Item 1A. Risk Factors. 12
Item 1B. Unresolved Staff Comments. 23
Item 2. Properties. 24
Item 3. Legal Proceedings. 24
Item 4. Mine Safety Disclosures. 25
PART II
Item 6. [Reserved.] 27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 32
Item 8. Financial Statements and Supplementary Data. 33
Item 9A. Controls and Procedures. 57
Item 9B. Other Information. 58
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. 58
PART III
Item 10. Directors, Executive Officers and Corporate Governance. 58
Item 11. Executive Compensation. 64
Item 14. Principal Accountant Fees and Services. 69
PART IV
Item 15. Exhibits and Financial Statement Schedules. 70
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 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 under “Item 1,
Business,” “Item 1A, Risk Factors,” and “Item 7, Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” and those discussed in other documents we file with the Securities and Exchange Commission (the
“SEC”). In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in
this Annual Report may not occur as described and actual results could differ materially and adversely from those anticipated or implied
in the forward-looking statement.
Important
factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation:
● the results of clinical evaluations 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.
Given
these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements
contained in this Annual Report speak only as of the date of this Annual Report. We undertake no obligation to update any forward-looking
statements as a result of new information, events or circumstances or other factors arising or coming to our attention after the date
hereof.
As
used in this Annual Report, the terms “we”, “us”, “our”, “Company” 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 “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. 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”). We are also developing a unique, groundbreaking portable PCR device and proprietary test cups (the “Co-Dx PCR HomeTM
platform”) that have been designed to bring affordable, reliable polymerase chain reaction (“PCR”) to patients in point-of-care
and even at-home settings. This platform is subject to U.S. Food and Drug Administration (“FDA”) review and is not available
for sale at the time of this filing. There is no guarantee that our Co-Dx PCR Home 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.
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 (“CoPrimersTM”) 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. 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.
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. Dr. Brent Satterfield, our founder, developed 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 represent 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.
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.
Using
our proprietary test design system and proprietary reagents, we have designed and obtained regulatory approval in the European Community
and/or 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 SmartTM 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
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, 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 managing
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 test for COVID-19, intended to address the potential
need for detection of the virus. This test features our patented CoPrimers 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 24, 2020, we announced that this test had obtained regulatory clearance to be sold as an in vitro diagnostic (“IVD”)
for the diagnosis of COVID-19 in markets that accept CE-marking as valid regulatory approval and became available for purchase from our
Utah-based ISO-13485:2016 certified facility.
We
commenced sales of the COVID-19 tests in February and March of 2020 to international customers and to date have since sold over 34,000,000
of this and other COVID tests in numerous countries around the world through an expanding distributor network.
On
April 6, 2020, we announced that we had received an EUA 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.
Because
we believe that testing for COVID-19 will continue to be a consideration for public health worldwide, we have initiated the Co-Dx PCR
Home platform to facilitate frequent testing in homes, schools, businesses, and the hospitality industry. We believe this may be accomplished
through the development of a compact, relatively low-cost testing device, easy to use by non-professionals, that can provide PCR test
results in around 30 minutes. The initial project built on this platform, an at-home and point-of-care COVID-19 PCR test, was ultimately
facilitated by our development of a saliva or nasal swab-based PCR test that does not require the RNA/DNA extraction. While we believe
the final result is believed to be approximately equivalent to those processed by a high-complexity clinical laboratory, it our COVID-19
PCR test has the advantages of increased speed and ease of handling thanks to lyophilization (or freeze-drying) of our testing reagents
to allow for stability at room temperatures.
On
February 15, 2021, we engaged the services of a group of professionals at Idaho Molecular, Inc (“IdMo”) and Advanced Conceptions,
Inc (“ACI”), with the expertise to develop the hardware for a device using our CoPrimers as the reagent chemistry. In December
2021, we announced the closing of the acquisitions of IdMo and ACI along with all existing and future assets and intellectual property
related to the platform and device. It is expected that the device and test will be available to homes, schools, offices, and the travel
industry among other locations, at a cost that will allow screening frequently to prevent spread of the COVID-19 virus in the future,
as well as other diseases as additional single- and multiplex tests are developed and validated for use on the device. The device would
also be available to test for other pathogens detectable through saliva or other samples as we develop those tests and offer them to
the marketplace. All such tests will be subject to regulatory approval.
On
February 22, 2023, we announced that clinical evaluations for the device and its initial test for COVID-19 had begun. Because the evaluations
are dependent on identifying and enrolling a particular number of both symptomatic and asymptomatic COVID-19-positive and -negative patients
at testing sites, the Company did not provide projected timelines for completion at that time.
Infectious
Disease Product Offering
Using our proprietary test design system and proprietary reagents, we and
CoSara Diagnostics Pvt Ltd (“CoSara”), our joint venture for manufacturing in India, design and sell PCR diagnostic tests
for detection of diseases and pathogens such as COVID-19, influenza, tuberculosis, hepatitis B and C, malaria, dengue, human papillomavirus,
chikungunya, and Zika virus, all of which tests have been designed and verified in our laboratories. 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, CoSara received a license
to manufacture and sell tuberculosis, hepatitis B, hepatitis C, human papillomavirus 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 followed
by an EUA by the FDA in April 2020. Also, 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, 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.
Caribbean
and Central and South America
We
began selling PCR diagnostic tests to entities located in South and Central America and the Caribbean in
2018. In some of those countries, there are limited regulatory hurdles, allowing us to begin offering our tests immediately. We have
applied for and received registrations for our tests in many of 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 a test, followed by tests for tuberculosis, and our
triplex test for Zika, chikungunya, 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 experienced an increase in sales in this region.
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 CoSara as an Indian joint venture. 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 it is being used for testing and manufacturing of our products for the
Indian market.
As
mentioned above, the CDSCO has given us the approval for manufacture and sale of the nine tests referred to above, and the Company’s joint venture 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. The 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.
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. The Indian government places restrictions on the
price that could be charged for COVID-19 tests which limited the revenue in India more than we experienced in other parts of the world.
At the time of this report, CoSara has received CDSCO clearance for RT-PCR tests for Mycobacterium tuberculosis, malaria, hepatitis B,
hepatitis C (including viral load tests for both hepatitis B and C), human papillomavirus (HPV), a test for high-risk HPV, two COVID-19
assays, chikungunya, dengue, a dengue/chikungunya duplex test, an influenza A/influenza B/COVID-19 (“ABC”) multiplex test.
Europe
Molecular
diagnostics, such as our tests, are governed in Europe by the framework for IVDs, which encompasses diagnostic products such as reagents,
instruments and systems intended for use in diagnosis of disease. The regulatory system for some IVDs has historically allowed for a
self-certification procedure, placing heavy responsibility on manufacturers. Non self-certified products were subject to the same standards
as self-certified products but were also 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, and 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 for COVID-19, COVID-19 (2 gene test), ABC (a
triplex test for Flu A, Flu B and COVID-19), a DS (Direct Saliva, extraction-free) COVID-19 test, tuberculosis, Zika, and our Zika, dengue,
chikungunya triplex tests. Recently, the European Commission has revised its directive governing the CE- marking of IVDs, which included
reclassifying which IVDs may be self-certified, and which may not. As a result of this change in directive and reclassification, substantially
all of the Company’s products are now subject to audit and review by a notified body, as well as a more rigorous clinical evaluation
process, prior to receiving approval to be CE-marked.
We
are ISO 13485:2016 certified, relating to the design and manufacture of our medical device products. The ISO certification indicates
that we meet the standards required to pursue CE-marking for certain of our products and affix a CE-marking for sales of our products
in countries accepting CE-marking (not in the United States).
United
States
The
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, and facilitates the registration for sale in other countries as well.
Under the FDA’s existing policy the FDA continues to review a prioritized subset of COVID-19 tests for EUAs, and emphasizes that
traditional device premarket review pathways remain open to all developers. We intend to pursue all appropriate FDA review pathways for
products under development, including traditional premarket review pathways.
Under
our EUA, we are actively selling our Logix Smart COVID-19 test to CLIA certified laboratories in the United States. The CLIA labs are
able to use our test, or to further validate our COVID-19 tests (or other tests) as Laboratory Developed Tests (LDTs), which
refers to a diagnostic test that has been validated for use in the CLIA lab. LDTs may be used by the lab only in that laboratory. CLIA
laboratories develop the performance characteristics, perform the analytical validation for their LDTs and obtain licenses to offer them
as diagnostic services. 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 distributors, most of which have been the sales network that has allowed us to export products throughout
the world. We believe that after the pandemic is brought under control, the network of distributors that we have built in these
extraordinary 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 PCR 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, in June 2019 we introduced our first diagnostics tests to be used exclusively to test for mosquito borne pathogens
in mosquito populations. Municipalities in the US and many other countries in the world are concerned about the diseases carried by mosquitos,
which infect the human population. To prevent outbreaks of potentially harmful viruses such as Zika or West Nile from infecting the public,
many municipalities conduct mitigation 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, municipalities 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. Our products allow municipalities to obtain test results in a matter of hours, instead of the weeks
they might otherwise have to wait for a central lab to process the mosquito tests.
We
have sold our Vector SmartTM 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.
Liquid
Biopsy for Cancer Screening
The
enhanced specificity of our technology opens up some unique applications for liquid biopsy, demonstrating its ability to detect small
quantities of mutations associated with cancer within an environment of large amounts of normal DNA, as we position the Company to take
part in this historic and challenging development in human health care.
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 CoPrimers 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
We
believe the unique properties of our CoPrimers 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. However, there can be no guarantee that we will be able
to develop the requested capabilities, or that we will be able to successfully commercialize this application of our technology.
Competitive Advantages of Co-Diagnostics
We believe that we have the following competitive advantages:
Intellectual
Property
Much
of our future success and value depends on our proprietary technology, and therefore, our patent and intellectual property strategy is
of critical importance. Currently, our flagship CoPrimers technology is covered by two U.S. patents titled “Cooperative primers,
probes, and applications thereof” as well as by granted and pending foreign counterparts. We have another three U.S. patents directed
to our earlier work in primer and assay designs. For more recent works, we have filed international and U.S. patent applications directed
to “Methods and Compositions for Next Generation Sequencing (NGS) Library Preparation,” “Allele-Specific Design of
Cooperative Primers for Improved Nucleic Acid Variant Genotyping,” “Methods and Compositions Related to Cooperative Primers
and Reverse Transcription,” and “Systems, Methods, and Apparatus for Automated Self-Contained Biological Analysis”
which is the basis of our at-home and point-of-care PCR system. We intend to continue building our patent portfolio as development continues
and resources are available.
We
also protect some of our technology and know-how as trade secrets and, where appropriate, we use and register trademarks to protect and
strengthen our products and proprietary brands. All trademarks, trade/product names, graphics and logos of Co-Diagnostics contained herein
are trademarks of Co-Diagnostics or its subsidiary, as applicable, in the U.S. and/or other countries. Solely for convenience, we may
refer to trademarks in this Annual Report on Form 10-K without the TM or ® symbols, but such references are not intended to
indicate, in any way, that we will not assert, to the fullest extent permitted by law, our rights to our trademarks.
Major
Customers
We
had certain customers which were each responsible for generating 10% or more of our total revenue for the years ended December 31, 2022
and 2021, respectively. One customer accounted for approximately 37% of total revenue for the year ended December 31, 2022 and two customers
together accounted for approximately 48% of total revenue for the year ended December 31, 2021. 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 more recently 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 perceived as a
start up with no significant recognition from the medical and testing professionals, although we believe this is changing as we continue
to market our Logix Smart COVID-19 tests and other tests in the United States to well-known and successful laboratories. Many of these
competitors already have an established customer base with industry standard technology, which we must overcome to be successful. In
the diagnostic testing and POCT industries, we compete with such companies as BioMerieux, Siemens, Qiagen, Cue Health, Lumira Dx and
Cepheid and with such pharmaceutical companies as Abbott Laboratories, Becton Dickinson and Johnson and Johnson.
Competition
has been 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 Logix Smart
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 serological, antigen
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 competitive price pressure on us in certain regions, particularly Asia and Latin America.
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, cleared, or authorized by the FDA before we are allowed
to sell our tests in the United States as in vitro diagnostics. The FDA granted us an EUA to manufacture and sell our Logix Smart
COVID-19 test to CLIA labs in the United States. We are ISO 13485:2016 certified, relating to the design and manufacture of our medical
device products. Being ISO certified greatly facilitates our applications for CE-Marking, which allows us to sell any CE Marked test
in most countries in Europe, South America and Asia, depending on the country and following that country’s registration process.
We currently have CE Markings 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, a triplex “ABC” test that identifies and distinguishes between Flu A, Flu
B and Covid-19, our SARS-CoV-2 2-gene multiplex test, and our DS (Direct Saliva, extraction-free) COVID-19 test. In addition, our Logix
Smart COVID-19 has received the required license to manufacture and sell in India from India’s CDSCO, and The National Epidemiology
Institute in Mexico evaluated our Logix Smart COVID-19 and ABC tests and approved them 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 and other tests in a number of major countries
around the world.
Employees
As
of December 31, 2022, we had 145 full-time and part-time employees at our executive offices and lab facilities in Salt Lake City, 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.
We consider our people and the way we work to support each other and serve
our customers to be critical to our success. The key human capital measures and objectives that we focus on in managing our business are:
maintaining a strong and collaborative company culture, increasing our diversity, inclusion and belonging, offering fair and competitive
compensation and benefits, investing in people and organizational development, protecting and enriching employee health and wellness,
and sustaining a culture of respectful and effective communications.
Organizational
History and Corporate Information
We
were incorporated as Co-Diagnostics, Inc., in Utah on April 18, 2013. Our principal executive office is located at 2401 S. Foothill Drive,
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.
ITEM
1A. RISK FACTORS
Risks
Related to Our Business and Industry
We
have limited commercial history upon which to base our prospects and are not certain that we will achieve profitability in the future.
We
have a limited operating history. We began operations in April 2013. Our accumulated retained earnings were $39.9 million and $54.2 million
as of December 31, 2022 and 2021, respectively. We were able to achieve net income during the calendar year ending December 31, 2021
due to the high demand for our Logix Smart COVID-19 and other COVID-19 tests during the COVID pandemic. During the calendar year ending
December 31, 2022 we experienced a decline in demand for our Logix Smart COVID-19 and other COVID-19 tests and operated at a net loss
during the period. We do not have any way of predicting when or if we will achieve profitability again. 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
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 expect 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
future success is dependent on demand for COVID-19 and other infectious disease diagnostics and upon our ability to develop and market
other commercially accepted diagnostic tests and our “at-home” and POCT platforms.
Our
future success will depend, in part, on the continued market for COVID-19 tests, our ability to develop and sell sufficient quantities
of other diagnostics tests, and our ability to successfully obtain regulatory approval for and profitably market our Co-Dx PCR Home at-home
and POCT platform. Attracting new customers and distribution networks requires substantial time and expense. Any failure to obtain regulatory
approval for our product candidates and to increase sales of our diagnostic tests in sufficient quantities to achieve profitability in
a timely manner would adversely affect our operating results. Many factors could affect the market acceptance and commercial success
of any of our diagnostic tests and devices, including:
● the breadth of our test menu relative to competitors;
● the extent and success of our marketing and sales efforts; and
We
may not realize anticipated revenue from our Logix Smart COVID-19 and other COVID-19 tests.
Currently,
our business is substantially dependent on sales of our Logix Smart COVID-19 and other COVID-19 tests. Other companies are working to
produce or have produced rapid tests for COVID-19 which may lead to the diversion of customers, including governmental and quasi-governmental
entities, away from us and toward other companies. Moreover, the dangers posed by COVID-19 may subside over time. A number of preventative
vaccines have been approved for use in human populations by regulatory agencies in the U.S. and around the world. The uptake of these
vaccines will likely limit the spread of COVID-19 and potentially reduce the market size for COVID-19 testing.
We
expect that, if and when the current COVID-19 pandemic subsides, there could be significantly reduced demand for testing, and thus, for
our Logix Smart COVID-19 and other COVID-19 tests. We have seen a reduction in the prevalence of COVID-19 since the height of the pandemic,
and in 2022 experienced a significant decrease in revenue from our COVID-19 testing products. Revenues relating to our COVID-19 testing
products could decline in the future if the prevalence of COVID-19 remains low and as attention from governments and individuals to COVID-19
wanes.
Further,
if the COVID-19 pandemic becomes a seasonal virus or experiences fluctuations in prevalence, we could experience fluctuations in
our revenues associated with our COVID-19 tests. While there is still demand for COVID-19 testing products, there is no guarantee that
current or anticipated demand will continue, or if demand does continue, that we will be able to produce our COVID-19 tests in sufficient
quantities to meet demand. A significant decline in demand for our COVID-19 testing products without a corresponding increase in our
other businesses could have a material, adverse effect on our results of operations, cash flow and financial position.
The
diagnostic market is highly competitive, and we may not be able to compete effectively against the larger, well-established companies
that dominate this market or emerging and small innovative companies that may seek to obtain or increase their share of the market.
The
markets for diagnostic products are intensely competitive, and many of our competitors are much larger and have substantially more financial
and human resources than we do. Many have long histories and strong reputations within the industry, and a relatively small number of
companies dominate these markets.
These
companies enjoy significant competitive advantages over us, including:
● products that are supported by long-term clinical data;
● greater financial and other resources for product research and development;
● established manufacturing operations and contract manufacturing relationships;
● significantly greater name recognition and widely recognized trademarks; and
● established relationships with healthcare providers and payers.
Our
products and any product candidates that we may introduce into the market may not enable us to overcome the competitive advantages of
these large and dominant companies. In addition, even if we successfully introduce additional product candidates into the market, emerging
and small innovative companies may seek to increase their market share and they may eventually possess competitive advantages, which
could adversely impact our business. Our competitors may also employ pricing strategies that could adversely affect the pricing of our
products.
We
depend on a limited number of third-party suppliers for key raw materials used in the manufacturing of our products, and the loss of
these third-party suppliers or their inability to supply us with adequate raw materials could harm our business.
We
rely on a limited number of third-party suppliers for the raw materials required for the production of our diagnostic products and product
candidates. Our dependence on a limited number of third-party suppliers involves several risks, including limited control over pricing,
availability, quality, and delivery schedules for raw materials. We have no supply agreements in place with any of our suppliers and
cannot be certain that our current suppliers will continue to provide us with the quantities of raw materials that we require or that
satisfy our anticipated specifications and quality requirements. Any supply interruption in limited or single sourced raw materials could
materially harm our ability to manufacture our products until a new source of supply, if any, could be identified and qualified. We may
be unable to find a sufficient alternative supply channel within a reasonable time or on commercially reasonable terms. Any performance
failure on the part of our suppliers could delay the production of our products and product candidates and delay the development and
commercialization of our product candidates, including limiting supplies necessary for commercial sale, clinical trials and regulatory
approvals, which could have a material adverse effect on our business.
In
order to be successful, we must expand our available product lines by commercializing new product candidates, but we may not be able
to do so in a timely fashion and at expected costs, or at all.
Although
we are currently manufacturing diagnostic kits for commercialization, in order to be successful, we will need to expand our product lines
to include other diagnostic products. To succeed in our commercialization efforts, we must effectively continue product development and
testing, find new strategic partners, obtain regulatory clearances and approvals, and enhance our sales and marketing capabilities. Because
of these uncertainties, there is no assurance that we will succeed in bringing any of our current or future product candidates to market.
If we fail in bringing our product candidates to market, or experience delays in doing so, we will not generate revenues as planned and
will need to curtail operations or seek additional financing earlier than otherwise anticipated.
We
are dependent on our senior management team, scientific team, and external advisors, and the loss of any of them could harm our business,
including by adversely affecting our ability to effectuate our business strategy.
The
members of our current senior management team may not be able to successfully implement our strategy. In addition, we have not entered
into employment agreements with any of the members of our senior management team. There are no assurances that the services of any of
these individuals will be available to us for any specified period of time. The successful integration of our senior management team,
the loss of members of our senior management team, scientific team and key external advisors, or our inability to attract or retain other
qualified personnel or advisors could have a material adverse effect on our business, financial condition and results of operations.
We may not have a sufficient number of qualified personnel to effectuate our business strategy, which could have a material adverse effect
on our business, financial condition and results of operations.
If
we experience significant disruptions in our information technology systems, our business, results of operations and financial condition
could be adversely affected.
The
efficient operation of our business depends on our information technology systems. We rely on our information technology systems to effectively
manage our sales and marketing, accounting and financial functions; manufacturing processes; inventory; scientific and product development
functions; and our research and development functions. As such, our information technology systems are vulnerable to damage or interruption
including from earthquakes, fires, floods and other natural disasters; terrorist attacks and attacks by computer viruses or hackers;
power losses; and computer systems, or Internet, telecommunications or data network failures. The failure of our information technology
systems to perform as we anticipate or our failure to effectively implement new systems could disrupt our entire operation and could
result in decreased sales, increased overhead costs, excess inventory and product shortages, all of which could have a material adverse
effect on our reputation, business, results of operations and financial condition.
Cyber
security risks and the failure to maintain the integrity of company, employee or guest data could expose us to data loss, litigation
and liability, and our reputation could be significantly harmed.
We
and third-party service providers collect and retain large volumes of data, including personally identifiable information regarding clinical trial participants
and others, for business purposes, including for regulatory, research and development and commercialization purposes, and our collaborators’
various information technology systems enter, process, summarize and report such data. We also maintain personally identifiable information
about our employees. The integrity and protection of our company, employee and clinical data is critical to our business. We are subject
to significant data security and privacy laws and regulations. These regulations impose significant requirements on how we maintain,
use, and protect such information. Maintaining compliance with these evolving regulations and requirements could be difficult and may
increase our expenses. In addition, a penetrated or compromised data system or the intentional, inadvertent or negligent release or disclosure
of data could result in theft, loss or fraudulent or unlawful use of company, employee or clinical data which could harm our reputation,
disrupt our operations, or result in remedial and other costs, fines or lawsuits.
Risks
Related to Regulatory Approval of Our Products and Other Government Regulations
We
received Emergency Use Authorization or EUA and intend to seek additional and/or amended EUAs for our COVID-19 test. The FDA may not
timely grant any additional or amended EUAs, if at all. For our existing EUA and any new EUA, the FDA may revoke any EUA where it is
determined that the underlying health emergency no longer exists or warrants such authorization, which would adversely impact our ability
to market our COVID-19 test in the United States.
The
FDA has the authority to grant an EUA to allow unapproved medical products to be used in an emergency to diagnose, treat or prevent serious
or life-threatening diseases or conditions when there are no adequate, approved and available alternatives. On January 31, 2020, the
Secretary of the U.S. Department of Health and Human Services, or U.S. HHS, issued a declaration of a public health emergency related
to COVID-19. On February 4, 2020, U.S. HHS determined that COVID-19 represents a public health emergency that has a significant potential
to affect national security or the health and security of U.S. citizens living abroad and, subsequently, declared on March 24, 2020,
that circumstances exist to justify the authorization of emergency use of medical devices, including alternative products used as medical
devices, during the COVID-19 pandemic, subject to the terms of any authorization as issued by the FDA. On February 29, 2020, the FDA
issued an immediately in effect guidance with policy specific to development of in vitro diagnostic tests during the COVID-19
public health emergency. This guidance was updated on March 16, 2020, May 4, 2020 and May 11, 2020. It is uncertain whether the widespread
availability of approved and effective vaccinations could expedite or influence any such decision making with respect to the underlying
health emergency.
On
April 3, 2020, we received an EUA from the FDA for our Logix Smart Coronavirus Disease 2019 (COVID-19) kit for use on individuals who
are suspected of COVID-19 by their healthcare provider. We cannot predict how long the EUA for
our COVID-19 test will remain in place.
There
can be no assurances that the FDA will authorize any request for additional and/or amended EUAs and if we do not receive the authorization,
our business, financial condition, results of operations and future growth prospects could be materially and adversely affected.
The
FDA may revoke an EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization. The
FDA may take such a position at any time and without notice and, therefore, we cannot predict how long our EUAs will remain in place.
The FDA may also revoke an EUA when the circumstances justifying its issuance no longer exist, such as when an alternative is authorized
for marketing through the standard procedures, including through a 510(k) clearance.
FDA
policies regarding diagnostic tests, therapies and other products used to diagnose, treat or mitigate COVID-19 remain in flux as the
FDA responds to new and evolving public health information and clinical evidence. Changes to FDA regulations or requirements could require
changes to our authorized test, necessitate additional measures, or make it impractical or impossible for us to market our test. The
revocation of an EUA, if granted, could necessitate that we pursue the lengthy and expensive 510(k) clearance process, if available,
or another similarly burdensome marketing authorization process, such as a de novo classification. Indeed, FDA has recommended that manufacturers
of tests subject to an EUA pursue pre-market submissions such as a 510(k), de novo classification, or pre-market approval, or PMA, as
applicable, during the declared public health emergency so that their devices can remain on the market after the emergency terminates.
If
either of our existing EUAs is revoked prior to us having received regulatory approval to commercialize our COVID-19 test through a traditional
pathway, we may not be able to obtain required clearances or approvals in a timely manner, or at all, and one or more of our competitors
may obtain the necessary clearances or approvals for their products before we do. In addition, we would be required to cease our commercialization
efforts, which would substantially and negatively impact our business. As a result, any such revocation could adversely impact our business,
financial condition and results of operations.
Our
long-term success depends substantially on our ability to obtain regulatory clearance or approval and thereafter commercialize our product
candidates; we cannot be certain that we will be able to do so in a timely manner or at all.
The
process of obtaining regulatory clearances or approvals to market a medical diagnostic from the FDA or similar regulatory authorities
outside of the United States can be costly and time consuming, and there can be no assurance that such clearances or approvals will be
granted on a timely basis, or at all. The FDA’s 510(k) clearance process generally takes one to six months from the date of submission,
depending on whether a special or traditional 510(k) premarket notification has been submitted, but can take significantly longer. An
application for premarket approval, or PMA, must be submitted to the FDA if the device cannot be cleared through the 510(k) clearance
process or is not exempt from premarket review by the FDA. The PMA process almost always requires one or more clinical trials and can
take two to three years from the date of filing, or even longer.
If
we are required to obtain approval of any of our products through the PMA process, the costs associated with such a process will be significant,
which could adversely affect our financial performance and results of operations. In addition, a submission through the PMA process would
require us to delay commercialization of such product candidates until after approval is received, if ever. If we are unable to commercialize