Ainos, Inc. AIMD US Equity☆

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

The following discussion should be read in conjunction with the 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”.

Overview

We are engaged in developing medical technologies for point-of-care (“POCT”) testing and safe and novel medical treatment for a broad range of disease indications. Since our inception in 1984, we have concentrated our resources on business planning, raising capital, research and clinical development activities for our programs, securing related intellectual property and commercialization of proprietary therapeutics using low-dose non-injectable interferon (“IFN”). In addition to our core IFN technology, we are committed to developing a diversified healthcare business portfolio to include medical devices and consumer healthcare products.

Although we have historically been involved in extensive pharmaceutical research and development of low-dose oral interferon as a therapeutic, we are prioritizing the commercialization of medical devices as part of our diversification strategy. Since the beginning of 2021, we have 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. This includes 51 issued and pending patents related to VOC technologies and 3 issued patents for COVID-19 POCT products. We expect our underlying intellectual property to enable us to expedite the commercialization of our medical device pipeline, beginning with Ainos-branded COVID-19 POCT product candidates.

Medtech Solutions

Our portfolio of medtech solutions is currently comprised of the following:

An integral part of our operating strategy is to create multiple revenue streams through commercializing our product portfolio and leveraging our intellectual property patents, including potentially out-licensing or forming strategic relationships to develop our medical devices, consumer healthcare products and low-dose interferon therapeutics.

In 2022, we are prioritizing the commercialization of our POCT devices, beginning with seeking EUA authorizations for the COVID-19 POCT product candidates and plans to commercialize our other POCT product candidates. As a general strategy, we plan to conduct clinical trials in Taiwan and use the data to apply for TFDA approval and FDA clearance via the 510(k) or comparable pathway. If our products are approved, we plan to work with third-party distributors to market our products in countries where we receive regulatory approval and to seek various business relationships with other medtech companies to market our products. At the same time, we plan to initiate clinical trials for the CICCT and SRNA programs over the course of this year.

Our ability to generate product revenue sufficient to achieve profitability will depend on further successful development and commercialization of one or more of our current or future product candidates and programs. We anticipate our POCT products candidates to potentially generate organic cash flows to support our business while we invest in our other pipeline projects. We expect to continue to incur significant expenses for the next few years as we advance our product candidates through preclinical development, clinical trials and regulatory approval. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution, and legal and regulatory compliance. We may also incur expenses in connection with strategic relationships for the development of additional product candidates. Furthermore, we expect to continue to incur costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses.

Until we can generate significant revenue from product sales, if ever, we expect to finance our operations with business revenues and proceeds from external sources. We may pursue additional funding that may include our entry into or expansion of borrowing arrangements; research and development incentive payments, government grants, co-financing from pharmaceutical companies and other corporate sources; and potential future collaboration agreements with pharmaceutical companies or other third parties. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization, potential in-licenses or acquisitions plans for one or more of our product candidates.

We are unable to predict the timing or amount of unexpected expenses or when or if we will be able to achieve or maintain profitability due to the numerous risks and uncertainties associated with product development and related legal regulatory requirements. When we are eventually able to generate additional product sales, those sales may not be sufficient to become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of December 31, 2021, we had available cash and cash equivalents of 1,751,499. We anticipate business revenues and further potential financial support from outside sources to fund our operations over the next twelve months. We have based this estimate on assumptions that may prove to be wrong and we could exhaust our available capital resources sooner than we expect. See “Part II, Item 7 - Liquidity and Capital Resources” for additional information. To finance our continuing operations, we will need to raise additional capital, which cannot be assured.

Strategic Investment and Business Development with Ainos KY

In order to facilitate our diversification strategy through development and commercialization of an expanded base of product offerings we secured a strategic investor, Ainos KY. In December 2020, we entered into a Securities Purchase Agreement pursuant to which, on April 15, 2021, in exchange for 100,000,000 shares of our common stock, we acquired intellectual property assets from Ainos KY valued at approximately $20,000,000. Through this relationship, we have implemented several strategic initiatives over the past year to augment our product development pipeline and achieve a strengthened financial position.

The following are highlights of recent major corporate milestones that we believe will serve as catalysts for us to develop and commercialize a multi-faceted product portfolio pipeline over the next several years:

Impact of COVID-19 on Our Business

The COVID-19 pandemic presented us an opportunity to grow our business in 2021. We began selling and recording product revenue for Ainos COVID-19 antigen rapid test kits in June 2021 after TCNT obtained TFDA EUA in the same month. Between June and December 2021, we generated about $568,164 of revenues from the Ainos COVID-19 antigen rapid test kit.

In 2021, substantially all of our operating revenue came from the sale of the Ainos COVID-19 antigen rapid test kits in Taiwan. COVID-19 infection rates have been well controlled in Taiwan. According to Taiwan Centers for Disease Control (“Taiwan CDC”), total cases in Taiwan were just 17,029 as of December 31, 2021. Over the same period, total cases in the U.S. were around 54,800,000. As a result, the total revenues we generated from our Ainos COVID-19 antigen rapid test kits were fewer than we had anticipated. We intend to broaden our market reach if TCNT successfully obtains regulatory clearance in the U.S. or other countries.

We believe affordable, easy-to-use, rapid COVID-19 testing will continue to be in demand at least in the short-term. We anticipate our management apps, when used with the Ainos antigen rapid test kit, will allow individuals and organizations to effectively manage tests, trace infections, and share results. We also anticipate the Ainos COVID-19 nucleic acid test can help medical professionals quickly scale testing capacity if the product receives regulatory clearance.

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.

Results of Operations

The following table sets forth the significant components of our results of operations for the periods presented.

Years ended December 31,

Operating expenses:

Non-operating income and expenses

Other Losses (2,547 ) (3 )

Comparison of the Year ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020.

Years ended December 31, Change

Operating expenses:

Non-operating income and expenses

Revenues, Costs and Gross Margins

Net revenues for 2021 and 2020 were $594,563 and $16,563, respectively. In 2021, we substantially increased revenues by 3,490%, primarily because we began selling the Ainos COVID-19 antigen rapid test kits in June 2021 in Taiwan. Substantially all revenues in 2021 were from the sale of the test kits. All revenues in 2020 were from sales of nutraceutical products.

Cost of revenues for 2021 and 2020 were $184,181 and $11,277, respectively, representing a 1,533% increase year-over-year. The increase was primarily attributable to increased business activity relating to the test kits. Gross profits rose to $410,382 from $5,286, an improvement of $405,096, or 7,664%. Gross margin for 2021 rose to 69% from 32% for 2020, driven by improved product sales resulting from our Ainos COVID-19 antigen rapid test kits.

Research and Development (“R&D”) Expenses

Research and development expenses for 2021 and 2020 were $1,920,645 and $389, an increase of 493,639% and $1,920,256, respectively. The increase is associated with higher R&D personnel costs and more expense for technology development and technical license fees. The main components include: costs associated with increased R&D personnel ($214,712), costs associated with technology development (approximately $277,000) and costs associated with intellectual property, including amortization of acquired intellectual properties ($1,264,865). Following the strategic investment by Ainos KY, since August 2021 we have increased research and development staffing to develop our product candidates including POCTs, VELDONA and SRNA research.

Selling, General and Administrative Expenses

Selling, general and administration expense increased to $2,357,163 in 2021 from $1,445,332 in 2020, an increase of 63% and $912,000, respectively. Selling expense increased by approximately $191,000 or 100% due to increased sales and marketing staffing (approximately $76,000) and fees to distributors (approximately $103,000). Administrative expense increased by about 50% amounting to approximately $721,000. Our expenses increased primarily due to increased professional service fees related to the Ainos KY Transaction and corporate governance matters (approximately $298,000) and the increased amortization of acquired intellectual properties (approximately $725,000). The increased administrative expenses were offset by a decrease of personnel expense (approximately $350,000) associated with departure of former directors and officers.

Operating Loss

While our gross profits improved by $405,096 in 2021 compared to $5,286 in 2020, we incurred additional operating expenses as we continue to invest resources to execute our growth strategy and product roadmap. As a result, our operating loss in 2021 increased to $3,867,426 from $1,440,435 in 2020.

Liquidity and Capital Resources

As of December 31, 2021, we had cash and cash equivalents of $1,751,499, representing an increase from $22,245 as of December 31, 2020. The increase is primarily attributable to revenues from sales of our Ainos COVID-19 antigen rapid test kit in Taiwan and working capital loans.

Major Transactions in 2021

The following is a summary of our major transactions in 2021.

Securities Purchase Agreement

On April 15, 2021, we closed on a Securities Purchase Agreement with Ainos KY. Pursuant to the Securities Purchase Agreement, we issued 100,000,000 shares of common stock at $0.20 per share to Ainos KY 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.” Immediately after the consummation of the transaction, Ainos KY owned approximately 70.30% of the Company’s issued and outstanding shares of common stock.

Ainos COVID-19 Test Kit Sales and Marketing Agreement with Ainos KY

On June 14, 2021, we entered into an exclusive agreement with Ainos KY to serve as the master sales and marketing agent for the Ainos COVID-19 Antigen Rapid Test Kit and the Ainos COVID-19 Nucleic Acid Test, which were developed by our co-developer TCNT. On June 7, 2021, the TFDA issued an emergency use authorization to TCNT for the Ainos COVID-19 Antigen Rapid Test Kit, which is being marketed and sold under the Ainos brand in Taiwan. As TCNT secures regulatory authorizations from foreign regulatory agencies, we expect to partner with regional distributors to promote sales in other strategic markets. We purchased $183,444 of the Ainos COVID-19 Antigen Rapid Test Kit inventory from TCNT for the year ended December 31, 2021 and $0 in 2020.

