Item
1. Financial Statements
CO
– DIAGNOSTICS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
5,412,593
|
|
|
$
|
950,237
|
|
Accounts receivables,
net
|
|
|
42,557
|
|
|
|
13,420
|
|
Inventory
|
|
|
18,153
|
|
|
|
18,153
|
|
Prepaid
expenses
|
|
|
103,827
|
|
|
|
70,103
|
|
Total current assets
|
|
|
5,577,130
|
|
|
|
1,051,913
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Property and equipment,
net
|
|
|
135,820
|
|
|
|
156,138
|
|
Investment
in joint venture
|
|
|
408,393
|
|
|
|
345,121
|
|
Total
other assets
|
|
|
544,213
|
|
|
|
501,259
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
6,121,343
|
|
|
$
|
1,553,172
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
96,305
|
|
|
$
|
148,967
|
|
Accrued expenses
|
|
|
121,206
|
|
|
|
174,444
|
|
Accrued expenses
(related party)
|
|
|
120,000
|
|
|
|
120,000
|
|
Notes
payable net of discount of $0 and $91,428
|
|
|
—
|
|
|
|
1,908,572
|
|
Total current liabilities
|
|
|
337,511
|
|
|
|
2,351,983
|
|
Long-term Liabilities,
net of current portion
|
|
|
|
|
|
|
|
|
Accrued
expenses-long-term (related party)
|
|
|
220,000
|
|
|
|
260,000
|
|
Total
long-term liabilities, net of current portion
|
|
|
220,000
|
|
|
|
260,000
|
|
Total
liabilities
|
|
|
557,511
|
|
|
|
2,611,983
|
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY (DEFICIT):
|
|
|
|
|
|
|
|
|
Convertible preferred
stock, $.001 par value; 5,000,000 shares authorized, 28,000 and no shares issued and outstanding, respectively
|
|
|
28
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.001
par value, 100,000,000 shares authorized; 17,015,766 and 12,923,373 shares issued and outstanding, respectively.
|
|
|
17,016
|
|
|
|
12,923
|
|
Additional paid-in
capital
|
|
|
25,609,344
|
|
|
|
17,622,433
|
|
Accumulated
deficit
|
|
|
(20,062,556
|
)
|
|
|
(18,694,167
|
)
|
Total
stockholders’ equity (deficit)
|
|
|
5,563,832
|
|
|
|
(1,058,811
|
)
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity (deficit)
|
|
$
|
6,121,343
|
|
|
$
|
1,553,172
|
|
See
accompanying notes to unaudited condensed consolidated financial statements.
CO
– DIAGNOSTICS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For
the Three Months
Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net sales
|
|
$
|
3,400
|
|
|
$
|
9,696
|
|
Cost of sales
|
|
|
452
|
|
|
|
—
|
|
Gross profit
|
|
|
2,948
|
|
|
|
9,696
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
256,103
|
|
|
|
95,263
|
|
Administrative
and general
|
|
|
640,363
|
|
|
|
882,046
|
|
Research and
development
|
|
|
347,306
|
|
|
|
297,415
|
|
Depreciation
and amortization
|
|
|
13,668
|
|
|
|
12,403
|
|
Total
operating expenses
|
|
|
1,257,440
|
|
|
|
1,287,127
|
|
Loss from
operations
|
|
|
(1,254,492
|
)
|
|
|
(1,277,431
|
)
|
Other expense:
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
408
|
|
|
|
7,561
|
|
Interest expense
|
|
|
(106,427
|
)
|
|
|
—
|
|
Gain on disposition
of assets
|
|
|
850
|
|
|
|
—
|
|
Loss
on equity method investment in joint venture
|
|
|
(8,728
|
)
|
|
|
(40,363
|
)
|
Total other expense
|
|
|
(113,897
|
)
|
|
|
(32,802
|
)
|
Loss before income taxes
|
|
|
(1,368,389
|
)
|
|
|
(1,310,233
|
)
|
Provision
for income taxes
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
$
|
(1,368,389
|
)
|
|
$
|
(1,310,233
|
)
|
|
|
|
|
|
|
|
|
|
Basic and
diluted income (loss) per common share
|
|
$
|
(0.09
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding, basic and diluted
|
|
|
16,066,633
|
|
|
|
12,319,030
|
|
See
accompanying notes to unaudited condensed consolidated financial statements.
CO
– DIAGNOSTICS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three
Months Ended
March
31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,368,389
|
)
|
|
$
|
(1,310,233
|
)
|
Adjustments to reconcile net loss to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
13,668
|
|
|
|
12,403
|
|
Stock based compensation
|
|
|
87,794
|
|
|
|
25,000
|
|
Accretion of notes
payable discount
|
|
|
91,428
|
|
|
|
—
|
|
Gain
on disposition of assets
|
|
|
(850
|
)
|
|
|
—
|
|
Loss of equity method
investment
|
|
|
8,728
|
|
|
|
40,363
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
(
Increase)
in accounts and other receivables
|
|
|
(21,637
|
)
|
|
|
—
|
|
Decrease in deferred
income
|
|
|
—
|
|
|
|
(9,696
|
)
|
(Increase)
decrease in prepaid and other assets
|
|
|
(33,724
|
)
|
|
|
304,880
|
|
Increase in inventory
|
|
|
—
|
|
|
|
9,068
|
|
Increase
(decrease) in accounts payable and accrued expenses
|
|
|
(145,900
|
)
|
|
|
(40,309
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(1,368,882
|
)
|
|
|
(968,524
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
—
|
|
|
|
(9,688
|
)
|
Investment in
joint venture
|
|
|
(72,000
|
)
|
|
|
(15,000
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
|
(72,000
|
)
|
|
|
(24,688
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of
common stock
|
|
|
5
,496,002
|
|
|
|
—
|
|
Proceeds from sale of preferred stock
|
|
|
1,000,000
|
|
|
|
—
|
|
Payment of
offering costs
|
|
|
(592,764
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
5,903,238
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
4,462,356
|
|
|
|
(993,212
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents beginning of period
|
|
|
950,237
|
|
|
|
3,534,454
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents end of period
|
|
$
|
5,412,593
|
|
|
$
|
2,541,242
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure
of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
15,000
|
|
|
$
|
—
|
|
Income taxes paid
|
|
$
|
—
|
|
|
$
|
—
|
|
See
accompanying notes to unaudited condensed consolidated financial statements.
CO
– DIAGNOSTICS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2019
(Unaudited)
Note
1 - Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim financial information and with the instructions to Form
10-Q as they are prescribed for smaller reporting companies. Accordingly, they do not include all the information and footnotes
required by accounting principles generally accepted in the United States of America for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements
not misleading have been included. Operating results for the three-month periods ended March 31, 2019 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2019. These statements should be read in conjunction with
the Company’s audited financial statements and related notes for the year ended December 31, 2018, included in the Company’s
Annual Report on Form 10-K filed on March 28, 2019.
Certain
2018 financial statement amounts have been reclassified to conform to 2019 presentations.
Description
of Business
Co-Diagnostics,
Inc. (“we,” “our,” the “Company” or “CDI”), a Utah corporation headquartered in
Salt Lake City, Utah, is a molecular diagnostics company formed in April 2013 that develops, manufactures and markets a new, state-of-the-art
diagnostics technology.
CDI’s
diagnostics systems are designed to enable very rapid, low-cost, sophisticated molecular testing for organisms and genetic diseases
by greatly automating historically complex procedures in both the development and administration of tests. CDI’s newest
technical advance involves a novel approach to Polymerase Chain Reaction (“PCR”) primer design (CoPrimers™)
that eliminates one of the key vexing issues of PCR amplification, the exponential growth of primer-dimer pairs which adversely
interferes with identification of the target DNA. In addition, CDI scientists have enhanced the understanding of the mathematics
of DNA test design, so as to “engineer” a DNA test and automate algorithms to screen millions of possible designs
to optimize DNA test design. CDI’s proprietary platform of Co-Dx™ technologies integrates and streamlines these steps
as it analyzes biological samples.
Co-Diagnostics’
portfolio of molecular diagnostics development products and tests represents a new advancement in the understanding of the molecular
interactions of DNA. The Company uses highly specialized, proprietary cooperative-theory mathematics that may lead to a revolutionary
leap forward in the detection of infectious diseases, genetic disorders and other conditions. CoDx™ tests are a fraction
of the cost of other DNA-based tests, designed for a new generation of affordable, mobile point-of-care diagnostic devices and
compatible with many other devices, creating opportunities for state-of-the-art diagnostics available anywhere in the world, including
developing countries.
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.
The
Company, an emerging growth company (“EGC”), has elected to take advantage of the benefits of the extended transition
period provided for in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting
standards which allows the Company to defer adoption of certain accounting standards until those standards would otherwise apply
to private companies.
In
August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and
Cash Payments, to clarify guidance on the presentation and classification of certain cash receipts and payments in the statement
of cash flows. This update was issued with the intent of reducing diversity in practice with respect to eight types of cash flows.
This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years,
for public EGC companies like us. The update did not have a significant impact on the Company’s financial statements.
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, 2019, for public EGC companies like us. Management is currently
evaluating the impact that the updated standard will have on its consolidated financial statements and related disclosures.
Note
2 - Significant Accounting Policies
Earnings
(Loss) per Share
Basic earnings or loss per common share
is computed by dividing net income or loss applicable to common shareholders by the weighted average number of shares outstanding
during each period. As the Company experienced net losses during the three months ended March 31, 2019, and 2018, respectively,
no common stock equivalents have been included in the diluted earnings per common share calculations as the effect of such common
stock equivalents would be anti-dilutive. For the three months ended March 31, 2019, there were 1,679,575 potentially dilutive
shares consisting of; (i) 1,172,707 outstanding options, (ii) and 483,535 outstanding warrants and (iii)
23,333 for issued and outstanding convertible preferred stock. For the three months ended March 31, 2018, there were 1,028,969
potentially dilutive shares consisting of 322,707 outstanding options and 706,262 outstanding warrants.
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
3 – Equity
2019
On
January 30, 2019, we entered into a securities purchase agreement with investors, whereby the investors purchased from the Company
30,000 shares of Series A Convertible Preferred Stock of the Company for a purchase price of $3,000,000. The purchase price was
paid by the investors with $1.0 million in cash and the conversion of a $2.0 million note owed by the Company to the investors.
The investors may not convert the Series A Preferred Stock to the extent that such conversion would result in beneficial ownership
by the investors and their affiliates of more than 4.99% of the issued and outstanding Common Stock of the Company.
On
February 4, 2019, we completed the sale of 3,925,716 shares of the Company’s common stock, par value $0.001 per share, at
a purchase price of $1.40 per share in a registered direct offering. The aggregate gross proceeds for the sale of the Common Shares
was $5,496,002 and we received net proceeds of $4,903,238 after offering costs of $592,764.
On
March 7, 2019, we issued 166,667 shares of our common stock to an individual who converted 2,000 shares of our Series A Preferred
Stock to common stock at a conversion price calculated by multiplying the number of preferred shares being converted by $100 and
dividing the result by $1.20.
2018
In
March 2018, the Company issued 9,225 shares of our common stock valued at $25,000 to a company for services rendered.
Condensed
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
|
(Unaudited)
|
|
|
|
Convertible
Preferred Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-In-
|
|
|
Accumulated
|
|
|
Total
Stockholders’
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Deficit)
|
|
Balance as of December 31,
2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
12,923,383
|
|
|
$
|
12,923
|
|
|
$
|
17,622,433
|
|
|
$
|
(18,694,167
|
)
|
|
$
|
(1,058,811
|
)
|
Public
offering, net of offering costs of $592,764
|
|
|
—
|
|
|
|
—
|
|
|
|
3,925,716
|
|
|
|
3,926
|
|
|
|
4,899,312
|
|
|
|
—
|
|
|
|
4,903,238
|
|
Issuance
of Preferred Stock
|
|
|
30,000
|
|
|
|
30
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,999,970
|
|
|
|
—
|
|
|
|
3,000,000
|
|
Stock-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87,794
|
|
|
|
—
|
|
|
|
87,794
|
|
Conversion
of Preferred Stock to Common
|
|
|
(2,000
|
)
|
|
|
(2
|
)
|
|
|
166,667
|
|
|
|
167
|
|
|
|
(165
|
)
|
|
|
—
|
|
|
|
—
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,368,389
|
)
|
|
|
(1,368,389
|
)
|
Balance as of March
31, 2019
|
|
|
28,000
|
|
|
$
|
28
|
|
|
|
170,015,766
|
|
|
$
|
17,016
|
|
|
$
|
25,609,344
|
|
|
$
|
(20,062,556
|
)
|
|
$
|
(5,563,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
|
|
—
|
|
|
$
|
—
|
|
|
|
12,317,184
|
|
|
$
|
12,317
|
|
|
$
|
16,260,651
|
|
|
|
(12,422,444
|
)
|
|
|
3,850,524
|
|
Issuance
of Common Stock for Services
|
|
|
—
|
|
|
|
—
|
|
|
|
9,225
|
|
|
|
9
|
|
|
|
24,991
|
|
|
|
—
|
|
|
|
25,000
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
(1,310,233
|
)
|
|
|
(1,310,233
|
)
|
Balance as of March
31, 2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
12,326,409
|
|
|
$
|
12,326
|
|
|
$
|
16,285,642
|
|
|
$
|
(13,732,677
|
)
|
|
$
|
2,565,291
|
|
Note
4 – Notes Payable
On
August 3, 2018, we entered into a Note Purchase Agreement with Robert Salna, an existing shareholder of the Company and prior
investor in the Company’s convertible debt securities. Pursuant to the agreement, the Company issued to Mr. Salna a Promissory
Note, dated August 3, 2018, in the principal amount of $2,000,000 (the “Note”) in exchange for a loan to the Company
of equal principal amount.
