SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549.
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______to_______
Commission File Number 001-38148
(Exact Name of Registrant as Specified in Its Charter)
|(State or other jurisdiction of|
incorporation or organization)
|(Primary Standard Industrial|
Classification Code Number)
2401 S. Foothill Drive, Salt Lake City, Utah 84109
(Address of principal executive offices and zip code)
(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|
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|Large accelerated filer||[ ]||Accelerated filer||[ ]|
|Non-accelerated filer||[ ]||Smaller reporting company||[X]|
|Emerging growth company||[X]|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $485,000,000.
As of March 24, 2021, there were 28,665,714 shares of common stock, par value $0.001 per share, outstanding.
Table of Contents
This Annual Report on Form 10-K contains “forward-looking statements” that involve risks and uncertainties. All statements other than statements of historical fact contained in this Annual 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 Annual 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 consolidated financial statements for the fiscal years ended December 31, 2020 and 2019 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 Annual 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 Annual 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 Annual 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;|
|●||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 Annual 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.
Co-Diagnostics, Inc., a Utah corporation (the “Company” or “CDI”), is developing robust and innovative molecular tools for detection of infectious diseases, liquid biopsy for cancer screening, and agricultural applications. We develop, manufacture and sell reagents used for diagnostic tests that function via the detection and/or analysis of nucleic acid molecules (DNA or RNA). In connection with the sale of our tests we may sell diagnostic equipment from other manufacturers as self-contained lab systems (which we refer to as the “MDx Device”).
Our diagnostics systems enable very rapid, low-cost, molecular testing for organisms and genetic diseases by automating historically complex procedures in both the development and administration of tests. CDI’s technical advance involves a novel approach to Polymerase Chain Reaction (“PCR”) test design 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. Because we own our platform, we believe we will be able to accomplish this faster and more economically, allowing for significant margins while still positioning the Company to be a low-cost provider of molecular diagnostics and screening services.
In addition, continued development has demonstrated the unique properties of our CoPrimer technology that make 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 gen sequencing.
Our scientists use the complex mathematics of DNA/RNA test design, to engineer and optimize a DNA/RNA test and to automate algorithms that rapidly screen millions of possible options to pinpoint the optimum design. Dr. Satterfield, our founder, developed the Company’s intellectual property consisting of the predictive mathematical algorithms and proprietary reagents used in the testing process, which together represent a major advance in PCR testing systems. CDI technologies are now protected by eight granted or pending US and foreign patents, as well as certain trade secrets and copyrights. Ownership of our proprietary platform permits us the advantage of avoiding payment of patent royalties required by other PCR test systems, which enables the sale of diagnostic tests at a lower price than competitors, while 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.
We design our tests by identifying the optimal locations on the target gene for amplification and pair the location with the optimized primer and probe structure to achieve outputs that meet the design input requirements identified from market research. This is done by following planned and documented processes, procedures and testing. In other words, the data resulting from our tests verify that we succeeded in designing what we intended at the outset. Verification is a series of testing that concludes that the product is ready to proceed to validation in an evaluation either in our lab 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 COVID-19, tuberculosis, hepatitis B and C, human papilloma virus, malaria, chikungunya, dengue, and the zika virus. In the United States, CDI has obtained Emergency Use Authorization (“EUA”) for its COVID-19 test from the FDA and sells that test to qualified labs. In addition, our LogixSmart COVID-19 test has been approved for sale in Australia and Mexico by the regulatory bodies in those countries and has 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 spraying mosquito populations on the specific areas known to be breeding the mosquitos that carry deadly viruses.
On January 23, 2020, we announced the completion of the principal design work for a PCR screening test for the new coronavirus, COVID-19, intended to address the potential need for detection of the virus. An outbreak of respiratory illness caused by the pneumonia-like COVID-19 has spread rapidly throughout the world since first being discovered in the Chinese city of Wuhan on December 31, 2019. China confirmed human-to-human transmission of the virus and the United States announced the first infection in this country, detected in a traveler returning from Wuhan. Our COVID-19 test features the Company’s patented CoPrimer™ technology, and was designed using our proprietary software system, following the guidelines published by the World Health Organization (WHO) and Centers for Disease Control (CDC).
On February 20, 2020, we announced that our Logix Smart™ COVID-19 Test technical file had been submitted for registration with the European Union, and that it was expected to be available late February as an in vitro diagnostic (“IVD”) for markets that accept a CE marking as valid regulatory approval. Subsequently, on February 24, 2020, we announced that our test obtained regulatory clearance to be sold as an IVD for the diagnosis of COVID-19 in markets that accept CE-marking as valid regulatory approval, and became available for purchase from the Company’s Utah-based ISO-13485:2016 certified facility. The Declaration of Conformity for the Logix Smart COVID-19 test confirms that it meets the Essential Requirements of the European Community’s In-Vitro Diagnostic Medical Device Directive (IVDD 98/79/EC), permitting export and sales of the product as an IVD in the European Community. We shipped samples of the Research Use Only version of our test to distributors in various countries, which allowed future customers to confirm the quality and sensitivity of the product, and for us to accelerate the sales efforts of the COVID-19 test.
We commenced sales of the COVID-19 tests in February and March of 2020 to international customers and have since sold approximately 10,000,000 tests in numerous countries around the world through an expanding distributor network.
On April 6, 2020, we announced that we had received an Emergency Use Authorization from the FDA allowing us to commence sales of our Logix Smart COVID-19 test to laboratories certified by the Center for Medicare and Medicaid Services under the Clinical Laboratories Improvements Act (“CLIA”) to accept human samples for diagnostics testing throughout the United States and have sold our Logix Smart COVID-19 test to such CLIA labs since that time.
Because we believe that testing for the COVID-19 virus is going to be a consideration for public health worldwide even after the current pandemic has subsided, we have initiated a project to facilitate frequent testing in schools, businesses, and the hospitality industry. We believe this may be accomplished through the development of a low cost, easy to use by non-professionals, testing device that can provide PCR quality test results in less than an hour. This project is possible due to the facts that in 2020 we were able to successfully lyophilize our Logix Smart Covid-19 test reagents and additionally developed a saliva-based collection system that does not require the RNA/DNA extraction. While the final result is the same as if done through a lab-based IVD process, it has the advantages of increased speed and ease of handling thanks to lyophilization. We have engaged the services of a group of professionals who have the expertise to develop the hardware for such a device using our CoPrimers as the reagent chemistry. The device will be available to homes, offices, event facilities, and the travel industry 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 samples as we develop those tests and offer them to the marketplace.
Infectious Disease Product Offering
Using our proprietary test design system and proprietary reagents, we design and sell PCR diagnostic tests for diseases and pathogens such as COVID-19, tuberculosis, hepatitis B and C, malaria, dengue, human papilloma virus, chikungunya, and Zika virus, all of which tests have been designed and verified in our laboratory. Our tuberculosis test and Zika test received a CE Mark in 2018, and a triplex test for Zika, dengue and chikungunya received a CE Mark in 2019, qualifying the tests to be sold throughout the European community and in most countries in central and South America. In December, 2019, our Indian joint venture received a license to manufacture and sell tuberculosis, hepatitis B, hepatitis C, human papilloma virus 16/18 and malaria tests in India from the Central Drugs Standard Control Organization (“CDSCO”). In February 2020, we received a CE Mark for our Logix Smart COVID-19 test and in April 2020, our COVID-19 test was approved for manufacture and sale in India by the CDSCO and in Mexico by the INDRE, Mexico’s equivalent to the United States Center for Disease Control. In August 2020, we received approval from the Australian Department of Health Therapeutic Goods Division to sell our COVID-19 test in Australia.
As explained above, the development of our Logix Smart COVID-19 test was designed, developed, submitted for regulatory approval and ready to be used both as a Research Use Only (“RUO”) and as an IVD in countries that accept a CE Mark as approval for use of the test in a period of just over thirty days. This is a real-world example of how in an evolving epidemic that the CDI technology can be used to get diagnostics tools in the hands of medical professionals without delay. It can be similarly used to design a test for mutations of the virus should they occur and not be detectable using currently available tests.
Caribbean and Central and South America
Our initial sales were to entities located in South and Central America. In some of those countries, there are limited regulatory hurdles so we started offering our tests immediately. We have applied for registration of our tests in those countries that require registration and our distributors in those countries have provided us with in country assistance in completing such registrations.
We first offered our Zika test in this region because of the demand for such test, followed quickly by tests for tuberculosis, our triplex test for Zika, chikungunya, and dengue, hepatitis B and C, and dengue. Sales of those tests have not been material, but with the granting of a CE mark for our Logix Smart COVID-19, we began significant sales in this region. Products are manufactured for sale upon receipt of purchase orders from distributors, labs and hospitals.
In January 2017, the Company entered into an agreement to manufacture diagnostics tests for seven infectious diseases with a pharmaceutical manufacturing company in India and formed an Indian joint venture organized as CoSara Diagnostics, Pvt (“CoSara”). The agreement provided for the construction of a manufacturing plant and the manufacture of the tests named above and the joint sales and marketing of those tests in India. We have received a license for the plant in Ranoli, India to manufacture approved tests and has been used for testing and manufacturing for the Indian market.
As mentioned above, the CDSCO has given us the approval for manufacture and sale of the nine tests referred above and the Company has begun manufacture and sale of those tests. The Company has commenced a reagent rental program in India with thermocyclers purchased from third-party vendors and which we refer to as our MDx Device. Each of the reagent rental placements requires the purchase of a minimum number of tests per month. The placement of thermocyclers in India has facilitated the sale of the SaraGene COVID-19 tests in India, which has made CoSara profitable in 2020. The World Health Organization (“WHO”) 2019 Global Tuberculosis Report indicates that India is the country with the highest number of cases of tuberculosis in the world. WHO tuberculosis statistics for India for 2018 give an estimated incidence figure of 2.69 million cases of tuberculosis for India out of a global incidence of approximately 10.0 million. The tuberculosis incidence for India is the number of new cases of active tuberculosis disease in India during a certain time period (usually a year). We believe that we will be able to sell our tuberculosis test in India through our sales distribution network that we are building currently.
On March 19, 2020, we announced that CoSara received authorization to begin manufacture and sale of COVID-19 tests in India. Those tests in India are branded as SaraGene COVID-19 tests and are sold exclusively by CoSara. Because any commercial activity in India was severely restricted until May 2020, CoSara was not able to commence the manufacturing and sale of the SaraGene COVID-19 tests until late in the second quarter, but sales efforts have resulted in CoSara being profitable since the commencement of sales of the COVID-19 tests. The Indian government places restrictions on the price that could be charged for COVID-19 tests which has limited the sales in India more than we have experienced in other parts of the world.
Molecular diagnostics, such as our tests, are governed in Europe by the framework for in vitro diagnostics (IVDs), which encompasses diagnostic products such as reagents, instruments and systems intended for use in diagnosis of disease. The regulatory system for IVDs is built largely on a self-certification procedure, placing heavy responsibility on manufacturers. Non self-certified products are subject to the same standards as self-certified products but are subject to audit and review by a notified body prior to receiving approval to be CE-marked. A CE-marking is a manufacturer’s declaration that a product meets the requirements of the applicable European Commission directive. Examples of current obligations include having in place a qualitative manufacturing process, user instructions that are clear and fit for purpose, ensuring that the ‘physical’ features of devices and diagnostics do not pose any danger. If a product fulfils these and other related control requirements, it may be CE-marked as an indication that the product is compliant with EU legislation and sold in the European Union. We have received CE Marks for six of our tests including COVID-19, COVID-19 (2 gene test), ABC (a triplex test for Flu A, Flu B and COVID-19), tuberculosis, Zika, and our Zika, dengue, chikungunya triplex tests.
We have received ISO 13485 and ISO 9001 certifications relating to the design and manufacture of our medical device products. The ISO certification indicates that we meet the standards required to self-certify certain of our products and affix a CE-marking for sales of our products in countries accepting the CE marking (not in the United States) with only minimal further governmental approvals and registrations in most countries.
The U.S. Food and Drug Administration (FDA) has granted permission for us to export all of our IVD products. The FDA’s permission to export was granted under Section 801(e) of the Federal Food, Drug, and Cosmetic Act, as amended (the “FDC Act”). Section 801(e) of the FDA Act covers certain medical devices that have not yet received an approved Premarket Approval in the United States by the FDA, such as our products. We have not commenced any Premarket Approval steps with the FDA. Section 801(e) of the FDA Act applies to medical devices that are acceptable to the importing country and that are manufactured under the FDA’s Good Manufacturing Practices. We have received EUA for our COVID-19 test, which allows sales to qualified labs in the United States.
Under our EUA, we are actively selling our LogixSmart COVID-19 test to CLIA certified laboratories in the United States and the CLIA labs are able to use our test as it is or further qualify our LogixSmart test as a Laboratory Developed Test (LDT), a diagnostic test that has been validated for use in the CLIA lab. These tests may be used by the lab only in that laboratory. CLIA laboratories develop the performance characteristics, perform the analytical validation for their LDT’s and obtain licenses to offer them as diagnostic services. The FDA has publicly announced its intention to regulate certain LDTs in a phased-in approach, but draft guidance that was published a couple of years ago was withdrawn at the end of the Obama administration and replaced by an informal non-enforceable discussion paper reflecting some of the feedback that it received on LDT regulation. We are currently marketing our Logix Smart COVID-19 test to CLIA laboratories throughout the US.