Ainos – TCNT Product Development Agreement

On August 1, 2021, we entered into a five-year Product Development Agreement with TCNT. Pursuant to the agreement, both parties will endeavor to work together to co-develop pharmaceutical, medical and preventive medicine related products, with the Company being the exclusive sales agent. Under the agreement, we will bear the cost associated with product development and TCNT will make accessible its personnel and facilities. Under the agreement, we incurred product development expenses totaling $205,883 as of December 31, 2021 and accrued payable of $65,156 as of December 31, 2021. We incurred $0 in product development expenses in 2020.

Asset Purchase Agreement

On November 18, 2021, we entered into an Asset Purchase Agreement with Ainos KY, as amended by an Amended and Restated Asset Purchase Agreement dated as of January 29, 2022. Pursuant to the Asset Purchase Agreement, we acquired intellectual property and manufacturing, testing, and office equipment for a total purchase price of $26,000,000. Pursuant to the Asset Purchase Agreement, we also agreed to hire certain employees of Ainos KY on terms equal to the compensation arrangements undertaken by Ainos KY. From and after the closing, we have no responsibility, duty or liability with respect to any employee benefit plans of Ainos KY.

Under the Asset Purchase Agreement, we issued to Ainos KY a non-interest bearing convertible promissory note in the principal amount of $26,000,000. The principal sum of the convertible note is payable in cash on January 30, 2027, although we may prepay in whole or in part without penalty. If not earlier repaid, the convertible note will be converted into shares of our common stock or such other securities or property for which the convertible note may become convertible, immediately prior to the closing of any public offering of our common stock as result of which our common stock will be listed on a U.S. stock exchange. The conversion price, subject to certain adjustments, will be 80% of the initial public offering price of such offering. We incurred $26,000,000 as account payable related to the Asset Purchase Agreement as we booked the related assets in 2021.

Other Liquidity and Capital Resource Factors

Our total cash and cash equivalents were $1,751,499 for 2021 and $22,245 for 2020, representing an increase of $1,729,254 mainly attributable to financing activities. Our net cash from financing activities increased to $3,154,373 for 2021 from $120,000 for 2020 due to the issuance of additional convertible notes to certain related parties in 2021. Our total convertible notes payable and other notes payable to related parties increased to $3,589,931 in 2021 from $953,001 in 2020.

We incurred net operating outflow of $1,249,977 for 2021 and $499,551 for 2020. While our revenues grew in 2021, our acquisition of intellectual property, increased staffing, and investment in research and developments increased our expenses and resulted in higher net losses ($3,888,661). These higher net losses were partially offset by increased amortization for acquisition of intellectual property to $2,044,447 for 2021 from $14,698 for 2020.

In 2021, in accordance with the SPA, Ainos KY provided us $3,000,000 in working capital advances. In exchange for the advances, we issued convertible notes in the aggregate principal amount of $3,000,000 with an interest rate of 1.85% per annum. The notes have maturity dates ranging from October 2021 to June 2022. They are convertible at Ainos KY’s election into shares of our common stock at a conversion price of $0.20 per share.

Between January 2016 and April 2021, we issued multiple convertible promissory notes to Mr. Stephen Chen, our former Chairman, CEO and CFO, for deferred compensation and working capital loans. The total principal of these convertible promissory notes decreased to $376,526 in December 2021 from $670,991 in 2020. In 2021, Mr. Chen assigned certain notes and the assigned notes were subsequently converted into our common shares.

As of December 31, 2021, we had negative working capital, incurred recurring losses and recurring negative cash flow from operating activities, and an increase in our cumulative liabilities. Accordingly, there is substantial doubt as to our ability to continue as a going concern. See Note 1 to the Financial Statements included herein for more information. Our ability to continue operations depends on our success in generating and increasing revenues as well as our ability to secure external financing, when necessary, to fund strategic objectives. We expect to continue to incur losses for the immediate future and will need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities.

We anticipate business revenues and further potential financial support from our majority shareholder, Ainos KY, or others, to fund our operations over the next twelve months. However, there can be no assurance that we will be successful in our efforts to make us profitable. If these efforts are not successful, we may need to raise additional capital through the issuance of equity securities, debt financings or other sources in order to further implement our business plan or we will need to reevaluate our business plan and operating budgets.

In 2022 we intend to focus on commercializing our POCT medical devices and developing our CICCT program. Our near-term liquidity requirements will include expenses for clinical trials, regulatory clearances, and marketing to commercialize our POCT devices, including the Ainos COVID-19 Nucleic Acid Test, the Ainos Flora, the Ainos Pen and our CICCT program. We also intend to increase staffing for general administration, marketing and technology development purposes.

On March 4, 2022, we issued a non-convertible note to Ainos KY in the principal amount of $800,000, at a 1.85% per annum interest rate, with a maturity date of February 28, 2023. We intend to use the proceeds from the note for working capital.

In 2023 and beyond, we intend to invest in research and development and clinical trial spending to advance our VELDONA development efforts for disease indications such as thrombocytopenia and Sjögren’s syndrome. We also plan on investing in clinical trials and regulatory approval for the CHS430 device, in collaboration with TCNT, and clinical trial expenses for our SRNA program.

Critical Accounting Policies

For a discussion of accounting policies considered to be critical given they involve estimates and judgments made by management and are important for our investors’ understanding of our operating results and financial condition, see the Notes to the Financial Statements included elsewhere in this document.

Off-balance Sheet Arrangements

We have no off-balance sheet arrangements as of December 31, 2021.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements of the Company are set forth beginning on page F-1 immediately following the signature page of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

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 December 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 December 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 December 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.

ITEM 9B. OTHER INFORMATON

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

As of December 31, 2021, the directors and executive officers of the Company were as follows:

Name Age Position

Chun-Hsien Tsai 52 Chairman, President & Chief Executive Officer

Hui-Lan Wu 61 Chief Financial Officer

Lawrence K. Lin 53 Executive Vice President of Operations

Wen-Han Chang 58 Director

Yao-Chung Chiang 68 Director

Hsiu-Chen Chiu 46 Director

Ting-Chuan Lee 38 Director

Chun-Jung Tsai 50 Director

Chung-Yi Tsai 45 Director

Chun-Hsien Tsai. Mr. Tsai has served as our Chairman of the Board of Directors, President, Chief Executive Officer, and as a director since April 15, 2021. From April 15, 2021 until August 11, 2021, he also served as Chief Financial Officer. He concurrently serves as the CEO and Chairman of the Board of Directors of Ainos KY, as the Chairman of the Board of Directors of Taiwan Carbon Nano Technology Co., and as the Chief Executive Officer and director of AI Nose Corporation. Mr. Tsai has served as Chairman and CEO of Taiwan Carbon Nano Technology since July 2018, as a director and President of Ainos KY since October 2017, and in each of his other roles since 2012. In his capacity as the Chief Executive Officer of Taiwan Carbon Nano Technology Co., Mr. Tsai oversaw the completion of the world’s first carbon nanotube reactor. Mr. Tsai also currently serves as a member of the Taiwan Energy Storage Alliance and a member of the China Alternative Energy Association. Mr. Tsai owns more than 150 patents. Mr. Chun-Hsien Tsai is the brother of Mr. Chung-Yi Tsai and Mr. Chun-Jung Tsai. He is also the husband of Ms. Ting-Chuan Lee.

Hui-Lan Wu. Ms. Wu has served as our Chief Financial Officer since August 11, 2021. She has nearly 30 years of accounting, audit and management consulting experience. Before joining Ainos, Ms. Wu was a partner at KPMG Taiwan where she provided audit services to private and public companies in the technology, medical and chemical material sectors. She has mentored startup companies at the Center of Industry Accelerator and Patent Strategy at the National Yang Ming Chiao Tung University, and iLab Accelerator in Taiwan. Ms. Wu has devoted herself to promote impact investing in Taiwan. She received her Executive MBA from National Yang Ming Chiao Tung University and is a Certified Public Accountant in Taiwan and China.

Lawrence K. Lin. Mr. Lin has served as Executive Vice President of Operations since August 1, 2021. Prior to his appointment, Mr. Lin served as Executive Advisor to the previous CEO and chairman of the Company and provided executive management consulting for Aquahelio Resources LLC, an unaffiliated company. Mr. Lin brings more than 30 years of global cross-border strategic management consulting and financial investment experience at leading institutional corporates, such as Andersen Consulting, Salomon Smith Barney, and Credit Suisse First Boston. Mr. Lin has managed investment assets across several geographical locations, including the U.S., China and Taiwan, and advised on many private capital and structured public equity transactions for issuers in real estate, healthcare and consumer sectors. He spent nearly 15 years as an entrepreneur managing an independent Shanghai-based advisory and merchant banking practice where he completed numerous corporate acquisition and investment financing advisory mandates. Mr. Lin has a dual MBA in Finance & International Business from New York University- Stern School of Business.

Wen-Han Chang. Mr. Chang has served as a member of the Company’s Board of Directors since April 2021. He concurrently serves as the chairperson of our Compensation Committee and a member of our Audit Committee since August 2021. He also currently serves as the President of the Health Intelligent Medical Technology Development Society, the President of the Taiwan Society of Health Technology and Intelligence Medicine, and the Executive Director of the Taiwan Society of Geriatric Emergency & Critical Care Medicine. In addition, Mr. Chang is an Honorary President of the Taiwan Society of Engineering Technology and Practical Medicine, a Director on the board of directors of the Taiwan Society of Emergency Medicine, a Director on the board of directors of the Taiwan Society of Emergency Management Medicine, and a Supervisor of the Emergency and Critical Care Medicine Society. From September 2015 to May 2019, Mr. Change served as a Vice President General at Mackay Memorial Hospital.

