Item
1. Financial Statements
CO
– DIAGNOSTICS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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|
|
June
30, 2019
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|
|
December
31, 2018
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|
ASSETS:
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|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
3,856,009
|
|
|
$
|
950,237
|
|
|
Accounts
receivables, net
|
|
|
62,985
|
|
|
|
13,420
|
|
|
Inventory
|
|
|
8,233
|
|
|
|
18,153
|
|
|
Prepaid
expenses
|
|
|
633,036
|
|
|
|
70,103
|
|
|
Total
current assets
|
|
|
4,560,263
|
|
|
|
1,051,913
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
172,501
|
|
|
|
156,138
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|
|
Investment
in joint venture
|
|
|
585,121
|
|
|
|
345,121
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|
|
Total
other assets
|
|
|
757,622
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|
|
|
501,259
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
5,317,885
|
|
|
$
|
1,553,172
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|
|
|
|
|
|
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|
|
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|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
35,897
|
|
|
$
|
148,967
|
|
|
Accrued
expenses
|
|
|
156,182
|
|
|
|
174,444
|
|
|
Accrued
expenses (related party)
|
|
|
120,000
|
|
|
|
120,000
|
|
|
Notes
payable net of discount of $0 and $91,428
|
|
|
—
|
|
|
|
1,908,572
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|
|
Total
current liabilities
|
|
|
312,079
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|
|
|
2,351,983
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|
|
Long-term
Liabilities, net of current portion
|
|
|
|
|
|
|
|
|
|
Accrued
expenses-long-term (related party)
|
|
|
200,000
|
|
|
|
260,000
|
|
|
Total
long-term liabilities, net of current portion
|
|
|
200,000
|
|
|
|
260,000
|
|
|
Total
liabilities
|
|
|
512,079
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|
|
|
2,611,983
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|
|
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Commitments
and contingencies
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STOCKHOLDERS’
EQUITY (DEFICIT):
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Convertible
preferred stock, $.001 par value; 5,000,000 shares authorized, 28,000 and no shares issued and outstanding, respectively
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28
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—
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Common
stock, $.001 par value, 100,000,000 shares authorized; 17,115,766 and 12,923,373 shares issued and outstanding, respectively.
|
|
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17,116
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|
|
|
12,923
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|
|
Additional
paid-in capital
|
|
|
26,195,614
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|
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17,622,433
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|
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Accumulated
deficit
|
|
|
(21,406,952
|
)
|
|
|
(18,694,167
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)
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|
Total
stockholders’ equity (deficit)
|
|
|
4,805,806
|
|
|
|
(1,058,811
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)
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|
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|
|
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Total
liabilities and stockholders’ equity (deficit)
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|
$
|
5,317,885
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|
|
$
|
1,553,172
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|
See
accompanying notes to unaudited condensed consolidated financial statements.
CO
– DIAGNOSTICS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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For
the Three Months
Ended June 30,
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For
the Six Months
Ended June 30,
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2019
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2018
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2019
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2018
|
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Net
sales
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|
$
|
61,574
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|
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$
|
9,696
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|
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$
|
64,974
|
|
|
$
|
19,392
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|
Cost
of sales
|
|
|
38,809
|
|
|
|
—
|
|
|
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39,261
|
|
|
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—
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|
Gross
profit
|
|
|
22,765
|
|
|
|
9,696
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|
|
|
25,713
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|
|
|
19,392
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|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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Sales
and marketing
|
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|
252,076
|
|
|
|
143,890
|
|
|
|
508,179
|
|
|
|
239,153
|
|
|
Administrative
and general
|
|
|
807,769
|
|
|
|
848,668
|
|
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|
1,448,132
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|
|
|
1,730,714
|
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|
Research
and development
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|
312,590
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|
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|
357,889
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|
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|
659,896
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|
|
|
655,304
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Depreciation
and amortization
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|
|
16,094
|
|
|
|
12,615
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|
|
|
29,762
|
|
|
|
25,018
|
|
|
Total
operating expenses
|
|
|
1,388,529
|
|
|
|
1,363,062
|
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|
|
2,645,969
|
|
|
|
2,650,189
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|
Loss
from operations
|
|
|
(1,365,764
|
)
|
|
|
(1,353,366
|
)
|
|
|
(2,620,256
|
)
|
|
|
(2,630,797
|
)
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|
Other
expense:
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|
|
|
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|
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|
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|
Interest
expense
|
|
|
—
|
|
|
|
—
|
|
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|
(106,427
|
)
|
|
|
—
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|
|
Interest
income
|
|
|
19,640
|
|
|
|
6,280
|
|
|
|
20,048
|
|
|
|
13,841
|
|
|
Gain
on disposition of assets
|
|
|
—
|
|
|
|
—
|
|
|
|
850
|
|
|
|
—
|
|
|
Gain
(loss) on equity method investment in joint venture
|
|
|
1,728
|
|
|
|
(25,091
|
)
|
|
|
(7,000
|
)
|
|
|
(65,454
|
)
|
|
Total
other expense
|
|
|
21,368
|
|
|
|
(18,811
|
)
|
|
|
(92,529
|
)
|
|
|
(51,613
|
)
|
|
Loss
before income taxes
|
|
|
(1,344,396
|
)
|
|
|
(1,372,177
|
)
|
|
|
(2,712,785
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)
|
|
|
(2,682,410
|
)
|
|
Provision
for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Net
loss
|
|
$
|
(1,344,396
|
)
|
|
$
|
(1,372,177
|
)
|
|
$
|
(2,712,785
|
)
|
|
$
|
(2,682,410
|
)
|
|
|
|
|
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|
|
|
|
|
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|
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|
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Basic
and diluted income (loss) per common share
|
|
$
|
(0.08
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
Weighted
average common shares outstanding, basic and diluted
|
|
|
17,017,964
|
|
|
|
12,337,133
|
|
|
|
16,544,926
|
|
|
|
12,330,883
|
|
See
accompanying notes to unaudited condensed consolidated financial statements.
