UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549.
Form 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______to_______
Commission File Number 001-38148
CO-DIAGNOSTICS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Utah
(State or other jurisdiction of
incorporation or organization)
3841
(Primary Standard Industrial
Classification Code Number)
46-2609396
(I.R.S. Employer
Identification Number)
2401 S. Foothill Drive, Salt Lake City, Utah 84109
(Address of principal executive offices and zip code)
(801) 438-1036
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock
Trading Symbol(s)
CODX
Name of each exchange on which registered
The Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that
the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common
stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $187,000,000.
As of March 14, 2023, there were 30,922,607 shares of common stock, par value $0.001 per share, outstanding.
Table of Contents
PART I
Item 1.
Business.
Item 1A.
Risk Factors.
Item 1B.
Unresolved Staff Comments.
Item 2.
Properties.
Item 3.
Legal Proceedings.
Item 4.
Mine Safety Disclosures.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6.
[Reserved.]
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
Item 8.
Financial Statements and Supplementary Data.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A.
Controls and Procedures.
Item 9B.
Other Information.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
Item 11.
Executive Compensation.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
Item 14.
Principal Accountant Fees and Services.
PART IV
Item 15.
Exhibits and Financial Statement Schedules.
2
Page
4
12
23
24
24
25
26
27
27
32
33
57
57
58
58
58
64
68
69
69
70
Forward-Looking Statements
PART I
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;
our ability to develop and commercialize new and improved products and services;
changes in government regulation;
and other factors (including the risks contained in the section entitled “Risk Factors” in other documents we file with the SEC) relating to
our industry, our operations and results of operations.
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.
3
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 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 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 (“CoPrimers™”) that eliminates one of the key vexing issues of PCR amplification: the exponential growth of primer-
dimer pairs (false positives and false negatives) which adversely interferes with identification of the target DNA/RNA.
We believe our proprietary molecular diagnostics technology is paving the way for innovation in disease detection and life sciences research through our
enhanced detection of genetic material. 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.
4
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 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 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.
5
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.
6
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.
7
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 Smart™ test products and/or related lab equipment to testing districts in different sections of the country and are marketing our
products through trade shows, electronic and regular mail solicitations.
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”.
8
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:
● Affordability: Lower-cost test kits, a low-cost MDx-device, and an affordable Co-Dx PCR Home platform for at-home and point-of-care
testing (the platform is subject to FDA review and not available for sale at the time of this filing).
● Flexibility: CODX’s tests have been designed to run on many customers’ DNA/RNA diagnostic testing machines. Our technology is well
suited to the new generation of point-of-care testing (“POCT”), compact and portable analysis machinery for field, clinical and office
applications.
● Speed: We believe our rapid assay design system software provides shorter time to product release. This has been demonstrated with the
conception, design, product manufacture, clinical verification and submission for a CE Mark for our Logix Smart COVID-19 test being
approximately 30 days.
● Accuracy: We believe our technology allows us to build tests that are highly sensitive and specific, the two benchmarks for accuracy in PCR
testing.
● Personalized Medicine: We project that rising health care costs in developed and developing nations will increasingly require that health care
systems be patient-specific to eliminate waste, misdiagnoses, and ineffectiveness. A critical component will be accurate, more affordable
DNA-based diagnostics, especially in at-home and POCT settings, for which we are developing products.
● Low-cost Provider: Our platform technology obviates the need to pay patent royalties typically required of our competitors, which use
patented test platforms to design their tests.
● Worldwide Footprint: With a dynamic technology that encompasses markets worldwide, we anticipate that we can identify the best target
markets, not only in high burden developing countries but also in developed nations.
● Growth Industry Category: We believe that real-time PCR testing is the fastest-growing segment of in vitro diagnostic testing.
● Combination Product Offering: Our sensitive tests can be a well-designed match for a new generation of compact and other small POCT
devices now entering the market, including our own MDx and Co-Dx PCR Home devices. Used together, we believe these affordable tests
and devices have the potential to revolutionize the molecular diagnostics industry in cost, speed of test results and simplification.
● Multiplexing: Our existing multiplexed tests demonstrate that our CoPrimer-designed tests are able to test for multiple targets in the same
sample without the distortion caused by false negatives and false positives that often occur in multiplexed tests.
9
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 ™ 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.
10
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.
11
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:
● Our ability to develop additional infectious disease diagnostic tests for which there is a commercial market;
● Our ability to obtain regulatory clearance to commercialize our product candidates;
● our ability to convince our potential customers of the advantages and economic value of our tests over competing technologies and diagnostic
tests;
● the breadth of our test menu relative to competitors;
● changes to policies, procedures or currently accepted best practices in clinical diagnostic testing;
● the extent and success of our marketing and sales efforts; and
● our ability to manufacture in quantity our commercial diagnostic tests and meet demand in a timely fashion.
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:
● broad product offerings, which address the needs of health care providers in a wide range of applications;
● products that are supported by long-term clinical data;
● greater experience in, and resources for, launching, marketing, distributing and selling products, including strong sales forces and established
distribution networks;
● extensive intellectual property portfolios and greater resources for patent protection;
● greater financial and other resources for product research and development;
● greater experience in obtaining and maintaining FDA and other regulatory clearances and approvals for products and product enhancements;
12
● 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.
13
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.
14
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 our product candidates in a timely
manner, or at all, our business will be adversely affected.
Similar to our compliance with U.S. regulatory requirements, we must obtain and comply with international requirements, in order to market and sell our
products outside of the United States and we may only promote and market our products, if approved, as permitted by applicable regulatory authorities.
There is no guarantee that we will receive the necessary regulatory approvals for our product candidates either inside the United States or internationally. If
our product candidates do not receive necessary regulatory approvals, our business could be materially and adversely affected.
15
Our current and future relationships with third-party payers and current and potential customers in the United States and elsewhere may be subject,
directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security and other
healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm administrative
burdens and diminished profits and future earnings.
Our current and future arrangements with third-party payers and current and potential customers, including providers and physicians, may expose us to
broadly applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the
federal False Claims Act, which may constrain the business or financial arrangements and relationships through which we sell, market and distribute our
products. In addition, we may be subject to transparency laws and patient privacy regulations by U.S. federal and state governments and by governments in
foreign jurisdictions in which we conduct our business. The applicable federal, state and foreign healthcare laws and regulations that may affect our ability
to operate include:
● the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving
or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for,
or the purchase, order or recommendation of, any good or service, for which payment may be made under federal healthcare programs, such
as Medicare and Medicaid;
● federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which impose criminal
and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be
presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or
making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
● the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for executing a
scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective
implementing regulations, which impose obligations on covered healthcare providers, health plans, and healthcare clearinghouses, as well as
their business associates that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered
entity, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
● the Physician Payments Sunshine Act, which requires (i) manufacturers of drugs, devices, biologics and medical supplies for which payment
is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to CMS
information related to certain “payments or other transfers of value” made to physicians, which is defined to include doctors, dentists,
optometrists, podiatrists and chiropractors, and teaching hospitals, (ii) applicable manufacturers and applicable group purchasing
organizations to report annually to CMS ownership and investment interests held in such entities by physicians and their immediate family
members, with data collection beginning on August 1, 2013, (iii) manufacturers to submit reports to CMS by the 90th day of each calendar
year, and (iv) disclosure of such information by CMS on a publicly available website; and
● analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing
arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payers, including private
insurers; state and foreign laws that require medical device companies to comply with the medical device industry’s voluntary compliance
guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to
healthcare providers; state and foreign laws that require medical device manufacturers to report information related to payments and other
transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing the privacy
and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not
preempted by HIPAA, thus complicating compliance efforts.
16
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial
costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or
case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or
any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without
limitation, damages, fines, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, and the
curtailment or restructuring of our operations, which could have a material adverse effect on our business. If any of the physicians or other healthcare
providers or entities with whom we expect to do business, including our collaborators, are found not to be in compliance with applicable laws, they may be
subject to criminal, civil or administrative sanctions, including exclusions from participation in government healthcare programs, which could also
materially affect our business.
We are subject to stringent and changing data protection laws, privacy policies and data protection obligations, which continue to evolve and change
over time. The actual or perceived failure by us or our third-party service providers or vendors to comply with such obligations could harm our
reputation, subject us to significant fines and liability, or otherwise adversely affect our business.
We are subject to numerous data protection laws that govern the processing of individually identifiable information and health information and other
sensitive and personal information in the jurisdictions in which we operate. In many instances, these data protection laws, regulations and standards apply
not only to disclosures to third parties, but also to transfers of information between or among us and other parties with which we have commercial
relationships. The regulatory framework for data privacy, data security and data transfers worldwide is rapidly evolving and, as a result, interpretation and
implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. These data protection laws may be interpreted
and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that will materially
and adversely affect our business, financial condition and results of operations. Failure to comply with any of these data protection laws could result in
enforcement actions against us, including fines, imprisonment of company officials and public censure, claims for damages by affected individuals, damage
to our reputation and loss of goodwill, any of which could have a material adverse effect on our business.