Yao-Chung Chiang. Mr. Chiang has served as a member of the Company’s Board of Directors since April 2021. He concurrently serves as a member of our Audit Committee since August 2021. He is also the current Chairman of the board of directors of the Taiwan High Speed Rail Corporation. Mr. Chiang has previously served as the Chairman of the board of directors for the China Steel Chemical Corporation, Kaohsiung Rapid Transit Corporation, China Steel Corporation and China Airlines. Mr. Chiang holds a Ph.D. in Mechanical Engineering from the University of Wisconsin-Madison and a master’s degree in Mechanical Engineering from the National Cheung Kung University.

Hsiu-Chen Chiu. Ms. Chiu has served as a member of the Company’s Board of Directors since April 2021. She concurrently serves as the chairperson of our Audit Committee since August 2021. She is currently an Attorney-at-Law at the DaSheng International Law Firm, with certifications to practice law in both China and Taiwan, including Taiwan patent and trademark matters. Ms. Chiu received her Ph.D. from Tsinghua University in China and her LL.M. from the National Cheng-Chi University in Taiwan.

Ting-Chuan Lee. Ms. Lee has served as a member of the Company’s Board of Directors since April 2021. She has served as a director on the board of directors of Taiwan Carbon Nano Technology Co. since 2012. From 2012 to 2017, Ms. Lee served as the Chairman of the board of directors of Taiwan Carbon Nano Technology Co. Ms. Lee holds a master’s degree of science from the National Taiwan University and a bachelor’s of science degree from the National Cheung Kung University. Ms. Lee is the spouse of Mr. Chung-Hsien Tsai.

Chun-Jung Tsai. Mr. Tsai has served as a member of our Board of Directors since April 2021. Mr. Tsai is also a member of the board of directors of Ainos KY. He concurrently serves as the Executive Director of Ainos, Inc., a Cayman Islands corporation and as the Executive Director of Taiwan Carbon Nano Technology Co. In his capacity as the Executive Director of Taiwan Carbon Nano Technology Co., Mr. Tsai oversaw the completion of the world’s first carbon nanotube reactor. Mr. Chun-Jung Tsai is the brother of Mr. Chun-Hsien Tsai and Mr. Chung-Yi Tsai.

Chung-Yi Tsai. Mr. Tsai has served as a member of our Board of Directors since April 2021. He has served as the Executive Business Manager in the Automotive Business Unit of Maxim Integrated since November 2019, where he manages the high voltage (off battery) power management ICs for automotive ADAs & safety, information, telematics & head unit applications. From October 2013 through November 2019, Mr. Tsai served as a Senior Product Marketing Manager in the Battery & Optical Business Unit of Intersil Corporation. In such role, Mr. Tsai managed computer core power, battery charger and USB/USB power delivery product lines focused on computing and consumer markets. Mr. Chung-Yi Tsai is the brother of Mr. Chun-Hsien Tsai and Mr. Chun-Jung Tsai.

The Company’s directors are elected at the annual meeting of shareholders to hold office until the annual meeting of shareholders for the ensuing year or until their successors have been duly elected and qualified. Directors receive compensation of $1,000 per day for attendance at meetings, $250 per day for regularly scheduled teleconference meetings, and are reimbursed for any out-of-pocket expenses in connection with their attendance at meetings.

Officers are elected by the Board of Directors and serve at the discretion of the Board.

Audit Committee

Our Audit Committee consists of Mr. Wen-Han Chang, Mr. Yao-Chung Chiang and Ms. Hsiu-Chen Chiu, each of whom has been determined to be “independent” under applicable independence standards, the Board of Director’s Corporate Governance Policies and the Charter of our Audit Committee. Ms. Chiu currently serves as Chairperson of our Audit Committee. Our Board has determined that each of the members of the Audit Committee is able to read and understand fundamental financial statements, including the Company’s balance sheet, statement of operations and cash flow statement.

In addition, our Board has determined that Mr. Wen-Han Chang and Mr. Yao-Chung Chiang qualify as “audit committee financial experts” as defined by applicable SEC regulations. The Board reached its conclusion as to Mr. Chang and Mr. Chiang qualification based on, among other things:

The duties and responsibilities of the Audit Committee are set forth in its charter, which may be found on the Corporate Governance page of our Investor Relations website, include the following:

From time to time, the Company may engage an independent internal control auditor who consults with the Company on its existing internal controls and possible changes or augmentations to those controls.

Compensation Committee

Our Compensation Committee currently consists of Wen-Han Chang and Ms. Hsiu-Chen Chiu. Mr. Chang currently serves as the Chairperson of our Compensation Committee. The duties and responsibilities of the Compensation Committee are set forth in its charter, which may be on the Corporate Governance page of our Investor Relations website, include the following:

Director Independence

Ainos KY controls, and is expected to continue to control, a majority of the voting power of the Common Stock. As a result, Ainos KY is able to elect all of the directors of the Company. Our Board of Directors has determined that Mr. Chang, Mr. Chiang and Ms. Chiu are “independent directors” as determined under the standards of the Nasdaq Stock Market. The Board has adopted Nasdaq’s standards as its metric for director independence.

Code of Business Conduct and Ethics

We adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer or persons performing similar functions. A copy of the code is posted on our corporate website at www.ainos.com and was filed in our Form 8-K as Exhibit 5.05 with the SEC on August 26, 2021 and is attached hereto as Exhibit 14.1 and is incorporated herein by this reference. In addition, we intend to post on our website all disclosures that are required by law or listing standards concerning any amendments to, or waivers from, any provision of the code. The information contained in, or accessible through, our website does not constitute a part of this report. We have included our website address in this report solely as an inactive textual reference.

Compliance with Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires directors and officers of the Company and persons who own more than 10% of the Company’s common stock to file with the Securities and Exchange Commission (the “Commission”) initial reports of ownership and reports of changes in ownership of the common stock. Directors, officers and more than 10% shareholders are required by the Exchange Act to furnish the Company with copies of all Section 16(a) forms they file.

To the Company’s knowledge based solely on a review of the copies of such reports furnished to the Company, the following persons have failed to file, on a timely basis, the identified reports required by the Exchange Act during the most recent fiscal year:

Ainos KY, majority shareholder 0 0

Dr. Stephen T. Chen, Shareholder 0 0

Hung Lan Lee 0 0

Hui-Lan Wu, Chief Financial Officer* 2 0

Lawrence K. Lin, Executive Vice President 0 0

Wen-Han Chang, Director 0 0

Yao-Chung Chiang, Director 0 0

Hsiu-Chen Chiu, Director 0 0

Ting-Chuan Lee, Director 0 0

Chun-Jung Tsai, Director 0 0

Chung-Yi Tsai, Director 0 0

* Hui-Lan Wu, Chief Financial Officer, was appointed effective August 11, 2021, filed Form 3 on January 6, 2022 and filed Form 4 on January 6, 2022 due to delays in obtaining a Form ID and related EDGAR access code.

ITEM 11. EXECUTIVE COMPENSATION.

As a “smaller reporting company” under SEC rules, our named executive officers during the fiscal year January 1, 2021 through December 31, 2021 (collectively, the “Named Executive Officers”) were as follows:

· Mr. Chun-Hsien Tsai, Chairman, President & Chief Executive Officer;

· Ms. Hui-Lan Wu, Chief Financial Officer;

· Mr. Lawrence K. Lin, Executive Vice President of Operations;

· Bernard Cohen, our former Vice President – Administration.

No other executive officers received total annual compensation during the fiscal year ended December 31, 2021 in excess of $100,000.

Summary Compensation Table

The following table sets forth certain information relating to the total compensation earned for services rendered to us in all capacities by our Named Executive Officer:

Chairman of the Board & Chief Executive Officer

Chief Financial Officer

EVP Operations

Employment Arrangements

Effective April 15, 2021, our Board appointed Mr. Chun-Hsien Tsai to serve as Chief Executive Officer. Mr. Tsai will receive a monthly salary of 250,000 NT$ (equivalent to approximately $8,929), a year-end bonus of two months’ salary, and a variable compensation based on Company profit targets decided by the Company’s Compensation Committee, and payable as 10-30% of total annual compensation in the form of cash, securities and/or other discretionary remuneration. An initial equity grant to Mr. Tsai will be determined by the Compensation Committee at a later date. Other benefits, including labor insurance, health insurance and other benefits, will be based on local regulations and the Company’s policies.

Effective August 11, 2021, our Board appointed Ms. Hui-Lan (“Celia”) Wu to serve as Chief Financial Officer. Ms. Wu will receive a monthly salary of 230,000 NT$ (equivalent to approximately $8,214), a year-end bonus of 2 months’ salary, and a variable compensation based on Company profit targets decided by the Company’s Compensation Committee, and payable as 10-30% of total annual compensation in the form of cash, securities and/or other discretionary remuneration. An initial equity grant to Ms. Wu will be determined by the Compensation Committee at a later date. Other benefits, including labor insurance, health insurance and other benefits, will be based on local regulations and the Company’s policies.