CO
– DIAGNOSTICS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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|
|
Six
Months Ended
June
30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,712,785
|
)
|
|
$
|
(2,682,410
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
29,762
|
|
|
|
25,018
|
|
|
Stock
based compensation
|
|
|
294,677
|
|
|
|
75,000
|
|
|
Accretion
of notes payable discount
|
|
|
91,428
|
|
|
|
—
|
|
|
Gain
on disposition of assets
|
|
|
(850
|
)
|
|
|
—
|
|
|
Loss
of equity method investment
|
|
|
7,000
|
|
|
|
65,454
|
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Increase
in accounts and other receivables
|
|
|
(42,065
|
)
|
|
|
—
|
|
|
Decrease
in deferred income
|
|
|
—
|
|
|
|
(19,392
|
)
|
|
(Increase)
decrease in prepaid and other assets
|
|
|
(183,446
|
)
|
|
|
656,845
|
|
|
Decrease
in inventory
|
|
|
9,920
|
|
|
|
9,068
|
|
|
Decrease
in accounts payable and accrued expenses
|
|
|
(191,332
|
)
|
|
|
(66,081
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(2,697,691
|
)
|
|
|
(1,936,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(52,775
|
)
|
|
|
(9,689
|
)
|
|
Investment
in joint venture
|
|
|
(247,000
|
)
|
|
|
(60,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
|
(299,775
|
)
|
|
|
(69,689
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
5,496,002
|
|
|
|
—
|
|
|
Proceeds
from sale of preferred stock
|
|
|
1,000,000
|
|
|
|
—
|
|
|
Payment
of offering costs
|
|
|
(592,764
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
5,903,238
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
2,905,772
|
|
|
|
(2,006,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents beginning of period
|
|
|
950,237
|
|
|
|
3,534,454
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents end of period
|
|
$
|
3,856,009
|
|
|
$
|
1,528,267
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
15,000
|
|
|
$
|
—
|
|
|
Income
taxes paid
|
|
$
|
—
|
|
|
$
|
—
|
|
See
accompanying notes to unaudited condensed consolidated financial statements.
CO
– DIAGNOSTICS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2019
(Unaudited)
Note
1 - Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim financial information and with the instructions to Form
10-Q as they are prescribed for smaller reporting companies. Accordingly, they do not include all the information and footnotes
required by accounting principles generally accepted in the United States of America for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements
not misleading have been included. Operating results for the three and six-month periods ended June 30, 2019 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2019. These statements should be read in conjunction
with the Company’s audited financial statements and related notes for the year ended December 31, 2018, included in the
Company’s Annual Report on Form 10-K filed on March 28, 2019.
Certain
2018 financial statement amounts have been reclassified to conform to 2019 presentations.
Description
of Business
Co-Diagnostics,
Inc. (“we,” “our,” the “Company” or “CDI”), a Utah corporation headquartered in
Salt Lake City, Utah, is a molecular diagnostics company formed in April 2013 that develops, manufactures and markets a new, state-of-the-art
diagnostics technology.
CDI’s
diagnostics systems are designed to enable very rapid, low-cost, sophisticated molecular testing for organisms and genetic diseases
by greatly automating historically complex procedures in both the development and administration of tests. CDI’s newest
technical advance involves a novel approach to Polymerase Chain Reaction (“PCR”) primer design (CoPrimers™)
that eliminates one of the key vexing issues of PCR amplification, the exponential growth of primer-dimer pairs which adversely
interferes with identification of the target DNA. In addition, CDI scientists have enhanced the understanding of the mathematics
of DNA test design, so as to “engineer” a DNA test and automate algorithms to screen millions of possible designs
to optimize DNA test design. CDI’s proprietary platform of Co-Dx™ technologies integrates and streamlines these steps
as it analyzes biological samples.
Co-Diagnostics’
portfolio of molecular diagnostics development products and tests represents a new advancement in the understanding of the molecular
interactions of DNA. The Company uses highly specialized, proprietary cooperative-theory mathematics that may lead to a revolutionary
leap forward in the detection of infectious diseases, genetic disorders and other conditions. CoDx™ tests are a fraction
of the cost of other DNA-based tests, designed for a new generation of affordable, mobile point-of-care diagnostic devices and
compatible with many other devices, creating opportunities for state-of-the-art diagnostics available anywhere in the world, including
developing countries.
Recent
Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are
adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued
standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
The
Company, an emerging growth company (“EGC”), has elected to take advantage of the benefits of the extended transition
period provided for in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting
standards which allows the Company to defer adoption of certain accounting standards until those standards would otherwise apply
to private companies.
In
August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and
Cash Payments, to clarify guidance on the presentation and classification of certain cash receipts and payments in the statement
of cash flows. This update was issued with the intent of reducing diversity in practice with respect to eight types of cash flows.
This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years,
for public EGC companies like us. The update did not have a significant impact on the Company’s financial statements.
In
February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842), which requires recognition of leased assets and liabilities
on the balance sheet and disclosing key information about leasing arrangements. This update is effective for annual periods and
interim periods with those periods beginning after December 15, 2019, for public EGC companies like us. Management is currently
evaluating the impact that the updated standard will have on its consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU No. 2014-09: “Revenue from Contracts with
Customers (Topic 606)” which supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition”,
and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional
revenue recognition updates were also issued in 2016 and 2017, which further clarified certain aspects of the new revenue recognition
guidance. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2018, for public
EGC companies like us. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented
(the full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at
the date of initial application (the modified retrospective method). The Company adopted the modified retrospective method. The
update did not to have a significant impact on the Company’s financial statements.
