UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For
the quarterly period ended
OR
For the transition period from __________ to __________
Commission
File No.
(Exact Name of Registrant as Specified in Its Charter)
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification Number) |
(Address of principal executive offices and zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant
was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
As of May 8, 2024, there were shares of common stock, par value $0.001 per share, outstanding.
CO-DIAGNOSTICS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CO – DIAGNOSTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March 31, 2024 | December 31, 2023 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable investment securities | ||||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Income taxes receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use asset | ||||||||
| Intangible assets, net | ||||||||
| Investment in joint venture | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Operating lease liability, current | ||||||||
| Contingent consideration liabilities, current | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Income taxes payable | ||||||||
| Operating lease liability | ||||||||
| Contingent consideration liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 10) | ||||||||
| Stockholders’ equity | ||||||||
| Convertible preferred stock, $ par value; shares authorized; shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively | ||||||||
| Common stock, $ par value; shares authorized; shares issued and shares outstanding as of March 31, 2024 and shares issued and shares outstanding as of December 31, 2023 | ||||||||
| Treasury stock, at cost; shares held as of March 31, 2024 and December 31, 2023, respectively | ( |
) | ( |
) | ||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated earnings (deficit) | ( |
) | ||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements
| 3 |
CO – DIAGNOSTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Product revenue | $ | $ | ||||||
| Grant revenue | ||||||||
| Total revenue | ||||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Depreciation and amortization | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income, net | ||||||||
| Interest income | ||||||||
| Realized gain on investments | ||||||||
| Gain on remeasurement of acquisition contingencies | ||||||||
| Gain (loss) on equity method investment in joint venture | ( | ) | ||||||
| Total other income, net | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax provision (benefit) | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive loss | ||||||||
| Change in net unrealized gains on marketable securities, net of tax | ||||||||
| Total other comprehensive income | $ | $ | ||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Loss per common share: | ||||||||
| Basic and Diluted | $ | ) | $ | ) | ||||
| Weighted average shares outstanding: | ||||||||
| Basic and Diluted | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements
| 4 |
CO – DIAGNOSTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation expense | ||||||||
| Change in fair value of acquisition contingencies | ( | ) | ( | ) | ||||
| Non-cash lease expense | ||||||||
| Realized gain on investments | ( | ) | ( | ) | ||||
| (Gain) loss from equity method investment | ( | ) | ||||||
| Deferred income taxes | ( | ) | ||||||
| Provision for credit losses | ( | ) | ( | ) | ||||
| Inventory obsolescence expense | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Income taxes payable | ||||||||
| Accounts payable, accrued expenses and other liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from maturities of marketable investment securities | ||||||||
| Purchases of marketable securities | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Repurchases of common stock | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Income taxes paid | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing transactions | ||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements
| 5 |
CO – DIAGNOSTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| Convertible Preferred Stock | Common Stock | Treasury | Additional Paid-in | Accumulated Other Comprehensive | Accumulated Earnings | Total Stockholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Stock | Capital | Income | (Deficit) | Equity | ||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | ( | ) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Convertible Preferred Stock | Common Stock | Treasury | Additional Paid-in | Accumulated Other Comprehensive | Accumulated Earnings | Total Stockholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Stock | Capital | Income | (Deficit) | Equity | ||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||||||
| Repurchases of common stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements
| 6 |
CO – DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Overview and Basis of Presentation
Description of Business
Co-Diagnostics, Inc., a Utah corporation (the “Company” or “CODX”), is a molecular diagnostics company that develops, manufactures and markets state-of-the-art diagnostics technologies. The Company’s technologies are utilized for tests that are designed using the detection and/or analysis of nucleic acid molecules (DNA or RNA). The Company also uses its proprietary technology to design specific tests for its Co-Dx PCR platform and to locate genetic markers for use in applications other than infectious disease. In connection with the sale of our tests we may sell diagnostic equipment from other manufacturers as self-contained lab systems.
Unaudited Condensed Consolidated Financial Statements
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 (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information as they are prescribed for smaller reporting companies. As permitted under those rules and regulations, certain notes or other financial information normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, the accompanying unaudited condensed consolidated financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to make the financial statements not misleading have been included. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. These statements should be read in conjunction with the Company’s audited financial statements and related notes for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 14, 2024. The Company’s significant accounting policies are set forth in Note 2 to the consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2023.
