions as not only Chairman,
but as CEO, President, COO, and CFO.
Bernard Cohen: Vice President - Administration (VP-Admin). Mr.
Cohen holds BBA and MPA degrees from West Texas A&M University.
He is a long time Amarillo resident with over thirty years of
management experience. Mr. Cohen has been with the Company since
October 2009. Mr. Cohen works with Ms. Shelton, providing the
reporting necessary for the Company’s various SEC filings,
and ordinary-course internal bookkeeping and accounting
services.
Chrystal Shelton: Office Manager & Administration. Ms. Shelton
has been with the Company since 1987. In addition to handling
routine office administration, Ms. Shelton is responsible for
accounting, form, and formatting of SEC filings. She is an integral
part of the reporting process and interacts with outside
professionals who assist the Company in its various compliance
measures.
Maggie Wang: Director of Business Development. Ms. Wang has an
extensive background in business development and marketing of
consumer products in Asian countries. Ms. Wang is also the branch
manager for the Taiwan Branch.
Consultants
From time to time, the Company engages consultants as needed for
specific areas of responsibility. Presently, the Company has
engaged the following consultants: John Junyong Lee, Esq. - Chief
Legal Counsel and Corporate Secretary, Dr. Yung-Hsiang Hung -
Director-Medical Division; and i2China Management Group, LLC (Mr.
Lawrence Lin)- Executive Advisor.
Results of Operations for Quarter Ended March 31, 2021 and
2020:
Revenues. The Company reported revenue for the quarter ended
March 31, 2021, of $2,121 from sales of liposomal nutraceuticals.
Revenue for the same period in 2020 was $15,200 also from sales of
nutraceuticals. The cost of sales for the first quarter of 2021 was
$1,249 as compared to $10,806 for cost of sales in 2020. Gross
profit for the quarter in 2021 was $872 as compared to $4,394 in
2020, a decrease of $3,522.
Research and Development Expenses. There was no R&D
activity in this quarter of 2021 or 2020.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses were $142,713 (38%) higher in
2021 than 2020 largely due to increased expenses associated with
the Securities Purchase Agreement transaction with Ainos
Inc.
Operating Loss. The Company's operating loss was $522,109
which was $146,235 (39%) higher for 2021 than 2020 mostly due to
the expense of the Securities Purchase Agreement transaction with
Ainos Inc.
Interest Expense. During the three months ended March 31,
2021, interest expense, net was $11,897, compared to $1,005 for the
three months ended March 31, 2020. The interest expense recognized
in the three months ended March 31, 2021 is mostly due to accrued
interest for convertible debt notes.
Net Loss. Net loss attributable to common shareholders was
$534,006 which was $157,127 (42%) higher during 2021 than 2020.
This increase was mainly due to expenses related to processing of
our Securities Purchase Agreement with Ainos Inc. in
2021.
Liquidity and Capital Resources
As of
March 31, 2021, the Company had available cash of $9,377 whereas it
had a cash position of $289,557 for the same period in 2020 and
$22,245 as of December 31, 2020. The Company had a working capital
deficit of $1,458,151 at the end of March 2021, and a working
capital deficit of $580,993 for the same period in 2020, an
increase of 151%. As of December 31, 2020, working capital was a
deficit of $1,022,155. The average monthly burn rate in 2020 was
$65,000. Going forward, we expect that the burn rate will continue
to be in that same range.
The
Company continues to develop and establish new revenue streams to
become, and maintain, the position of a profitable going concern.
Two major areas of focus are (1) to continue to leverage the
Company’s core technology, the development and application of
low-dose oral interferon, and (2) to commercialize its metabolic
restoration therapy for the treatment of diabetes and other
metabolic diseases. The Company aggressively seeks to monetize its
existing intellectual property as well as potential new discoveries
and estimates its short-term project development needs to be
between $3,000,000 and $6,000,000 depending upon project negotiated
terms and structuring yet to be determined.
There
can be no assurance that we will be successful in our efforts to
make the Company profitable. If those efforts are not successful,
we will be forced to cease operations.
ITEM
3.
Quantitative
and Qualitative Disclosures About Market Risk.
As a
“smaller reporting company,” we are not required to
provide the information under this Item 3.
ITEM
4.
Controls
and Procedures
Disclosure Controls and Procedures
At the
end of the period covered by this report, our management, with the
participation of our Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of our disclosure controls and
procedures as of March 31, 2021. The term "disclosure controls and
procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, means controls and other procedures of a company that
are designed to ensure that information required to be disclosed by
a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files
or submits under the Exchange Act is accumulated and communicated
to the company's management, including its principal executive and
principal financial officers, as appropriate to allow timely
decisions regarding required disclosure. Management recognizes that
any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures. Based on the evaluation of our disclosure controls and
procedures as of March 31, 2021, our Chief Executive Officer and
Chief Financial Officer concluded that, as of such date, our
disclosure controls and procedures were effective at the reasonable
assurance level.
Management's Report on Internal Control Over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined
in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the
supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in
Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation
under the framework in Internal
Control - Integrated Framework (2013), our management
concluded that our internal control over financial reporting was
effective at the reasonable assurance level as of March 31,
2021.
Changes in Internal Control Over Financial Reporting
We have
not experienced any material impact to our internal controls over
financial reporting even though our workforce continues to
primarily work-from-home due to COVID-19. We are continually
monitoring and assessing the COVID-19 situation and its impact on
our internal controls.
This
interim report does not include an attestation report of the
Company’s independent registered public accounting firm
regarding internal control over financial reporting.
Management’s report was not subject to attestation by our
independent registered public accounting firm pursuant to temporary
rules of the SEC that permit the company to provide only
management's report in this interim report.