Note
2 - Significant Accounting Policies
Earnings
(Loss) per Share
Basic
earnings or loss per common share is computed by dividing net income or loss applicable to common shareholders by the weighted
average number of shares outstanding during each period. As the Company experienced net losses during the three and six months
ended June 30, 2019, and 2018, respectively, no common stock equivalents have been included in the diluted earnings per common
share calculations as the effect of such common stock equivalents would be anti-dilutive. For the three and six months ended June
30, 2019, there were 2,224,575 potentially dilutive shares consisting of; (i) 1,247,707 outstanding options, (ii) 953,535
outstanding warrants and (iii) 2,333,333 for issued and outstanding convertible preferred stock. For the three and six months
ended June 30, 2018, there were 1,028,969 potentially dilutive shares consisting of 322,707 outstanding options and 706,262 outstanding
warrants.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Such estimates include
receivables and other long-lived assets, legal and regulatory contingencies, income taxes, share based arrangements, and others.
These estimates and assumptions are based on management’s best estimates and judgments. Actual amounts and results could
differ from those estimates.
Accounts
Receivable
Trade
accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of
all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled
accounts and by using historical experience applied to an aging of accounts. Trade receivables are written off when deemed uncollectible.
Recoveries of trade receivables previously written off are recorded when collected. At June 30, 2019 total accounts receivable
was $73,108 with an allowance for uncollectable accounts of $10,123 resulting in a net amount of $62,985.
Note
3 – Going Concern
The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses and has not demonstrated
the ability to generate sufficient cash flows from operations to satisfy our liabilities and sustain operations. These factors
raise substantial doubt about our ability to continue as a going concern.
We
experienced negative cash flow used in operations during the six months ending June 30, 2019 of $2,697,691 compared to negative
cash flow used in operations for the six months ended June 30, 2018 of $1,936,498. The negative cash flow was met by cash reserves.
The amount of our operating deficit could decrease or increase significantly depending on strategic and other operating decisions,
thereby affecting our need for additional capital. We expect our operating losses will continue until we are able to generate
revenue. Until our operations become profitable, we will continue to rely on proceeds received from external funding. We expect
additional investment capital may come from (i) additional private placements of our common stock with existing and new investors
and (ii) the private placement of other securities with investors similar to those that have provided funding in the past.
Our
continuation as a going concern is dependent on our ability to generate sufficient income and cash flow to meet our obligations
on a timely basis and to obtain additional financing as may be required. The Company is actively seeking options to obtain additional
capital and financing.
Note
4 – Equity
2019
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 purchase price was
paid by the investors with $1.0 million in cash and the conversion of a $2.0 million note owed by the Company to the investors.
The investors may not convert the Series A Preferred Stock to the extent that such conversion would result in beneficial ownership
by the investors and their affiliates of more than 4.99% of the issued and outstanding Common Stock of the Company.
In
February 2019, we completed the sale of 3,925,716 shares of the Company’s common stock, par value $0.001 per share, at a
purchase price of $1.40 per share in a registered direct offering. The aggregate gross proceeds for the sale of the Common Shares
was $5,496,002 and we received net proceeds of $4,903,238 after offering costs of $592,764.
In
March 2019, we issued 166,667 shares of our common stock to an individual who converted 2,000 shares of our Series A Preferred
Stock to common stock at a conversion price calculated by multiplying the number of preferred shares being converted by $100 and
dividing the result by $1.20.
In
June 2019, we issued 100,000 shares of our common stock to a company valued at $80,400 pursuant to a professional services agreement.
2018
In
March 2018, the Company issued 9,225 shares of our common stock valued at $25,000 to a company for services rendered.
In
April 2018, the Company issued 13,368 shares of our common stock valued at $25,000 to a company for services rendered.
In
June 2018, the Company issued 8,250 shares of our common stock valued at $25,000 to a company for services rendered.
Co-Diagnostics, Inc.
Consolidated Statements of Convertible
Preferred Stock and Stockholders’ Equity (Deficit)
(Unaudited)
|
|
|
Convertible
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-In-
|
|
|
Accumulated
|
|
|
Total
Stockholders’
Equity
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Deficit)
|
|
|
Balance
as of December 31, 2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
12,923,383
|
|
|
$
|
12,923
|
|
|
$
|
17,622,433
|
|
|
$
|
(18,694,167
|
)
|
|
$
|
(1,058,811
|
)
|
|
Public
offering, net of offering costs of $592,764
|
|
|
—
|
|
|
|
—
|
|
|
|
3,925,716
|
|
|
|
3,926
|
|
|
|
4,899,312
|
|
|
|
—
|
|
|
|
4,903,238
|
|
|
Issuance
of Preferred Stock
|
|
|
30,000
|
|
|
|
30
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,999,970
|
|
|
|
—
|
|
|
|
3,000,000
|
|
|
Stock-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87,794
|
|
|
|
—
|
|
|
|
87,794
|
|
|
Conversion
of Preferred Stock to Common
|
|
|
(2,000
|
)
|
|
|
(2
|
)
|
|
|
166,667
|
|
|
|
167
|
|
|
|
(165
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,368,389
|
)
|
|
|
(1,368,389
|
)
|
|
Balance
as of March 31, 2019
|
|
|
28,000
|
|
|
$
|
28
|
|
|
|
17,015,766
|
|
|
$
|
17,016
|
|
|
$
|
25,609,344
|
|
|
$
|
(20,062,556
|
)
|
|
$
|
5,563,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
505,970
|
|
|
|
—
|
|
|
|
505,970
|
|
|
Issuance
of common stock for services
|
|
|
—
|
|
|
|
|
|
|
|
100,000
|
|
|
|
100
|
|
|
|
80,300
|
|
|
|
|
|
|
|
80,400
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,344,396
|
)
|
|
|
(1,344,396
|
)
|
|
Balance
as of June 30, 2019
|
|
|
28,000
|
|
|
$
|
28
|
|
|
|
17,115,766
|
|
|
$
|
17,116
|
|
|
$
|
26,195,614
|
|
|
$
|
(21,406,952
|
)
|
|
$
|
4,805,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2017
|
|
|
—
|
|
|
$
|
—
|
|
|
|
12,317,184
|
|
|
$
|
12,317
|
|
|
$
|
16,260,651
|
|
|
|
(12,422,444
|
)
|
|
|
3,850,524
|
|
|
Issuance
of Common Stock for Services
|
|
|
—
|
|
|
|
—
|
|
|
|
9,225
|
|
|
|
9
|
|
|
|
24,991
|
|
|
|
—
|
|
|
|
25,000
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
(1,310,233
|
)
|
|
|
(1,310,233
|
)
|
|
Balance
as of March 31, 2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
12,326,409
|
|
|
$
|
12,326
|
|
|
$
|
16,285,642
|
|
|
$
|
(13,732,677
|
)
|
|
$
|
2,565,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
21,618
|
|
|
|
22
|
|
|
|
49,978
|
|
|
|
—
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,372,177
|
)
|
|
|
(1,372,177
|
)
|
|
Balance
as of June 30, 2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
12,348,027
|
|
|
$
|
12,348
|
|
|
$
|
16,335,620
|
|
|
$
|
(15,104,854
|
)
|
|
$
|
1,243,114
|
|
Note
5 – Notes Payable
On
August 3, 2018, we entered into a Note Purchase Agreement with Robert Salna, an existing shareholder of the Company and prior
investor in the Company’s convertible debt securities. Pursuant to the agreement, the Company issued to Mr. Salna a Promissory
Note, dated August 3, 2018, in the principal amount of $2,000,000 (the “Note”) in exchange for a loan to the Company
of equal principal amount.