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 contingencies, income taxes, share based arrangements, and others. These estimates and assumptions are based on management’s best estimates and judgments. Actual amounts and results could differ from those estimates.
Note 2 – Summary of Significant Accounting Policies
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year’s presentation. These reclassifications have no impact on the previously reported results.
| 7 |
Accounts Receivable
Trade
accounts receivable are recorded at the invoiced amount (net of allowance) and do not bear interest. The Company maintains an allowance
for doubtful accounts for amounts the Company does not expect to collect. In establishing the required allowance, management considers
historical losses, current market condition, customers’ financial condition, the age of receivables, and current payment patterns.
Account balances are written off against the allowance once the receivable is deemed uncollectible. Recoveries of trade receivables previously
written off are recorded when collected. At March 31, 2024 total accounts receivable was $
Inventory
Inventory
is stated at the lower of cost or net-realizable value. Inventory cost is determined on a first-in first-out basis that approximates
average cost in accordance with ASC 330-10-30-12. At March 31, 2024, the Company had $
Revenue Recognition
The Company generates revenue from customers from product and license sales. The Company recognizes revenue from customers when all of the following criteria are satisfied: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as the Company satisfies each performance obligation.
The Company constrains revenue by giving consideration to factors that could otherwise lead to a probable reversal of revenue. The Company records any payments received from customers prior to the Company fulfilling its performance obligation(s) as deferred revenue.
Grant Revenue
The
Company may submit applications to receive grant funding from governmental and non-governmental entities. The Company accounts for grants
by analogizing to the contribution accounting model under ASC 958-605, Not-for-Profit Entities (“ASC 958”). Revenues from
grants, contracts, and awards provided by governmental and non-governmental agencies are recorded based upon the terms of the specific
agreements. The Company recognizes grant funding without conditions or continuing performance obligations as revenue in the consolidated
statements of operations and comprehensive income (loss). The Company recognizes grant funding with conditions or continuing performance
obligations as deferred revenue in the consolidated balance sheets if the conditions or performance obligations have not yet been met.
The Company recognized grant funding revenue of $
| 8 |
Income Taxes
The Company accounts for income taxes in accordance with the liability method of accounting for income taxes. Under this method, deferred income tax assets and deferred income tax liabilities represent the tax effect of temporary differences between financial reporting and tax reporting measured at enacted tax rates in effect for the year in which the differences are expected to reverse. The Company recognizes only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority.
Valuation allowances are provided when it is more-likely-than-not that some or all of the deferred income tax assets may not be realized. In assessing the need for a valuation allowance, the Company has considered its historical levels of income, expectations of future taxable income and ongoing tax planning strategies.
Developing the provision for income taxes, including the effective tax rate and analysis of potential tax exposure items, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred income tax assets and liabilities and any estimated valuation allowances deemed necessary to value deferred income tax assets. Judgments and tax strategies are subject to audit by various taxing authorities. The Company has uncertain income tax positions in the condensed consolidated financial statements, and adverse determinations by these taxing authorities could have a material adverse effect on the condensed consolidated financial positions, result of operations, or cash flows.
Concentrations Risk and Significant Customers
The
Company had certain customers which were each responsible for generating
Four
customers accounted for more than
| 9 |
Recently Issued Accounting Standards
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires an entity to disclose annually additional information related to the company’s income tax rate reconciliation and income taxes paid during the period. The guidance should be applied prospectively with the option to apply the standard retrospectively. The standard becomes effective for the Company for full year 2025 reporting. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.
Note 3 – Cash, Cash Equivalents, and Financial Instruments
The following table shows the Company’s cash, cash equivalents, and marketable investment securities by significant investment category:
| March 31, 2024 | ||||||||||||||||||||
| Adjusted Cost | Total Unrealized Gains / (Losses) | Fair Value | Cash and Cash Equivalents | Marketable Investment Securities | ||||||||||||||||
| Cash | $ | $ | $ | $ | $ | |||||||||||||||
| Level 2: | ||||||||||||||||||||
| U.S. treasury securities | ||||||||||||||||||||
| Subtotal | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
| December 31, 2023 | ||||||||||||||||||||
| Adjusted Cost | Total Unrealized Gains / (Losses) | Fair Value | Cash and Cash Equivalents | Marketable Investment Securities | ||||||||||||||||
| Cash | $ | $ | $ | $ | $ | |||||||||||||||
| Level 1: | ||||||||||||||||||||
| Money market funds | ||||||||||||||||||||
| Subtotal | ||||||||||||||||||||
| Level 2: | ||||||||||||||||||||
| U.S. treasury securities | ||||||||||||||||||||
| Subtotal | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
Marketable investment securities held as of March 31, 2024 mature over the next 12 months.
