CDI(CODX) - 2020 Q2 - Quarterly Report

FORM 10-Q Filing Details This section provides key administrative and identification details for the company's quarterly report filing FORM 10-Q Filing Information | Detail | Value | | :----- | :---- | | Registrant Name | CO-DIAGNOSTICS, INC. | | Trading Symbol | CODX | | Exchange | NASDAQ-CM | | Filing Type | Quarterly report pursuant to Section 13 or 15(d) | | Period Ended | June 30, 2020 | | Commission File No. | 001-38148 | | Filer Status | Non-accelerated filer, Smaller reporting company, Emerging growth company | | Common Stock Outstanding (as of Aug 12, 2020) | 28,082,709 shares | PART I. FINANCIAL INFORMATION This part presents the company's financial statements and management's analysis of its financial condition and operations Item 1. Financial Statements This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, operations, cash flows, and equity, with detailed notes Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position at specific dates, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheets Highlights | Metric | June 30, 2020 | December 31, 2019 | Change | | :------------------------------ | :------------ | :---------------- | :----- | | Cash and cash equivalents | $18,550,437 | $893,138 | +1977.0% | | Accounts receivables, net | $5,349,876 | $131,382 | +3969.0% | | Inventory | $10,110,786 | $197,168 | +5030.0% | | Total current assets | $34,532,279 | $1,584,254 | +2079.0% | | Total assets | $36,422,135 | $2,215,326 | +1544.0% | | Total current liabilities | $2,984,642 | $328,070 | +809.0% | | Total liabilities | $3,064,642 | $478,070 | +541.0% | | Total stockholders' equity | $33,357,493 | $1,737,256 | +1820.0% | Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net income or loss over specific periods, reflecting operational performance Condensed Consolidated Statements of Operations Highlights (Three Months Ended June 30) | Metric | 2020 | 2019 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Net revenue | $24,040,274 | $61,574 | +39090.0% | | Cost of revenue | $8,344,674 | $38,809 | +21410.0% | | Gross profit | $15,695,600 | $22,765 | +68840.0% | | Total operating expenses | $3,356,692 | $1,388,529 | +141.7% | | Income (loss) from operations | $12,338,908 | $(1,365,764) | N/A | | Net income (loss) | $12,635,640 | $(1,344,396) | N/A | | Basic income (loss) per common share | $0.46 | $(0.08) | N/A | | Diluted income (loss) per common share | $0.43 | $(0.08) | N/A | Condensed Consolidated Statements of Operations Highlights (Six Months Ended June 30) | Metric | 2020 | 2019 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Net revenue | $25,588,802 | $64,974 | +39280.0% | | Cost of revenue | $8,826,414 | $39,261 | +22380.0% | | Gross profit | $16,762,388 | $25,713 | +65090.0% | | Total operating expenses | $5,505,429 | $2,645,969 | +108.1% | | Income (loss) from operations | $11,256,959 | $(2,620,256) | N/A | | Net income (loss) | $11,570,447 | $(2,712,785) | N/A | | Basic income (loss) per common share | $0.42 | $(0.16) | N/A | | Diluted income (loss) per common share | $0.40 | $(0.16) | N/A | Condensed Consolidated Statements of Cash Flows This section reports the cash generated and used by operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30) | Metric | 2020 | 2019 | Change | | :---------------------------------- | :----------- | :----------- | :----- | | Net cash used in operating activities | $(348,459) | $(2,697,691) | +87.1% | | Net cash used in investing activities | $(919,790) | $(299,775) | +206.8% | | Net cash provided by financing activities | $18,925,548 | $5,903,238 | +220.6% | | Net increase in cash | $17,657,299 | $2,905,772 | +507.7% | | Cash and cash equivalents end of period | $18,550,437 | $3,856,009 | +380.0% | Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in the company's equity accounts, including stock issuances, net income, and accumulated deficit Stockholders' Equity Changes (Six Months Ended June 30, 2020) | Item | Amount | | :------------------------------------ | :----------- | | Balance as of December 31, 2019 | $1,737,256 | | Public offering, net of costs | $18,012,083 | | Issuance of Common Stock for warrant exercises | $50,000 | | Stock-based compensation expense | $432,823 | | Conversion of Preferred Stock to Common | $0 | | Net Income | $12,635,640 | | Balance as of June 30, 2020 | $33,357,493 | - The company's accumulated deficit decreased significantly from $(24,967,814) at December 31, 2019, to $(13,397,367) at June 30, 2020, primarily due to the net income generated[18] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the financial statements, clarifying accounting policies and significant transactions NOTE 1 – OVERVIEW AND