There are numerous U.S. federal and state laws and regulations related to the privacy and security of personal information. These laws and regulations
include the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and
Clinical Health Act of 2009, or HITECH, and their implementing regulations, or collectively referred to as the HIPAA Rules, which establish a set of
national privacy and security standards to safeguard Protected Health Information, or PHI, by health plans, healthcare clearinghouses and certain healthcare
providers, referred to as covered entities, and the business associates and their subcontractors with whom such covered entities contract for services that
involve the creation, receipt, maintenance or transmission of PHI for or on behalf of a covered entity or another business associate. HIPAA requires
covered entities and business associates to, among other things, develop and maintain policies and procedures with respect to PHI that is used or disclosed,
including the adoption of administrative, physical and technical safeguards to protect such information and ensure the confidentiality, integrity and
availability of electronic PHI. As this applies to our business, we are required to maintain security standards for any PHI that we create, receive, maintain
or transmit. For example, we plan to offer cloud-based portal software to help our customers more efficiently use our products. The software will maintain
security safeguards that are designed to be consistent with the HIPAA Rules, but we cannot guarantee that these safeguards will not fail or that they will not
be deemed inadequate in the future. In addition, we could be subject to periodic audits for compliance with the HIPAA Privacy and Security Standards by
the U.S. HHS, and our customers. The U.S. HHS Office for Civil Rights may impose significant penalties on entities subject to HIPAA for a failure to
comply with a requirement of the HIPAA Rules. If we are unable to properly protect the privacy and security of the PHI of our customers, we could be
found to have breached our contracts. Determining whether PHI has been handled in compliance with applicable privacy standards and our contractual
obligations can be complex and we cannot be sure how these regulations will be interpreted, enforced or applied to our operations.
In addition, many states in which we operate have laws that protect the privacy and security of sensitive and personal information, including health-related
information. Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to sensitive and personal
information than federal, international or other state laws, and such laws may differ from each other, which may complicate compliance efforts.
17
Laws, regulations and standards in many other jurisdictions also apply broadly to the Processing of personal information, which impose significant
compliance obligations. Complying with these numerous, complex and often changing regulations is expensive and difficult, and failure to comply with
any Data Protection Laws or any security incident or breach involving the misappropriation, loss or other unauthorized use or disclosure of sensitive or
confidential information, whether by us, one of our service providers or another third party, could negatively affect our business, financial condition and
results of operations, including but not limited to: investigation costs, material fines and penalties; compensatory, special, punitive and statutory damages;
litigation; consent orders regarding our privacy and security practices; requirements that we provide notices, credit monitoring services or credit restoration
services or other relevant services to impacted individuals; adverse actions against our licenses to do business; and injunctive relief.
Many statutory requirements, both in the United States and abroad, include obligations for companies to notify individuals of security breaches involving
certain personal information, which could result from breaches experienced by us or our third-party service providers. For example, laws in all 50 U.S.
states and the District of Columbia require businesses to provide notice to consumers whose unencrypted personal information has been disclosed as a
result of a data breach. These laws are not consistent, and compliance in the event of a widespread data breach is difficult and may be costly. Moreover,
states have been frequently amending existing laws, requiring attention to changing regulatory requirements. We also may be contractually required to
notify affected customers, regulators, credit reporting agencies or other affected individuals of a security breach. Such notifications are costly, and the
disclosures or the failure to comply with such requirements, could lead to material adverse effects, including without limitation, negative publicity, a loss of
customer confidence in our services or security measures or breach of contract claims. There can be no assurance that the limitations of liability in our
contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages if we fail to comply with applicable Data Protection
Laws, Data Protection Obligations or other legal obligations. In addition, although we may have contractual protections with our third-party service
providers, contractors and consultants, any actual or perceived security breach by our subcontractors could harm our reputation and brand, expose us to
potential liability or require us to expend significant resources on data security and in responding to any such actual or perceived breach. Any contractual
protections we may have from our third-party service providers, contractors or consultants may not be sufficient to adequately protect us from any such
liabilities and losses, and we may be unable to enforce any such contractual protections.
We expect that there will continue to be new proposed laws and regulations concerning data privacy and security, and we cannot yet determine the impact
such future laws, regulations and standards may have on our business. New laws, amendments to or re-interpretations of existing laws, regulations,
standards and other obligations may require us to incur additional costs and restrict our business operations. Because the interpretation and application of
health-related and Data Protection Laws and other obligations are still uncertain, and often contradictory and in flux, it is possible that the scope and
requirements of these laws may be interpreted and applied in a manner that is inconsistent with our practices and our efforts to comply with the evolving
data protection rules may be unsuccessful. If so, this could result in government-imposed fines or orders requiring that we change our practices, which
could adversely affect our business.
We cannot assure you that our third-party partners and service providers with access to our or our customers’, suppliers’ and employees’ personally
identifiable and other sensitive or confidential information in relation to which we are responsible will not breach contractual obligations imposed by us or
violate Data Protection Laws, or that they will not experience security breaches or attempts thereof, which could have a corresponding effect on our
business, including putting us in breach of our obligations under the Data Protection Laws, which could in turn adversely affect our business, results of
operations and financial condition. We cannot assure you that our contractual measures and our own privacy- and security-related safeguards will protect us
from the risks associated with the third-party processing, storage and transmission of such information.
We may receive inquiries or be subject to investigations, proceedings or actions, by various government entities regarding our privacy and information
security practices and Processing (“Regulatory Proceedings”). These Regulatory Proceedings could result in a material adverse effect, including without
limitation, interruptions of, or required changes to, our business practices, the diversion resources and the attention of management from our business,
regulatory oversights and audits, discontinuance of necessary Processing, or other remedies that adversely affect our business.
18
In addition to the possibility of fines, lawsuits, regulatory investigations, public censure, other claims and penalties, and significant costs for remediation
and damage to our reputation, we could be materially and adversely affected if legislation or regulations are expanded to require changes in our data
processing practices and policies or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively impact our
business. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices and compliance
procedures in a manner adverse to our business. Any inability to adequately address data privacy or security-related concerns, even if unfounded, or to
comply with applicable laws, regulations, standards and other obligations relating to data privacy and security, could result in additional cost and liability to
us, harm our reputation and brand, damage our relationships with customers and have a material and adverse impact on our business.
While we maintain general liability insurance coverage, cyber insurance coverage and other insurance, we cannot assure that such coverage will be
adequate or otherwise protect us from or adequately mitigate liabilities or damages with respect to claims, costs, expenses, litigation, fines, penalties,
business loss, data loss, regulatory actions or material adverse effects arising out of our privacy and security practices, Processing or security breaches we
may experience, or that such coverage will continue to be available on acceptable terms or at all. The successful assertion of one or more large claims
against us that exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition of
large deductible or co-insurance requirements), could have an adverse effect on our business. In addition, we cannot be sure that our existing insurance
coverage will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim.
We may incur substantial costs in our efforts to comply with evolving global data protection laws and regulations, and any failure or perceived failure
by us to comply with such laws and regulations may harm our business and operations.
The global data protection landscape is rapidly evolving, and we may be or become subject to or affected by numerous federal, state and foreign laws and
regulations, as well as regulatory guidance, governing the collection, use, disclosure, transfer, security and processing of personal data, such as information
that we collect about subjects and health care providers in connection with clinical trials. Implementation standards and enforcement practices are likely to
remain uncertain for the foreseeable future, which may create uncertainty in our business; affect our or our service providers’ ability to operate in certain
jurisdictions or to collect, store, transfer use and share personal data; result in liability; or impose additional compliance or other costs on us. Any failure or
perceived failure by us to comply with federal, state, or foreign laws or self-regulatory standards could result in negative publicity, diversion of
management time and effort and proceedings against us by governmental entities or others.
In the United States, numerous federal and state laws and regulations, including federal health information privacy laws (e.g., the Health Insurance
Portability and Accountability Act, as amended by the Health Information Technology for Economic and Clinical Health Act, or collectively HIPAA), state
data breach notification laws, state health information privacy laws, and federal and state consumer protection laws (e.g., Section 5 of the Federal Trade
Commission Act), that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations
or the operations of our collaborators. In addition, we may obtain health information from third parties (including research institutions from which we
obtain clinical trial data) that are subject to privacy and security requirements under HIPAA or other privacy and data security laws. Depending on the facts
and circumstances, we could be subject to criminal penalties if we knowingly obtain, use, or disclose protected health information maintained by a HIPAA-
covered entity in a manner that is not authorized or permitted by HIPAA. However, determining whether protected health information has been handled in
compliance with applicable privacy standards and our contractual obligations can be complex and may be subject to changing interpretation.
If we are unable to properly protect the privacy and security of protected health information or other personal, sensitive, or confidential information in our
possession, we could be found to have breached our contracts. Further, if we fail to comply with applicable privacy laws, including applicable HIPAA
privacy and security standards, we could face significant administrative, civil and criminal penalties. Enforcement activity can also result in financial
liability and reputational harm, and responses to such enforcement activity can consume significant internal and outside resources. Furthermore, state
attorneys general are authorized to bring civil actions seeking either injunctions or damages in response to violations that threaten the privacy of state
residents. In addition, our ongoing efforts to comply with evolving laws and regulations at the federal and state level may be costly and require continuous
modifications to our compliance policies, procedures, and systems.
Many state laws govern the privacy and security of personal information and data in specified circumstances, many of which differ from each other in
significant ways, are often not pre-empted by HIPAA, and may have a more prohibitive effect than HIPAA, thus complicating compliance efforts. For
example, the California Consumer Privacy Act of 2018 (the “CCPA”), which went into effect in January 2020 and provides new data privacy rights for
consumers and new operational requirements for companies, which may increase our compliance costs and potential liability. The CCPA gives California
residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information
about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that
is expected to increase data breach litigation. While there is currently an exception for protected health information that is subject to HIPAA and clinical
trial regulations, as currently written, the CCPA may impact certain of our business activities. In addition, the California Consumer Rights Act, or CPRA,
was recently enacted to strengthen elements of the CCPA and became effective on January 1, 2023. The CPRA imposes additional data protection
obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data,
and opt outs for certain uses of sensitive data and expands the application of the CCPA to all human resources personal information of California-based
employees. In addition, the CPRA created a new California data protection agency authorized to issue substantive regulations and is expected to result in
increased privacy and information security enforcement. A number of other states have considered similar privacy proposals, and states have recently
enacted their own privacy laws. For example, the Virginia Consumer Data Protection Act became effective on January 1, 2023, and Colorado and Utah
enacted similar laws that will also become effective in 2023, increasing the complexity of compliance and the risk of failures to comply. These privacy laws
may impact our business activities and exemplify the vulnerability of our business to the evolving regulatory environment related to personal data.