| 10 |
Note 4 – Fair Value Measurements
The Company measures and records certain financial assets and liabilities at fair value on a recurring basis. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The following three levels of inputs are used to measure the fair value of financial assets and liabilities:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The following table summarizes the assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023, by level within the fair value hierarchy:
| March 31, 2024 | ||||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Cash equivalents | $ | $ | $ | $ | ||||||||||||
| Marketable securities (U.S. treasury bills and notes) | ||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Contingent consideration - common stock | $ | $ | $ | $ | ||||||||||||
| Contingent consideration - warrants | ||||||||||||||||
| Total liabilities measured at fair value | $ | $ | $ | $ | ||||||||||||
| December 31, 2023 | ||||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Cash equivalents | $ | $ | $ | $ | ||||||||||||
| Marketable securities (U.S. treasury bills and notes) | ||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Contingent consideration - common stock | $ | $ | $ | $ | ||||||||||||
| Contingent consideration - warrants | ||||||||||||||||
| Total liabilities measured at fair value | $ | $ | $ | $ | ||||||||||||
| 11 |
The Company’s financial instruments that are measured at fair value on a recurring basis consist of U.S. treasury bills and notes as of March 31, 2024 and December 31, 2023.
The fair value of contingent consideration is calculated using a discounted probability weighted valuation model. Discount rates used in such calculations are a significant assumption that are not observed in the market, and therefore, the resulting fair value represents a Level 3 measurement.
The changes for Level 3 items measured at fair value on a recurring basis are as follows:
| Fair value as of December 31, 2023 | $ | |||
| Change in fair value of contingent consideration issued for business acquisitions | ( | ) | ||
| Fair value as of March 31, 2024 | $ |
The fair value of the contingent consideration is based on the fair value of the contingent consideration-common stock and contingent consideration-warrants. The fair value of the contingent consideration-common stock is equal to the probability-adjusted value of the Company’s common stock as of the valuation date. The fair value of the contingent consideration-warrants is equal to the probability adjusted value of a call option with terms consistent with the terms of the warrants as of the valuation date. Prior to the probability adjustments, the warrants were valued based on the following inputs:
| March 31, 2024 | December 31, 2023 | |||||||
| Stock price | $ | $ | ||||||
| Strike price | $ | $ | ||||||
| Volatility | % | % | ||||||
| Risk-free rate | % | % | ||||||
| Expected term (years) | ||||||||
Fair Value of Other Financial Instruments
The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, notes receivable, accounts payable, accrued liabilities, and other liabilities approximate fair value due to their short-term maturities and are excluded from the fair value tables above.
Note 5 – Intangible Assets, Net
Intangible assets, net consisted of the following:
| March 31, 2024 | ||||||||||||||
| Weighted-Average | Gross | Net | ||||||||||||
| Useful Life (1) | Carrying | Accumulated | Carrying | |||||||||||
| (in Years) | Amount | Amortization | Amount | |||||||||||
| In-process research and development | $ | $ | $ | |||||||||||
| Non-competition agreements | ( | ) | ||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||||
| December 31, 2023 | ||||||||||||||
| Weighted-Average | Gross | Net | ||||||||||||
| Useful Life (1) | Carrying | Accumulated | Carrying | |||||||||||
| (in Years) | Amount | Amortization | Amount | |||||||||||
| In-process research and development | $ | $ | $ | |||||||||||
| Non-competition agreements | ( | ) | ||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||||
| (1) |
| 12 |
The expected future annual amortization expense of the Company’s intangible assets held as of March 31, 2024 is as follows:
| Year Ending December 31, | Amortization Expense | ||||
| 2024 (remainder) | |||||
Note 6 – Revenue
The following table sets forth revenue by geographic area:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| United States | ||||||||
| Product revenue | $ | $ | ||||||
| Grant revenue | ||||||||
| Total United States | ||||||||
| Rest of World | ||||||||
| Product revenue | ||||||||
| Grant revenue | ||||||||
| Total Rest of World | ||||||||
| Total | $ | $ | ||||||
| Percentage of revenue by area: | ||||||||
| United States | % | % | ||||||
| Rest of World | % | % | ||||||
Changes in the Company’s deferred revenue balance for the three months ended March 31, 2024 were as follows:
| Balance as of December 31, 2023 | $ | |||
| Revenue recognized included in deferred revenue balance at the beginning of the period | ( | ) | ||
| Balance as of March 31, 2024 | $ |
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Numerator | ||||||||
| Net loss, as reported | $ | ( | ) | $ | ( | ) | ||
| Denominator | ||||||||
| Weighted average shares, basic | ||||||||
| Dilutive effect of stock options, warrants and RSUs | ||||||||
| Shares used to compute diluted loss per share | ||||||||
| Basic loss per share | $ | ( | ) | $ | ( | ) | ||
| Diluted loss per share | $ | ( | ) | $ | ( | ) | ||
| 13 |
The computation of diluted loss per share for the three months ended March 31, 2024 and 2023, respectively, also excludes approximately million shares of common stock and approximately warrants to purchase shares of common stock that are contingent upon the achievement of certain milestones.
As a result of incurring a net loss for the three months ended March 31, 2024 and 2023, respectively, potentially dilutive securities are included in the calculation of diluted loss per share because such effect would be anti-dilutive. The Company had potentially dilutive securities as of March 31, 2024, consisting of: (i) restricted stock units and (ii) options and warrants. The Company had potentially dilutive securities as of March 31, 2023, consisting of: (i) restricted stock units and (ii) options and warrants.
Stock Incentive Plans
The Company’s board of directors adopted, and shareholders approved, the Co-Diagnostics, Inc. Amended and Restated 2015 Long Term Incentive Plan (the “Incentive Plan”) providing for the issuance of stock-based incentive awards to employees, officers, consultants, directors and independent contractors. On August 31, 2022, the shareholders approved an increase in the number of awards available for issuance under the Incentive Plan to an aggregate of shares of common stock. The number of awards available for issuance under the Incentive Plan was at March 31, 2024.
Stock Options
| Number of Options | Weighted Average Exercise Price | Weighted Average Fair Value | Weighted Average Remaining Contractual Life (Years) | ||||||||||||||
| Outstanding at December 31, 2023 | $ | $ | |||||||||||||||
| Granted | |||||||||||||||||
| Expired | |||||||||||||||||
| Forfeited/Cancelled | |||||||||||||||||
| Exercised | |||||||||||||||||
| Outstanding at March 31, 2024 | $ | $ | |||||||||||||||
| Exercisable at March 31, 2024 | $ | $ | |||||||||||||||
The aggregate intrinsic value of outstanding options at March 31, 2024 was approximately $ million.
Stock-based compensation cost is measured at the grant date based on the fair value of the award granted and recognized as expense over the vesting period using the straight-line method. The Company uses the Black-Scholes model to value options granted. As of March 31, 2024, there were no unvested options and no unrecognized stock-based compensation expense related to options.
Restricted Stock Units
| Number of RSUs | Weighted Average Grant Date Fair Value | ||||||||
| Unvested at December 31, 2023 | $ | ||||||||
| Granted | |||||||||
| Vested | ( | ) | |||||||
| Forfeited/Cancelled | ( | ) | |||||||
| Unvested at March 31, 2024 | $ | ||||||||
| 14 |
As of March 31, 2024, there was approximately $ million of unrecognized stock-based compensation expense related to outstanding RSUs which is expected to be recognized over a weighted-average period of years.
Warrants
The Company has issued warrants related to financings, acquisitions and as compensation to third parties for services provided. The Company estimates the fair value of issued warrants on the date of issuance as determined using a Black-Scholes pricing model. The Company amortizes the fair value of issued warrants using a vesting schedule based on the terms and conditions of each warrant if granted for services.
