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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

 

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, Utah 84109

(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   The Nasdaq Capital Market

 

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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically 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 ☒ No ☐

 

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

 

  Large accelerated filer ☐ Accelerated filer ☐
  Non-accelerated filer ☐ Smaller reporting company ☒
      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 is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

 

As of May 12, 2022, there were 33,987,736 shares of common stock, par value $0.001 per share, outstanding.

 

 

 

 

 

 

CO-DIAGNOSTICS, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION:  
     
Item 1. Financial Statements (unaudited): 3
     
  Consolidated Balance Sheets 3
     
  Consolidated Statements of Operations 4
     
  Consolidated Statements of Cash Flows 5
     
  Consolidated Statements of Stockholders’ Equity 6
     
  Notes to Consolidated Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
     
Item 4. Controls and Procedures 20
     
PART II OTHER INFORMATION:  
     
Item 1. Legal Proceedings 21
     
Item 1A. Risk Factors 21
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
     
Item 3. Defaults Upon Senior Securities 21
     
Item 4. Mine Safety Disclosures 21
     
Item 5. Other Information 21
     
Item 6. Exhibits 22
     
  Signatures 23

 

2

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CO – DIAGNOSTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

   March 31, 2022   December 31, 2021 
Assets          
Current assets          
Cash and cash equivalents  $97,421,739   $88,607,234 
Marketable investment securities   -    1,255,266 
Accounts receivable, net   21,662,403    20,839,182 
Inventory   4,901,057    2,004,169 
Prepaid expenses and other current assets   1,278,598    2,338,444 
Note receivable   75,000    75,000 
Total current assets   125,338,797    115,119,295 
Property and equipment, net   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   983,614    1,004,953 
Note receivable   75,000    75,000 
Total assets  $171,151,845   $160,034,282 
Liabilities and stockholders’ equity          
Current liabilities          
Accounts payable  $1,215,049   $607,506 
Accrued expenses, current   2,613,218    3,859,652 
Operating lease liability, current   283,299    - 
Contingent consideration liabilities, current   4,065,537    5,767,304 
Income taxes payable   4,843,592    2,213,088 
Deferred revenue   -    150,000 
Total current liabilities   13,020,695    12,597,550 
Long-term liabilities          
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   10,416,359    12,961,634 
Total liabilities   23,437,054    25,559,184 
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, 2022 and December 31, 2021, respectively   -    - 
Common stock, $0.001 par value; 100,000,000 shares authorized; 33,984,068 and 33,819,862 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively   33,984    33,820 
Additional paid-in capital   81,796,933    80,271,999 
Accumulated earnings   65,883,874    54,169,279 
Total stockholders’ equity   147,714,791    134,475,098 
Total liabilities and stockholders’ equity  $171,151,845   $160,034,282 

 

See accompanying notes to unaudited consolidated financial statements

 

3

 

 

CO – DIAGNOSTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   2022   2021 
   Three Months Ended March 31, 
   2022   2021 
Revenue  $22,699,044   $20,024,769 
Cost of revenue   3,281,951    3,272,565 
Gross profit   19,417,093    16,752,204 
Operating expenses          
Sales and marketing   2,652,148    1,197,546 
General and administrative   2,922,195    2,935,689 
Research and development   3,771,327    2,217,063 
Depreciation and amortization   247,264    67,005 
Total operating expenses   9,592,934    6,417,303 
Income from operations   9,824,159    10,334,901 
Other income (expense)          
Interest income   11,393    14,657 
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)   3,276,523    (450,286)
Income before income taxes   13,100,682    9,884,615 
Income tax provision   1,386,087    1,985,640 
Net income  $11,714,595   $7,898,975 
Earnings per common share:          
Basic  $0.35   $0.28 
Diluted  $0.34   $0.26 
Weighted average shares outstanding:          
Basic   33,935,570    28,662,885 
Diluted   34,711,476    30,002,729 

 

See accompanying notes to unaudited consolidated financial statements

 

4

 

 

CO – DIAGNOSTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   2022   2021 
   Three Months Ended March 31, 
   2022   2021 
Cash flows from operating activities          
Net income  $11,714,595   $7,898,975 
Adjustments to reconcile net income to cash used in operating activities:          
Depreciation and amortization   247,264    67,005 
Stock-based compensation expense   1,375,097    1,513,012 
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   (1,359,716)   302,399 
Bad debt expense   47,862    79,700 
Changes in assets and liabilities:          
Accounts receivable   (871,083)   (59,994)
Prepaid expenses   1,042,932    (114,473)
Inventory   (3,088,944)   1,797,581 
Deferred revenue   (150,000)   (146,516)
Income taxes payable   2,745,803    1,128,438 
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   (396,600)   (139,558)
Proceeds from maturities of marketable investment securities   1,255,266    2,032,802 
Investment in joint venture   -    500,000 
Net cash provided by investing activities   858,666    2,393,244 
Cash flows from financing activities          
Proceeds from exercise of options and warrants   150,001    148,981 
Net cash provided by financing activities   150,001    148,981 
Net increase in cash and cash equivalents   8,814,505    14,812,180 
Cash and cash equivalents at beginning of period   88,607,234    42,976,713 
Cash and cash equivalents at end of period  $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 consolidated financial statements

 

5

 

 

CO – DIAGNOSTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(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 

 

See accompanying notes to unaudited consolidated financial statements

 

6

 

 

CO – DIAGNOSTICS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1 – Overview and Basis of Presentation

 

Description of Business

 

Co-Diagnostics, Inc., a Utah corporation (the “Company”, “Co-Dx” or “CODX”), 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 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.

 

Unaudited Consolidated Financial Statements

 

The accompanying unaudited 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, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. These statements should be read in conjunction with the Company’s audited financial statements and related notes for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K filed on March 24, 2022.

 

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, 2022 and December 31, 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 reevaluates 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 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, 2022, total accounts receivable was $22,379,861 with an allowance for uncollectable accounts of $717,458 resulting in a net amount of $21,662,403. At December 31, 2021, total accounts receivable was $21,508,779 with an allowance for uncollectable accounts of $669,597 resulting in a net amount of $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 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 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, 2022, the Company had $4,901,057 in inventory, of which $4,119,549 was finished goods and $781,508 was raw materials. At December 31, 2021, the Company had $2,004,169 in inventory, of which $983,088 was finished goods and $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. 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. For the three months ended March 31, 2022, the Company expensed $3,771,327 of research and development costs, respectively. For the three months ended March 31, 2021, the Company expensed $2,217,063.

 

Stock-based Compensation

 

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.

 

Net Income 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.

 

9

 

 

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.

 

Recently Adopted Accounting Standards

 

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 Company adopted ASU 2016-13 on January 1, 2022. The adoption 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 lessee 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 new 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 initial direct cost for any existing leases. Upon adoption, the Company recognized 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 Company completed its acquisition of Advanced Conceptions, Inc. (“ACI”) and Idaho Molecular Inc. (“IdMo”), which were 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 3.2 million shares of the Company’s common stock and contingent consideration that includes up to approximately 1.4 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 milestones, which include regulatory approval for identified products, as well as production and net revenue targets. Upon the completion of the acquisition, both ACI and IdMo became 100% wholly-owned subsidiaries of the Company.

 

Note 4 – Goodwill and Intangible Assets

 

Goodwill

 

Goodwill represents the excess of purchase price and related 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:

 

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:

 

   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 5 – 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:

 

   (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 changes for Level 3 items measured at fair value on a recurring basis are as follows:

 

      
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, 2022. The fair value 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:

 

  

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 

 

Note 6 – Revenue

 

The following table sets forth revenue by geographic area:

 

   Three Months Ended March 31, 
   2022   2021 
United States  $14,218,398   $12,493,950 
Rest of World   8,480,646    7,530,819 
Total  $22,699,044   $20,024,769 
Percentage of revenue by area:          
United States   63%   62%
Rest of World   37%   38%

 

Deferred Revenue

 

Changes in the Company’s deferred revenue balance for the three months ended March 31, 2022 were as follows:

 

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  $- 

 

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Note 7 – Earnings Per Share

 

The following table reconciles the numerator and the denominator used to calculate basic and diluted earnings per share for three months ended March 31, 2022:

 

   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 1,271,304 were excluded from the calculation because their effect would have been anti-dilutive. For the three months ended March 31, 2021, potentially dilutive securities of 2,320,907 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, 2022 also excludes the approximately 1.4 million shares of common stock and approximately 456,000 warrants to purchase shares of common stock that are contingent upon the achievement of certain milestones.

 

Note 8 – Stock-Based Compensation

 

Stock Incentive Plans

 

The Co-Diagnostics, Inc. Amended and Restated 2015 Long Term Incentive Plan (the “Incentive Plan”) reserves an aggregate of 6,000,000 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 2,095,266 at March 31, 2022.

 

Stock Options

 

The following table summarizes option activity during the three months ended March 31, 2022:

 

   Number of Options   Weighted Average Exercise Price   Weighted Average Fair Value   Weighted Average Remaining Contractual Life (Years) 
Outstanding at December 31, 2021   1,111,363   $2.12   $1.31    6.62 
Granted   -    -    -      
Expired   -    -    -      
Forfeited/Cancelled   -    -    -      
Exercised   (45,456)   1.10    0.51      
Outstanding at March 31, 2022   1,065,907   $2.17   $1.35    6.65 
                     
Exercisable at March 31, 2022   1,049,241   $2.05   $1.21    6.63 

 

The total intrinsic value of options exercised during the three months ended March 31, 2022 was approximately $0.3 million. The aggregate intrinsic value of outstanding options at March 31, 2022 was approximately $4.5 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.

 

As of March 31, 2022, there were 16,666 of unvested options and $37,241 of unrecognized stock-based compensation expense. The unrecognized stock-based compensation expense is expected to be recognized over 0.2 years.

 

Restricted Stock Units

 

The grant date fair value of RSUs 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 awards. The following table sets forth the outstanding RSUs and related activity for the three months ended March 31, 2022:

 

   Number of RSUs   Weighted Average Grant Date Fair Value 
Unvested at December 31, 2021   1,267,415   $9.94 
Granted   -    - 
Vested   (68,750)   10.23 
Forfeited/Cancelled   -    - 
Unvested at March 31, 2022   1,198,665   $9.92 

 

As of March 31, 2022, there was approximately $10.3 million of unrecognized stock-based compensation expense related to outstanding RSUs which is expected to be recognized over a weighted-average period of 2.1 years.

 

Warrants

 

The Company has issued warrants related to 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, 2022:

 

   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    4.7 
Granted   -    -    -      
Expired   -    -    -      
Forfeited/Cancelled   -    -    -      
Exercised   (50,000)   2.00    1.22      
Outstanding at March 31, 2022   476,281   $8.80   $2.82    4.8 

 

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The intrinsic value of warrants exercised during the three months ended March 31, 2022 and 2021 was approximately $0.3 million and $0, respectively. The aggregate intrinsic value of outstanding warrants at March 31, 2022 was approximately $0.1 million.

 

The total number of warrants exercisable at March 31, 2022 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 revenue 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 issued 0 and 4,290 shares of restricted stock for services during the three months ended March 31, 2022 and 2021, respectively. There was no unrecognized stock-based compensation expense related to restricted stock issued.

 

Stock-Based Compensation Expense

 

The Company recognized stock-based compensation expense related to the types of awards discussed above as follows:

 

   2022   2021 
   Three Months Ended March 31, 
   2022   2021 
Options  $40,874   $76,672 
Restricted stock units   1,334,223    1,396,440 
Stock   -    39,900 
Total stock-based compensation expense  $1,375,097   $1,513,012 

 

Note 9 – Income Taxes

 

For the three months ended March 31, 2022, the Company recognized expense from income taxes of $1,386,087, representing an effective tax rate of 10.6%. The Company’s effective tax rate will generally differ from the U.S. Federal statutory rate of 21.0% due to state taxes, permanent items, and discrete items. For the three months ended March 31, 2021, the Company recognized expense from income taxes of $1,985,640.

 

Note 10 – 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 of accrued royalties at the rate of $10,000 per month. At March 31, 2022 and 2021, the aggregate balance of this related party liability was $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:

 

   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:

 

  

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:

 

   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:

 

Year Ending December 31,    
2022  $293,595 
2023   303,059 
2024   50,774 
Total lease payments  $647,428 

 

Note 12 – Commitments and Contingencies

 

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.

 

The Company is currently a defendant in five different securities class action complaints that were filed by certain stockholders of 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 14 – 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, 2021, filed with the SEC on March 24, 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 Note Regarding Forward-Looking 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 “CODX”), 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 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 dependable, low-cost, molecular testing for organisms and genetic diseases by automating historically complex procedures in both the development and administration of tests. CODX’s technical advance involves a novel, patented approach to PCR test design of primer and probe structure (“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. For various reasons, including owning our own 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 CoPrimers™ technology that we 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 generation sequencing.

 

Our scientists use the complex mathematics of DNA/RNA test design to engineer and optimize DNA/RNA tests 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 patented molecular structure used in the testing process, which together represent a major advance in PCR testing systems. CODX technologies are now protected by more 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 may 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 process involves identifying the optimal locations on the target genes for amplification and pair the locations with the optimized primer and probe structure to achieve outputs that meet the design input requirements identified from market research. This is done by following planned and documented processes, procedures and testing. In other words, we use the data resulting from our tests to verify whether 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 laboratory 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 managing mosquito populations on the specific areas known to be breeding the mosquitos that carry deadly viruses.

 

Because we believe that testing for COVID-19 is going to be a consideration for public health worldwide even after the current pandemic has subsided, we have initiated the Co-Dx PCR home testing platform to facilitate frequent testing in homes, schools, businesses, and the hospitality industry. We believe this may be accomplished through the development of a low-cost testing device, easy to use by non-professionals, that can provide PCR test results in around 30 minutes. The initial project built on this platform, an at-home and point-of-care COVID-19 PCR test, was ultimately facilitated by our development of a saliva or nasal swab-based PCR test that does not require the RNA/DNA extraction. While the final result is believed to be approximately equivalent to those processed by a high-complexity clinical laboratory, it has the advantages of increased speed and ease of handling thanks to lyophilization (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 at Idaho Molecular, Inc. (IdMo) and Advanced Conceptions, Inc (ACI) with the expertise to develop the hardware for such a device using our CoPrimers™ as the reagent chemistry. On 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, and the travel industry among other locations at a cost that will allow screening frequently to prevent spread of the COVID-19 virus 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, 2022 Compared to the Three Months ended March 31, 2021

 

Revenues

 

For the three months ended March 31, 2022, we generated revenues of $22,699,044, compared to revenues of $20,024,769 for the three months ended March 31, 2021. The increase in revenue of $2,674,275 was primarily due to sales of our Logix Smart™ COVID-19 test developed in response to the current COVID-19 pandemic. Of the total revenue in the three months ended March 31, 2022, $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 $266,515 of revenue from the sales of such equipment for the three months ended March 31, 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. The increase in revenues combined with a reduction of product production costs resulted in improved gross margin. Of the total cost of sales during the three months ended March 31, 2022, $374,683 was from equipment sold to our customers compared to $202,636 for equipment sold to customers for the three months ended March 31, 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. The increase in operating expenses was 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.

 

Our sales and marketing expenses for the three months ended March 31, 2022 were $2,652,148, compared to $1,197,546 for the three months ended March 31, 2021. The increase was primarily a result of increased third-party sales commissions, advertising and promotional expenses, including tradeshows and related travel, and increased stock-based compensation due to the growth in revenue.

 

General and administrative expenses decreased from $2,935,689 for the three months ended March 31, 2021 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 increase was due primarily to a change in the fair value of contingent consideration liabilities recorded in conjunction with the acquisitions of IdMo and ACI.

 

Net Income

 

We realized net income for the three months ended March 31, 2022 of $11,714,595, compared with net income for the three months ended March 31, 2021 of $7,898,975. The increase in net income was primarily the result of an increase in operating expenses, offset by an increase of product revenues and resulting margins from those sales, as 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, 2022, we had cash and cash equivalents of $97,421,739 that could readily be converted into cash if needed. Additionally, our total current assets of March 31, 2022, were $125,338,797 compared to total current liabilities of $13,020,695.

 

Net cash provided by operating activities during the three months ended March 31, 2022 was $7,805,838, compared to $12,269,955 for the three months ended March 31, 2021. The decrease in cash from operating activities was primarily due to increased operating expenses, increases in inventory, and the effects of non-cash items.

 

We received $858,666 of cash from investing activities during the three months ended March 31, 2022, primarily from maturities of marketable investments offset by purchases of property and equipment, compared to cash from investing activities of $2,393,244 during the three months ended March 31, 2021.

 

Net cash provided by financing activities was $150,001 for the three months ended March 31, 2022 realized from the exercise of options and warrants, compared to $148,981 for the same period in the prior year.

 

Since commencing sales of our Logix Smart™ 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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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, 2022. Based on the evaluation of our disclosure controls and procedures as of March 31, 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

 

There have been no changes in our internal control over financial reporting during the three months ended March 31, 2022, that have materially affected or, are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

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, 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 have never declared or paid any cash dividends on our capital stock. The payment of dividends on our common stock in the future 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 future development and expansion of our business and do not anticipate paying dividends on our common stock in the foreseeable future.

 

Pursuant to Section 16-10a-640 of the Utah 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 directors authorized repurchasing up to $30.0 million of the company’s outstanding common stock. We did not repurchase any of 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.

 

Item 5. Other Information

 

None.

 

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Item 6. Exhibits

 

Exhibit Index

 

(a) Exhibits

 

Exhibit   Number Description
     
3.1   Amended and Restated Bylaws of Co-Diagnostics, Inc. (Incorporated by reference herein from Form 8-K (Exhibit 3.1), filed 04/01/22, SEC File No. 001-38148.
31.1*   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   Inline XBRL Instance Document
101.SCH   Inline XBRL Taxonomy Extension Schema Document
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document
104   Cover Page Interactive Data File

 

* 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 12, 2022 By: /s/ Dwight H. Egan
  Name: Dwight H. Egan
  Title: Chief Executive Officer, President and Principal Executive Officer
     
Date: May 12, 2022 By: /s/ Brian Brown
  Name: Brian Brown
  Title: Chief Financial Officer and Principal Financial and Accounting Officer

 

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