In addition to our operations in the United States, which may be subject to health care and other laws relating to the privacy and security of health
information and other personal information, we may be or become subject to European data privacy laws, regulations and guidelines. The General Data
Protection Regulation, (EU) 2016/679 (“GDPR”) became effective on May 25, 2018, and deals with the collection, use, storage, disclosure, transfer, or
other processing of personal data, including personal health data, regarding individuals in the EEA. The GDPR imposes a broad range of strict
requirements on companies subject to the GDPR, including requirements relating to having legal bases for processing personal information relating to
identifiable individuals and transferring such information outside the EEA, including to the United States, providing details to those individuals regarding
the processing of their personal health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, keeping personal
information secure, having data processing agreements with third parties who process personal information, responding to individuals’ requests to exercise
their rights in respect of their personal information, reporting security breaches involving personal data to the competent national data protection authority
and affected individuals, appointing data protection officers, conducting data protection impact assessments, and record-keeping. The GDPR increases
substantially the penalties to which we could be subject in the event of any non-compliance, including fines of up to €10,000,000 or up to 2% of our total
worldwide annual turnover for certain comparatively minor offenses, or up to €20,000,000 or up to 4% of our total worldwide annual turnover, whichever
is greater, for more serious offenses. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with
supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. In addition, the GDPR
includes restrictions on cross-border data transfers.
19
Following the United Kingdom’s withdrawal from the European Union (i.e., Brexit), and the expiry of the Brexit transition period, which ended on
December 31, 2020, the EU GDPR has been implemented in the United Kingdom (as the UK GDPR). The UK GDPR sits alongside the UK Data
Protection Act 2018 which implements certain derogations in the EU GDPR into UK law. Under the UK GDPR, companies not established in the UK but
who process personal data in relation to the offering of goods or services to individuals in the UK, or to monitor their behavior will be subject to the UK
GDPR – the requirements of which are (at this time) largely aligned with those under the EU GDPR and as such, may lead to similar compliance and
operational costs with potential fines of up to £17.5 million or 4% of global turnover. In 2022, the government of the United Kingdom proposed and
debated the Data Protection and Digital Information Bill to harmonize the 2018 Data Protection Act, UK GDPR, and the Privacy and Electronic
Communications Regulations under one legislative framework. However, progress on the bill stalled as the government continues to assess the most
optimal approach to data protection reform.
We currently sell some of our products in the EEA, and the GDPR increases our responsibility and liability in relation to personal data that we process
where such processing is subject to the GDPR, and we are required to have in place additional mechanisms and safeguards to ensure compliance with the
GDPR, including as implemented by individual countries. Compliance with the GDPR is a rigorous and time-intensive process that increase our cost of
doing business or require us to change our business practices, and despite those efforts, there is a risk that we may be subject to fines and penalties,
litigation, and reputational harm in connection with our European activities. We expect that we will continue to face uncertainty as to whether our efforts to
comply with any obligations under European privacy laws will be sufficient. If we are investigated by a European data protection authority, we may face
fines and other penalties. Any such investigation or charges by European data protection authorities could have a negative effect on our existing business
and on our ability to attract and retain new clients or partners.
Proposed legislation in the U.S. Congress, including changes in U.S. tax law, and the recently enacted Inflation Reduction Act of 2022 may adversely
impact us and the value of common shares, pre-funded warrants, and Warrants.
Changes to U.S. tax laws (which changes may have retroactive application) could adversely affect us or holders of common shares. In recent years, many
changes to U.S. federal income tax laws have been proposed and made, and additional changes to U.S. federal income tax laws are likely to continue to
occur in the future.
The U.S. Congress is currently considering numerous items of legislation which may be enacted prospectively or with retroactive effect, which legislation
could adversely impact our financial performance and the value of common shares. If enacted, most of the proposals would be effective for the current or
later years. The proposed legislation remains subject to change, and its impact on us and the holders of common shares is uncertain.
In addition, the Inflation Reduction Act of 2022 was recently signed into law and includes provisions that will impact the U.S. federal income taxation of
corporations. Among other items, this legislation includes provisions that will impose a minimum tax on the book income of certain large corporations and
an excise tax on certain corporate stock repurchases that would be imposed on the corporation repurchasing such stock. It is unclear how this legislation
will be implemented by the U.S. Department of the Treasury, and we cannot predict how this legislation or any future changes in tax laws might affect us or
holders of common shares, pre-funded warrants or Warrants.
Risks Related to Our Intellectual Property
If the combination of patents, trade secrets and contractual provisions that we rely on to protect our intellectual property is inadequate, our ability to
commercialize our products successfully will be harmed, and we may not be able to operate our business profitably.
Our success depends significantly on our ability to protect our proprietary rights to the technologies incorporated in our products. We rely on a combination
of patent protection, trade secret laws and nondisclosure, confidentiality and other contractual restrictions to protect our proprietary technology. However,
these may not adequately protect our rights or permit us to gain or keep any competitive advantage.
The issuance of a patent is not conclusive as to its scope, validity or enforceability. The scope, validity or enforceability of our issued patents can be
challenged in litigation or proceedings before the U.S. Patent and Trademark Office, or the USPTO, or foreign patent offices. In addition, our pending
patent applications include claims to numerous important aspects of our products under development that are not currently protected by any of our issued
patents. We cannot assure you that any of our pending patent applications will result in the issuance of patents to us. The USPTO or foreign patent offices
may deny or require significant narrowing of claims in our pending patent applications. Patents issued as a result of the pending patent applications, if any,
may not provide us with significant commercial protection or be issued in a form that is advantageous to us. Proceedings before the USPTO or foreign
patent offices could result in adverse decisions as to the priority of our inventions and the narrowing or invalidation of claims in issued patents. The laws of
some foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States, if at all.
Our competitors may successfully challenge and invalidate or render unenforceable our issued patents, including any patents that may issue in the future,
which could prevent or limit our ability to market our products and could limit our ability to stop competitors from marketing products that are
substantially equivalent to ours. In addition, competitors may be able to design around our patents or develop products that provide outcomes that are
comparable to our products but that are not covered by our patents.
In the event a competitor infringes upon any of our patents or other intellectual property rights, enforcing our rights may be difficult, time-consuming and
expensive, and would divert management’s attention from managing our business. There can be no assurance that we will be successful on the merits in
any enforcement effort. In addition, we may not have sufficient resources to litigate, enforce or defend our intellectual property rights.
We could become subject to intellectual property litigation that could be costly, result in the diversion of management’s time and efforts, require us to
pay damages, prevent us from marketing our commercially available products or product candidates and/or reduce the margins we may realize from
our products that we may commercialize.
Whether a product infringes a patent involves complex legal and factual issues, and the determination is often uncertain. There may be existing patents of
which we are unaware that our products under development may inadvertently infringe. The likelihood that patent infringement claims may be brought
against us increases as the number of participants in the in vitro diagnostics market increases and as we achieve more visibility in the marketplace and
introduce products to market.
Any infringement claim against us, even if without merit, may cause us to incur substantial costs, and would place a significant strain on our financial
resources, divert the attention of management from our core business, and harm our reputation. In some cases, litigation may be threatened or brought by a
patent holding company or other adverse patent owner who has no relevant product revenues and against whom our patents may provide little or no
deterrence. If we were found to infringe any patents, we could be required to pay substantial damages, including triple damages if an infringement is found
to be willful, and royalties and could be prevented from selling our products unless we obtain a license or are able to redesign our products to avoid
infringement. We may not be able to obtain a license enabling us to sell our products on reasonable terms, or at all, and there can be no assurance that we
would be able to redesign our products in a way that would not infringe those patents. If we fail to obtain any required licenses or make any necessary
changes to our technologies or the products that incorporate them, we may be unable to commercialize one or more of our products or may have to
withdraw products from the market, all of which would have a material adverse effect on our business, financial condition and results of operations.
20
We rely substantially on our trademarks and trade names. If our trademarks and trade names are not adequately protected, then we may not be able to
build name recognition in our markets of interest and our business may be harmed.
We rely substantially upon trademarks to build and maintain the integrity of our brand. Our registered and unregistered trademarks or trade names may be
challenged, infringed, circumvented, declared unenforceable or determined to be violating or infringing on other intellectual property rights. We may not be
able to protect or enforce our rights to these trademarks and trade names, which we rely upon to build name recognition among potential partners and
customers in our markets of interest. At times, competitors or other third parties may adopt trade names or trademarks similar to ours, thereby impeding our
ability to build brand identity and possibly leading to market confusion. Asserting claims against such third parties may be prohibitively expensive. In
addition, there could be potential trade name or trademark infringement, or dilution claims brought by owners of other trademarks against us. Over the long
term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively, and our
business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names or other
intellectual property may be ineffective, could result in substantial costs and diversion of resources and could harm our business, financial condition and
results of operations.
Risks Related to Litigation from Operating Our Business
We may become subject to potential product liability claims, and we may be required to pay damages that exceed our insurance coverage.