The following table summarizes warrant activity during the three months ended March 31, 2024:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Fair Value | Weighted Average Remaining Contractual Life (Years) | ||||||||||||||
| Outstanding at December 31, 2023 | $ | $ | |||||||||||||||
| Granted | |||||||||||||||||
| Expired | |||||||||||||||||
| Forfeited/Cancelled | |||||||||||||||||
| Exercised | |||||||||||||||||
| Outstanding at March 31, 2024 | $ | $ | |||||||||||||||
The aggregate intrinsic value of outstanding warrants at March 31, 2024 was approximately $.
The
total number of warrants exercisable at March 31, 2024 is
Stock-Based Compensation Expense
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cost of revenue | $ | $ | ||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Total stock-based compensation expense | $ | $ | ||||||
Note 9 – Income Taxes
For
the three months ended March 31, 2024, the Company recognized expense from income taxes of $
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Note 10 – Commitments and Contingencies
Lease Obligations
The Company leases administrative, R&D, sales and marketing and manufacturing facilities under non-cancellable operating leases and leases cancellable with one month notice. The Company expenses the cancelable leases in the period incurred in accordance with the practical expedient elected.
For the three months ended March 31,2024, components of lease expense are summarized as follows:
| Three Months Ended March 31, 2024 | ||||
| Operating lease costs | $ | |||
| Short-term lease costs | ||||
| Total lease costs | $ | |||
As of March 31, 2024, the maturities of the Company’s lease liabilities are as follows:
| Year Ending December 31, | ||||
| 2024 (remainder) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ||||
| Present value of operating lease liabilities | ||||
| Less: current portion | ||||
| Long-term portion | $ | |||
Other information related to operating leases was as follows:
| Three Months Ended March 31, 2024 | ||||
| Cash paid for operating leases included in operating cash flows | $ | |||
| Remaining lease term of operating leases | ||||
| Discount rate of operating leases | % | |||
Litigation
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
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The Company is a defendant in two class action claims and three derivative actions claiming that the Company promulgated false and misleading press releases to increase the price of our stock to improperly benefit the officers and directors of the Company. The plaintiffs demand compensatory damages sustained as a result of the Company’s alleged wrongdoing in an amount to be proven at trial. The Company is also a party to two civil actions, one in the US and the other in the United Kingdom. Each of the civil actions is based on breach of contract claims against the Company. The Company believes these lawsuits are without merit and intends to defend the cases vigorously. The Company is unable to estimate a range of loss, if any, that could result were there to be an adverse final decision in these cases. As of the date of this report, the Company does not believe it is probable that these cases will result in an unfavorable outcome; however, if an unfavorable outcome were to occur in these cases, it is possible that the impact could be material to the Company’s results of operations in the period(s) in which any such outcome becomes probable and estimable.
Note 11 – Share Repurchase Program
In
March 2022, the Company’s Board of Directors authorized a share repurchase program that would allow the Company to repurchase up
to $
For accounting purposes, common stock repurchased under the stock repurchase program is recorded based upon the transaction date of the applicable trade. Such repurchased shares are held in treasury and are presented using the cost method. These shares are not retired and are considered issued but not outstanding. No shares were repurchased during the three months ended March 31, 2024.
Note 12 – Related Party Transactions
In
2023, the Company entered into a services agreement with CoSara, the Company’s equity method investment, under which CoSara provides
certain research and development consulting and support services. During the three months ended March 31, 2024, the Company recognized
$
Note 13 – Subsequent Events
In
October 2023, the Company was awarded grant funding of a total of approximately $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties. All statements other than statements of historical fact contained in this Quarterly Report and the documents incorporated by reference herein, including statements regarding future events, our future financial performance, business strategy, and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors and the documents incorporated by reference herein, which may affect our or our industry’s actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a highly regulated, very competitive, and rapidly changing environment. New risks emerge from time to time, and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.
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 under the heading “Risk Factors” in other documents we file with the SEC, including our Annual Report on form 10-K for the year ended December 31, 2023. The following discussion should be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 14, 2024, and the audited financial statements and notes included therein.
As used in this Quarterly Report, the terms “we”, “us”, “our”, and “Co-Diagnostics” means Co-Diagnostics, Inc., a Utah corporation and its consolidated subsidiaries (the “Company”), unless otherwise indicated.