On
January 30, 2019, we entered into a securities purchase agreement with investors, whereby the investors purchased from the Company
30,000 shares of Series A Convertible Preferred Stock of the Company for a purchase price of $3,000,000. The purchase price was
paid by the investors with $1.0 million in cash and the conversion of a $2.0 million note owed by the Company to the investors.
Upon conversion we recognized $78,241 as interest expense for the unamortized debt discount. For the six months ended June 30,
2019 we included $106,409 in interest expense of which $15,000 was for interest paid and $91,427 was for accretion of note discount.
Note
6 – Stock-based Compensation
Stock
Incentive Plans
The
Co-Diagnostics, Inc. 2015 Long Term Incentive Plan reserves an aggregate of 6,000,000 shares. The number of unissued stock options
authorized under the plan at June 30, 2019 was 4,752,293.
Stock
Options
For
the three and six months ended June 30, 2019 we recognized $126,483 and $214,278 of stock-based compensation expense, related
to stock options, recorded in our general and administrative department of which (i) $38,688 and $38,688 was for an aggregate
of 75,000 options granted to 3 independent members of the board of directors and (ii) $87,795 and $175,590 was for options vesting
which were granted prior to January 1, 2019, respectively.
For
the three and six months ended June 30, 2018 there was no stock-based compensation expense related to granted and unexercised
stock options.
The
following table summarizes option activity during the six months and year ended June 30, 2019 and December 31, 2018, respectively.
|
|
|
Options
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Fair
Value
|
|
|
Weighted
Average
Remaining Contractual
Life (years)
|
|
|
Outstanding at January 1, 2018
|
|
|
322,707
|
|
|
$
|
1.29
|
|
|
$
|
0.70
|
|
|
|
7.05
|
|
|
Options granted
|
|
|
850,000
|
|
|
|
2.63
|
|
|
|
1.24
|
|
|
|
9.98
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding at December 31, 2018
|
|
|
1,172,707
|
|
|
$
|
2.23
|
|
|
$
|
1.09
|
|
|
|
8.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
75,000
|
|
|
|
0.71
|
|
|
|
0.52
|
|
|
|
9.99
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2019
|
|
|
1,247,707
|
|
|
$
|
2.10
|
|
|
$
|
1.03
|
|
|
|
7.97
|
|
Warrants
The
Company estimates the fair value of issued warrants on the date of issuance as determined using a Black-Scholes pricing model.
The Company amortizes the fair value of issued warrants using a vesting schedule based on the terms and conditions of each warrant.
The Black-Scholes valuation model requires various judgmental assumptions including the estimated volatility, risk-free interest
rate and expected warrant term. In determining the expected volatility, our computation is based on the stock prices of three
comparable companies and on a combination of historical and market-based implied volatility. The risk-free interest rate is based
on the yield curve of a zero-coupon U.S. Treasury bond on the date the warrant was issued with a maturity equal to the expected
term of the warrant.
There
were 470,000 warrants valued at $379,487 issued in the three and six months ended June 30, 2019 for professional services rendered
to the company. The Company calculated the value of the warrants using a Black-Scholes pricing model with the following assumptions:
(i) risk free interest rate 2.34%, (ii) expected life (in years) of 5; (iii) expected volatility of 50.97%; (iv) expected dividend
yield of 0.00%; and (v) stock trading price of $0.982.
There
were no warrants issued in the three and six months ended June 30, 2018.
The
following table summarizes warrant activity during the six months and year ended June 30, 2019 and December 31, 2018, respectively.
|
|
|
Warrants
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Fair Value
|
|
|
Weighted
Average
Remaining Contractual
Life (years)
|
|
|
Outstanding at January 1, 2018
|
|
|
706,262
|
|
|
|
3.27
|
|
|
|
1.48
|
|
|
|
4.22
|
|
|
Warrants issued
|
|
|
50,000
|
|
|
|
2.00
|
|
|
|
1.22
|
|
|
|
5.00
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
272,727
|
|
|
|
0.64
|
|
|
|
0.54
|
|
|
|
3.64
|
|
|
Outstanding at December 31, 2018
|
|
|
483,535
|
|
|
$
|
4.92
|
|
|
$
|
1.99
|
|
|
|
3.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued
|
|
|
470,000
|
|
|
|
0.48
|
|
|
|
0.08
|
|
|
|
4.84
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2019
|
|
|
953,535
|
|
|
$
|
2.73
|
|
|
$
|
1.05
|
|
|
|
3.80
|
|
The
following table summarizes information about stock options and warrants outstanding at June 30, 2019.
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Range of
Exercise Prices
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life (years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
Weighted
Average
Exercise
Price
|
|
|
$
|
0.01-0.71
|
|
|
|
696,372
|
|
|
|
5.88
|
|
|
$
|
0.29
|
|
|
|
696,372
|
|
|
$
|
0.29
|
|
|
|
2.00-3.85
|
|
|
|
1,096,335
|
|
|
|
8.36
|
|
|
|
2.59
|
|
|
|
529,668
|
|
|
|
2.55
|
|
|
|
5.10-7.20
|
|
|
|
408,535
|
|
|
|
2.59
|
|
|
|
5.46
|
|
|
|
408,535
|
|
|
|
5.46
|
|
|
$
|
0.01-7.20
|
|
|
|
2,201,242
|
|
|
|
6.51
|
|
|
$
|
2.39
|
|
|
|
1,634,575
|
|
|
$
|
2.31
|
|
Total
unrecognized stock-based compensation was $409,721 at June 30, 2019 for options granted. The Company expects to recognize the
aggregate amount of this compensation expense over the next years in accordance with contractual provisions and vesting as follows:
|
Year
|
|
Amount
|
|
|
2019
|
|
$
|
175,590
|
|
|
2020
|
|
|
234,131
|
|
|
Total
|
|
$
|
409,721
|
|
Note
7 – Related Party Transactions
The
Company acquired the exclusive rights to the CoPrimer technology pursuant to a license agreement dated April 2014, between us
and DNA Logix, Inc., which was assigned to Dr. Brent Satterfield, one of our current executive officers, prior to our acquisition
of DNA Logix, Inc. On March 1, 2017, the Company entered into an amendment to its Exclusive License Agreement for its Cooperative
Primers (“License”) technology with Dr. Satterfield. The amendment provides in part that all accrued royalties under
the License cease as of January 1, 2017, and we began in January to pay $700,000 of accrued royalties at the rate of $10,000 per
month. At June 30, 2019, the aggregate balance of this related party liability was $320,000.
Note
8 – Lease Obligations
Our
offices are located at 2401 S. Foothill Dr., Suite D, Salt Lake City, Utah 84109-1479. On June 18, 2018, the Company entered into
an addendum with our landlord for additional space. The new aggregate space consists of approximately 10,273 square feet and is
leased under a multi-year contract at a rate of $14,086 per month expiring on January 31, 2020. For the three and six months ended
June 30, 2019, the Company expensed $45,040 and $90,622, respectively, for rent. For the three and six months ended June 30 2018,
the Company expensed $37,729 and $75,627, respectively, for rent. The Company’s remaining lease rent obligation as of June
30, 2019 is as follows:
|
Year
|
|
Amount
|
|
|
2019
|
|
$
|
84,517
|
|
|
2020
|
|
|
14,086
|
|
|
Total
|
|
$
|
98,603
|
|
Note
9 – Subsequent Events
On
July 2, 2019, we issued 3,000 shares of our common stock to an entity that provides services for the Company pursuant to a written
contract.
The
Company evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no additional events that need
to be reported.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary
Note Regarding Forward-Looking Statements
This
Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties. All statements
other than statements of historical fact contained in this Quarterly Report and the documents incorporated by reference herein,
including statements regarding future events, our future financial performance, business strategy, and plans and objectives of
management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by
terminology including “anticipates,” “believes,” “can,” “continue,” “could,”
“estimates,” “expects,” “intends,” “may,” “plans,” “potential,”
“predicts,” “should,” or “will” or the negative of these terms or other comparable terminology.
Although we do not make forward looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee
their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors and
the documents incorporated by reference herein, which may affect our or our industry’s actual results, levels of activity,
performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a highly regulated,
very competitive, and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict
all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination
of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.
We
have based these forward-looking statements largely on our current expectations and projections about future events and financial
trends that we believe may affect our financial condition, results of operations, business strategy, short term and long-term
business operations, and financial needs. These forward-looking statements are subject to certain risks and uncertainties that
could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report, and in particular,
the risks discussed below and under the heading “Risk Factors” in other documents we file with the SEC. The following
discussion should be read in conjunction with the Annual Report on Form 10-K for the fiscal years ended December 31, 2018 and
2017 and notes incorporated by reference therein. We undertake no obligation to revise or publicly release the results of any
revision to these forward-looking statements, except as required by law. In light of these risks, uncertainties and assumptions,
the forward-looking events and circumstances discussed in this Quarterly Report may not occur and actual results could differ
materially and adversely from those anticipated or implied in the forward-looking statement.
You
should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this Quarterly
Report. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements
after the date of this Quarterly Report to conform our statements to actual results or changed expectations.
You
are advised, however, to consult any further disclosures we make on related subjects in our reports on Forms 10-Q, 8-K and 10-K
filed with the SEC. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should
not consider this list to be a complete set of all potential risks or uncertainties.
Important
factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation:
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results of clinical trials and the regulatory approval process;
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our
ability to raise capital to fund continuing operations;
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market
acceptance of any products that may be approved for commercialization;
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our
ability to protect our intellectual property rights;
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the
impact of any infringement actions or other litigation brought against us;
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competition
from other providers and products;
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our
ability to develop and commercialize new and improved products and services;
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changes
in government regulation;
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ability to complete capital raising transactions;
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and
other factors relating to our industry, our operations and results of operations.
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Critical
Accounting Policies
The
preparation of financial statements in conformity with U.S. GAAP requires that we make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities.
On an ongoing basis, we evaluate our assumptions and estimates, including those related to recognition of revenue, valuation of
investments, valuation of inventory, valuation of intangible assets, measurement of stock-based compensation expense and litigation.
