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, 20212022
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 Number) |
2401 S. Foothill Drive, Suite D, Salt Lake City, Utah84109
(Address of principal executive offices and zip code)
(801)438-1036
(Registrant’s telephone number, including area code)
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 | CODX |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes [X] ☒ No [ ]☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” and “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 | |||
Emerging growth company |
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] ☐ No [X] ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $485,000,000.
As of May 11, 2021,12, 2022, there were 28,666,972 shares of common stock, par value $0.001 per share, outstanding.
CO-DIAGNOSTICS, INCINC..AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
2 |
PART I. FINANCIAL INFORMATION
CO – DIAGNOSTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 57,788,893 | $ | 42,976,713 | $ | 97,421,739 | $ | 88,607,234 | ||||||||
Marketable investment securities | 2,302,644 | 4,335,446 | - | 1,255,266 | ||||||||||||
Accounts receivable, net | 12,117,127 | 12,136,833 | 21,662,403 | 20,839,182 | ||||||||||||
Inventory | 6,197,608 | 7,995,189 | 4,901,057 | 2,004,169 | ||||||||||||
Prepaid expenses | 483,501 | 369,028 | ||||||||||||||
Deferred tax asset | 244,824 | 547,224 | ||||||||||||||
Prepaid expenses and other current assets | 1,278,598 | 2,338,444 | ||||||||||||||
Note receivable | 75,000 | 75,000 | ||||||||||||||
Total current assets | 79,134,597 | 68,360,433 | 125,338,797 | 115,119,295 | ||||||||||||
Property and equipment, net | 1,022,192 | 949,639 | 2,252,853 | 1,933,216 | ||||||||||||
Operating lease right-of-use asset | 604,837 | - | ||||||||||||||
Goodwill | 14,808,411 | 14,706,818 | ||||||||||||||
Intangible assets, net | 27,088,333 | 27,195,000 | ||||||||||||||
Investment in joint venture | 962,182 | 1,927,125 | 983,614 | 1,004,953 | ||||||||||||
Note receivable | 75,000 | 75,000 | ||||||||||||||
Total assets | $ | 81,118,971 | $ | 71,237,197 | $ | 171,151,845 | $ | 160,034,282 | ||||||||
Liabilities and stockholders’ equity | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable | $ | 667,592 | $ | 598,318 | $ | 1,215,049 | $ | 607,506 | ||||||||
Accrued expenses, current | 1,594,312 | 2,849,503 | 2,613,218 | 3,859,652 | ||||||||||||
Accrued expenses (related party), current | 120,000 | 120,000 | ||||||||||||||
Operating lease liability, current | 283,299 | - | ||||||||||||||
Contingent consideration liabilities, current | 4,065,537 | 5,767,304 | ||||||||||||||
Income taxes payable | 1,765,998 | 637,560 | 4,843,592 | 2,213,088 | ||||||||||||
Deferred revenue | 158,791 | 305,307 | - | 150,000 | ||||||||||||
Total current liabilities | 4,306,693 | 4,510,688 | 13,020,695 | 12,597,550 | ||||||||||||
Long-term liabilities | ||||||||||||||||
Accrued expenses, noncurrent | 554,802 | - | ||||||||||||||
Accrued expenses (related party), noncurrent | - | 30,000 | ||||||||||||||
Income taxes payable | 1,284,745 | 1,067,853 | ||||||||||||||
Deferred tax liability | 5,868,728 | 7,228,444 | ||||||||||||||
Operating lease liability | 275,672 | - | ||||||||||||||
Contingent consideration liabilities | 2,987,214 | 4,665,337 | ||||||||||||||
Total long-term liabilities | 554,802 | 30,000 | 10,416,359 | 12,961,634 | ||||||||||||
Total liabilities | 4,861,495 | 4,540,688 | 23,437,054 | 25,559,184 | ||||||||||||
Commitments and contingencies (Note 9) | ||||||||||||||||
Commitments and contingencies (Note 12) | - | - | ||||||||||||||
Stockholders’ equity | ||||||||||||||||
Convertible preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2021 and December 31, 2020 | - | - | ||||||||||||||
Common stock, $0.001 par value; 100,000,000 shares authorized; 28,665,714 and 28,558,033 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | 28,666 | 28,558 | ||||||||||||||
Convertible preferred stock, $ | par value; shares authorized; shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively- | - | ||||||||||||||
Common stock, $ | par value; shares authorized; and shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively33,984 | 33,820 | ||||||||||||||
Additional paid-in capital | 50,819,120 | 49,157,236 | 81,796,933 | 80,271,999 | ||||||||||||
Accumulated earnings | 25,409,690 | 17,510,715 | 65,883,874 | 54,169,279 | ||||||||||||
Total stockholders’ equity | 76,257,476 | 66,696,509 | 147,714,791 | 134,475,098 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 81,118,971 | $ | 71,237,197 | $ | 171,151,845 | $ | 160,034,282 |
See accompanying notes to unaudited condensed consolidated financial statements
3 |
CO – DIAGNOSTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
2022 | 2021 | |||||||||||||||
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Revenue | $ | 20,024,769 | $ | 1,548,528 | $ | 22,699,044 | $ | 20,024,769 | ||||||||
Cost of revenue | 3,272,565 | 481,740 | 3,281,951 | 3,272,565 | ||||||||||||
Gross profit | 16,752,204 | 1,066,788 | 19,417,093 | 16,752,204 | ||||||||||||
Operating expenses | ||||||||||||||||
Sales and marketing | 1,197,546 | 268,483 | 2,652,148 | 1,197,546 | ||||||||||||
General and administrative | 2,935,689 | 1,459,484 | 2,922,195 | 2,935,689 | ||||||||||||
Research and development | 2,217,063 | 400,022 | 3,771,327 | 2,217,063 | ||||||||||||
Depreciation and amortization | 67,005 | 20,748 | 247,264 | 67,005 | ||||||||||||
Total operating expenses | 6,417,303 | 2,148,737 | 9,592,934 | 6,417,303 | ||||||||||||
Income (loss) from operations | 10,334,901 | (1,081,949 | ) | |||||||||||||
Income from operations | 9,824,159 | 10,334,901 | ||||||||||||||
Other income (expense) | ||||||||||||||||
Interest income | 14,657 | 7,575 | 11,393 | 14,657 | ||||||||||||
Gain (loss) on equity method investment in joint venture | (464,943 | ) | 9,181 | |||||||||||||
Loss on disposition of assets | (93,421 | ) | - | |||||||||||||
Gain on remeasurement of acquisition contingencies | 3,379,890 | - | ||||||||||||||
(Loss) on equity method investment in joint venture | (21,339 | ) | (464,943 | ) | ||||||||||||
Total other income (expense) | (450,286 | ) | 16,756 | 3,276,523 | (450,286 | ) | ||||||||||
Income (loss) before income taxes | 9,884,615 | (1,065,193 | ) | |||||||||||||
Income before income taxes | 13,100,682 | 9,884,615 | ||||||||||||||
Income tax provision | 1,985,640 | - | 1,386,087 | 1,985,640 | ||||||||||||
Net income (loss) | $ | 7,898,975 | $ | (1,065,193 | ) | |||||||||||
Earnings (loss) per common share: | ||||||||||||||||
Net income | $ | 11,714,595 | $ | 7,898,975 | ||||||||||||
Earnings per common share: | ||||||||||||||||
Basic | $ | 0.28 | $ | (0.05 | ) | $ | 0.35 | $ | 0.28 | |||||||
Diluted | $ | 0.26 | $ | (0.05 | ) | $ | 0.34 | $ | 0.26 | |||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 28,662,885 | 22,820,450 | 33,935,570 | 28,662,885 | ||||||||||||
Diluted | 30,002,729 | 22,820,450 | 34,711,476 | 30,002,729 |
See accompanying notes to unaudited condensed consolidated financial statements
4 |
CO – DIAGNOSTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
2022 | 2021 | |||||||||||||||
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Cash flows from operating activities | ||||||||||||||||
Net income (loss) | $ | 7,898,975 | $ | (1,065,193 | ) | |||||||||||
Adjustments to reconcile net income (loss) to cash used in operating activities: | ||||||||||||||||
Net income | $ | 11,714,595 | $ | 7,898,975 | ||||||||||||
Adjustments to reconcile net income to cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 67,005 | 20,748 | 247,264 | 67,005 | ||||||||||||
Stock-based compensation expense | 1,513,012 | 432,823 | 1,375,097 | 1,513,012 | ||||||||||||
Loss (gain) from equity method investment | 464,943 | (9,181 | ) | |||||||||||||
Change in fair value of acquisition contingencies | (3,379,890 | ) | - | |||||||||||||
Non-cash lease expense | 8,762 | - | ||||||||||||||
Loss from equity method investment | 21,339 | 464,943 | ||||||||||||||
Loss on disposition of assets | 93,421 | - | ||||||||||||||
Deferred income taxes | 302,399 | - | (1,359,716 | ) | 302,399 | |||||||||||
Bad debt expense | 79,700 | 31,000 | 47,862 | 79,700 | ||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Accounts receivable | (59,994 | ) | (924,356 | ) | (871,083 | ) | (59,994 | ) | ||||||||
Prepaid and other assets | (114,473 | ) | (167,761 | ) | ||||||||||||
Prepaid expenses | 1,042,932 | (114,473 | ) | |||||||||||||
Inventory | 1,797,581 | (488,910 | ) | (3,088,944 | ) | 1,797,581 | ||||||||||
Deferred revenue | (146,516 | ) | 443,009 | (150,000 | ) | (146,516 | ) | |||||||||
Income taxes payable | 1,128,438 | - | 2,745,803 | 1,128,438 | ||||||||||||
Accounts payable and accrued expenses | (661,115 | ) | 392,293 | |||||||||||||
Net cash provided by (used in) operating activities | 12,269,955 | (1,335,528 | ) | |||||||||||||
Accounts payable, accrued expenses and other liabilities | (641,604 | ) | (661,115 | ) | ||||||||||||
Net cash provided by operating activities | 7,805,838 | 12,269,955 | ||||||||||||||
Cash flows from investing activities | ||||||||||||||||
Purchases of property and equipment | (139,558 | ) | (100,370 | ) | (396,600 | ) | (139,558 | ) | ||||||||
Proceeds from maturities of marketable investment securities | 2,032,802 | - | 1,255,266 | 2,032,802 | ||||||||||||
Investment in joint venture | 500,000 | (150,000 | ) | - | 500,000 | |||||||||||
Net cash provided by (used in) investing activities | 2,393,244 | (250,370 | ) | |||||||||||||
Net cash provided by investing activities | 858,666 | 2,393,244 | ||||||||||||||
Cash flows from financing activities | ||||||||||||||||
Proceeds from sale of common stock | - | 19,470,005 | ||||||||||||||
Proceeds from exercise of options and warrants | 148,981 | 50,000 | 150,001 | 148,981 | ||||||||||||
Payment of offering costs | - | (1,457,922 | ) | |||||||||||||
Net cash provided by financing activities | 148,981 | 18,062,083 | 150,001 | 148,981 | ||||||||||||
Net increase in cash and cash equivalents | 14,812,180 | 16,476,185 | 8,814,505 | 14,812,180 | ||||||||||||
Cash and cash equivalents at beginning of period | 42,976,713 | 893,138 | 88,607,234 | 42,976,713 | ||||||||||||
Cash and cash equivalents at end of period | $ | 57,788,893 | $ | 17,369,323 | $ | 97,421,739 | $ | 57,788,893 | ||||||||
Supplemental disclosure of cash flow information | ||||||||||||||||
Interest paid | $ | - | $ | - | $ | - | $ | - | ||||||||
Income taxes paid | $ | - | $ | - | $ | - | $ | - | ||||||||
Supplemental disclosure of non-cash investing and financing transactions | ||||||||||||||||
Inventory moved to property, plant and equipment | $ | 192,056 | $ | - | ||||||||||||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 681,327 | $ | - |
See accompanying notes to unaudited condensed consolidated financial statements
5 |
CO – DIAGNOSTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Three Months ending March 31, 2021 and 2020(Unaudited)
(Unaudited)
Shares | Amount | Shares | Amount | Capital | (Deficit) | Equity | ||||||||||||||||||||||
Convertible Preferred Stock | Common Stock | Additional Paid-in | Accumulated Earnings | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | (Deficit) | Equity | ||||||||||||||||||||||
Balance as of December 31, 2021 | - | $ | - | 33,819,862 | $ | 33,820 | $ | 80,271,999 | $ | 54,169,279 | $ | 134,475,098 | ||||||||||||||||
Common stock issued for option exercises | - | - | 45,456 | 45 | 49,956 | - | 50,001 | |||||||||||||||||||||
Common stock issued for warrant exercises | - | - | 50,000 | 50 | 99,950 | 100,000 | ||||||||||||||||||||||
Stock-based compensation | - | - | 68,750 | 69 | 1,375,028 | - | 1,375,097 | |||||||||||||||||||||
Net income | - | - | - | - | - | 11,714,595 | 11,714,595 | |||||||||||||||||||||
Balance as of March 31, 2022 | - | $ | - | 33,984,068 | $ | 33,984 | $ | 81,796,933 | $ | 65,883,874 | $ | 147,714,791 |
Convertible Preferred Stock | Common Stock | Additional Paid-in | Accumulated Earnings | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | (Deficit) | Equity | ||||||||||||||||||||||
Balance as of December 31, 2020 | - | $ | - | 28,558,033 | $ | 28,558 | $ | 49,157,236 | $ | 17,510,715 | $ | 66,696,509 | ||||||||||||||||
Common stock issued for option exercises | - | - | 65,891 | 66 | 148,914 | - | 148,980 | |||||||||||||||||||||
Stock-based compensation | - | - | 73,040 | 42 | 1,512,970 | - | 1,513,012 | |||||||||||||||||||||
Net income | - | - | - | - | - | 7,898,975 | 7,898,975 | |||||||||||||||||||||
Balance as of March 31, 2021 | - | $ | - | 28,696,964 | $ | 28,666 | $ | 50,819,120 | $ | 25,409,690 | $ | 76,257,476 |
Convertible Preferred Stock | Common Stock | Additional Paid-in | Accumulated Earnings | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | (Deficit) | Equity | ||||||||||||||||||||||
Balance as of December 31, 2020 | - | $ | - | 28,558,033 | $ | 28,558 | $ | 49,157,236 | $ | 17,510,715 | $ | 66,696,509 | ||||||||||||||||
Common stock issued for option exercises | - | - | 65,891 | 66 | 148,914 | - | 148,980 | |||||||||||||||||||||
Stock-based compensation | - | - | 41,790 | 42 | 1,512,970 | - | 1,513,012 | |||||||||||||||||||||
Net income | - | - | - | - | - | 7,898,975 | 7,898,975 | |||||||||||||||||||||
Balance as of March 31, 2021 | - | $ | - | 28,665,714 | $ | 28,666 | $ | 50,819,120 | $ | 24,409,690 | $ | 76,257,476 | ||||||||||||||||
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 | |||||||||||||||||||||
Common stock issued 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 |
See accompanying notes to unaudited condensed consolidated financial statements
6 |
CO – DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021(Unaudited)
(Unaudited)
Note 1 – Overview and Basis of Presentation
Description of Business
Co-Diagnostics, Inc., a Utah corporation (the “Company”, “Co-Dx” or “CDI”“CODX”), is developing robust and innovative molecular tools for detection of infectious diseases, liquid biopsy for cancer screening, and agricultural applications. The Company develops, manufactures and sells reagents used for diagnostic tests that function via the detection and/or analysis of nucleic acid molecules (DNA or RNA)., including robust and innovative molecular tools for detection of infectious diseases, liquid biopsy for cancer screening, and agricultural applications. In connection with the sale of theseour tests the Companywe may sell diagnostic equipment and supplies from other manufacturers.manufacturers as self-contained lab systems (which we refer to as the “MDx Device”). We are also developing a unique, groundbreaking portable PCR testing platform (the “Co-Dx PCR home testing platform”) designed to bring affordable, reliable gold-standard polymerase chain reaction (“PCR”) to patients in point-of-care and even at-home settings.
Unaudited Condensed Consolidated Financial Statements
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 and emerging growth 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 months ended March 31, 20212022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022. These statements should be read in conjunction with the Company’s audited financial statements and related notes for the year ended December 31, 2020,2021, included in the Company’s Annual Report on Form 10-K filed on March 25, 2021.24, 2022.
Certain 2020 financial statement amounts have been reclassified to conform to 2021 presentations.
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 – Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, money market funds and highly liquid investments with an original maturity date of 90 days or less from the date of purchase. The fair value of cash equivalents approximated their carrying value as of March 31, 20212022 and December 31, 2020.2021. The Company has its cash and cash equivalents with a large creditworthy financial institution and the balance exceeded federally insured limits. The Company has not experienced any losses in such accounts, and management believes the Company is not exposed to any significant credit risk on cash and cash equivalents.
Marketable Investment Securities
The Company’s marketable investment securities are comprised of investments in certificates of deposit. The Company determines the appropriate classification of its marketable investment securities at the time of purchase and re-evaluatesreevaluates such designation at each balance sheet date. The Company has classified and accounted for its marketable investment securities as available-for-sale securities as the Company may sell these securities at any time for use in its current operations or for other purposes, even prior to maturity. As a result, the Company classifies its marketable investment securities, including securities with stated maturities beyond twelve months, within current assets in the condensed consolidated balance sheets. Any unrealized gains or losses are immaterial.
7 |
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount (net of allowance) and do not bear interest. The Company maintains an allowance for doubtful accounts for amounts the Company does not expect to collect. In establishing the required allowance, management considers historical losses, current market condition, customers’ financial condition, the age of receivables, and current payment patterns. Account balances are written off against the allowance once the receivable is deemed uncollectible. Recoveries of trade receivables previously written off are recorded when collected. At March 31, 2021,2022, total accounts receivable was $12,988,627$22,379,861 with an allowance for uncollectable accounts of $871,500$717,458 resulting in a net amount of $12,117,127.$21,662,403. At December 31, 20202021, total accounts receivable was $12,928,633$21,508,779 with an allowance for uncollectable accounts of $791,800$669,597 resulting in a net amount of $12,136,833.$20,839,182.
Equity-Method Investments
Our equity method investments are initially recorded at cost 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 income (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, 2021,2022, the Company had $6,197,608$4,901,057 in inventory, of which $925,560$4,119,549 was finished goods and $5,272,048$781,508 was raw materials. At December 31, 2020,2021, the Company had $7,995,189$2,004,169 in inventory, of which $598,881$983,088 was finished goods and $7,396,308$1,021,081 was raw materials. The Company establishes reserves to reduce slow-moving, obsolete, or unusable inventories to their estimated useful or scrap values.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over the estimated useful lives of the property, generally from three to five years.years. Repairs and maintenance costs are expensed as incurred except when such repairs significantly add to the useful life or productive capacity of the asset, in which case the repairs are capitalized.
The Company reviews its long-lived assets, including property and equipment, for impairment whenever an event or change in facts and circumstances indicates that their carrying amounts may not be recoverable. Recoverability of these assets is measured by comparing the carrying amount to the estimated undiscounted future cash flows expected to be generated. If the carrying amount exceeds the undiscounted cash flows, the assets are determined to be impaired and an impairment charge is recognized as the amount by which the carrying amount exceeds fair value.
Business Combinations
We estimate the fair value of assets acquired and liabilities assumed in a business combination. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable, and as a result, actual results may differ from estimates.
Leases
As described in “Recently Adopted Accounting Standards” below, the Company adopted ASC 842, Leases (“ASC 842”) effective January 1, 2022. Under ASC 842, the Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether it has the right to control the identified asset. Right-of-use (ROU) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. ROU assets are based on the measurement of the lease liability and also include any lease payments made prior to or on lease commencement and exclude lease incentives and initial direct costs incurred, as applicable.
As the implicit rate in the Company’s leases is generally unknown, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The Company considers its credit risk, term of the lease, total lease payments and adjusts for the impacts of collateral, as necessary, when calculating its incremental borrowing rates. The Company evaluates renewal options at lease inception and on an ongoing basis and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease costs for the Company’s operating leases are recognized on a straight-line basis within operating expenses and cost of revenue over the reasonably assured lease term.
The Company has elected to not separate lease and non-lease components for leases of office space and, as a result, accounts for any lease and non-lease components for office space as a single lease component, to the extent they are fixed. Non-lease components that are not fixed are expensed as incurred as variable lease payments. The Company’s office leases typically include non-lease components such as common-area maintenance costs. The Company has also elected to not apply the recognition requirement to any leases within its existing classes of assets with a term of 12 months or less.
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.
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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.
Deferred Revenue
Deferred revenue primarily consists of payments received from customers prior to the Company fulfilling its performance obligation of providing the product. When this occurs, the Company records a contract liability as deferred revenue. Deferred revenue is recognized as revenue as the related performance obligations are satisfied.
Research and Development
Research and development costs are expensed when incurred. TheFor the three months ended March 31, 2022, the Company expensed $2,217,063 and $400,022$3,771,327 of research and development costs, forrespectively. For the three months ended March 31, 2021, and 2020, respectively.the Company expensed $2,217,063.
The Company has granted stock-based awards, including restricted stock, stock options, stock warrants and restricted stock units (“RSUs”), to its employees, certain consultants and members of its board of directors. The Company records stock-based compensation based on the grant date fair value of the awards and recognizes the fair value of those awards as expense using the straight-line method over the requisite service period of the award. The Company estimates the grant date fair value of stock options using the Black-Scholes option-pricing model. When an award is forfeited prior to the vesting date, the Company recognizes an adjustment for the previously recognized expense in the period of the forfeiture.
Income Taxes
The Company accounts for income taxes in accordance with the liability method of accounting for income taxes. Under this method, deferred income tax assets and deferred income tax liabilities represent the tax effect of temporary differences between financial reporting and tax reporting measured at enacted tax rates in effect for the year in which the differences are expected to reverse. The Company recognizes only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority.
Valuation allowances are provided when it is more-likely-than-not that some or all of the deferred income tax assets may not be realized. In assessing the need for a valuation allowance, the Company has considered its historical levels of income, expectations of future taxable income and ongoing tax planning strategies.
Developing the provision for income taxes, including the effective tax rate and analysis of potential tax exposure items, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred income tax assets and liabilities and any estimated valuation allowances deemed necessary to value deferred income tax assets. Judgments and tax strategies are subject to audit by various taxing authorities. While the Company believes it has no significant uncertain income tax positions in the consolidated financial statements, adverse determinations by these taxing authorities could have a material adverse effect on the consolidated financial positions, result of operations, or cash flows.
The Company had certain customers which are each responsible for generating 10% or more of the total revenue for the three months ended March 31, 2021. Three customers together accounted for approximately 57% of total revenue for the three months ended March 31, 2021.
Two customers each accounted for more than 10% of accounts receivable at March 31, 2021. These two customers together accounted for approximately 61% of accounts receivable at March 31, 2021.
Net Income (Loss) per Share
Basic net income 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.