Effective August 1, 2021, we entered into an employment contract with Mr. Lawrence K. Lin in connection with his election as Executive Vice President of Operations (the “LL Agreement”). The LL Agreement is effective for three years and may be extended for an additional years on the same terms and conditions upon mutual agreement. Under the LL Agreement, Mr. Lin will receive a monthly salary of $12,000, vesting stock options for 500,000 shares in the Company’s 2018 Officers, Directors, Employees and Consultants Non-Qualified Stock Option Plan, and a bonus of 10,000 shares in the Company’s common stock upon the Company’s successful listing on a Major National Exchange (as defined in the LL Agreement), and normal and customary benefits available to the Company’s employees. Mr. Lin is the sole member of i2China Management Group, LLC (“i2China”), a consultant previously engaged by the Company. Mr. Lin indirectly owns 452,617 warrants issued on November 25, 2020 to i2China; a non-convertible note issued to i2China on January 1, 2020 with a principal amount of $84,000; and convertible notes issued to i2China with a total principal and accrued interest amount of $103,342, that were converted into 413,368 shares of common stock on December 27, 2021 at a conversion price of $0.25 per share

We previously hired Dr. Stephen T. Chen under an employment contract for the period January 1, 2018 through December 31, 2020 (“Prior Chen Contract”). On January 1, 2021 an employment agreement for a 3-month term was executed reflecting the same material terms and conditions of the Prior Chen Contract which includes (i) a $240,000 annual salary, (ii) $100,000 in Company shares payable quarterly based on the average share price of the closing quotes for the one month preceding issuance (referred to in the table as “Other Compensation”), (iii) certain employee benefits available to the our employees, and (iv) reimbursement of expenses made on behalf of the Company. The Company and Dr. Chen also executed a Settlement Agreement and Mutual General Release made effective December 24, 2020 covering any employment-related claims arising under the Prior Chen Contract. The Company and Dr. Chen also entered into an Intellectual Property Assignment Agreement made effective January 19, 2021 whereby Dr. Chen has assigned all right, title, and interest to certain patents, trademarks, and other intellectual property created or developed during Dr. Chen’s employment with the Company.

We previously hired Mr. Cohen under an employment contract for the period January 1, 2018 through December 31, 2020 (“Prior Cohen Contract”). On January 1, 2021, an employment agreement for a 3-month term was executed reflecting the same material terms and conditions of the Prior Cohen Contract which includes, (i) a $70,000 annual salary, (ii) $1,000 per month in Company shares paid monthly based on the average share price of the closing quotes for the one month preceding issuance (referred to in the table as “Other Compensation”), (iii) certain employee benefits available to the Company’s employees, and (iv) reimbursement of expenses made on behalf of the Company. The Company and Mr. Cohen also executed a Settlement Agreement and Mutual General Release made effective December 24, 2020 covering any employment-related claims arising under the Prior Cohen Contract. The Company and Mr. Cohen also entered into an Intellectual Property Assignment Agreement made effective January 19, 2021 whereby Mr. Cohen has assigned all right, title, and interest to certain patents, trademarks, and other intellectual property created or developed during Mr. Cohen’s employment with the Company.

Outstanding Equity Awards at Fiscal Year-End

Chun-Hsien Tsai - - - - -

Chairman of the Board & Chief Executive Officer

Hui-Lan Wu - - - - -

Chief Financial Officer

EVP Operations

Dr. Stephen T. Chen - - - - -

Bernard Cohen - - - - -

Former VP - Administration

Option Grants in 2021

On August 1, 2021, Lawrence Lin was hired as our Executive Vice President of Operations and in recognition for Mr. Lin’s prior services he was granted non-qualified stock options for 500,000 shares in the Company’s voting common stock under the 2018-NQSOP that will vest over a period of 3 years from August 1, 2021 through July 31, 2024. In accordance to the 2018-NQSOP, the stock options are exercisable at $0.38 per share within 10 years of August 1, 2021.

Director Compensation for Last Fiscal Year

The following table summarizes the total compensation we paid to our non-employee directors for the fiscal year ended December 31, 2021:

Yasushi Chikagami(2) - - - -

Daniel Fisher(2) - - - -

Nicholas Moren(2) - - - -

Edward L. Morris(2) - - - -

Dr. Beatrice Liu(2) - - - -

Pursuant to the 2021-NEDCP, four non-employee directors of the Company are entitled to 330,000 Restricted Stock Units (“RSUs”) upon their appointment to the Board on April 15, 2021. The RSUs are held in reserve pending approval of the 2021 Stock Incentive Plan by our shareholders.

Directors receive $1,000 compensation for attendance at directors’ meetings and $250 for regularly scheduled teleconference meetings. There were no regularly scheduled meetings during 2021 for which the attendance or teleconference fee was due to directors. The Board enacted corporate actions through written consent and special meetings.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding beneficial ownership of our common stock as of December 31, 2021:

· by each of our Named Executive Officers;

· by each of our directors; and

· by all our current executive officers and directors as a group.

As of December 31, 2021, there were 144,379,308 shares of common stock issued and outstanding.

Beneficial ownership is determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to our common stock. Shares of common stock subject to stock options, convertible notes and debentures and warrants that are currently exercisable or convertible, or exercisable or convertible within 60 days of December 31, 2021, are deemed to be outstanding for purposes of computing the percentage ownership of that person but are not treated as outstanding for computing the percentage ownership of any other person. Unless indicated below, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable.

Except as otherwise indicated, the address of each stockholder is c/o Ainos, Inc. at 8880 Rio San Diego Drive, Suite 800, San Diego, CA, 92108.

Security Ownership of Certain Beneficial Owners:

Security Ownership of Management and Directors:

Chun-Hsien Tsai - -

Hui-Lan Wu - -

Chung-Yi Tsai - -

Chun-Jung Tsai - -

Ting-Chuan Lee - -

Wen-Han Chang - -

Yao-Chung Chiang - -

Executive officers and directors as a group - 9 persons 4,120,708 2.85 %

Change in Control

Ainos KY acquired a majority of the voting common stock of the Company upon closing the SPA on April 15, 2021 and thereafter entered into the Ainos KY Voting Agreement. The net result of both transactions resulted in Ainos KY obtaining 77.64% voting power of the common stock of the Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The following is a summary of related party transactions in 2021 and 2020 to which we have been a participant in which the amount involved exceeded or will exceed the lesser of $120,000 or 1% of the average of our total assets as of December 31, 2021 and 2020, and in which any of our directors, executive officers or holders of more than 5% of our capital stock, or any of our directors, executive officers or holders of more than 5% of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest, other than compensation arrangements which are described in Part II, Item 5 “Market for the Registrant’s Common Equity and Related Shareholder Matters, and Issuer Purchases of Equity Securities, and Part III, Item 11 “Executive Compensation.”

Name of the related party Relationship Description

Purchase of intangible assets and equipment

Securities Purchase Agreement

On April 15, 2021, we consummated the Securities Purchase Agreement with Ainos KY. Pursuant to the Securities Purchase Agreement, we issued 100,000,000 shares of common stock at $0.20 per share to Ainos KY 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.” Immediately after the consummation of the transaction Ainos KY owned approximately 70.30% of the Company’s issued and outstanding shares of common stock.

Asset Purchase Agreement

On November 18, 2021, we entered into an Asset Purchase Agreement as modified by an Amended and Restated Asset Purchase Agreement dated as of January 29, 2022 (the “Asset Purchase Agreement”) with Ainos KY. We closed the transaction on January 30, 2022. See Notes 2, 3, and 12 of our Notes to Financial Statements for a discussion of the transaction.

Pursuant to the Asset Purchase Agreement, we acquired certain intellectual property assets set forth on Exhibit A of the Agreement (the “IP Assets”) and certain manufacturing, testing, and office equipment set forth on Exhibit B of the Agreement (the “Equipment”) for a total purchase price of $26,000,000 (the “Purchase Price”). The Purchase Price included $24,886,023 of for intangible intellectual property assets and $1,113,977 in equipment. As payment of the purchase price, we issued to Ainos KY a Convertible Promissory Note in the principal amount of $26,000,000 (the “Convertible Note”) upon closing on January 30, 2022.

Certain employees of Ainos KY were transferred to the Company as set forth in Exhibit D of the Agreement (the “Employees”) who are responsible for research and development of the IP Assets and/or Equipment on terms at least equal to the compensation arrangements undertaken by the Seller. From and after the Closing, we will have no responsibility, duty or liability with respect to any employee benefit plans of Ainos KY.

The principal sum of the Convertible Note is payable in cash on January 30, 2027, although we may prepay the Convertible Note in whole or in part without penalty. The Convertible Note is non-interest bearing. If not earlier repaid, the Convertible Note will be converted into shares of common stock, $0.01 par value per share (the “Common Stock”), of the Company, or such other securities or property for which the Convertible Note may become convertible, immediately prior to the closing of any public offering of the Company’s common stock as result of which the Company’s common stock will be listed on a U.S. stock exchange. The conversion price, subject to certain adjustments described in Section 2(b) of the Convertible Note, will be 80% of the initial public offering, if any, price of the offering. For more information, please refer to the disclosure in Notes 2, 3 and 12 of our Notes to Financial Statements.

Related Party Financing

All convertible and other notes payable were issued either as a result of financing or deferred compensation provided by shareholders. As of December 31, 2021 and December 31, 2020, the convertible notes payable and non-convertible notes payable for related parties totaled $3,505,931 and $805,001, respectively. Refer to Notes 4 and 5 of our Notes to Financial Statements, which are incorporated herein by this reference, for more information.

Other transactions

COVID-19 Test Kits Sales and Marketing Agreement with Ainos KY

On June 14, 2021, we entered into an exclusive agreement with Ainos KY to serve as the master sales and marketing agent for the Ainos COVID-19 antigen rapid test kit and COVID-19 nucleic acid test kits which are manufactured by TCNT. On June 7, 2021, the TFDA issued an emergency use authorization to TCNT for the Ainos COVID-19 antigen rapid test kit that will be sold and marketed under the “Ainos” brand in Taiwan. As TCNT secures regulatory authorizations from foreign regulatory agencies, we expect to partner with regional distributors to promote sales in other strategic markets. We purchased $183,444 of COVID-19 antigen rapid test kit inventory from TCNT for the year ended December 31, 2021 and $0 in 2020.

Ainos – TCNT Product Development

On August 1, 2021, we entered into a five-year product development agreement with TCNT. Pursuant to the agreement both parties will endeavor to work together to develop pharmaceutical, medical and preventive medicine related products, with the Company being the exclusive sales agent. We will bear the cost associated with product development and TCNT will make accessible its personnel and facilities. Both parties shall each jointly own the intellectual property rights of all research results of the co-development collaboration. As a result, we incurred product development expenses totaling $205,883 as of December 31, 2021 and accrued payable of $65,156 as of December 31, 2021 and $0 in product development expenses in 2020.

