Item 1A. Risk Factors. 12
Item 1B. Unresolved Staff Comments. 16
Item 2. Properties. 16
Item 3. Legal Proceedings. 16
Item 4. Mine Safety Disclosures. 17
PART II
Item 6. Selected Financial Data. 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 22
Item 8. Financial Statements and Supplementary Data. 23
Item 9A. Controls and Procedures. 41
Item 9B. Other Information. 42
PART III
Item 10. Directors, Executive Officers and Corporate Governance. 42
Item 11. Executive Compensation. 47
Item 14. Principal Accountant Fees and Services. 52
PART IV
Item 15. Exhibits and Financial Statement Schedules. 53
PART
I
Forward-Looking
Statements
This
Annual Report on Form 10-K contains “forward-looking statements” that involve risks and uncertainties. All statements
other than statements of historical fact contained in this Annual Report and the documents incorporated by reference herein, including
statements regarding future events, our future financial performance, business strategy, and plans and objectives of management
for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology
including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,”
“expects,” “intends,” “may,” “plans,” “potential,” “predicts,”
“should,” or “will” or the negative of these terms or other comparable terminology. Although we do not
make forward looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy.
These statements are only predictions and involve known and unknown risks, uncertainties and other factors and the documents incorporated
by reference herein, which may affect our or our industry’s actual results, levels of activity, performance or achievements
expressed or implied by these forward-looking statements. Moreover, we operate in a highly regulated, very competitive, and rapidly
changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we
address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our
actual results to differ materially from those contained in any forward-looking statements.
We
have based these forward-looking statements largely on our current expectations and projections about future events and financial
trends that we believe may affect our financial condition, results of operations, business strategy, short term and long-term
business operations, and financial needs. These forward-looking statements are subject to certain risks and uncertainties that
could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report, and in particular,
the risks discussed below and under the heading “Risk Factors” in other documents we file with the SEC. The following
discussion should be read in conjunction with the consolidated financial statements for the fiscal years ended December 31, 2020
and 2019 and notes incorporated by reference therein. We undertake no obligation to revise or publicly release the results of
any revision to these forward-looking statements, except as required by law. In light of these risks, uncertainties and assumptions,
the forward-looking events and circumstances discussed in this Annual Report may not occur and actual results could differ materially
and adversely from those anticipated or implied in the forward-looking statement.
You
should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this Annual Report.
Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after
the date of this Annual Report to conform our statements to actual results or changed expectations.
You
are advised, however, to consult any further disclosures we make on related subjects in our reports on Forms 10-Q, 8-K and 10-K
filed with the SEC. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should
not consider this list to be a complete set of all potential risks or uncertainties.
Important
factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation:
● the results of clinical trials and the regulatory approval process;
● market acceptance of any products that may be approved for commercialization;
● our ability to protect our intellectual property rights;
● the impact of any infringement actions or other litigation brought against us;
● competition from other providers and products;
● changes in government regulation;
Should
one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results
may differ significantly from those anticipated, believed, estimated, expected, intended or planned.
Factors
or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict
all of them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable
law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform
these statements to actual results.
As
used in this Annual Report, the terms “we”, “us”, “our”, and “Co-Diagnostics”
means Co-Diagnostics, Inc., a Utah corporation and its consolidated subsidiaries (the “Company”), unless otherwise
indicated.
ITEM
1: BUSINESS
Overview
Co-Diagnostics,
Inc., a Utah corporation (the “Company” or “CDI”), is developing robust and innovative molecular tools
for detection of infectious diseases, liquid biopsy for cancer screening, and agricultural applications. We develop, manufacture
and sell reagents used for diagnostic tests that function via the detection and/or analysis of nucleic acid molecules (DNA or
RNA). In connection with the sale of our tests we may sell diagnostic equipment from other manufacturers as self-contained lab
systems (which we refer to as the “MDx Device”).
Our
diagnostics systems enable very rapid, low-cost, molecular testing for organisms and genetic diseases by automating historically
complex procedures in both the development and administration of tests. CDI’s technical advance involves a novel approach
to Polymerase Chain Reaction (“PCR”) test design of primer and probe structure (“CoPrimers”) that eliminates
one of the key vexing issues of PCR amplification, the exponential growth of primer-dimer pairs (false positives and false negatives)
which adversely interferes with identification of the target DNA/RNA.
We
believe our proprietary molecular diagnostics technology is paving the way for innovation in disease detection and life sciences
research through our enhanced detection of genetic material. Because we own our platform, we believe we will be able to accomplish
this faster and more economically, allowing for significant margins while still positioning the Company to be a low-cost provider
of molecular diagnostics and screening services.
In
addition, continued development has demonstrated the unique properties of our CoPrimer technology that make it ideally suited
for a variety of applications where specificity is key to optimal results, including multiplexing several targets, enhanced Single
Nucleotide Polymorphism (“SNP”) detection and enrichment for next gen sequencing.
Our
scientists use the complex mathematics of DNA/RNA test design, to engineer and optimize a DNA/RNA test and to automate algorithms
that rapidly screen millions of possible options to pinpoint the optimum design. Dr. Satterfield, our founder, developed the Company’s
intellectual property consisting of the predictive mathematical algorithms and proprietary reagents used in the testing process,
which together represent a major advance in PCR testing systems. CDI technologies are now protected by eight granted or pending
US and foreign patents, as well as certain trade secrets and copyrights. Ownership of our proprietary platform permits us the
advantage of avoiding payment of patent royalties required by other PCR test systems, which enables the sale of diagnostic tests
at a lower price than competitors, while enabling us to maintain profit margins.
We
may either sell or lease the MDx Device to labs and diagnostic centers, through sale or lease agreements, and sell the reagents
that comprise our proprietary tests to those laboratories and testing facilities.
We
design our tests by identifying the optimal locations on the target gene for amplification and pair the location with the optimized
primer and probe structure to achieve outputs that meet the design input requirements identified from market research. This is
done by following planned and documented processes, procedures and testing. In other words, the data resulting from our tests
verify that we succeeded in designing what we intended at the outset. Verification is a series of testing that concludes that
the product is ready to proceed to validation in an evaluation either in our lab or in an independent laboratory setting using
initial production tests to confirm that the product as designed meets the user needs.
Using
our proprietary test design system and proprietary reagents, we have designed and obtained regulatory approval in the European
Community and in India to sell PCR diagnostic tests for COVID-19, tuberculosis, hepatitis B and C, human papilloma virus, malaria,
chikungunya, dengue, and the zika virus. In the United States, CDI has obtained Emergency Use Authorization (“EUA”)
for its COVID-19 test from the FDA and sells that test to qualified labs. In addition, our LogixSmart COVID-19 test has been approved
for sale in Australia and Mexico by the regulatory bodies in those countries and has been registered for sale in many more countries.
In
addition to testing for infectious disease, the technology lends itself to identifying any section of a DNA or RNA strand that
describe any type of genetic trait, which creates a number of significant applications. We, in conjunction with our customers,
are active in designing and licensing tests that identify genetic traits in plant and animal genomes. We also have three multiplexed
tests developed to test mosquitos for the identification of diseases carried by the mosquitos to enable municipalities to concentrate
their efforts in spraying mosquito populations on the specific areas known to be breeding the mosquitos that carry deadly viruses.
On
January 23, 2020, we announced the completion of the principal design work for a PCR screening test for the new coronavirus, COVID-19,
intended to address the potential need for detection of the virus. An outbreak of respiratory illness caused by the pneumonia-like
COVID-19 has spread rapidly throughout the world since first being discovered in the Chinese city of Wuhan on December 31, 2019.
China confirmed human-to-human transmission of the virus and the United States announced the first infection in this country,
detected in a traveler returning from Wuhan. Our COVID-19 test features the Company’s patented CoPrimerTM technology,
and was designed using our proprietary software system, following the guidelines published by the World Health Organization (WHO)
and Centers for Disease Control (CDC).
On
February 20, 2020, we announced that our Logix SmartTM COVID-19 Test technical file had been submitted for registration with
the European Union, and that it was expected to be available late February as an in vitro diagnostic (“IVD”) for markets
that accept a CE marking as valid regulatory approval. Subsequently, on February 24, 2020, we announced that our test obtained
regulatory clearance to be sold as an IVD for the diagnosis of COVID-19 in markets that accept CE-marking as valid regulatory
approval, and became available for purchase from the Company’s Utah-based ISO-13485:2016 certified facility. The Declaration
of Conformity for the Logix Smart COVID-19 test confirms that it meets the Essential Requirements of the European Community’s
In-Vitro Diagnostic Medical Device Directive (IVDD 98/79/EC), permitting export and sales of the product as an IVD in the European
Community. We shipped samples of the Research Use Only version of our test to distributors in various countries, which allowed
future customers to confirm the quality and sensitivity of the product, and for us to accelerate the sales efforts of the COVID-19
test.
We
commenced sales of the COVID-19 tests in February and March of 2020 to international customers and have since sold approximately
10,000,000 tests in numerous countries around the world through an expanding distributor network.
On
April 6, 2020, we announced that we had received an Emergency Use Authorization from the FDA allowing us to commence sales of
our Logix Smart COVID-19 test to laboratories certified by the Center for Medicare and Medicaid Services under the Clinical Laboratories
Improvements Act (“CLIA”) to accept human samples for diagnostics testing throughout the United States and have sold
our Logix Smart COVID-19 test to such CLIA labs since that time.
Recent
Developments
Because
we believe that testing for the COVID-19 virus is going to be a consideration for public health worldwide even after the current
pandemic has subsided, we have initiated a project to facilitate frequent testing in schools, businesses, and the hospitality
industry. We believe this may be accomplished through the development of a low cost, easy to use by non-professionals, testing
device that can provide PCR quality test results in less than an hour. This project is possible due to the facts that in 2020
we were able to successfully lyophilize our Logix Smart Covid-19 test reagents and additionally developed a saliva-based collection
system that does not require the RNA/DNA extraction. While the final result is the same as if done through a lab-based IVD process,
it has the advantages of increased speed and ease of handling thanks to lyophilization. We have engaged the services of a group
of professionals who have the expertise to develop the hardware for such a device using our CoPrimers as the reagent chemistry.
The device will be available to homes, offices, event facilities, and the travel industry at a cost that will allow screening
frequently to prevent spread of the COVID-19 virus in the future. The device would also be available to test for other pathogens
detectable through saliva samples as we develop those tests and offer them to the marketplace.
Infectious
Disease Product Offering
Using
our proprietary test design system and proprietary reagents, we design and sell PCR diagnostic tests for diseases and pathogens
such as COVID-19, tuberculosis, hepatitis B and C, malaria, dengue, human papilloma virus, chikungunya, and Zika virus, all of
which tests have been designed and verified in our laboratory. Our tuberculosis test and Zika test received a CE Mark in 2018,
and a triplex test for Zika, dengue and chikungunya received a CE Mark in 2019, qualifying the tests to be sold throughout the
European community and in most countries in central and South America. In December, 2019, our Indian joint venture received a
license to manufacture and sell tuberculosis, hepatitis B, hepatitis C, human papilloma virus 16/18 and malaria tests in India
from the Central Drugs Standard Control Organization (“CDSCO”). In February 2020, we received a CE Mark for our Logix
Smart COVID-19 test and in April 2020, our COVID-19 test was approved for manufacture and sale in India by the CDSCO and in Mexico
by the INDRE, Mexico’s equivalent to the United States Center for Disease Control. In August 2020, we received approval
from the Australian Department of Health Therapeutic Goods Division to sell our COVID-19 test in Australia.
As
explained above, the development of our Logix Smart COVID-19 test was designed, developed, submitted for regulatory approval and
ready to be used both as a Research Use Only (“RUO”) and as an IVD in countries that accept a CE Mark as approval
for use of the test in a period of just over thirty days. This is a real-world example of how in an evolving epidemic that the
CDI technology can be used to get diagnostics tools in the hands of medical professionals without delay. It can be similarly used
to design a test for mutations of the virus should they occur and not be detectable using currently available tests.
Caribbean
and Central and South America
Our
initial sales were to entities located in South and Central America. In some of those countries, there are limited regulatory
hurdles so we started offering our tests immediately. We have applied for registration of our tests in those countries that require
registration and our distributors in those countries have provided us with in country assistance in completing such registrations.
We
first offered our Zika test in this region because of the demand for such test, followed quickly by tests for tuberculosis, our
triplex test for Zika, chikungunya, and dengue, hepatitis B and C, and dengue. Sales of those tests have not been material, but
with the granting of a CE mark for our Logix Smart COVID-19, we began significant sales in this region. Products are manufactured
for sale upon receipt of purchase orders from distributors, labs and hospitals.
India
In
January 2017, the Company entered into an agreement to manufacture diagnostics tests for seven infectious diseases with a pharmaceutical
manufacturing company in India and formed an Indian joint venture organized as CoSara Diagnostics, Pvt (“CoSara”).
The agreement provided for the construction of a manufacturing plant and the manufacture of the tests named above and the joint
sales and marketing of those tests in India. We have received a license for the plant in Ranoli, India to manufacture approved
tests and has been used for testing and manufacturing for the Indian market.
As
mentioned above, the CDSCO has given us the approval for manufacture and sale of the nine tests referred above and the Company
has begun manufacture and sale of those tests. The Company has commenced a reagent rental program in India with thermocyclers
purchased from third-party vendors and which we refer to as our MDx Device. Each of the reagent rental placements requires the
purchase of a minimum number of tests per month. The placement of thermocyclers in India has facilitated the sale of the SaraGene
COVID-19 tests in India, which has made CoSara profitable in 2020. The World Health Organization (“WHO”) 2019 Global
Tuberculosis Report indicates that India is the country with the highest number of cases of tuberculosis in the world.
WHO tuberculosis statistics for India for 2018 give an estimated incidence figure of 2.69 million cases of tuberculosis for India
out of a global incidence of approximately 10.0 million. The tuberculosis incidence for India is the number of new cases of active
tuberculosis disease in India during a certain time period (usually a year). We believe that we will be able to sell our tuberculosis
test in India through our sales distribution network that we are building currently.
On
March 19, 2020, we announced that CoSara received authorization to begin manufacture and sale of COVID-19 tests in India. Those
tests in India are branded as SaraGene COVID-19 tests and are sold exclusively by CoSara. Because any commercial activity in India
was severely restricted until May 2020, CoSara was not able to commence the manufacturing and sale of the SaraGene COVID-19 tests
until late in the second quarter, but sales efforts have resulted in CoSara being profitable since the commencement of sales of
the COVID-19 tests. The Indian government places restrictions on the price that could be charged for COVID-19 tests which has
limited the sales in India more than we have experienced in other parts of the world.
Europe
Molecular
diagnostics, such as our tests, are governed in Europe by the framework for in vitro diagnostics (IVDs), which encompasses diagnostic
products such as reagents, instruments and systems intended for use in diagnosis of disease. The regulatory system for IVDs is
built largely on a self-certification procedure, placing heavy responsibility on manufacturers. Non self-certified products are
subject to the same standards as self-certified products but are subject to audit and review by a notified body prior to receiving
approval to be CE-marked. A CE-marking is a manufacturer’s declaration that a product meets the requirements of the applicable
European Commission directive. Examples of current obligations include having in place a qualitative manufacturing process, user
instructions that are clear and fit for purpose, ensuring that the ‘physical’ features of devices and diagnostics
do not pose any danger. If a product fulfils these and other related control requirements, it may be CE-marked as an indication
that the product is compliant with EU legislation and sold in the European Union. We have received CE Marks for six of our tests
including COVID-19, COVID-19 (2 gene test), ABC (a triplex test for Flu A, Flu B and COVID-19), tuberculosis, Zika, and our Zika,
dengue, chikungunya triplex tests.
We
have received ISO 13485 and ISO 9001 certifications relating to the design and manufacture of our medical device products. The
ISO certification indicates that we meet the standards required to self-certify certain of our products and affix a CE-marking
for sales of our products in countries accepting the CE marking (not in the United States) with only minimal further governmental
approvals and registrations in most countries.
United
States
The
U.S. Food and Drug Administration (FDA) has granted permission for us to export all of our IVD products. The FDA’s permission
to export was granted under Section 801(e) of the Federal Food, Drug, and Cosmetic Act, as amended (the “FDC Act”).
Section 801(e) of the FDA Act covers certain medical devices that have not yet received an approved Premarket Approval in the
United States by the FDA, such as our products. We have not commenced any Premarket Approval steps with the FDA. Section 801(e)
of the FDA Act applies to medical devices that are acceptable to the importing country and that are manufactured under the FDA’s
Good Manufacturing Practices. We have received EUA for our COVID-19 test, which allows sales to qualified labs in the United States.
Under
our EUA, we are actively selling our LogixSmart COVID-19 test to CLIA certified laboratories in the United States and the CLIA
labs are able to use our test as it is or further qualify our LogixSmart test as a Laboratory Developed Test (LDT), a diagnostic
test that has been validated for use in the CLIA lab. These tests may be used by the lab only in that laboratory. CLIA laboratories
develop the performance characteristics, perform the analytical validation for their LDT’s and obtain licenses to offer
them as diagnostic services. The FDA has publicly announced its intention to regulate certain LDTs in a phased-in approach, but
draft guidance that was published a couple of years ago was withdrawn at the end of the Obama administration and replaced by an
informal non-enforceable discussion paper reflecting some of the feedback that it received on LDT regulation. We are currently
marketing our Logix Smart COVID-19 test to CLIA laboratories throughout the US.
Market
Opportunity
The
market opportunity for our tests changed radically with the emergence of the COVID-19 pandemic. Because we were able to respond
rapidly and produce a quality product, we have been able to build a distribution network
that extends to more than 80 countries with over 50 active distributors, most of which have been the sales network that has allowed
us to export products throughout the world. Approximately 40% of our sales in 2020 came through sales by our distribution
network. We believe that after the pandemic is brought under control, the network of distributors that we have built in these
extra-ordinary times will serve us well in sales of other diagnostic tests.
The
molecular diagnostics market is a fast-growing portion of the in vitro (test tube-based, controlled environment) diagnostics market.
There are several advantages of molecular tests, such as the ones we market and sell, over other forms of diagnostic testing.
These advantages include higher specificity and sensitivity, the ability to perform multiplex tests and the ability to test for
drug resistance or for individual genes.
Mosquito
Vector Control Services
In
response to market demand, we introduced our first diagnostics tests to be used exclusively to test for mosquito borne pathogens
in June 2019. Municipalities in the US and many other countries in the world are concerned about the diseases carried by mosquitos
and which infect the human population. To prevent outbreaks of potentially harmful viruses, such as Zika or West Nile, from infecting
the public the municipalities conduct spraying operations to eliminate the mosquito populations carrying the diseases. Because
it is too expensive and potentially harmful to the environment to spray all mosquito breeding areas, the solution is to identify
which particular area has mosquitos that are carrying the harmful viruses. To know where the host mosquitos with the harmful viruses
are located, traps are set, mosquitos collected and then tested to find the areas that most needed spraying. There are over 3,000
mosquito abatement districts throughout the United States and almost all of them conduct testing to help make the spraying more
effective.
Our
first vector related test was a triplex test that tests for West Nile, western equine and St. Louis encephalitis. We began shipping
the tests in June 2019. We added a second test that tests mosquitos for Zika, chikungunya and dengue in a triplex test. Finally,
in November 2019, we completed a test for West Nile, eastern equine and St. Louis encephalitis, specifically for use in the eastern
United States. As a result, mosquito abatement districts can test for three target viruses in one test as compared to performing
three different tests using other market available tests, which saves our customers money. Additionally, the districts are more
effective because they can get test results in a matter of hours using our product instead of weeks when they have to wait for
a central lab to process the mosquito tests.
We
have sold our Vector Smart test products and/or related lab equipment to testing districts in different sections of the country
and are marketing our products through trade shows, electronic and regular mail solicitations and have hired additional sales
personnel in the eastern US to more economically and efficiently market to the east coast areas.
Competitive
Advantages of Co-Diagnostics
We
believe that we have the following competitive advantages:
● Affordability: Lower-cost test kits and low-cost MDx-device.
Liquid
Biopsy for Cancer Screening
The
development of liquid biopsy tests is expected to spur low-cost testing in many countries. We believe that our liquid biopsy cancer
screening may be ready for testing in the foreseeable future. Medical applications of our SNP detection technology can determine
the presence of cancer cells or cell-free genetic material in a liquid or tissue biopsy, and to determine the distinct type of
cancer involved. A real-life example of this includes being able to identify specific mutation(s) in genes linked to breast cancer
in order to determine a patient’s prognosis, initiate the most effective and affordable treatment and to determine whether
chemotherapy is necessary. After diagnosis the relative cost of our technology would allow for frequent testing to measure the
effectiveness of the treatment and thus could be a companion diagnostic for a range of treatments.
Our
technology has for all practical purposes essentially eliminated, primer-dimers, which opens up some very unique applications
for liquid biopsy for cancer detection. Our ability to multiplex the reaction in testing for several DNA targets allows technicians
to detect multiple cancers as free-circulating DNA fragments or whole cells in a blood sample at the same time
Agricultural
Applications
SNP
detection is also used in the agricultural industry to identify variations in crop genomes to achieve improved seed viability
and other desired characteristics, including drought resistance, disease resistance, pest resistance and higher yield.
In
mid-2017, the Company was first approached by a large agribusiness to evaluate our ability to multiplex certain target genomes.
The results of the development project have successfully demonstrated our ability to not only multiplex the target genomes, but
targeted SNP’s as well. The project was undertaken in conjunction with the manufacturer of our CoPrimer tests. The results
of the project encouraged the parent of our manufacturer to seek a world-wide licensing arrangement for our CoPrimers in the agricultural
industry, which was completed in October 2018. Pursuant to the exclusive license for the agronomics industry, the licensee pays
us a royalty for all CoPrimers sold to the licensee’s customers. In January 2019, the licensee formally introduced the product
at a large agricultural conference and has branded the product under the name “BHQ CoPrimers”.
Additional
Licensing and Assay Development
In
addition, the unique properties of our CoPrimer technology make them ideally suited to a variety of applications where sensitivity
is key to optimal results, including multiplexing several targets, enhanced SNP detection and enrichment for next generation sequencing.
Our licensee for our agricultural testing requested an expansion of our license agreement to include test design services for
their customers and potential customers, both in the infectious disease arena as well as for agricultural customers. The license
was amended in July 2019 and we expect to derive a license fee from our licensee for its design services. If any of its customers
desire to commercialize the tests designed, they will need to seek a commercial license directly from us. Because of these unique
characteristics of CoPrimers, research companies and institutions have requested that we design diagnostics to locate and identify
uncommon gene sequences and SNPs and create tests for the target sequences in a multiplexed reaction. This application of our
technology is in its beginning stages, but we believe that the results from our initial research indicate a significant step forward
in defining the capabilities of our technology, which we believe can be translated to revenue producing licensing arrangements.
Intellectual
Property
Because
much of our future success and value depends on our proprietary technology, our patent and intellectual property strategy is of
critical importance. Five of our initial U.S. patents related to our technology have been granted by the U.S. Patent and Trademark
Office (PTO), including the patent for our CoPrimer technology, which we consider our most important patent. One of our patents
has been issued in Great Britain, but is still pending in the United States. As of March 2021, we had two additional patents pending
in the U.S. and foreign counterpart applications. Two of our issued US patents expire in 2034, one in 2036 and one in 2038.
We
have identified additional applications of the technology, which represent potential patents that further define specific applications
of the processes that are covered by the original patents. We intend to continue building our intellectual property portfolio
as development continues and resources are available.
We
have copyrighted our development software that is used by us to develop diagnostic tests based on our technology. We have allowed
one potential customer access to our development software and intend to sell customized reagents through that customer to labs
serviced by that customer throughout the world. To date we have not sold any products to that customer.
Major
Customers
We
had certain customers which were each responsible for generating 10% or more of our total revenue for the year ended December
31, 2020. Two customers together accounted for approximately 38% of total revenue for the year ended December 31, 2020. These
customers may not account for the same percentage of sales in future periods. If
we were to sell nothing to those customers in the future, it would have a material adverse effect on our financial condition unless
we were able to replace those customers with others.
Competition
The
molecular diagnostics industry is extremely competitive. There are many firms that provide some or all of the products we provide
and provide many diagnostic tests that we have yet to develop. Many of these competitors are larger than us and have significantly
greater financial resources. Because we are not established, many of our competitors have a competitive advantage in the diagnostic
testing industry because they also have other lines of business in the pharmaceutical industry from which they derive revenues
and for which they are well known and respected in the medical profession. We will need to overcome the disadvantage of being
a start up with no history of success and no significant respect from the medical and testing professionals, although this is
changing as we continue to market our LogixSmart COVID-19 tests and other tests in the United States to well-known and successful
laboratories. In the diagnostic testing industry, we compete with such companies as BioMerieux, Siemens, Qiagen, and Cepheid and
with such pharmaceutical companies as Abbott Laboratories, Becton Dickinson and Johnson and Johnson.
Many
of these competitors already have an established customer base with industry standard technology, which we must overcome to be
successful.
Competition
is, and will likely continue to be, particularly intense in the market for COVID-19 diagnostic tests. Numerous companies in the
United States and internationally have announced their intention to offer new products, services and technologies that could be
used in substitution for our LogixSmart COVID-19 tests. Many of those competitors are significantly larger, and have substantially
greater financial, engineering and other resources, than our company. Existing and potential competitors in the market for COVID-19
diagnostic tests include developers of both serological and molecular tests. We also compete with companies from Asia in certain
markets who are willing to sell their tests for much less than we sell our tests, which creates price pressure on us to reduce
the price of tests to compete.
We
expect competition to continue to increase as other established and emerging companies enter the market, as customer requirements
evolve, and as new products, services and technologies are introduced. The entrance of new competitors is being encouraged by
governmental authorities, who are offering funding to support development of testing solutions for COVID-19. Some of our existing
or new competitors may have strong relationships with current and potential customers, including governmental authorities, and,
as a result, may be able to respond more quickly to new or changing regulatory requirements, new or emerging technologies, and
changes in customer requirements.
Government
Regulation
In
the United States, we are regulated by the FDA and our products must be approved by the FDA before we will be allowed to sell
our tests in the United States. However, the FDA granted us an EUA to manufacture and sell our Logix Smart COVID-19 test to CLIA
labs in the United States. Because our lab is ISO certified, we are allowed to apply for CE-Marking, which will allow us to sell
any CE Marked test in most countries in Europe, South America and Asia. We currently have CE Marks issued for our Logix Smart
COVID-19 test, tuberculosis test, our Zika virus test, a triplex test that tests for Zika, dengue, and chikungunya simultaneously
and a triplex test that distinguishes between Flu A, Flu B and Covid-19. In addition, our Logix Smart COVID-19 has received the
license to manufacture and sell in India from India’s CDSCO and the National Epidemiology Institute in Mexico evaluated
our Logix Smart COVID-19 test and approved it for sale in Mexico. We have also received approval to sell in Australia. We are
in the process of registering for sale our Logix Smart COVID-19 test in a number of major countries around the world.
Employees
As
of December 31, 2020, we had 37 full-time employees at our executive offices and lab facilities in Salt Lake City, Utah, and two
employees outside of Utah. We have engaged independent contractors in India to promote the use of our products and develop outlets
for products and employ the services of independent sales representatives on an “as needed” basis.
Organizational
History and Corporate Information
We
were incorporated as Co-Diagnostics, Inc., in Utah on April 18, 2013. Our principal executive office is located 2401 S. Foothill
Drive, Salt Lake City, Utah 84109. Our telephone number is (801) 438-1036. Our web address is www.codiagnostics.com. The
contents of our website are not incorporated by reference in this Annual Report.
Implications
of Being an Emerging Growth Company
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an
emerging growth company until the earlier of (i) the last day of the fiscal year following the fifth anniversary of July 12, 2017,
the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act of 1933,
as amended (the “Securities Act”); (ii) the last day of the fiscal year in which we have total annual gross revenues
of $1 billion or more; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous
three years; or (iv) the date on which we are deemed to be a large accelerated filer under applicable SEC rules. We expect that
we will remain an emerging growth company for the foreseeable future, but cannot retain our emerging growth company status indefinitely.
We refer to the Jumpstart Our Business Startups Act of 2012 herein as the “JOBS Act”. For so long as we remain an
emerging growth company, we are permitted and intend to rely on exemptions from specified disclosure requirements that are applicable
to other public companies that are not emerging growth companies. These exemptions include:
● reduced disclosure obligations regarding executive compensation; and
For
as long as we continue to be an emerging growth company, we expect that we will take advantage of the reduced disclosure obligations
available to us as a result of that classification. Accordingly, the information contained herein may be different than the information
you receive from other public companies in which you hold stock.
An
emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities
Act for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain
accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves
of this extended transition period and, as a result, we will not be required to adopt new or revised accounting standards on the
dates on which adoption of such standards is required for other public reporting companies.
We
are also a “smaller reporting company” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended,
or the Exchange Act, and have elected to take advantage of certain of the scaled disclosure available for smaller reporting companies.
ITEM
1A. RISK FACTORS
Risks
Related to Our Business and Industry
We
have a limited commercial history upon which to base our prospects and until this year, we have not generated profits and are
not certain that we will sustain profitability in the future.
We
began operations in April 2013, and we have a limited operating history. While we were profitable for the year ended December
31, 2020, we realized a net loss for the years ended December 31, 2019 and December 31, 2018 of $6.2 million and $6.3 million,
respectively. Our accumulated retained earnings were $20.5 million as of December 31, 2020 and we had accumulated deficits of
$25.0 million and $18.7 million as of December 31, 2019 and December 31, 2018, respectively. We realized net income for the first
time for the three months ended June 30, 2020. We were able to achieve net income because we were able to develop and market our
LogixSmart COVID-19 test, but we do not have any way to predict how long our market for that test will continue. Potential investors
should be aware of the difficulties normally encountered by a new enterprise, many of which are beyond our control, including
substantial risks and expenses in the course of developing new diagnostic tests, establishing or entering new markets, organizing
operations and marketing procedures. The likelihood of our success must be considered in light of these risks, expenses, complications
and delays, and the competitive environment in which we operate. There is, therefore, nothing at this time upon which to base
an assumption that our business plan will continue to prove successful, and we may not be able to generate significant revenue,
raise additional capital or operate profitably. We will continue to encounter risks and difficulties frequently experienced by
early commercial stage companies, including scaling up our infrastructure and headcount, and may encounter unforeseen expenses,
difficulties or delays in connection with our growth. In addition, as a result of the start-up nature of our business, we can
be expected to continue to sustain substantial operating expenses and may not be able to continue generating sufficient revenues
to cover expenditures. Any investment in our company is therefore highly speculative and could result in the loss of any investment.
Our
near-term success has been dependent on the market for our COVID-19 test and future success is dependent on continued demand for
the COVID-19 test and upon our ability to develop and market other commercially accepted diagnostic tests.
Our
future success will depend, in part, on the continued market for our LogixSmart COVID-19 test and upon our ability to develop
and sell sufficient quantities of other diagnostics tests. Attracting new customers and distribution networks requires substantial
time and expense. Any failure to continue sales of our tests in sufficient quantities to maintain profitability would adversely
affect our operating results. Many factors could affect the market acceptance and commercial success of any of our diagnostic
tests, including:
● the breadth of our test menu relative to competitors;
● the extent and success of our marketing and sales efforts; and
General
Risk Factors
The
price of our common stock may fluctuate substantially.
The
market price of our common stock may be subject to wide fluctuation in response to various factors, some of which are beyond our
control. Some factors that may cause the market price of our common stock to fluctuate, in addition to the other risks mentioned
in this “Risk Factors” section and elsewhere in this report, are:
● sales of our common stock by our shareholders, executives, and directors;
● our ability to enter new markets;
● changes in the development status of our diagnostic tests;
● failures to meet external expectations or management guidance;
● changes in industry conditions or perceptions;
● changes in valuations of similar companies or groups of companies;
● departures and additions of key personnel;
● other events or factors, many of which may be out of our control.
In
addition, if the market for stocks in our industry or industries related to our industry, or the stock market in general, experiences
a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial
condition and results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us
to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.
Future
sales of our common stock in the public market may cause our stock price to decline and impair our ability to raise future capital
through the sale of our equity securities.
There
are a substantial number of shares of our common stock held by shareholders who owned shares of our capital stock prior to our
initial public offering that may be able to sell in the public market. Sales by such shareholders of a substantial number of shares
could significantly reduce the market price of our common stock.
Shares
issued by us upon exercise of options granted under our equity plan will be eligible for sale in the public market. If any of
these holders cause a large number of securities to be sold in the public market, the sales could reduce the trading price of
our common stock. These sales also could impede our ability to raise capital in the future.
Anti-takeover
provisions in our charter documents and Utah law could discourage delay or prevent a change of control of our Company and may
affect the trading price of our common stock.
We
are a Utah corporation and the anti-takeover provisions of the Utah Control Shares Acquisition Act may discourage, delay or prevent
a change of control by limiting the voting rights of control shares acquired in a control share acquisition. In addition, our
Articles of Incorporation and Bylaws may discourage, delay or prevent a change in our management or control over us that shareholders
may consider favorable. Among other things, our Amended and Restated Articles of Incorporation and Bylaws:
● limit who may call special meetings of shareholders.
These
provisions could have the effect of delaying or preventing a change of control, whether or not it is desired by, or beneficial
to, our shareholders.
NASDAQ
may delist our common stock from its exchange, which could limit investors’ ability to make transactions in our common stock
and subject us to additional trading restrictions.
Should
we fail to satisfy the continued listing requirements of the NASDAQ Capital Market, such as the corporate governance requirements
or the minimum closing bid price requirement, NASDAQ may take steps to delist our common stock. Such a delisting would likely
have a negative effect on the price of our common stock, and would impair your ability to sell or purchase our common stock when
you wish to do so. In the event of a delisting, we would take actions to restore our compliance with the NASDAQ Capital Market’s
listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become
listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping
below the NASDAQ Capital Market’s minimum bid price requirement or prevent future non-compliance with the NASDAQ Capital
Market’s listing requirements.
If
the NASDAQ Capital Market does not maintain the listing of our securities for trading on its exchange, we could face significant
material adverse consequences, including:
● a limited availability of market quotations for our securities;
● reduced liquidity with respect to our securities;
● a limited amount of news and analyst coverage for our company; and
Therefore,
it may be difficult for our shareholders to sell any shares if they desire or need to sell them.
We
do not currently intend to pay dividends on our common stock.
We
do not expect to pay cash dividends on our common stock. Any future dividend payments are within the absolute discretion of our
board of directors and will depend on, among other things, our results of operations, working capital requirements, capital expenditure
requirements, financial condition, contractual restrictions, business opportunities, anticipated cash needs, provisions of applicable
law and other factors that our board of directors may deem relevant. We may not generate sufficient cash from operations in the
future to pay dividends on our common stock.
We
are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable
to emerging growth companies, which could make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act,
and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public
companies that are not “emerging growth companies” including not being required to comply with the auditor attestation
requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our
periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and shareholder approval of any golden parachute payments not previously approved. Investors may find our common
stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result,
there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage
of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging
growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of
$1.0 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our
initial public offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous
three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange
Commission.
We
have elected to use the extended transition periods for complying with new or revised accounting standards.
We
have elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new
or revised accounting standards that have different effective dates for public and private companies until the earlier of the
date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transaction
period provided in Section 7(a)(2)(B). As a result, our financial statements may not be comparable to those of companies that
comply with public company effective dates.
Our
management is required to devote substantial time to compliance initiatives.
As
a public company, we incur significant legal, accounting and other expenses that we did not incur as a newly formed entity. The
Sarbanes-Oxley Act, as well as rules subsequently implemented by the Securities and Exchange Commission, and NASDAQ, have imposed
various new requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial
controls and changes in corporate governance practices. Our management and other personnel devote a substantial amount of time
to these new compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and
make some activities more time consuming and costly. We expect these rules and regulations to make it more difficult and more
expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain
the same or similar coverage.
ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
ITEM
2. PROPERTIES
Our
headquarters are located at 2401 S. Foothill Drive, Salt Lake City, Utah. Our current facility has approximately 14,000 square
feet of lab and office space under a lease that expires in February 2024. We have no other properties. We believe the facility