What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-24 · 205 added, 132 removed, 75 unchanged (82% of the section changed)

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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 have also developed a unique, groundbreaking portable PCR device (the “YourTest PCR™

Device”) that has been designed to bring affordable, reliable gold-standard polymerase chain reaction to patients in point-of-care

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

We are also developing a unique, groundbreaking portable PCR device and proprietary test cups (the “Co-Dx PCR Home

platform”) that have been designed to bring affordable, reliable polymerase chain reaction (“PCR”) to patients in point-of-care

and even at-home settings.

diagnostics systems enable dependable, low-cost, molecular testing for organisms and genetic diseases by automating historically complex

procedures in both the development and administration of tests.

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 the 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.

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 (“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.

to 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.

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 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.

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.

addition, continued development has demonstrated the unique properties of our CoPrimer technology that we believe makes it ideally suited

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Polymorphism (“SNP”) detection and enrichment for next generation sequencing.

scientists use the complex mathematics of DNA/RNA test design to engineer and optimize DNA/RNA tests and to automate algorithms that

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.

Brent Satterfield, our founder, developed the Company’s

intellectual property 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.

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.

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.

proprietary test design process involves identifying the optimal locations on the target genes for amplification and pair the locations

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In other words, we use the data resulting from our

tests to verify whether 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 laboratory or in an independent laboratory setting

using initial production tests to confirm that the product as designed meets the user needs.

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.

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.

our proprietary test design system and proprietary reagents, we have designed and obtained regulatory approval in the European Community

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malaria, chikungunya, dengue, and the Zika virus.

In the United States, CODX has obtained Emergency Use Authorization (“EUA”)

for its Logix Smart™ COVID-19 detection test from the Food and Drug Administration, or FDA, and sells 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.

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.

In the United States, we obtained Emergency Use Authorization (“EUA”) for

our Logix Smart COVID-19 detection test from the Food and Drug Administration, or FDA, and we sell that test to qualified labs.

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.

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

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Years Ended December 31,

$ (63,667,394 )

Cost of revenue

(57,573,542 )

Operating expenses

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Depreciation and amortization

Goodwill impairment charges

Total operating expenses

Income from operations

Income (loss) from operations

(26,979,836 )

(73,044,788 )

Other income (expense)

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Loss on disposition of assets

Gain (loss) on equity method investment in joint venture

Gain on remeasurement of acquisition contingencies

Loss on equity method investment in joint venture

Total other income (expense)

Income before income taxes

Income tax provision

Income (loss) before income taxes

(18,847,234 )

(64,483,029 )

Income tax provision (benefit)

(13,586,216 )

Net income (loss)

$ (14,238,249 )

$ (50,896,813 )

the year ended December 31, 2022, we generated $34.2 million of revenue compared to revenue of $97.9 million in the year ended December

The increase in revenue of $23.3 million was primarily due to sales of our LogixSmart COVID-19 test throughout the world, which

was developed in response to the current COVID-19 pandemic.

Of the total revenue in 2021 and 2020, respectively, $0.5 million and $3.7

million was from the sale of third party manufactured equipment and supplies that we sourced and sold to customers to facilitate usage

The decrease in revenue of $63.7 million was primarily due to lower sales of our Logix Smart COVID-19 test throughout the world,

which was developed in response to the current COVID-19 pandemic.

As global attention and regulatory responses to the COVID-19 pandemic have eased, we have experienced significantly

decreases in demand for our COVID-19 test.

We anticipate that demand for our COVID-19 test will continue to normalize as concerns relating

to COVID-19 further wane.

of Revenues and Gross Profit

of revenues decreased by $6.1 million from $11.6 million for the year ended December 31, 2021 to $5.5 million for the year ended December

The decrease in cost of revenues was due to a reduction of production costs and the reduction in sales of third-party equipment,

which have a higher cost of sales than tests, and the commission structure of certain sales of tests sold during the year.

margin was 88.2% for the year ended December 31, 2021 compared to 77.7% for the year ended December 31, 2020.

The increase in gross margin

was due to the reduction of production costs, as well as the mix of products we sold, with the majority of our 2021 revenue came from

sales of our test reagents, which has a higher profit margin than sales of equipment.

The decrease in revenues combined with a larger percentage of fixed product manufacturing costs resulted in a lower cost of

revenues and gross margin percentage.

Our gross margin was 84.0% for the year ended December 31, 2022 compared to 88.2% for the year

ended December 31, 2021.

incurred total operating expenses of $55.7 million for the year ended December 31, 2022 compared to total operating expenses of $40.2

million for the year ended December 31, 2021.

The increase in operating expenses was primarily due to the increase in business activities

experienced as a result of our increase in revenue, increased third party sales commissions, reflected in sales and marketing, and increased

investment in research and development.