We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
As
an emerging growth company, we have elected to opt-in to the extended transition period for new or revised accounting standards.
As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.
Executive
Overview
The
following management’s discussion and analysis of financial condition and results of operations describes the principal
factors affecting the results of our operations, financial condition, and changes in financial condition. This discussion should
be read in conjunction with the accompanying unaudited financial statements, and notes thereto, included elsewhere in this report.
The information contained in this discussion is subject to a number of risks and uncertainties. We urge you to review carefully
the section of this report entitled “
Forward-Looking Statements
” for a more complete discussion of the risks
and uncertainties associated with an investment in our securities.
Overview
Co-Diagnostics,
Inc. (“Company,” or “CDI,”) is developing robust and innovative molecular tools for detection of infectious
diseases, liquid biopsy for cancer screening, and agricultural applications.
Our
diagnostics systems enable very rapid, low-cost, molecular testing for organisms and genetic diseases by automating historically
complex procedures in both the development and administration of tests. CDI’s newest technical advance involves a novel
approach to PCR test design (“CoPrimers”) that eliminates one of the key vexing issues of PCR amplification occurring
especially in multiplexed transactions, which is the exponential growth of primer-dimer pairs (false positives and false negatives)
adversely interfering with identification of the target DNA.
Our
proprietary molecular diagnostics technology is paving the way for innovation in disease detection and life sciences research
through our enhanced detection of genetic material. Because we own our platform, we are able to accomplish this faster and more
economically, allowing for wider margins while still positioning Co-Diagnostics to be a low-cost provider of molecular diagnostics
and screening services.
The
Company, a Utah corporation, is a molecular diagnostics company that has developed and intends to manufacture and sell reagents
used for diagnostic tests that function via the detection and/or analysis of nucleic acid molecules (DNA or RNA). In connection
with the sale of our test products we may sell diagnostic equipment from other manufacturers as self-contained lab systems (which
we refer to as the “MDx device”).
In
addition, continued development has demonstrated the unique properties of our CoPrimer technology that make them ideally suited
to a variety of applications where specificity is key to optimal results, including multiplexing several targets simultaneously,
enhanced Single Nucleotide Polymorphism (“SNP”) detection and enrichment for next gen sequencing.
Our
scientists were the first to understand the complex mathematics of DNA test design, to “engineer” primers and probes
for DNA tests and to automate algorithms that rapidly screen millions of possible options to pinpoint the optimum design. Dr.
Satterfield, our Chief Technology Officer, developed the Company’s intellectual property consisting of the predictive mathematical
algorithms and proprietary reagents used in the testing process, which together represent a major advance in Polymerase Chain
Reaction (“PCR”) testing systems. CDI technologies are now protected by seven granted or pending US or foreign patents,
as well as certain trade secrets and copyrights.
We
may either sell or lease the MDx Device to existing diagnostic centers, through sale or lease agreements, and sell the reagents
that comprise our proprietary test products to those laboratories and testing facilities.
Agreement
with Synbiotics
The
Company has entered into a joint venture agreement to manufacture diagnostics tests for seven infectious diseases with Synbiotics
Limited, a pharmaceutical manufacturing company in India. The Company and Synbiotics are equal partners in the joint venture.
The agreement provides for the manufacture of the tests named above and the joint sales and marketing of those tests in India.
The Company will license its technology to the joint venture on a royalty-free basis. The profits from the partnership shall be
divided as follows:
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Profit Level
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CDI Share
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Synbiotics Share
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Up to $1,000,000
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50
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%
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50
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%
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$1,000,000-$2,000,000
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60
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%
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40
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%
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$2,000,000-$3,000,000
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70
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%
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30
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%
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Above $3,000,000
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80
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%
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20
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%
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Synbiotics
will be reimbursed by the joint venture for some expenses, such as approximately $96,000 in rent for the manufacturing plant and
office space. If the joint venture needs additional funding, it will be achieved through loans obtained by the joint venture,
or if loans are not available on commercially reasonable terms, from capital contributions. There is no term to the joint venture
agreement but it can be dissolved by mutual agreement or by one party upon a material breach by the other party. The manufacturing
plant is completed and is scheduled to be ready for production in the third quarter of 2019. We have submitted or will submit
technical files describing seven difference diagnostic tests to the Indian regulatory bodies requesting approval for those tests
to be manufactured in our plant and sold in the Indian market. We have received test licenses for various certain diseases allowing
us to sell test products for research. The joint venture is currently marketing our products in the Indian market and has commenced
sales of our probes and primers to various laboratories and other users to be used as Research Use Only tests in their facilities,
which we anticipate will be the beginning of sales of our products in India.
Intellectual
Property Protection
Because
much of our future success and value depends on our proprietary technology, our patent and intellectual property strategy is of
critical importance. Four of our initial U.S. patents related to our technology have been granted by the U.S. Patent and Trademark
Office, or PTO, including the patent for our CoPrimer technology, which we consider our most important patent. One of our patents
has been issued in Great Britain. As of May 13, 2019, we had four additional patents pending in the U.S. and foreign counterpart
applications. Two of our issued patents expire in 2034, one in 2036 and one in 2038.
We
have identified additional applications of the technology, which represent potential patents that further define specific applications
of the processes that are covered by the original patents. We intend to continue building our intellectual property portfolio
as development continues and resources are available.
We
have copyrighted our development software that can be used by any lab or developer to develop diagnostic tests based on our technology.
We have allowed one potential customer access to our development software and intend to sell customized reagents through that
customer to labs serviced by that customer throughout the world. To date we have not sold any products to that customer.
Major
Customers
We
currently have no major customers.
Competition
The
molecular diagnostics industry is extremely competitive. There are many firms that provide some or all of the products we provide
and provide many diagnostic tests that we have yet to develop. Many of these competitors are larger than us and have significantly
greater financial resources. Because we are not established, many of our competitors have a competitive advantage in the diagnostic
testing industry because they also have other lines of business in the pharmaceutical industry from which they derive revenues
and for which they are well known and respected in the medical profession. We will need to overcome the disadvantage of being
a start up with no history of success and no respect of the medical and testing professionals. In the diagnostic testing industry,
we compete with such companies as BioMerieux, 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.
Employees
We
currently employ 20 full-time personnel at our executive offices and lab facilities in Salt Lake City, Utah, and two employees
outside of Utah. We have engaged independent contractors in India to promote the use of our products and develop outlets for products
and employ the services of independent sales representatives on an “as needed” basis.
Government
Regulation
We
will be regulated by the U.S. Federal Drug Administration and our products must be approved by the FDA before we will be allowed
to sell our tests in the United States. Because our lab is ISO certified we are allowed to apply for CE-Marking, which will allow
us to sell in most countries in Europe, South America and Asia. We currently have CE Marks issued for our tuberculosis test, our
zika virus test, and a triplex test that tests for zika, dengue, and chikungunya simultaneously.
Organizational
History and Corporate Information
We
were incorporated as Co-Diagnostics, Inc. in Utah on April 18, 2013. Our principal executive office is located at 2401 S. Foothill
Drive, Suite D, Salt Lake City, Utah 84109. Our telephone number is (801) 438-1036. Our website address is http://codiagnostics.com
RESULTS
OF OPERATIONS
Results
of Operations for the Six Months ended June 30, 2019 and 2018
Net
Sales
For
the six months ended June 30, 2019, we generated $64,974 of net sales compared to net sales of $19,392 in the six months ended
June 30, 2018. $50,000 of the revenue in 2019 was the result of sales of two MDx Devices to mosquito abatement districts and most
of the remainder was service revenue from designing custom tests for a large agricultural company. The revenue in 2018 represented
a license fee for licensing our Zika tests and certain other Flaviviruses for limited distribution to a Canadian company, which
license has since been terminated.
Cost
of Sales
For
the six months ended June 30, 2019, we recorded cost of sales of $39,261 primarily for the cost of equipment included in the sales
to mosquito abatement districts. For the six months ended June 30, 2018, we recorded no cost of sales.
Operating
Expenses
We
incurred total operating expenses of $2,645,969 for the six months ended June 30, 2019 compared to total operating expenses of
$2,650,189 for the six months ended June 30, 2018. The decrease of $4,220 resulted from an increase of $269,026 in sales and marketing
expenses which was due to increased sales activities offset by a decrease in general and administrative expenses of $282,582 with
research and development expenses remaining basically unchanged. Depreciation and amortization expense also increased $4,744 as
a result of the purchase of additional equipment.
General
and administrative expenses decreased $282,582 from $1,730,714 for the six months ended June 30, 2018 to $1,448,132 for the six
months ended June 30, 2019. The decrease was primarily the result of a decrease of $710,377 in independent consulting expenses
partially offset by an increase of $214,278 in option and warrant expense and an increase of $95,645 in other professional services.
In addition, insurance expenses increased $55,523 related to D&O insurance and $43,409 in salaries and related employee costs.
Our
sales and marketing expenses for the six months ended June 30, 2019 were $508,179 compared to sales and marketing expenses of
$239,153 for the six months ended June 30, 2018. The increase of $269,026 is due primarily to an increase of $136,852 in salary
and related benefits expense, an increase of $73,340 in consulting expenses, and an increase of $53,014 in travel and lodging.
Our
research and development expenses increased by $4,592 from $655,304 for the six months ended June 20, 2018 to $659,896 for the
six months ended June 30, 2019. The increase was primarily due to an increase of $99,584 in payroll and employee related expenses,
and an increase of $16,368 in travel and lodging, all of which was offset by a decrease of $58,362 in other professional services,
a decrease of $37,549 in consulting fees, and a decrease of $15,584 in lab supplies expenses.
Interest
Expense
For
the six months ended June 30, 2018, we incurred no interest expense compared to interest expense for the six months ended June
30, 2019 of $106,427. The increase of $106,427 was the result of having a $2,000,000 loan outstanding during the month of January
2019, which was retired coincident with the completion of our registered direct offering. For the six months ended June 30, 2019,
we included $106,427 in interest expense of which $15,000 was for interest paid and $91,427 was for accretion of note discount
upon retirement of the loan. We also realized interest income of $20,048 from the investment of funds not used in the operations
of the business compared to $13,841 of interest earned in the six months ended June 30, 2018.
Net
Loss
We
realized a net loss for the six months ended June 30, 2019 of $2,712,785 compared with a net loss for the six months ended June
30, 2018 of $2,682,410. The increase in net loss of $30,375 was primarily the result of increased interest expenses as explained
above partially offset by a decrease of $58,454 in loss from investment related to our Indian joint venture.
Results
of Operations for the Three Months ended June 30, 2019 and 2018
Net
Sales
For
the three months ended June 30, 2019, we generated $61,574 of net sales compared to net sales of $9,696 in the three months ended
June 30, 2018. $50,000 of the revenue in 2019 was the result of sales of two MDx Devices to mosquito abatement districts and most
of the remainder was service revenue from designing custom tests for a large agricultural company. The revenue in 2018 represented
a license fee for licensing our Zika tests and certain other Flaviviruses for limited distribution to a Canadian company, which
has since been terminated.
Cost
of Sales
For
the three months ended June 30, 2019, we recorded cost of sales of $38,809 related to the cost of materials in the MDx Devices
sold to mosquito abatement labs and for the three months ended June 30, 2018, we recorded no cost of sales.
Operating
Expenses
We
incurred total operating expenses of $1,388,529 for the three months ended June 30, 2018 compared to total operating expenses
of $1,363,062 for the three months ended June 30, 2018. The increase of $25,467 was due primarily to an increase of $108,186 in
sales and marketing expenses following completion of development and regulatory compliance of several of our infectious disease
tests. The increase in sales and marketing expenses were offset by a decrease in general and administrative expenses of $40,899
and a decrease of $45,299 in our research and development expenses.