COVID-19 Antigen Rapid Test Kits Sales

We sold Covid-19 antigen rapid test kits to ASE Technology Holding totaling $209,468 for the year ended December 31, 2021 and $0 in 2020.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

Audit Fees

On October 4, 2021, we engaged PricewaterhouseCoopers, Taiwan (“PWC”) as independent accountants of Ainos Inc. Taiwan Branch (“Audit Engagement”). The Audit Engagement covers audit services for the years ending December 31, 2021 and 2022 and PWC will issue interfirm audit reports for group reporting purposes to the Company’s group audit firm, PWR CPA, LLP (“PWR”).

The aggregate fees billed by our independent auditors, PWR for professional services rendered for the audit of our annual financial statements, and for the review of quarterly financial statements for the fiscal years ended December 31, 2021 and 2020, were:

Audit fees incurred by the Company were pre-approved by the Board of Directors.

Audit Related Fees: None.

Tax Fees

We have engaged Johnson & Sheldon, PLLC as our certified public accountant for corporate tax preparation and filing, with the incurred fees of $5,975 in 2021 and $4,730 in 2020, respectively.

The Company engaged PWC under separate agreements dated October 4, 2021 in respect to compliance with Taiwan corporate income tax requirements for the tax years ending December 31, 2021 and 2022 (“Taiwan Tax Engagement”). The incurred fees for the Taiwan Tax Engagement billed by PWC in 2021 were $2,400.

All Other Fees: None.

We do not use the auditors for financial information system design and implementation. Such services, which include designing or implementing a system that aggregates source data underlying the financial statements or that generates information that is significant to our financial statements, are provided internally or by other service providers. We do not engage the auditors to provide compliance outsourcing services.

The Company engaged PWC under separate agreements dated October 4, 2021 for PWC to render advisory services in connection to the Company’s internal controls over financial reporting as required under section 404 of the Sarbanes-Oxley Act (“SOX Engagement”).

The Board of Directors has considered the nature and amount of fees billed by PWR and PWC and believes that the provision of services for activities unrelated to the audit is compatible with maintaining PWR and PWC’s independence.

Accountant Approval Policy

Before an accountant is engaged by the Company to perform audit or non-audit services, the accountant must be approved by the Company’s Audit Committee or the Executive Committee in the absence of an Audit Committee. We filed the Charter of the Audit Committee of the Board of Directors in our Form 10-Q with the SEC on November 15, 2021 which describes the committee’s pre-approval policies and procedures, attached hereto as Exhibit 99(ii) and is incorporated by this reference.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2021 and 2020

Statements of Cash Flows for the years ended December 31, 2021 and 2020

Notes to Financial Statements for the years ended December 31, 2021 and 2020

EXHIBIT INDEX

INCORPORATED BY REFERENCE

10(iii) Sales and Marketing Agreement + X

10(xii) 2021 Employee Stock Purchase Plan * X

10(xiii) 2021 Stock Incentive Plan * X

10(xiv) Non-Employee Director Compensation Policy * X

99(i) Exhibit List of Company Patents X

101.SCH XBRL Taxonomy Extension Schema Document X

101.CAL XBRL Taxonomy Extension Calculation Linkbase X

101.DEF XBRL Taxonomy Extension Definition Linkbase X

101.LAB XBRL Taxonomy Extension Label Linkbase X

101.PRE XBRL Taxonomy Extension Presentation Linkbase X

104.1 Cover Page Interactive Data File X

The exhibits listed in the Exhibit Index are filed or incorporated by reference as part of this filing.

+ Schedules (as similar attachments) have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K.

* Indicates a management contract or compensatory plan or arrangement.

ITEM 16. FORM 10-K SUMMARY.

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AINOS, INC.

Date: March 21, 2022 By: /s/ Chun-Hsien Tsai

Chun-Hsien Tsai, Chairman of the Board,

Chief Executive Officer and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date

/s/ Chun-Hsien Tsai Chairman of the Board, and March 21, 2022

Chun-Hsien Tsai Chief Executive Officer

/s/ Hui-Lan Wu Chief Financial Officer March 21, 2022

Hui-Lan Wu

/s/ Wen-Han Chang Director March 21, 2022

Wen-Han Chang

/s/ Yao-Chung Chiang Director March 21, 2022

Yao-Chung Chiang

/s/ Hsiu-Chen Chiu Director March 21, 2022

Hsiu-Chen Chiu

/s/ Ting-Chuan Lee Director March 21, 2022

Ting-Chuan Lee

/s/ Chun-Jung Tsai Director March 21, 2022

Chun-Jung Tsai

/s/ Chung-Yi Tsai Director March 21, 2022

Chung-Yi Tsai

Ainos, Inc.

Financial Statements

Years ended December 31, 2021 and 2020

Contents

Report of Independent Registered Public Accounting Firm F-1

Balance Sheets F-2

Statements of Operations F-3

Statements of Stockholders’ Equity (Deficit) F-4

Statements of Cash Flows F-5

Notes to Financial Statements F-6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Ainos, Inc. (formerly Amarillo Bioscience, Inc.)

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Ainos, Inc. (formerly Amarillo Biosciences, Inc.) (the Company) as of December 31, 2021 and 2020, and the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the financial statements, the Company’s absence of significant revenues, recurring losses from operations, and its need for additional financing in order to fund its projected loss in 2021 raise substantial doubt about its ability to continue as a going concern. These 2020 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has negative working capital at December 31, 2021, has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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Critical Audit Matters

Critical audit matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/PWR CPA, LLP

Houston, Texas

PCAOB #6686

We have served as the Company’s auditor since 2020.

Houston, Texas

March 18, 2022

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Ainos, Inc.

Balance Sheets

December 31,

Assets

Current assets:

Liabilities and Stockholders’ Equity (Deficit)

Current liabilities:

Operating lease liabilities- non-current 30,255 -

Stockholders’ Equity (Deficit)

Preferred stock, $0.01 par value:

Common stock, $0.01 par value:

Translation adjustment 5,800 -

Total liabilities and stockholders’ equity (deficit) $ 40,822,161 $ 260,290

The accompanying notes are an integral part of these financial statements.

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Ainos, Inc.

Statements of Operations

Years ended December 31,

Operating expenses:

Non-operating income (expenses), net

Other losses (2,547 ) (3 )

Total non-operating income (expenses), net (21,236 ) (10,188 )

The accompanying notes are an integral part of these financial statements.

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Ainos, Inc.

Statements of Stockholders’ Equity (Deficit)

Years Ended December 31, 2021 and 2020

Shares Amount Shares Amount Capital Deficit Adjustment Equity (Deficit)

Share-based compensation - - - - (10,683 ) - - (10,683 )

Translation adjustment - - - - - - 5,800 5,800

The accompanying notes are an integral part of these financial statements.

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Ainos, Inc.

Statements of Cash Flows

Year Ended December 31

Cash flows from Operating Activities :

Adjustments to reconcile net loss to net cash used in operating activities:

Loss on disposal of property, plant and equipment 2,223 -

Changes in operating assets and liabilities:

Prepaid expense and other current assets (415,054 ) (19,020 )

Contract liabilities 59,575 -

Cash flows from Investing Activities :

Patent purchases - (7,243 )

Acquisition of property, plant and equipment (143,792 ) -

Increase in refundable deposits and others (36,725 ) -

Net cash used in investing activities (180,517 ) (7,243 )

Cash flows from Financing Activities :

Proceeds from convertible note payable – related party 3,106,025 120,000

Payments of other note payable (4,605 ) -

Proceeds from exercise of stock options 64,752 -

Payments of lease liabilities (11,799 ) -

Effect from foreign currency exchange 5,375 -

Cash and cash equivalents at beginning of period 22,245 409,039

Cash and cash equivalents at end of period $ 1,751,499 $ 22,245

Supplemental Cash Flow Information

Supplemental disclosures of noncash financing and investing activities:

Stock issued for subscription $ - $ 100,000

Stock issued for patent cost and accrued liabilities $ - $ 144,250

ROU leased assets $ 62,903 $ -

Acquisition of intangible assets and equipment $ 40,226,870 -

Decrease of additional paid in capital $ 5,773,130 -

Issuance of common stock and increase of current liability $ 46,000,000 -

The accompanying notes are an integral part of these financial statements.

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Ainos, Inc.

Notes to Financial Statements

December 31, 2021 and 2020

1. Organization and Summary of Significant Accounting Policies

Organization and Business

We are engaged in developing medical technologies for point-of-care (“POCT”) testing and safe and novel medical treatment for a broad range of disease indications. Since our inception in 1984, we have concentrated our resources on business planning, raising capital, research and clinical development activities for our programs, securing related intellectual property and commercialization of proprietary therapeutics using low-dose non-injectable interferon (“IFN”). In addition to our core IFN technology, we are committed to developing a diversified healthcare business portfolio to include medical devices and consumer healthcare products.

Although we have historically been involved in extensive pharmaceutical research and development of low-dose oral interferon as a therapeutic, we are prioritizing the commercialization of medical devices as part of our diversification strategy. Since the beginning of 2021, we have 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. This includes 51 issued and pending patents related to VOC technologies and 3 issued patents for COVID-19 POCT products. We expect our underlying intellectual property to enable us to expedite the commercialization of our medical device pipeline, beginning with Ainos-branded COVID-19 POCT product candidates.

Basis of Accounting

The basis is United States generally accepted accounting policies (“U.S. GAAP”).

Going Concern

These financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has generated minimal revenue and has suffered recurring losses totaling $10,300,000 since inception. These factors, among others, indicate that there is substantial doubt about the Company’s ability to continue as a going concern within one year from the issuance date of this filing.