Executive Overview
The following management’s discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of our operations, financial condition, and changes in financial condition. This discussion should be read in conjunction with the accompanying unaudited financial statements and notes thereto included elsewhere in this report. The information contained in this discussion is subject to a number of risks and uncertainties. We urge you to review carefully the section of this report entitled “Cautionary Note Regarding Forward-Looking Statements.”
Business Overview
Co-Diagnostics, Inc., a Utah corporation (the “Company” or “CODX”), develops, manufactures and sells reagents used for diagnostic tests that function via the detection and/or analysis of nucleic acid molecules (DNA or RNA), including robust and innovative molecular tools for detection of infectious diseases, liquid biopsy for cancer screening, and agricultural applications. Our diagnostics systems enable dependable, low-cost, molecular testing for organisms and genetic diseases by automating or simplifying historically complex procedures in both the development and administration of tests. CODX’s technical advance involves a novel, patented approach to PCR test design of primer and probe structure (“Co-Primers®”) that eliminates one of the key vexing issues of PCR amplification: the exponential growth of primer-dimer pairs (false positives and false negatives) which adversely interferes with identification of the target DNA/RNA. Using our proprietary test design system and proprietary reagents, we have designed and obtained regulatory approval to sell PCR diagnostic tests for the detection of COVID-19, influenza, tuberculosis, hepatitis B and C, human papillomavirus, malaria, chikungunya, dengue, and the Zika virus. These initial diagnostic tests are cleared for use in clinical labs only and not for point-of-care or at-home use.
We are currently developing a unique, groundbreaking portable diagnostic device and test system designed for point-of-care and at-home use. The system is comprised of our PCR instrument that we refer to as the Co-Dx™ PCR Pro™ instrument, our proprietary diagnostic test cup system and a mobile application to be installed on the user’s mobile device. We refer to the system as the “Co-Dx™ PCR platform that is being designed to bring affordable, reliable polymerase chain reaction (“PCR”) testing to patients in point-of-care and at-home settings. The Co-Dx PCR platform is subject to U.S. Food and Drug Administration (“FDA”) review and is not available for sale at the time of this filing. In December 2023, we submitted the Co-Dx PCR platform for review by the U.S. Food and Drug Administration (FDA) for Emergency Use Authorization (EUA). The submission included the PCR Pro instrument, Co-Dx PCR COVID-19 detection test cups, and mobile app, all designed for use in point-of-care and at-home settings. There is no guarantee that our Co-Dx PCR platform will receive the necessary regulatory approvals for commercialization, or that, if regulatory approval is received, we will be able to successfully commercialize this platform.
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Technology
We believe our proprietary molecular diagnostics technology is paving the way for innovation in disease detection and life sciences research through our enhanced detection of genetic material. For various reasons, including owning our own platform, we believe we will be able to accomplish this faster and more economically than some competitors, allowing for significant margins while still positioning ourselves as a low-cost provider of molecular diagnostics and screening services. For example, we were the first US-based company to receive a CE-marking for a COVID-19 test in early 2020, as we worked to help slow the spread of the pandemic through our global network of distributors covering clinical labs in more than 50 countries. Our Logix Smart® COVID-19 test was designed, developed, submitted for regulatory approval and ready to be used as an in vitro diagnostic or IVD in countries that accept a CE Mark as approval for use of the test in a period of just over 30 days. This is a real-world example of how the CODX technology can be used in an evolving epidemic or pandemic to get diagnostic tools in the hands of medical professionals in a timely manner. It can be similarly used to design a test for mutated strains of the virus should they not be detectable using currently available tests.
In addition, continued development has demonstrated the unique properties of our CoPrimer technology that we believe makes it ideally suited for a variety of applications where specificity is key to optimal results, including multiplexing several targets, enhanced Single Nucleotide Polymorphism (“SNP”) detection and enrichment for next generation sequencing.
Our scientists use the complex mathematics of DNA/RNA PCR test design to engineer and optimize PCR tests and to automate algorithms that rapidly screen millions of possible options to pinpoint the optimum design. The intellectual property we use in our business, consisting of the predictive mathematical algorithms and patented molecular structure used in the testing process, which together represents a major advance in PCR testing systems. CODX technologies are now protected by more than 20 granted or pending US and foreign patents, as well as certain trade secrets and copyrights. Ownership of our proprietary platform permits us the advantage of avoiding payment of patent royalties required by other PCR test systems, which may allow the sale of diagnostic PCR tests at a lower price than competitors, while enabling us to maintain profit margins.
Our proprietary test design process involves identifying the optimal locations on the target genes for amplification and pair the locations with the optimized primer and probe structure to achieve outputs that meet the design input requirements identified from market research. This is done by following planned and documented processes, procedures and testing. In other words, we use the data resulting from our tests to verify whether we succeeded in designing what we intended. Verification involves a series of testing that concludes that the product is ready to proceed to validation in an evaluation either in our laboratory or in an independent laboratory setting using initial production tests to confirm that the product as designed meets the user needs.
Using our proprietary test design system and proprietary reagents, we have designed and obtained regulatory approval in the European Community and in India to sell PCR diagnostic tests for the detection of COVID-19, influenza, tuberculosis, hepatitis B and C, human papillomavirus, malaria, chikungunya, dengue, and the Zika virus. In the United States, we obtained Emergency Use Authorization (“EUA”) for our Logix Smart® COVID-19 detection test from the Food and Drug Administration, or FDA, and we sell that test to qualified labs. In addition, our COVID-19 detection test and certain of our other suite of COVID-19 products have been approved for sale in countries such as the United Kingdom, Australia and Mexico by the regulatory bodies in those countries and have been registered for sale in many more countries. In connection with the sale of our tests we may sell diagnostic equipment from other manufacturers as self-contained lab systems (which we refer to as the “MDx Device”).
In addition to testing for infectious disease, the technology lends itself to identifying any section of a DNA or RNA strand that describes any type of genetic trait, which creates several significant applications. We, in conjunction with our customers, have designed and licensed tests that identify genetic traits in plant and animal genomes. We also have three multiplexed tests developed to test mosquitos for the identification of diseases carried by the mosquitos to enable municipalities to concentrate their efforts in managing mosquito populations on the specific areas known to be breeding the mosquitos that carry deadly viruses.
RESULTS OF OPERATIONS
The Three Months Ended March 31, 2024 Compared to the Three Months ended March 31, 2023
Revenues
For the three months ended March 31, 2024, we generated revenues of $467,854, compared to revenues of $601,957 for the three months ended March 31, 2023. Grant revenue accounted for $215,109 of revenue for the three months ended March 31, 2024, compared to $0 for the three months ended March 31, 2023. The decrease in total revenue of $134,103 was primarily due to lower sales of our Logix Smart COVID-19 throughout the world.
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Cost of Revenues
We recorded cost of revenues of $234,505 for the three months ended March 31, 2024, compared to $502,241 for the three months ended March 31, 2023. After adjusting for the effect of the grant revenue in the current period, cost of revenues and gross margins are comparable for the three months ended March 31, 2024 and 2023, respectively.
Expenses
We incurred total operating expenses of $10,492,736 for the three months ended March 31, 2024, compared to total operating expenses of $10,050,366 for the three months ended March 31, 2023. The increase in operating expenses was primarily due to increased personnel expenses and additional investment in research and development. These increases were partially offset by decreased stock compensation expense.
Our sales and marketing expenses for the three months ended March 31, 2024 were $1,563,682, compared to $1,706,331 for the three months ended March 31, 2023. The decrease was primarily a result of decreased stock-based compensation expense, partially offset by increased tradeshow and travel expenses.
General and administrative expenses remained materially consistent at $2,918,803 for the three months ended March 31, 2024, compared to $3,013,965 for the three months ended March 31, 2023. The decrease in general and administrative expenses was primarily due to decreases in stock compensation, insurance expense, and professional services expenses, partially offset by increased legal expenses.
Our research and development expenses increased to $5,679,678 for the three months ended March 31, 2024, compared to $5,014,060 for the three months ended March 31, 2023. The primary increase in expenses was a result of increases in personnel related expenses and expenses related to development of the Co-Dx PCR platform.
Other Income
For the three months ended March 31, 2024 we had total other income of $970,108, compared to total other income of $1,935,448 for the three months ended March 31, 2023. The primary components of other income include a change in the fair value of contingent consideration liabilities and interest income and realized gains from investments in marketable securities.
Net Loss
We realized a net loss for the three months ended March 31, 2024 of $9,312,043, compared to a net loss for the three months ended March 31, 2023 of $5,755,391. The larger net loss was primarily the result of an increase in operating expenses, as well as changes in the fair value of acquisition contingencies and income related to investments in marketable securities. Additionally, we recorded income tax expense of $22,764 for the three months ended March 31, 2024, compared to an income tax benefit of $2,259,811 for the three months ended March 31, 2023. The primary reason for the change in the provision for income taxes is a result of the Company now being in a full valuation allowance.
Liquidity and Capital Resources
At March 31, 2024, we had cash and cash equivalents of $23,099,251. Additionally, we had $26,864,435 of marketable investment securities that could readily be converted into cash if needed. Additionally, our total current assets of March 31, 2024, were $53,698,833 compared to total current liabilities of $5,269,652.
Net cash used in operating activities during the three months ended March 31, 2024 was $8,490,334, compared to $5,917,517 for the three months ended March 31, 2023. The decrease in cash from operating activities was primarily due to decreased revenues and increased operating expenses, and the impact of non-cash items.
Net cash provided by investing activities during the three months ended March 31, 2024 was $16,672,707, primarily from maturities of marketable investment securities, compared to cash used in investing activities of $10,214,710 during the three months ended March 31, 2023.
Net cash used in financing activities was $0 for the three months ended March 31, 2024, compared to net cash used in financing activities of $482,196 for the same period in the prior year. This is due to the repurchase of outstanding common shares during the prior period, compared to no such repurchases in the current period.
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Since commencing sales of our Logix Smart COVID-19 test in March 2020, we have used our cash generated from those sales to fund the purchase of inventories and the development of our Co-Dx PCR platform, and to pay our operating expenses. We have increased our work force most significantly in research and development in order to continue development of the Co-Dx PCR platform and additional tests that will enable continued use of our distributor network to sell additional products throughout the world.
We believe that our existing capital resources and the cash generated from future sales will be sufficient to meet our projected operating requirements for the next 12 months. However, our available capital resources may be consumed more rapidly than currently expected and we may need or want to raise additional financing for strategic opportunities. It is anticipated that the Company will continue to generate operating losses and use cash in operations in the near term. If needed, we expect additional investment capital to come from additional issuances of our common stock or other equity-based securities with existing and new investors similar to those that have provided funding in the past. On March 16, 2023, the Company entered into an Equity Distribution Agreement with Piper Sandler & Co. (“Piper”), pursuant to which we may sell from time to time, shares of our common stock, having an aggregate offering price of up to $50.0 million through Piper, as agent. No shares have been sold under the distribution agreement as of March 31, 2024. We may not be able to secure such financing in a timely manner or on favorable terms, if at all.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required under Regulation S-K for “smaller reporting companies.”
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15I and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2024. Based on the evaluation of our disclosure controls and procedures as of March 31, 2024, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the three months ended March 31, 2024, that have materially affected or, are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments to the legal proceedings previously disclosed under Part I. Item 3 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Item 1A. Risk Factors.
Not required under Regulation S-K for “smaller reporting companies.”
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Dividends
We have never declared or paid any cash dividends on our capital stock. The payment of dividends on our common stock in the future will depend on our earnings, capital requirements, operating and financial condition and such other factors as our board of directors may consider appropriate. We currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying dividends on our common stock in the foreseeable future.
Pursuant to Section 16-10a-640 of the Utah Revised Business Corporation Act, no distribution may be made if, after giving it effect:
| (a) | the corporation would not be able to pay its debts as they become due in the usual course of business; or | |
| (b) | the corporation’s total assets would be less than the sum of its total liabilities plus, unless the articles of incorporation permit otherwise, the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
Exhibit Index
(a) Exhibits
| Exhibit | Number Description | |
| 31.1* | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1* | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2* | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File |
* Filed herewith.
# Management Contract or Compensatory Plan or Arrangement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CO-DIAGNOSTICS, INC. | ||
| Date: May 9, 2024 | By: | /s/ Dwight H. Egan |
| Name: | Dwight H. Egan | |
| Title: | Chief Executive Officer and Principal Executive Officer | |
| Date: May 9, 2024 | By: | /s/ Brian Brown |
| Name: | Brian Brown | |
| Title: | Chief Financial Officer and Principal Financial and Accounting Officer | |
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