General
and administrative expenses decreased $40,899 from $848,668 for the three months ended June 30, 2018 to $807,769 for the three
months ended June 30, 2019. The decrease was primarily the result of a decrease of $333,659 in independent consulting expenses
partially offset by an increase of $126,483 in option and warrant expense, an increase of $99,166 in professional services expense,
an increase of $26,395 in insurance expense and an increase of $18,942 in salaries and related benefits.
Our
sales and marketing expenses for the three months ended June 30, 2019 were $252,086 compared to sales and marketing expenses of
$143,890 for the three months ended June 30, 2018. The increase of $108,186 is due primarily to an increase of $68,300 in salary
and related benefits expense, an increase of $33,586 in consulting fees and an increase of $12,999 in travel expenses.
Our
research and development expenses decreased by $45,299 from $357,889 for the three months ended June 30, 2018 to $312,590 for
the three months ended June 30, 2019. The decrease was primarily due to a decrease of $67,204 in lab supplies and a decrease of
$20,873 in consulting fees, which was partially offset by an increase of $34,847 in payroll and employee related expenses.
Interest
Expense
We
incurred no interest expense for the three months ended June 30, 2018 or 2019. We realized interest income of $19,640 for the
three months ended June 30, 2019 compared to interest income of $6,280 for the three months ended June 30, 2018 from the investment
of funds not used in the operations of the business.
Net
Loss
We
realized a net loss for the three months ended June 30, 2019 of $1,344,396 compared with a net loss for the three months ended
June 30, 2018 of $1,372,177. The decrease in net loss of $22,401 resulted from an increase of $25,467 in operating expenses explained
above offset by $13,069 of gross profit on revenue, a decreased loss on investment related to our Indian joint venture of $23,363
and increased interest income of $13,360.
Liquidity
and Capital Resources
Liquidity
is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise
operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts
receivable and accounts payable and capital expenditures.
To
date we have financed our operations through sales of common stock and the issuance of debt.
At
December 31, 2018, we had cash and cash equivalents of $950,237, total current assets of $1,051,913, total current liabilities
of $2,351,983 and total stockholders’ deficit of $1,058,811. At June 30, 2019, we had cash and cash equivalents of $3,856,009,
total current assets of $4,560,263, total current liabilities of $312,079 and total stockholders’ equity of $4,805,806.
On
January 30, 2019, we entered into a securities purchase agreement with investors, whereby the investors purchased from the Company
30,000 shares of Series A Convertible Preferred Stock of the Company for a purchase price of $3,000,000. The purchase price was
paid by the investors with $1.0 million in cash and the conversion of a $2.0 million note owed by the Company to the investors.
The investors may not convert the Series A Preferred Stock to the extent that such conversion would result in beneficial ownership
by the investors and their affiliates of more than 4.99% of the issued and outstanding Common Stock of the Company.
On
February 4, 2019, we completed the sale of 3,925,716 shares of the Company’s common stock, par value $0.001 per share, at
a purchase price of $1.40 per share in a registered direct offering. The aggregate gross proceeds for the sale of the Common Shares
was $5,496,002 and we received net proceeds of $4,903,238 after offering costs of $592,764.
We
experienced negative cash flow used in operations during the six months ended June 30, 2019 of $2,697,691 compared to negative
cash flow used in operations for the six months ended June 30, 2018 of $1,936,498. During the six months ended June 30, 2019 and
2018, we received net cash from financing activities of $5,903,238 and $0 as described above and used $247,000 and $60,000, respectively
of our cash in contributions to our joint venture in India. The negative cash flow in the quarter was met by cash reserves from
the issuances of common stock incident to the completion of registered direct offering in February and the issuance of preferred
stock in January. The amount of our operating deficit could decrease or increase significantly depending on strategic and other
operating decisions, thereby affecting our need for additional capital. We expect our operating losses will continue until we
are able to generate material revenue. Until our operations become profitable, we will continue to rely on proceeds received from
our offerings of stock. In August 2018 we filed a shelf registration of our securities with the SEC and in September 2018 it was
declared effective. In February 2019 we completed the registered direct offering described above pursuant to that registration.
We expect additional investment capital to come from (i) additional issuances of our common stock pursuant to our S-3 shelf registration
with existing and new investors and (ii) the private placement of other securities with investors similar to those that have provided
funding in the past.
The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses and has not demonstrated
the ability to generate sufficient cash flows from operations to satisfy our liabilities and sustain operations. These factors
raise substantial doubt about our ability to continue as a going concern. Our continuation as a going concern is dependent on
our ability to generate sufficient income and cash flow to meet our obligations on a timely basis and to obtain additional financing
as may be required. The Company is actively seeking options to obtain additional capital and financing.
Our
monthly cash operating expenses, including our technology research and development expenses and interest expense, were approximately
$449,000 per month during the six months ended June 30, 2019. The foregoing estimates, expectations and forward-looking statements
are subject to change as we make strategic operating decisions from time to time and as our expenses fluctuate from period to
period.
The
amount of our operating deficit could decrease or increase significantly depending on strategic and other operating decisions,
thereby affecting our need for additional capital. We expect our operating losses will continue until we are able to generate
revenue. Revenue has commenced in 2019 and our need for additional investment will depend on the amount of revenue generated.
Our
long-term liquidity is dependent upon execution of our business model and the commencement of revenue generating activities and
working capital as described above, and upon capital needed for continued commercialization and development of our diagnostic
testing technology. Commercialization and future development of diagnostic tests utilizing our PCR technology are expected to
require additional capital estimated to be approximately $1,400,000 annually for the foreseeable future. This estimate will increase
or decrease depending on specific opportunities and available funding.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements.