UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2020

 

OR

 

[  ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from __________ to __________

 

Commission File No. 001-38148

 

CO-DIAGNOSTICS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Utah   46-2609396

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

2401 S. Foothill Drive, Suite D, Salt Lake City, Utah 84109

(Address of principal executive offices and zip code)

 

(801) 438-1036

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class  

Trading

Symbol(s)

  Name of each exchange on which registered
Common Stock, par value $0.001 per share   CODX   NASDAQ-CM

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] Smaller reporting company [X]
    Emerging growth company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

 

As of May 13, 2020, there were 27,457,133 shares of the Registrant’s common stock, par value $0.001 per share, outstanding.

 

 

 

 

 

 

Co-Diagnostics, Inc.

Form 10-Q

 

PART I FINANCIAL INFORMATION:  
     
Item 1. Financial Statements 3
     
  Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (unaudited) 3
     
  Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019 (unaudited) 4
     
  Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (unaudited) 5
     
  Condensed Consolidated Statements of Stockholders’ Equity (unaudited) 6
     
  Notes to Condensed Consolidated Financial Statements (unaudited) 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
     
Item 4. Controls and Procedures 24
     
PART II OTHER INFORMATION:  
     
Item 1. Legal Proceedings 24
     
Item 1A. Risk Factors 25
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
     
Item 3. Defaults Upon Senior Securities 25
     
Item 4. Mine Safety Disclosures 25
     
Item 5. Other Information 25
     
Item 6. Exhibits 25
     
  Signatures 26

 

2

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CO – DIAGNOSTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   March 31, 2020   December 31, 2019 
ASSETS:          
Current Assets          
Cash and cash equivalents  $17,369,323   $893,138 
Accounts receivables, net   1,055,738    131,382 
Inventory   686,078    197,168 
Prepaid expenses   499,327    362,566 
Total current assets   19,610,466    1,584,254 
Other Assets          
Property and equipment, net   276,454    186,832 
Investment in joint venture   593,421    434,240 
Total other assets   869,875    631,072 
           
Total assets  $20,480,341   $2,215,326 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY:          
           
Current Liabilities          
Accounts payable  $132,516   $5,959 
Accrued expenses   496,524    200,788 
Accrued expenses (related party)   120,000    120,000 
Deferred revenue   444,332    1,323 
Total current liabilities   1,193,372    328,070 
Long-term Liabilities, net of current portion          
Accrued expenses-long-term (related party)   120,000    150,000 
Total long-term liabilities, net of current portion   120,000    150,000 
Total liabilities   1,313,372    478,070 
           
STOCKHOLDERS’ EQUITY          
Convertible preferred stock, $0.001 par value; 5,000,000 shares authorized, 0 and 25,600 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively       26 
           
Common stock, $0.001 par value, 100,000,000 shares authorized; 27,451,064 and 17,342,922 shares issued and outstanding, as of March 31, 2020 and December 31, 2019, respectively.   27,451    17,343 
Additional paid-in capital   45,172,525    26,687,701 
Accumulated deficit   (26,033,007)   (24,967,814)
Total stockholders’ equity   19,166,969    1,737,256 
           
Total liabilities and stockholders’ equity  $20,480,341   $2,215,326 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

3

 

 

 

CO – DIAGNOSTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   For the Three Months
Ended March 31,
 
   2020   2019 
Net sales  $1,548,528   $3,400 
Cost of sales   481,740    452 
Gross profit   1,066,788    2,948 
Operating expenses:          
Sales and marketing   268,483    256,103 
Administrative and general   1,459,484    640,363 
Research and development   400,022    347,306 
Depreciation and amortization   20,748    13,668 
Total operating expenses   2,148,737    1,257,440 
Loss from operations   (1,081,949)   (1,254,492)
Other expense:          
Interest income   7,575    408 
Interest expense       (106,427)
Gain on disposition of assets       850 
Gain (loss) on equity method investment in joint venture   9,181    (8,728)
Total other expense   16,756    (113,897)
Loss before income taxes   (1,065,193)   (1,368,389)
Provision for income taxes        
Net loss  $(1,065,193)  $(1,368,389)
           
Basic and diluted income (loss) per common share  $(0.05)  $(0.09)
           
Weighted average common shares outstanding, basic and diluted   22,820,450    16,066,633 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4

 

 

 

CO – DIAGNOSTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

  

Three Months Ended

March 31,

 
   2020   2019 
Cash flows from operating activities:          
Net loss  $(1,065,193)  $(1,368,389)
Adjustments to reconcile net loss to net cash used in operating activities:          
           
Depreciation and amortization   20,748    13,668 
Stock based compensation   432,823    87,794 
Accretion of notes payable discount       91,428 
Gain on disposition of assets       (850)
Loss (gain) of equity method investment   (9,181)   8,728 
Changes in assets and liabilities:          
(Increase) in accounts and other receivables   (924,356)   (21,637)
(Increase) in prepaid and other assets   (136,761)   (33,724)
(Increase) in inventory   (488,910)    
Increase in deferred revenue   443,009     
Increase (decrease) in accounts payable and accrued expenses   392,293    (145,900)
           
Net cash used in operating activities   (1,335,528)   (1,368,882)
           
Cash flows from investing activities:          
Purchase of property and equipment   (100,370)    
Investment in joint venture   (150,000)   (72,000)
           
Net cash used in investing activities   (250,370)   (72,000)
           
Cash flows from financing activities:          
Proceeds from sale of common stock   19,520,005    5,496,002 
Proceeds from sale of preferred stock       1,000,000 
Payment of offering costs   (1,457,922)   (592,764)
           
Net cash provided by financing activities   18,062,083    5,903,238 
           
Net increase in cash   16,476,185    4,462,356 
           
Cash and cash equivalents beginning of period   893,138    950,237 
           
Cash and cash equivalents end of period  $17,369,323   $5,412,593 
           
Supplemental disclosure of cash flow information:          
Interest paid  $   $15,000 
Income taxes paid  $   $ 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5

 

 

 

CO – DIAGNOSTICS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Three Months ending March 31, 2020 and 2019

(Unaudited)

 

   Convertible Preferred Stock   Common Stock   Additional Paid-In-   Accumulated   Total Stockholders’ Equity 
   Shares   Amount   Shares   Amount   Capital   Deficit   (Deficit) 
Balance as of December 31, 2019   25,600   $26    17,342,922   $17,343   $26,687,701   $(24,967,814)  $1,737,256 
Public offering, net of offering costs of $1,457,922           7,242,954    7,243    18,004,840        18,012,083 
Issuance of Common Stock for warrant exercises           719,492    720    49,280        50,000 
Stock-based compensation expense           12,363    12    432,811        432,823 
Conversion of Preferred Stock to Common   (25,600)   (26)   2,133,333    2,133    (2,107)        
Net loss                       (1,065,193)   (1,065,193)
Balance as of March 31, 2020      $    27,451,064   $27,451   $45,172,525   $(26,033,007)  $19,166,969 
                                    
Balance as of December 31, 2018      $    12,923,383   $12,923   $17,622,433    (18,694,167)   (1,058,811)
Public offering, net of offering costs of $592,764           3,925,716    3,926    4,899,312        4,903,238 
Issuance of Preferred Stock   30,000    30            2,999,970        3,000,000 
Stock-based compensation                   87,794        87,794 
Conversion of Preferred Stock to Common   (2,000)   (2)   166,667    167    (165)        
                                    
Net loss                       (1,368,389)   (1,368,389)
Balance as of March 31, 2019   28,000   $28    170,015,766   $17,016   $25,609,344   $(20,062,556)  $5,563,832 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

6

 

 

CO – DIAGNOSTICS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited)

 

NOTE 1 – OVERVIEW AND BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q as they are prescribed for smaller reporting companies. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. Operating results for the three-month periods ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. These statements should be read in conjunction with the Company’s audited financial statements and related notes for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K filed on March 30, 2020.

 

Certain 2019 financial statement amounts have been reclassified to conform to 2020 presentations.

 

Description of Business

 

Co-Diagnostics, Inc., a Utah corporation (“Company,” or “CDI,”) is developing robust and innovative molecular tools for detection of infectious diseases, liquid biopsy for cancer screening, and agricultural applications. We have developed and we manufacture and sell reagents used for diagnostic tests that function via the detection and/or analysis of nucleic acid molecules (DNA or RNA). In connection with the sale of our tests, we may sell diagnostic equipment from other manufacturers as self-contained lab systems (which we refer to as the “MDx Device”).

 

Our diagnostics systems enable very rapid, low-cost, molecular testing for organisms and genetic diseases by automating historically complex procedures in both the development and administration of tests. CDI’s newest technical advance involves a novel approach to Polymerase Chain Reaction (“PCR”) test design (“CoPrimers”) that eliminates one of the key vexing issues of PCR amplification, the exponential growth of primer-dimer pairs (false positives and false negatives) which adversely interferes with identification of the target DNA.

 

We believe our proprietary molecular diagnostics technology is paving the way for innovation in disease detection and life sciences research through our enhanced detection of genetic material. Because we own our platform, we are confident we will be able to accomplish this faster and more economically, allowing for wider margins while still positioning Co-Diagnostics to be a low-cost provider of molecular diagnostics and screening services.

 

In addition, continued development has demonstrated the unique properties of our CoPrimer technology that make them ideally suited to a variety of applications where specificity is key to optimal results, including multiplexing several targets, enhanced Single Nucleotide Polymorphism (“SNP”) detection and enrichment for next gen sequencing.

 

Our scientists use the complex mathematics of DNA and RNA test design, to “engineer” a DNA test and to automate algorithms that rapidly screen millions of possible options to pinpoint the optimum design. Dr. Satterfield, our Chief Technology Officer, developed the Company’s intellectual property consisting of the predictive mathematical algorithms and proprietary reagents used in the testing process, which together represent a major advance in PCR testing systems. CDI technologies are now protected by seven granted or pending US and foreign patents, as well as certain trade secrets and copyrights. Ownership of our proprietary platform permits us the advantage of avoiding payment of patent royalties required by other PCR test systems, which enables the sale of diagnostic tests at a lower price than competitors, while generating a profit margin.

 

We may either sell or lease the MDx Device to labs and diagnostic centers, through sale or lease agreements, and sell the reagents that comprise our proprietary tests to those laboratories and testing facilities.

 

7

 

 

We designed our tests by identifying the optimal locations on the target gene for amplification and paired the location with the optimized primer and probe structure to achieve outputs that meet the design input requirements identified from market research. This is done by following planned and documented processes, procedures and testing. In other words, the data resulting from our tests verify that we succeeded in designing what we intended at the outset. Verification is a series of testing that concludes that the product is ready to proceed to validation in a clinical evaluation setting using initial production tests to confirm that the product as designed meets the user needs.

 

CDI’s diagnostics systems enable very rapid, low-cost, sophisticated molecular testing for organisms and genetic diseases by greatly automating historically complex procedures in both the development and administration of tests.

 

Using its proprietary test design system and proprietary reagents, CDI has designed and obtained regulatory approval in the European Community and in India to sell PCR diagnostic tests for COVID-19, tuberculosis, hepatitis B and C, human papilloma virus, malaria, chikungunya, dengue, and the zika virus. In the United States, CDI has obtained Emergency Use Authorization (“EUA”) for its COVID-19 test from the FDA and may sell that test to qualified labs.

 

In addition to testing for infectious disease, the technology lends itself to identifying any section of a DNA strand that describe any type of genetic trait, which creates a number of significant applications. We are active in designing and licensing tests that identify genetic traits in plant and animal genomes. We also have a number of tests developed to test mosquitos for the identification of diseases carried by the mosquitos to enable municipalities to concentrate their efforts in spraying mosquito populations on the specific areas known to be breeding the mosquitos that carry deadly viruses.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Such estimates include receivables and other long-lived assets, legal and regulatory contingencies, income taxes, share based arrangements, and others. These estimates and assumptions are based on management’s best estimates and judgments. Actual amounts and results could differ from those estimates.

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 

Accounts Receivable

 

Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when collected. At March 31, 2020, total accounts receivable was $1,097,738 with an allowance for uncollectable accounts of $42,000 resulting in a net amount of $1,055,738.

 

Equity-Method Investments

 

Our equity method investments are initially recorded at costs and are included in other long-term assets in the accompanying condensed consolidated balance sheet. We adjust the carrying value of our investment based on our share of the earnings or losses in the periods which they are reported by the investee until the carrying amount is zero. The earnings or losses are included in other expense in the accompanying condensed consolidated statements of operations.

 

Inventory

 

Inventory is stated at the lower of cost or net-realizable value. Inventory cost is determined on a first-in first-out basis that approximates average cost in accordance with ASC 330-10-30-12. At March 31, 2020 we had $686,078 in inventory of which $251,872 was finished goods, $182,085 was raw materials and $252,121 was work-in-process. Provisions are made to reduce slow-moving, obsolete, or unusable inventories to their estimated useful or scrap values. The Company establishes reserves for this purpose.

 

8

 

 

Revenue Recognition

 

The Company generates revenue from product sales and license sales. The Company recognizes revenue when all of the following criteria are satisfied: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as the Company satisfies each performance obligation.

 

The Company constrains revenue by giving consideration to factors that could otherwise lead to a probable reversal of revenue. The Company records any payments received from customers prior to the Company fulfilling its performance obligation(s) as deferred revenue.

 

Earnings (Loss) per Share

 

Basic earnings or loss per common share is computed by dividing net income or loss applicable to common shareholders by the weighted average number of shares outstanding during each period. As the Company experienced net losses during the three months ended March 31, 2020, and 2019, respectively, no common stock equivalents have been included in the diluted earnings per common share calculations as the effect of such common stock equivalents would be anti-dilutive. For the three months ended March 31, 2020, there were 2,320,907 potentially dilutive shares consisting of 2,121,817 for outstanding options and 199,090 for outstanding warrants. For the three months ended March 31, 2019, there were 1,679,575 potentially dilutive shares consisting of: (i) 1,172,707 for outstanding options, (ii) 483,535 for outstanding warrants and (iii) 23,333 for issued and outstanding shares of convertible preferred stock.

 

Research and Development

 

Research and development costs are expensed when incurred. The Company expensed $400,022 and $347,306 of research and development costs for the three months ended March 31, 2020 and 2019, respectively.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.

 

As an emerging growth company (“EGC”), the Company has elected to take advantage of the benefits of the extended transition period provided for in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards which allows the Company to defer adoption of certain accounting standards until those standards would otherwise apply to private companies.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires recognition of leased assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. This update is effective for annual periods and interim periods with those periods beginning after December 15, 2020, for public EGC companies like us. The Company expects to use the modified retrospective transition method with the option to recognize a cumulative-effect adjustment at the date of adoption. The Company expects its balance sheet will be impacted as it records right-of-use assets and lease liabilities on its consolidated balance sheet, but does not expect the adoption of this standard will have a material impact on its consolidated statements of operations and cash flows.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires the measurement and recognition of expected credit losses for certain financial instruments, which includes the Company’s accounts receivable. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The update is effective for annual periods and interim periods with those periods beginning after December 15, 2021, for public EGC companies like us, but the Company may adopt it on January 1, 2021. The standard requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. The Company is evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements.

 

9

 

 

NOTE 3 – EQUITY

 

2020

 

On January 28, 2020, we completed the sale of 3,448,278 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $1.45 per share in a registered direct offering. The aggregate gross proceeds for the sale of the shares was $5,000,003 and we received net proceeds of $4,517,102 after deducting offering costs of $482,901.

 

On February 13, 2020, we completed the sale of 3,324,676 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $3.08 per share in a registered direct offering. The aggregate gross proceeds for the sale of the shares was $10,240,002 and we received net proceeds of $9,612,561 after deducting offering costs of $627,441.

 

On March 2, 2020, we completed the sale of 470,000 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $9.00 per share in a registered direct offering. The aggregate gross proceeds for the sale of the shares was $4,230,000 and we received net proceeds of $3,882,420 after deducting offering costs of $347,580.

 

On March 5, 2020 we received $50,000 from the exercise of 25,000 unregistered warrants at an exercise price of $2.00 per share and issued 25,000 shares of our common stock.

 

During the three months ended March 31 2020, we issued an aggregate of 2,133,333 shares of our common stock in conversion of 2,560,000 shares of our Series A Preferred Stock at a conversion price calculated by multiplying the number of preferred shares being converted by $100 and dividing the result by $1.20.

 

During the three months ended March 31 2020, we issued an aggregate of 694,492 shares of our common stock in relation to the cashless exercise of 759,445 previously issued unregistered warrants.

 

During the three months ended March 31, 2020 we issued 12,363 shares valued at $31,193 to 2 companies for investment relations services rendered.

 

2019

 

On January 30, 2019, we entered into a securities purchase agreement with accredited investors pursuant to which such investors purchased from an aggregate of 30,000 shares of Series A Convertible Preferred Stock of the Company for an aggregate purchase price of $3,000,000. The purchase price was paid by the investors with $1.0 million in cash and the conversion of a $2.0 million promissory note of the Company issued to the investors. The investors may not convert the Series A Preferred Stock to the extent that such conversion would result in beneficial ownership by the investors and their affiliates of more than 4.99% of the issued and outstanding common stock of the Company.

 

On February 4, 2019, we completed the sale of an aggregate of 3,925,716 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $1.40 per share in a registered direct offering. The aggregate gross proceeds for the sale of the shares of common stock was $5,496,002 and we received net proceeds of $4,903,238 after offering costs of $592,764.

 

On March 7, 2019, we issued an aggregate of 166,667 shares of our common stock in relation to 2,000 shares of our Series A Preferred Stock being converted to common stock at a conversion price calculated by multiplying the number of preferred shares being converted by $100 and dividing the result by $1.20.

 

NOTE 4 – STOCK-BASED COMPENSATION

 

Stock Incentive Plans

 

The Co-Diagnostics, Inc. 2015 Long Term Incentive Plan reserves an aggregate of 6,000,000 shares of common stock issuable upon the grant of awards under the plan. The number of unissued stock options authorized under the plan at March 31, 2020 was 3,878,183.

 

10

 

 

Stock Options

 

The Company uses a Black-Scholes model to value granted stock options which requires various judgmental assumptions including the estimated volatility, risk-free interest rate and expected option term. In determining the expected volatility our computation is based the stock prices of 3 comparable companies and is based on a combination of historical and market-based implied volatility. The risk-free interest rate was based on the yield curve of a zero-coupon U.S. Treasury bond on the date the option was granted with a maturity equal to the expected term of the option. The fair values for the options granted were estimated at the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions:

 

   Three Months Ended
March 31, 2020
 
Risk free interest rate   1.56%
Expected life (in years)   10.0 
Expected volatility   63.27%
Expected dividend yield   0.00%
Stock price  $3.96 

 

We recognized $401,630 and $87,794 of stock-based compensation expense, related to stock options for the three months ended March 31, 2020 and 2019, respectively, which is included in administrative and general expenses.

 

The following table summarizes option activity during the year ended December 31, 2019 and the three months ended March 31, 2020, respectively.

 

   Options
Outstanding
   Weighted
Average
Exercise
Price
   Weighted
Average
Fair
Value
   Weighted
Average
Remaining
Contractual
Life (years)
 
Outstanding at January 1, 2019   1,172,707   $2.23   $1.09    8.72 
Options granted   890,000    1.07    0.52    9.66 
Expired                
Forfeited options   (40,890)   (3.85)   (1.59)   (8.04)
Exercised                
Outstanding at December 31, 2019   2,021,817   $1.69   $0.83    8.73 
                     
Options granted   100,000    3.96    2.80    9.87 
Expired                
Forfeited options                
Exercised                
                     
Outstanding at March 31, 2020   2,121,817   $1.79   $0.92    8.54 

 

The intrinsic value of options outstanding at March 31, 2020 and 2019 was $7,516,828 and $133,300, respectively. There were 810,000 and 566,667 of unvested option included the table above as of March 31, 2020 and 2019, respectively.

 

Warrants

 

The Company estimates the fair value of issued warrants on the date of issuance as determined using a Black-Scholes pricing model. The Company amortizes the fair value of issued warrants using a vesting schedule based on the terms and conditions of each warrant. The Black-Scholes valuation model requires various judgmental assumptions including the estimated volatility, risk-free interest rate and expected warrant term. In determining the expected volatility, our computation is based on the stock prices of three comparable companies and on a combination of historical and market-based implied volatility. The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the warrant was issued with a maturity equal to the expected term of the warrant.

 

11

 

 

The following table summarizes warrant activity during the year ended December 31, 2019 and the three months ended March 31, 2020, respectively.

 

   Warrants
Outstanding
   Weighted
Average
Exercise
Price
   Weighted
Average
Fair
Value
   Weighted
Average
Remaining
Contractual
Life (years)
 
Outstanding at January 1, 2019   483,535    4.92    1.99    3.29 
Warrants issued   500,000    1.53    1.46    5.00 
Expired                
Forfeited warrants                
Exercised                
Outstanding at December 31, 2019   983,535   $1.44   $1.03    3.34 
                     
Warrants issued                
Expired                
Forfeited warrants                
Exercised   (784,445)   (1.28)   (1.19)   (2.90)
                     
Outstanding at March 31, 2020   199,090   $2.09   $0.38    3.85 

 

The intrinsic value of options exercised in the three months ended March 31, 2020 was $4,973,058. Total unrecognized stock-based compensation was $337,953 at March 31, 2020 for options granted. The Company expects to recognize the aggregate amount of this compensation expense over the next years in accordance with contractual provisions and vesting as follows:

 

Year  Amount 
2020  $247,772 
2021   90,181 
Total  $337,953 

 

NOTE 5 – RELATED PARTY TRANSACTIONS

 

The Company acquired the exclusive rights to the CoPrimer technology pursuant to an exclusive license agreement, dated April 2014 (the “Exclusive License Agreement”), between the Company and DNA Logix, Inc., which was assigned to Dr. Brent Satterfield, one of our current executive officers, prior to our acquisition of DNA Logix, Inc. On March 1, 2017, the Company entered into an amendment to its Exclusive License Agreement for its Cooperative Primers (“License”) technology with Dr. Satterfield. The amendment provides in part that all accrued royalties under the License cease as of January 1, 2017, and we began in January 2017 to pay to Dr. Satterfield $700,000 of accrued royalties at the rate of $10,000 per month. At March 31, 2020, the aggregate balance of this related party liability was $240,000.

 

NOTE 6 – LEASE OBLIGATIONS

 

Our offices are located at 2401 S. Foothill Dr., Suite D, Salt Lake City, Utah 84109-1479. In February 2020, the Company entered into a 4-year lease agreement for its office space and in March 2020, the Company entered into an addendum with our landlord for additional space. The new aggregate space consists of approximately 13,687 square feet and expires in February 2024. For the three months ended March 31, 2020 and 2019, the Company expensed $51,818 and $45,582, respectively, for rent. The Company’s ongoing lease obligation as of March 31, 2020 is as follows:

 

Year  Amount 
Remainder of 2020  $233,415 
2021   311,220 
2022   331,220 
2023   311,220 
2024   51,870 
Total  $1,218,945 

 

NOTE 7 – SUBSEQUENT EVENTS

 

On April 8, 2020, we issued 6,069 shares of our common stock for services rendered pursuant to a consulting agreement.

 

The Company evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no other events that need to be reported.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties. All statements other than statements of historical fact contained in this Quarterly Report and the documents incorporated by reference herein, including statements regarding future events, our future financial performance, business strategy, and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors and the documents incorporated by reference herein, which may affect our or our industry’s actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a highly regulated, very competitive, and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.

 

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short term and long-term business operations, and financial needs. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report, and in particular, the risks discussed below and under the heading “Risk Factors” in other documents we file with the SEC. The following discussion should be read in conjunction with the Annual Report on Form 10-K for the fiscal years ended December 31, 2019 and 2018 and notes incorporated by reference therein. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statement.

 

You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this Quarterly Report. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this Quarterly Report to conform our statements to actual results or changed expectations.

 

You are advised, however, to consult any further disclosures we make on related subjects in our periodic and current reports filed with the SEC. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider this list to be a complete set of all potential risks or uncertainties.

 

Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation:

 

  the results of clinical trials and the regulatory approval process;
     
  market acceptance of any products that may be approved for commercialization;
     
  our ability to protect our intellectual property rights;
     
  the impact of any infringement actions or other litigation brought against us;
     
  competition from other providers and products;
     
  our ability to develop and commercialize new and improved products and services;
     
  changes in government regulation; and
     
  other factors (including the risks contained in the section entitled “Risk Factors” in other documents we file with the SEC) relating to our industry, our operations and results of operations.

 

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Critical Accounting Policies

 

The preparation of financial statements in conformity with U.S. GAAP requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our assumptions and estimates, including those related to recognition of revenue, valuation of investments, valuation of inventory, valuation of intangible assets, measurement of stock-based compensation expense and litigation. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

As an emerging growth company, we have elected to opt-in to the extended transition period for new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.

 

Executive Overview

 

The following management’s discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of our operations, financial condition, and changes in financial condition. This discussion should be read in conjunction with the accompanying unaudited financial statements, and notes thereto, included elsewhere in this report. The information contained in this discussion is subject to a number of risks and uncertainties. We urge you to review carefully the section of this report entitled “Cautionary Note Regarding Forward-Looking Statements” for a summary of the risks and uncertainties associated with an investment in our securities.

 

Overview

 

Co-Diagnostics, Inc., a Utah corporation (the “Company” or “CDI”), is developing robust and innovative molecular tools for detection of infectious diseases, liquid biopsy for cancer screening, and agricultural applications. We have developed and we manufacture and sell reagents used for diagnostic tests that function via the detection and/or analysis of nucleic acid molecules (DNA or RNA). In connection with the sale of our tests we may sell diagnostic equipment from other manufacturers as self-contained lab systems (which we refer to as the “MDx Device”).

 

Our diagnostics systems enable very rapid, low-cost, molecular testing for organisms and genetic diseases by automating historically complex procedures in both the development and administration of tests. CDI’s technical advance involves a novel approach to Polymerase Chain Reaction (“PCR”) test design (“CoPrimers”) that eliminates one of the key vexing issues of PCR amplification, the exponential growth of primer-dimer pairs (false positives and false negatives) which adversely interferes with identification of the target DNA.

 

We believe our proprietary molecular diagnostics technology is paving the way for innovation in disease detection and life sciences research through our enhanced detection of genetic material. Because we own our platform, we are confident we will be able to accomplish this faster and more economically, allowing for wider margins while still positioning Co-Diagnostics to be a low-cost provider of molecular diagnostics and screening services.

 

In addition, continued development has demonstrated the unique properties of our CoPrimer technology that make them ideally suited to a variety of applications where specificity is key to optimal results, including multiplexing several targets, enhanced Single Nucleotide Polymorphism (“SNP”) detection and enrichment for next gen sequencing.

 

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Our scientists use the complex mathematics of DNA test design, to “engineer” a DNA test and to automate algorithms that rapidly screen millions of possible options to pinpoint the optimum design. Dr. Satterfield, our Chief Technology Officer, developed the Company’s intellectual property consisting of the predictive mathematical algorithms and proprietary reagents used in the testing process, which together represent a major advance in PCR testing systems. CDI technologies are now protected by seven granted or pending US and foreign patents, as well as certain trade secrets and copyrights. Ownership of our proprietary platform permits us the advantage of avoiding payment of patent royalties required by other PCR test systems, which enables the sale of diagnostic tests at a lower price than competitors, while generating a profit margin.

 

We may either sell or lease the MDx Device to labs and diagnostic centers, through sale or lease agreements, and sell the reagents that comprise our proprietary tests to those laboratories and testing facilities.

 

We designed our tests by identifying the optimal locations on the target gene for amplification and paired the location with the optimized primer and probe structure to achieve outputs that meet the design input requirements identified from market research. This is done by following planned and documented processes, procedures and testing. In other words, the data resulting from our tests verify that we succeeded in designing what we intended at the outset. Verification is a series of testing that concludes that the product is ready to proceed to validation in a clinical evaluation setting using initial production tests to confirm that the product as designed meets the user needs.

 

Using its proprietary test design system and proprietary reagents, CDI has designed and obtained regulatory approval in the European Community and in India to sell PCR diagnostic tests for COVID-19, tuberculosis, hepatitis B and C, human papilloma virus, malaria, chikungunya, dengue, and the zika virus. In the United States, CDI has obtained Emergency Use Authorization (“EUA”) for its COVID-19 test from the FDA and may sell that test to qualified labs.

 

In addition to testing for infectious disease, the technology lends itself to identifying any section of a DNA strand that describe any type of genetic trait, which creates a number of significant applications. We are active in designing and licensing tests that identify genetic traits in plant and animal genomes. We also have a number of tests developed to test mosquitos for the identification of diseases carried by the mosquitos to enable municipalities to concentrate their efforts in spraying mosquito populations on the specific areas known to be breeding the mosquitos that carry deadly viruses.

 

Recent Developments

 

On January 23, 2020, we announced the completion of the principle design work for a PCR screening test for new coronavirus, COVID-19, intended to address potential need for detection of the virus. An outbreak of respiratory illness caused by the pneumonia-like COVID-19 has spread rapidly over the past few months, after first being discovered in the Chinese city of Wuhan on December 31, 2019. China confirmed human-to-human transmission of the virus and the United States announced the first infection in this country, detected in a traveler returning from Wuhan. Our COVID-19 test features the Company’s patented CoPrimer™ technology, and was designed using our proprietary software system, following the guidelines published by the World Health Organization and Centers for Disease Control.

 

On February 20, 2020, we announced that our Logix Smart™ COVID-19 Test technical file had been submitted for registration with the European Community, and that it was expected to be available late February as an in vitro diagnostic (“IVD”) for markets that accept a CE marking as valid regulatory approval. Subsequently, on February 24, 2020, we announced that our test obtained regulatory clearance to be sold as an in vitro diagnostic for the diagnosis of SARS-CoV-2 (COVID-19) in markets that accept CE-marking as valid regulatory approval, and became available for purchase from the Company’s Utah-based ISO-13485:2016 certified facility. The Declaration of Conformity for the Logix Smart COVID-19 test confirms that it meets the Essential Requirements of the European Community’s In-Vitro Diagnostic Medical Device Directive (IVDD 98/79/EC), permitting export and sales of the product as an IVD to commence immediately in the European Community. We shipped samples of the Research Use Only version of our test to distributors in various countries, which allowed future customers to confirm the quality and sensitivity of the product, and for us to accelerate the sales efforts of the COVID-19 test. We commenced sales of the COVID-19 tests in February and March of 2020 and have sold the tests in numerous countries around the world as well as sales to labs in the United States pursuant to the EUA received from the FDA.

 

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Infectious Disease Product Offering

 

Using its proprietary test design system and proprietary reagents, CDI designs and sells PCR diagnostic tests for diseases and pathogens such as COVID-19, tuberculosis, hepatitis B and C, malaria, dengue, human papilloma virus, chikungunya, and zika virus, all of which tests have been designed and verified in CDI’s laboratory. Our tuberculosis test and zika test received a CE Mark in 2018, and a triplex test for zika, dengue and chikungunya received a CE Mark in 2019, qualifying our test to be sold throughout the European community and in most countries in central and South America. In December, 2019, our Indian joint venture received a license to manufacture and sell tuberculosis, hepatitis B, hepatitis C, human papilloma virus 16/18 and malaria tests in India from the Central Drugs Standard Control Organization (“CDSCO”). In February 2020, we received a CE Mark for our Logix Smart COVID-19 test and in April 2020, our COVID-19 test was approved for manufacture and sale in India by the CDSCO and in Mexico by the INDRE, Mexico’s equivalent to the United States Center for Disease Control.

 

As explained above, the development of our Logix Smart COVID-19 test was designed, developed, submitted for regulatory approved and ready to be used both as a Research Use Only (“RUO”) and as an IVD in countries that accept a CE Mark as approval for use of the test in a period of just over thirty days. This is a real-world example of how in an evolving epidemic that the CDI technology can be used to get diagnostics tools in the hands of medical professionals without delay. It can be similarly used to design a test for mutations of the virus should they occur.

 

Caribbean and Central and South America

 

Our initial sales were to entities within the Caribbean Public Health Agency Members States (Anguilla, Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, Bermuda, BES Islands, British Virgin Islands, Cayman Islands, Curacao, Dominica, Grenada, Haiti, Guyana, Jamaica, Montserrat, Saint Kitts and Nevis, Saint Lucia, St Maarten, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago, Turks and Caicos Islands).

 

In some of these countries, there are no regulatory hurdles and we can start offering our tests immediately. We have applied for registration of our tests in those countries that require registration and our distributors in those countries have provided us with in country assistance in completing such registrations.

 

We first offered our zika test in this region because of the demand for such test, followed quickly by tests for tuberculosis, our triplex test for zika, chikungunya, and dengue, hepatitis B and C, and dengue. With the granting of a CE mark for our Logix Smart COVID-19, we began sales in this region of that test as well. Products are manufactured for sale upon receipt of purchase orders from labs and hospitals.

 

India

 

The Company has entered into an agreement to manufacture diagnostics tests for seven infectious diseases with a pharmaceutical manufacturing company in India and formed an Indian joint venture which is CoSara Diagnostics, Pvt. The agreement provides for the construction of a manufacturing plant and the manufacture of the tests named above and the joint sales and marketing of those tests in India. We have completed licensing of the plant in Rinoli, India, that will be used for testing and manufacturing for the Indian market.

 

Since the tests will be conducted in India on Indian citizens, no FDA approval or inspection will be required. As mentioned above, the CDSCO has given us the approval for manufacture and sale of the five tests referred above and the Company has begun to take orders for our tests. The Company has commenced a reagent rental program in India with a thermocycler purchased from a third-party vendor and which we refer to as our MDx Device. We have placed five of our MDx Devices with labs in India and have purchased an additional fifteen MDx Devices in the first quarter of 2020. Each of the reagent rental placements requires the purchase of a minimum of 250 tests per month. We have received authorization to begin manufacture and sale of COVID-19 tests in India. We intend to submit technical files to the CDSCO requesting approval tests for HIV and Dengue as well as a blood bank panel before the end of the third quarter of 2020.

 

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India is the country with the highest burden of tuberculosis. World Health Organization (WHO) tuberculosis statistics for India for 2015 give an estimated incidence figure of 2.2 million cases of tuberculosis for India out of a global incidence of 9.6 million. The tuberculosis incidence for India is the number of new cases of active tuberculosis disease in India during a certain time period (usually a year).

 

Europe

 

Molecular diagnostics, such as our tests, are governed in Europe by the framework for in vitro diagnostics (IVDs), which encompasses diagnostic products such as reagents, instruments and systems intended for use in diagnosis of disease. The regulatory system for IVDs is built largely on a self-certification procedure, placing heavy responsibility on manufacturers. Non self-certified products are subject to the same standards as self-certified products but are subject to audit and review by a notified body prior to receiving approval to be CE-marked. A CE-marking is a manufacturer’s declaration that a product meets the requirements of the applicable European Commission directive. Examples of current obligations include having in place a qualitative manufacturing process, user instructions that are clear and fit for purpose, ensuring that the ‘physical’ features of devices and diagnostics do not pose any danger. If a product fulfils these and other related control requirements, it may be CE-marked as an indication that the product is compliant with EU legislation and sold in the European Union. We have received CE Marks for four of our tests including COVID-19, tuberculosis, Zika, and our zika, dengue, chikungunya triplex tests.

 

We have received ISO 13485 and ISO 9001 certifications relating to the design and manufacture of our medical device products. The ISO certification indicates that we meet the standards required to self-certify certain of our products and affix a CE-marking for sales of our products in countries accepting the CE marking (not in the United States) with only minimal further governmental approvals in each country.

 

United States

 

The U.S. Food and Drug Administration (FDA) has granted permission for us to export many of our products. The FDA’s permission to export was granted under Section 801(e) of the Federal Food, Drug, and Cosmetic Act, as amended (the “FDC Act”). Section 801(e) of the FDA Act covers certain medical devices that have not yet received an approved Premarket Approval in the United States by the FDA, such as our products. We have not commenced any Premarket Approval steps with the FDA. Section 801(e) of the FDA Act applies to medical devices that are acceptable to the importing country and that are manufactured under the FDA’s Good Manufacturing Practices. We have applied to the FDA for Emergency Use Authorization (EUA) for our COVID-19 test, which would allow sales to qualified labs in the United States.

 

We do not anticipate offering our tests in the United States in the near future. We believe; however, our tests may be able to qualify as Laboratory Developed Tests (LDT’s), diagnostic tests that are developed and manufactured by CLIA certified laboratories. These tests are developed by the lab for use only in that laboratory. CLIA laboratories develop the performance characteristics, perform the analytical validation for their LDT’s and obtain licenses to offer them as diagnostic services. The FDA has publicly announced its intention to regulate certain LDTs in a phased-in approach, but draft guidance that was published a couple of years ago was withdrawn at the end of the Obama administration and replaced by an informal non-enforceable discussion paper reflecting some of the feedback that it received on LDT regulation.

 

Market Opportunity

 

The molecular diagnostics market is a fast-growing portion of the in vitro (test tube-based, controlled environment) diagnostics market. Using estimates of the incidence of disease by the Centers for Disease Control (CDC), the World Health Organization (WHO) and other international health agencies and sources, the Company estimates that the global annual demand for diagnostic tests are:

 

Tuberculosis   10,400,000   HIV   36,700,000 
Multi-drug resistant Tuberculosis   580,000   Malaria   214,000,000 
Zika   324,000,000   Sexually Transmitted Illnesses   357,000,000 
Hepatitis B   240,000,000   Human papilloma virus   291,000,000 
Hepatitis C   130,000,000   Dengue   390,000,000 
              
Total Annual Tests           1,993,680,000 

 

There are several advantages of molecular tests, such as the ones we market and sell, over other forms of diagnostic testing. These advantages include higher sensitivities, the ability to perform multiplex tests and the ability to test for drug resistance or individual genes.

 

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Mosquito Vector Control Services

 

In response to market demand, we introduced our first diagnostics tests to be used exclusively to test mosquito DNA in June 2019. Municipalities in the US and many other countries in the world are concerned about the diseases carried by mosquitos and which infect the human population. To prevent outbreaks of potentially harmful viruses, such as Zika or West Nile, from infecting the public the municipalities conduct spraying operations to eliminate the mosquito populations carrying the diseases. Because it is too expensive and potentially harmful to the environment to spray all mosquito breeding areas, the problem is to identify which particular area has mosquitos that are carrying the harmful viruses. To know where the host mosquitos with the harmful viruses are located, traps are set, mosquitos collected and then tested to find the areas that most needed spraying. There are over three thousand mosquito abatement districts throughout the United States and almost all of them conduct testing to help make the spraying more effective.

 

Our first test is a triplex test that tests for West Nile, Western Equine and St. Louis encephalitis. We began shipping the tests in June 2019. We have since added a second test that tests mosquitos for Zika, chikungunya and dengue in a triplex test. Finally, in November 2019, we completed a test for West Nile, Eastern Equine and St. Louis encephalitis, specifically for use in the eastern United States. As a result, mosquito abatement districts can test for three target viruses in one test for the same cost as one test would cost ($10-$15) using other market available PCR tests. Additionally, the districts are more effective because they can get test results in a matter of hours using our product instead of weeks when they have to wait for a central lab to process the mosquito tests.

 

We have sold our Vector Smart test products and/or related lab equipment to seven different testing districts and are marketing our products through trade shows, electronic and regular mail solicitations and have hired additional sales personnel in the eastern US to more economically and efficiently market to the east coast areas.

 

Competitive Advantages of Co-Diagnostics

 

We believe that we have the following competitive advantages:

 

  Affordability: Lower-cost test kits and low-cost MDx Device.
     
  Flexibility: Our tests have been designed to run on many vendors’ DNA diagnostic testing machines. These tests are particularly well suited to the new generation of “lab-on-a-chip” and “point-of-care” (“LOC” and “POC”), highly portable analysis machinery for field, clinic and office applications.
     
  Speed: We believe our rapid assay design system software provides shorter time to product release. This has been demonstrated with the conception, design, product manufacture, clinical verification and submission for a CE Mark for our Logix Smart coronavirus disease (COVID-19) test being approximately 30 days.
     
  Accuracy: We believe our tests are more sensitive and specific than competitors’ and can detect more strains of viruses.
     
  Exclusivity: We own all patents and all intellectual property used in preparation of our tests.

 

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  Personalized Medicine: We project that rising health care costs in developed and developing nations will increasingly require that health care systems be patient specific to eliminate waste, misdiagnoses, and ineffectiveness. A critical component will be accurate, more affordable DNA-based diagnostics, which we plan to offer.
     
  Low-cost Provider: We plan to keep our overhead low. Our platform technology obviates the need to pay patent royalties typically required of our competitors which use patented test platforms to design their tests.
     
  Worldwide Footprint: With a dynamic technology that encompasses markets worldwide, we anticipate that we can identify the best target markets, not only in highly burden developing countries (HBDC’s) but also in developed nations.
     
  Growth Industry Category: We believe that DNA testing is the fastest-growing segment of in-vitro diagnostic testing.
     
  Combination Product Offering: Our ultra-sensitive tests can be a well-designed match for a new generation of handheld and other small point-of-care (POC) devices now entering the market. Used together, these affordable tests and devices may revolutionize the molecular diagnostics industry in cost, speed of test results and simplification.
     
  Multi-plexing: Our existing multiplexed tests demonstrate that our CoPrimer designed tests are able to test for multiple targets in the same sample without the distortion caused by false negatives and false positives that generally occur in multiplexed tests.

 

Liquid Biopsy for Cancer Screening

 

The development of the liquid biopsy test will spur low cost testing in many developing countries. We believe that our liquid biopsy cancer screening may be ready for testing in the second quarter of 2021 if we have sufficient development resources to dedicate to the project. Medical applications of our SNP detection technology can determine the presence of cancer cells or cell-free genetic material in a liquid or tissue biopsy, and to determine the distinct type of cancer involved. A real-life example of this includes being able to identify specific mutation(s) in genes linked to breast cancer in order to determine a patient’s prognosis, initiate the most effective and affordable treatment and to determine whether chemotherapy is necessary. After diagnosis the relative cost of our technology would allow for frequent testing to measure the effectiveness of the treatment and thus could be a companion diagnostic for a range of treatments.

 

Our technology has for all practical purposes essentially eliminated, primer-dimers, which opens up some very unique applications for liquid biopsy for cancer detection. Our ability to multiplex the reaction in testing for several DNA targets allows technicians to detect multiple cancers as free-circulating DNA fragments or whole cells in a blood sample at the same time

 

Agricultural Applications

 

SNP detection is also used in the agricultural industry to identify variations in crop genomes to achieve improved seed viability and other desired characteristics, including drought resistance, disease resistance, pest resistance and higher yield.

 

In mid-2017, the Company was first approached by a large agribusiness to evaluate our ability to multiplex certain target genomes. The results of the development project have successfully demonstrated our ability to not only multiplex the target genomes, but targeted SNP’s as well. The project was undertaken in conjunction with the manufacturer of our CoPrimer tests. The results of the project encouraged the parent of our manufacturer to seek a world-wide licensing arrangement for our CoPrimers in the agricultural industry, which was completed in October 2018. Pursuant to the exclusive license for the agronomics industry, the licensee will pay us a royalty for all CoPrimers sold to the licensee’s customers. In January 2019, the licensee formally introduced the product at a large agricultural conference and has branded the product to sell as “BHQ CoPrimers”.

 

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Additional Licensing and Assay Development

 

In addition, the unique properties of our CoPrimer technology make them ideally suited to a variety of applications where sensitivity is key to optimal results, including multiplexing several targets, enhanced SNP detection and enrichment for next gen sequencing. Our licensee for our agricultural testing requested an expansion of our license agreement to include test design services for their customers and potential customers, both in the infectious disease arena as well as for agricultural customers. The license was amended in July 2019 and we will derive a license fee from our licensee for its design services. If any of its customers desire to commercialize the tests designed, they will need to seek a commercial license directly from us. Because of these unique characteristics of CoPrimers, research companies and institutions have requested that we design diagnostics to locate and identify uncommon gene sequences and SNPs and create tests for the target sequences in a multiplexed reaction. This application of our technology is in its beginning stages, but we believe that the results from our initial research indicate a significant step forward in defining the capabilities of our technology, which we believe can be translated to revenue producing licensing arrangements.

 

Intellectual Property Protection

 

Because much of our future success and value depends on our proprietary technology, our patent and intellectual property strategy is of critical importance. Four of our initial U.S. patents related to our technology have been granted by the U.S. Patent and Trademark Office (PTO), including the patent for our CoPrimer technology, which we consider our most important patent. One of our patents has been issued in Great Britain, but is still pending in the United States. As of March 15, 2020, we had three additional patents pending in the U.S. and foreign counterpart applications. Two of our issued patents expire in 2034, one in 2036 and one in 2038.

 

We have identified additional applications of the technology, which represent potential patents that further define specific applications of the processes that are covered by the original patents. We intend to continue building our intellectual property portfolio as development continues and resources are available.

 

We have copyrighted our development software that can be used by any lab or developer to develop diagnostic tests based on our technology. We have allowed one potential customer access to our development software and intend to sell customized reagents through that customer to labs serviced by that customer throughout the world. To date we have not sold any products to that customer.

 

Major Customers

 

Of the approximately 34 customers to which we sold products in the first quarter of 2020, approximately 62% was sold to two customers. Those two customers will not account for the same percentage of sales in the next quarter and if we were to sell nothing to those customers in the future, it would not have a material effect on the future sales.

 

Competition

 

The molecular diagnostics industry is extremely competitive. There are many firms that provide some or all of the products we provide and provide many diagnostic tests that we have yet to develop. Many of these competitors are larger than us and have significantly greater financial resources. Because we are not established, many of our competitors have a competitive advantage in the diagnostic testing industry because they also have other lines of business in the pharmaceutical industry from which they derive revenues and for which they are well known and respected in the medical profession. We will need to overcome the disadvantage of being a start up with no history of success and no respect of the medical and testing professionals. In the diagnostic testing industry, we compete with such companies as BioMerieux, Siemens, Qiagen, and Cepheid and with such pharmaceutical companies as Abbott Laboratories, Becton, Dickinson and Johnson and Johnson.

 

Many of these competitors already have an established customer base with industry standard technology, which we must overcome to be successful.

 

20

 

 

Employees

 

We currently employ 27 full-time personnel at our executive offices and lab facilities in Salt Lake City, Utah, and two employees outside of Utah. We have engaged independent contractors in India to promote the use of our products and develop outlets for products and employ the services of independent sales representatives on an “as needed” basis.

 

Government Regulation

 

We will be regulated by the U.S. Federal Drug Administration (FDA) and our products must be approved by the FDA before we will be allowed to sell our tests in the United States. However, the FDA granted us an Emergency Use Authorization (EUA) to manufacture and sell our Logix Smart COVID-19 test to CLIA labs in the United States. Because our lab is ISO certified, we are allowed to apply for CE-Marking, which will allow us to sell in most countries in Europe, South America and Asia. We currently have CE Marks issued for our Logix Smart COVID-19 test, tuberculosis test, our zika virus test, and a triplex test that tests for zika, dengue, and chikungunya simultaneously. In addition, our Logix Smart COVID-19 has received the license to manufacture and sell in India from India’s CDSCO and the National Epidemiology Institute in Mexico evaluated our Logix Smart COVID-19 test and approved it for sale in Mexico.

 

Organizational History and Corporate Information

 

We were incorporated as Co-Diagnostics, Inc. in Utah on April 18, 2013. Our principal executive office is located at 2401 S. Foothill Drive, Suite D, Salt Lake City, Utah 84109. Our telephone number is (801) 438-1036. Our website address is http://codiagnostics.com. The contents of our website are not incorporated by reference in this Quarterly Report.

 

RESULTS OF OPERATIONS

 

The three months ended March 31, 2020 compared to the three months ended March 31, 2019

 

Revenues

 

For the three months ended March 31, 2020 we generated $1,548,528 of revenues compared to revenues of $3,400 in the three months ended March 31, 2019. The revenue in 2020 primarily represented sales of our Logix Smart COVID-19 test, which primarily commenced in March 2020. Of the total revenue, $105,491 related to the sale of equipment and was also primarily related to sales of our COVID-19 test.

 

Cost of Revenues

 

For the three months ended March 31, 2020 we recorded costs of revenues of $481,740 and for the three months ended March 31, 2019, we recorded costs of revenues of $452. This increase is due to the increase in revenue in 2020.

 

Expenses

 

We incurred total operating expenses of $2,148,737 for the three months ended March 31, 2020, compared to total operating expenses of $1,257,440 for the three months ended March 31, 2019. The increase of $891,297 was due primarily to increased general and administrative costs of $819,121. There was also an increase of $52,716 in our research and development expenses.

 

General and administrative expenses increased $819,121, from $640,363 for the three months ended March 31, 2019 to $1,459,484 for the three months ended March 31, 2020. The increase was primarily the result of an increase of $376,965 in other professional services expense and an increase of $313,835 in option and warrant expense. In addition, salaries and other benefits increase $46,742, bad debt expense increased $31,000 and attorney fees increased $18,144. The increase in other professional services was primarily the result of paying $195,820 for services rendered coincident to our fund-raising efforts in structuring and advising on our registered direct offerings. In addition, we expensed $159,981 related to issuance of warrants for consulting services during the three months ended March 31, 2020. The increase in option expense was primarily related, $280,023 related to the granting of options to our directors which vested immediately resulting in stock-based compensation of $280,023 with the remainder related to vesting of options granted in the third quarter of 2019, which had not been outstanding in the first quarter of 2019.

 

21

 

 

Our sales and marketing expenses for the three months ended March 31, 2020 were $268,483, compared to sales and marketing expenses of $256,103 for the three months ended March 31, 2019. The increase of $12,380 is due primarily to an increase of $17,509 in salary and related benefits expense and an increase of $11,142 in trade show expense partially offset by a decrease of $13,457 in travel and lodging. The reduction of travel related expenses was directly related to a ban on travel due to the coronavirus.

 

Our research and development expenses increased by $52,716, from $347,306 for the three months ended March 31, 2019 to $400,022 for the three months ended March 31, 2020. The increase of $52,716 was primarily due to an increase of $32,490 in lab supplies used and an increase of $13,591 in payroll and employee related expenses.

 

Other Income/Expense

 

For the three months ended March 31, 2020 we had total other income of $16,756 compared to a total other loss of $113,897 for the three months ended March 31, 2019. The total difference of $130,653 resulted from a number of factors. For the three months ended March 31, 2019, we incurred interest expense of $106,427 compared to no interest expense for the three months ended March 31, 2020. The decrease was the result of having a $2,000,000 loan outstanding during the month of January 2019 and then being retired. In the three months ended March 31, 2020 we had a $9,181 gain from operations in our joint venture compared to a $8,728 loss in the same period in 2019. The total difference in other expenses was also affected by interest income earned in the quarter ended March 31, 2020 of $7,575 compared to $408 we had in 2019.

 

Net Loss

 

We realized a net loss for the three months ended March 31, 2020 of $1,065,193, compared with a net loss for the three months ended March 31, 2019 of $1,368,389. Of the decrease in net loss of $303,196, $1,063,840 was due to the increase in gross profit realized from sales of our COVID-19 test commencing in March 2020 and a net difference from decreases in other expenses of $130,653, which was partially offset by an increase in operating expenses of $819,121 as explained above.

 

Liquidity and Capital Resources

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.

 

At March 31, 2020, we had cash and cash equivalents of $17,369,323, total current assets of $19,616,466, total current liabilities of $1,193,372 and total stockholders’ equity of $19,166,969. We believe that we have sufficient capital to sustain our operations for the next 12 months.

 

We experienced negative cash flow used in operations during the three months ended March 31, 2020 of $1,335,528, compared to negative cash flow used in operations for the three months ended March 31, 2019 of $1,368,882. In addition, we used $1,457,922 of our cash in financing transactions, $150,000 in contributions to our joint venture in India and $100,370 for the purchase of equipment. The negative operating cash flow in the quarter ended March 31, 2020 was met by cash reserves received from the completion of a series of three registered direct offerings in January and February 2020 pursuant to our shelf registration. We received net proceeds of $18,062,083 from those offerings. Since we have commenced significant sales of our Logix Smart COVID-19 test in March 2020, we have increased the amount of our available cash as we have required advance payments from our distributors, which has funded an increase in available inventories. After the control of the coronavirus, we will depend on our distributor network to sell our other products throughout the world. The amount of a future operating deficit could occur depending on strategic and other operating decisions, thereby affecting our need for additional capital. If needed, we expect additional investment capital to come from (i) additional issuances of our common stock with existing and new investors and (ii) the private placement of other securities with investors similar to those that have provided funding in the past.

 

22

 

 

Our monthly cash operating expenses, including our technology research and development expenses and interest expense, were approximately $445,100 per month during the quarter ended March 31, 2020. We completed the registered direct offering described above in January 2020 to fund operations through 2020. The foregoing estimates, expectations and forward-looking statements are subject to change as we make strategic operating decisions from time to time and as our expenses fluctuate from period to period.

 

To date, we have financed our operations through sales of common stock and the issuance of debt.

 

  On January 30, 2019, we entered into a securities purchase agreement with investors, whereby the investors purchased from the Company an aggregate of 30,000 shares of Series A Convertible Preferred Stock of the Company for an aggregate purchase price of $3,000,000. The purchase price was paid by the investors with $1 million in cash and the conversion of a $2 million promissory note issued by the Company to one of the investors. All of the preferred shares have been converted to common stock.
     
  On February 4, 2019, we completed the sale of an aggregate of 3,925,716 shares of common stock, at a purchase price of $1.40 per share in a registered direct offering pursuant the Shelf Registration Statement. The aggregate gross proceeds for the sale of the shares were $5,496,002 and we received net proceeds after offering costs of $4,996,322.
     
  In January 2020, we sold an aggregate of 3,448,278 shares of common stock to institutional investors for $1.45 per share for gross proceeds of approximately $5 million pursuant to a shelf-registration statement on Form S-3 (File No: 333-226835) declared effective by the SEC on September 7, 2018 (the “Shelf Registration Statement”).
     
  On February 10, 2020, the Company entered into securities purchase agreements with certain institutional investors pursuant to which such investors purchased an aggregate of 3,324,676 shares of common stock at a purchase price of $ 3.08 per share in a registered direct offering pursuant to the Shelf Registration Statement. The aggregate gross proceeds for the sale of the shares were approximately $10.2 million. The closing of the offering occurred on or about February 13, 2020.
     
  On February 28, 2020, the Company entered into securities purchase agreements with certain institutional investors pursuant to which such investors purchased an aggregate of 470,000 shares of common stock at a purchase price of $9.00 per share in a registered direct offering pursuant to the Shelf Registration Statement. The aggregate gross proceeds for the sale of the shares were approximately $4 million. The closing of the offering occurred on or about February 28, 2020.
     
  On March 6, 2020, we received $50,000 in gross proceeds from the exercise of a warrant for 25,000 shares of common stock for $2.00 per share.

 

The amount of our operating deficit could decrease or increase significantly depending on strategic and other operating decisions, thereby affecting our need for additional capital. We expect that we will generate operating income in the second quarter. At our current level of operating expenditures, we have sufficient cash to fund operations for the next 12 months. Absent a significant acquisition or capital expansion, we do not expect to raise additional capital.

 

Our long-term liquidity is dependent upon execution of our business model and the commencement of revenue generating activities and working capital as described above, and upon capital needed for continued commercialization and development of our diagnostic testing technology.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

23

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not required under Regulation S-K for “smaller reporting companies.”

 

Item 4. 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 March 31, 2020 pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. 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.

 

Based on the evaluation of our disclosure controls and procedures as of March 31, 2020, our chief executive officer and chief financial officer concluded that, as a result of material weaknesses in our internal control over financial reporting as disclosed in our annual report on Form 10-K for the year ended December 31, 2019 and discussed below, our disclosure controls and procedures were not effective as of March 31, 2020.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

The material weakness identified during management’s assessment was the lack of sufficient technical expertise on certain accounting and tax requirements for new and unusual transactions. These control deficiencies could result in a material misstatement of accounts or disclosures that would result in a material misstatement to the Company’s interim or annual financial statements that would not be prevented or detected. Accordingly, management has determined that these control deficiencies constitute a material weakness. The Company has involved and plans to further increase the involvement of consultants with the required expertise and has increased and plans to further increase the accounting staff to remediate the material weakness.

 

Changes in Internal Control over Financial Reporting

 

Other than the efforts noted above to remediate the previously reported material weaknesses, there have been no changes in our internal control over financial reporting during the period covered by this interim report on Form 10-Q that has materially affected or, are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. Although we have received inquiries from FINRA, NASDAQ and the SEC, to which we have responded, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties or businesses are subject, which would reasonably be likely to have a material adverse effect on the Company.

 

24

 

 

Item 1A. Risk Factors

 

Not required under Regulation S-K for “smaller reporting companies.”

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On March 31, 2020, we issued an aggregate of 12,363 shares of our common stock for services rendered pursuant to consulting agreements. We relied on the exemption from registration under the Securities Act of 1933, as amended, set forth in Section 4(a)(2) thereof promulgated thereunder due to the fact that such issuances did not involve a public offering.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Item 6. Exhibits

 

Exhibit Index

 

(a) Exhibits

 

Exhibit   Number Description
     
31.1*   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith.

 

25

 

 

SIGNATURES

 

Pursuant to the requirements 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.

 

 

CO-DIAGNOSTICS, INC.
     
Date: May 14, 2020 By: /s/ Dwight H. Egan
  Name: Dwight H. Egan
  Title:

President and Chief Executive Officer

(Principal Executive Officer)

     
Date: May 14, 2020 By: /s/ Reed L Benson
  Name: Reed L Benson
  Title:

Chief Financial Officer (Principal Financial

and Accounting Officer)

 

26

 

 

EXHIBIT 31.1

 

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002

AND RULE 13a-14 OF THE EXCHANGE ACT OF 1934

 

I, Dwight H. Egan, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Co-Diagnostics, Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepting accounting principles;
     
  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 14, 2020 By: /s/ Dwight H. Egan
    Dwight H. Egan
   

Chief Executive Officer

(Principal Executive Officer)

 

 

 

EXHIBIT 31.2

 

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002

AND RULE 13a-14 OF THE EXCHANGE ACT OF 1934

 

I, Reed L Benson, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Co-Diagnostics, Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepting accounting principles;
     
  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date May 14, 2020 By: /s/ Reed L. Benson
    Reed L. Benson
   

Chief Financial Officer

(Principal Financial Officer)

(Principal Accounting Officer)

 

 

 

EXHIBIT 32.1

 

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S. C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Co-Diagnostics, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof, I, Dwight H. Egan, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

 

  (1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 14, 2020 By: /s/ Dwight H. Egan
    Dwight H. Egan
    Chief Executive Officer

 

 

 

EXHIBIT 32.2

 

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S. C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Co-Diagnostics, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof, I, Reed L. Benson, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

 

  (1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 14, 2020 By: /s/ Reed L. Benson
    Reed L. Benson
   

Chief Financial Officer

(Principal Financial Officer)

(Principal Accounting Officer)

 

 

v3.20.1
Subsequent Events (Details Narrative)
Apr. 08, 2020
shares
Consulting Agreement [Member] | Subsequent Event [Member]  
Number of stock issued during period services, shares 6,069
v3.20.1
Stock-based Compensation - Schedule of Unrecognized Stock-based Compensation (Details)
Mar. 31, 2020
USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Total $ 337,953
2020 [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Total 247,772
2021 [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Total $ 90,181
v3.20.1
Stock-based Compensation (Details Narrative) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Stock based compensation $ 432,823 $ 87,794  
Unrecognized stock-based compensation 337,953    
Stock Options [Member]      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Stock based compensation 401,630 87,794  
Intrinsic value of options outstanding $ 7,516,828   $ 133,300
Unvested option shares outstanding 810,000   566,667
Intrinsic value of options exercised   $ 4,973,058  
2015 Long-term Incentive Plan [Member]      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Aggregate number of common shares reserved 6,000,000    
Unissued common stock options authorized shares 3,878,183    
v3.20.1
Stock-Based Compensation (Tables)
3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement, Disclosure [Abstract]  
Schedule of Fair Value of Options Weighted Average Assumptions

The fair values for the options granted were estimated at the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions:

 

    Three Months Ended
March 31, 2020
 
Risk free interest rate     1.56 %
Expected life (in years)     10.0  
Expected volatility     63.27 %
Expected dividend yield     0.00 %
Stock price   $ 3.96  

Schedule of Option Activity

The following table summarizes option activity during the year ended December 31, 2019 and the three months ended March 31, 2020, respectively.

 

    Options
Outstanding
    Weighted
Average
Exercise
Price
    Weighted
Average
Fair
Value
    Weighted
Average
Remaining
Contractual
Life (years)
 
Outstanding at January 1, 2019     1,172,707     $ 2.23     $ 1.09       8.72  
Options granted     890,000       1.07       0.52       9.66  
Expired                        
Forfeited options     (40,890 )     (3.85 )     (1.59 )     (8.04 )
Exercised                        
Outstanding at December 31, 2019     2,021,817     $ 1.69     $ 0.83       8.73  
                                 
Options granted     100,000       3.96       2.80       9.87  
Expired                        
Forfeited options                        
Exercised                        
                                 
Outstanding at March 31, 2020     2,121,817     $ 1.79     $ 0.92       8.54  

Schedule of Warrant Activity

The following table summarizes warrant activity during the year ended December 31, 2019 and the three months ended March 31, 2020, respectively.

 

    Warrants
Outstanding
    Weighted
Average
Exercise
Price
    Weighted
Average
Fair
Value
    Weighted
Average
Remaining
Contractual
Life (years)
 
Outstanding at January 1, 2019     483,535       4.92       1.99       3.29  
Warrants issued     500,000       1.53       1.46       5.00  
Expired                        
Forfeited warrants                        
Exercised                        
Outstanding at December 31, 2019     983,535     $ 1.44     $ 1.03       3.34  
                                 
Warrants issued                        
Expired                        
Forfeited warrants                        
Exercised     (784,445 )     (1.28 )     (1.19 )     (2.90 )
                                 
Outstanding at March 31, 2020     199,090     $ 2.09     $ 0.38       3.85  

Schedule of Unrecognized Stock-based Compensation

The Company expects to recognize the aggregate amount of this compensation expense over the next years in accordance with contractual provisions and vesting as follows:

 

Year   Amount  
2020   $ 247,772  
2021     90,181  
Total   $ 337,953  

v3.20.1
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income Statement [Abstract]    
Net sales $ 1,548,528 $ 3,400
Cost of sales 481,740 452
Gross profit 1,066,788 2,948
Operating expenses:    
Sales and marketing 268,483 256,103
Administrative and general 1,459,484 640,363
Research and development 400,022 347,306
Depreciation and amortization 20,748 13,668
Total operating expenses 2,148,737 1,257,440
Loss from operations (1,081,949) (1,254,492)
Other expense:    
Interest income 7,575 408
Interest expense (106,427)
Gain on disposition of assets 850
Gain (loss) on equity method investment in joint venture 9,181 (8,728)
Total other expense 16,756 (113,897)
Loss before income taxes (1,065,193) (1,368,389)
Provision for income taxes
Net loss $ (1,065,193) $ (1,368,389)
Basic and diluted income (loss) per common share $ (0.05) $ (0.09)
Weighted average common shares outstanding, basic and diluted 22,820,450 16,066,633
v3.20.1
Related Party Transactions
3 Months Ended
Mar. 31, 2020
Related Party Transactions [Abstract]  
Related Party Transactions

NOTE 5 – RELATED PARTY TRANSACTIONS

 

The Company acquired the exclusive rights to the CoPrimer technology pursuant to an exclusive license agreement, dated April 2014 (the “Exclusive License Agreement”), between the Company and DNA Logix, Inc., which was assigned to Dr. Brent Satterfield, one of our current executive officers, prior to our acquisition of DNA Logix, Inc. On March 1, 2017, the Company entered into an amendment to its Exclusive License Agreement for its Cooperative Primers (“License”) technology with Dr. Satterfield. The amendment provides in part that all accrued royalties under the License cease as of January 1, 2017, and we began in January 2017 to pay to Dr. Satterfield $700,000 of accrued royalties at the rate of $10,000 per month. At March 31, 2020, the aggregate balance of this related party liability was $240,000.

v3.20.1
Overview and Basis of Presentation
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Overview and Basis of Presentation

NOTE 1 – OVERVIEW AND BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q as they are prescribed for smaller reporting companies. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. Operating results for the three-month periods ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. These statements should be read in conjunction with the Company’s audited financial statements and related notes for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K filed on March 30, 2020.

 

Certain 2019 financial statement amounts have been reclassified to conform to 2020 presentations.

 

Description of Business

 

Co-Diagnostics, Inc., a Utah corporation (“Company,” or “CDI,”) is developing robust and innovative molecular tools for detection of infectious diseases, liquid biopsy for cancer screening, and agricultural applications. We have developed and we manufacture and sell reagents used for diagnostic tests that function via the detection and/or analysis of nucleic acid molecules (DNA or RNA). In connection with the sale of our tests, we may sell diagnostic equipment from other manufacturers as self-contained lab systems (which we refer to as the “MDx Device”).

 

Our diagnostics systems enable very rapid, low-cost, molecular testing for organisms and genetic diseases by automating historically complex procedures in both the development and administration of tests. CDI’s newest technical advance involves a novel approach to Polymerase Chain Reaction (“PCR”) test design (“CoPrimers”) that eliminates one of the key vexing issues of PCR amplification, the exponential growth of primer-dimer pairs (false positives and false negatives) which adversely interferes with identification of the target DNA.

 

We believe our proprietary molecular diagnostics technology is paving the way for innovation in disease detection and life sciences research through our enhanced detection of genetic material. Because we own our platform, we are confident we will be able to accomplish this faster and more economically, allowing for wider margins while still positioning Co-Diagnostics to be a low-cost provider of molecular diagnostics and screening services.

 

In addition, continued development has demonstrated the unique properties of our CoPrimer technology that make them ideally suited to a variety of applications where specificity is key to optimal results, including multiplexing several targets, enhanced Single Nucleotide Polymorphism (“SNP”) detection and enrichment for next gen sequencing.

 

Our scientists use the complex mathematics of DNA and RNA test design, to “engineer” a DNA test and to automate algorithms that rapidly screen millions of possible options to pinpoint the optimum design. Dr. Satterfield, our Chief Technology Officer, developed the Company’s intellectual property consisting of the predictive mathematical algorithms and proprietary reagents used in the testing process, which together represent a major advance in PCR testing systems. CDI technologies are now protected by seven granted or pending US and foreign patents, as well as certain trade secrets and copyrights. Ownership of our proprietary platform permits us the advantage of avoiding payment of patent royalties required by other PCR test systems, which enables the sale of diagnostic tests at a lower price than competitors, while generating a profit margin.

 

We may either sell or lease the MDx Device to labs and diagnostic centers, through sale or lease agreements, and sell the reagents that comprise our proprietary tests to those laboratories and testing facilities.

 

We designed our tests by identifying the optimal locations on the target gene for amplification and paired the location with the optimized primer and probe structure to achieve outputs that meet the design input requirements identified from market research. This is done by following planned and documented processes, procedures and testing. In other words, the data resulting from our tests verify that we succeeded in designing what we intended at the outset. Verification is a series of testing that concludes that the product is ready to proceed to validation in a clinical evaluation setting using initial production tests to confirm that the product as designed meets the user needs.

 

CDI’s diagnostics systems enable very rapid, low-cost, sophisticated molecular testing for organisms and genetic diseases by greatly automating historically complex procedures in both the development and administration of tests.

 

Using its proprietary test design system and proprietary reagents, CDI has designed and obtained regulatory approval in the European Community and in India to sell PCR diagnostic tests for COVID-19, tuberculosis, hepatitis B and C, human papilloma virus, malaria, chikungunya, dengue, and the zika virus. In the United States, CDI has obtained Emergency Use Authorization (“EUA”) for its COVID-19 test from the FDA and may sell that test to qualified labs.

 

In addition to testing for infectious disease, the technology lends itself to identifying any section of a DNA strand that describe any type of genetic trait, which creates a number of significant applications. We are active in designing and licensing tests that identify genetic traits in plant and animal genomes. We also have a number of tests developed to test mosquitos for the identification of diseases carried by the mosquitos to enable municipalities to concentrate their efforts in spraying mosquito populations on the specific areas known to be breeding the mosquitos that carry deadly viruses.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Such estimates include receivables and other long-lived assets, legal and regulatory contingencies, income taxes, share based arrangements, and others. These estimates and assumptions are based on management’s best estimates and judgments. Actual amounts and results could differ from those estimates.

v3.20.1
Significant Accounting Policies
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Significant Accounting Policies

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 

Accounts Receivable

 

Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when collected. At March 31, 2020, total accounts receivable was $1,097,738 with an allowance for uncollectable accounts of $42,000 resulting in a net amount of $1,055,738.

 

Equity-Method Investments

 

Our equity method investments are initially recorded at costs and are included in other long-term assets in the accompanying condensed consolidated balance sheet. We adjust the carrying value of our investment based on our share of the earnings or losses in the periods which they are reported by the investee until the carrying amount is zero. The earnings or losses are included in other expense in the accompanying condensed consolidated statements of operations.

 

Inventory

 

Inventory is stated at the lower of cost or net-realizable value. Inventory cost is determined on a first-in first-out basis that approximates average cost in accordance with ASC 330-10-30-12. At March 31, 2020 we had $686,078 in inventory of which $251,872 was finished goods, $182,085 was raw materials and $252,121 was work-in-process. Provisions are made to reduce slow-moving, obsolete, or unusable inventories to their estimated useful or scrap values. The Company establishes reserves for this purpose.

 

Revenue Recognition

 

The Company generates revenue from product sales and license sales. The Company recognizes revenue when all of the following criteria are satisfied: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as the Company satisfies each performance obligation.

 

The Company constrains revenue by giving consideration to factors that could otherwise lead to a probable reversal of revenue. The Company records any payments received from customers prior to the Company fulfilling its performance obligation(s) as deferred revenue.

 

Earnings (Loss) per Share

 

Basic earnings or loss per common share is computed by dividing net income or loss applicable to common shareholders by the weighted average number of shares outstanding during each period. As the Company experienced net losses during the three months ended March 31, 2020, and 2019, respectively, no common stock equivalents have been included in the diluted earnings per common share calculations as the effect of such common stock equivalents would be anti-dilutive. For the three months ended March 31, 2020, there were 2,320,907 potentially dilutive shares consisting of 2,121,817 for outstanding options and 199,090 for outstanding warrants. For the three months ended March 31, 2019, there were 1,679,575 potentially dilutive shares consisting of: (i) 1,172,707 for outstanding options, (ii) 483,535 for outstanding warrants and (iii) 23,333 for issued and outstanding shares of convertible preferred stock.

 

Research and Development

 

Research and development costs are expensed when incurred. The Company expensed $400,022 and $347,306 of research and development costs for the three months ended March 31, 2020 and 2019, respectively.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.

 

As an emerging growth company (“EGC”), the Company has elected to take advantage of the benefits of the extended transition period provided for in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards which allows the Company to defer adoption of certain accounting standards until those standards would otherwise apply to private companies.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires recognition of leased assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. This update is effective for annual periods and interim periods with those periods beginning after December 15, 2020, for public EGC companies like us. The Company expects to use the modified retrospective transition method with the option to recognize a cumulative-effect adjustment at the date of adoption. The Company expects its balance sheet will be impacted as it records right-of-use assets and lease liabilities on its consolidated balance sheet, but does not expect the adoption of this standard will have a material impact on its consolidated statements of operations and cash flows.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires the measurement and recognition of expected credit losses for certain financial instruments, which includes the Company’s accounts receivable. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The update is effective for annual periods and interim periods with those periods beginning after December 15, 2021, for public EGC companies like us, but the Company may adopt it on January 1, 2021. The standard requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. The Company is evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements.

v3.20.1
Lease Obligations (Tables)
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Schedule of ongoing lease obligation

The Company’s ongoing lease obligation as of March 31, 2020 is as follows:

 

Year   Amount  
Remainder of 2020   $ 233,415  
2021     311,220  
2022     331,220  
2023     311,220  
2024     51,870  
Total   $ 1,218,945  

v3.20.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2020
May 13, 2020
Cover [Abstract]    
Entity Registrant Name Co-Diagnostics, Inc.  
Entity Central Index Key 0001692415  
Document Type 10-Q  
Document Period End Date Mar. 31, 2020  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company true  
Entity Ex Transition Period false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   27,457,133
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2020  
v3.20.1
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash flows from operating activities:    
Net loss $ (1,065,193) $ (1,368,389)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 20,748 13,668
Stock based compensation 432,823 87,794
Accretion of notes payable discount 91,428
Gain on disposition of assets (850)
Loss (gain) of equity method investment (9,181) 8,728
Changes in assets and liabilities:    
(Increase) in accounts and other receivables (924,356) (21,637)
(Increase) in prepaid and other assets (136,761) (33,724)
(Increase) in inventory (488,910)
Increase in deferred revenue 443,009
Increase (decrease) in accounts payable and accrued expenses 392,293 (145,900)
Net cash used in operating activities (1,335,528) (1,368,882)
Cash flows from investing activities:    
Purchase of property and equipment (100,370)
Investment in joint venture (150,000) (72,000)
Net cash used in investing activities (250,370) (72,000)
Cash flows from financing activities:    
Proceeds from sale of common stock 19,520,005 5,496,002
Proceeds from sale of preferred stock 1,000,000
Payment of offering costs (1,457,922) (592,764)
Net cash provided by financing activities 18,062,083 5,903,238
Net increase in cash 16,476,185 4,462,356
Cash and cash equivalents beginning of period 893,138 950,237
Cash and cash equivalents end of period 17,369,323 5,412,593
Supplemental disclosure of cash flow information:    
Interest paid 15,000
Income taxes paid
v3.20.1
Lease Obligations
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Lease Obligations

NOTE 6 – LEASE OBLIGATIONS

 

Our offices are located at 2401 S. Foothill Dr., Suite D, Salt Lake City, Utah 84109-1479. In February 2020, the Company entered into a 4-year lease agreement for its office space and in March 2020, the Company entered into an addendum with our landlord for additional space. The new aggregate space consists of approximately 13,687 square feet and expires in February 2024. For the three months ended March 31, 2020 and 2019, the Company expensed $51,818 and $45,582, respectively, for rent. The Company’s ongoing lease obligation as of March 31, 2020 is as follows:

 

Year   Amount  
Remainder of 2020   $ 233,415  
2021     311,220  
2022     331,220  
2023     311,220  
2024     51,870  
Total   $ 1,218,945  

v3.20.1
Related Party Transactions (Details Narrative) - USD ($)
3 Months Ended
Mar. 31, 2020
Jan. 01, 2017
Exclusive License Agreement [Member]    
Accrued royalties   $ 700,000
Dr. Satterfield [Member]    
Increase in Royalties Payable, per month $ 10,000  
Dr. Brent Satterfield [Member]    
Due to related party $ 240,000  
v3.20.1
Stock-based Compensation - Schedule of Fair Value of Options Weighted Average Assumptions (Details)
3 Months Ended
Mar. 31, 2020
$ / shares
Share-based Payment Arrangement [Abstract]  
Risk free interest rate 1.56%
Expected life (in years) 10 years
Expected volatility 63.27%
Expected dividend yield 0.00%
Stock price $ 3.96
v3.20.1
Equity (Details Narrative) - USD ($)
3 Months Ended 12 Months Ended
Mar. 05, 2020
Mar. 02, 2020
Feb. 13, 2020
Jan. 28, 2020
Mar. 07, 2019
Feb. 04, 2019
Jan. 30, 2019
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Class of Stock [Line Items]                    
Number of common stock issued   470,000 3,324,676 3,448,278   3,925,716        
Common stock, par value   $ 0.001 $ 0.001 $ 0.001   $ 0.001   $ 0.001   $ 0.001
Sale of common stock purchase price per shares   $ 9.00 $ 3.08 $ 1.45   $ 1.40        
Number of common stock issued, value   $ 4,230,000 $ 10,240,002 $ 5,000,003   $ 5,496,002   $ 18,012,083 $ 4,903,238  
Issuance of common stock gross proceeds   3,882,420 9,612,561 4,517,102   4,903,238   $ 19,520,005 $ 5,496,002  
Proceeds from issuance of initial public offering   $ 347,580 $ 627,441 $ 482,901   $ 592,764        
Warrants exercisable price per share $ 2.00                  
Number of warrants exercised               784,445  
Investor [Member]                    
Class of Stock [Line Items]                    
Purchase price             $ 1,000,000      
Promissory note             $ 2,000,000      
Equity ownership percentage             4.99%      
Two Companies [Member]                    
Class of Stock [Line Items]                    
Number of shares issued for services               12,363    
Value of shares issued for services               $ 31,193    
Series A Convertible Preferred Stock [Member]                    
Class of Stock [Line Items]                    
Number of common stock issued         2,000          
Number of conversion of shares issued               2,560,000    
Conversion of preferred stock         100     100    
Conversion of preferred stock, price per shares         $ 1.20     $ 1.20    
Series A Convertible Preferred Stock [Member] | Investor [Member]                    
Class of Stock [Line Items]                    
Number of common stock issued             30,000      
Number of common stock issued, value             $ 3,000,000      
Warrants [Member]                    
Class of Stock [Line Items]                    
Number of common stock issued 25,000             694,492    
Stock issued during period, warrant exercised value $ 50,000                  
Number of warrants exercised               759,445    
Common Stock [Member]                    
Class of Stock [Line Items]                    
Number of common stock issued 25,000       166,667     7,242,954 3,925,716  
Number of common stock issued, value               $ 7,243 $ 3,926  
Number of conversion of shares issued               2,133,333 166,667  
v3.20.1
Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Accounts Receivable

Accounts Receivable

 

Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when collected. At March 31, 2020, total accounts receivable was $1,097,738 with an allowance for uncollectable accounts of $42,000 resulting in a net amount of $1,055,738.

Equity-Method Investments

Equity-Method Investments

 

Our equity method investments are initially recorded at costs and are included in other long-term assets in the accompanying condensed consolidated balance sheet. We adjust the carrying value of our investment based on our share of the earnings or losses in the periods which they are reported by the investee until the carrying amount is zero. The earnings or losses are included in other expense in the accompanying condensed consolidated statements of operations.

Inventory

Inventory

 

Inventory is stated at the lower of cost or net-realizable value. Inventory cost is determined on a first-in first-out basis that approximates average cost in accordance with ASC 330-10-30-12. At March 31, 2020 we had $686,078 in inventory of which $251,872 was finished goods, $182,085 was raw materials and $252,121 was work-in-process. Provisions are made to reduce slow-moving, obsolete, or unusable inventories to their estimated useful or scrap values. The Company establishes reserves for this purpose.

Revenue Recognition

Revenue Recognition

 

The Company generates revenue from product sales and license sales. The Company recognizes revenue when all of the following criteria are satisfied: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as the Company satisfies each performance obligation.

 

The Company constrains revenue by giving consideration to factors that could otherwise lead to a probable reversal of revenue. The Company records any payments received from customers prior to the Company fulfilling its performance obligation(s) as deferred revenue.

Earnings (Loss) per Share

Earnings (Loss) per Share

 

Basic earnings or loss per common share is computed by dividing net income or loss applicable to common shareholders by the weighted average number of shares outstanding during each period. As the Company experienced net losses during the three months ended March 31, 2020, and 2019, respectively, no common stock equivalents have been included in the diluted earnings per common share calculations as the effect of such common stock equivalents would be anti-dilutive. For the three months ended March 31, 2020, there were 2,320,907 potentially dilutive shares consisting of 2,121,817 for outstanding options and 199,090 for outstanding warrants. For the three months ended March 31, 2019, there were 1,679,575 potentially dilutive shares consisting of: (i) 1,172,707 for outstanding options, (ii) 483,535 for outstanding warrants and (iii) 23,333 for issued and outstanding shares of convertible preferred stock.

Research and Development

Research and Development

 

Research and development costs are expensed when incurred. The Company expensed $400,022 and $347,306 of research and development costs for the three months ended March 31, 2020 and 2019, respectively.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.

 

As an emerging growth company (“EGC”), the Company has elected to take advantage of the benefits of the extended transition period provided for in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards which allows the Company to defer adoption of certain accounting standards until those standards would otherwise apply to private companies.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires recognition of leased assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. This update is effective for annual periods and interim periods with those periods beginning after December 15, 2020, for public EGC companies like us. The Company expects to use the modified retrospective transition method with the option to recognize a cumulative-effect adjustment at the date of adoption. The Company expects its balance sheet will be impacted as it records right-of-use assets and lease liabilities on its consolidated balance sheet, but does not expect the adoption of this standard will have a material impact on its consolidated statements of operations and cash flows.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires the measurement and recognition of expected credit losses for certain financial instruments, which includes the Company’s accounts receivable. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The update is effective for annual periods and interim periods with those periods beginning after December 15, 2021, for public EGC companies like us, but the Company may adopt it on January 1, 2021. The standard requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. The Company is evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements.

v3.20.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares issued 25,600
Preferred stock, shares outstanding 25,600
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 27,451,064 17,342,922
Common stock, shares outstanding 27,451,064 17,342,922
v3.20.1
Condensed Consolidated Statement of Stockholders' Equity (Parenthetical) - USD ($)
Mar. 31, 2020
Mar. 31, 2019
Statement of Stockholders' Equity [Abstract]    
Public offering net of costs $ 1,457,922 $ 592,764
v3.20.1
Stock-Based Compensation
3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement, Disclosure [Abstract]  
Stock-Based Compensation

NOTE 4 – STOCK-BASED COMPENSATION

 

Stock Incentive Plans

 

The Co-Diagnostics, Inc. 2015 Long Term Incentive Plan reserves an aggregate of 6,000,000 shares of common stock issuable upon the grant of awards under the plan. The number of unissued stock options authorized under the plan at March 31, 2020 was 3,878,183.

 

Stock Options

 

The Company uses a Black-Scholes model to value granted stock options which requires various judgmental assumptions including the estimated volatility, risk-free interest rate and expected option term. In determining the expected volatility our computation is based the stock prices of 3 comparable companies and is based on a combination of historical and market-based implied volatility. The risk-free interest rate was based on the yield curve of a zero-coupon U.S. Treasury bond on the date the option was granted with a maturity equal to the expected term of the option. The fair values for the options granted were estimated at the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions:

 

    Three Months Ended
March 31, 2020
 
Risk free interest rate     1.56 %
Expected life (in years)     10.0  
Expected volatility     63.27 %
Expected dividend yield     0.00 %
Stock price   $ 3.96  

 

We recognized $401,630 and $87,794 of stock-based compensation expense, related to stock options for the three months ended March 31, 2020 and 2019, respectively, which is included in administrative and general expenses.

 

The following table summarizes option activity during the year ended December 31, 2019 and the three months ended March 31, 2020, respectively.

 

    Options
Outstanding
    Weighted
Average
Exercise
Price
    Weighted
Average
Fair
Value
    Weighted
Average
Remaining
Contractual
Life (years)
 
Outstanding at January 1, 2019     1,172,707     $ 2.23     $ 1.09       8.72  
Options granted     890,000       1.07       0.52       9.66  
Expired                        
Forfeited options     (40,890 )     (3.85 )     (1.59 )     (8.04 )
Exercised                        
Outstanding at December 31, 2019     2,021,817     $ 1.69     $ 0.83       8.73  
                                 
Options granted     100,000       3.96       2.80       9.87  
Expired                        
Forfeited options                        
Exercised                        
                                 
Outstanding at March 31, 2020     2,121,817     $ 1.79     $ 0.92       8.54  

 

The intrinsic value of options outstanding at March 31, 2020 and 2019 was $7,516,828 and $133,300, respectively. There were 810,000 and 566,667 of unvested option included the table above as of March 31, 2020 and 2019, respectively.

 

Warrants

 

The Company estimates the fair value of issued warrants on the date of issuance as determined using a Black-Scholes pricing model. The Company amortizes the fair value of issued warrants using a vesting schedule based on the terms and conditions of each warrant. The Black-Scholes valuation model requires various judgmental assumptions including the estimated volatility, risk-free interest rate and expected warrant term. In determining the expected volatility, our computation is based on the stock prices of three comparable companies and on a combination of historical and market-based implied volatility. The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the warrant was issued with a maturity equal to the expected term of the warrant.

 

The following table summarizes warrant activity during the year ended December 31, 2019 and the three months ended March 31, 2020, respectively.

 

    Warrants
Outstanding
    Weighted
Average
Exercise
Price
    Weighted
Average
Fair
Value
    Weighted
Average
Remaining
Contractual
Life (years)
 
Outstanding at January 1, 2019     483,535       4.92       1.99       3.29  
Warrants issued     500,000       1.53       1.46       5.00  
Expired                        
Forfeited warrants                        
Exercised                        
Outstanding at December 31, 2019     983,535     $ 1.44     $ 1.03       3.34  
                                 
Warrants issued                        
Expired                        
Forfeited warrants                        
Exercised     (784,445 )     (1.28 )     (1.19 )     (2.90 )
                                 
Outstanding at March 31, 2020     199,090     $ 2.09     $ 0.38       3.85  

 

The intrinsic value of options exercised in the three months ended March 31, 2020 was $4,973,058. Total unrecognized stock-based compensation was $337,953 at March 31, 2020 for options granted. The Company expects to recognize the aggregate amount of this compensation expense over the next years in accordance with contractual provisions and vesting as follows:

 

Year   Amount  
2020   $ 247,772  
2021     90,181  
Total   $ 337,953  

v3.20.1
Lease Obligations - Schedule of ongoing lease obligation (Details)
Mar. 31, 2020
USD ($)
Leases [Abstract]  
Remainder of 2020 $ 233,415
2021 311,220
2022 331,220
2023 311,220
2024 51,870
Total $ 1,218,945
v3.20.1
Stock-based Compensation - Schedule of Warrant Activity (Details) - $ / shares
3 Months Ended 12 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Share-based Payment Arrangement [Abstract]    
Warrant Outstanding, Beginning 983,535 483,535
Warrant Outstanding, Warrants issued 500,000
Warrant Outstanding, Expired
Warrant Outstanding, Forfeited warrants
Warrant Outstanding, Exercised (784,445)
Warrant Outstanding, Ending 199,090 983,535
Weighted Average Exercise Price, Beginning $ 1.44 $ 4.92
Weighted Average Exercise Price, Warrant issued 1.53
Weighted Average Exercise Price, Expired
Weighted Average Exercise Price, Forfeited warrants
Weighted Average Exercise Price, Exercised (1.28)
Weighted Average Exercise Price, Ending 2.09 1.44
Weighted Average Fair Value, Beginning 1.03 1.99
Weighted Average Fair Value, Warrant issued 1.46
Weighted Average Fair Value, Expired
Weighted Average Fair Value, Forfeited warrants
Weighted Average Fair Value, Exercised (1.19)
Weighted Average Fair Value, Ending $ 0.38 $ 1.03
Weighted-average Remaining Contractual Life (Years), Beginning 3 years 4 months 2 days 3 years 3 months 15 days
Weighted-average Remaining Contractual Life (Years), Warrants issued   5 years
Weighted-average Remaining Contractual Life (Years), Exercised 2 years 10 months 25 days  
Weighted-average Remaining Contractual Life (Years), Ending 3 years 10 months 6 days 3 years 4 months 2 days
v3.20.1
Lease Obligations (Details Narrative)
3 Months Ended
Mar. 31, 2020
USD ($)
a
Mar. 31, 2019
USD ($)
Leases [Abstract]    
Area of land | a 13,687  
Rent expenses | $ $ 51,818 $ 45,582
v3.20.1
Stock-based Compensation - Schedule of Option Activity (Details) - $ / shares
3 Months Ended 12 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Share-based Payment Arrangement [Abstract]    
Options Outstanding, Beginning 2,021,817 1,172,707
Options Outstanding, Option granted 100,000 890,000
Options Outstanding, Expired
Options Outstanding, Forfeited options (40,890)
Options Outstanding, Exercised
Options Outstanding, Ending 2,121,817 2,021,817
Weighted Average Exercise Price Outstanding, Beginning $ 1.69 $ 2.23
Weighted Average Exercise Price Options granted 3.96 1.07
Weighted Average Exercise Price Expired
Weighted Average Exercise Price Forfeited options (3.85)
Weighted Average Exercise Price Exercised
Weighted Average Exercise Price Outstanding, Ending 1.79 1.69
Weighted Average Fair Value Outstanding, Beginning 0.83 1.09
Weighted Average Fair Value Options granted 2.80 0.52
Weighted Average Fair Value Expired
Weighted Average Fair Value Forfeited options (1.59)
Weighted Average Fair Value Exercised
Weighted Average Fair Value Outstanding, Ending $ 0.92 $ 0.83
Weighted-average Remaining Contractual Life (years) Outstanding, Beginning 8 years 8 months 23 days 8 years 8 months 19 days
Weighted-average Remaining Contractual Life (years) Options granted 9 years 10 months 14 days 9 years 7 months 28 days
Weighted-average Remaining Contractual Life (years) Options Forfeited options   8 years 15 days
Weighted-average Remaining Contractual Life (years) Outstanding, Ending 8 years 6 months 14 days 8 years 8 months 23 days
v3.20.1
Subsequent Events
3 Months Ended
Mar. 31, 2020
Subsequent Events [Abstract]  
Subsequent Events

NOTE 7 – SUBSEQUENT EVENTS

 

On April 8, 2020, we issued 6,069 shares of our common stock for services rendered pursuant to a consulting agreement.

 

The Company evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no other events that need to be reported.

v3.20.1
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
Mar. 31, 2020
Dec. 31, 2019
Current Assets    
Cash and cash equivalents $ 17,369,323 $ 893,138
Accounts receivables, net 1,055,738 131,382
Inventory 686,078 197,168
Prepaid expenses 499,327 362,566
Total current assets 19,610,466 1,584,254
Other Assets    
Property and equipment, net 276,454 186,832
Investment in joint venture 593,421 434,240
Total other assets 869,875 631,072
Total assets 20,480,341 2,215,326
Current Liabilities    
Accounts payable 132,516 5,959
Accrued expenses 496,524 200,788
Accrued expenses (related party) 120,000 120,000
Deferred revenue 444,332 1,323
Total current liabilities 1,193,372 328,070
Long-term Liabilities, net of current portion    
Accrued expenses-long-term (related party) 120,000 150,000
Total long-term liabilities, net of current portion 120,000 150,000
Total liabilities 1,313,372 478,070
STOCKHOLDERS' EQUITY (DEFICIT):    
Convertible preferred stock, $0.001 par value; 5,000,000 shares authorized, 0 and 25,600 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively 26
Common stock, $0.001 par value, 100,000,000 shares authorized; 27,451,064 and 17,342,922 shares issued and outstanding, as of March 31, 2020 and December 31, 2019, respectively. 27,451 17,343
Additional paid-in capital 45,172,525 26,687,701
Accumulated deficit (26,033,007) (24,967,814)
Total stockholders' equity 19,166,969 1,737,256
Total liabilities and stockholders' equity $ 20,480,341 $ 2,215,326
v3.20.1
Condensed Consolidated Statement of Stockholders' Equity (Unaudited) - USD ($)
Convertible Preferred Stock [Member]
Common Stock [Member]
Additional Paid-In- Capital [Member]
Accumulated Deficit
Total
Beginning balance at Dec. 31, 2018 $ 12,923 $ 17,622,433 $ (18,694,167) $ (1,058,811)
Beginning balance, shares at Dec. 31, 2018 12,923,383      
Public Offering, net of offering costs   $ 3,926 4,899,312 4,903,238
Public Offering, net of offering costs, shares   3,925,716      
Stock-based compensation expense 87,794 87,794
Stock-based compensation expense, shares        
Conversion of Preferred Stock to Common $ (2) $ 167 (165)
Conversion of Preferred Stock to Common, shares (2,000) 166,667      
Issuance of Preferred Stock $ 30 2,999,970 3,000,000
Issuance of preferred stock, shares 30,000        
Net loss (1,368,389) (1,368,389)
Ending balance at Mar. 31, 2019 $ 28 $ 17,016 25,609,344 (20,062,556) 5,563,832
Ending balance, shares at Mar. 31, 2019 28,000 170,015,766      
Beginning balance at Dec. 31, 2019 $ 26 $ 17,343 26,687,701 (24,967,814) 1,737,256
Beginning balance, shares at Dec. 31, 2019 25,600 17,342,922      
Public Offering, net of offering costs   $ 7,243 18,004,840 18,012,083
Public Offering, net of offering costs, shares   7,242,954      
Issuance of Common Stock for warrant exercises $ 720 49,280 50,000
Issuance of Common Stock for warrant exercises, shares 719,492      
Stock-based compensation expense $ 12 432,811 432,823
Stock-based compensation expense, shares 12,363      
Conversion of Preferred Stock to Common $ (26) $ 2,133 (2,107)
Conversion of Preferred Stock to Common, shares (25,600) 2,133,333      
Net loss (1,065,193) (1,065,193)
Ending balance at Mar. 31, 2020 $ 27,451 $ 45,172,525 $ (26,033,007) $ 19,166,969
Ending balance, shares at Mar. 31, 2020 27,451,064      
v3.20.1
Equity
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
Equity

NOTE 3 – EQUITY

 

2020

 

On January 28, 2020, we completed the sale of 3,448,278 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $1.45 per share in a registered direct offering. The aggregate gross proceeds for the sale of the shares was $5,000,003 and we received net proceeds of $4,517,102 after deducting offering costs of $482,901.

 

On February 13, 2020, we completed the sale of 3,324,676 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $3.08 per share in a registered direct offering. The aggregate gross proceeds for the sale of the shares was $10,240,002 and we received net proceeds of $9,612,561 after deducting offering costs of $627,441.

 

On March 2, 2020, we completed the sale of 470,000 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $9.00 per share in a registered direct offering. The aggregate gross proceeds for the sale of the shares was $4,230,000 and we received net proceeds of $3,882,420 after deducting offering costs of $347,580.

 

On March 5, 2020 we received $50,000 from the exercise of 25,000 unregistered warrants at an exercise price of $2.00 per share and issued 25,000 shares of our common stock.

 

During the three months ended March 31 2020, we issued an aggregate of 2,133,333 shares of our common stock in conversion of 2,560,000 shares of our Series A Preferred Stock at a conversion price calculated by multiplying the number of preferred shares being converted by $100 and dividing the result by $1.20.

 

During the three months ended March 31 2020, we issued an aggregate of 694,492 shares of our common stock in relation to the cashless exercise of 759,445 previously issued unregistered warrants.

 

During the three months ended March 31, 2020 we issued 12,363 shares valued at $31,193 to 2 companies for investment relations services rendered.

 

2019

 

On January 30, 2019, we entered into a securities purchase agreement with accredited investors pursuant to which such investors purchased from an aggregate of 30,000 shares of Series A Convertible Preferred Stock of the Company for an aggregate purchase price of $3,000,000. The purchase price was paid by the investors with $1.0 million in cash and the conversion of a $2.0 million promissory note of the Company issued to the investors. The investors may not convert the Series A Preferred Stock to the extent that such conversion would result in beneficial ownership by the investors and their affiliates of more than 4.99% of the issued and outstanding common stock of the Company.

 

On February 4, 2019, we completed the sale of an aggregate of 3,925,716 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $1.40 per share in a registered direct offering. The aggregate gross proceeds for the sale of the shares of common stock was $5,496,002 and we received net proceeds of $4,903,238 after offering costs of $592,764.

 

On March 7, 2019, we issued an aggregate of 166,667 shares of our common stock in relation to 2,000 shares of our Series A Preferred Stock being converted to common stock at a conversion price calculated by multiplying the number of preferred shares being converted by $100 and dividing the result by $1.20.

v3.20.1
Significant Accounting Policies (Details Narrative) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Accounts receivable $ 1,097,738    
Allowance for uncollectable accounts 42,000    
Accounts receivable, net 1,055,738   $ 131,382
Inventory 686,078   $ 197,168
Inventory finished goods 251,872    
Inventory raw materials 182,085    
Inventory work in process $ 252,121    
Potentially dilutive shares 2,320,907 1,679,575  
Research and development cost $ 400,022 $ 347,306  
Options [Member]      
Potentially dilutive shares 2,121,817 1,172,707  
Warrant [Member]      
Potentially dilutive shares 199,090 483,535  
Convertible Preferred Stock [Member]      
Potentially dilutive shares   23,333