Diluted net income or loss per share is computed by dividing net income or loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period increased by common shares that could be issued upon conversion or exercise of other outstanding securities to the extent those additional common shares would be dilutive. The dilutive effect of potentially dilutive securities is reflected in diluted net income or loss per share by application of the treasury stock method. During periods when the Company is in a net loss position, basic net loss per share is the same as diluted net loss per share as the effects of potentially dilutive securities are anti-dilutive.
Concentrations Risk and Significant Customers
The Company had certain customers which are each responsible for generating 10% or more of the total revenue for the three months ended March 31, 2022. Three customers together accounted for approximately 54% and 57% of total revenue for the three months ended March 31, 2022 and March 31, 2021, respectively.
Two customers each accounted for more than 10% of accounts receivable at March 31, 2022 and December 31, 2021. These two customers together accounted for approximately 62% and 66% of accounts receivable at March 31, 2022 and December 31, 2021, respectively.
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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.Recently Adopted Accounting Standards
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, 2021, 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) (“ASU 2016-13”), 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.Company adopted ASU 2016-13 on January 1, 2022. The standardadoption did not have an impact on the Company’s financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires a cumulative effect adjustmentlessee to recognize most leases on the balance sheet as lease liabilities with corresponding right-of-use assets. The objective of ASU 2016-02 is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The recognized lease liabilities and lease assets represent the obligation to make payments and the right to use or control the use of a specified asset for the lease term, respectively.
On January 1, 2022, the Company adopted Topic 842 using the modified retrospective approach with the effective date as the date of initial application. Consequently, results for the three months ended March 31, 2022 are presented under Topic 842. No prior period amounts were adjusted and continue to be reported in accordance with previous lease guidance, ASC Topic 840, Leases. The Company elected the practical expedients available under the provisions of the beginningnew standard, including not reassessing whether expired or existing contracts are or contain leases; not reassessing the classification of expired or existing leases; and not reassessing the first early reporting period in whichinitial direct cost for any existing leases. Upon adoption, the guidance is effective. The Company is evaluatingrecognized an operating lease liability of $626,699 and a corresponding operating right-of-use asset of $681,327.
Note 3 – Business Combinations
On December 31, 2021, the impactCompany completed its acquisition of the adoption of ASU 2016-13 on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)Advanced Conceptions, Inc. (“ASU 2019-12”ACI”) and Idaho Molecular Inc. (“IdMo”), which removeswere related entities developing, with the Company, an at-home/point-of-care medical diagnostic device. Upon the completion of the acquisition, all outstanding ACI and Idaho Molecular common stock was exchanged for approximately million shares of the Company’s common stock and contingent consideration that includes up to approximately million shares and approximately 456,000 warrants to purchase shares of the Company’s common stock. The contingent consideration is based on the achievement of certain exceptionsmilestones, which include regulatory approval for investments, intra-period allocationsidentified products, as well as production and interim calculationsnet revenue targets. Upon the completion of the acquisition, both ACI and adds guidance to reduce complexity in accounting for income taxes. The Company adopted this standard on January 1, 2021IdMo became 100% wholly-owned subsidiaries of the Company.
Note 4 – Goodwill and it did not have a material impact on its consolidated financial statementsIntangible Assets
Goodwill
Goodwill represents the excess of purchase price and related disclosures.costs over the value assigned to net tangible and identifiable intangible assets acquired in business combinations. The following table presents the changes in the carrying amount of goodwill for the three months ended March 31, 2022:
Schedule of Goodwill
Balance as of December 31, 2021 | $ | 14,706,818 | ||
Measurement period adjustments | 101,593 | |||
Balance as of March 31, 2022 | $ | 14,808,411 |
Intangible Assets, Net
The following table presents details of the Company’s intangible assets, excluding goodwill:
Schedule of Intangible Assets, Net
Weighted-Average | Gross | Net | ||||||||||||
Useful Life (1) | Carrying | Accumulated | Carrying | |||||||||||
(in Years) | Amount | Amortization | Amount | |||||||||||
In-process research and development | Indefinite | $ | 26,101,000 | $ | - | $ | 26,101,000 | |||||||
Non-competition agreements | 2.7 | 1,094,000 | (106,667 | ) | 987,333 | |||||||||
Total intangible assets | $ | 27,195,000 | $ | (106,667 | ) | $ | 27,088,333 |
Weighted-Average | Gross | Net | ||||||||||||
Useful Life (1) | Carrying | Accumulated | Carrying | |||||||||||
(in Years) | Amount | Amortization | Amount | |||||||||||
In-process research and development | Indefinite | $ | 26,101,000 | $ | - | $ | 26,101,000 | |||||||
Non-competition agreements | 2.7 | 1,094,000 | - | 1,094,000 | ||||||||||
Total intangible assets | $ | 27,195,000 | $ | - | $ | 27,195,000 |
(1) | Based on weighted-average useful life established as of the acquisition date. |
Note 35 – Fair Value Measurements
The Company measures and records certain financial assets at fair value on a recurring basis. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The Company’s financial instruments that are measured at fair value on a recurring basis consist of money market funds. The following three levels of inputs are used to measure the fair value of financial instruments:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
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The following table summarizes the assets measured at fair value on a recurring basis as of March 31, 2022, and December 31, 2021, by level within the fair value hierarchy:
Schedule of Fair Value Assets and Liabilities
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
March 31, 2022 | ||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
Liabilities: | ||||||||||||||||
Contingent consideration - common stock | $ | - | $ | - | $ | 6,013,939 | $ | 6,013,939 | ||||||||
Contingent consideration - warrants | - | - | 1,038,812 | 1,038,812 | ||||||||||||
Total liabilities measured at fair value | $ | - | $ | - | $ | 7,052,751 | $ | 7,052,751 |
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
December 31, 2021 | ||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
Assets: | ||||||||||||||||
Marketable securities (certificates of deposit) | $ | - | $ | 1,255,266 | $ | - | $ | 1,255,266 | ||||||||
Total assets measured at fair value | $ | - | $ | 1,255,266 | $ | - | $ | 1,255,266 | ||||||||
Liabilities: | ||||||||||||||||
Contingent consideration - common stock | $ | - | $ | - | $ | 8,684,669 | $ | 8,684,669 | ||||||||
Contingent consideration - warrants | - | - | 1,747,972 | 1,747,972 | ||||||||||||
Total liabilities measured at fair value | $ | - | $ | - | $ | 10,432,641 | $ | 10,432,641 |
The Company’s financial instruments that are measured at fair value on a recurring basis consist of certificates of deposit.
The following table summarizes the assetschanges for Level 3 items measured at fair value on a recurring basis are as follows:
Schedule of Changes in Fair Value Measurement
Fair value as of December 31, 2021 | $ | 10,432,641 | ||
Change in fair value of contingent consideration issued for business acquisitions | (3,379,890 | ) | ||
Fair value as of March 31, 2022 | $ | 7,052,751 |
The fair value of the contingent consideration is based on the fair value of the contingent consideration-common stock and contingent consideration-warrants. The fair value of the contingent consideration-common stock is equal to the probability-adjusted value of the Company’s common stock as of March 31, 2021 and December 31, 2020, by level within the2022. The fair value hierarchy:of the contingent consideration-warrants is equal to the probability adjusted value of a call option with terms consistent with the terms of the warrants as of March 31, 2022. Prior to the probability adjustments, the warrants were valued based on the following inputs:
Schedule of Contingent Consideration Common Stock and Warrants
March 31, 2021 | ||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
Marketable investment securities: | ||||||||||||||||
Certificates of deposit | $ | - | $ | 2,302,644 | $ | - | $ | 2,302,644 |
March 31, 2022 | December 31, 2021 | |||||||
Stock price | $ | 6.18 | $ | 8.93 | ||||
Strike price | $ | 9.13 | $ | 9.13 | ||||
Volatility | 77.50 | % | 80.00 | % | ||||
Risk-free rate | 2.40 | % | 1.30 | % | ||||
Expected term | 4.8 | 5.0 |
December 31, 2020 | ||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
Marketable investment securities: | ||||||||||||||||
Certificates of deposit | $ | - | $ | 4,335,446 | $ | - | $ | 4,335,446 |
Note 46 – Revenue
The following table sets forth revenue by geographic area:
Summary of Revenue by Geographic Area
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
United States | $ | 12,493,950 | $ | 614,025 | $ | 14,218,398 | $ | 12,493,950 | ||||||||
Rest of World | 7,530,819 | 934,503 | 8,480,646 | 7,530,819 | ||||||||||||
Total | $ | 20,024,769 | $ | 1,548,528 | $ | 22,699,044 | $ | 20,024,769 | ||||||||
Percentage of revenue by area: | ||||||||||||||||
United States | 62 | % | 40 | % | 63 | % | 62 | % | ||||||||
Rest of World | 38 | % | 60 | % | 37 | % | 38 | % |
Deferred Revenue
Changes in the Company’s deferred revenue balance for the three months ended March 31, 20212022 were as follows:
Schedule of Deferred Revenue
Balance as of December 31, 2020 | $ | 305,307 | ||
Revenue recognized included in deferred revenue balance at the beginning of the period | (200,071 | ) | ||
Increase due to prepayments from customers | 53,555 | |||
Balance as of March 31, 2021 | $ | 158,791 |
Balance as of December 31, 2021 | $ | 150,000 | ||
Revenue recognized included in deferred revenue balance at the beginning of the period | (150,000 | ) | ||
Balance as of March 31, 2022 | $ | - |
The Company expects to perform its performance obligation and recognize the deferred revenue as revenue during the year ended December 31, 2021.
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Schedule of Basic and Diluted Earnings Per Share
2022 | 2021 | |||||||
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Numerator | ||||||||
Net income, as reported | $ | 11,714,595 | $ | 7,898,975 | ||||
Denominator | ||||||||
Weighted average shares, basic | 33,935,570 | 28,662,885 | ||||||
Dilutive effect of stock options, warrants and RSUs | 775,906 | 1,339,844 | ||||||
Shares used to compute diluted earnings per share | 34,711,476 | 30,002,729 | ||||||
Basic earnings per share | $ | 0.35 | $ | 0.28 | ||||
Diluted earnings per share | $ | 0.34 | $ | 0.26 |
For the three months ended March 31, 2022, potentially dilutive securities of and 2020: were excluded from the calculation because their effect would have been anti-dilutive. For the three months ended March 31, 2021,
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Numerator | ||||||||
Net income (loss), as reported | $ | 7,898,975 | $ | (1,065,193 | ) | |||
Denominator | ||||||||
Weighted average shares, basic | 28,662,885 | 22,820,450 | ||||||
Dilutive effect of stock options, warrants and RSUs | 1,339,844 | - | ||||||
Shares used to compute diluted earnings per share | 30,002,729 | 22,820,450 | ||||||
Basic earnings per share | $ | 0.28 | $ | (0.05 | ) | |||
Diluted earnings per share | $ | 0.26 | $ | (0.05 | ) |
As a resultpotentially dilutive securities of incurring a net loss were excluded from the calculation because their effect would have been anti-dilutive. The computation of diluted earnings per share for the three months ended March 31, 2020, no potentially dilutive securities2022 also excludes the approximately million shares of common stock and approximately warrants to purchase shares of common stock that are included incontingent upon the calculationachievement of diluted earnings per share because such effect would be anti-dilutive. The Company had potentially dilutive securities as of March 31, 2020, consisting of: (i) 2,121,817 options and (ii) 199,090 warrants.certain milestones.
Stock Incentive Plans
The Co-Diagnostics, Inc. Amended and Restated 2015 Long Term Incentive Plan (the “Incentive Plan”) reserves an aggregate of 2,798,683 at March 31, 2021.2022. shares of common stock issuable upon the grant of awards under the Incentive Plan. The number of awards available for issuance under the Incentive Plan was
Stock Options
Schedule of Option Activity
Number of Options | Weighted Average Exercise Price | Weighted Average Fair Value | Weighted Average Remaining Contractual Life (Years) | Number of Options | Weighted Average Exercise Price | Weighted Average Fair Value | Weighted Average Remaining Contractual Life (Years) | |||||||||||||||||||||||||
Outstanding at December 31, 2020 | 1,300,588 | $ | 2.44 | $ | 1.24 | |||||||||||||||||||||||||||
Outstanding at December 31, 2021 | 1,111,363 | $ | 2.12 | $ | 1.31 | 6.62 | ||||||||||||||||||||||||||
Granted | - | - | - | - | - | - | ||||||||||||||||||||||||||
Expired | - | - | - | - | - | - | ||||||||||||||||||||||||||
Forfeited/Cancelled | - | - | - | - | - | - | ||||||||||||||||||||||||||
Exercised | (65,891 | ) | 2.26 | 1.07 | (45,456 | ) | 1.10 | 0.51 | ||||||||||||||||||||||||
Outstanding at March 31, 2021 | 1,234,697 | $ | 2.15 | $ | 1.25 | 7.68 | ||||||||||||||||||||||||||
Outstanding at March 31, 2022 | 1,065,907 | $ | 2.17 | $ | 1.35 | |||||||||||||||||||||||||||
Exercisable at March 31, 2021 | 938,030 | $ | 2.20 | $ | 1.19 | 7.42 | ||||||||||||||||||||||||||
Exercisable at March 31, 2022 | 1,049,241 | $ | 2.05 | $ | 1.21 |
The total intrinsic value of options exercised during the three months ended March 31, 20212022 was approximately $574,000.$ million. The aggregate intrinsic value of outstanding options at March 31, 20212022 was $6,889,338.approximately $ million.
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Stock-based compensation cost is measured at the grant date based on the fair value of the award granted and recognized as expense over the vesting period using the straight-line method. The Company uses the Black-Scholes model to value options granted.
In January 2021, the Company modified the exercise price of 100,000 of the options from $16.49 to $9.30. Due to the modification, the Company will recognize incremental stock-based compensation cost of $65,000, Of this amount, the Company recognized approximately $21,800 during the three months ended March 31, 2021.
As of March 31, 2021,2022, there were 296,667 of unvested options and $258,885$ of unrecognized stock-based compensation expense. The unrecognized stock-based compensation expense is expected to be recognized over 1.2 years.
Restricted Stock Units
Schedule of Outstanding Restricted Stock Units and Related Activity
Number of RSUs | Weighted Average Grant Date Fair Value | Number of RSUs | Weighted Average Grant Date Fair Value | |||||||||||||
Outstanding at December 31, 2020 | 522,500 | $ | 10.49 | |||||||||||||
Unvested at December 31, 2021 | 1,267,415 | $ | 9.94 | |||||||||||||
Granted | 480,000 | 10.40 | - | - | ||||||||||||
Vested | (68,750 | ) | 10.62 | (68,750 | ) | 10.23 | ||||||||||
Forfeited/Cancelled | - | - | - | - | ||||||||||||
Outstanding at March 31, 2021 | 933,750 | $ | 10.43 | |||||||||||||
Unvested at March 31, 2022 | 1,198,665 | $ | 9.92 |
As of March 31, 2021,2022, there was approximately $8,900,000$ million of unrecognized stock-based compensation expense related to outstanding RSUs which is expected to be recognized over a weighted-average period of 2.9 years.
Warrants
The Company has issued warrants related to past financings, acquisitions and as compensation to third parties for services provided. 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 if granted for services.
The following table summarizes warrant activity during the three months ended March 31, 2021:2022:
Schedule of Warrant Activity
Number of Warrants | Weighted Average Exercise Price | Weighted Average Fair Value | Weighted Average Remaining Contractual Life (Years) | |||||||||||||
Outstanding at December 31, 2021 | 526,281 | $ | 8.15 | $ | 4.01 | |||||||||||
Granted | - | - | - | |||||||||||||
Expired | - | - | - | |||||||||||||
Forfeited/Cancelled | - | - | - | |||||||||||||
Exercised | (50,000 | ) | 2.00 | 1.22 | ||||||||||||
Outstanding at March 31, 2022 | 476,281 | $ | 8.80 | $ | 2.82 |
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Number of Warrants | Weighted Average Exercise Price | Weighted Average Fair Value | Weighted Average Remaining Contractual Life (Years) | |||||||||||||
Outstanding at December 31, 2020 | 70,000 | $ | 1.83 | $ | 5.21 | |||||||||||
Granted | - | - | - | |||||||||||||
Forfeited/Cancelled | - | - | - | |||||||||||||
Exercised | - | - | - | |||||||||||||
Outstanding at March 31, 2021 | 70,000 | $ | 1.83 | $ | 5.21 | 3.0 |
The intrinsic value of warrants exercised during the three months ended March 31, 2022 and 2021 was approximately $20212022 was approximately $540,000. All outstanding$ million. million and $ , respectively. The aggregate intrinsic value of outstanding warrants at March 31,
The total number of warrants are exercisable at March 31, 20212022 are 20,000. The ability to exercise the approximately 456,000 warrants issued in connection with acquisitions in the prior year is contingent upon the achievement of certain development and thererevenue milestones on or before January 1, 2027. There was no unrecognized stock-based compensation expense related to warrants.
Stock Issued for Services
The Company has issued restricted stock to third parties for services provided. The grant date fair value of the restricted stock granted is determined using the closing market price of the Company’s common stock on the grant date with the associated compensation expense amortized over the vesting period of the stock awards. The Company has issued and shares of restricted stock for services during the three months ended March 31, 2022 and 2021, and thererespectively. There was no unrecognized stock-based compensation expense related to restricted stock issued.
Stock-Based Compensation Expense
Schedule of Recognized Stock-based Compensation Expense
2022 | 2021 | |||||||||||||||
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Options | $ | 76,672 | $ | 401,630 | $ | 40,874 | $ | 76,672 | ||||||||
Restricted stock units | 1,396,440 | - | 1,334,223 | 1,396,440 | ||||||||||||
Warrants | - | - | ||||||||||||||
Stock | 39,900 | 31,193 | - | 39,900 | ||||||||||||
Total stock-based compensation expense | $ | 1,513,012 | $ | 432,823 | $ | 1,375,097 | $ | 1,513,012 |
Note 79 – Income Taxes
For the three months ended March 31, 2021,2022, the Company recognized an expense from income taxes of $1,985,640,$1,386,087, representing an effective tax rate of 20.1%10.6%. The Company’s effective tax rate will generally differ from the U.S. Federal statutory rate of 21.0%21.0% due to state taxes, permanent items, and discrete items. For the three months ended March 31, 2020, no benefit2021, the Company recognized expense from income taxes was recorded due to the Company being in a full valuation allowance position, resulting in an effective tax rate of 0.0%$1,985,640.
Note 810 – 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, a former executive officer, prior to the Company’s 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 the Company began in January 2017 to pay to Dr. Satterfield $700,000$700,000 of accrued royalties at the rate of $10,000$10,000 per month. At March 31, 2022 and 2021, the aggregate balance of this related party liability was $120,000.$0 and $120,000, respectively.
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Note 11 – Leases
The Company leases office space under a non-cancelable operating lease and leases cancellable with one month notice. The Company expenses the cancellable leases in the period incurred in accordance with the practical expedient elected. As such, one lease makes up the entirety of the right-of-use asset and lease liability disclosed.
For the three months ended March 31, 2022, components of lease expense are summarized as follows:
Schedule of Lease Expense
Three Months Ended March 31, 2022 | ||||
Operating lease costs | $ | 86,588 | ||
Short-term lease costs | 76,080 | |||
Total lease costs | $ | 162,668 |
Short-term lease costs under month-to-month lease agreements are paid to related parties.
As of March 31, 2022, the maturities of the Company’s lease liabilities are as follows:
Schedule of Maturities on Company Lease Liabilities
Year Ending December 31, | ||||
2022 (remainder) | $ | 221,350 | ||
2023 | 303,059 | |||
2024 | 50,774 | |||
2025 | - | |||
2026 | - | |||
Thereafter | - | |||
Total lease payments | 575,183 | |||
Less: imputed interest | 16,212 | |||
Present value of operating lease liabilities | 558,971 | |||
Less: current portion | 283,299 | |||
Long-term portion | $ | 275,672 |
Other information related to operating leases was as follows:
Schedule of Other Information Related to Operating Lease
Three Months Ended March 31, 2022 | ||||
Cash paid for operating leases included in operating cash flows | $ | 154,882 | ||
Remaining lease term of operating leases | 2 years | |||
Discount rate of operating leases | 3.1 | % |
As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, future lease payments under ASC 840 for operating leases were as follows:
Schedule of Future Minimum Lease Payments
Year Ending December 31, | ||||
2022 | $ | 293,595 | ||
2023 | 303,059 | |||
2024 | 50,774 | |||
Total lease payments | $ | 647,428 |
Note 912 – Commitments and Contingencies
Lease Obligations
The Company’s 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 at a monthly rate of $28,825 and expires in February 2024. For the three months ended March 31, 2021 the Company expensed $86,588 for rent. For the three months ended March 31, 2020, the Company expensed $51,818 for rent. The Company’s future minimum lease payments were as follows as of March 31, 2021:
Year Ending March 31, | ||||
2021 (remainder) | $ | 214,425 | ||
2022 | 293,595 | |||
2023 | 303,059 | |||
2024 | 50,774 | |||
2025 | - | |||
Total lease payments | $ | 861,853 |
Litigation
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
In July and September 2020,The Company is currently a defendant in five different securities class action complaints that were filed by certain stockholders of the Company against the Company claiming that the Company promulgated false and misleading press releases to increase the price of our stock to improperly benefit the officers and directors of the Company. The plaintiffs demand compensatory damages sustained as a result of the Company’s alleged wrongdoing in an amount to be proven at trial. The Company believes these lawsuits are without merit and intends to defend the cases vigorously. The Company is unable to estimate a range of loss, if any, that could result were there to be an adverse final decision in these cases. As of the date of this report, the Company does not believe it is probable that these cases will result in an unfavorable outcome; however, if an unfavorable outcome were to occur in these cases, it is possible that the impact could be material to the Company’s results of operations in the period(s) in which any such outcome becomes probable and estimable.
Note 13 – Share Repurchase Program
In March 2022, the Company’s Board of Directors authorized a share repurchase program that would allow the Company to repurchase up to $30.0 million of CODX common stock. The repurchase program does not obligate the Company to acquire any particular amount of common shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion. The timing and amount of any share repurchases under the share repurchase program will be determined by Co-Diagnostics’ management at its discretion based on ongoing assessments of the capital needs of the business, the market price of the Company’s common stock, corporate and regulatory requirements, and general market conditions.
The Company has not made any repurchases under the share purchase program since its implementation.
Note 1014 – Subsequent Events
The Company evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no 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 year ended December 31, 20202021, filed with the SEC on March 25, 202124, 2022, and the audited financial statements and notes included therein.
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. |
Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.
Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
As used in this Quarterly Report, the terms “we”, “us”, “our”, and “Co-Diagnostics” means Co-Diagnostics, Inc., a Utah corporation and its consolidated subsidiaries (the “Company”), unless otherwise indicated.
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“Cautionary Note Regarding Forward-Looking Statements”Statements” for a summary of the risks and uncertainties associated with an investment in our securities.
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Business Overview
Co-Diagnostics, Inc., a Utah corporation (the “Company”, “Co-Dx” or “CDI”“CODX”), is developing robustdevelops, manufactures and innovative molecular tools for detection of infectious diseases, liquid biopsy for cancer screening, and agricultural applications. We develop, manufacture and sellsells reagents used for diagnostic tests that function via the detection and/or analysis of nucleic acid molecules (DNA or RNA)., including robust and innovative molecular tools for detection of infectious diseases, liquid biopsy for cancer screening, and agricultural applications. 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”). We are also developing a unique, groundbreaking portable PCR testing platform (the “Co-Dx PCR home testing platform”) designed to bring affordable, reliable gold-standard polymerase chain reaction (“PCR”) to patients in point-of-care and even at-home settings.
Our diagnostics systems enable very rapid,dependable, low-cost, molecular testing for organisms and genetic diseases by automating historically complex procedures in both the development and administration of tests. CDI’sCODX’s technical advance involves a novel, patented approach to Polymerase Chain Reaction (“PCR”)PCR test design of primer and probe structure (“CoPrimers”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/RNA.
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 weFor various reasons, including owning our own our platform, we believe we will be able to accomplish this faster and more economically, allowing for significant margins while still positioning the Company to be a low-cost provider of molecular diagnostics and screening services.
In addition, continued development has demonstrated the unique properties of our CoPrimerCoPrimers™ technology that makewe believe makes it ideally suited for 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 gengeneration sequencing.
Our scientists use the complex mathematics of DNA/RNA test design to engineer and optimize a DNA/RNA testtests and to automate algorithms that rapidly screen millions of possible options to pinpoint the optimum design. Dr. Brent Satterfield, our founder, developed the Company’s intellectual property consisting of the predictive mathematical algorithms and proprietary reagentspatented molecular structure used in the testing process, which together represent a major advance in PCR testing systems. CDICODX technologies are now protected by eightmore than 20 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 enablesmay allow the sale of diagnostic PCR tests at a lower price than competitors, while enabling us to maintain profit margins.
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.
Our proprietary test design our tests byprocess involves identifying the optimal locations on the target genegenes for amplification and pair the locationlocations 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 validation protocols.testing. In other words, we use the data resulting from our tests to verify thatwhether 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 an evaluation either in our lablaboratory or in an independent laboratory setting using initial production tests to confirm that the product as designed meets the user needs.
Using our proprietary test design system and proprietary reagents, we have designed and obtained regulatory approval in the European Community and in India to sell PCR diagnostic tests for the detection of COVID-19, influenza, tuberculosis, hepatitis B and C, human papillomavirus, malaria, chikungunya, dengue, and the zika virus. In the United States, CODX has obtained Emergency Use Authorization (“EUA”) for its Logix Smart™ COVID-19 detection test from the Food and Drug Administration, or FDA, and sells that test to qualified labs. In addition, our COVID-19 detection test and certain of our other suite of COVID-19 products have been approved for sale in countries such as the United Kingdom, Australia and Mexico by the regulatory bodies in those countries and have been registered for sale in many more countries.
In addition to testing for infectious disease, the technology lends itself to identifying any section of a DNA or RNA strand that describe any type of genetic trait, which creates a number of significant applications. We, in conjunction with our customers, are active in designing and licensing tests that identify genetic traits in plant and animal genomes. We also have three multiplexed tests developed to test mosquitos for the identification of diseases carried by the mosquitos to enable municipalities to concentrate their efforts in sprayingmanaging mosquito populations on the specific areas known to be breeding the mosquitos that carry deadly viruses.
Recent Developments
Because we believe that testing for the COVID-19 virus is going to be a consideration for public health worldwide even after the current pandemic has subsided, we have initiated a projectthe Co-Dx PCR home testing platform to facilitate frequent testing in homes, schools, businesses, and the hospitality industry, and at home.industry. We believe this may be accomplished through the development of a low cost,low-cost testing device, easy to use by non-professionals, testing device that can provide PCR quality test results in less thanaround 30 minutes. The initial project built on this platform, an hour. This project is possible due to the facts that in 2020 we were able to successfully lyophilizeat-home and point-of-care COVID-19 PCR test, was ultimately facilitated by our Logix Smart COVID-19development of a saliva or nasal swab-based PCR test reagents and additionally developed a saliva-based collection system that does not require the RNA/DNA extraction. While the final result is the same as if done throughbelieved to be approximately equivalent to those processed by a lab-based IVD process,high-complexity clinical laboratory, it has the advantages of increased speed and ease of handling thanks to lyophilization. We havelyophilization (or freeze-drying) of our testing reagents to allow for stability at room temperatures.
On February 15, 2021, we engaged the services of a group of professionals who haveat Idaho Molecular, Inc. (IdMo) and Advanced Conceptions, Inc (ACI) with the expertise and track record to develop the hardware for such a device using our CoPrimersCoPrimers™ as the reagent chemistry. TheOn December 22, 2021, we announced that we would be acquiring IdMo and ACI, and on December 31, 2021, we completed the acquisitions, along with all existing and future assets and intellectual property related to the platform and device. It is expected that the device and test will be available to homes, schools, offices, event facilities, and the travel industry among other locations at a cost that will allow screening frequently to prevent spread of the COVID-19 virus and its variants in the future. The device would also be available to test for other pathogens detectable through saliva or other samples as we develop those tests and offer them to the marketplace. All such tests will be subject to regulatory approval.
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RESULTS OF OPERATIONS
The Three Months Ended March 31, 20212022 Compared to the Three Months ended March 31, 20202021
Revenues
For the three months ended March 31, 2021,2022, we generated revenues of $20,024,769$22,699,044, compared to revenues of $1,548,528$20,024,769 for the three months ended March 31, 2020.2021. The increase in revenue of $18,476,241$2,674,275 was primarily due to sales of our LogixSmartLogix Smart™ COVID-19 test developed in response to the current COVID-19 pandemic. Of the total revenue in the three months ended March 31, 2021, $266,5152022, $364,950 related to the sale of third party manufactured equipment and consumables, which we sourced and sold to customers to facilitate the sales of our COVID-19 test compared to $105,492$266,515 of revenue from the sales of such equipment for the three months ended March 31, 2020.2021.
Cost of Revenues
We recorded cost of revenues of $3,281,951 for the three months ended March 31, 2022, compared to $3,272,565 for the three months ended March 31, 2021, compared to $481,740 for the three months ended March 31, 2020. This increase is due to the2021. The increase in revenuerevenues combined with a reduction of product production costs resulted in 2021 due to the sale of our LogixSmart COVID-19 test.improved gross margin. Of the total cost of sales during the three months ended March 31, 2021, $202,6362022, $374,683 was from equipment sold to our customers compared to $70,427$202,636 for equipment sold to customers for the three months ended March 31, 2020.2021.
Expenses
We incurred total operating expenses of $9,592,934 for the three months ended March 31, 2022, compared to total operating expenses of $6,417,303 for the three months ended March 31, 2021, compared to total operating expenses of $2,148,737 for the three months ended March 31, 2020.2021. The increase in operating expenses was primarily due to the increase in business activities experienced as a result of our increase in revenue, increased third party sales commissions reflected in sales and marketing, and increased investment in research and development.
General and administrative expenses increased $1,476,205, from $1,459,484 for the three months ended March 31, 2020 to $2,935,689 for the three months ended March 31, 2021. The increase in general and administrative expenses was primarily due to increased activity to support the growth of our business. The primary drivers of the increased expenses related to increases in compensation including stock-based compensation, insurance expense, contributions to retirement plans and increased expenses for professional services.
Our sales and marketing expenses for the three months ended March 31, 20212022 were $1,197,546,$2,652,148, compared to $268,483$1,197,546 for the three months ended March 31, 2020.2021. The increase of $929,063 was primarily a result of increased personnel relatedthird-party sales commissions, advertising and promotional expenses, including commissions paid to our sales team,tradeshows and related travel, and increased stock-based compensation due to the growth in revenue.
Our researchGeneral and developmentadministrative expenses increased by $1,817,041,decreased from $400,022$2,935,689 for the three months ended March 31, 20202021 to $2,922,195 for the three months ended March 31, 2022. The slight decrease in general and administrative expenses was primarily due to decreased stock-based compensation expense, partially offset by increased activity to support the growth of our business, including increased insurance expense and professional and advisory fees related to our recent acquisitions.
Our research and development expenses increased from $2,217,063 for the three months ended March 31, 2021 to $3,771,327 for the three months ended March 31, 2022. The primary increase in expenses was a result of increases in personnel expenses related to our acquisitions of IdMo and ACI on December 31, 2021.
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Other Income (Expense)
For the three months ended March 31, 2022 we had total other income of $3,276,523, compared to total other expense of $450,286 for the three months ended March 31, 2021. The primary increase in expenses was research expenditures of greater than one million dollars for our point-of-care device in addition to increases in salaries and related benefits, including stock-based compensation, as we have added additional employees to our research and development team to increase our product development activities. Additionally, there has been an increase in professional and lab services utilized to further help us in our research and product development activities.
Other Income (Expense)
For the three months ended March 31, 2021 we had total other expense of $450,286, compared to total other income of $16,756 for the three months ended March 31, 2020. The decrease was due primarily due to recording a loss of $464,943 from our India joint venture compared to income of $9,181 from our joint venturechange in the same periodfair value of contingent consideration liabilities recorded in 2020.conjunction with the acquisitions of IdMo and ACI.
Net Income
We realized net income for the three months ended March 31, 20212022 of $7,898,975,$11,714,595, compared with a net lossincome for the three months ended March 31, 20202021 of $1,065,193.$7,898,975. The increase in net income of $8,964,168 was primarily the result of salesan increase in operating expenses, offset by an increase of our LogixSmart COVID-19 testproduct revenues and resulting margins from those sales, offset by increased operating expenses as discussed above.well as changes in the fair value of acquisition contingencies. Additionally, we recorded income tax expense of $1,386,087 for the three months ended March 31, 2022, compared to $1,985,640 for the three months ended March 31, 2021.
Liquidity and Capital Resources
At March 31, 2021,2022, we had cash and cash equivalents of $57,788,893 and marketable investment securities of $2,302,644$97,421,739 that could readily be converted into cash if needed. Additionally, our total current assets of March 31, 2021,2022, were $79,436,997$125,338,797 compared to total current liabilities of $5,748,255.$13,020,695.
Net cash provided by operating activities during the three months ended March 31, 20212022 was $12,269,955,$7,805,838, compared to cash used in operating activities of $1,335,528$12,269,955 for the three months ended March 31, 2020.2021. The increasedecrease in cash from operating activities was primarily due to our increased revenue.operating expenses, increases in inventory, and the effects of non-cash items.
We received $2,393,244$858,666 of cash from investing activities during the three months ended March 31, 20212022, primarily from maturitymaturities of marketable investments offset by purchases of property and repaymentequipment, compared to cash from investing activities of advances from our India joint venture as compared uses of cash of $250,370$2,393,244 during the three months ended March 31, 2020.2021.
Net cash provided by financing activities was $148,981$150,001 for the three months ended March 31, 20212022 realized from the exercise of options and warrants, compared to $18,062,083$148,981 for the same period in the prior year. The decrease is primarily due to net proceeds of $18,012,083 received from a series of three registered direct offerings in January and February 2020 pursuant to our shelf registration in addition to receiving $50,000 from the exercise of warrants and options for the three months ended March 31, 2020.
Since commencing sales of our Logix SmartSmart™ COVID-19 test in March 2020, we have used our cash generated from those sales to fund the increase in our inventories and receivables and pay our operating expenses. We have increased our work force primarily in the area of research and development to complete development of additional tests to enable us to use our distributor network to sell other products throughout the world and remain profitable in the future. In March 2022 our board of directors authorized repurchasing up to $30.0 million of the company’s outstanding common stock. We have no obligation to repurchase any shares under the repurchase program and may suspend or discontinue it at any time without prior notice. We have not repurchased any of our outstanding common shares under the repurchase program.
We believe that our existing capital resources and the cash generated from future sales will be sufficient to meet our projected operating requirements for the next 12 months. However, our available capital resources may be consumed more rapidly than currently expected and we may need or want to raise additional financing for strategic opportunities.
If needed, we expect additional investment capital to come from (i) additional issuances of our common stock with existing and new investors or (ii) the private placement of other securities with investors similar to those that have provided funding in the past. We may not be able to secure such financing in a timely manner or on favorable terms, if at all.
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On October 30, 2020, we filed a Registration Statement on Form S-3 (File No: 333-249651) with the Securities and Exchange Commission (the “SEC”). The SEC declared the Form S-3 effective on November 5, 2020. Pursuant to a prospectus supplement to the Form S-3, we may offer and sell up to $100 million of the following securities separately or together, in one or more series or classes and in amounts, at prices and on terms described in one or more offerings: common stock; preferred stock; warrants to purchase our securities, each of which may be convertible into equity securities; or units comprised of, or other combinations of, the foregoing securities through underwriting syndicates managed or co-managed by one or more underwriters or dealers, through agents or directly to purchasers. Each time our securities are offered, we will provide a prospectus supplement to the Form S-3 containing more specific information about the particular offering. We did not sell any securities pursuant to the Form S-3.
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 revenue and expenses fluctuate from period to period.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act 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. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2021.2022. Based on the evaluation of our disclosure controls and procedures as of March 31, 2021,2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls were effective.
Changes in Internal Control over Financial Reporting
As we previously reported on a Form 8-K, on February 22, 2021, our Board of Directors appointed Brian L. Brown, CPA as the Company’s Chief Financial Officer. Other than the appointment of Mr. Brown as the Company’s Chief Financial Officer, thereThere have been no changes in our internal control over financial reporting during the three months ended March 31, 2021,2022, that hashave materially affected or, are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
There have been no material developments to the legal proceedings previously disclosed under Part I. Item 3 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021.
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.
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
None.
Dividends
We issuedhave never declared or paid any cash dividends on our capital stock. The payment of dividends on our common stock in the unregistered securities below. Forfuture will depend on our earnings, capital requirements, operating and financial condition and such other factors as our Board of Directors may consider appropriate. We currently expect to use all available funds to finance the issuancesfuture development and expansion of unregistered securities, we reliedour business and do not anticipate paying dividends on our common stock in the exemption from registration requirementsforeseeable future.
Pursuant to Section 16-10a-640 of the SecuritiesUtah Revised Business Corporation Act, no distribution may be made if, after giving it effect:
(a) | the corporation would not be able to pay its debts as they become due in the usual course of business; or | |
(b) | the corporation’s total assets would be less than the sum of its total liabilities plus, unless the articles of incorporation permit otherwise, the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. |
Share Repurchase Program
In March 2022 our board of 1933, as amended, available under Section 4(a)(2) promulgated thereunder duedirectors authorized repurchasing up to $30.0 million of the fact that such issuancescompany’s outstanding common stock. We did not involve a public offeringrepurchase any of securities.our outstanding common shares under the repurchase program during the first quarter ending March 31, 2022.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
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None.
Exhibit Index
(a) Exhibits
* Filed herewith.
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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 | By: | /s/ Dwight H. Egan |
Name: | Dwight H. Egan | |
Title: | Chief Executive Officer, President and Principal Executive Officer | |
Date: May | By: | /s/ Brian Brown |
Name: | Brian Brown | |
Title: | Chief Financial Officer and Principal Financial and Accounting Officer |