On
January 30, 2019, we entered into a securities purchase agreement with investors, whereby the investors purchased from the Company
30,000 shares of Series A Convertible Preferred Stock of the Company for a purchase price of $3,000,000. The purchase price was
paid by the investors with $1.0 million in cash and the conversion of a $2.0 million note owed by the Company to the investors.
Upon conversion we recognized $78,241 as interest expense for the unamortized debt discount. For the three months ended March
31, 2019 we included $106,409 in interest expense of which $15,000 was for interest paid and $91,427 was for accretion of note
discount.
Note
5 – Stock-based Compensation
Stock
Incentive Plans
The
Co-Diagnostics, Inc. 2015 Long Term Incentive Plan reserves an aggregate of 6,000,000 shares. The number of unissued stock options
authorized under the plan at March 31, 2019 was 4,827,293.
Stock
Options
There were no options granted in both
the three-month periods ended March 31, 2019 and 2018.
For
the three months ended March 31, 2019 we recognized $87,794 of stock-based compensation expense, related to stock options, recorded
in our general and administrative department for options vesting which were granted prior to January 1, 2019.
For
the three months ended March 31, 2018, there was no stock-based compensation expense related to granted and unexercised stock
options.
The
following table summarizes option activity during the three months and year ended March 31, 2019 and December 31, 2018, respectively.
|
|
Options
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Fair
Value
|
|
|
Weighted
Average
Remaining Contractual
Life (years)
|
|
Outstanding at January 1, 2018
|
|
|
322,707
|
|
|
$
|
1.29
|
|
|
$
|
0.70
|
|
|
|
7.05
|
|
Options granted
|
|
|
850,000
|
|
|
|
2.63
|
|
|
|
1.24
|
|
|
|
9.98
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at December 31, 2018
|
|
|
1,172,707
|
|
|
$
|
2.23
|
|
|
$
|
1.09
|
|
|
|
8.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2019
|
|
|
1,172,707
|
|
|
$
|
2.23
|
|
|
$
|
1.09
|
|
|
|
8.47
|
|
Warrants
The
Company estimates the fair value of issued warrants on the date of issuance as determined using a Black-Scholes pricing model.
The Company amortizes the fair value of issued warrants using a vesting schedule based on the terms and conditions of each warrant.
The Black-Scholes valuation model requires various judgmental assumptions including the estimated volatility, risk-free interest
rate and expected warrant term. In determining the expected volatility, our computation is based on the stock prices of three
comparable companies and on a combination of historical and market-based implied volatility. The risk-free interest rate is based
on the yield curve of a zero-coupon U.S. Treasury bond on the date the warrant was issued with a maturity equal to the expected
term of the warrant.
There
were no warrants issued in the three months ended March 31, 2019 and 2018.
The
following table summarizes warrant activity during the three months and year ended March 31, 2019 and December 31, 2018, respectively.
|
|
Warrants
Outstanding
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Fair Value
|
|
|
Weighted
Average
Remaining Contractual
Life (years)
|
|
Outstanding at January 1, 2018
|
|
|
706,262
|
|
|
|
3.27
|
|
|
|
1.48
|
|
|
|
4.22
|
|
Warrants issued
|
|
|
50,000
|
|
|
|
2.00
|
|
|
|
1.22
|
|
|
|
5.00
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
272,727
|
|
|
|
.64
|
|
|
|
0.54
|
|
|
|
3.64
|
|
Outstanding at December 31, 2018
|
|
|
483,535
|
|
|
$
|
4.92
|
|
|
$
|
1.99
|
|
|
|
3.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2019
|
|
|
433,535
|
|
|
$
|
4.92
|
|
|
$
|
1.99
|
|
|
|
3.04
|
|
The
following table summarizes information about stock options and warrants outstanding at March 31, 2019.
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Range
of
Exercise Prices
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life
(years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.55
|
|
|
|
261,372
|
|
|
|
6.38
|
|
|
$
|
0.55
|
|
|
|
261,372
|
|
|
$
|
0.55
|
|
|
2.00-3.85
|
|
|
|
986,335
|
|
|
|
8.7
|
|
|
|
2.66
|
|
|
|
419,668
|
|
|
|
2.7
|
|
|
5.10-7.20
|
|
|
|
408,535
|
|
|
|
3.34
|
|
|
|
5.46
|
|
|
|
408,535
|
|
|
|
5.46
|
|
$
|
0.55-7.20
|
|
|
|
1,656,242
|
|
|
|
6.89
|
|
|
$
|
3.02
|
|
|
|
1,039,575
|
|
|
$
|
3.22
|
|
Total
unrecognized stock-based compensation was $497,516 at March 31, 2019 for options granted. The Company expects to recognize the
aggregate amount of this compensation expense over the next years in accordance with contractual provisions and vesting as follows:
Year
|
|
Amount
|
|
2019
|
|
$
|
263,385
|
|
2020
|
|
|
234,131
|
|
Total
|
|
$
|
497,516
|
|
Note
6 – Related Party Transactions
The
Company acquired the exclusive rights to the CoPrimer technology pursuant to a license agreement dated April 2014, between us
and DNA Logix, Inc., which was assigned to Dr. Brent Satterfield, one of our current executive officers, prior to our acquisition
of DNA Logix, Inc. On March 1, 2017, the Company entered into an amendment to its Exclusive License Agreement for its Cooperative
Primers (“License”) technology with Dr. Satterfield. The amendment provides in part that all accrued royalties under
the License cease as of January 1, 2017, and we began in January to pay $700,000 of accrued royalties at the rate of $10,000 per
month. At March 31, 2019, the aggregate balance of this related party liability was $340,000.
Note
7 – Lease Obligations
Our
offices are located at 2401 S. Foothill Dr., Suite D, Salt Lake City, Utah 84109-1479. On June 18, 2018, the Company entered into
an addendum with our landlord for additional space. The new aggregate space consists of approximately 10,273 square feet and is
leased under a multi-year contract at a rate of $14,086 per month expiring on January 31, 2020. For the three months ended March
31, 2019 and 2018, the Company expensed $45,582 and $37,897, respectively, for rent. The Company’s lease rent obligation
is as follows:
Year
|
|
Amount
|
|
2019
|
|
$
|
169,033
|
|
2020
|
|
|
14,086
|
|
Total
|
|
$
|
183,119
|
|
Note
8 – Subsequent Events
None.
The
Company evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no events that need to be reported.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary
Note Regarding Forward-Looking Statements
This
Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties. All statements
other than statements of historical fact contained in this Quarterly Report and the documents incorporated by reference herein,
including statements regarding future events, our future financial performance, business strategy, and plans and objectives of
management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by
terminology including “anticipates,” “believes,” “can,” “continue,” “could,”
“estimates,” “expects,” “intends,” “may,” “plans,” “potential,”
“predicts,” “should,” or “will” or the negative of these terms or other comparable terminology.
Although we do not make forward looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee
their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors and
the documents incorporated by reference herein, which may affect our or our industry’s actual results, levels of activity,
performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a highly regulated,
very competitive, and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict
all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination
of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.
We
have based these forward-looking statements largely on our current expectations and projections about future events and financial
trends that we believe may affect our financial condition, results of operations, business strategy, short term and long-term
business operations, and financial needs. These forward-looking statements are subject to certain risks and uncertainties that
could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report, and in particular,
the risks discussed below and under the heading “Risk Factors” in other documents we file with the SEC. The following
discussion should be read in conjunction with the Annual Report on Form 10-K for the fiscal years ended December 31, 2018 and
2017 and notes incorporated by reference therein. We undertake no obligation to revise or publicly release the results of any
revision to these forward-looking statements, except as required by law. In light of these risks, uncertainties and assumptions,
the forward-looking events and circumstances discussed in this Quarterly Report may not occur and actual results could differ
materially and adversely from those anticipated or implied in the forward-looking statement.
You
should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this Quarterly
Report. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements
after the date of this Quarterly Report to conform our statements to actual results or changed expectations.
You
are advised, however, to consult any further disclosures we make on related subjects in our reports on Forms 10-Q, 8-K and 10-K
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;
|
|
|
●
|
our
ability to raise capital to fund continuing operations;
|
|
|
●
|
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;
|
|
|
●
|
our
ability to complete capital raising transactions;
|
|
|
●
|
and
other factors relating to our industry, our operations and results of operations.
|
Critical
Accounting Policies
The
preparation of financial statements in conformity with U.S. GAAP requires that we make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities.
On an ongoing basis, we evaluate our assumptions and estimates, including those related to recognition of revenue, valuation of
investments, valuation of inventory, valuation of intangible assets, measurement of stock-based compensation expense and litigation.
We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
As
an emerging growth company, we have elected to opt-in to the extended transition period for new or revised accounting standards.
As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.
Executive
Overview
The
following management’s discussion and analysis of financial condition and results of operations describes the principal
factors affecting the results of our operations, financial condition, and changes in financial condition. This discussion should
be read in conjunction with the accompanying unaudited financial statements, and notes thereto, included elsewhere in this report.
The information contained in this discussion is subject to a number of risks and uncertainties. We urge you to review carefully
the section of this report entitled “
Forward-Looking Statements
” for a more complete discussion of the risks
and uncertainties associated with an investment in our securities.
Overview
Co-Diagnostics,
Inc. (“Company,” or “CDI,”) is developing robust and innovative molecular tools for detection of infectious
diseases, liquid biopsy for cancer screening, and agricultural applications.
Our
diagnostics systems enable very rapid, low-cost, molecular testing for organisms and genetic diseases by automating historically
complex procedures in both the development and administration of tests. CDI’s newest technical advance involves a novel
approach to PCR test design (“CoPrimers”) that eliminates one of the key vexing issues of PCR amplification occurring
especially in multiplexed transactions, which is the exponential growth of primer-dimer pairs (false positives and false negatives)
adversely interfering with identification of the target DNA.
Our
proprietary molecular diagnostics technology is paving the way for innovation in disease detection and life sciences research
through our enhanced detection of genetic material. Because we own our platform, we are able to accomplish this faster and more
economically, allowing for wider margins while still positioning Co-Diagnostics to be a low-cost provider of molecular diagnostics
and screening services.
The
Company, a Utah corporation, is a molecular diagnostics company that has developed and intends to manufacture and sell reagents
used for diagnostic tests that function via the detection and/or analysis of nucleic acid molecules (DNA or RNA). In connection
with the sale of our test products we may sell diagnostic equipment from other manufacturers as self-contained lab systems (which
we refer to as the “MDx device”).
In
addition, continued development has demonstrated the unique properties of our CoPrimer technology that make them ideally suited
to a variety of applications where specificity is key to optimal results, including multiplexing several targets simultaneously,
enhanced Single Nucleotide Polymorphism (“SNP”) detection and enrichment for next gen sequencing.
Our
scientists were the first to understand the complex mathematics of DNA test design, to “engineer” primers and probes
for DNA tests and to automate algorithms that rapidly screen millions of possible options to pinpoint the optimum design. Dr.
Satterfield, our Chief Technology Officer, developed the Company’s intellectual property consisting of the predictive mathematical
algorithms and proprietary reagents used in the testing process, which together represent a major advance in Polymerase Chain
Reaction (“PCR”) testing systems. CDI technologies are now protected by seven granted or pending US patents, as well
as certain trade secrets and copyrights.
We
may either sell or lease our portable labs to existing diagnostic centers, through sale or lease agreements, and sell the reagents
that comprise our proprietary test products to those laboratories and testing facilities.
Agreement
with Synbiotics
The
Company has entered into a joint venture agreement to manufacture diagnostics tests for seven infectious diseases with Synbiotics
Limited, a pharmaceutical manufacturing company in India. The Company and Synbiotics shall be equal partners in the joint venture.
The agreement provides for the manufacture of the tests named above and the joint sales and marketing of those tests in India.
The Company will license its technology to the joint venture on a royalty-free basis. The profits from the partnership shall be
divided as follows:
Profit
Level
|
|
CDI
Share
|
|
|
Synbiotics
Share
|
|
|
|
|
|
|
|
|
Up to $1,000,000
|
|
|
50
|
%
|
|
|
50
|
%
|
$1,000,000-$2,000,000
|
|
|
60
|
%
|
|
|
40
|
%
|
$2,000,000-$3,000,000
|
|
|
70
|
%
|
|
|
30
|
%
|
Above $3,000,000
|
|
|
80
|
%
|
|
|
20
|
%
|
Synbiotics
will be reimbursed by the joint venture for some expenses, such as approximately $96,000 in rent for the manufacturing plant and
office space. If the joint venture needs additional funding, it will be achieved through loans obtained by the joint venture,
or if loans are not available on commercially reasonable terms, from capital contributions. There is no term to the joint venture
agreement but it can be dissolved by mutual agreement or by one party upon a material breach by the other party. The manufacturing
plant is completed and is scheduled to be ready for production in the third quarter of 2019. We have submitted technical files
describing seven difference diagnostic tests to the Indian regulatory bodies requesting approval for those tests to be manufactured
in our plant and sold in the Indian market. We have received test licenses for various certain diseases allowing us to sell test
products for research. The joint venture is currently marketing our products in the Indian market and sold approximately $56,000
of our probes and primers in the three months ended March 31, 2019 to various laboratories and other users to be used as Research
Use Only tests in their facilities, which we anticipate will be the beginning of sales of our products in India.
Intellectual
Property Protection
Because much of our future success and
value depends on our proprietary technology, our patent and intellectual property strategy is of critical importance. Four of
our initial U.S. patents related to our technology have been granted by the U.S. Patent and Trademark Office, or PTO, including
the patent for our CoPrimer technology, which we consider our most important patent. One of our patents has been issued in Great
Britain, but is still pending in the United States. As of May 13, 2019, we had four additional patents pending in the U.S.
and foreign counterpart applications. Two of our issued patents expire in 2034, one in 2036 and one in 2038.
We
have identified additional applications of the technology, which represent potential patents that further define specific applications
of the processes that are covered by the original patents. We intend to continue building our intellectual property portfolio
as development continues and resources are available.
We
have copyrighted our development software that can be used by any lab or developer to develop diagnostic tests based on our technology.
We have allowed one potential customer access to our development software and intend to sell customized reagents through that
customer to labs serviced by that customer throughout the world. To date we have not sold any products to that customer.
Major
Customers
We
currently have no major customers.
Competition
The
molecular diagnostics industry is extremely competitive. There are many firms that provide some or all of the products we provide
and provide many diagnostic tests that we have yet to develop. Many of these competitors are larger than us and have significantly
greater financial resources. Because we are not established, many of our competitors have a competitive advantage in the diagnostic
testing industry because they also have other lines of business in the pharmaceutical industry from which they derive revenues
and for which they are well known and respected in the medical profession. We will need to overcome the disadvantage of being
a start up with no history of success and no respect of the medical and testing professionals. In the diagnostic testing industry,
we compete with such companies as BioMerieux, Siemans, Qiagen, and Cephied and with such pharmaceutical companies as Abbott Laboratories,
Becton, Dickinson and Johnson and Johnson.
Many
of these competitors already have an established customer base with industry standard technology, which we must overcome to be
successful.
Employees
We
currently employ 20 full-time personnel at our executive offices and lab facilities in Salt Lake City, Utah, and two employees
outside of Utah. We have engaged independent contractors in India to promote the use of our products and develop outlets for products
and employ the services of independent sales representatives on an “as needed” basis.
Government
Regulation
We
will be regulated by the U.S. Federal Drug Administration and our products must be approved by the FDA before we will be allowed
to sell our tests in the United States. Because our lab is ISO certified we are allowed to apply for CE-Marking, which will allow
us to sell in most countries in Europe, South America and Asia. We currently have CE Marks issued for our tuberculosis test, our
zika virus test, and a triplex test that tests for zika, dengue, and chikungunya simultaneously.
Organizational
History and Corporate Information
We
were incorporated as Co-Diagnostics, Inc. in Utah on April 18, 2013. Our principal executive office is located at 2401 S. Foothill
Drive, Suite D, Salt Lake City, Utah 84109. Our telephone number is (801) 438-1036. Our website address is http://codiagnostics.com
RESULTS
OF OPERATIONS
Results
of Operations for the Three Months ended March 31, 2019 and 2018
Revenues
For
the three months ended March 31, 2019 we generated $3,400 of revenues compared to revenues of $9,696 in the three months ended
March 31, 2018. The revenue in 2018 represented a license fee for licensing our Zika tests and certain other Flaviviruses for
limited distribution to a Canadian company, which license was subsequently acquired by the company. The revenues in 2019 represented
sales of our testing products.
Cost
of Revenues
For
the three months ended March 31, 2019 we recorded costs of revenues of $452 and for the three months ended March 31, 2018, we
recorded no costs of revenues.
Expenses
We
incurred total operating expenses of $1,257,440 for the three months ended March 31, 2019 compared to total operating expenses
of $1,287,127 for the three months ended March 31, 2018. The decrease of $29,687 was due primarily to decreased general and administrative
costs partially offset by increased sales and marketing costs. There was a decrease in general and administrative expenses of
$241,683 and an increase in sales and marketing costs of $160,840, and an increase of $49,891 in our research and development
expenses.
General
and administrative expenses decreased $241,683 from $882,046 for the three months ended March 31, 2018 to $640,363 for the three
months ended March 31, 2019. The decrease was primarily the result of a decrease of $376,718 in independent consulting expenses,
which was partially offset by an increase of $87,795 in option and warrant expenses, an increase of $26,357 in salaries and related
benefits and an increase of $29,129 in insurance expense.
Our
sales and marketing expenses for the three months ended March 31, 2019 were $256,103 compared to sales and marketing expenses
of $95,263 for the three months ended March 31, 2018. The increase of $160,840 is due primarily to an increases of $63,376 in
salary and related benefits expense, an increase of $44,366 in travel and meals and an increase of $39,754 in consulting fees.