In order to obtain the necessary capital to sustain operations, management’s plans include, among other things, the possibility of pursuing new equity sales and/or making additional debt borrowings, There can be no assurances, however, that the Company will be successful in obtaining additional financing, or that such financing will be available on favorable term, if at all. 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. 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.

Fair Value of Financial Instruments

Under the Financial Account Standards Board Accounting Standards Codification (“FASB ASC”), we are permitted to elect to measure financial instruments and certain other items at fair value, with the change in fair value recorded in earnings. We elected not to measure any eligible items using the fair value option. Consistent with the Fair Value Measurement Topic of the FASB ASC, we implemented guidelines relating to the disclosure of our methodology for periodic measurement of our assets and liabilities recorded at fair market value.

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Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-tier fair value hierarchy prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

Our Level 1 assets and liabilities primarily include our cash and cash equivalents. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. The carrying amounts of accounts receivable, prepaid expense, accounts payable, accrued liabilities, advances from investors, and notes payable approximate fair value due to the immediate or short-term maturities of these financial instruments.

Stock-Based Compensation

Stock-based compensation expense is recorded in accordance with FASB ASC Topic 718, Compensation – Stock Compensation, for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is the vesting period. The Company has adopted the simplified method to account for forfeitures of employee awards as they occur and as a result, we will record compensation cost assuming all option holders will complete the requisite service period. If an employee forfeits an award because they fail to complete the requisite service period, we will reverse compensation cost previously recognized in the period the award is forfeited.

Cash and Cash Equivalents

The Company classifies investments as cash equivalents if the original maturity of an investment is three months or less.

Revenue Recognition

We account for revenue from contracts with customers in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (“Topic 606”).” The unit of account in Topic 606 is a performance obligation, which is a promise in a contract to transfer to a customer either a distinct good or service (or bundle of goods or services) or a series of distinct goods or services provided at a point in time or over a period of time. Topic 606 requires that a contract’s transaction price, which is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, is to be allocated to each performance obligation in the contract based on relative standalone selling prices and recognized as revenue when (point in time) or as (over time) the performance obligation is satisfied.

Total revenues include sales of products to customers, net of discounts or allowances, if any, and include freight and delivery costs billed to customers. Revenues for product sales are recognized when control of the promised good is transferred to unaffiliated customers, typically when finished products are shipped. Shipping costs are deemed fulfillment costs and are not recognized as a separate performance obligation.

Allowance for Doubtful Accounts

The Company establishes an allowance for doubtful accounts to ensure trade and notes receivable are not overstated due to non-collectability. The Company’s allowance is based on a variety of factors, including age of the receivable, significant one-time events, historical experience, and other risk considerations. The Company had no material accounts receivable and no allowance at December 31, 2021 or 2020.

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Inventory

Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. The Company continually assesses the appropriateness of inventory valuations giving consideration to slow-moving, non-saleable, out-of-date or close-dated inventory.

Property and Equipment

Property and equipment are stated on the basis of historical cost less accumulated depreciation. Depreciation is provided using the straight-line method over the two to seven year estimated useful lives of the assets.

Patents and Patent Expenditures

The Company holds patent license agreements and maintains patents that are owned by the Company. All patent license agreements remain in effect over the life of the underlying patents. Accordingly, the patent license fee is being amortized over the estimated life of the patent using the straight-line method. Patent fees and legal fees associated with the issuance of new owned patents are capitalized and amortized over the estimated 8 to 20 year life of the patent. The Company continually evaluates the amortization period and carrying basis of patents to determine whether subsequent events and circumstances warrant a revised estimated useful life or impairment in value. No patent costs were written off for the years ended December 31, 2021, or December 31, 2020.

Income Taxes

The asset and liability approach is used to account for income taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Company records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized.

Research and Development

Internal research and development (“R&D”) costs are expensed as incurred. Clinical trial costs incurred by third parties are expensed as the contracted work is performed. Where contingent milestone payments are due to third parties under research and development collaborations, prior to regulatory approval, the payment obligations are expensed when the milestone results are achieved. Payments made to third parties subsequent to regulatory approval are capitalized as intangible assets and amortized to cost of products sold over the remaining useful life of the related product.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Basic and Diluted Net Income (Loss) Per Share

The basic earnings (loss) per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the weighted average number of common shares issued and outstanding during the year. The diluted earnings (loss) per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted as of the first year for any potentially dilutive debt or equity.

As of December 31, 2021, potentially dilutive shares are not included in the calculation of fully diluted net loss per share as the effect with a net loss would be antidilutive.

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Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist principally of cash. The Company has cash balances in a single U.S. financial institution which, from time to time, could exceed the federally insured limit of $250,000. The Company maintains multiple accounts in its Taiwan Branch office which help to mitigate risk. Our bank deposits in Taiwan are insured by the Central Deposit Insurance Corp. (“CDIC”) with an insured limit of NT$3,000,000 per account.

No loss has been incurred related to the aforementioned concentration of cash.

Recent Accounting Pronouncements

There have been no new accounting pronouncements issued or adopted during the year ended December 31, 2021 that are of significance to us.

2. Property and Equipment, net

Property and equipment are stated at cost less accumulated depreciation and consist of the following at December 31, 2021 and 2020:

December 31,

Machinery and equipment $ 938,047 $ -

Construction in process 232,729 -

Depreciation expense for the year ended December 31, 2021 and 2020 was $31,395 and $1,820, respectively. Construction in process represents assets that are not available for their intended use as of the balance sheet date.

Net property and equipment were $1,187,702 and $3,249 as of December 31, 2021 and 2020, respectively. We acquired $944,152 of machinery and equipment from Ainos KY pursuant to the Asset Purchase Agreement entered in November 2021.

3. Intangible assets, net

Intangible assets are stated at cost less accumulated amortization and consist of the following at December 31, 2021 and 2020:

December 31,

Amortization expense amounted to $2,000,302 for the year ended December 31, 2021 and $12,878 for the year ended December 31, 2020 respectively, and is included in R&D, selling, general and administrative expenses.

Patents were $37,329,191 and $180,628 as of December 31, 2021 and 2020 respectively. We acquired intellectual properties related to VOC and COVID-19 technologies from Ainos KY pursuant to a Securities Purchase Agreement dated December 24, 2020, by and between the Company (under its former name “Amarillo Biosciences, Inc.”) and Ainos KY (the “Securities Purchase Agreement”) and the Asset Purchase Agreement.

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Estimated future amortization expense is as follows:

4. Convertible Notes Payable and Other Notes Payable All convertible and other notes payable were issued either as a result of financing or deferred compensation provided by executives of the Company. As of December 31, 2021 and December 31, 2020, convertible and other notes payable totaled $3,589,931 and $953,001, respectively; including notes payable for related parties totaling $3,505,931 and $805,001, respectively. Refer to disclosure in Note 5 below.

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The details of the convertible notes payable and other notes payable are shown in the table below:

Convertible notes payable:

Notes payable:

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All of the aforementioned convertible promissory notes and other notes payable are unsecured and due on demand upon maturity. The Company may prepay the notes in whole or in part at any time. The Payee has the option to convert some or all of the unpaid principal and accrued interest to our common voting stock.

The convertible promissory notes are convertible on demand. The following convertible notes due to Stephen T. Chen – Notes 3.19, 4.19, 6.20, 7.20, 10.21, and 11.21 -- with a total principal and accrued interest amount of $372,988 were assigned by the holder to Top Calibre Corporation, a British Virgin Islands corporation, and subsequently converted in common stock of our company at a conversion price of $0.25 per share on December 27, 2021. No convertible notes were assigned in 2020.

During 2021, the Company received funding from Dr. Stephen T. Chen and Ainos KY totaling $214,420 and $3,000,000, respectively. Amounts owed to Dr. Stephen T. Chen of $150,000 were repaid. In 2020, the Company received funding from Dr. Stephen T. Chen totaling $373,976.

Note holders, i2China Management Group, LLC (“i2China”) and Dr. Stephen T. Chen (together the “Payees”), agreed to waive their rights pertaining to the conditional term “Annual Interest Rate on Matured, Unpaid Amounts: 10% per annum, compounded annually of Convertible Notes” in regards to interest charged on unpaid amounts following maturity for all of their respective notes. The Company and the Payees agree that the originally agreed annual interest rate will continue to be valid for any unpaid amounts after maturity. The amended terms of the above convertible notes and other notes payable were made during on September 1, 2021. Interest waived totaled $45,875.

The total interest expense for 2021 and 2020 totaled $21,727 and $10,702 respectively; the cumulative related accrued interest as of December 31, 2021 and 2020 were $28,673 and $24,196, respectively.

5. Related Party Transactions

The following is a summary of related party transactions in 2021 and 2020 to which we have been a participant in which the amount involved exceeded or will exceed the lesser of $120,000 or 1% of the average of our total assets as of December 31, 2021 and 2020, and in which any of our directors, executive officers or holders of more than 5% of our capital stock, or any of our directors, executive officers or holders of more than 5% of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest, other than compensation arrangements which are described in Part II, Item 5 “Market for the Registrant’s Common Equity and Related Shareholder Matters, and Issuer Purchases of Equity Securities, and Part III, Item 11 “Executive Compensation.”

Name of the related party Relationship Description

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Purchase of intangible assets and equipment

Securities Purchase Agreement

On April 15, 2021, we consummated the Securities Purchase Agreement with Ainos KY. Pursuant to the Securities Purchase Agreement, we issued 100,000,000 shares of common stock at $0.20 per share to Ainos KY 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.” Immediately after the consummation of the transaction Ainos KY owned approximately 70.30% of the Company’s issued and outstanding shares of common stock.

Asset Purchase Agreement

On November 18, 2021, we entered into an Asset Purchase Agreement as modified by an Amended and Restated Asset Purchase Agreement dated as of January 29, 2022 (the “Asset Purchase Agreement”) with Ainos KY. We closed the transaction on January 30, 2022. See Notes 2, 3, and 12 for a discussion of the transaction.

Related Party Financing

All convertible and other notes payable were issued either as a result of financing or deferred compensation provided by shareholders. As of December 31, 2021 and 2020, the convertible notes payable and non-convertible notes payable for related parties totaled $3,505,931 and $805,001, respectively. Refer to Note 4 of the Notes to Financial Statements, which are incorporated herein by this reference, for more information.

Other transactions

COVID-19 Test Kits Sales and Marketing Agreement with Ainos KY

On June 14, 2021, we entered into an exclusive agreement with Ainos KY to serve as the master sales and marketing agent for the Ainos COVID-19 antigen rapid test kit and COVID-19 nucleic acid test kits which are manufactured by TCNT. On June 7, 2021, the TFDA issued an emergency use authorization to TCNT for the Ainos COVID-19 antigen rapid test kit that will be sold and marketed under the “Ainos” brand in Taiwan. As TCNT secures regulatory authorizations from foreign regulatory agencies, we expect to partner with regional distributors to promote sales in other strategic markets. We purchased $183,444 of COVID-19 antigen rapid test kit inventory from TCNT for the year ended December 31, 2021 and $0 in 2020.

Ainos – TCNT Product Development

On August 1, 2021, we entered into a five-year product development agreement with TCNT. Pursuant to the agreement both parties will endeavor to work together to develop pharmaceutical, medical and preventive medicine related products, with the Company being the exclusive sales agent. We will bear the cost associated with product development and TCNT will make accessible its personnel and facilities. Both parties shall each jointly own the intellectual property rights of all research results of the co-development collaboration. As a result, we incurred product development expenses totaling $205,883 as of December 31, 2021 of which $65,156 is in accrued payable as of December 31, 2021 and $0 in product development expenses in 2020.

COVID-19 Antigen Rapid Test Kits Sales

We sold Covid-19 antigen rapid test kits to ASE Technology Holding totaling $209,468 for the year ended December 31, 2021 and $0 in 2020.

6. Common Stock

We have 300,000,000 shares of voting common shares authorized for issuance. As of December 31, 2021, a total of 163,915,625 shares of common stock were either issued (144,379,308), reserved for conversion of convertible debt to stock (17,213,700), reserved for future issuance of RSUs for non-employee directors (1,320,000), held for future exercise of stock options (550,000) and shares reserved for warrant conversion (452,617).

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From January 1, 2021 to December 31, 2021, we granted common stock to the following:

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We did not pay any dividends to its common stock shareholders in 2021 and has no plans to do so in the immediate future.

7. Preferred Stock

We have 10,000,000 shares of preferred stock authorized for issuance.

No shares of preferred stock were outstanding as of December 31, 2021 and 2020 and none are outstanding as of the date of this report.

8. Stock Option and Stock Plans

2018 Employee Stock Option Plan (the “2018-ESOP”)

On September 26, 2018, the Board adopted the Company 2018 Employee Stock Option Plan (the “2018-ESOP”), formerly referred to as the “Amarillo Biosciences, Inc., 2018 Employee Stock Option Plan” in prior filings. The 2018-ESOP provides for the grant of Qualified Incentive Stock Options to the Company’s employees. The Board, in its adoption of the 2018-ESOP, directed the Officers to submit the 2018-ESOP to the shareholders for ratification and approval at the next scheduled shareholders meeting. Failure of the ratification and approval of the 2018-ESOP within one year of the effective date renders the qualified options to become nonqualified options for purposes of the U.S Internal Revenue Code. A stockholders meeting was not convened within the one year period and, as a result, any qualified options automatically became non-qualified options effective September 26, 2019.

The 2018-ESOP is administered by the Board or by a committee of directors appointed by the Board (the “Compensation Committee”) as constituted from time to time. The maximum number of shares of common stock which may be issued under the 2018-ESOP is 1,000,000 shares which will be reserved for issuance upon exercise of options.

The option price per share of common stock deliverable upon the exercise of an incentive stock option is 100% of the fair market value of a share on the date of grant. The option price is $0.38 per share and the options are exercisable during a period of ten years from the date of grant, where the options vest 20% annually over five years, commencing one year from date of grant.

Effective as of October 6, 2021, with the adoption by the Board of the 2021 SIP, no further awards may be granted under the 2018-ESOP. As of December 31, 2021, options to acquire 550,000 shares of common stock remained outstanding.

2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan (the “2018-NQSOP”)

On September 26, 2018, the Board adopted the Company 2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan (the “2018-NQSOP”), formerly referred to as the “Amarillo Biosciences, Inc., 2018 Officers, Directors, Employees, and Consultants Nonqualified Stock Option Plan” in prior filings. The 2018-NQSOP provides for the grant of nonqualified incentive stock options to employees. The 2018-NQSOP is administered by the Board or by the Compensation Committee as constituted from time to time. The maximum number of shares of common stock which may be issued under the 2018-NQSOP is 4,000,000 which will be reserved for issuance upon exercise of options. The option price for the nonqualified options is $0.382 exercisable for a period of ten years, with a vesting period of five years at 20% per year commencing one year from date of grant.

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Effective as of October 6, 2021, with the adoption by the Board of the 2021 SIP, no further awards may be granted under the 2018-NQSOP. As of December 31, 2021, options to acquire 550,000 shares of common stock remained outstanding.

Equity Compensation Plans Information:

____________

1 The Board of Directors has approved all stock, stock option and stock warrant issuances.

2 Effective October 6, 2021, no further stock option issuance from 2018-ESOP and 2018-NQSOP as per provision in newly adopted 2021 Stock Incentive Plan.

3 Details of the option plans are also disclosed in Financial Statements footnote 8,Stock Options and Stock Plans.

4 On September 26, 2019, all qualified options under the 2018-ESOP became non-qualified options since the 2018-ESOP was not ratified by the Company’s shareholders within one year of adoption.

5 3,844,600 non-qualified options were forfeited as of July 15, 2021, while an additional 500,000 non-qualified options were reissued on August 1, 2021.

A summary of option activity for the years ended December 31, 2020 and December 31, 2021 are presented below.

Exercised - - - - -

Expired or Forfeited - - - - -

1 Because the 2018 Employee Stock Option Plan was not ratified by the Company’s shareholders, the qualified options became non-qualified on September 26, 2019. These totals remain separated since the two different plans are still in existence.

The Company used the Black-Scholes option pricing model to value the option awards with the following assumptions applied: (1) Volatility – 276%; (2) Term – 5 years was chosen although the full option term is 10 years to be more commensurate with the 5-year vesting portion of the plan; (3) Discount – 2.96%.

____________

2 See footnote 4 above.

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As of December 31, 2021, there is $953,604 in unrecognized option expense that will be recognized over the next 1.75 years.

2021 Employee Stock Purchase Plan

On September 28, 2021, the Board approved the 2021 Employee Stock Purchase Plan (the “2021 ESPP” or “Plan”). The purpose of the 2021 ESPP is to provide an opportunity for eligible employees of the company and its designated companies (as defined in the Plan) to purchase common stock at a discount through voluntary contributions, thereby attracting, retaining and rewarding such persons and strengthening the mutuality of interest between such persons and the Company’s stockholders. The Company intends for offerings under the Plan to qualify as an “employee stock purchase plan” under Section 423 of the Code; provided, that the Plan administrator may also authorize the grant of rights under offerings that are not intended to comply with the requirements of Section 423, pursuant to any rules, procedures, agreements, appendices, or sub-plans adopted by the administrator. Subject to adjustments as provided in the Plan, the maximum number of shares of common stock that may be issued under the Plan may not exceed 750,000 shares. Such shares may be authorized but unissued shares, treasury shares or shares purchased in the open market. The Plan is be subject to approval by the Company’s stockholders within twelve months after the date of Board approval. The Plan will become effective on the date that stockholder approval is obtained, and will continue in effect until it expires on the tenth anniversary of the effective date of the Plan, unless terminated earlier.

2021 Stock Incentive Plan

On September 28, 2021, the Board approved the 2021 Stock Incentive Plan (the “2021 SIP” or “Plan”). The purpose of the 2021 SIP is to provide a means through which the Company, and the other members of the Company Group, defined by Section 2(n) of the Plan as the Company and its subsidiaries, and any other affiliate of the Company designated as a member of the Company Group by the Committee, may attract and retain key personnel, and to provide a means whereby directors, officers, employees, consultants and advisors of the Company and the other members of the Company Group can acquire and maintain an equity interest in the Company, or be paid incentive compensation measured by reference to the value of common stock, thereby strengthening their commitment to the interests of the Company Group and aligning their interests with those of the Company’s stockholders. The types of awards that may be granted from the Plan include individually or collectively, any Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Dividend Equivalent Rights and Other Equity-Based Award granted under the Plan. The Plan will be effective upon shareholder approval. The expiration date of the Plan, on and after which date no awards may be granted, will be the tenth anniversary of the date of Board approval of the Plan, provided, however, that such expiration will not affect awards then outstanding, and the terms and conditions of the Plan will continue to apply to such Awards. The aggregate number of shares which may be issued pursuant to awards under the Plan is 20,000,000 shares of Common Stock (the “Plan Share Reserve”), subject to adjustments as provided in the Plan. The number of shares underlying any award granted under 2018 ESOP or 2018 NQSOP (the “Prior Plans”) that expires, terminates or is canceled or forfeited for any reason whatsoever under the terms of the Prior Plans, will increase the Plan Share Reserve. Each Award granted under the Plan will reduce the Plan Share Reserve by the number of shares underlying the award. No more than 10,000,000 shares may be issued in the aggregate pursuant to the exercise of incentive stock options granted under the Plan. The maximum number of shares subject to awards granted during a single fiscal year to any non-employee director, taken together with any cash fees paid to such director during the fiscal year, will not exceed $600,000 in total value (calculating the value of any such awards based on their grant date fair value for financial reporting purposes).

9. Warrants

As of December 31, 2021, there is only one warrant certificate outstanding between the Company and i2China Management Group, LLC, deemed for the purposes of related party transactions to be a related party of the company from August 1, 2021 to December 1, 2021, effective from November 25, 2020 until November 25, 2025. The warrant entitles the holder to purchase 452,617 shares of common stock at an exercise price of $0.27 per share. The warrant was valued at $70,608 and will be expensed over sixty (60) months. The Company used the Black-Scholes option pricing model to value the warrants with the following assumptions applied: (1) Volatility – 201%; (2) Term – 5 years (3) Discount Rate – 0.39%.

No warrants were exercised in 2020 or 2021.

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10. Income Taxes

The Company accounts for income taxes under FASB Accounting Standard Codification ASC 740, Income Taxes. ASC 740 requires use of the liability method. ASC 740 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized.

Income tax expense (benefit) attributable to income from continuing operations differed from the amounts computed by applying the U.S. Federal income tax of 21% to pretax income from continuing operations as a result of the following:

December 31,

Provision (benefit) at statutory rate $ (816,000 ) $ (305,000 )

Permanent differences - 1,000

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2021 and 2020, are presented below:

December 31,

Deferred tax assets:

Deferred tax liabilities: - -

At December 31, 2021, we estimate net operating loss carryforwards of approximately $20,747,517 for federal income tax purposes expiring in 2022 through 2041. The ability of the Company to utilize these carryforwards may be difficult and directly dependent upon many factors outside of our control, including, but not limited to, changes in the legal and regulatory framework and the operational and corporate structure of the Company and shareholders, or sales or transfers of stock by or among shareholders. For example, when the Company has experienced a change of control as defined in the relevant provisions of the Internal Revenue Code of 1986, as amended, the use of any existing tax attributes would be severely limited. Also, obtaining value from the tax attributes is a function our return to profitable operations and the timeframe of that return. While we believe it is possible, there is no assurance that the Company will return to profitability in the future.

As of December 31, 2021, the Company had open tax years of 2020, 2019 and 2018 which are subject to examination by tax authorities.

11. Commitments and Contingencies

Lease and contract commitment

Our executive and administrative offices in the U.S. are located at 8880 Rio San Diego Drive, Suite 800, San Diego, CA 92108. The lease term began on April 1, 2021 as a semi-annual term and automatically renewed currently as a month-to-month renewal agreement.

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Our Taiwan branch office is located in New Taipei City, Taiwan (“R.O.C.”) under a three-year office lease contract from June 2021 to May 2024. The office space is 1,250 square feet. We also have staff at a product development facility of approximately 8,517 square feet located in Miaoli County, Taiwan, pursuant to our Product Development Agreement with TCNT.

We have several construction work related contracts to build out our office and lab facilities in Taiwan. As of December 31, 2021, the total contract amount and outstanding contract amount for construction in progress were approximately US$670,000 and US$464,000, respectively.

Litigation

We not at this time involved in any legal proceedings.

Officer Compensation

Effective April 15, 2021, our Board appointed Mr. Chun-Hsien Tsai to serve as Chief Executive Officer. Mr. Tsai will receive a monthly salary of 250,000 New Taiwan Dollars (equivalent to approximately $8,929), a year-end bonus of two months’ salary, and a variable compensation based on Company profit targets decided by the Company’s Compensation Committee, and payable as 10-30% of total annual compensation in the form of cash, securities and/or other discretionary remuneration. An initial equity grant to Mr. Tsai will be determined by the Compensation Committee at a later date. Other benefits, including labor insurance, health insurance and other benefits, will be based on local regulations and the Company’s policies.

Effective August 11, 2021, our Board appointed Ms. Hui-Lan (“Celia”) Wu to serve as Chief Financial Officer. Ms. Wu will receive a monthly salary of 230,000 New Taiwan Dollars (equivalent to approximately $8,214), a year-end bonus of 2 months’ salary, and a variable compensation based on Company profit targets decided by the Company’s Compensation Committee, and payable as 10-30% of total annual compensation in the form of cash, securities and/or other discretionary remuneration. An initial equity grant to Ms. Wu will be determined by the Compensation Committee at a later date. Other benefits, including labor insurance, health insurance and other benefits, will be based on local regulations and the Company’s policies.

Effective August 1, 2021, we entered into an employment contract with Mr. Lawrence K. Lin in connection with his election as Executive Vice President of Operations (the “LL Agreement”). The LL Agreement is effective for three years and may be extended for additional years on the same terms and conditions upon mutual agreement. Under the LL Agreement, Mr. Lin will receive a monthly salary of $12,000, vesting stock options for 500,000 shares in the Company’s 2018 Officers, Directors, Employees and Consultants Non-Qualified Stock Option Plan, and a bonus of 10,000 shares in the Company’s common stock upon the Company’s successful listing on a Major National Exchange (as defined in the LL Agreement), and normal and customary benefits available to the Company’s employees. Mr. Lin is the sole member of i2China Management Group, LLC (“i2China”), a consultant previously engaged by the Company. Mr. Lin indirectly owns 452,617 warrants issued on November 25, 2020 to i2China; a non-convertible note issued to i2China on January 1, 2020 with a principal amount of $84,000; and convertible notes issued to i2China with a total principal and accrued interest amount of $103,342, that were converted into 413,368 shares of common stock on December 27, 2021 at a conversion price of $0.25 per share

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We previously hired Dr. Stephen T. Chen under an employment contract for the period January 1, 2018 through December 31, 2020 (“Prior Chen Contract”). On January 1, 2021 an employment agreement for a 3-month term was executed reflecting the same material terms and conditions of the Prior Chen Contract which includes (i) a $240,000 annual salary, (ii) $100,000 in Company shares payable quarterly based on the average share price of the closing quotes for the one month preceding issuance (referred to in the table as “Other Compensation”), (iii) certain employee benefits available to the our employees, and (iv) reimbursement of expenses made on behalf of the Company. The Company and Dr. Chen also executed a Settlement Agreement and Mutual General Release made effective December 24, 2020 covering any employment-related claims arising under the Prior Chen Contract. The Company and Dr. Chen also entered into an Intellectual Property Assignment Agreement made effective January 19, 2021 whereby Dr. Chen has assigned all right, title, and interest to certain patents, trademarks, and other intellectual property created or developed during Dr. Chen’s employment with the Company.

We previously hired Mr. Cohen under an employment contract for the period January 1, 2018 through December 31, 2020 (“Prior Cohen Contract”). On January 1, 2021 an employment agreement for a 3-month term was executed reflecting the same material terms and conditions of the Prior Cohen Contract which includes, (i) a $70,000 annual salary, (ii) $1,000 per month in Company shares paid monthly based on the average share price of the closing quotes for the one month preceding issuance (referred to in the table as “Other Compensation”), (iii) certain employee benefits available to the Company’s employees, and (iv) reimbursement of expenses made on behalf of the Company. The Company and Mr. Cohen also executed a Settlement Agreement and Mutual General Release made effective December 24, 2020 covering any employment-related claims arising under the Prior Cohen Contract. The Company and Mr. Cohen also entered into an Intellectual Property Assignment Agreement made effective January 19, 2021 whereby Mr. Cohen has assigned all right, title, and interest to certain patents, trademarks, and other intellectual property created or developed during Mr. Cohen’s employment with the Company.

12. Subsequent Events

Asset Purchase Agreement

Ainos KY and the Company entered into an Asset Purchase Agreement dated as of November 18, 2021 as modified by an Amended and Restated Asset Purchase Agreement dated as of January 29, 2022 (the “Asset Purchase Agreement”). Pursuant to the Asset Purchase Agreement, the Company acquired certain intellectual property assets (the “IP Assets”) and certain manufacturing, testing, and office equipment (the “Equipment”) for a total purchase price of $26,000,000.

Pursuant to the Asset Purchase Agreement, the Company agreed to hire certain employees of Ainos KY (the “Employees”) who are responsible for research and development of the IP Assets and/or Equipment on terms at least equal to the compensation arrangements undertaken by Ainos KY. From and after the closing, we will have no responsibility, duty or liability with respect to any employee benefit plans of Ainos KY.

As payment of the purchase price, we issued to Ainos KY a Convertible Promissory Note in the principal amount of $26,000,000 (the “Convertible Note”) upon closing on January 30, 2022.

The principal sum of the Convertible Note is payable in cash on January 30, 2027, although we may prepay the Convertible Note in whole or in part without penalty. The Convertible Note is noninterest bearing. If not earlier repaid, the Convertible Note will be converted into shares of our common stock or such other securities or property for which the Convertible Note may become convertible, immediately prior to the closing of any public offering of our common stock as a result of which our common stock will be listed on a U.S. stock exchange. The conversion price, subject to certain adjustments, will be 80% of the initial public offering price of the offering.

On March 11, 2022, the Board approved a Non-Convertible Note dated March 4, 2022 in favor of Ainos KY with a principal amount of $800,000, interest of 1.85% per annum on unpaid principal and accrued interest, and a maturity date of February 28, 2023. The Note includes standard provisions for notice, default, and remedies for default. Ainos KY is the Company’s majority and controlling shareholder.

On March 17, 2022, we executed a Promissory Note Extension with Ainos KY dated March 17, 2022. Pursuant to the Agreement, the due dates for certain convertible notes enumerated as #12.21 to #24.21 issued by the Company to Ainos KY was extended to February 28, 2023. As of December 31, 2021 the total unpaid principal amount of $3,000,000, along with $9,507 in accrued interest were owed and outstanding to Ainos KY.