The increase in operating expenses was primarily due to the impairment of goodwill recorded

in conjunction with the acquisitions of IdMo and ACI, increases in depreciation and amortization of capital and intangible assets, increased

expenses related to personnel, including stock-based compensation, and increased investment in research and development, offset by decreased

sales and marketing expenses, including third party sales commissions, in relation to the reduction of revenue.

and marketing expenses for the year ended December 31, 2022 were $7.3 million compared to $13.4 million for the year ended December 31,

The increase of $8.7 million was primarily a result of increased expenses related to stock-based compensation, and personnel related

expenses, including commissions paid to our sales team and distributors, due to the growth in revenue noted above.

The decrease of $6.1 million was primarily a result of decreased variable compensation, such as bonuses and commissions, and decreased

third-party sales commissions, partially offset by increased stock-based compensation expense.

and administrative expenses increased $2.7 million from $11.6 million for the year ended December 31, 2021 to $14.3 million for the year

ended December 31, 2022.

The increase in general and administrative expenses was primarily due to increased activity to support the growth

of our business.

The primary drivers of the increased expenses related to increases in stock-based compensation, employee related expenses

and increased expenses for professional services.

The increase in general and administrative expenses was primarily due to increased insurance expense and professional,

legal, and advisory fees, as well as increased stock-based compensation expense, partially offset by decreased variable compensation

research and development expenses increased by $2.4 million from $15.0 million for the year ended December 31, 2021, to $17.4 million

for the year ended December 31, 2022.

The primary increase in expenses related to expenditures of over $9.2 million for our point-of-care

device, as well as increases in salaries and related benefits, including stock-based compensation, as we have added additional employees

to our research and development team to increase our product development activities.

Additionally, there has been an increase in professional

and lab services utilized to further help us in our research and product development activities.

The primary increase in expenses related to increased personnel expenses in conjunction with our

acquisitions of IdMo and ACI on December 31, 2021, the primary focus of which relates to the point-of-care device development, as well

as increased stock-based compensation expense.

Additionally, there has been an increase in professional and lab services utilized to

further help us in our research and product development activities.

the year ended December 31, 2022, the Company recognized impairment charges of $15,388,546 related to goodwill recorded in conjunction

with the acquisitions of IdMo and ACI on December 31, 2021.

Income (Expense)

expense was $0.4 million for the year ended December 31, 2021, compared to other income of $0.9 million for the year ended December 31,

The decrease in other income of $1.3 million was primarily related to recording a loss of $0.4 million in 2021 from our India joint

For the year ended December 31, 2020 we recorded a gain of $0.8 million from our India joint venture.

realized net income for the year ended December 31, 2021 of $36.7 million compared to net income of $42.5 million for the year ended

income was $8.1 million for the year ended December 31, 2022, compared to other expense of $0.4 million for the year ended December

The increase in other income of $8.6 million was primarily due to a change in the fair value of contingent consideration

liabilities recorded in conjunction with the acquisitions of IdMo and ACI and driven by changes in the Company’s stock price, as well as increased interest income due to higher

investment balances and interest rates in 2022 compared to 2021.

realized a net loss for the year ended December 31, 2022 of $14.2 million compared to net income of $36.7 million for the year ended

December 31, 2021.

The decrease in net income of $5.8 million was primarily the result of sales of our LogixSmart COVID-19 test and resulting

margins from those sales offset by increased operating expenses as discussed above.

Additionally, we recorded income tax expense of $9.0

million during the year ended December 31, 2021, compared to $0.1 million for the year ended December 31, 2020.

During 2020, we released

our deferred tax asset valuation allowance and recorded a deferred tax asset since we utilized our net operating losses from prior years

during the year ended December 31, 2020.

The decrease in net income of $50.9 million was primarily the result of reduced sales of our Logix Smart COVID-19

test, increased operating expenses as discussed above, and impairment of the goodwill recorded in conjunction with the acquisitions of

IdMo and ACI, partially offset by gains related to change in the fair value of acquisition related contingent liabilities.

Additionally,

we recorded an income tax benefit of $4.6 million during the year ended December 31, 2022, compared to income tax expense of $9.0 million

for the year ended December 31, 2021.

AND CAPITAL RESOURCES

December 31, 2021, we had cash and cash equivalents of $88.6 million and marketable investment securities of $1.3 million that could

readily be converted into cash if needed.

Additionally, our total current assets at December 31, 2021, were $115.1 million compared to

total current liabilities of $12.6 million.

December 31, 2022, we had cash and cash equivalents of $23.0 million and marketable investment securities of $58.3 million.

our marketable investment securities an important part of our liquidity and focus such investments in securities that can readily be

converted into cash if needed.