BASIS OF PRESENTATION This note describes the company's business and the foundational principles used in preparing the financial statements - CDI develops, manufactures, and sells reagents for diagnostic tests detecting nucleic acid molecules (DNA or RNA), and may also sell diagnostic equipment (MDx Device)[22] - The company's core technical advance is a novel Polymerase Chain Reaction (PCR) test design using 'CoPrimers' that eliminates primer-dimer issues, improving accuracy and reducing false positives/negatives[23] NOTE 2 – SUMMARY of SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting principles and methods applied in the preparation of the financial statements - Accounts receivable, net of allowance for doubtful accounts, totaled $5,349,876 at June 30, 2020, with an allowance of $535,389[26] - Inventory is valued at the lower of cost or net-realizable value (FIFO basis), with $10,110,786 in inventory at June 30, 2020, comprising $3,763,472 in finished goods and $6,347,314 in raw materials[28] - Research and development costs are expensed as incurred, totaling $750,249 for the three months and $1,150,271 for the six months ended June 30, 2020[33] - As an emerging growth company (EGC), the company has elected to defer adoption of certain new accounting standards, including ASU 2016-02 (Leases) until after December 15, 2020, and ASU 2016-13 (Credit Losses) until after December 15, 2021[35][36][37] NOTE 3 – EQUITY This note details changes in the company's equity structure, including stock issuances, conversions, and warrant exercises Equity Issuances and Proceeds (Six Months Ended June 30, 2020) | Transaction | Shares Issued | Gross Proceeds | Net Proceeds (after costs) | | :------------------------------------ | :------------ | :------------- | :------------------------- | | Registered Direct Offering (Jan 28) | 3,448,278 | $5,000,003 | $4,517,102 | | Registered Direct Offering (Feb 13) | 3,324,676 | $10,240,002 | $9,612,561 | | Registered Direct Offering (Mar 2) | 470,000 | $4,230,000 | $3,882,420 | | Warrant Exercises (Mar 5) | 25,000 | $50,000 | $50,000 | | Conversion of Series A Preferred Stock | 2,133,333 | N/A | N/A | | Cashless Warrant Exercises (Mar 31) | 694,492 | N/A | N/A | | Warrant Exercises (Jun 30) | 110,000 | $220,000 | $220,000 | | Option Exercises (Jun 30) | 420,289 | $643,465 | $643,465 | - During the three months ended March 31, 2020, 2,560,000 shares of Series A Preferred Stock were converted into 2,133,333 shares of common stock[46] NOTE 4 – STOCK-BASED COMPENSATION This note describes the company's stock option and warrant activity, along with related compensation expenses Stock-Based Compensation Expense | Period | 2020 | 2019 | | :------------------------------------ | :----------- | :----------- | | Three months ended June 30 (options) | $301,568 | $126,483 | | Six months ended June 30 (options) | $703,198 | $214,278 | Stock Option Activity (Six Months Ended June 30, 2020) | Metric | Options Outstanding | Weighted Average Exercise Price | | :-------------------------- | :------------------ | :------------------------------ | | Outstanding at Jan 1, 2019 | 1,172,707 | $2.23 | | Outstanding at Dec 31, 2019 | 2,021,817 | $1.69 | | Options granted (2020) | 150,000 | $8.14 | | Exercised (2020) | (420,289) | $1.53 | | Outstanding at June 30, 2020 | 1,751,528 | $2.28 | Warrant Activity (Six Months Ended June 30, 2020) | Metric | Warrants Outstanding | Weighted Average Exercise Price | | :-------------------------- | :------------------- | :------------------------------ | | Outstanding at Jan 1, 2019 | 483,535 | $4.92 | | Outstanding at Dec 31, 2019 | 983,535 | $1.44 | | Warrants issued (2020) | 20,000 | $16.49 | | Exercised (2020) | (894,445) | $1.37 | | Outstanding at June 30, 2020 | 109,090 | $2.06 | - Total unrecognized stock-based compensation was $468,295 at June 30, 2020, expected to be recognized over the next few years[61] NOTE 5 – RELATED PARTY TRANSACTIONS This note discloses transactions and liabilities involving parties with a close relationship to the company - The company pays Dr. Brent Satterfield $10,000 per month for accrued royalties under an exclusive license agreement for the CoPrimer technology[62] - The aggregate balance of this related party liability was $200,000 at June 30, 2020[62] NOTE 6 – LEASE OBLIGATIONS This note details the company's lease agreements, including new leases, rent expenses, and total ongoing obligations - In February 2020, the company signed a new 4-year lease for approximately 13,687 square feet of office space at $28,825 per month, expiring in February 2024[63] Rent Expense | Period | 2020 | 2019 | | :-------------------------- | :----------- | :----------- | | Three months ended June 30 | $86,969 | $45,040 | | Six months ended June 30 | $138,787 | $90,621 | - The total ongoing lease obligation as of June 30, 2020, is $1,268,303[63] NOTE 7 – SUBSEQUENT EVENTS This note reports significant events that occurred after the balance sheet date but before the financial statements were issued - In August 2020, approximately $1,200,000 of finished goods inventory became unsaleable due to a freezer failure and will be written off[65] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, condition, and operational changes, highlighting COVID-19 impact, strategic developments, and liquidity Cautionary Note Regarding Forward-Looking Statements This note advises readers that future-oriented statements involve risks and uncertainties, and actual results may differ materially - Forward-looking statements are identified by terms such as 'anticipates,' 'believes,' 'expects,' and 'plans,' and are based on current expectations and projections[67][68] - Important factors that could cause actual results to differ include clinical trial results, market acceptance, intellectual property rights, litigation, competition, regulatory changes, and the ability to develop new products[71] Critical Accounting Policies This section outlines the accounting policies requiring significant judgment and estimates, which are crucial to financial reporting - Key estimates and judgments include revenue recognition, valuation of investments and inventory, stock-based compensation expense, and litigation[72] - As an emerging growth company, the company has opted for the extended transition period for new or revised accounting standards, which may affect comparability with other public companies[73] Executive Overview This overview provides a high-level summary of the company's financial and operational highlights for the reporting period - The discussion should be read with the unaudited financial statements and notes, and the 'Cautionary Note Regarding Forward-Looking Statements' for risks[74] Overview (Business Description) This section describes the company's core business, proprietary technology, and competitive advantages in diagnostic test development - CDI develops and manufactures reagents for diagnostic tests using its proprietary CoPrimer technology, which enhances detection of genetic material by eliminating primer-dimer issues in PCR amplification[76][77][78] - The company's technology is protected by seven granted or pending US and foreign patents, trade secrets, and copyrights, allowing it to avoid patent royalties and maintain profit margins while being a low-cost provider[80] - CDI's tests are designed to be rapid, low-cost, and highly specific, suitable for various applications including multiplexing and enhanced SNP detection[77][79] Recent Developments This section highlights key recent events, including COVID-19 test development, regulatory clearances, and market authorizations - On January 23, 2020, the company announced the completion of the principle design work for a PCR screening test for COVID-19[86] - By February 24, 2020, the Logix Smart™ COVID-19 Test obtained regulatory clearance (CE marking) for sale as an in vitro diagnostic (IVD) in markets accepting it[87] - On April 6, 2020, the company received an Emergency Use Authorization (EUA) from the FDA, allowing sales of its COVID-19 test to CLIA-certified laboratories in the United States[89] Infectious Disease Product Offering This section details the company's range of PCR diagnostic tests for various infectious diseases and their regulatory approvals - CDI offers PCR diagnostic tests for COVID-19, tuberculosis, hepatitis B and C, human papilloma virus, malaria, chikungunya, dengue, and zika virus[90] - The company has received CE Marks for its COVID-19, tuberculosis, Zika, and a triplex test for zika, dengue, and chikungunya[90] - The Logix Smart COVID-19 test received approval for manufacture and sale in India (CDSCO) and Mexico (INDRE) in April 2020, and in Australia in August 2020[90] Caribbean and Central and South America This section discusses the company's sales and market penetration strategies within the Caribbean, Central, and South American regions - Initial sales in this region focused on zika tests, followed by tuberculosis, triplex tests (zika, chikungunya, dengue), and hepatitis B and C[95] - Significant sales in this region commenced after the Logix Smart COVID-19 test received its CE Mark[95] India This section outlines the operations and performance of the Indian joint venture, including COVID-19 test manufacturing and market activities - CoSara Diagnostics, Pvt., the Indian joint venture, received authorization to begin manufacture and sale of COVID-19 tests (branded SaraGene COVID-19) in India on March 19, 2020[98] - CoSara became profitable for the quarter ending June 30, 2020, despite commercial activity restrictions until May 2020[98] - The joint venture has placed twenty-one MDx Devices with labs in India under a reagent rental program, requiring a minimum purchase of 250 tests per month[97] Europe This section details the company's certifications and CE Mark approvals, enabling product sales in European and other accepting markets - The company has received ISO 13485 and ISO 9001 certifications for the design and manufacture of its medical device products[101] - CDI has obtained CE Marks for its COVID-19, tuberculosis, Zika, and zika/dengue/chikungunya triplex tests, allowing sales in the European Community and other countries that accept CE marking[100] United States This section covers the company's regulatory approvals and market access for its diagnostic products within the United States - The FDA granted Emergency Use Authorization (EUA) for the LogixSmart COVID-19 test, permitting sales to qualified CLIA labs in the United States[103] - The company's other IVD products are approved for export under Section 801(e) of the FDC Act but have not yet undergone Premarket Approval steps with the FDA for U.S. sales[103] Market Opportunity This section assesses the global market for molecular diagnostics, highlighting the company's distribution network and growth potential - The COVID-19 pandemic enabled the company to establish a distribution network in over 80 countries with more than 50 active distributors[105] - The molecular diagnostics market is a fast-growing segment, offering advantages such as higher specificity, sensitivity, multiplex testing, and the ability to test for drug resistance[106] Estimated Global Annual Demand for Diagnostic Tests | Disease | Estimated Annual Tests | | :------------------------------ | :------------- | | Tuberculosis | 10,400,000 | | Multi-drug resistant Tuberculosis | 580,000 | | Zika | 324,000,000 | | Hepatitis B | 240,000,000 | | Hepatitis C | 130,000,000 | | HIV | 36,700,000 | | Malaria | 214,000,000 | | Sexually Transmitted Illnesses | 357,000,000 | | Human papilloma virus | 291,000,000 | | Dengue | 390,000,000 | | Total Annual Tests | 1,993,680,000 | Mosquito Vector Control Services This section describes the company's diagnostic tests for mosquito-borne pathogens and their application in vector control - The company introduced diagnostics tests for mosquito-borne pathogens in June 2019, including triplex tests for West Nile, Western Equine, St. Louis encephalitis, and another for Zika, Chikungunya, and Dengue[107][108] - These tests allow for rapid results (hours instead of weeks), enabling more effective and cost-efficient mosquito spraying operations for abatement districts[110] Competitive Advantages of Co-Diagnostics This section highlights the company's key competitive strengths, including affordability, flexibility, speed, and proprietary technology - Key advantages include affordability (low-cost test kits and MDx Device), flexibility (tests run on many DNA diagnostic machines), and speed (rapid assay design system software, e.g., 30 days for COVID-19 test)[112][113] - The company claims higher accuracy (more sensitive and specific tests, detecting more virus strains) and exclusivity due to owning all patents and intellectual property for its tests[114][115] - CDI operates as a low-cost provider by avoiding patent royalties required by competitors, and its technology is well-suited for multiplexing and new generation point-of-care devices[118][119][120] Liquid Biopsy for Cancer Screening This section explores the application of the company's technology in liquid biopsy for cancer detection, prognosis, and treatment monitoring - The company's technology, by eliminating primer-dimers, is uniquely suited for liquid biopsy in cancer detection, allowing for multiplexed testing of several DNA targets in a single blood sample[121][122] - The liquid biopsy test aims to identify specific mutations in genes linked to cancer, determine prognosis, guide effective treatment, and allow for frequent, affordable monitoring of treatment efficacy[121] Agricultural Applications This section details the use of the company's SNP detection technology in agriculture for crop improvement and licensing arrangements - SNP detection technology is used in agriculture to identify crop genome variations for improved seed viability and resistance to drought, disease, and pests[122] - An exclusive worldwide licensing arrangement for CoPrimers in the agricultural industry was completed in October 2018, with the licensee paying royalties for CoPrimers sold[123] Additional Licensing and Assay Development This section discusses expanded licensing agreements and custom diagnostic design services for various gene sequence applications - The license agreement for agricultural testing was amended in July 2019 to include test design services for customers in both infectious disease and agriculture, generating license fees[125] - Research companies and institutions are requesting custom diagnostic designs to locate and identify uncommon gene sequences and SNPs in multiplexed reactions, indicating potential for future revenue-producing licensing arrangements[125] Intellectual Property Protection This section outlines the company's granted and pending patents, copyrights, and strategy for intellectual property portfolio expansion - Five U.S. patents related to the company's technology have been granted, including the CoPrimer technology patent, with one patent issued in Great Britain and two additional patents pending in the U.S[126] - The company has copyrighted its development software used for diagnostic test development and intends to build its intellectual property portfolio further[128] Major Customers This section identifies the company's significant customers and the potential impact of their loss on financial condition - Three customers generated approximately 58% of total revenue for the three months ended June 30, 2020, and 55% for the six months ended June 30, 2020[129] - The loss of these major customers could have a material adverse effect on the company's financial condition[129] Competition This section describes the highly competitive molecular diagnostics industry and the intense competition in the COVID-19 test market - The molecular diagnostics industry is extremely competitive, with larger competitors like BioMerieux, Siemens, Qiagen, Cepheid, Abbott Laboratories, Becton Dickinson, and Johnson and Johnson[130] - Competition in the COVID-19 diagnostic test market is intense, with many established and emerging companies, some supported by government funding, developing new products and technologies[133][134] Employees This section provides information on the company's full-time personnel and independent contractors across various locations - The company employs 37 full-time personnel in Salt Lake City, Utah, and two outside Utah, along with independent contractors in India and sales representatives[135] Government Regulation This section details the regulatory approvals and authorizations for the company's diagnostic products in various global markets - In the U.S., the company's Logix Smart COVID-19 test has an Emergency Use Authorization (EUA) from the FDA for sales to CLIA labs[136] - The company has CE Marks for its COVID-19, tuberculosis, Zika, and triplex tests, allowing sales in most countries in Europe, South America, and Asia[136] - The Logix Smart COVID-19 test is licensed for manufacture and sale in India (CDSCO) and approved for sale in Mexico (INDRE)[136] Organizational History and Corporate Information This section provides the company's incorporation details and the location of its principal executive office - Co-Diagnostics, Inc. was incorporated in Utah on April 18, 2013[137] - The principal executive office is located at 2401 S. Foothill Drive, Suite D, Salt Lake City, Utah 84109[137] RESULTS OF OPERATIONS This section analyzes the company's financial performance, detailing revenue, cost of sales, and operating expenses Results of Operations for the Six Months ended June 30, 2020 and 2019 This section compares the company's financial results for the six-month periods ended June 30, 2020, and 2019 Net Sales This section analyzes the company's total revenue generated from product sales for the six-month period Net Sales (Six Months Ended June 30) | Metric | 2020 | 2019 | Change | | :------- | :----------- | :------- | :----- | | Net Sales | $25,588,802 | $64,974 | +39280.0% | - The increase of $25,523,828 was primarily due to sales of the LogixSmart COVID-19 test. Of the total sales in 2020, $1,782,312 was from third-party manufactured equipment[138] Cost of Sales This section details the direct costs associated with the goods sold, including reagents and equipment, for the six-month period Cost of Sales (Six Months Ended June 30) | Metric | 2020 | 2019 | Change | | :---------- | :----------- | :------- | :----- | | Cost of Sales | $8,826,414 | $39,261 | +22380.0% | - In 2020, cost of sales included $7,175,019 for test reagents and $1,651,395 for equipment sold, reflecting the significant increase in sales volume[139] Operating Expenses This section provides an overview of the total operating expenses incurred during the six-month period Total Operating Expenses (Six Months Ended June 30) | Metric | 2020 | 2019 | Change | | :------------------- | :----------- | :----------- | :----- | | Total Operating Expenses | $5,505,429 | $2,645,969 | +108.1% | - The increase was due to higher business activities driven by COVID-19 test sales[141] General and administrative expenses This section details the non-production related expenses, including professional services, bad debt, and stock-based compensation General and Administrative Expenses (Six Months Ended June 30) | Metric | 2020 | 2019 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | General and administrative expenses | $3,650,518 | $1,448,132 | +152.1% | - Increases were driven by $888,572 in professional services, $514,266 in bad debt expense, $488,920 in stock-based compensation, and $112,935 in salaries and benefits[142] Sales and marketing This section analyzes expenses related to promoting and selling products, including salaries, advertising, and travel Sales and Marketing Expenses (Six Months Ended June 30) | Metric | 2020 | 2019 | Change | | :-------------------- | :----------- | :----------- | :----- | | Sales and marketing expenses | $658,674 | $508,179 | +29.6% | - The increase was due to higher salaries and benefits ($131,903) and advertising ($23,966), partially offset by reduced travel ($43,462) due to the pandemic[143] Research and development This section details expenses incurred for developing new products and improving existing ones, including professional services and lab supplies Research and Development Expenses (Six Months Ended June 30) | Metric | 2020 | 2019 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Research and development expenses | $1,150,271 | $659,896 | +74.3% | - The increase was primarily due to $193,117 in professional services for freeze-drying COVID-19 tests, $113,946 in salaries for lab personnel, and $89,252 in lab supplies[144] Interest Expense This section reports the company's interest income and expense, reflecting changes in debt obligations and cash balances Interest Expense and Income (Six Months Ended June 30) | Metric | 2020 | 2019 | Change | | :------------- | :------- | :------- | :----- | | Interest Expense | $0 | $28,187 | -100.0% | | Interest Income | $45,748 | $20,049 | +128.2% | - The decrease in interest expense was due to the payoff of a $2,000,000 loan in January 2019[145] Net Income This section presents the company's overall profitability, driven by COVID-19 test sales and joint venture income Net Income (Loss) (Six Months Ended June 30) | Metric | 2020 | 2019 | Change | | :----------- | :----------- | :----------- | :----- | | Net Income (Loss) | $11,570,447 | $(2,712,785) | N/A | - The $14,283,232 increase in net income was primarily due to sales of the LogixSmart COVID-19 test and resulting margins, along with income from the Indian joint venture ($267,740 vs. $7,000 loss in 2019)[146] The three months ended June 30, 2020 compared to the three months ended June 30, 2019 This section compares the company's financial results for the three-month periods ended June 30, 2020, and 2019 Revenues This section analyzes the company's total revenue generated from product sales for the three-month period Revenues (Three Months Ended June 30) | Metric | 2020 | 2019 | Change | | :------- | :----------- | :------- | :----- | | Revenues | $24,040,274 | $61,574 | +39090.0% | - The revenue primarily represented sales of the LogixSmart COVID-19 test, with $1,676,820 from third-party manufactured equipment sales[147] Cost of Revenues This section details the direct costs associated with the goods sold, including equipment, for the three-month period Cost of Revenues (Three Months Ended June 30) | Metric | 2020 | 2019 | Change | | :------------- | :----------- | :------- | :----- | | Cost of Revenues | $8,344,674 | $38,809 | +21410.0% | - The increase was directly linked to the surge in LogixSmart COVID-19 test sales, with $1,580,968 attributed to equipment sold[148] Expenses This section provides an overview of the total operating expenses incurred during the three-month period Total Operating Expenses (Three Months Ended June 30) | Metric | 2020 | 2019 | Change | | :------------------- | :----------- | :----------- | :----- | | Total Operating Expenses | $3,356,692 | $1,388,529 | +141.7% | - The increase of $1,968,163 was primarily due to increased general and administrative costs ($1,383,264) and research and development expenses ($437,659)[150] General and administrative expenses This section details the non-production related expenses, including professional services, bad debt, and stock-based compensation General and Administrative Expenses (Three Months Ended June 30) | Metric | 2020 | 2019 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | General and administrative expenses | $2,191,034 | $807,769 | +171.3% | - Increases were mainly from professional services ($511,607), bad debt expense reserves ($483,266), and option/warrant expense ($175,085)[151] Sales and marketing expenses This section analyzes expenses related to promoting and selling products, including salaries, 401K contributions, and travel Sales and Marketing Expenses (Three Months Ended June 30) | Metric | 2020 | 2019 | Change | | :-------------------- | :----------- | :----------- | :----- | | Sales and marketing expenses | $390,191 | $252,076 | +54.8% | - The increase was due to higher salaries and benefits ($114,394) and 401K contributions ($21,600), partially offset by reduced travel ($30,004) due to the pandemic[152] Research and development expenses This section details expenses incurred for developing new products and improving existing ones, including payroll and professional services Research and Development Expenses (Three Months Ended June 30) | Metric | 2020 | 2019 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Research and development expenses | $750,249 | $312,590 | +140.0% | - Increases were primarily from payroll and employee-related expenses ($191,292) and professional services for freeze-drying tests ($196,226)[153] Other Income/Expense This section reports non-operating income and expenses, including gains from the India joint venture and interest income Total Other Income (Three Months Ended June 30) | Metric | 2020 | 2019 | Change | | :----------------- | :----------- | :----------- | :----- | | Total Other Income | $296,732 | $21,368 | +1288.0% | - The increase was due to a gain of $258,559 from the India joint venture (compared to $1,728 in 2019) and an increase of $18,533 in interest income[154] Net Income This section presents the company's overall profitability, driven by increased gross profit from COVID-19 test sales Net Income (Loss) (Three Months Ended June 30) | Metric | 2020 | 2019 | Change | | :---------------- | :----------- | :----------- | :----- | | Net Income (Loss) | $12,635,640 | $(1,344,396) | N/A | - The income was driven by increased gross profit from LogixSmart COVID-19 test sales, partially offset by higher operating expenses[155] Liquidity and Capital Resources This section assesses the company's ability to meet short-term obligations and fund operations, detailing cash, assets, and financing activities Liquidity Position (June 30, 2020) | Metric | Amount | | :-------------------------- | :----------- | | Cash and cash equivalents | $18,550,437 | | Total current assets | $34,532,279 | | Total current liabilities | $2,984,642 | | Total stockholders' equity | $33,357,493 | - Net cash used in operations for the six months ended June 30, 2020, was $(348,459), a significant improvement from $(2,697,691) in the prior year[158] - Financing activities provided $18,062,083 in net proceeds from registered direct offerings and $913,465 from warrant/option exercises, funding operations and investments[158] - The company believes it has sufficient capital to fund operations for the next 12 months and does not expect to require additional capital in the foreseeable future, absent significant acquisitions or capital expansion[157][170] Off-Balance Sheet Arrangements This section discloses any financial arrangements not recorded on the balance sheet that could impact the company's financial condition - The company has no off-balance sheet arrangements[172] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section is not required for smaller reporting companies under Regulation S-K - Not required under Regulation S-K for 'smaller reporting companies'[174] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective as of June 30, 2020, due to a material weakness in accounting and tax expertise Evaluation of Disclosure Controls and Procedures This section details the assessment of the company's disclosure controls and procedures, identifying material weaknesses - As of June 30, 2020, disclosure controls and procedures were deemed not effective due to material weaknesses in internal control over financial reporting[175] - The material weakness identified was a lack of sufficient technical expertise on certain accounting and tax requirements for new and unusual transactions[177] - Remediation efforts include increasing consultant involvement and hiring additional accounting staff, but the weakness is not considered remediated until controls operate effectively for a sufficient period[177] Changes in Internal Control over Financial Reporting This section reports any material changes in internal control over financial reporting during the quarter, including remediation efforts - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2020, other than remediation efforts for previously reported material weaknesses[178] PART II. OTHER INFORMATION This part includes legal proceedings, risk factors, equity sales, and other significant disclosures not covered in financial statements Item 1. Legal Proceedings The company faces a lawsuit alleging false press releases to inflate stock price and a threatened suit from former consultants - On July 16, 2020, a lawsuit was filed alleging the company promulgated false and misleading press releases to improperly benefit officers and directors, seeking compensatory damages[180] - A threatened lawsuit from former consultants claims compensation for services rendered in 2015[181] - The company intends to vigorously defend both actions, believing they lack merit[180][181] Item 1A. Risk Factors This section outlines significant business risks, including limited commercial history and COVID-19 market dependence, and common stock ownership risks Risks Related to Our Business and Industry This section details risks associated with the company's limited operating history and reliance on the volatile COVID-19 test market - The company has a limited operating history and, despite recent profitability, cannot guarantee sustained future profitability, especially given the unpredictable duration of demand for its COVID-19 test[184][185] - Future success is highly dependent on continued demand for the COVID-19 test and the ability to develop and market other commercially accepted diagnostic tests, which faces challenges like customer acceptance, competition, and manufacturing capacity[186][187] Risks Related to Owning our Common Stock and Other Securities This section outlines risks for common stock owners, including price fluctuations, future sales, anti-takeover provisions, and potential delisting - The price of common stock may fluctuate substantially due to factors like sales by shareholders, market acceptance of products, financing needs, regulatory approvals, competition, and general economic conditions[189] - Future sales of common stock by existing shareholders or upon exercise of options/warrants could cause the stock price to decline and impair the ability to raise future capital[191][193] - Anti-takeover provisions in charter documents and Utah law, such as 'blank check' preferred stock and limitations on calling special meetings, could discourage or prevent a change of control[194][195] - Potential NASDAQ delisting due to failure to meet listing requirements could negatively impact stock price, liquidity, and future financing capabilities[196][198] - The company does not currently intend to pay dividends on its common stock, and future payments are at the discretion of the board[201] - As an 'emerging growth company,' the company avails itself of reduced disclosure requirements, which might make its common stock less attractive to some investors and potentially increase stock price volatility[202][203] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company issued unregistered equity securities, including warrants and common stock for services and exercises, relying on Section 4(a)(2) - On April 1, 2020, a warrant to acquire up to 20,000 shares of common stock at $1.40 was issued to a consultant[207] - On June 30, 2020, 9,689 shares of common stock were issued for services rendered under consulting agreements[207] - In June 2020, 110,000 shares of stock were issued upon the exercise of warrants at $2.00 per share[208] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[210] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[211] Item 5. Other Information This section includes disclosures of subsequent events not previously reported Subsequent Events This section reports significant events that occurred after the balance sheet date but before the financial statements were issued - In August 2020, a freezer failure resulted in approximately $1,200,000 of finished goods inventory becoming unsaleable and will be written off[212] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and XBRL interactive data files Exhibit Index Highlights | Exhibit Number | Description | | :------------- | :---------- | | 31.1* | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 31.2* | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 32.1* | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 32.2* | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 104 | Cover Page Interactive Data File | Signatures The report is duly signed by Dwight H. Egan, President and CEO, and Reed L. Benson, CFO, on August 13, 2020 - The report was signed by Dwight H. Egan, President and CEO, and Reed L. Benson, CFO, on August 13, 2020[217]