The market opportunity for our tests changed radically with the emergence of the COVID-19 pandemic. Because we were able to respond rapidly and produce a quality product, we have been able to build a distribution network that extends to more than 80 countries with over 50 active distributors, most of which have been the sales network that has allowed us to export products throughout the world. Approximately 40% of our sales in 2020 came through sales by our distribution network. We believe that after the pandemic is brought under control, the network of distributors that we have built in these extra-ordinary times will serve us well in sales of other diagnostic tests.
The molecular diagnostics market is a fast-growing portion of the in vitro (test tube-based, controlled environment) diagnostics market. There are several advantages of molecular tests, such as the ones we market and sell, over other forms of diagnostic testing. These advantages include higher specificity and sensitivity, the ability to perform multiplex tests and the ability to test for drug resistance or for individual genes.
Mosquito Vector Control Services
In response to market demand, we introduced our first diagnostics tests to be used exclusively to test for mosquito borne pathogens in June 2019. Municipalities in the US and many other countries in the world are concerned about the diseases carried by mosquitos and which infect the human population. To prevent outbreaks of potentially harmful viruses, such as Zika or West Nile, from infecting the public the municipalities conduct spraying operations to eliminate the mosquito populations carrying the diseases. Because it is too expensive and potentially harmful to the environment to spray all mosquito breeding areas, the solution is to identify which particular area has mosquitos that are carrying the harmful viruses. To know where the host mosquitos with the harmful viruses are located, traps are set, mosquitos collected and then tested to find the areas that most needed spraying. There are over 3,000 mosquito abatement districts throughout the United States and almost all of them conduct testing to help make the spraying more effective.
Our first vector related test was a triplex test that tests for West Nile, western equine and St. Louis encephalitis. We began shipping the tests in June 2019. We added a second test that tests mosquitos for Zika, chikungunya and dengue in a triplex test. Finally, in November 2019, we completed a test for West Nile, eastern equine and St. Louis encephalitis, specifically for use in the eastern United States. As a result, mosquito abatement districts can test for three target viruses in one test as compared to performing three different tests using other market available tests, which saves our customers money. Additionally, the districts are more effective because they can get test results in a matter of hours using our product instead of weeks when they have to wait for a central lab to process the mosquito tests.
We have sold our Vector Smart test products and/or related lab equipment to testing districts in different sections of the country and are marketing our products through trade shows, electronic and regular mail solicitations and have hired additional sales personnel in the eastern US to more economically and efficiently market to the east coast areas.
Competitive Advantages of Co-Diagnostics
We believe that we have the following competitive advantages:
|●||Affordability: Lower-cost test kits and low-cost MDx-device.|
|●||Flexibility: CDI’s tests have been designed to run on many vendors’ DNA/RNA diagnostic testing machines. These tests are particularly well suited to the new generation of “lab-on-a-chip” and “point-of-care” (“LOC and POC”), highly portable analysis machinery for field, clinic and office applications.|
|●||Speed: We believe our rapid assay design system software provides shorter time to product release. This has been demonstrated with the conception, design, product manufacture, clinical verification and submission for a CE Mark for our Logix Smart coronavirus disease (COVID-19) test being approximately 30 days.|
|●||Accuracy: We believe our tests are more sensitive and specific than competitors’ and can detect more strains of viruses.|
|●||Exclusivity: We own all patents and all intellectual property used in preparation of our tests.|
|●||Personalized Medicine: We project that rising health care costs in developed and developing nations will increasingly require that health care systems be patient specific to eliminate waste, misdiagnoses, and ineffectiveness. A critical component will be accurate, more affordable DNA-based diagnostics, which we plan to offer.|
|●||Low-cost Provider: We plan to keep our overhead low. Our platform technology obviates the need to pay patent royalties typically required of our competitors, which use patented test platforms to design their tests.|
|●||Worldwide Footprint: With a dynamic technology that encompasses markets worldwide, we anticipate that we can identify the best target markets, not only in high burden developing countries (HBDC’s) but also in developed nations.|
|●||Growth Industry Category: We believe that DNA testing is the fastest-growing segment of in-vitro diagnostic testing.|
|●||Combination Product Offering: Our ultra-sensitive tests can be a well-designed match for a new generation of handheld and other small point-of-care (POC) devices now entering the market. Used together, these affordable tests and devices may revolutionize the molecular diagnostics industry in cost, speed of test results and simplification.|
|●||Multi-plexing: Our existing multiplexed tests demonstrate that our CoPrimer designed tests are able to test for multiple targets in the same sample without the distortion caused by false negatives and false positives that generally occur in multiplexed tests.|
Liquid Biopsy for Cancer Screening
The development of liquid biopsy tests is expected to spur low-cost testing in many countries. We believe that our liquid biopsy cancer screening may be ready for testing in the foreseeable future. Medical applications of our SNP detection technology can determine the presence of cancer cells or cell-free genetic material in a liquid or tissue biopsy, and to determine the distinct type of cancer involved. A real-life example of this includes being able to identify specific mutation(s) in genes linked to breast cancer in order to determine a patient’s prognosis, initiate the most effective and affordable treatment and to determine whether chemotherapy is necessary. After diagnosis the relative cost of our technology would allow for frequent testing to measure the effectiveness of the treatment and thus could be a companion diagnostic for a range of treatments.
Our technology has for all practical purposes essentially eliminated, primer-dimers, which opens up some very unique applications for liquid biopsy for cancer detection. Our ability to multiplex the reaction in testing for several DNA targets allows technicians to detect multiple cancers as free-circulating DNA fragments or whole cells in a blood sample at the same time
SNP detection is also used in the agricultural industry to identify variations in crop genomes to achieve improved seed viability and other desired characteristics, including drought resistance, disease resistance, pest resistance and higher yield.
In mid-2017, the Company was first approached by a large agribusiness to evaluate our ability to multiplex certain target genomes. The results of the development project have successfully demonstrated our ability to not only multiplex the target genomes, but targeted SNP’s as well. The project was undertaken in conjunction with the manufacturer of our CoPrimer tests. The results of the project encouraged the parent of our manufacturer to seek a world-wide licensing arrangement for our CoPrimers in the agricultural industry, which was completed in October 2018. Pursuant to the exclusive license for the agronomics industry, the licensee pays us a royalty for all CoPrimers sold to the licensee’s customers. In January 2019, the licensee formally introduced the product at a large agricultural conference and has branded the product under the name “BHQ CoPrimers”.
Additional Licensing and Assay Development
In addition, the unique properties of our CoPrimer technology make them ideally suited to a variety of applications where sensitivity is key to optimal results, including multiplexing several targets, enhanced SNP detection and enrichment for next generation sequencing. Our licensee for our agricultural testing requested an expansion of our license agreement to include test design services for their customers and potential customers, both in the infectious disease arena as well as for agricultural customers. The license was amended in July 2019 and we expect to derive a license fee from our licensee for its design services. If any of its customers desire to commercialize the tests designed, they will need to seek a commercial license directly from us. Because of these unique characteristics of CoPrimers, research companies and institutions have requested that we design diagnostics to locate and identify uncommon gene sequences and SNPs and create tests for the target sequences in a multiplexed reaction. This application of our technology is in its beginning stages, but we believe that the results from our initial research indicate a significant step forward in defining the capabilities of our technology, which we believe can be translated to revenue producing licensing arrangements.
Because much of our future success and value depends on our proprietary technology, our patent and intellectual property strategy is of critical importance. Five of our initial U.S. patents related to our technology have been granted by the U.S. Patent and Trademark Office (PTO), including the patent for our CoPrimer technology, which we consider our most important patent. One of our patents has been issued in Great Britain, but is still pending in the United States. As of March 2021, we had two additional patents pending in the U.S. and foreign counterpart applications. Two of our issued US 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 is used by us 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.
We had certain customers which were each responsible for generating 10% or more of our total revenue for the year ended December 31, 2020. Two customers together accounted for approximately 38% of total revenue for the year ended December 31, 2020. These customers may not account for the same percentage of sales in future periods. If we were to sell nothing to those customers in the future, it would have a material adverse effect on our financial condition unless we were able to replace those customers with others.
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 significant respect from the medical and testing professionals, although this is changing as we continue to market our LogixSmart COVID-19 tests and other tests in the United States to well-known and successful laboratories. In the diagnostic testing industry, we compete with such companies as BioMerieux, Siemens, Qiagen, and Cepheid and with such pharmaceutical companies as Abbott Laboratories, Becton Dickinson and Johnson and Johnson.
Many of these competitors already have an established customer base with industry standard technology, which we must overcome to be successful.
Competition is, and will likely continue to be, particularly intense in the market for COVID-19 diagnostic tests. Numerous companies in the United States and internationally have announced their intention to offer new products, services and technologies that could be used in substitution for our LogixSmart COVID-19 tests. Many of those competitors are significantly larger, and have substantially greater financial, engineering and other resources, than our company. Existing and potential competitors in the market for COVID-19 diagnostic tests include developers of both serological and molecular tests. We also compete with companies from Asia in certain markets who are willing to sell their tests for much less than we sell our tests, which creates price pressure on us to reduce the price of tests to compete.
We expect competition to continue to increase as other established and emerging companies enter the market, as customer requirements evolve, and as new products, services and technologies are introduced. The entrance of new competitors is being encouraged by governmental authorities, who are offering funding to support development of testing solutions for COVID-19. Some of our existing or new competitors may have strong relationships with current and potential customers, including governmental authorities, and, as a result, may be able to respond more quickly to new or changing regulatory requirements, new or emerging technologies, and changes in customer requirements.
In the United States, we are regulated by the FDA and our products must be approved by the FDA before we will be allowed to sell our tests in the United States. However, the FDA granted us an EUA to manufacture and sell our Logix Smart COVID-19 test to CLIA labs in the United States. Because our lab is ISO certified, we are allowed to apply for CE-Marking, which will allow us to sell any CE Marked test in most countries in Europe, South America and Asia. We currently have CE Marks issued for our Logix Smart COVID-19 test, tuberculosis test, our Zika virus test, a triplex test that tests for Zika, dengue, and chikungunya simultaneously and a triplex test that distinguishes between Flu A, Flu B and Covid-19. In addition, our Logix Smart COVID-19 has received the license to manufacture and sell in India from India’s CDSCO and the National Epidemiology Institute in Mexico evaluated our Logix Smart COVID-19 test and approved it for sale in Mexico. We have also received approval to sell in Australia. We are in the process of registering for sale our Logix Smart COVID-19 test in a number of major countries around the world.
As of December 31, 2020, we had 37 full-time employees 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.
Organizational History and Corporate Information
We were incorporated as Co-Diagnostics, Inc., in Utah on April 18, 2013. Our principal executive office is located 2401 S. Foothill Drive, Salt Lake City, Utah 84109. Our telephone number is (801) 438-1036. Our web address is www.codiagnostics.com. The contents of our website are not incorporated by reference in this Annual Report.
Implications of Being an Emerging Growth Company
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year following the fifth anniversary of July 12, 2017, the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”); (ii) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under applicable SEC rules. We expect that we will remain an emerging growth company for the foreseeable future, but cannot retain our emerging growth company status indefinitely. We refer to the Jumpstart Our Business Startups Act of 2012 herein as the “JOBS Act”. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from specified disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
|●||being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;|
|●||not being required to comply with the requirement of auditor attestation of our internal controls over financial reporting;|
|●||not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;|
|●||reduced disclosure obligations regarding executive compensation; and|
|●||not being required to hold a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.|
For as long as we continue to be an emerging growth company, we expect that we will take advantage of the reduced disclosure obligations available to us as a result of that classification. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
An emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this extended transition period and, as a result, we will not be required to adopt new or revised accounting standards on the dates on which adoption of such standards is required for other public reporting companies.
We are also a “smaller reporting company” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and have elected to take advantage of certain of the scaled disclosure available for smaller reporting companies.
Risks Related to Our Business and Industry
We have a limited commercial history upon which to base our prospects and until this year, we have not generated profits and are not certain that we will sustain profitability in the future.
We began operations in April 2013, and we have a limited operating history. While we were profitable for the year ended December 31, 2020, we realized a net loss for the years ended December 31, 2019 and December 31, 2018 of $6.2 million and $6.3 million, respectively. Our accumulated retained earnings were $20.5 million as of December 31, 2020 and we had accumulated deficits of $25.0 million and $18.7 million as of December 31, 2019 and December 31, 2018, respectively. We realized net income for the first time for the three months ended June 30, 2020. We were able to achieve net income because we were able to develop and market our LogixSmart COVID-19 test, but we do not have any way to predict how long our market for that test will continue. Potential investors should be aware of the difficulties normally encountered by a new enterprise, many of which are beyond our control, including substantial risks and expenses in the course of developing new diagnostic tests, establishing or entering new markets, organizing operations and marketing procedures. The likelihood of our success must be considered in light of these risks, expenses, complications and delays, and the competitive environment in which we operate. There is, therefore, nothing at this time upon which to base an assumption that our business plan will continue to prove successful, and we may not be able to generate significant revenue, raise additional capital or operate profitably. We will continue to encounter risks and difficulties frequently experienced by early commercial stage companies, including scaling up our infrastructure and headcount, and may encounter unforeseen expenses, difficulties or delays in connection with our growth. In addition, as a result of the start-up nature of our business, we can be expected to continue to sustain substantial operating expenses and may not be able to continue generating sufficient revenues to cover expenditures. Any investment in our company is therefore highly speculative and could result in the loss of any investment.