Additionally, our total current assets at December 31, 2022, were $92.7 million compared to total current

liabilities of $3.9 million.

cash provided by operating activities during the year ended December 31, 2022 was $6.6 million, compared to $41.1 million for the year

ended December 31, 2021.

The increase in cash from operating activities was primarily due to our increased revenue and decrease in inventory,

offset by increases in accounts receivable.

received $4.1 million of cash from investing activities during the year ended December 31, 2021 as compared to $5.8 million of cash used

in investing activities during the year ended December 31, 2020.

The increase in cash provided by investing activities is primarily due

to net cash acquired from business acquisitions and proceeds received from maturities of marketable investment securities.

cash provided by financing activities was $0.5 million for the year ended December 31, 2021, compared to $19.7 million for the year ended

December 31, 2020.

The decrease is primarily due to net proceeds of $18.0 million received from a series of three registered direct offerings

in 2020 pursuant to our shelf registration in addition to receiving $1.7 million from the exercise of warrants and options for the year

ended December 31, 2020.

commencing sales of our Logix Smart™ COVID-19 test in March 2020, we have used our cash generated from those sales to fund

the purchase of inventories and the development of our point-of-care device, and to pay our operating expenses.

We have increased our

work force most significantly in research and development in order to continue development of a new device and additional tests that

will enable continued use of our distributor network to sell additional products throughout the world.

The decrease in cash from operating activities was primarily due to our decreased revenue and accounts receivable.

used $58.2 million of cash in investing activities during the year ended December 31, 2022 as compared to $4.1 million of cash from investing

activities during the year ended December 31, 2021.

The increase in cash used in investing activities is primarily due to purchases of

marketable investment securities.

cash used in financing activities was $14.0 million for the year ended December 31, 2022, compared to $0.5 million of cash from financing

activities for the year ended December 31, 2021.

The decrease is primarily due to the repurchase of outstanding common shares during

the current fiscal year.

commencing sales of our Logix Smart COVID-19 test in March 2020, we have used our cash generated from those sales to fund the purchase

of inventories and the development of our point-of-care device, and to pay our operating expenses.

We have increased our work force most

significantly in research and development in order to continue development of a new device and additional tests that will enable continued

use of our distributor network to sell additional products throughout the world.

believe that our existing capital resources and the cash generated from future sales will be sufficient to meet our projected operating

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financing in a timely manner or on favorable terms, if at all.

October 30, 2020, we filed a Registration Statement on Form S-3 (File No:

333-249651) with the Securities and Exchange Commission (the

The SEC declared the Form S-3 effective on November 5, 2020.

Pursuant to a prospectus supplement to the Form S-3,

we may offer and sell up to $100 million of the following securities separately or together, in one or more series or classes and in

amounts, at prices and on terms described in one or more offerings:

common stock;

preferred stock;

warrants to purchase our securities,

each of which may be convertible into equity securities;

or units comprised of, or other combinations of, the foregoing securities through

underwriting syndicates managed or co-managed by one or more underwriters or dealers, through agents or directly to purchasers.

time our securities are offered, we will provide a prospectus supplement to the Form S-3 containing more specific information about the

particular offering.

To date, we have not filed a prospectus supplement to, or sold any securities under, this Form S-3.

is a summary of the direct offerings done in 2020:

In January 2020, we sold

an aggregate of 3,448,278 shares of common stock to institutional investors for $1.45 per share for gross proceeds of approximately

$5.0 million pursuant to a shelf-registration statement on Form S-3 (File No:

333-226835) declared effective by the SEC on September

7, 2018 (the “Shelf Registration Statement”).

On February 10, 2020, the

Company entered into securities purchase agreements with certain institutional investors pursuant to which such investors purchased

an aggregate of 3,324,676 shares of common stock at a purchase price of $ 3.08 per share in a registered direct offering pursuant

to the Shelf Registration Statement.

The aggregate gross proceeds for the sale of the shares were approximately $10.2 million.

closing of the offering occurred on or about February 13, 2020.

On February 28, 2020, the

Company entered into securities purchase agreements with certain institutional investors pursuant to which such investors purchased

an aggregate of 470,000 shares of common stock at a purchase price of $9.00 per share in a registered direct offering pursuant to

the Shelf Registration Statement.

The aggregate gross proceeds for the sale of the shares were approximately $4.0 million.

of the offering occurred on or about February 28, 2020.

ACCOUNTING POLICIES AND ESTIMATES

management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial

statements, which have been prepared in accordance with United States generally accepted accounting principles (“GAAP”).

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets

and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported

revenues and expenses incurred during the reporting periods.

Our estimates are based on our historical experience and on various other

factors that we believe are reasonable under the circumstances.

Actual results may differ from these estimates under different assumptions

or conditions.

While our significant accounting policies are described in Item 8 of this Annual Report on Form 10-K, within Note 2 of

our consolidated financial statements in the section titled “Summary of Significant Accounting Policies”, we believe that

the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate

to the more significant areas involving management’s judgments and estimates.

accounts receivable are recorded at the invoiced amount, net of any allowance.

The Company maintains an allowance for doubtful accounts

for amounts the Company does not expect to collect.

In establishing the required allowance, management considers historical losses, current

market condition, customers’ financial condition, the age of receivables, and current payment patterns.

Account balances are written

off against the allowance once the receivable is deemed uncollectible.

If actual accounts receivable collections are less favorable than

those projected by management at the time of the assessment, however, additional accounts receivable write-downs may be required, which

could reduce our earnings.

and Intangible Assets

useful lives of intangible assets with definite lives are based on the expected number of years the asset will generate revenue or otherwise

be used by us and the related amortization is based on the straight-line method.

Goodwill, which has an indefinite life, is not amortized

but instead is tested at least annually for impairment, or more frequently when events or changes in circumstances indicate that the

asset might be impaired.

Examples of such events or circumstances include:

asset’s ability to continue to generate income from operations and positive cash flow in future periods;

any volatility or significant decline in our stock price and market capitalization compared to our net book value;

loss of legal ownership or title to an asset;

● significant

changes in our strategic business objectives and utilization of our assets;

impact of significant negative industry or economic trends.

a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported results

would increase.

For goodwill, the entity has the option to first assess qualitative factors to determine whether it is necessary to perform

the quantitative goodwill impairment test.

The quantitative impairment test compares the fair value of a reporting unit with the carrying

amount, including goodwill.

If the fair value of a reporting unit exceeds its carrying amount, goodwill is considered not impaired;

goodwill is impaired and the loss is recorded.

We completed our annual evaluation for impairment of goodwill as of December 31, 2022

and recorded a goodwill impairment charge of $15,388,546.

for Business Combinations

the acquisition method of accounting, the cost of an acquired business is assigned to the tangible and identifiable intangible assets

acquired and liabilities assumed on the basis of the estimated fair values at the date of acquisition.

We assess fair value, which is

the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants

at the measurement date, using a variety of methods including, but not limited to, an income approach and a market approach, such as

the estimation of future cash flows of the acquired business and current selling prices of similar assets.

These valuations require us

to make estimates and assumptions, especially with respect to intangible assets.

Fair value of the assets acquired and liabilities assumed,

including intangible assets, in-process research and development, and contingent payments, are measured based on the assumptions and

estimations with regards to variable factors such as the amount and timing of future cash flows for the asset or liability being measured,

appropriate risk-adjusted discount rates, or other factors that market participants would consider.

Upon acquisition, we determine the

estimated economic lives of the acquired intangible assets for amortization purposes, which are based on the underlying expected cash

flows of such assets.

Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business

combination that is not individually identified and separately recognized.

Actual results may vary from projected results and assumptions

used in the fair value assessments.

If the initial accounting for a business combination is incomplete by the end of a reporting period

that falls within the measurement period, we report provisional amounts in our financial statements.

During the measurement period, we

adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that

existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.

record these adjustments to the provisional amounts with a corresponding offset to goodwill.

Any adjustments identified after the measurement

period are recorded in the Consolidated Statements of Operations and Comprehensive Income (Loss).

periodically review inventory for both potential obsolescence and potential declines in anticipated selling prices.

In this review, we

make assumptions about the future demand for and market value of the inventory and based on these assumptions estimate the amount of

any obsolete, unmarketable, slow moving or overvalued inventory.

We write down the value of our inventories by an amount equal to the

difference between the cost of the inventory and the net realizable value.

If actual market conditions are less favorable than those

projected by management at the time of the assessment, however, additional inventory write-downs may be required, which could reduce

our earnings.

judgment is required in determining our provision for income taxes, current tax assets and liabilities, deferred tax assets and liabilities,

and our future taxable income, both as a whole and in various tax jurisdictions, for purposes of assessing our ability to realize future

benefit from our deferred tax assets.

We recognize in the financial statements the impact of a tax position if that position is more

likely than not to be sustained during an audit, including resolution of related appeals or litigation processes, if any.

While we believe

that we have appropriate support for the positions taken on our tax returns, we regularly assess the potential outcome of examinations

by tax authorities in determining the adequacy of our provision for income taxes.

See Note 12 to our Consolidated Financial Statements

for more information on income taxes.

foregoing estimates, expectations and forward-looking statements are subject to change as we make strategic operating decisions from

time to time and as our revenue and expenses fluctuate from period to period.

Sheet Arrangements

of December 31, 2021 and 2020, we had no off-balance sheet arrangements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis