Co-Diagnostics, Inc. 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER EQUITY SECURITIES Market Information 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 Holders 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. Dividends We have never declared or paid any cash dividends on our capital stock. The payment of dividends on our common stock in the future will depend on our earnings, capital requirements, operating and financial condition and such other factors as our Board of Directors may consider appropriate. We currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying dividends on our common stock in the foreseeable future. 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 17 Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. ITEM 6. SELECTED FINANCIAL DATA Not required. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS 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. Business Overview 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. 18 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 2020 2019 Change % Revenue $ 74,552,758 $ 214,974 $ 74,337,784 34580 % Cost of revenue 16,591,346 112,431 16,478,915 14657 % Gross profit 57,961,412 102,543 57,858,869 56424 % Operating expenses 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) Interest income 97,215 36,652 60,563 165 % Interest expense - (106,437 ) 106,437 100 % 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 % 19 Revenues 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. Operating Expenses 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. 20 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. 21 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. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required. 22