Our near-term success has been dependent on the market for our COVID-19 test and future success is dependent on continued demand for the COVID-19 test and upon our ability to develop and market other commercially accepted diagnostic tests.
Our future success will depend, in part, on the continued market for our LogixSmart COVID-19 test and upon our ability to develop and sell sufficient quantities of other diagnostics tests. Attracting new customers and distribution networks requires substantial time and expense. Any failure to continue sales of our tests in sufficient quantities to maintain profitability would adversely affect our operating results. Many factors could affect the market acceptance and commercial success of any of our diagnostic tests, including:
|●||Our ability to develop additional infectious disease diagnostic tests for which there is a commercial market.|
|●||our ability to convince our potential customers of the advantages and economic value of our tests over competing technologies and diagnostic tests;|
|●||the breadth of our test menu relative to competitors;|
|●||changes to policies, procedures or currently accepted best practices in clinical diagnostic testing;|
|●||the extent and success of our marketing and sales efforts; and|
|●||our ability to manufacture in quantity our commercial diagnostic tests and meet demand in a timely fashion.|
General Risk Factors
The price of our common stock may fluctuate substantially.
The market price of our common stock may be subject to wide fluctuation in response to various factors, some of which are beyond our control. Some factors that may cause the market price of our common stock to fluctuate, in addition to the other risks mentioned in this “Risk Factors” section and elsewhere in this report, are:
|●||sales of our common stock by our shareholders, executives, and directors;|
|●||our ability to enter new markets;|
|●||actual or un-anticipated fluctuations in our annual and quarterly financial results;|
|●||our ability to obtain financings to continue and expand our commercial activities, expand our manufacturing operations, conduct research and development activities including, but not limited to, human clinical trials, and other business activities;|
|●||our ability to secure resources and the necessary personnel to continue and expand our commercial activities, develop additional diagnostic tests, conduct clinical trials and gain approval for our diagnostic tests on our desired schedule;|
|●||commencement, enrollment or results of our clinical trials of our diagnostic tests or any future clinical trials we may conduct;|
|●||changes in the development status of our diagnostic tests;|
|●||any delays or adverse developments or perceived adverse developments with respect to review by the FDA or other similar foreign regulatory authorities of our planned clinical trials;|
|●||any delay in our submission for studies or test approvals or adverse regulatory decisions, including failure to receive regulatory approval for our diagnostic tests;|
|●||our announcements or our competitors’ announcements regarding new tests, enhancements, significant contracts, acquisitions or strategic investments;|
|●||failures to meet external expectations or management guidance;|
|●||changes in our capital structure or dividend policy, including as a result of future issuances of securities and sales of large blocks of common stock by our shareholders;|
|●||announcements and events surrounding financing efforts, including debt and equity securities;|
|●||competition from existing technologies and diagnostic tests or new technologies and diagnostic tests that may emerge;|
|●||announcements of acquisitions, partnerships, collaborations, joint ventures, new diagnostic tests, capital commitments, or other events by us or our competitors;|
|●||changes in general economic, political and market conditions in any of the regions in which we conduct our business;|
|●||changes in industry conditions or perceptions;|
|●||changes in valuations of similar companies or groups of companies;|
|●||analyst research reports, recommendations and changes in recommendations, price targets and withdrawals of coverage;|
|●||departures and additions of key personnel;|
|●||disputes and litigations related to intellectual properties, proprietary rights, and contractual obligations;|
|●||changes in applicable laws, rules, regulations, or accounting practices and other dynamics;|
|●||actions taken by our principal shareholders and release or expiry of lockup or other transfer restrictions; and|
|●||other events or factors, many of which may be out of our control.|
In addition, if the market for stocks in our industry or industries related to our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition and results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.
Future sales of our common stock in the public market may cause our stock price to decline and impair our ability to raise future capital through the sale of our equity securities.
There are a substantial number of shares of our common stock held by shareholders who owned shares of our capital stock prior to our initial public offering that may be able to sell in the public market. Sales by such shareholders of a substantial number of shares could significantly reduce the market price of our common stock.
Shares issued by us upon exercise of options granted under our equity plan will be eligible for sale in the public market. If any of these holders cause a large number of securities to be sold in the public market, the sales could reduce the trading price of our common stock. These sales also could impede our ability to raise capital in the future.
Anti-takeover provisions in our charter documents and Utah law could discourage delay or prevent a change of control of our Company and may affect the trading price of our common stock.
We are a Utah corporation and the anti-takeover provisions of the Utah Control Shares Acquisition Act may discourage, delay or prevent a change of control by limiting the voting rights of control shares acquired in a control share acquisition. In addition, our Articles of Incorporation and Bylaws may discourage, delay or prevent a change in our management or control over us that shareholders may consider favorable. Among other things, our Amended and Restated Articles of Incorporation and Bylaws:
|●||authorize the issuance of “blank check” preferred stock that could be issued by our board of directors in response to a takeover attempt;|
|●||provide that vacancies on our board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office, except a vacancy occurring by reason of the removal of a director without cause shall be filled by vote of the shareholders; and|
|●||limit who may call special meetings of shareholders.|
These provisions could have the effect of delaying or preventing a change of control, whether or not it is desired by, or beneficial to, our shareholders.
NASDAQ may delist our common stock from its exchange, which could limit investors’ ability to make transactions in our common stock and subject us to additional trading restrictions.
Should we fail to satisfy the continued listing requirements of the NASDAQ Capital Market, such as the corporate governance requirements or the minimum closing bid price requirement, NASDAQ may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock, and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we would take actions to restore our compliance with the NASDAQ Capital Market’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the NASDAQ Capital Market’s minimum bid price requirement or prevent future non-compliance with the NASDAQ Capital Market’s listing requirements.
If the NASDAQ Capital Market does not maintain the listing of our securities for trading on its exchange, we could face significant material adverse consequences, including:
|●||a limited availability of market quotations for our securities;|
|●||reduced liquidity with respect to our securities;|
|●||a determination that our shares of common stock are “penny stock” which will require brokers trading in our shares of common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock;|
|●||a limited amount of news and analyst coverage for our company; and|
|●||decreased ability to issue additional securities or obtain additional financing in the future.|
Therefore, it may be difficult for our shareholders to sell any shares if they desire or need to sell them.
We do not currently intend to pay dividends on our common stock.
We do not expect to pay cash dividends on our common stock. Any future dividend payments are within the absolute discretion of our board of directors and will depend on, among other things, our results of operations, working capital requirements, capital expenditure requirements, financial condition, contractual restrictions, business opportunities, anticipated cash needs, provisions of applicable law and other factors that our board of directors may deem relevant. We may not generate sufficient cash from operations in the future to pay dividends on our common stock.
We are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Investors may find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.0 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our initial public offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.
We have elected to use the extended transition periods for complying with new or revised accounting standards.
We have elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transaction period provided in Section 7(a)(2)(B). As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.
Our management is required to devote substantial time to compliance initiatives.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a newly formed entity. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the Securities and Exchange Commission, and NASDAQ, have imposed various new requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time consuming and costly. We expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage.
Our headquarters are located at 2401 S. Foothill Drive, Salt Lake City, Utah. Our current facility has approximately 14,000 square feet of lab and office space under a lease that expires in February 2024. We have no other properties. We believe the facility we lease is sufficient to meet our needs for the immediate future.
In July 2020, we were served in an action filed in the United States District Court for the District of Utah 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 Plaintiff, Gelt Trading, Ltd., a Cayman Islands limited company, demands compensatory damages sustained as a result of our alleged wrongdoing in an amount to be proven at trial. We will vigorously defend this action as we do not believe it has any merit.
In July 2020, we were served in an action filed in the United States District Court for the District of Utah 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 Plaintiff, Fernando Hernandez demands compensatory damages sustained as a result of our alleged wrongdoing in an amount to be proven at trial. We will vigorously defend this action as we do not believe it has any merit.
In September 2020, we were served in an action filed in the United States District Court for the District of Utah claiming that the officers and the directors harmed the Company by promulgating false and misleading press releases to increase the price of our stock to improperly benefit the officers and directors of the Company. The Plaintiff, Luis Aguliera, on behalf of Co-Diagnostics, Inc. seeks damages from the individual defendants and attorneys’ fees. We will vigorously defend this as we do not believe it has any merit.
In December 2020, we were served in an action filed in the United States District Court for the District of Utah claiming that the officers and the directors harmed the Company by promulgating false and misleading press releases to increase the price of our stock to improperly benefit the officers and directors of the Company. The Plaintiff, Melvyn Klein, on behalf of Co-Diagnostics, Inc. seeks damages from the individual defendants and attorneys’ fees. We will vigorously defend this as we do not believe it has any merit.
In December 2020, we were served in an action filed in the United States District Court for the District of Utah claiming that the officers and the directors harmed the Company by promulgating false and misleading press releases to increase the price of our stock to improperly benefit the officers and directors of the Company. The Plaintiff, Mathew Wallace, on behalf of Co-Diagnostics, Inc. seeks damages from the individual defendants and attorneys’ fees. We will vigorously defend this as we do not believe it has any merit.
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.
Our common stock has been quoted on the NASDAQ market under the symbol “CODX” since July 12, 2017. The following table sets forth the high and low prices for our common stock for the periods indicated, as reported by NASDAQ.
|Calendar Quarter Ended:||High||Low|
|March 31, 2020||$||21.75||$||0.88|
|June 30, 2020||$||29.72||$||6.81|
|September 30, 2020||$||30.99||$||8.07|
|December 31, 2020||$||16.96||��||$||9.01|
|Calendar Quarter Ended:||High||Low|
|March 31, 2019||$||3.77||$||0.90|
|June 30, 2019||$||1.20||$||0.69|
|September 30, 2019||$||2.00||$||0.79|
|December 31, 2019||$||1.20||$||0.85|
As of March 18, 2021, the last reported sales price reported on NASDAQ for our common stock was $13.69 per share. As of March 18, 2021, we had approximately 150 record holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The transfer agent for our common stock is VStock Transfer LLC located at 18 Lafayette Pl, Woodmere, New York 11598.
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.
Recent Sales of Unregistered Securities
We issued the unregistered securities below. For the issuances of unregistered securities, we relied on the exemption from registration requirements of the Securities Act of 1933, as amended, available under Section 4(a)(2) promulgated thereunder due to the fact that such issuances did not involve a public offering of securities.
|●||On January 20, 2021, we issued an aggregate of 4,290 shares of our common stock for services rendered pursuant to consulting agreements|
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
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 audited 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 sections of this report entitled “Risk Factors” in other filings with the SEC and “Forward-Looking Statements” in this Annual Report for a more complete discussion of the risks and uncertainties associated with an investment in our securities.
Co-Diagnostics, Inc., a Utah corporation (“Company,” or “CDI,”) is developing robust and innovative molecular tools for detection of infectious diseases, liquid biopsy for cancer screening, and agricultural applications. We have developed and we manufacture and sell reagents used for diagnostic tests that function via the detection and/or analysis of nucleic acid molecules (DNA or RNA). In connection with the sale of our tests we may sell diagnostic equipment from other manufacturers as self-contained lab systems (which we refer to as the “MDx device”).
Our diagnostics systems enable very rapid, low-cost, molecular testing for organisms and genetic diseases by automating historically complex procedures in both the development and administration of tests. CDI’s newest technical advance involves a novel approach to Polymerase Chain Reaction (“PCR”) test design (“Co-Primers”) 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.
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.
In addition, continued development has demonstrated the unique properties of our Co-Primer technology that make them ideally suited to a variety of applications where specificity is key to optimal results, including multiplexing several targets, enhanced Single Nucleotide Polymorphism (“SNP”) detection and enrichment for next gen sequencing.
Our scientists use the complex mathematics of DNA test design, to “engineer” a DNA test and to automate algorithms that rapidly screen millions of possible options to pinpoint the optimum design. Dr. Satterfield, our Chief Technology Officer, developed the Company’s intellectual property consisting of the predictive mathematical algorithms and proprietary reagents used in the testing process, which together represent a major advance in PCR testing systems. CDI technologies are now protected by seven granted or pending US and foreign patents, as well as certain trade secrets and copyrights. Ownership of our proprietary platform permits us the advantage of avoiding payment of patent royalties required by other PCR test systems, which enables the sale of diagnostic tests at a lower price than competitors, while generating a profit margin.
We may either sell or lease the MDX Device to labs and diagnostic centers, through sale or lease agreements, and sell the reagents that comprise our proprietary tests to those laboratories and testing facilities.
We designed our tests by identifying the optimal locations on the target gene for amplification and paired the location with the optimized primer and probe structure to achieve outputs that meet the design input requirements identified from market research. This is done by following planned and documented processes, procedures and testing. In other words, the data resulting from our tests verify that we succeeded in designing what we intended at the outset. Verification is a series of testing that concludes that the product is ready to proceed to validation in a clinical evaluation setting using initial production tests to confirm that the product as designed meets the user needs.
Using its proprietary test design system and proprietary reagents, CDI has designed and obtained regulatory approval to sell PCR diagnostic tests for COVID-19, a multiplex test for Flu A, Flu B and COVID-19, tuberculosis, hepatitis B and C, human papilloma virus, Malaria, chikungunya, dengue, and the Zika virus.
In addition to testing for infectious disease, the technology lends itself to identifying any section of a DNA strand that describe any type of genetic trait, which creates a number of significant applications. We are active in designing and licensing tests that identify genetic traits in plant and animal genomes. We also have a number of tests developed to test mosquitos for the identification of diseases carried by the mosquitos to enable municipalities to concentrate their efforts in spraying mosquito populations on the specific areas known to be breeding the mosquitos that carry deadly viruses.
RESULTS OF OPERATIONS
Results of Operations for the Years Ended December 31, 2020 and 2019
The table below provides a comparison of our operating results for the year ended December 31, 2020 as compared to the year ended December 31, 2019.
|Years Ended December 31,||Year Change|
|Cost of revenue||16,591,346||112,431||16,478,915||14657||%|
|Sales and marketing||4,665,113||1,061,676||3,603,437||339||%|
|General and administrative||8,278,734||3,497,273||4,781,461||137||%|
|Research and development||3,185,290||1,371,433||1,813,857||132||%|
|Depreciation and amortization||138,635||65,902||72,733||110||%|
|Total operating expenses||16,267,772||5,996,284||10,271,488||171||%|
|Income (loss) from operations||41,693,640||(5,893,741||)||47,587,381||807||%|
|Other income (expense)|
|Gain (loss) on disposition of assets||(175||)||850||(1,025||)||-121||%|
|Gain (loss) on equity method investment in joint venture||778,385||(232,881||)||1,011,266||434||%|
|Total other income (expense)||875,425||(301,816||)||1,177,241||390||%|
|Income (loss) before income taxes||42,569,065||(6,195,557||)||48,764,622||787||%|
|Income tax provision||90,536||-||90,536||N/A|
|Net income (loss)||$||42,478,529||$||(6,195,557||)||$||48,674,086||786||%|
For the year ended December 31, 2020, we generated $74.5 million of revenue compared to revenue of $0.2 million in the year ended December 31, 2019. The increase in revenue of $74.3 million was primarily due to sales of our LogixSmart COVID-19 test throughout the world, which was developed in response to the current COVID-19 pandemic. Of the total revenue in 2020, $3.7 million was from the sale of third party manufactured equipment and supplies that we sourced and sold to customers to facilitate usage of our test. The majority of our revenue in 2019 was from sales of equipment and tests to mosquito abatement districts and the remainder was sales of our test reagents and licensing revenue.
Cost of Revenues and Gross Profit
Cost of revenues increased by $16.5 million from $0.1 million for the year ended December 31, 2019 to $16.6 million for the year ended December 31, 2020. The increase in cost of revenues was due to the significant increase in revenue discussed above. Our gross margin was 77.7% for the year ended December 31, 2020 compared to 47.7% for the year ended December 31, 2019. The increase in gross margin was due to the mix of products we sold, as the majority of our 2020 revenue came from sales of our test reagents, which has a higher profit margin than sales of equipment. In 2019, the majority of the revenue was generated from equipment sales.
We incurred total operating expenses of $16.3 million for the year ended December 31, 2020 compared to total operating expenses of $6.0 million for the year ended December 31, 2019. The increase in operating expenses was primarily due to the increase in business activities experienced as a result of our increase in revenue.
General and administrative expenses increased $4.8 million from $3.5 million for the year ended December 31, 2019 to $8.3 million for the year ended December 31, 2020. The increase in general and administrative expenses was primarily due to increased activity to support the growth of our business. The primary drivers of the increased expenses related to increases in stock-based compensation, employee related expenses and increased expenses for professional services.
Our sales and marketing expenses for the year ended December 31, 2020 were $4.7 million compared to $1.1 million for the year ended December 31, 2019. The increase of $3.6 million was primarily a result of increased personnel related expenses, including commissions paid to our sales team and distributors, due to the growth in revenue noted above.
Our research and development expenses increased by $1.8 million from $1.4 million for the year ended December 31, 2019, to $3.2 million for the year ended December 31, 2020. The increase was primarily due to an increase in salaries and related benefits, including stock-based compensation, as we have added additional employees to our research and development team to increase our product development activities. Additionally, there has been an increase in professional and lab services utilized to further help us in our research and product development activities.
Other Income (Expense)
Other income was $875,000 for the year ended December 31, 2020 compared to other expense of $302,000 for the year ended December 31, 2019. The increase in other income of $1.2 million was primarily related to recording a gain of $778,000 from our India joint venture and incurring no interest expense during 2020. For the year ended December 31, 2019 we had recorded a loss $233,000 from our India joint venture and incurred interest expense of $106,000.
Net Income (Loss)
We realized net income for the year ended December 31, 2020 of $42.5 million compared with a net loss of $6.2 million for the year ended December 31, 2019. The increase in net income of $48.7 million was primarily the result of sales of our LogixSmart COVID-19 test and resulting margins from those sales offset by increased operating expenses as discussed above. Additionally, we recorded an income tax expense of $0.1 million during the year ended December 31, 2020 as a result of our net income for 2020. During 2020, we released our deferred tax asset valuation allowance and recorded a deferred tax asset since we utilized our net operating losses from prior years during the year ended December 31, 2020.
LIQUIDITY AND CAPITAL RESOURCES
In prior years, we financed our operations through the issuance of equity and debt. In 2020, we financed our operations primarily through profitable operations and secondarily through the issuance of common stock.
At December 31, 2020, we had cash and cash equivalents of $43.0 million and marketable investment securities of $4.3 million that could readily be converted into cash if needed. Additionally, our total current assets at December 31, 2020, were $68.4 million compared to total current liabilities of $4.5 million.
Net cash provided by operating activities during the year ended December 31, 2020 was $28.2 million, compared to cash used in operating activities of $5.5 million for the year ended December 31, 2019. The increase in cash from operating activities was primarily due to our increased revenue offset by increases in accounts receivable and inventory.
We used $5.8 million of our cash for investing activities during the year ended December 31, 2020 as compared to $0.4 million during the year ended December 31, 2019. The increase in cash used for investing activities is primarily due to purchasing marketable investment securities, increased purchases of property and equipment needed to support our increased revenue and additional investment in our India joint venture offset by proceeds received from maturities of marketable investment securities.
Net cash provided by financing activities was $19.7 million for the year ended December 31, 2020, compared to $5.9 million for the year ended December 31, 2019. The increase is primarily due to net proceeds of $18.0 million received from a series of three registered direct offerings in January and February 2020 pursuant to our shelf registration in addition to receiving $1.7 million from the exercise of warrants and options for the year ended December 31, 2020. Net proceeds of $5.9 million was received during the year ended December 31, 2019 from the sale of common and preferred stock.
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.
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.
On October 30, 2020, we filed a Registration Statement on Form S-3 (File No: 333-249651) with the Securities and Exchange Commission (the “SEC”). The SEC declared the Form S-3 effective on November 5, 2020. Pursuant to a prospectus supplement to the Form S-3, we may offer and sell up to $100 million of the following securities separately or together, in one or more series or classes and in amounts, at prices and on terms described in one or more offerings: common stock; preferred stock; warrants to purchase our securities, each of which may be convertible into equity securities; or units comprised of, or other combinations of, the foregoing securities through underwriting syndicates managed or co-managed by one or more underwriters or dealers, through agents or directly to purchasers. Each time our securities are offered, we will provide a prospectus supplement to the Form S-3 containing more specific information about the particular offering. To date, we have not filed a prospectus supplement to, or sold any securities under, this Form S-3.
Below is a summary of the direct offerings done in 2020:
|●||In January 2020, we sold an aggregate of 3,448,278 shares of common stock to institutional investors for $1.45 per share for gross proceeds of approximately $5.0 million pursuant to a shelf-registration statement on Form S-3 (File No: 333-226835) declared effective by the SEC on September 7, 2018 (the “Shelf Registration Statement”).|
|●||On February 10, 2020, the Company entered into securities purchase agreements with certain institutional investors pursuant to which such investors purchased an aggregate of 3,324,676 shares of common stock at a purchase price of $ 3.08 per share in a registered direct offering pursuant to the Shelf Registration Statement. The aggregate gross proceeds for the sale of the shares were approximately $10.2 million. The closing of the offering occurred on or about February 13, 2020.|
|●||On February 28, 2020, the Company entered into securities purchase agreements with certain institutional investors pursuant to which such investors purchased an aggregate of 470,000 shares of common stock at a purchase price of $9.00 per share in a registered direct offering pursuant to the Shelf Registration Statement. The aggregate gross proceeds for the sale of the shares were approximately $4.0 million. The closing of the offering occurred on or about February 28, 2020.|
The foregoing estimates, expectations and forward-looking statements are subject to change as we make strategic operating decisions from time to time and as our revenue and expenses fluctuate from period to period.
Off-Balance Sheet Arrangements
As of December 31, 2020, we had no off-balance sheet arrangements.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
Table of Contents
|Report of Independent Registered Public Accounting Firm||24|
|Statements of Operations||26|
|Statement of Changes in Stockholders’ Equity (Deficit)||27|
|Statements of Cash Flows||28|
|Notes to Financial Statements||29|
To the Board of Directors and Stockholders of Co-Diagnostics, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Co-Diagnostics, Inc. (the Company) as of December 31, 2020 and 2019, and the related statements of operations, changes in stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Haynie & Company
Salt Lake City, Utah
March 25, 2021
We have served as the Company’s auditor since 2016.
CO-DIAGNOSTICS, INC. AND SUBSIDIARIES
|Cash and cash equivalents||$||42,976,713||$||893,138|
|Marketable investment securities||4,335,446||-|
|Accounts receivable, net||12,136,833||131,382|
|Deferred tax asset||547,224||-|
|Total current assets||68,360,433||1,584,254|
|Property and equipment, net||949,639||196,832|
|Investment in joint venture||1,927,125||434,240|
|Liabilities and stockholders’ equity|
|Accrued expenses (related party)||120,000||120,000|
|Total current liabilities||4,510,688||328,070|
|Accrued expenses-long-term (related party)||30,000||150,000|
|Commitments and contingencies (Note 11)|
|Convertible preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 and 25,600 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively||-||26|
|Common stock, $0.001 par value; 100,000,000 shares authorized; 28,558,033 and 17,342,922 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively||28,558||17,343|
|Additional paid-in capital||49,157,236||26,687,701|
|Accumulated earnings (deficit)||17,510,715||(24,967,814||)|
|Total stockholders’ equity||66,696,509||1,737,256|
|Total liabilities and stockholders’ equity||$||71,237,197||$||2,215,326|
See accompanying notes to consolidated financial statements.
CO-DIAGNOSTICS, INC. AND SUBSIDIARIES
|Years Ended December 31,|
|Cost of revenue||16,591,346||112,431|
|Sales and marketing||4,665,113||1,061,676|
|General and administrative||8,278,734||3,497,273|
|Research and development||3,185,290||1,371,433|
|Depreciation and amortization||138,635||65,902|
|Total operating expenses||16,267,772||5,996,284|
|Income (loss) from operations||41,693,640||(5,893,741||)|
|Other income (expense)|
|Gain (loss) on disposition of assets||(175||)||850|
|Gain (loss) on equity method investment in joint venture||778,385||(232,881||)|
|Total other income (expense)||875,425||(301,816||)|
|Income (loss) before income taxes||42,569,065||(6,195,557||)|
|Income tax provision||90,536||-|
|Net income (loss)||$||42,478,529||$||(6,195,557||)|
|Earnings (loss) per common share:|
|Weighted average shares outstanding:|
See accompanying notes to consolidated financial statements.
CO-DIAGNOSTICS, INC. AND SUBSIDIARIES
|Convertible Preferred Stock||Common Stock||Additional Paid-in||Accumulated Earnings||Total Stockholders’|
|Balance as of December 31, 2018||-||$||-||12,923,383||$||12,923||$||17,622,433||$||(18,694,167||)||$||(1,058,811||)|
|Public offering, net of offering costs of $592,764||-||-||3,925,716||3,926||4,899,312||-||4,903,238|
|Issuance of preferred stock||30,000||30||-||-||2,999,970||-||3,000,000|
|Conversion of preferred stock to common||(4,400||)||(4||)||366,667||367||(363||)||-||-|
|Warrant exercise price reset||-||-||-||-||78,090||(78,090||)||-|
|Balance as of December 31, 2019||25,600||$||26||17,342,922||$||17,343||$||26,687,701||$||(24,967,814||)||$||1,737,256|
|Public offering, net of offering costs of $1,457,922||-||-||7,242,954||7,243||18,004,840||-||18,012,083|
|Common stock issued for warrant exercises||-||-||856,660||857||269,143||-||270,000|
|Common stock issued for option exercises||-||-||871,229||871||1,459,728||-||1,460,599|
|Stock-based compensation expense||-||-||110,935||111||2,737,931||-||2,738,042|
|Conversion of preferred stock to common||(25,600||)||(26||)||2,133,333||2,133||(2,107||)||-||-|
|Balance as of December 31, 2020||-||$||-||28,558,033||$||28,558||$||49,157,236||$||17,510,715||$||66,696,509|
See accompanying notes to consolidated financial statements.
CO-DIAGNOSTICS, INC. AND SUBSIDIARIES
|Years Ended December 31,|
|Cash flows from operating activities|
|Net income (loss)||$||42,478,529||$||(6,195,557||)|
|Adjustments to reconcile net income (loss) to cash used in operating activities:|
|Depreciation and amortization||138,635||65,902|
|Stock-based compensation expense||2,738,041||1,088,386|
|Accretion of notes payable discount||-||91,428|
|Loss (gain) on disposition of assets||175||(850||)|
|Loss (gain) from equity method investment||(778,385||)||232,881|
|Bad debt expense||954,804||11,000|
|Deferred income taxes||(547,224||)||-|
|Changes in assets and liabilities:|
|Accounts and other receivable||(12,960,255||)||(121,462||)|
|Prepaid and other assets||(6,462||)||(292,463||)|
|Accounts payable and accrued expenses||3,758,634||(226,664||)|
|Net cash provided by (used in) operating activities||28,165,235||(5,525,091||)|
|Cash flows from investing activities|
|Purchases of property and equipment||(774,397||)||(113,246||)|
|Purchases of marketable investment securities||(9,310,000||)||-|
|Proceeds from maturities of marketable investment securities||4,974,554||-|
|Investment in joint venture||(714,500||)||(322,000||)|
|Net cash used in investing activities||(5,824,343||)||(435,246||)|
|Cash flows from financing activities|
|Proceeds from sale of common stock||19,470,005||5,496,002|
|Proceeds from sale of preferred stock||-||1,000,000|
|Proceeds from exercise of options and warrants||1,730,599||-|
|Payment of offering costs||(1,457,921||)||(592,764||)|
|Net cash provided by financing activities||19,742,683||5,903,238|
|Net increase in cash and cash equivalents||42,083,575||(57,099||)|
|Cash and cash equivalents at beginning of period||893,138||950,237|
|Cash and cash equivalents at end of period||$||42,976,713||$||893,138|
|Supplemental disclosure of cash flow information|
|Income taxes paid||$||-||$||-|
|Supplemental disclosure of non-cash investing and financing transactions|
|Inventory moved to property, plant and equipment||$||117,220||$||-|
|Warrants issued for services||$||-||$||379,487|
|Conversion of preferred stock to common||$||-||$||440,000|
|Conversion of debt for preferred stock||$||-||$||2,000,000|
See accompanying notes to consolidated financial statements.
CO-DIAGNOSTICS, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 2020 AND 2019
Note 1 – Overview and Basis of Presentation
Description of Business
Co-Diagnostics, Inc., a Utah corporation (the “Company” or “CDI”), is developing robust and innovative molecular tools for detection of infectious diseases, liquid biopsy for cancer screening, and agricultural applications. The Company develops, manufactures and sells reagents used for diagnostic tests that function via the detection and/or analysis of nucleic acid molecules (DNA or RNA). In connection with the sale of these tests, the Company may sell diagnostic equipment and supplies from other manufacturers.
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.
Basis of Presentation
The accompanying audited consolidated financial statements of Co-Diagnostics, Inc. and its wholly owned subsidiary have been prepared to reflect the financial position, results of operations and cash flows of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated.
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 December 31, 2020 and December 31, 2019. 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 condensed consolidated balance sheets. Any unrealized gains or losses are immaterial.
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 December 31, 2020 total accounts receivable was $12,928,633 with an allowance for uncollectable accounts of $791,800 resulting in a net amount of $12,136,833. At December 31, 2019 total accounts receivable was $142,382 with an allowance for uncollectable accounts of $11,000 resulting in a net amount of $131,382.
Our equity method investments are initially recorded at cost and are included in other long-term assets in the accompanying condensed consolidated balance sheet. We adjust the carrying value of our investment based on our share of the earnings or losses in the periods which they are reported by the investee until the carrying amount is zero. The earnings or losses are included in other income (expense) in the accompanying condensed consolidated statements of operations.
Inventory 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 December 31, 2020, the Company had $7,995,189 in inventory, of which $598,881 was finished goods and $7,396,308 was raw materials. At December 31, 2019, the $197,168 of inventory was finished goods. The Company establishes reserves to reduce low-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.
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. Based on the criteria above, the Company typically recognizes revenue upon delivery.
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 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. The Company expensed $3,185,290 and $1,371,433 of research and development costs for the years ended December 31, 2020 and 2019, respectively.
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.
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 (Loss) per Share
Basic net income or loss per common share is computed by dividing net income or loss applicable to common shareholders by the weighted average number of shares outstanding during each period.
Diluted net income or loss per share is computed by dividing net income or loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period increased by common shares that could be issued upon conversion or exercise of other outstanding securities to the extent those additional common shares would be dilutive. The dilutive effect of potentially dilutive securities is reflected in diluted net income or loss per share by application of the treasury stock method. During periods when the Company is in a net loss position, basic net loss per share is the same as diluted net loss per share as the effects of potentially dilutive securities are anti-dilutive
Concentrations Risk and Significant Customers
The Company had certain customers which are each responsible for generating 10% or more of the total revenue for the year ended December 31, 2020. Two customers together accounted for approximately 38% of total revenue for the year ended December 31, 2020.
Two customers each accounted for more than 10% of accounts receivable at December 31, 2020. These two customers together accounted for approximately 48% of accounts receivable at December 31, 2020.
Recently Issued Accounting Standards
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
As an emerging growth company (“EGC”), the Company has elected to take advantage of the benefits of the extended transition period provided for in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards which allows the Company to defer adoption of certain accounting standards until those standards would otherwise apply to private companies.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires recognition of leased assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. This update is effective for annual periods and interim periods with those periods beginning after December 15, 2021, for public EGC companies like us. The Company expects to use the modified retrospective transition method with the option to recognize a cumulative-effect adjustment at the date of adoption. The Company expects its balance sheet will be impacted as it records right-of-use assets and lease liabilities on its consolidated balance sheet, but does not expect the adoption of this standard will have a material impact on its consolidated statements of operations and cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for certain financial instruments, which includes the Company’s accounts receivable. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The update is effective for annual periods and interim periods with those periods beginning after December 15, 2021, for public EGC companies like us, but the Company may adopt it upon election on January 1, 2021. The standard requires a cumulative effect adjustment to the balance sheet as of the beginning of the first early reporting period in which the guidance is effective. The Company is evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements and when it plans to adopt it.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) (“ASU 2019-12”), which removes certain exceptions for investments, intra-period allocations and interim calculations and adds guidance to reduce complexity in accounting for income taxes. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020; early adoption is permitted. The Company does not believe the adoption of this standard will have a material impact on its consolidated financial statements and related disclosures.
Note 3 – 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.
The Company’s financial instruments that are measured at fair value on a recurring basis consist of certificates of deposit. The following table summarizes the assets measured at fair value on a recurring basis as of December 31, 2020 by level within the fair value hierarchy:
|December 31, 2020|
|(Level 1)||(Level 2)||(Level 3)||Total|
|Marketable investment securities:|
|Certificates of deposit||$||-||$||4,335,446||$||-||$||4,335,446|
Fair Value of Other Financial Instruments
The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, accounts payable, accrued liabilities, and other liabilities approximate fair value due to their short-term maturities and are excluded from the fair value tables above.
Note 4 – Property and Equipment
Property and equipment, net consisted of the following:
|Lab equipment||3 - 5||$||1,212,561||$||386,802|
|Office equipment, furniture and other||2 - 5||38,344||7,133|
|Less accumulated depreciation and amortization||(304,423||)||(197,103||)|
|Fixed assets, net||$||949,639||$||196,832|
Note 5 – Revenue
The following table sets forth revenue by geographic area:
|Years Ended December 31,|
|Rest of World||29,690,007||-|
|Percentage of revenue by area:|
|Rest of World||40||%||0||%|
Changes in the Company’s deferred revenue balance for the year ended December 31, 2020 were as follows:
|Balance as of December 31, 2019||$||1,323|
|Revenue recognized that was included in deferred revenue balance at the beginning of the period||(1,323||)|
|Increase due to prepayments from customers||305,307|
|Balance as of December 31, 2020||$||305,307|
The Company expects to perform its performance obligation and recognize the deferred revenue as revenue during the year ended December 31, 2021.
Note 6 – Stockholders’ Equity
Common Stock and Preferred Stock
On January 28, 2020, the Company completed the sale of 3,448,278 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $1.45 per share in a registered direct offering. The aggregate gross proceeds for the sale of the shares were $5,000,003 and the Company received net proceeds of $4,517,102 after deducting offering costs of $482,901.
On February 13, 2020, the Company completed the sale of 3,324,676 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $3.08 per share in a registered direct offering. The aggregate gross proceeds for the sale of the shares were $10,240,002 and the Company received net proceeds of $9,612,561 after deducting offering costs of $627,441.
On March 2, 2020, the Company completed the sale of 470,000 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $9.00 per share in a registered direct offering. The aggregate gross proceeds for the sale of the shares were $4,230,000 and the Company received net proceeds of $3,882,420 after deducting offering costs of $347,580.
During the year ended December 31, 2020, the Company issued an aggregate of 2,133,333 shares of common stock upon conversion of all of the Company’s convertible preferred stock outstanding as of December 31, 2019.
During the year ended December 31, 2020, the Company issued 856,660 shares of common stock upon the exercise of warrants and received $270,000.
During the year ended December 31, 2020, the Company issued 871,229 shares of common stock upon the exercise of options and received $1,460,599.
During the year ended December 31, 2020, the Company issued 83,935 shares of common stock for services provided by third parties primarily related to investment relations services.
In January 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 Series A Convertible Preferred Stock was convertible 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.
During the year ended December 31, 2019, 366,667 shares of our common stock were issued for the conversion of 4,400 shares of Series A Preferred Stock.
In February 2019, the Company 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 shares were $5,496,002 and the Company received net proceeds of $4,903,238 after deducting offering costs of $592,764.
During the year ended December 31, 2019, the Company issued an aggregate of 127,516 shares of common stock for services provided by third parties primarily related to investment relations services.
Note 7 – Earnings per Share
The following table reconciles the numerator and the denominator used to calculate basic and diluted earnings per share for years ended December 31, 2020 and 2019:
|Years Ended December 31,|
|Net income (loss), as reported||$||42,478,529||$||(6,195,557||)|
|Weighted average shares, basic||26,720,133||16,756,912|
|Dilutive effect of stock options, warrants and RSUs||1,280,208||-|
|Shares used to compute diluted earnings per share||28,000,341||16,756,912|
|Basic earnings per share||$||1.59||$||(0.37||)|
|Diluted earnings per share||$||1.52||$||(0.37||)|
50,000 options were excluded from the computation of diluted earnings per share for the year ended December 31, 2020, because the effect would have been anti-dilutive.
As a result of incurring a net loss for the year ended December 31, 2019, no potentially dilutive securities are included in the calculation of diluted earnings per share because such effect would be anti-dilutive. The Company had potentially dilutive securities as of December 31, 2019, consisting of: (i) 2,021,817 options, (ii) 983,535 warrants and (iii) 2,133,333 for shares of convertible preferred stock.
Note 8 – Stock-Based Compensation
Stock Incentive Plans
The Co-Diagnostics, Inc. 2015 Long Term Incentive Plan (the “Incentive Plan”) reserves an aggregate of 6,000,000 shares of common stock issuable upon the grant of awards under the Incentive Plan. The number of awards available for issuance under the Incentive Plan was 3,278,683 at December 31, 2020.
The following table summarizes option activity during the year ended December 31, 2020:
|Outstanding at December 31, 2019||2,021,817||$||1.69||$||0.83|
|Outstanding at December 31, 2020||1,300,588||$||2.44||$||1.24||7.90|
|Exercisable at December 31, 2020||1,003,921||$||2.32||$||1.18||7.68|
The total intrinsic value of options exercised during the year ended December 31, 2020 was approximately $11.8 million. The aggregate intrinsic value of outstanding options at December 31, 2020 was approximately $7.1 million. There were 296,667 of unvested options as of December 31, 2020.
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. The following weighted average assumptions were used in estimating the grant date fair value of options:
|Years Ended December 31,|
|Risk-free interest rate||1.05||%||1.56||%|
|Expected life (years)||7.3||10.0|
|Expected dividend yield||None||None|
As of December 31, 2020, there were 296,667 of unvested options and $270,147 of unrecognized stock-based compensation expense related to options. The unrecognized stock-based compensation expense is expected to be recognized over 1.5 years.
Restricted Stock Units
The grant date fair value of RSUs granted is determined using the closing market price of the Company’s common stock on the grant date with the associated compensation expense amortized over the vesting period of the awards. The following table sets forth the outstanding RSUs and related activity for the year ended December 31, 2020:
|Number of RSUs|
Grant Date Fair Value
|Outstanding at December 31, 2019||-||$||-|
|Outstanding at December 31, 2020||522,500||$||10.49|
As of December 31, 2020, there was $5.2 million of unrecognized stock-based compensation expense related to outstanding RSUs which is expected to be recognized over a weighted-average period of 2.8 years.
The Company has issued warrants related to past financings and as compensation to third parties for services provided. The Company estimates the fair value of issued warrants on the date of issuance as determined using a Black-Scholes pricing model. The Company amortizes the fair value of issued warrants using a vesting schedule based on the terms and conditions of each warrant if granted for services.
The following table summarizes warrant activity during the year ended December 31, 2020:
|Outstanding at December 31, 2019||983,535||$||1.44||$||1.03|
|Outstanding at December 31, 2020||70,000||$||1.83||$||5.21||3.3|
The intrinsic value of warrants exercised during the year ended December 31, 2020 was approximately $9.7 million. The aggregate intrinsic value of outstanding warrants at December 31, 2020 was approximately $523,000.
The fair values for the warrants issued were estimated at the date of grant using the Black Scholes model with the following weighted average assumptions:
|Years Ended December 31,|
|Risk-free interest rate||0.34||%||1.98||%|
|Expected life (years)||5.0||5.0|
|Expected dividend yield||None||None|
All outstanding warrants are exercisable at December 31, 2020 and there was no unrecognized stock-based compensation expense related to warrants.
Stock Issued for Services
The Company has issued restricted stock to third parties for services provided. The grant date fair value of the restricted stock granted is determined using the closing market price of the Company’s common stock on the grant date with the associated compensation expense amortized over the vesting period of the stock awards. The Company has issued 83,935 of restricted stock for services during the year ended December 31, 2020 and there was no unrecognized stock-based compensation expense related to restricted stock issued.
Stock-Based Compensation Expense
The Company recognized stock-based compensation expense related to the types of awards discussed above as follows:
|Years Ended December 31,|
|Restricted stock units||500,861||-|
|Total stock-based compensation expense||$||2,738,041||$||1,088,386|
Note 9 – Income Taxes
The components of the provision for income taxes consists of the following for the years ended December 31, 2020 and 2019:
|Year Ended December 31,|
|Total income tax expense||$||90,536||$||-|
The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to income (loss) before income taxes for the years ended December 31, 2020 and 2019 due to the following:
|Year Ended December 31,|
|Federal income tax benefit at statutory rate||$||8,939,504||$||(1,610,800||)|
|State income tax benefit, net of federal tax benefit||1,395,541||-|
|Change in valuation allowance||(5,161,500||)||1,258,300|
Net deferred tax assets consist of the following components as of December 31, 2020 and 2019:
|Deferred tax assets:|
|Reserves and allowances||200,049||-|
|Research and development credits||423,001||-|
|Net operating loss carryforwards||-||5,131,100|
|SEC 179 carry-forwards||-||1,600|
|Total deferred tax assets||902,600||5,161,500|
|Deferred tax liabilities:|
|Property and equipment, net||(233,951||)||-|
|Total deferred tax liabilities||(355,376||)||-|
|Net deferred tax assets||547,224||5,161,500|
|Less valuation allowance||-||(5,161,500||)|
|Net deferred tax assets||$||547,224||$||-|
At December 31, 2020, the Company had no federal or state net operating loss carryforwards. At December 31, 2020, the Company had $750,634 of federal research and development credit carryforward. This credit has been offset by a liability for unrecognized tax benefits of $375,317. If not utilized, the credit will expire beginning in 2036. At December 31, 2020, the Company had $120,198 of state research and development credit carryforward. This credit has been offset by a liability for unrecognized tax benefits of $72,514. If not utilized, the credit will expire beginning in 2032.
As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of December 31, 2020, in part because in the current year we achieved three years of cumulative pre-tax income, management determined that there is sufficient positive evidence to conclude that it is more likely than not that its deferred taxes are realizable. It therefore fully reduced its valuation allowance accordingly by $5,161,500.
ASC Topic 740-10-05 requires that the impact of a tax position be recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. At December 31, 2020, the Company had a $447,831 liability for unrecognized tax benefits which is fully netted against deferred tax assets for related carryforward credits. The Company expects no material changes to the liability for unrecognized tax benefits in the next 12 months. Interest and penalties associated with uncertain tax positions are recorded as a component of income tax expense. A reconciliation of the beginning and ending amount of unrecognized benefits is as follows:
|Unrecognized tax benefits at the beginning of the year||$||-||$||-|
|Gross increases - current year tax positions||232,145||-|
|Gross increases - prior year tax positions||215,686||-|
|Gross decreases - prior year tax positions||-||-|
|Unrecognized tax benefits at end of year||$||447,831||$||-|
|Interest and penalties in year-end balance||$||-||$||-|
The Company is subject to taxation in the United States and other state jurisdictions. The tax years from December 31, 2016 through December 31, 2020 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which the Company is subject. The Company is not currently under examination by any taxing authority.
The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law on March 27, 2020. The income tax provisions of the CARES Act include temporary changes to income-based tax laws, including the ability to utilize net operating losses, interest expense deductions, alternative minimum tax credit refunds, charitable contributions, and depreciation of qualified improvement property. The income tax provisions of the CARES Act did not have a material impact on our consolidated financial statements for the year ended December 31, 2020.
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, an 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 provided in part that all accrued royalties under the License ceased as of January 1, 2017, and the Company agreed to pay to Dr. Satterfield $700,000 of accrued royalties at the rate of $10,000 per month starting in January 2017. At December 31, 2020, the aggregate balance of this related party liability was $150,000.
Note 11 – Commitments and Contingencies
The Company’s offices are located at 2401 S. Foothill Dr., Suite D, Salt Lake City, Utah 84109-1479. In February 2020, the Company entered into a 4-year lease agreement for its office space and in March 2020, the Company entered into an addendum with our landlord for additional space. The new aggregate space consists of approximately 13,687 square feet at a monthly rate of $28,825 and expires in February 2024. For the years ended December 31, 2020 and 2019, the Company expensed $311,963 and $175,137, respectively, for rent. The Company’s future minimum lease payments were as follows as of December 31, 2020:
|Year Ending December 31,|
|Total lease payments||$||931,834|
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.
Five different securities class action complaints were filed in July, September and December by certain stockholders of the Company against the Company claiming that the Company promulgated false and misleading press releases to increase the price of our stock to improperly benefit the officers and directors of the Company. The plaintiffs demand compensatory damages sustained as a result of the Company’s alleged wrongdoing in an amount to be proven at trial. The Company believes these lawsuits are without merit and intends to defend the cases vigorously. The Company is unable to estimate a range of loss, if any, that could result were there to be an adverse final decision in these cases. As of the date of this report, the Company does not believe it is probable that these cases will result in an unfavorable outcome; however, if an unfavorable outcome were to occur in these cases, it is possible that the impact could be material to the Company’s results of operations in the period(s) in which any such outcome becomes probable and estimable.
Note 12 – Subsequent Events
The Company evaluated subsequent events pursuant to ACS Topic 855 and determined that there are no additional events that need to be reported.
Evaluation of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the SEC. 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 December 31, 2020. Based on the evaluation, management has concluded that our disclosure controls and procedures are effective as of December 31, 2020 to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a- 15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, except as follows
Material Weakness Remediation
A material weakness previously identified during management’s assessment and reported in our 2019 Form 10-K was the lack of sufficient technical expertise on certain accounting and tax requirements for new and unusual transactions. These control deficiencies could have resulted in a material misstatement of accounts or disclosures that would result in a material misstatement to our interim or annual financial statements that would not be prevented or detected.
To address the material weakness reported in our 2019 Form 10-K, we have hired an additional employee in our accounting team and have increased the involvement of consultants with the required expertise to help ensure new and unusual transactions are appropriately recorded and reviewed in order to remediate the material weakness.
In connection with the identification of an error that resulted in the restatement of our condensed consolidated financial statements included in our Quarterly Report on Form 10-Q/A for the period ended June 30, 2020, we also identified a material weakness related to controls over the purchasing and receiving of inventory. Specifically, there was a lack of formalized purchasing and receiving processes and controls and the functions were decentralized.
To address the material weakness reported in our Quarterly Report on Form 10-Q/A for the period ended June 30, 2020, we have centralized the purchasing and receiving functions and have added new processes and controls to ensure purchasing and receiving are recorded completely and accurately. Furthermore, we have ensured inventory is counted on a quarterly basis to help ensure inventory is recorded accurately.
As a result of these efforts, the Company determined that the material weaknesses were remediated, and our internal control over financial reporting was effective as of December 31, 2020.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020. In making its evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013).
Based on this evaluation, management determined that our internal control over financial reporting was effective as of December 31, 2020.
This Annual Report does not include an attestation report by our independent registered public accounting firm regarding internal control over financial reporting since we are an emerging growth company. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit emerging growth companies to provide only management’s report in the 10-K.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are intended to be designed to provide reasonable assurance of achieving their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost–effective control system, misstatements due to error or fraud may occur and not be detected.
The following table sets forth the names, ages and positions of our executive officers and directors as of March 25, 2021. Our Board of Directors is currently comprised of five members, who are elected annually to serve for one year or until their successor is duly elected and qualified, or until their earlier resignation or removal. Executive officers serve at the discretion of the Board of Directors.
|Dwight Egan||67||Chief Executive Officer, President and Chairman of the Board|
|Reed Benson||74||General Counsel, Secretary and former Chief Financial Officer|
|Brian Brown||45||Chief Financial Officer|
Dwight Egan serves as our President and Chief Executive Officer and has been an officer and director since April 2013. Mr. Egan has been engaged in private investment business from February 1999 to the present. He was a senior executive at Data Broadcasting Corporation, a leading provider of wireless, real-time financial market data, news and sophisticated fixed- income portfolio analytics to 27,000 individual and professional investors from 1995 to 1999. He co-founded and served as CEO and Chairman of the Board of Broadcast International, Inc. from 1984 to 1995, when Data Broadcasting Corporation acquired Broadcast International and created CBS MarketWatch, a leading financial news site and participated in its initial public offering. Mr. Egan’s prior experience in directing a public company and working with capital markets gives him valuable experience in advising the board on matters of finance and operations.
Reed Benson has been Secretary from November 2014 to the present and was our Chief Financial Officer from November 2014 to February 2021. He currently is our General Counsel and was a director from November 2014 to May 2017. Since September 2008 to the present, in addition to the private practice of law, he is a founder and partner of Legends Capital Group, LLC, a privately held venture capital group that identifies investment opportunities in natural resources, bio tech and technology fields. From October 2004 to September 2008, he was employed as Chief Financial Officer, Secretary, and General Counsel and member of Board of Directors of Broadcast International, Inc., a publicly traded communications services company. From 2001 to October 2004, he was in the private practice of law where his practice focused on tax and business-related matters. From July 1995 to January 2001, he was secretary and general counsel for Data Broadcasting Corporation, a provider of market information to individual investors. Mr. Benson received his J.D. degree from the University of Utah School of Law in 1976 and a Bachelor of Science Degree in Accounting from the University of Utah in 1971. Mr. Benson became a Certified Public Accountant in 1974. Mr. Benson’s experience in finance, accounting and business consulting, and prior public company directorship, provide Mr. Benson with expertise enabling critical input to our company.
Brian Brown became our Chief Financial Officer in February 2021. From July 2020 until February 2021, Mr. Brown served as the Chief Financial Officer of A-Core Concrete Cutting, Inc. where his duties included overseeing the company’s accounting and finance departments, mergers and acquisitions and was responsible for financial forecasting and budgeting. From August 2019 to December 2019, Mr. Brown served as the Vice President of Accounting, Treasury and Investor Relations at Sportsman’s Warehouse Holdings, Inc., a public company reporting on Nasdaq Global Select under the symbol SPWH, where his duties included overseeing the company’s accounting, treasury and investor relations departments, preparing the company’s annual, quarterly and current reports with the SEC, overseeing all aspects of the company’s annual audit, including, but not limited to, the preparation and review of audit support schedules, preparation of financial statements and footnotes, and providing support to the company’s independent auditors. From October 2009 to August 2019, Mr. Brown served as the Director of Finance of Sportsman’s Warehouse Holdings, Inc. where he assisted with the Company’s initial public offering in April 2014 as well as effecting private and secondary public offerings, acquisitions of a group of retail stores and preparing the company’s periodic and current reports with the SEC under the Exchange Act and complying with the Sarbanes Oxley Act. From May 2005 to October 2009, Mr. Brown served as the Corporate Controller of Franklin Covey Products where he developed and maintained the company’s internal controls over financial reporting structure in accordance with the control standards required under Section 404 of the Sarbanes Oxley Act. From July 2001 to May 2005, Mr. Brown served as an Assurance Senior at KPMG, LLP where he provided audit services to various clients in multiple industries. Mr. Brown holds a Bachelor of Arts in Accounting and Masters of Professional Accountancy from the University of Utah. Mr. Brown is a licensed CPA in Utah.
Eugene Durenard has been a member of our Board of Directors since June 2019. Dr. Durenard is the Founder and CEO of Hyperbolic Holdings, a Swiss-based holding, management consulting and strategy advisory company specialized in healthcare. Dr. Durenard brings an investment and entrepreneurial experience spanning 20 years. For the last 7 years he has been working with family offices on direct investments and philanthropy focused on life sciences. He serves on the advisory board of several private companies in the biotech and MedTech sectors as well as an impact venture fund focused on healthcare. After an initial career in proprietary research and trading at Salomon Brothers and Credit Suisse in London, he co-founded Orion Investment Management in Bermuda specializing in quantitative asset and liability management for institutions and private clients. He subsequently sold it to Capital G Bank and co-headed their asset management. Dr. Durenard spent several years establishing personal connections with representatives of 40+ clusters of life science innovation, families operating healthcare businesses and industry leaders globally. He regularly visits labs and incubators, meets with leading scientists and innovators in order to keep abreast of current trends and developments. His advice is based on a thorough analysis that combines in-depth knowledge of science, competitive forces and financial expertise. He has published several articles in asset-liability management industry magazines as well as the book “Professional Automated Trading — Theory and Practice” (Wiley 2013). He has a PhD in Mathematics from Harvard University. Dr. Durenard brings a thorough multi-asset class investment and entrepreneurial experience spanning 20 years to the Company’s Board of Directors.
Edward Murphy has been a member of our Board of Directors since June 2019. Mr. Murphy currently serves as a senior vice president and a partner of Dover Investments Ltd., a private investment firm. Throughout his career, Mr. Murphy’s duties have included investment analysis of various types of investment projects in real estate and financial services. Currently, Mr. Murphy serves on the board of directors of several Canadian publicly reporting companies that have interests in various industries. He has been a Director at Empire Minerals Corporation Inc. since January 2016, at Digicrypts Blockchain Solutions Inc. since June 2011, at Lakefield Marketing Corporation since February 2018, CEO/CFO and Director of Credo Resources Inc. since September 2019, and at the Mosport Park Entertainment Corporation since April 30, 1997. He served as a Director at Aurquest Resources from May 2003 to December 2017. Mr. Murphy’s experience in the capital markets outside the United States and his involvement in investment analysis is a benefit to the Board of Directors.
Richard Serbin has been a member of our Board of Directors since May 2017. Mr. Serbin currently serves as a consultant to many companies in the healthcare industry. He was the President of Corporate Development and In-House Legal Counsel at Life Science Institute, LLC, from June 1, 2013 to July 15, 2014. Mr. Serbin is a global strategy advisor, pharmacist and entrepreneur with credentials both in pharmacy and law, complemented by more than 40 years of service as an FDA regulatory attorney and patent attorney in the healthcare industry. He was appointed to the Advisory Board of Cure Pharmaceutical in January 2017 and has been a Member of Advisory Board at Prime Access, Inc. since September 2015. Mr. Serbin has been a Director at Rapid Nutrition Plc since November 18, 2014. He served as Director at Viropro Inc. from May 2013 to June 2014. He was Head of Business Advisory Board at Mazal Plant Pharmaceuticals Inc. from October 2006 to September 2007 and also served as its Member of Business Advisory Board. He served as Chief Executive Officer of Optigenex Inc. from July 2002 to September 15, 2005 and a director from July 2004 to September 2005. From January 1999 until July 2002 Mr. Serbin served as a consultant to various pharmaceutical companies. He served as the President of Bradley Pharmaceuticals. He served as Vice President of Corporate Development at Ortho Pharmaceuticals, a Johnson & Johnson subsidiary, and practiced Patent and FDA law at Revlon Johnson & Johnson and Schering-Plough. He served as Patent Attorney for Schering Plough Corporation and Chief FDA Counsel for Revlon Corporation and Johnson and Johnson Corporation. Subsequently, he worked at Revlon Corporation, as its Chief Food, Drug and Cosmetic Counsel. He founded Radius Scientific Corporation. He was J&J’s Vice President of Corporate Development, and later led a successful public offering venture based on technology developed at Stanford Medical School. Mr. Serbin spent a large portion of his career focusing on international markets and clients. While at J&J, Mr. Serbin served on the Board of Directors of 16 US and international subsidiary companies, including Ethicon, Ortho, J&J Consumer Products, Pittman-Moore, Mc Neil, and J&J Development Corporation. He worked on multiple international acquisitions and strategic relationships, and sat on the Board of Directors of several of its international subsidiaries, including those in India, Hong Kong, Japan, Taiwan, Germany, and England. Mr. Serbin has a B.S. and a B. Pharmacy from Rutgers University and Rutgers University College of Pharmacy, a J.D. degree from Seton Hall Law School and a Master’s Degree in Trade Regulations and Law from NYU Law School. Mr. Serbin’s experience in business, law and medicine and knowledge gained as an advisor to the healthcare industry is critical to our Board of Directors as we continue to commercialize our products.
James Nelson has been a member of our Board of Directors since June 2019. Mr. Nelson is the retired Chairman and CEO of Sunworks, Inc., a NASDAQ traded commercial, agriculture, and residential solar Integrator which he helped found in October 2010. Mr. Nelson currently serves as strategic advisor to three other publicly traded companies. Jim has spent most of his career working in private equity as a general partner with Peterson Partners and with Millennial Capital Partners. In addition to his investment and financial responsibilities, he served as CEO of two of his firms’ portfolio companies. Prior to his years in private equity, Mr. Nelson served as Vice President of Marketing at Banana Republic, where he managed company-wide marketing, as well as the company’s international expansion initiative. He was also general manager for Banana Republic’s catalog division. He was Vice President of Marketing and Corporate Development at Saga Corporation, a multi-billion-dollar food service company. Jim began his executive career over 35 years ago at Bain and Company, a business strategy consulting firm, where he managed teams of consultants on four continents. Mr. Nelson received his MBA from Brigham Young University, where he graduated summa cum laude and was named the Outstanding Master of Business Administration Graduate. Mr. Nelson’s advice to the Board of Directors from his experiences as a chief executive officer and strategic advisor is useful to the Board of Directors.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers have, during the past ten years, been involved in any legal proceedings described in subparagraph (f) of Item 401 of Regulation S-K.
Board and Committee Matters
We maintain an audit committee of the board, a compensation committee of the board and a corporate governance committee and a nominating committee of the board, each of which is discussed below. We did not have a nominating committee of the board until December 2020. Our board has determined that Messrs. Durenard, Nelson, Murphy and Serbin are “independent” under the definition of independence in the Marketplace Rules of the NASDAQ listing requirements.
Audit Committee and Financial Expert
Our audit committee currently is comprised of Messrs. Durenard, Nelson, Murphy and Serbin with Mr. Durenard serving as chairman of the audit committee. The functions of the audit committee include engaging an independent registered public accounting firm to audit our annual financial statements, reviewing the independence of our auditors, the financial statements and the auditors’ report, and reviewing management’s administration of our system of internal control over financial reporting and disclosure controls and procedures. The Board of Directors has adopted a written audit committee charter. A current copy of the audit committee charter is available to security holders on our website at www.codiagnostics.com. Our board has determined that all of our directors that are serving on the audit committee are “independent” under the definition of independence in the Marketplace Rules of the NASDAQ listing standards.
Our Board of Directors has determined that Mr. Durenard meets the requirements of an “audit committee financial expert” as defined in applicable SEC regulations.
Our compensation committee currently includes Messrs. Serbin, Nelson, Murphy and Durenard with Mr. Serbin serving as chairman of the compensation committee. The functions of the compensation committee include reviewing and approving corporate goals relevant to compensation for executive officers, evaluating the effectiveness of our compensation practices, evaluating and approving the compensation of our chief executive officer and other executives, recommending compensation for board members, and reviewing and making recommendations regarding incentive compensation and other employee benefit plans. The Board of Directors has adopted a written compensation committee charter. A current copy of the compensation committee charter is available to shareholders on our website at www.codiagnostics.com. Our board has determined that all of our directors serving on the compensation committee are “independent” under the definition of independence in the Marketplace Rules of the NASDAQ listing standards.
Corporate Governance Committee
Our corporate governance committee currently include Messrs. Nelson, Murphy, Durenard and Serbin with Mr. Nelson serving as chairman of the corporate governance committee. The functions of the corporate governance committee is to periodically evaluate and assess the performance of the officers and directors to ascertain if the officers and directors are in compliance with the Company’s stated policies and procedures and in compliance with the rules and regulations of the SEC and NASDAQ and the committee also reviews the composition of each committee of the Board of Directors. A current copy of the corporate governance a committee charter is available to shareholders on our website at www.codiagnostics.com. Our board has determined all directors serving on the corporate governance committee are “independent” under the definition of independence in the Marketplace Rules of the NASDAQ listing standards.
Our nominating committee currently is comprised of Messrs. Durenard, Nelson, Murphy and Serbin with Mr. Murphy serving as chairman of the nominating committee. The nominating committee reviews the qualifications for candidates for the Board of Directors and assists in identifying, interviewing, and recruiting candidates for the Board of Directors. A current copy of the nominating committee charter is available to shareholders on our website at www.codiagnostics.com. Our board has determined all directors serving on the nominating committee are “independent” under the definition of independence in the Marketplace Rules of the NASDAQ listing standards.
We do not have a formal policy concerning shareholder recommendations of candidates for board of director membership. Our board views that such a formal policy is not necessary at the present time given the board’s willingness to consider candidates recommended by shareholders. Shareholders may recommend candidates by writing to our Secretary at our principal offices: 2401 S. Foothill Drive, Suite D, Salt Lake City, Utah 84109, giving the candidate’s name, contact information, biographical data and qualifications. A written statement from the candidate consenting to be named as a candidate and, if nominated and elected, to serve as a director should accompany any such recommendation. Shareholders who wish to nominate a director for election are generally advised to submit a shareholder proposal no later than December 31 for the next year’s annual meeting of shareholders.
Communication with the Board
We have not, to date, developed a formal process for shareholder communications with the board of directors. We believe our current informal process, in which any communication sent to the board of directors, either generally or in care of the chief executive officer, secretary or other corporate officer or director, is forwarded to all members of the board of directors, has served the board’s and the shareholders’ needs.
Conflicts of Interests
On an annual basis, each director and executive officer is obligated to complete a director and officer questionnaire that requires disclosure of any transactions with our company, including related person transactions reportable under SEC rules, in which the director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest. Under our company’s standards of conduct for employees, all employees, including the executive officers, are expected to avoid conflicts of interest. Pursuant to our code of ethics for the chief executive officer and senior finance officers (as discussed below), such officers are prohibited from engaging in any conflict of interest unless a specific exception has been granted by the board. All of our directors are subject to general fiduciary standards to act in the best interests of our company and our shareholders. Conflicts of interest involving an executive officer or a director are generally resolved by the board.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of our common stock, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Executive officers, directors and greater than 10% shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
The Company prepares these reports for its directors and executive officers who request it on the basis on information obtained from them and the Company’s records. The Company believes that applicable Section 16(a) filing requirements were met during 2020 by its directors and executive errors, except that due to inadvertent administrative errors, a Form 3 and two Forms 4 for Eugene Durenard that were filed late, one Form 4 for Dwight Egan that was filed late, and three Forms 4 for Richard Serbin that were filed late.
Code of Ethics
We have adopted a code of ethics for our principal executive officer, principal financial officer, controller, or persons performing similar functions. A copy of the code of ethics is included on our website at www.codiagnostics.com.
There are no family relationships among our directors and executive officers.
Throughout this section, the individuals who served as our chief executive officer and chief financial officer during 2020 and 2019 are collectively referred to as the “named executive officers.”
The compensation committee has overall responsibility to review and approve our compensation structure, policy and programs and to assess whether the compensation structure establishes appropriate incentives for management and employees. The compensation committee annually reviews and determines the salary and any bonus and equity compensation that may be awarded to our chief executive officer, or CEO, and our chief financial officer, or CFO. The compensation committee oversees the administration of our long-term incentive plan and employee benefit plans.
The compensation committee’s chairman regularly reports to the board on compensation committee actions and recommendations. The compensation committee has authority to retain, at our expense, outside counsel, experts, compensation consultants and other advisors as needed.
Company Performance. Because of the stage of our company’s development, the compensation committee looks at various factors in evaluating the progress the company has made and the services provided by the named executive officers. In considering executive compensation, the compensation committee noted certain aspects of our financial performance and accomplishments in 2020 and 2019 including the following: (a) The Company’s extraordinary performance during the pandemic that resulted in the Company’s first profitable year (b) Development Milestones, (c) Financial Milestones and (d) Sales and Marketing Milestones.
Compensation Philosophy. Our general compensation philosophy is designed to link an employee’s total cash compensation with our performance, the employee’s department goals and individual performance. Given our stage of operations and until recently, limited capital resources, we were subject to various financial restraints in our compensation practices. As an employee’s level of responsibility increases, there is a more significant level of variability and compensation at risk. The compensation committee believes linking incentive compensation to our performance creates an environment in which our employees are stakeholders in our success and, thus, benefits all shareholders.
Executive Compensation Policy. Our executive compensation policy is designed to establish an appropriate relationship between executive pay and our annual performance, our long-term growth objectives, individual performance of the executive officer and our ability to attract and retain qualified executive officers. The compensation committee attempts to achieve these goals by integrating competitive annual base salaries with bonuses based on corporate performance and on the achievement of specified performance objectives, and to a lesser extent, awards through our long-term incentive plan. The compensation committee believes that cash compensation in the form of salary and bonus provides our executives with short-term rewards for success in operations. The compensation committee also believes our executive compensation policy and programs do not promote inappropriate risk-taking behavior by executive officers that could threaten the value of our company.
In making compensation decisions, the compensation committee compares each element of total compensation against companies referred to as the “compensation peer group.” The compensation peer group is a group of companies that the compensation committee selected from readily available information about small companies engaged in similar businesses and with similar resources. The compensation committee selected these companies from research on its own and with limited consultation with outside consultants given the size of the company and its resources to retain such experts. The types of companies selected for the peer group included publicly-traded technology development companies in the diagnostic testing industry. Since there are relatively few companies in the rather narrow field of diagnostic testing the comparisons were limited to those that are publicly traded whose financial information could be readily accessed. The compensation committee determined these companies were appropriate for inclusion in the peer group because of the similar nature of their businesses and their general stage of development and financial resources.
Role of Executive Officers in Compensation Decisions
The compensation committee makes all compensation decisions for the named executive officers and approves recommendations regarding equity awards to all of our other senior management personnel. The CEO annually reviews the performance of the CFO and other senior management. The conclusions reached and recommendations based on these reviews, including with respect to salary adjustments and annual award amounts, are presented to the compensation committee. The compensation committee is charged with the responsibility of ensuring a consistent compensation plan throughout the company and providing an independent evaluation of the proposed adjustments or awards at all levels of management. As such, the compensation committee has determined that it have the discretion to modify or adjust any proposed awards and changes to management compensation to be able to satisfy these responsibilities.
Equity Incentive Plans
Under our Amended and Restated 2015 Long-term Incentive Plan (the “2015 Plan”), the board of directors may issue incentive stock-based awards to employees, directors and consultants of the company. Options awarded generally expire ten years after being granted. Any stock-based awards granted vest in accordance with the vesting schedule determined by the board of directors. Should an employee’s director’s or consultant’s relationship with the company terminate before the vesting period is completed, the unvested portion of each grant is forfeited. We continue to maintain and grant awards under the 2015 Plan which will remain in effect its expiration by its terms. The number of unissued stock-based awards authorized under the 2015 Plan at December 31, 2020 was 3,278,683. In 2020, we issued 75,000 RSUs to our CEO, 27,500 RSUs to our CFO, 17,000 RSUs to an independent director and 10,000 RSUs to an independent director. In January 2021, we issued an aggregate of 150,000 RSUs to the four independent members of our Board of Directors. In February 2021, we issued 30,000 RSUs to our newly appointed CFO.
The purpose of our incentive plan is to advance the interests of our stockholders by enhancing our ability to attract, retain and motivate persons who are expected to make important contributions to the company by providing them with both equity ownership opportunities and performance-based incentives intended to align their interests with those of our stockholders. These plans are designed to provide us with flexibility to select from among various equity-based compensation methods, and to be able to address changing accounting and tax rules and corporate governance practices by optimally utilizing stock-based awards.
Summary Compensation Table
The table below summarizes the total compensation paid or earned by each of the named executive officers in their respective capacities for the fiscal years ended December 31, 2020 and 2019. When setting total compensation for each of the named executive officers, the compensation committee reviewed tally sheets which show the executive’s current compensation, including equity and non-equity-based compensation. We have omitted in this report certain columns otherwise required to be included because there was no compensation made with respect to such columns, as permitted by applicable SEC regulations.
|Name and Principal Position||Year||Salary||Bonus (1)|
|President & Chief Executive Officer||2019||$||275,000||$||20,000||$||-||$||165,000||$||-||$||460,000|
|Chief Financial Officer and Secretary||2019||$||200,000||$||15,000||$||-||$||137,500||$||-||$||352,500|
|(1)||Bonuses for the year ended December 31, 2020 include accrued bonus payments of $272,500 to Mr. Egan and $180,000 to Mr. Benson that were paid in February 2021.|
|(2)||The amounts reported in this column represent the aggregate grant date fair value of the restricted stock units, or RSUs, granted under our 2015 Plan as computed in accordance with FASB ASC Topic 718. Note that the amounts reported in this column reflect the accounting value for these equity awards and do not correspond to the actual economic value that may be received from the equity awards as the RSUs vest over three years.|
|(3)||The amounts reported in this column represent the aggregate grant date fair value of the options granted under our 2015 Plan as computed in accordance with FASB ASC Topic 718. Note that the amounts reported in this column reflect the accounting value for these option awards and do not correspond to the actual economic value that may be received from the options. The options vest over two years.|
|(4)||Reflects the amount of royalty payments made to Dr. Satterfield pursuant to a technology license agreement that was amended in January 2017 to terminate the ongoing royalties. The payments reduced accrued royalties. The amounts for Mr. Egan and Mr. Benson represent Company profit sharing payments to the Company’s 401 K Plan.|
We do not have any non-qualified deferred compensation plan.
Outstanding Equity Awards at Fiscal Year-End 2020
The following table contain certain information concerning outstanding equity awards for the Named Executive Officers as of December 31, 2020.
|Option Awards||Stock Awards|
|Number of Securities|
of Shares or
Units of Stock
|Name||Exercisable||Unexercisable||Price||Date||Vested (#)||($)(1)||Vested (#)||Vested ($)|
|(1)||Based on $9.30 per share which was the closing price of our common stock on December 31, 2020.|
Potential Payments Upon Termination or Change of Control
There is no compensation payable to the named executive officers upon voluntary termination, retirement, involuntary not-for-cause termination, termination following a change of control or in the event of disability or death of the executive.
Compensation Committee Interlocks and Insider Participation in Compensation Decisions
None of our executive officers served as a member of the compensation committee or as a director of any other company.
We use a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on its board of directors. In setting director compensation, we consider the significant amount of time that directors expend in fulfilling their duties as well as the skill-level required by our members of the board.
Our non-employee directors in 2020 generally received fees of $35,000 per year, paid quarterly, $10,000 per year for serving as chairman of any Board committee and $5,000 for serving as a member of other Board committees. In addition, each director receives an initial grant of stock options to purchase 25,000 shares (thereafter annual grants of 25,000 options or restricted stock units) of our common stock with an exercise price equal to the fair market value of the stock on the date of grant. The board approved and the non-employee directors accepted the 2020 and 2019 compensation set forth in the director summary compensation table below. Beginning in 2021, non-employee director cash compensation will be $75,000 per year. In addition, the directors will receive 37,500 RSU’s vesting 1/3rd equally in January 2021, 2022, and 2023. In addition, non-employee directors may be entitled to receive special awards of stock options or RSUs from time to time as determined by the board. The chairman of the board and the chairman of each of the audit and compensation committees receive no additional fees for serving in such capacities, except as shown above. There is no additional compensation for meeting attendance. Directors who are employees of the Company receive no additional compensation for serving as directors. All stock options granted to outside directors are immediately exercisable and expire ten years from the date of grant or 30 days after the date they cease to be directors. Directors are reimbursed for ordinary expenses incurred in connection with attending board and committee meetings.
Director Summary Compensation Table
The table below summarizes the compensation paid or accrued by us to our directors for the fiscal year ended December 31, 2020.
Fees Earned or
Paid in Cash
|Dwight Egan (3)||$||-||$||-||$||-||$||-|
|(1)||The amounts reported in this column represent the aggregate grant date fair value of the options granted under our 2015 Plan as computed in accordance with FASB ASC Topic 718. Note that the amounts reported in this column reflect the accounting value for these option awards and do not correspond to the actual economic value that may be received from the options. The options vest immediately upon grant.|
|(2)||The amounts reported in this column represent the aggregate grant date fair value of the restricted stock units, or RSUs, granted under our 2015 Plan as computed in accordance with FASB ASC Topic 718. Note that the amounts reported in this column reflect the accounting value for these equity awards and do not correspond to the actual economic value that may be received from the equity awards. The RSUs vested immediately upon grant.|
|(3)||Mr. Egan receives no compensation for serving as a director, but is compensated in his capacity as the Company’s President.|
The following table sets forth certain information, as of March 17, 2021, with respect to the holdings of (1) each person who is the beneficial owner of more than 5% of our Common Stock, (2) each of our directors, (3) each named executive officer, and (4) all of our current directors and executive officers as a group.
Beneficial ownership of the common stock is determined in accordance with the rules of the Securities and Exchange Commission and includes any shares of common stock over which a person exercises sole or shared voting or investment power, or of which a person has a right to acquire ownership at any time within 60 days of March 17, 2021. Except as otherwise indicated, we believe that the persons named in this table have sole voting and investment power with respect to all shares of common stock held by them. Applicable percentage ownership in the following table is based on 28,665,714 shares of common stock plus, for each individual, any securities that individual has the right to acquire within 60 days of March 17, 2021.
To the best of our knowledge, except as otherwise indicated, each of the persons named in the table has sole voting and investment power with respect to the shares of our common stock beneficially owned by such person, except to the extent such power may be shared with a spouse. To our knowledge, none of the shares listed below are held under a voting trust or similar agreement, except as noted. To our knowledge, there is no arrangement, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company. The information in the tables below is based on information known to us or ascertained by us from public filings made by the stockholders. Except as otherwise indicated in the table below, addresses of the director, executive officers and named beneficial owners are in care of Co-Diagnostics, Inc., 2401 S. Foothill Drive, Suite D, Salt Lake City, Utah 84109.
|Number of Shares Beneficially Owned||Percentage|
of Class (1)
|Reagents, LLC (1)||1,746,796||6.1||%|
|Vanguard Group (2)||1,613,884||5.6||%|
|Blackrock, Inc. (3)||1,921,670||6.7||%|
|Named Executive Officers and Directors|
|Dwight Egan (4)||50,000||*|
|Reed Benson (5)||108,333||*|
|Edward Murphy (6)||62,500||*|
|James Nelson (7)||50,000||*|
|Richard Serbin (8)||20,445||*|
|All Directors and Executive Officers as a Group (7 persons)||291,278||1.0||%|
*Represents beneficial ownership of less than 1%.
|(1)||Reagents, LLC, with an address of 8160 S. Highland Drive, Salt Lake City, UT 84093, is beneficially owned by Seth Egan.|
|(2)||Vanguard Group with an address of 100 Vanguard Blvd, Malvern, PA, 19355;|
|(3)||Blackrock, Inc. with an address of 55 E 52 Street, New York, NY, 10055.|
|(4)||Consists of exercisable options to acquire 50,000 shares of common stock.|
|(5)||Consists of exercisable options to acquire 108,333 shares of common stock.|
|(6)||Consists of exercisable options to acquire 50,000 shares of common stock.|
|(7)||Consists of exercisable options to acquire 50,000 shares of common stock.|
|(8)||Consists of exercisable options to acquire 50,000 shares of common stock.|
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. Satterfield prior to our acquisition of DNA Logix, Inc. Pursuant to the license the Company was to pay Dr. Satterfield minimum royalty payments of $30,000 per month until the Company receives an equity funding of at least $4,000,000, at which time the payments increase to $60,000 per month for the remainder of the year. The payment terms were orally modified to maintain the monthly royalties at $30,000 per month through December 2016. On March 1, 2017, the Company entered into an amendment effective January 1, 2017, to its Exclusive License Agreement for its CoPrimer (“License”) technology with Dr. Satterfield, a former member of our Board of Directors. The amendment provides in part that all royalties under the License cease as of January 1, 2017, and we began in January 2017 to pay $700,000 of accrued royalties at the rate of $10,000 per month. In 2020 and 2019, we paid Dr. Satterfield $120,000 and $110,000, respectively, in payment of the accrued royalties.
The Company entered into a consulting arrangement with its director, Richard Serbin, for consulting services during the year ended December 31, 2019. Pursuant to the consulting agreement, we paid Mr. Serbin a one-time fee of $30,000. In payment for extra ordinary services during the year, we granted our directors Richard Serbin and Eugene Durenard 17,000 RSUs and 10,000 RSUs, respectively.
The following table presents aggregate fees for professional services rendered by our independent auditors for the respective periods.
|Years Ended December 31,|
|Audit related fees||-||-|
|Other consulting fees||-||-|
Audit fees consist of fees for professional services provided in connection with the audit of our annual consolidated financial statements, review of our quarterly consolidated financial statements and our offerings.
Tax fees included fees associated with tax compliance and tax consultations.
The audit committee has adopted a policy that requires advance approval of all services performed by the independent auditor when fees are expected to exceed $15,000. The audit committee has delegated to the audit committee chairman, Mr. Durenard, the authority to approve services, subject to ratification by the audit committee at its next committee meeting. All fees incurred were pre-approved by the audit committee.
|*||Management contract or compensatory plan or arrangement.|
|(1)||Incorporated by reference to the Draft Registration Statement filed with the SEC on January 11, 2017.|
|(2)||Incorporated by reference to the Draft Registration Statement filed with the SEC on March 27, 2017.|
|(3)||Incorporated by reference to the Form S-1 filed with the SEC on April 28, 2017.|
|(4)||Incorporated by reference to the Form S-1/A filed with the SEC on May 24, 2017.|
|(5)||Incorporated by reference to the Form S-1/A filed with the SEC on June 9, 2017.|
|(6)||Incorporated by reference to the Form S-1/A filed with the SEC on June 23, 2017.|
|(7)||Incorporated by reference to the Form 10-K for the fiscal year ended December 31, 2019 filed, with the SEC on March 30, 2020|
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.
|Date: March 25, 2021||By:||/s/ Dwight Egan|
Chief Executive Officer, President and Director
(Principal Executive Officer)
|By:||/s/ Brian Brown|
Chief Financial Officer
(Principal Financial and Accounting Officer
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities Indicated.
|/s/ Dwight Egan||Chief Executive Officer, President and Director||March 25, 2021|
|Dwight Egan||(Principal Executive Officer)|
|/s/ Brian Brown||Chief Financial Officer||March 25, 2021|
|Brian Brown||(Principal Financial and Accounting Officer)|
|/s/ Eugen Durenard||Director||March 25, 2021|
|/s/ Edward Murphy||Director||March 25, 2021|
|/s/ James Nelson||Director||March 25, 2021|
|/s/ Richard Serbin||Director||March 25, 2021|