Our
research and development expenses increased by $49,891 from $297,415 for the three months ended March 31, 2018 to $347,306 for
the three months ended March 31, 2019. The increase was primarily due to an increase of $54,693 in payroll and employee related
expenses, an increase of $51,619 in lab supplies used partially offset by a decrease of $57,514 in other professional services
and a decrease in consulting fees of $16,676.
Other
Income/expense
For
the three months ended March 31, 2019, we incurred interest expense of $28,186 compared to no interest expense for the three months
ended March 31, 2018. The increase of $28,186 was the result of having a $2,000,000 loan outstanding during the month of January
2019. In addition, we incurred a loss of $78,241 on extinguishment of debt incident to the payoff of the loan referenced herein.
Net
Loss
We
realized a net loss for the three months ended March 31, 2019 of $1,368,389 compared with a net loss for the three months ended
March 31, 2018 of $1,310,233. Of the increase in net loss of $58,156, $29,687 was the result of the increased operating expenses
explained above, $78,241 resulted from a loss on extinguishment of debt and $28,186 of interest expense partially offset by a
decrease of $31,636 in the loss on investment related to our joint venture.
Liquidity
and Capital Resources
Liquidity
is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise
operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts
receivable and accounts payable and capital expenditures.
To
date we have financed our operations through sales of common stock and the issuance of debt.
At
December 31, 2018, we had cash and cash equivalents of $950,237, total current assets of $1,051,913, total current liabilities
of $2,351,983 and total stockholders’ deficit of $1,058,811. At March 31, 2019, we had cash and cash equivalents of $5,412,593,
total current assets of $5,577,130, total current liabilities of $337,511 and total stockholders’ equity of $5,563,832.
On
January 30, 2019, we entered into a securities purchase agreement with investors, whereby the investors purchased from the Company
30,000 shares of Series A Convertible Preferred Stock of the Company for a purchase price of $3,000,000. The purchase price was
paid by the investors with $1.0 million in cash and the conversion of a $2.0 million note owed by the Company to the investors.
The investors may not convert the Series A Preferred Stock to the extent that such conversion would result in beneficial ownership
by the investors and their affiliates of more than 4.99% of the issued and outstanding Common Stock of the Company.
On
February 4, 2019, we completed the sale of 3,925,716 shares of the Company’s common stock, par value $0.001 per share, at
a purchase price of $1.40 per share in a registered direct offering. The aggregate gross proceeds for the sale of the Common Shares
was $5,496,002 and we received net proceeds after offering costs of $4,903,238 after offering costs of $592,764.
We experienced negative cash flow used
in operations during the three months ended March 31, 2019 of $1,368,882 compared to negative cash flow used in operations for
the three months ended March 31, 2018 of $968,524. During the three months ended March 31, 2019 and 2018, we received net
cash from financing activities of $5,903,238 and $0 as described above and used $72,000 and $15,000, respectively
of our cash in contributions to our joint venture in India. The negative cash flow in the quarter was met by cash reserves from
the issuances of common stock incident to the completion of registered direct offering in February and the issuance of preferred
stock in January. The amount of our operating deficit could decrease or increase significantly depending on strategic and other
operating decisions, thereby affecting our need for additional capital. We expect our operating losses will continue until we
are able to generate material revenue. Until our operations become profitable, we will continue to rely on proceeds received from
our offerings of stock. In August 2018 we filed a shelf registration of our securities with the SEC and in September 2018 it was
declared effective. In February 2019 we completed the registered direct offering described above pursuant to that registration.
We expect additional investment capital to come from (i) additional issuances of our common stock pursuant to our S-3 shelf registration
with existing and new investors and (ii) the private placement of other securities with investors similar to those that have provided
funding in the past.
Our
monthly cash operating expenses, including our technology research and development expenses and interest expense, were approximately
$407,000 per month during the quarter ended March 31, 2019. The foregoing estimates, expectations and forward-looking statements
are subject to change as we make strategic operating decisions from time to time and as our expenses fluctuate from period to
period.
The
amount of our operating deficit could decrease or increase significantly depending on strategic and other operating decisions,
thereby affecting our need for additional capital. We expect our operating losses will continue until we are able to generate
revenue. Revenue has commenced in 2019 and our need for additional investment will depend on the amount of revenue generated.
At our current level of operating expenditures, we have sufficient cash to fund operations for the next twelve months.
Our
long-term liquidity is dependent upon execution of our business model and the commencement of revenue generating activities and
working capital as described above, and upon capital needed for continued commercialization and development of our diagnostic
testing technology. Commercialization and future development of diagnostic tests utilizing our PCR technology are expected to
require additional capital estimated to be approximately $850,000 annually for the foreseeable future. This estimate will increase
or decrease depending on specific opportunities and available funding.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements.