Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The unaudited condensed financial statements and this Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2025 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Form 10-K for the period ended December 31, 2025 (the "2025 Annual Report"). In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are subject to risks and uncertainties, including those set forth under "Part I. Item 1A. Risk Factors" in our 2025 Annual Report, "Part II. Item 1A. Risk Factors" in this Quarterly Report, and elsewhere in this Quarterly Report, that could cause actual results to differ materially from historical results or anticipated results.

When used in this Quarterly Report, all references to "Ainos," the "Company," "we," "our" and "us" refer Ainos, Inc.

Overview

Ainos, Inc. (the "Company") was incorporated in the State of Texas in 1984. The Company is a dual-platform company engaged in the development of artificial intelligence-enabled olfactory sensing technologies, which we refer to as "SmellTech" or "Smell AI", and related applications, as well as the development of immune therapeutics.

The Company's principal operating focus is the commercialization of AI Nose, its proprietary scent digitization platform. AI Nose is designed to convert scent and volatile organic compound signals into structured, machine-readable data, which the Company refers to as "Smell ID," using gas sensor arrays and proprietary artificial intelligence models, which we refer to as smell language model ("SLM"). The Company is advancing AI Nose commercialization across selected industrial, environmental, robotics, and healthcare-related applications.

In parallel, the Company continues to develop VELDONA®, its low-dose oral interferon program, with an emphasis on selective advancement, capital-efficient execution, and strategic partnerships.

Our Execution Priorities for 2026

In 2026, the Company's operating priorities are focused on advancing AI Nose commercialization activities while managing VELDONA® and other healthcare-related programs selectively and in a capital-efficient manner. Following initial industrial expansion activities in 2025, the Company's current priorities include partner-led deployments, continued generation of scent-related data to support model refinement, and further advancement of commercial opportunities that may include hardware and service-based offerings, which we refer to as "SmellTech-As-A-Service". The Company may adjust the timing, scope, and prioritization of these activities based on available capital, regulatory developments, market conditions, partner execution, and other factors.

AI Nose Operating Priorities

	●	Continue commercialization activities in selected applications.
	●	Continue semiconductor deployment and validation efforts.
	●	Support commercialization through channel and integration partners.
	●	Continue development of SLM and Smell ID datasets using deployment and pilot data.
	●	Continue robotics-related pilot and deployment activities.
	●	Continue evaluating healthcare-adjacent applications.

VELDONA Operating Priorities

	●	Continue clinical activities in Taiwan, subject to study progress, regulatory review, and available resources.
	●	Continue pursuing partnering and out-licensing opportunities.

Factors Affecting Our Business

Our business activities continue to be influenced primarily by our emphasis on advancing AI Nose commercialization activities and managing healthcare-related programs selectively and in a capital-efficient manner. The timing, extent, and financial impact of these activities remain subject to a number of known trends and uncertainties, including the following:

Industrial and infrastructure-oriented applications.

We continue to prioritize AI Nose activities across industrial environments, including semiconductor manufacturing, robotics, smart manufacturing, and hospital infrastructure settings. Recent progress includes initial commercial activity in backend semiconductor manufacturing, front-end semiconductor validation efforts through industry partners, robotics-related development initiatives and activities in hospital infrastructure environments. These activities remain at varying stages of deployment, validation, and commercialization. The timing and extent of partner execution, customer adoption, and conversion of pilot and initial commercial activities into broader commercial arrangements may affect the timing of revenue and our near-term operating results.

Near-threshold technology development and system capabilities.

As part of our ongoing deployment and validation activities, we continue to develop AI Nose capabilities across different operating conditions and application environments. These efforts include the detection and interpretation of gas signal variations and the potential application of such capabilities in anomaly detection, environmental sensing, and operational monitoring. We are also developing AI Nose for near-threshold detection scenarios, meaning the detection of signal variations at or near traditional detection thresholds. If validated, such capabilities may support certain early-stage anomaly detection applications. We continue to develop these near-threshold detection capabilities with a focus on reliability, repeatability, and scalability across different environments, which remain subject to ongoing validation.

Data-driven platform development.

AI Nose deployments are expected to generate Smell ID data across different operating environments, and we continue to use this data to refine models, improve classification performance, and expand the range of detectable patterns. Continued deployment of AI Nose is also expected to result in further accumulation of scent-related data, which may support model improvement, broaden detectable patterns, and enhance system adaptability across different operating environments. While we expect these efforts to support ongoing performance improvements, the timing and extent to which they contribute to broader commercial adoption or commercial outcomes may vary, and their benefits may take time to be reflected in revenue or operating results.

Healthcare-adjacent opportunities.

We continue to develop AI Nose applications in senior care and other healthcare-adjacent settings, including environments where non-invasive and continuous sensing may support hygiene monitoring, environmental control, and hospital operations. The timing and extent of these activities may be affected by regulatory requirements, partner engagement, operational validation, and resource allocation decisions.

VELDONA® program management.

We continue to focus VELDONA® on selected indications with unmet medical needs, including oral warts in HIV-seropositive patients, Sjögren's syndrome, and feline chronic gingivostomatitis. The timing and direction of these programs may be affected by clinical outcomes, regulatory progress, partner interest, and available resources. We also continue to pursue strategic partnerships and out-licensing opportunities, the timing and outcome of which remain uncertain.

As of March 31, 2026, we had available cash and cash equivalents of $2,841,422. We anticipate business revenues and external financing options, if necessary, to fund our operations over the next twelve months. We have based this estimate on assumptions that may prove to be incorrect, and we could exhaust our available capital resources sooner than we expect. See "Liquidity and Capital Resources" for additional information. To finance our continuing operations, we will need to raise additional capital, which cannot be assured.

Recent Development

During the first quarter of 2026, we advanced AI Nose-related activities within industrial applications, with a focus on semiconductor and robotics environments. These activities included

	●	Advancing deployments associated with an initial $2.1 million commercial arrangement in backend semiconductor manufacturing environments;
	●	Commencing pilot programs in selected front-end semiconductor environments;
	●	Entering a distribution partnership to support expansion into the front-end semiconductor environments;
	●	Initiating a technology partnership with a robotic company to integrate AI Nose into robots and quadruped robots.

These activities are intended to support continued development, capacity development and potential commercial expansion of AI Nose across industrial environments.

Results of Operations for Quarter Ended March 31, 2026 ("Q1 2026") and March 31, 2025 ("Q1 2025"):

		The three months ended Mar 31,								Change
		2026				2025				Amount				%
Revenues			161				106,207				(106,046	)			(100	)%
Cost of revenues			(763	)			(18,233	)			17,470				(96	)%
Gross profit (loss)			(602	)			87,974				(88,576	)			(101	)%
Operating expenses:
Research and development expenses			1,689,860				1,724,084				(34,224	)			(2	)%
Selling, general and administrative expenses			593,185				1,526,761				(933,576	)			(61	)%
Total operating expenses			2,283,045				3,250,845				(967,800	)			(30	)%
Loss from operations			(2,283,647	)			(3,162,871	)			879,224				(28	)%
Non-operating income (expenses), net
Interest expenses			(176,876	)			(180,445	)			3,569				(2	)%
Other income (expenses), net			723				57,294				(56,571	)			(99	)%
Total non-operating expenses, net			(176,153	)			(123,151	)			(53,002	)			43	%
Net loss before income taxes			(2,459,800	)			(3,286,022	)			826,222				(25	)%
Provision for income taxes			-				-				-				-	%
Net loss			(2,459,800	)			(3,286,022	)			826,222				(25	)%

Revenues, Cost and Gross Loss

The Company reported $161 and $106,207 in revenue in Q1 2026 and Q1 2025, respectively. The decrease of revenue in Q1, 2026 was primarily caused by lower sales volume on AI Nose related programs in healthcare adjacent applications. This decrease was partly attributable to a strategic shift in focus from healthcare-adjacent applications toward industrial deployments, which are currently at earlier stages of commercialization. The Company generated nil and $105,942 in revenues from AI Nose related programs, and $161 and $265 from pet supplements in Q1 2026 and Q1 2025, respectively.

The cost of revenue related to product sales in Q1 2026 was $763 compared to $18,233 in Q1 2025. The decrease in cost of revenue was caused by the aforementioned lower produce volume for AI Nose related programs during the reporting period.

Gross profit from product sales in Q1 2026 was $602 gross loss as compared to $87,974 gross profit from product sales in Q1 2025. The decrease in gross profit was due to aforementioned lower sale volume.

Research and Development (R&D) Expenses

R&D expenses in Q1 2026 and Q1 2025 were $1,689,860 and $1,724,084, respectively. The decrease of $34,224 (2%) was due to reduced expenses associated with co-research for technology partially offset by increased staffing expenditures and experimental material fees. We expect that our R&D investments may continue to grow as we further develop our technologies.

The share-based compensation expense and the depreciation and amortization expense in Q1 2026 and Q1 2025 were $1,161,266 and $1,192,870, respectively. When excluding these non-cash expenses, R&D expenses decreased to $528,594 in Q1 2026 from $531,214 in Q1 2025.

Selling, General and Administrative (SG&A) Expenses

SG&A expenses were $593,185 and $1,526,761 in Q1 2026 and Q1 2025, respectively, reflecting a decrease of $933,576 (61%) due to a significant decrease in share-based compensation, further by a decrease in D&O insurance fee and SEC reporting related fees.

The share-based compensation expense and the depreciation and amortization expense in Q1 2026 and Q1 2025 were $12,808 and $901,800 respectively. When excluding these non-cash expenses, SG&A expenses decreased to $580,377 in Q1 2026 compared to $624,961 in Q1 2025.

Operating Loss

The Company's operating loss was $2,283,647 and $3,162,871 in Q1 2026 and Q1 2025, respectively, reflecting a $879,224 (28%) decrease in operating loss between the reporting periods. We continued to invest resources to execute our growth strategy and product roadmap to improve our profitability.

Interest Expense and Issuance Cost of Convertible Note

In Q1 2026, interest expense was $176,876 compared to $180,445 in Q1 2025. The decrease in interest expense was due to the company paid off Lee's convertible note, resulting in a reduction in the principal amount of the convertible note outstanding.

Net Loss

Net loss was $2,459,800 in Q1 2026 compared to $3,286,022 in Q1 2025, resulting in an $826,222 (25%) decrease in net loss attributable to our shareholders of common stock. The net loss was due to expanding operating expense as we continued to invest resources to execute our growth strategy and product roadmap to improve our profitability.

Liquidity and Capital Resources

As of March 31, 2026 and December 31, 2025, the Company had available cash of $2,841,422 and $417,353, respectively.

The following table summarizes our cash flow during the three months ended March 31, 2026 and 2025:

		For the three months ended March 31,
		2026				2025
Net cash used in operating activities			(983,421	)			(1,224,578	)
Net cash used in investing activities			(79	)			(20,587	)
Net cash provided by financing activities			3,414,540				14,605

Operating activities:

Cash used in operating activities decreased by $241,157 during the first quarter of 2026 compared to the first quarter of 2025. Our net loss for the first quarter of 2026 decreased by $826,222 primarily due to the company expanding operating expense. The operating cash outflow as a result of changes in operating assets and liabilities was mainly attributable to:

	●	Non-cash expenses including share-based compensation, depreciation and amortization, issuance cost of secured convertible note, and change in fair value of senior secured convertible note, issuance common stock for paying consulting fees decreased approximately by $920,600;
	●	Working capital injected into accounts receivable, inventories and other current assets increased by approximately $11,900; and
	●	Working capital injected into accrued expenses, operating lease liabilities, contract liabilities and other current and long-term liabilities increased by approximately $323,700.

Investing activities

Cash used for investing activities were $79 and $20,587 during the first quarter of 2026 and the first quarter of 2025, respectively. The decrease was due to a reduction in refundable deposits and other noncurrent assets and decrease in purchases of property and equipment and increase in proceeds from disposal of property and equipment.

Financing activities

Cash provided by financing activities were $3,414,540 and $14,605 during the first quarter of 2026 and the first quarter of 2025, respectively. The $3,399,935 increase was primarily reflected by the following:

	●	Proceeds from loan payable financing increased by $2,812,940; and
	●	Proceeds from at-the-market offering, net of issuance costs increased by $586,995; and

In the near-term, we expect to invest in our product development and clinical trial activities to advance our product pipeline. We may also increase our sales and marketing efforts.

The Company anticipates that cash reserves, business revenues, and potential debt financing through convertible and non-convertible notes will fund the Company's operations over the next twelve months. There can be no assurance that we will be successful in our efforts to make the Company profitable. If those efforts are not successful, the Company may raise additional capital through the issuance of equity securities, debt financings or other sources to further implement its business plan. However, if such financing is not available when needed and at adequate levels, the Company will need to reevaluate its operating plan.

Critical Accounting Policies and Significant Management Estimates

Our management's discussion and analysis of our financial condition and results of operations are based on our unaudited condensed financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses.

We evaluate our estimates and judgments, including those related to inventory valuation, useful lives of property and equipment, valuation of stock option, warrants and convertible note, and impairment testing of intangible assets, on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in "Management's Discussion and Analysis - Critical Accounting Policies and Significant Management Estimates" of our 2025 Annual Report, except for those accounting subjects discussed in the Notes, if any, to the unaudited condensed financial statements included in this Quarterly Report on Form 10-Q.