What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-14 compared with 2023-03-16 · 134 added, 135 removed, 145 unchanged (65% of the section changed)

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Risk Factors” in this Annual Report on Form 10-K.

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

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.

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.

Co-Diagnostics, Inc., a Utah corporation (the “Company” or

“CODX”), develops, manufactures and sells reagents used for diagnostic tests that function via the detection and/or analysis

of nucleic acid molecules (DNA or RNA), including robust and innovative molecular tools for detection of infectious diseases, liquid biopsy

for cancer screening, and agricultural applications.

Our diagnostics systems enable dependable, low-cost, molecular testing for organisms

and genetic diseases by automating or simplifying historically complex procedures in both the development and administration of tests.

CODX’s technical advance involves a novel, patented approach to PCR test design of primer and probe structure (“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.

Using our proprietary test design system and proprietary

reagents, we have designed and obtained regulatory approval to sell PCR diagnostic tests for the detection of COVID-19, influenza, tuberculosis,

hepatitis B and C, human papillomavirus, malaria, chikungunya, dengue, and the Zika virus.

These initial diagnostic tests were cleared

for use in clinical labs only and not for point-of-care or at-home use.

are currently developing a unique, groundbreaking portable diagnostic device and test system designed for point-of-care and at-home

The system is comprised of our PCR instrument that we refer to as the Co-Dx™ PCR Pro™ instrument, our proprietary

diagnostic test cup system and a mobile application to be installed on the user’s mobile device.

We refer to the system as the

“Co-Dx™ PCR platform that is being designed to bring affordable, reliable polymerase chain reaction (“PCR”)

testing to patients in point-of-care and at-home settings.

The Co-Dx PCR platform is subject to U.S.

Food and Drug Administration

(“FDA”) review and is not available for sale at the time of this filing.

In December 2023, we submitted the Co-Dx PCR

platform for review by the U.S.

Food and Drug Administration (FDA) for Emergency Use Authorization (EUA).

The submission included

the PCR Pro instrument, Co-Dx PCR COVID-19 detection test cups, and mobile app, all designed for use in point-of-care and at-home

There is no guarantee that our Co-Dx PCR platform will receive the necessary regulatory approvals for commercialization,

or that, if regulatory approval is received, we will be able to successfully commercialize this platform.

believe our proprietary molecular diagnostics technology is paving the way for innovation in disease detection and life sciences research

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as a low-cost provider of molecular diagnostics and screening services.

For example, we were the first US-based company to receive a

CE-marking for a COVID-19 test in early 2020, as we worked to help slow the spread of the pandemic through our global network of distributors

covering clinical labs in more than 50 countries.

Our Logix Smart COVID-19 test was designed, developed, submitted for regulatory approval

and ready to be used as an in vitro diagnostic or IVD in countries that accept a CE Mark as approval for use of the test in a period

of just over 30 days.

This is a real-world example of how the CODX technology can be used in an evolving epidemic or pandemic to get

diagnostic tools in the hands of medical professionals in a timely manner.

It can be similarly used to design a test for mutated strains

of the virus should they not be detectable using currently available tests.

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

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rapidly screen millions of possible options to pinpoint the optimum design.

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.

The intellectual property we use in our business, consisting

of the predictive mathematical algorithms and patented molecular structure used in the testing process, which together represents a major

advance in PCR testing systems.

CODX technologies are now protected by more than 20 granted or pending US and foreign patents, as well

as certain trade secrets and copyrights.

Ownership of our proprietary platform permits us the advantage of avoiding payment of patent

royalties required by other PCR test systems, which may allow the sale of diagnostic PCR tests at a lower price than competitors, while

enabling us to maintain profit margins.

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

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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

and/or in India to sell PCR diagnostic tests for the detection of COVID-19, influenza, tuberculosis, hepatitis B and C, human papillomavirus,

and in India to sell PCR diagnostic tests for the detection of COVID-19, influenza, tuberculosis, hepatitis B and C, human papillomavirus,

malaria, chikungunya, dengue, and the Zika virus.

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

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

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.

our Logix Smart ® COVID-19 detection test from the Food and Drug Administration, or

FDA, and we sell that test to qualified labs.

In addition, our COVID-19 detection test and certain of our other suite of COVID-19 products

have been approved for sale in countries such as the United Kingdom, Australia and Mexico by the regulatory bodies in those countries

and have been registered for sale in many more countries.

In connection with the sale of our tests we may sell diagnostic equipment from other manufacturers as self-contained

lab systems (which we refer to as the “MDx Device”).

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.

We, in conjunction with our customers, have designed and licensed tests that identify genetic traits in plant and animal genomes.

We also have three multiplexed tests developed

to test mosquitos for the identification of diseases carried by the mosquitos to enable municipalities to concentrate their efforts in

managing mosquito populations on the specific areas known to be breeding the mosquitos that carry deadly viruses.

OF OPERATIONS

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Years Ended December 31,

Product revenue

$ (33,226,736 )

Grant revenue

Total revenue

(27,406,171 )

Cost of revenue

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Goodwill impairment charges

(15,388,546 )

Total operating expenses

Income (loss) from operations

(10,383,630 )

Loss from operations

(42,706,234 )

Other income (expense)

(26,979,837 )

(15,726,397 )

Interest income

Realized gain on investments

Loss on disposition of assets

Gain on remeasurement of acquisition contingencies

Loss on equity method investment in joint venture

Total other income (expense)

Income (loss) before income taxes

Gain (loss) on equity method investment in joint venture

Total other income

Loss before income taxes

(38,110,556 )

(18,847,234 )

Income tax provision (benefit)

(19,263,322 )

Net income (loss)

Income tax benefit

$ (35,332,865 )

$ (14,238,249 )

$ (21,094,616 )

the year ended December 31, 2023, we generated $6.8 million of revenue compared to revenue of $34.2 million in the year ended December

The decrease in revenue of $27.4 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.

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

for our COVID-19 test.

This decrease was partially offset by the generation of $5.8 million of grant revenue during the year ended December

of Revenues and Gross Profit

of revenues decreased by $1.3 million from $5.5 million for the year ended December 31, 2022 to $4.2 million for the year ended December

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.

Included within cost of revenues for the year ended December 31, 2023 is an increase of approximately $2.8 million related

to reserves against certain raw materials and finished goods inventories.

The decrease in revenues combined with a larger percentage

of fixed product manufacturing costs and reserves for obsolete inventory resulted in a lower gross margin percentage.

incurred total operating expenses of $45.3 million for the year ended December 31, 2023 compared to total operating expenses of $55.7

million for the year ended December 31, 2022.

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.

The decrease in operating expenses was primarily due to the decreases related to the impairment

of goodwill, bad debt expense, and third party sales commissions, partially offset by increased expenses related to personnel, including

stock-based compensation, increased legal and professional services expenses, and increased investment in research and development.

and marketing expenses for the year ended December 31, 2023 were $6.9 million compared to $7.3 million for the year ended December 31,

The decrease of $0.4 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 insurance expense and professional,

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

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

and administrative expenses were flat at $14.3 million for the years ended December 31, 2023 and 2022, respectively.

Increases in professional,

legal, and advisory fees, personnel related expenses, and stock-based compensation expense were offset by decreases in bad debt expense

and insurance expense.

research and development expenses increased by $5.6 million from $17.4 million for the year ended December 31, 2022, to $23.0 million

for the year ended December 31, 2023.

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)

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 $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.

The primary increase in expenses related to increased personnel expenses, as well as increases

in supplies expenses and 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 charges of $15.4 million related to goodwill impairment.

income was $4.6 million for the year ended December 31, 2023, compared to other income of $8.1 million for the year ended December 31,

The decrease in other income of $3.5 million was primarily due to a change in the fair value of contingent consideration liabilities,

driven by changes in the Company’s stock price, and partially offset by increased interest income and realized investment gains

due to the Company’s investing activities.

realized a net loss for the year ended December 31, 2023 of $35.3 million compared to $14.2 million for the year ended December 31, 2022.

The decrease of $21.1 million was primarily the result of reduced sales of our Logix Smart COVID-19 test, increased operating expenses

as discussed above, and a decrease in the gain related to the fair value of acquisition related contingent consideration liabilities,

partially offset by a decrease in impairment charges related to the impairment of goodwill recorded in the prior year and increased interest

income and realized investment gains.

Additionally, we recorded an income tax benefit of $2.8 million during the year ended December

31, 2023, compared to an income tax benefit of $4.6 million for the year ended December 31, 2022.

AND CAPITAL RESOURCES

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liabilities of $5.7 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 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

cash used in operating activities during the year ended December 31, 2023 was $22.1 million, compared to cash provided by operating activities

of $6.6 million for the year ended December 31, 2022.

The decrease in cash from operating activities was primarily due to decreases in

revenue and increases in operating expenses.

cash provided by investing activities was $15.4 million for the year ended December 31, 2023, compared to net cash used in investing

activities of $58.2 million during the year ended December 31, 2022.

The increase in cash provided by investing activities is primarily

due to interest and realized gains related to marketable investment securities, as well as the redemption of certain investments as they

cash used in financing activities was $1.4 million for the year ended December 31, 2023, compared to $14.0 million of cash used in financing

activities for the year ended December 31, 2022.

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

the current fiscal year.

The decrease in cash used in financing activities is primarily due to fewer repurchases

of outstanding common shares during 2023 as compared to 2022.

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.

of inventories and the development of our Co-Dx PCR Platform, and to pay our operating expenses.

We have increased our work force most

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

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

significantly in research and development in order to continue development of the Co-Dx PCR platform and additional tests that will enable

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

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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rapidly than currently expected and we may need or want to raise additional financing for strategic opportunities.

If needed, we expect

additional investment capital to come from (i) additional issuances of our common stock with existing and new investors or (ii) the private

placement of other securities with investors similar to those that have provided funding in the past.

We may not be able to secure such

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

It is anticipated

that the Company will continue to generate operating losses and use cash in operations in the near term.

needed, we expect additional investment capital to come from additional issuances of our common stock or other equity based securities

with existing and new investors similar to those that have provided funding in the past.

On March 16, 2023, the Company entered into

an Equity Distribution Agreement with Piper Sandler & Co.

(“Piper”), pursuant to which we may sell from time to time,

shares of our common stock, having an aggregate offering price of up to $50.0 million through Piper, as agent.

No shares have been sold

under the distribution agreement as of December 31, 2023.

We may not be able to secure such financing in a timely manner or on favorable

terms, if at all.

ACCOUNTING POLICIES AND ESTIMATES

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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

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

of legal ownership or title to an asset;

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

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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).

Upon the completion of our annual evaluation for impairment of goodwill as of December

31, 2022, we recorded a goodwill impairment charge of $15.4 million.

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

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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