Our business exposes us to potential product liability claims that are inherent in the design, testing, manufacture, sale and distribution of our currently
marketed products and each of our product candidates that we are seeking to introduce to the market. Someone may allege that our diagnostic tests
identified inaccurate or incomplete information or otherwise failed to perform as designed. We may also be subject to liability for errors in, a
misunderstanding of or inappropriate reliance upon, the information we provide in the ordinary course of our business activities. In addition, we may be
subject to product liability claims resulting from misuse or off-label use of our products and product candidates. Any product liability claim brought against
us, with or without merit, could result in an increase of our product liability insurance rates or in our inability to secure coverage in the future on
commercially reasonable terms, if at all. In addition, if our product liability insurance proves to be inadequate to pay a damage award, we may have to pay
the excess of this award out of our cash reserves, which could significantly harm our financial condition. A product liability claim, even one without merit,
could harm our reputation in the industry, lead to significant legal fees, and result in the diversion of management’s attention from managing our business.
Current or future litigation, government investigations and other legal proceedings may harm our business.
We have been, currently are and may in the future become, involved in legal proceedings that could have a negative impact on our reputation, business and
financial condition and divert the attention of our management from the operation of our business. The types of legal proceedings we may be or become
subject to include patent and other intellectual property claims, product liability claims, employee claims, tort or contract claims, federal or state regulatory
investigations, securities class actions, and other legal proceedings, investigations or claims. For example, we are currently parties to two securities class
action claims and three derivative actions. On March 20, 2020, we received a voluntary request for documents from the SEC relating to disclosures
regarding our COVID-19 test and other matters. Since that time we and certain of our current and former officers have been cooperating with the SEC and
providing documents and information. The Company has entered into negotiations with the SEC in an attempt to reach a consensual resolution of the
matters raised in the SEC’s investigation. Any such resolution may include the imposition of civil penalties, injunctive and other relief against the
Company, senior management and related individuals. We cannot predict the outcome of these negotiations or of the SEC’s investigation at this time,
however, to the best of our knowledge, we do not believe that the matter is reasonably likely to result in financial penalties having a material adverse effect
on the Company. Litigation and other legal proceedings are inherently unpredictable and can result in excessive or unanticipated verdicts and/or injunctive
relief that affect how we operate our business. We could incur judgments or enter into settlements of claims for monetary damages or for agreements to
change the way we operate our business, or both. There may be an increase in the scope of these matters or there may be additional lawsuits, claims,
proceedings or investigations in the future, which could harm our business, financial condition and results of operations. Adverse publicity about regulatory
or legal action against us could damage our reputation and brand image, undermine our customers’ confidence and reduce long-term demand for any of our
products or other offerings, even if the regulatory or legal action is unfounded or not material to our operations. For additional information, see “Item 3.
Legal Proceedings.”
21
General Risk Factors
The price of our common stock may fluctuate substantially.
The market price of our common stock may be subject to wide fluctuation in response to various factors, some of which are beyond our control. Some
factors that may cause the market price of our common stock to fluctuate, in addition to the other risks mentioned in this “Risk Factors” section and
elsewhere in this report, are:
● sales of our common stock by our shareholders, executives, and directors;
● our ability to obtain regulatory approval to commercialize our “at-home” and POCT product candidates on a timely basis or at all;
● our ability to enter new markets;
● actual or unanticipated fluctuations in our annual and quarterly financial results;
● our ability to obtain financings to continue and expand our commercial activities, expand our manufacturing operations, conduct research and
development activities including, but not limited to, human clinical trials, and other business activities;
● our ability to secure resources and the necessary personnel to continue and expand our commercial activities, develop additional diagnostic tests,
conduct clinical trials and gain approval for our diagnostic tests on our desired schedule;
● commencement, enrollment or results of our clinical trials of our diagnostic tests or any future clinical trials we may conduct;
● changes in the development status of our diagnostic tests;
● any delays or adverse developments or perceived adverse developments with respect to review by the FDA or other similar foreign regulatory
authorities of our planned clinical trials;
● any delay in our submission for studies or test approvals or adverse regulatory decisions, including failure to receive regulatory approval or
clearance for our diagnostic tests;
● our announcements or our competitors’ announcements regarding new tests, enhancements, significant contracts, acquisitions or strategic
investments;
● failures to meet external expectations or management guidance;
● changes in our capital structure or dividend policy, including as a result of future issuances of securities and sales of large blocks of common stock
by our shareholders;
● announcements and events surrounding financing efforts, including debt and equity securities;
● competition from existing technologies and diagnostic tests or new technologies and diagnostic tests that may emerge;
● announcements of acquisitions, partnerships, collaborations, joint ventures, new diagnostic tests, capital commitments, or other events by us or our
competitors;
● changes in general economic, political and market conditions in any of the regions in which we conduct our business;
● changes in industry conditions or perceptions;
● changes in valuations of similar companies or groups of companies;
● analyst research reports, recommendations and changes in recommendations, price targets and withdrawals of coverage;
● departures and additions of key personnel;
● disputes and litigations related to intellectual properties, proprietary rights, and contractual obligations;
● changes in applicable laws, rules, regulations, or accounting practices and other dynamics;
● other events or factors, many of which may be out of our control.
In addition, if the market for stocks in our industry or industries related to our industry, or the stock market in general, experiences a loss of investor
confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition and results of operations. If any
of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a
distraction to management.
22
Anti-takeover provisions in our charter documents and Utah law could discourage, delay, or prevent a change of control of our Company and may
affect the trading price of our common stock.
We are a Utah corporation and the anti-takeover provisions of the Utah Control Shares Acquisition Act may discourage, delay or prevent a change of
control by limiting the voting rights of control shares acquired in a control share acquisition. In addition, our Articles of Incorporation and Bylaws may
discourage, delay or prevent a change in our management or control over us that shareholders may consider favorable. Among other things, our Amended
and Restated Articles of Incorporation and Bylaws:
● authorize the issuance of “blank check” preferred stock that could be issued by our board of directors in response to a takeover attempt;
● provide that vacancies on our board of directors, including newly created directorships, may be filled only by a majority vote of directors then in
office, except a vacancy occurring by reason of the removal of a director without cause shall be filled by vote of the shareholders;
● no right to cumulative voting;
● limit who may call special meetings of shareholders; and
● Provide for a staggered board of directors
These provisions could have the effect of delaying or preventing a change of control, whether or not it is desired by, or beneficial to, our shareholders.
We do not currently intend to pay dividends on our common stock.
We do not expect to pay cash dividends on our common stock. Any future dividend payments are within the absolute discretion of our board of directors
and will depend on, among other things, our results of operations, working capital requirements, capital expenditure requirements, financial condition,
contractual restrictions, business opportunities, anticipated cash needs, provisions of applicable law and other factors that our board of directors may deem
relevant. We may not generate sufficient cash from operations in the future to pay dividends on our common stock.
We are a “smaller reporting company” and the reduced disclosure requirements applicable to smaller reporting companies may make our common
stock less attractive to investors.
We are currently a “smaller reporting company” as defined in the Securities Exchange Act of 1934. Smaller reporting companies are able to provide
simplified executive compensation disclosures in their filings, and have certain other decreased disclosure obligations in their SEC filings, including,
among other things, only being required to provide two years of audited financial statements in annual reports. We cannot predict whether investors will
find our common stock less attractive because of our reliance on any of these exemptions. If some investors find our common stock less attractive as a
result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We incur substantial costs as a result of being a public company and our management expects to devote substantial time to public company compliance
programs.
As a public company, we incur significant legal, insurance, accounting and other expenses, including costs associated with public company reporting. We
intend to invest resources to comply with evolving laws, regulations and standards, and this investment will result in increased general and administrative
expenses and may divert management’s time and attention from product development and commercialization activities. If our efforts to comply with new
laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory
authorities may initiate legal proceedings against us, and our business may be harmed. These laws and regulations could make it more difficult and costlier
for us to obtain director and officer liability insurance for our directors and officers, and we may be required to accept reduced coverage or incur
substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified executive officers and
qualified members of our board of directors, particularly to serve on our audit and compensation committees. In addition, if we are unable to continue to
meet the legal, regulatory and other requirements related to being a public company, we may not be able to maintain the listing of our common stock on
The NASDAQ Capital Market, which would likely have a material adverse effect on the trading price of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
23
ITEM 2. PROPERTIES
Our headquarters are located at 2401 S. Foothill Drive, Salt Lake City, Utah. Our current facility has approximately 14,000 square feet of laboratory and
office space under a lease that expires in February 2024. Our recently acquired subsidiaries also lease additional laboratory and office space under month-
to-month leases. We believe the facility we lease is sufficient to meet our needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, we are at times subject to various legal proceedings and disputes, including the proceedings specifically discussed
below. We assess our liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is
probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in our consolidated financial statements.
These legal reserves may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of
loss is not estimable, we do not accrue legal reserves. While the outcome of legal proceedings is inherently uncertain, based on information currently
available and available insurance coverage, our management believes that it has established appropriate legal reserves. Any incremental liabilities arising
from pending legal proceedings are not expected to have a material adverse effect on our consolidated financial position, consolidated results of operations,
or consolidated cash flows. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to our consolidated
financial position, consolidated results of operations, or consolidated cash flows.
Class Actions and Shareholder Derivative Suits
Gelt Securities Class Action (District of Utah)
On June 15, 2020, Gelt Trading Co. (“Gelt”) filed a lawsuit in the United States District Court for the District of Utah (“District of Utah”), against the
Company and certain of our directors and officers, on behalf of itself and a putative class, seeking to recover damages for alleged violations of Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 (“Gelt Litigation”). The complaint alleges that Co-Diagnostics and the individual defendants
overstated the accuracy of the Company’s Logix Smart COVID-19 test in statements on April 30, 2020 and May 1, 2020, and that plaintiff suffered losses
when the Company’s stock price dropped after public reports questioned the accuracy of the Logix Smart test on May 14, 2020. On July 15, 2020, plaintiff
filed an amended complaint. On March 10, 2021, the court appointed Gelt as Lead Plaintiff, and on April 7, 2021, Lead Plaintiff filed a second amended
complaint (“SAC”), which asserts the same Sections 10(b) and 20(a) claims against the same defendants on largely the same theory. On May 5, 2021, the
defendants moved to dismiss the SAC. On March 9, 2022, the court entered a Decision & Order denying the motion to dismiss, and on April 13, 2022, the
defendants filed an answer to the SAC. On October 17, 2022, Gelt filed a motion to certify the putative class. Discovery is currently underway and the
motion to certify the class is pending. The defendants believe the claims are without merit and intend to defend vigorously against them, but there can be
no assurances as to the outcome.
Shareholder Derivative Lawsuits (District of Utah & Utah State Court)
On September 17, 2020, a shareholder derivative lawsuit was filed in the District of Utah by Luis Aguilera, allegedly on behalf of Co-Diagnostics, Inc.,
that substantially piggybacks on the Gelt Litigation referenced above. The lawsuit asserts that the defendants failed to prevent the alleged securities law
violations largely asserted in the Gelt Litigation. On December 2, 2020, a second shareholder derivative lawsuit was filed in the District of Utah by Melvyn
Klein asserting essentially the same claims, allegedly on behalf of Co-Diagnostics, as the Aguilera shareholder derivative action. And on April 29, 2021,
the District of Utah consolidated the two shareholder derivative cases, with the Aguilera case serving as the lead case under the caption In re Co-
Diagnostics, Inc. Derivative Litigation. On May 3, 2022, plaintiffs filed an amended complaint asserting claims for breach of fiduciary duty, unjust
enrichment, and contribution under Sections 10(b) and 21D of the Securities Exchange Act of 1934. Defendants answered the amended complaint on June
24, 2022.
24
On November 24, 2020, an additional shareholder derivative lawsuit was filed in the District of Utah by Matthew Wallace, allegedly on behalf of Co-
Diagnostics, Inc., that also piggybacks on the Gelt Litigation referenced above. It named the same defendants and asserted essentially the same claims,
allegedly on behalf of Co-Diagnostics, as in the other District of Utah shareholder derivative actions referenced above. On January 25, 2021, another
shareholder derivative lawsuit was filed in the District of Utah by Jason Reagan, asserting essentially the same claims as in the Wallace lawsuit. On March
18, 2021, the court consolidated the two lawsuits, with the Wallace lawsuit serving as the lead case. On April 30, 2021, plaintiffs filed an amended
complaint asserting claims for breach of fiduciary duty against defendants and claims for insider trading.
On March 29, 2021, an additional shareholder derivative lawsuit was filed in the Third District Court in and for Salt Lake County, State of Utah (“Utah
State Court”) by Hua Ding, allegedly on behalf of Co-Diagnostics, Inc., that also piggybacks on the Gelt Litigation referenced above. It names the same
defendants and asserts essentially the same claims as in In re Co-Diagnostics, Inc. Derivative Litigation pending in the District of Utah referenced above.
On December 12, 2022, a second shareholder derivative lawsuit was filed in Utah State Court by Kathryn Matuch asserting essentially the same claims,
allegedly on behalf of Co-Diagnostics, as the Ding shareholder derivative action.
The defendants believe the claims asserted in all of the shareholder derivative lawsuits referenced above are without merit and intend to defend vigorously
against them, but there can be no assurances as to the outcome.
Stadium Capital Securities Class Action (Southern District of New York)
On August 16, 2022, Stadium Capital LLC (“Stadium”) filed a lawsuit in the United States District Court for the Southern District of New York, against
Co-Diagnostics, Inc., and certain of our officers, on behalf of itself and a putative class, seeking to recover damages for alleged violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934. The complaint alleges that Co-Diagnostics and the individual defendants overstated the demand for the
Company’s Logix Smart COVID-19 test in statements on May 12, 2022 and June 15, 2022. The complaint alleges that plaintiff suffered losses when the
Company’s stock price dropped after the Company disclosed its financial results for the quarter ended June 30, 2022 in a press release on August 11, 2022.
On October 31, 2022, Stadium filed a motion seeking to be appointed as Lead Plaintiff and for Kaplan Fox & Kilsheimer LLP to be appointed as lead
counsel. That motion is pending before the U.S. District Court. The defendants believe the claims are without merit and intend to defend vigorously against
them, but there can be no assurances as to the outcome.
Commercial Litigation
Co-Diagnostics, Inc. v. Hukui Technology, Inc., et al. (Third Judicial District Court, Salt Lake County, State of Utah, Civil No. 210902131, filed on
April 21, 2021).
The Company filed a complaint against Defendants Hukui Technology, Inc., Hukui Tech, Inc., and Hukui Bio Co., Ltd (collectively, “Hukui”) seeking a
declaratory judgment that the Company is not obligated to any of them in any amount. On August 24, 2021, Hukui filed their Answer and Counterclaim
seeking damages on a number of theories, including breach of contract for letter agreements, breach of oral agreement, promissory estoppel, unjust
enrichment, and interference with economic relations. Hukui requested a money judgment against the Company in an amount to be determined at trial. On
September 20, 2021, Hukui filed their Unopposed Motion for Leave to Amend Answer to the Complaint, Affirmative Defenses, and Counterclaims and, on
October 14, 2021, Hukui filed their Amended Answer and Counterclaims seeking damages on declaratory judgment, as well as breach of contract for
letters of authorization, breach of oral agreement, promissory estoppel, unjust enrichment, and interference with economic relations. In 2022 the parties
exchanged their initial disclosures, exchanged written discovery requests, and conducted a number of depositions on each side that were concluded in
January 2023. The Company believes the claims are without merit and intends to defend vigorously against them, but there can be no assurances as to the
outcome.
Co-Diagnostics, Inc. v. Pantheon International Advisors Ltd. (Third Judicial District Court, Salt Lake County, State of Utah, Civil No. 210902609,
filed on May 14, 2021).
The Company filed a complaint against Pantheon International Advisors (“Pantheon”) asking the court to declare that the Company has no ongoing
contractual business relationship with Pantheon, no monies owing, nor does Pantheon have any interest, right, title or claim to any stock issued by the
Company or ownership of any kind in the Company. Pantheon was served with a 30-Day Summons on September 9, 2021 to which it failed to respond, and
a default judgement against Pantheon International Advisors was entered by the Court on November 28, 2021. The time to appeal from the judgment or
seek to vacate the judgment has passed.
After learning that the Company had initiated suit in Utah, and after learning of Company’s intent to serve it with process of that suit, on May 24, 2021,
Pantheon filed a claim against the Company in the Royal Courts of Justice Group, Queens Bench Division, Claim No. QB-21-002245, stating that the
Company owes Pantheon $2,860,809.79 for alleged breach of contract for failing to make payments purportedly due under a contract allegedly entered into
on October 18, 2018. The Company is being represented locally in the UK by Freshfields Bruckhaus Deringer LLP in that matter. On March 4, 2022, the
Company filed a jurisdictional challenge to the UK suit, alleging that there was no 2018 agreement, and that the Company is not subject to jurisdiction in
the UK. The oral argument and presentation of evidence on solely the jurisdictional claim took place on November 9, 2022, with the court taking the matter
of jurisdiction over the Company under advisement. The court has not yet ruled on the motion to dismiss, and it is not yet known when the court will rule
upon that motion. The Company intends to vigorously defend against the UK claims and will seek to the full extent possible to enforce its rights under the
Declaratory Judgment already obtained in Utah but there can be no assurances as to the outcome.
From time to time, we may become involved in litigation and other proceedings relating to claims arising out of our operations in the normal course of
business and to inquiries from FINRA, NASDAQ and the U.S. Securities and Exchange Commission (the SEC). On March 20, 2020, the Company
received a voluntary request for documents from the SEC relating to disclosures regarding our COVID-19 test and other matters. Since that time we and
certain of our current and former officers have been cooperating with the SEC and providing documents and information. The Company has entered into
negotiations with the SEC in an attempt to reach a consensual resolution of the matters raised in the SEC’s investigation. Any such resolution may include
the imposition of civil penalties, injunctive and other relief against the Company, senior management and related individuals. We cannot predict the
outcome of these negotiations or of the SEC’s investigation at this time, however, to the best of our knowledge, we do not believe that the matter is
reasonably likely to result in financial penalties having a material adverse effect on the Company.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
25
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER EQUITY
SECURITIES
PART II
Market Information
Our common stock has been quoted on the NASDAQ market under the symbol “CODX” since July 12, 2017.
Holders
As of March 14, 2023, the last reported sales price reported on NASDAQ for our common stock was $2.99 per share. As of March 14, 2023, we had
approximately 154 record holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not
include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The
transfer agent for our common stock is VStock Transfer LLC located at 18 Lafayette Pl, Woodmere, New York 11598.
Dividends
We have never declared or paid any cash dividends on our capital stock. The payment of dividends on our common stock in the future will depend on our
earnings, capital requirements, operating and financial condition and such other factors as our board of directors may consider appropriate. We currently
expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying dividends on our common
stock in the foreseeable future.
Pursuant to Section 16-10a-640 of the Utah Revised Business Corporation Act, no distribution may be made if, after giving it effect:
(a)
(b)
the corporation would not be able to pay its debts as they become due in the usual course of business; or
the corporation’s total assets would be less than the sum of its total liabilities plus, unless the articles of incorporation permit otherwise, the
amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are superior to those receiving the distribution.
Recent Sales of Unregistered Securities
None.
26
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Share Repurchase Program
Issuer Purchase of Equity Securities
Period
10/01/22 - 10/31/22
11/01/22 - 11/30/22
12/01/22 - 12/31/22
Total
(a) Total
number of
shares
purchased (1)
(b) Average
price paid per
share (1)
-
4,750
462,582
467,332
$
$
$
$
-
3.01
2.60
2.61
(c ) Total
number of
shares
purchased as
part of publicly
announced
plans or
programs (1)
- $
4,750 $
462,582 $
(d) Maximum
number (or
approximate
dollar value) of
shares that may
yet be
purchased
under the plans
or programs (1)
17,005,627
16,991,319
15,788,134
467,332 $
15,788,134
(1)
In March 2022, the company announced that its board of directors authorized the repurchase of up to $30.0 million of the company’s outstanding
common stock. The extent to which the company repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors,
including trading volume, market conditions, legal requirements, business conditions and other factors. The repurchase program may be
discontinued at any time, and the program does not obligate the company to acquire any specific number of shares of its common stock.
ITEM 6. RESERVED
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
The following management’s discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of
our operations, financial condition, and changes in financial condition. This discussion should be read in conjunction with the accompanying audited
financial statements, and notes thereto, included elsewhere in this report. In addition to historical information, this Annual Report contains forward-looking
statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including but not limited to those set forth under the caption “Item 1A. Risk Factors” in this Annual Report on
Form 10-K.
27
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 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.
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.
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 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.
28
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.
RESULTS OF OPERATIONS
Results of Operations for the Years Ended December 31, 2022 and 2021
The table below provides a comparison of our operating results for the year ended December 31, 2022 as compared to the year ended December 31, 2021.
Revenue
Cost of revenue
Gross profit
Operating expenses
Sales and marketing
General and administrative
Research and development
Depreciation and amortization
Goodwill impairment charges
Total operating expenses
Income (loss) from operations
Other income (expense)
Interest income
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
Income tax provision (benefit)
Net income (loss)
$
$
Years Ended December 31,
2021
2022
97,885,603 $
34,218,209 $
11,574,944
5,481,092
86,310,659
28,737,117
7,344,628
14,262,963
17,438,098
1,282,718
15,388,546
55,716,953
(26,979,836)
13,397,813
11,550,615
14,961,916
335,363
-
40,245,707
46,064,952
704,044
(138,117)
7,899,644
(332,969)
8,132,602
(18,847,234)
(4,608,985)
(14,238,249) $
45,631
(44,355)
-
(430,433)
(429,157)
45,635,795
8,977,231
36,658,564 $
29
Year Change
Change
(63,667,394)
(6,093,852)
(57,573,542)
(6,053,185)
2,712,348
2,476,182
947,355
15,388,546
15,471,246
(73,044,788)
658,413
(93,762)
7,899,644
97,464
8,561,759
(64,483,029)
(13,586,216)
(50,896,813)
%
-65%
-53%
-67%
-45%
23%
17%
282%
-
38%
-159%
1443%
211%
-
-23%
-1995%
-141%
-151%
-139%
Revenues
For 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 31, 2021.
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.
Cost of Revenues and Gross Profit
Cost 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 31,
2022. 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.
Operating Expenses
We 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 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.
Sales 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, 2021.
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.
General 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 expense.
Our 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 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.
During 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.
Other Income (Expense)
Other 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 31, 2021.
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.
30
Net Income
We 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.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2022, we had cash and cash equivalents of $23.0 million and marketable investment securities of $58.3 million. We consider 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.
Net 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.
We 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.
Net 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.
Since commencing sales of our Logix Smart COVID-19 test in March 2020, we have used our cash generated from those sales to fund the purchase of
inventories and the development of our 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.
We believe that our existing capital resources and the cash generated from future sales will be sufficient to meet our projected operating requirements for
the next 12 months. However, our available capital resources may be consumed more rapidly than currently expected and we may need or want to raise
additional financing for strategic opportunities. 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our 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
Trade 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.
31
Goodwill and Intangible Assets
The 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:
● the 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; and
● the impact of significant negative industry or economic trends.
If 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; otherwise, 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.
Accounting for Business Combinations
Under 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. We 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).
Inventories
We 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.
Income Taxes
Significant 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.
The 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND 2021
Table of Contents
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 457)
Balance Sheets
Statements of Operations
Statement of Changes in Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
33
34
35
36
37
38
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Co-Diagnostics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Co-Diagnostics, Inc (the Company) as of December 31, 2022 and 2021, and the related
consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the two-
year period ended December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its
cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the
United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2)
involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on
the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical
audit matters or on the accounts or disclosures to which they relate.
Goodwill and Intangible Assets
As discussed in Note 4 and in Note 7 to the consolidated financial statements, the Company acquired Idaho Molecular, Inc., and Advanced Conceptions,
Inc. in December 2021. As part of the transaction, the Company acquired intangible assets totaling $27,195,000, and goodwill totaling $15,388,546. The
Company assesses these assets for impairment at least annually or whenever events or changes in circumstances occur that may indicate impairment. The
Company’s analysis for the year ended December 31, 2022, required significant judgment to create a valuation based on future cash flows. As a result of
their analysis, the Company fully impaired its goodwill, while no impairment was recorded for the intangible assets.
We identified the carrying amount of goodwill and intangible assets as a critical audit matter because management’s assessment of the acquisition is highly
subjective. This required an increased amount of effort, including the need to involve our internal valuation specialist, when performing audit procedures to
evaluate the reasonableness of management’s estimates and assumptions.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included, among others, gaining an understanding of management’s process for developing the fair value estimate.
We also evaluated the expertise, qualifications, and independence of management’s specialist engaged to complete the evaluation. We used professionals
inside our firm with specialized skills and knowledge to assess the Company’s methodology. We considered the inputs, sources of data used, assumptions,
and estimates used in the valuation model. We tested the mathematical accuracy of the underlying schedules used in the valuation assessment to ensure the
completeness and accuracy of the reports. Finally, we considered the sensitivity of changes to key assumptions in the model.
/s/ Haynie & Company
Salt Lake City, Utah
March 16, 2023
We have served as the Company’s auditor since 2016.
34
CO-DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2022
December 31, 2021
Assets
Current assets
Cash and cash equivalents
Marketable investment securities
Accounts receivable, net
Inventory
Income taxes receivable
Prepaid expenses and other current assets
Note receivable
Total current assets
Property and equipment, net
Operating lease right-of-use asset
Goodwill
Intangible assets, net
Investment in joint venture
Note receivable
Total assets
Liabilities and stockholders’ equity
Current liabilities
Accounts payable
Accrued expenses, current
Operating lease liability, current
Contingent consideration liabilities, current
Income taxes payable
Deferred revenue
Total current liabilities
Long-term liabilities
Income taxes payable
Deferred tax liability
Operating lease liability
Contingent consideration liabilities
Total long-term liabilities
Total liabilities
Commitments and contingencies (Note 13)
Stockholders’ equity
Convertible preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares
issued and outstanding as of December 31, 2022 and December 31, 2021, respectively
Common stock, $0.001 par value; 100,000,000 shares authorized; 34,754,265 shares
issued and 30,872,607 shares outstanding as of December 31, 2022 and 33,819,862
shares issued and outstanding as of December 31, 2021
Treasury stock, at cost; 3,881,658 and 0 shares held as of December 31, 2022 and
December 31, 2021, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
22,973,803 $
58,289,066
3,453,723
5,310,473
1,870,419
761,186
75,000
92,733,670
2,539,483
372,115
-
26,768,333
672,679
-
123,086,280 $
952,297 $
934,447
297,209
1,689,471
-
-
3,873,424
1,181,284
2,417,987
50,708
1,042,885
4,692,864
8,566,288
88,607,234
1,255,266
20,839,182
2,004,169
-
2,338,444
75,000
115,119,295
1,933,216
-
14,706,818
27,195,000
1,004,953
75,000
160,034,282
607,506
3,859,652
-
5,767,304
2,213,088
150,000
12,597,550
1,067,853
7,228,444
-
4,665,337
12,961,634
25,559,184
-
-
34,754
33,820
(14,211,866)
88,472,934
293,140
39,931,030
114,519,992
123,086,280 $
-
80,271,999
-
54,169,279
134,475,098
160,034,282
See accompanying notes to consolidated financial statements.
35
CO-DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Years Ended December 31,
2022
2021
Revenue
Cost of revenue
Gross profit
Operating expenses
Sales and marketing
General and administrative
Research and development
Depreciation and amortization
Goodwill impairment charges
Total operating expenses
Income (loss) from operations
Other income (expense)
Interest income
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
Income tax provision (benefit)
Net income (loss)
Other comprehensive income
Change in net unrealized gains on marketable securities, net of tax
Total other comprehensive income
Comprehensive income (loss)
Earnings per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
$
$
$
$
$
$
$
34,218,209 $
5,481,092
28,737,117
7,344,628
14,262,963
17,438,098
1,282,718
15,388,546
55,716,953
(26,979,836)
704,044
(138,117)
7,899,644
(332,969)
8,132,602
(18,847,234)
(4,608,985)
(14,238,249) $
293,140 $
293,140 $
(13,945,109) $
(0.45) $
(0.45) $
31,479,028
31,479,028
97,885,603
11,574,944
86,310,659
13,397,813
11,550,615
14,961,916
335,363
-
40,245,707
46,064,952
45,631
(44,355)
-
(430,433)
(429,157)
45,635,795
8,977,231
36,658,564
-
-
36,658,564
1.27
1.23
28,874,555
29,903,686
See accompanying notes to consolidated financial statements.
36
CO-DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Convertible
Preferred Stock
Shares Amount
Common Stock
Shares
Amount
Treasury
Stock
- $
- 28,558,033 $ 28,558 $
Capital
- $49,157,236 $
Additional
Accumulated
Other
Paid-in
Comprehensive Accumulated
Income
Earnings
Total
Stockholders’
Equity
Balance as of December 31, 2020
Common stock issued for option
exercises
Stock-based compensation expense
Common stock issued for acquisitions
Net income
Balance as of December 31, 2021
Common stock issued for option
exercises
Common stock issued for warrant
exercises
Stock-based compensation expense
Common stock issued for acquisitions
Repurchases of common stock
Other comprehensive income, net of
tax
Net income
Balance as of December 31, 2022
-
-
-
-
- $
-
-
-
-
-
-
-
- $
189
189,225
-
444
-
444,050
4,629
- 4,628,554
-
-
-
- 33,819,862 $ 33,820 $
450,209
5,508,960
25,155,594
-
- $80,271,999 $
-
70,791
70
-
77,800
-
-
-
-
50,000
725,166
88,446
-
50
725
89
-
99,950
- 7,542,498
480,687
-
-
- (14,211,866)
-
-
-
-
- 34,754,265 $ 34,754 $ (14,211,866) $88,472,934 $
-
-
-
-
-
-
See accompanying notes to consolidated financial statements.
37
- $
17,510,715 $
66,696,509
-
-
-
-
- $
-
-
-
-
-
450,398
-
5,509,404
-
25,160,223
-
36,658,564
36,658,564
54,169,279 $ 134,475,098
-
-
-
-
-
77,870
100,000
7,543,223
480,776
(14,211,866)
293,140
-
293,140 $
293,140
-
(14,238,249)
(14,238,249)
39,931,030 $ 114,519,992
CO-DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities
Net income
Adjustments to reconcile net income to cash used in operating activities:
Years Ended December 31,
2022
2021
$
(14,238,249) $
36,658,564
Depreciation and amortization
Goodwill impairment charges
Stock-based compensation expense
Change in fair value of acquisition contingencies
Non-cash lease expense
Loss from equity method investment
Loss on disposition of assets
Deferred income taxes
Bad debt expense
Changes in assets and liabilities:
Accounts receivable
Prepaid expenses
Inventory
Deferred revenue
Income taxes payable
Accounts payable, accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities
Purchases of property and equipment
Proceeds from maturities of marketable investment securities
Purchases of marketable securities
Investment in joint venture
Business combinations, net of cash acquired
Net cash (used in) provided by investing activities
Cash flows from financing activities
Proceeds from exercise of options and warrants
Repurchases of common stock
Net cash (used in) provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information
Interest paid
Income taxes paid
Supplemental disclosure of non-cash investing and financing transactions
Inventory moved to property, plant and equipment
Right-of-use assets obtained in exchange for new operating lease liabilities
Business acquisition measurement period adjustments
Fair value of common stock issued as consideration for business acquisitions
Fair value of contingent common stock issued as consideration for business acquisitions
1,282,718
15,388,546
7,543,223
(7,899,644)
30,430
332,969
138,117
(4,810,457)
2,428,930
14,956,529
(224,094)
(3,525,210)
(150,000)
(2,201,250)
(2,483,821)
6,568,737
(1,427,512)
11,255,266
(67,995,926)
-
-
(58,168,172)
177,870
(14,211,866)
(14,033,996)
(65,633,431)
88,607,234
22,973,803 $
- $
4,498,742 $
218,906 $
681,327 $
1,593 $
480,776 $
199,359 $
335,363
-
5,509,404
-
-
430,433
44,355
930,081
69,672
(8,740,851)
(2,049,095)
5,705,361
(155,307)
2,643,381
(299,937)
41,081,424
(669,463)
3,080,180
-
491,739
1,196,243
4,098,699
450,398
-
450,398
45,630,521
42,976,713
88,607,234
-
5,403,769
285,659
-
-
25,160,223
10,432,641
$
$
$
$
$
$
$
$
See accompanying notes to consolidated financial statements.
38
CO-DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2022 AND 2021
Note 1 – Overview and Basis of Presentation
Description of Business
Co-Diagnostics, Inc., a Utah corporation (the “Company” or “CODX”), is developing robust and innovative molecular tools for detection of infectious
diseases, liquid biopsy for cancer screening, and agricultural applications. The Company 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.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the accompanying notes. Such estimates include receivables and other long-
lived assets, legal and regulatory contingencies, income taxes, share based arrangements, and others. These estimates and assumptions are based on
management’s best estimates and judgments. Actual amounts and results could differ from those estimates.
Basis of Presentation
The accompanying audited consolidated financial statements of Co-Diagnostics, Inc. and its wholly owned subsidiaries have been prepared to reflect the
financial position, results of operations and cash flows of the Company and have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated.
Note 2 – Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, money market funds and highly liquid investments with an original maturity date of 90 days or less
from the date of purchase. The fair value of cash equivalents approximated their carrying value as of December 31, 2022 and December 31, 2021. The
Company has its cash and cash equivalents with a large creditworthy financial institution and the balance exceeded federally insured limits. The Company
has not experienced any losses in such accounts, and management believes the Company is not exposed to any significant credit risk on cash and cash
equivalents.
39
Marketable Investment Securities
The Company’s marketable investment securities are comprised of investments in certificates of deposit and U.S. Treasury bills and notes. The Company
designates investments in debt securities as available-for-sale. Available-for-sale debt securities with original maturities of three months or less from the
date of purchase are classified within cash and cash equivalents. Available-for-sale debt securities with original maturities longer than three months are
available to fund current operations and are classified as marketable investment securities, within current assets on the consolidated balance sheets. The
Company may sell these securities at any time for use in its current operations or for other purposes, even prior to maturity. Available-for-sale debt
securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component
of stockholders’ equity, net of tax. Realized gains and losses on the sale of marketable securities are determined using the average cost method on a first-in,
first-out basis and recorded in total other income (expense), net in the condensed consolidated statements of operations and comprehensive income.
The available-for-sale debt securities are subject to a periodic impairment review. For investments in an unrealized loss position, the Company writes down
the amortized cost basis of the investment if it is more likely than not that the Company will be required or will intend to sell the investment before
recovery of its amortized cost basis. For investments not likely to be sold before recovery of the amortized cost basis, the Company determines whether a
credit loss exists by considering information about the collectability of the instrument, current market conditions, and reasonable and supportable forecasts
of economic conditions. The Company recognizes an allowance for credit losses up to the amount of the unrealized loss when appropriate. Allowances for
credit losses and write-downs are recognized in total other income (expense), net, and unrealized losses not related to credit losses are recognized in
accumulated other comprehensive income (loss). There are no allowances for credit losses recorded for the periods presented.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount (net of allowance) and do not bear interest. The Company maintains an allowance for
doubtful accounts for amounts the Company does not expect to collect. In establishing the required allowance, management considers historical losses,
current market condition, customers’ financial condition, the age of receivables, and current payment patterns. Account balances are written off against the
allowance once the receivable is deemed uncollectible. Recoveries of trade receivables previously written off are recorded when collected. At December
31, 2022 total accounts receivable was $6,552,249 with an allowance for uncollectable accounts of $3,098,526 resulting in a net amount of $3,453,723. At
December 31, 2021 total accounts receivable was $21,508,779 with an allowance for uncollectable accounts of $669,597 resulting in a net amount of
$20,839,182.
Equity-Method Investments
Our equity method investments are initially recorded at cost and are included in other long-term assets in the accompanying consolidated balance sheet. We
adjust the carrying value of our investment based on our share of the earnings or losses in the periods which they are reported by the investee until the
carrying amount is zero. The earnings or losses are included in other income (expense) in the accompanying consolidated statements of operations.
Inventory
Inventory is stated at the lower of cost or net-realizable value. Inventory cost is determined on a first-in first-out basis that approximates average cost in
accordance with ASC 330-10-30-12. At December 31, 2022, the Company had $5,310,473 in inventory, of which $1,327,264 was finished goods and
$3,983,209 was raw materials. At December 31, 2021, the Company had $2,004,169 in inventory, of which $983,088 was finished goods and $1,021,081
was raw materials. The Company establishes reserves to reduce low-moving, obsolete, or unusable inventories to their estimated useful or scrap values.
40
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price and related costs over the value assigned to net tangible and identifiable intangible assets acquired in
business combinations. Goodwill and indefinite-lived intangible assets are not amortized, but rather tested for impairment at least annually on December
31, or more often if and when circumstances indicate that the carrying value may not be recoverable. Finite-lived intangible assets are amortized over their
useful lives.
During the year ended December 31, 2022, the Company recognized impairment charges related to goodwill of $15,388,546.
Long-lived Assets
Long-lived assets, such as property and equipment, are stated at cost less accumulated depreciation and amortization. Depreciation is provided using the
straight-line method over the estimated useful lives of the property, generally from three to five years. Repairs and maintenance costs are expensed as
incurred except when such repairs significantly add to the useful life or productive capacity of the asset, in which case the repairs are capitalized.
The Company reviews its long-lived assets, including property and equipment, finite-lived intangible assets, and ROU assets, for impairment whenever an
event or change in facts and circumstances indicates that their carrying amounts may not be recoverable. Recoverability of these assets is measured by
comparing the carrying amount to the estimated undiscounted future cash flows expected to be generated. If the carrying amount exceeds the undiscounted
cash flows, the assets are determined to be impaired and an impairment charge is recognized as the amount by which the carrying amount exceeds fair
value.
Business Combinations
We estimate the fair value of assets acquired and liabilities assumed in a business combination. Goodwill as of the acquisition date is measured as the
excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Such valuations require
management to make significant estimates and assumptions, especially with respect to intangible assets. Management’s estimates of fair value are based
upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable, and as a result, actual results may differ from estimates.
Revenue Recognition
The Company generates revenue from product sales and license sales. The Company recognizes revenue when all of the following criteria are satisfied: (i)
identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations,
including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable
consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as the Company satisfies each
performance obligation. Based on the criteria above, the Company typically recognizes revenue upon delivery.
The Company constrains revenue by giving consideration to factors that could otherwise lead to a probable reversal of revenue. The Company records any
payments received from customers prior to the Company fulfilling its performance obligation(s) as deferred revenue.
Deferred Revenue
Deferred revenue primarily consists of payments received from customers prior to the Company fulfilling its performance obligation of providing the
product. When this occurs, the Company records a contract liability as deferred revenue. Deferred revenue is recognized as revenue as the related
performance obligations are satisfied.
41
Research and Development
Research and development costs are expensed when incurred. The Company expensed $17,438,098 and $14,961,916 of research and development costs for
the years ended December 31, 2022 and 2021, respectively.
Stock-based Compensation
The Company has granted stock-based awards, including restricted stock, stock options, stock warrants and restricted stock units (“RSUs”), to its
employees, certain consultants and members of its board of directors. The Company records stock-based compensation based on the grant date fair value of
the awards and recognizes the fair value of those awards as expense using the straight-line method over the requisite service period of the award. The
Company estimates the grant date fair value of stock options using the Black-Scholes option-pricing model. When an award is forfeited prior to the vesting
date, the Company recognizes an adjustment for the previously recognized expense in the period of the forfeiture.
Income Taxes
The Company accounts for income taxes in accordance with the liability method of accounting for income taxes. Under this method, deferred income tax
assets and deferred income tax liabilities represent the tax effect of temporary differences between financial reporting and tax reporting measured at enacted
tax rates in effect for the year in which the differences are expected to reverse. The Company recognizes only the impact of tax positions that, based on
their technical merits, are more likely than not to be sustained upon an audit by the taxing authority.
Valuation allowances are provided when it is more-likely-than-not that some or all of the deferred income tax assets may not be realized. In assessing the
need for a valuation allowance, the Company has considered its historical levels of income, expectations of future taxable income and ongoing tax planning
strategies.
Developing the provision for income taxes, including the effective tax rate and analysis of potential tax exposure items, if any, requires significant
judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred income tax assets and
liabilities and any estimated valuation allowances deemed necessary to value deferred income tax assets. Judgments and tax strategies are subject to audit
by various taxing authorities. The Company has uncertain income tax positions in the consolidated financial statements, and adverse determinations by
these taxing authorities could have a material adverse effect on the consolidated financial positions, result of operations, or cash flows.
Net Income per Share
Basic net income or loss per common share is computed by dividing net income or loss applicable to common shareholders by the weighted average
number of shares outstanding during each period.
Diluted net income or loss per share is computed by dividing net income or loss attributable to common stockholders by the weighted-average number of
shares of common stock outstanding during the period increased by common shares that could be issued upon conversion or exercise of other outstanding
securities to the extent those additional common shares would be dilutive. The dilutive effect of potentially dilutive securities is reflected in diluted net
income or loss per share by application of the treasury stock method. During periods when the Company is in a net loss position, basic net loss per share is
the same as diluted net loss per share as the effects of potentially dilutive securities are anti-dilutive.
Comprehensive Income
Comprehensive income is comprised of unrealized gains and losses on marketable securities, net of income taxes.
Concentrations Risk and Significant Customers
The Company had certain customers which are each responsible for generating 10% or more of the total revenue for the years ended December 31, 2022
and 2021. One customer accounted for approximately 37% and two customers together accounted for approximately 48% of total revenue for the years
ended December 31, 2022 and 2021, respectively.
42
Three customers accounted for more than 10% of accounts receivable, and two customers each accounted for more than 10% of accounts receivable, at
December 31, 2022 and 2021, respectively. These customers together accounted for approximately 61% and 66% of accounts receivable at December 31,
2022 and 2021, respectively.
Recently Issued Accounting Standards
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company
as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not
have a material impact on the Company’s financial statements upon adoption.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), which requires the measurement and
recognition of expected credit losses for certain financial instruments, which includes the Company’s accounts receivable. ASU 2016-13 replaces the
existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The Company
adopted ASU 2016-13 on January 1, 2022. The adoption did not have an impact on the Company’s financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires a lessee to recognize most leases on the
balance sheet as lease liabilities with corresponding right-of-use assets. The objective of ASU 2016-02 is to increase transparency and comparability among
organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The
recognized lease liabilities and lease assets represent the obligation to make payments and the right to use or control the use of a specified asset for the
lease term, respectively.
On January 1, 2022, the Company adopted Topic 842 using the modified retrospective approach with the effective date as the date of initial application.
Consequently, results for the year ended December 31, 2022 are presented under Topic 842. No prior period amounts were adjusted and continue to be
reported in accordance with previous lease guidance, ASC Topic 840, Leases. The Company elected the practical expedients available under the provisions
of the new standard, including not reassessing whether expired or existing contracts are or contain leases; not reassessing the classification of expired or
existing leases; and not reassessing the initial direct cost for any existing leases. Upon adoption, the Company recognized an operating lease liability of
$626,699 and a corresponding operating right-of-use asset of $681,327.
43
Note 3 - Cash, Cash Equivalents, and Financial Instruments
The following table shows the Company’s cash, cash equivalents, and marketable investment securities by significant investment category as of December
31, 2022:
Cash
Level 1:
Money market funds
Subtotal
Level 2:
U.S. treasury securities
Subtotal
Total
Adjusted
Cost
Allowance
for Credit
Losses
December 31, 2022
Total
Unrealized
Gains /
(Losses) Fair Value
Cash and
Cash
Equivalents
$ 12,834,444 $
- $
- $ 12,834,444 $ 12,834,444 $
Marketable
Securities
-
146,359
146,359
-
-
-
-
146,359
146,359
146,359
146,359
-
-
67,892,825
67,892,825
$ 80,873,628 $
389,241
389,241
58,289,066
-
58,289,066
-
- $ 389,241 $ 81,262,869 $ 22,973,803 $ 58,289,066
9,993,000
9,993,000
68,282,066
68,282,066
Marketable investment securities held as of December 31, 2022 mature over the next 12 months.
Note 4 – Business Combinations
On December 31, 2021, the Company completed its acquisitions of Advanced Conceptions, Inc. (“ACI”) and Idaho Molecular, Inc. (“IdMo”), which were
related entities developing, with the Company, an at-home/point-of-care medical diagnostic device. Upon the completion of the acquisition, all outstanding
ACI and IdMo common stock was initially exchanged for approximately 3.2 million shares of the Company’s common stock and contingent consideration
that includes up to approximately 1.4 million shares and approximately 456,000 warrants to purchase shares of the Company’s common stock. The
contingent consideration is based on the achievement of certain milestones, which include regulatory approval for identified products, as well as production
and net revenue targets. Upon the completion of the acquisition, both ACI and IdMo became 100% wholly-owned subsidiaries of the Company.
The fair value of assets acquired and liabilities assumed was based on a preliminary valuation, with estimates and assumptions subject to change within the
measurement period. During 2022, the Company finalized negotiations that were ongoing as of December 31, 2021 with one remaining shareholder of
ACI, which resulted in an increase to the purchase consideration of $580,135. Additionally, there was an increase of $101,593 in the estimated tax
liabilities that resulted from the acquisition. Due to the change in purchase consideration and estimated tax liabilities, a measurement period adjustment was
recorded, resulting in an increase to goodwill of $681,728.
Following the resolution with the remaining shareholder, the total number of shares exchanged as purchase consideration was approximately 3.3 million
shares. Additionally, the updated purchase consideration includes contingent consideration of up to approximately 1.4 million shares and 465,000 warrants
to purchase shares of the Company’s common stock.
In addition, the adjustments to the provisional purchase consideration amount resulted in an increase in the gain on remeasurement of acquisition
contingencies of $78,617.
44
The total purchase consideration, including adjustment during the measurement period, was allocated to the assets acquired and liabilities assumed as set
forth below:
Purchase Consideration
Fair value of common shares issued
Payable to shareholder
Fair value of contingent shares
Fair value of contingent warrants
Total fair value of consideration transferred
Identifiable assets acquired and liabilities assumed
Cash
Accounts receivable
Prepaid expenses and other current assets
Property and equipment
Technology - In-process research and development
Non-competition agreements
Accounts payable and accrued other expenses
Deferred tax liability
Total identifiable net assets
Goodwill
Total
Amounts
Recognized as of
Acquisition Date
(as previously
reported)
Measurement
Period
Adjustments
Amounts
Recognized as of
Acquisition Date
(as adjusted)
$
$
$
$
25,160,223
100,000
8,684,669
1,747,972
35,692,864
1,196,243
31,170
70,321
408,173
26,101,000
1,094,000
(1,069,274)
(6,845,587)
20,986,046
14,706,818
35,692,864
$
$
$
$
480,776 $
(100,000)
165,957
33,402
580,135 $
- $
-
-
-
-
-
(101,593)
-
(101,593)
681,728
580,135 $
25,640,999
-
8,850,626
1,781,374
36,272,999
1,196,243
31,170
70,321
408,173
26,101,000
1,094,000
(1,170,867)
(6,845,587)
20,884,453
15,388,546
36,272,999
The in-process research and development is considered an indefinite-lived intangible until the completion or abandonment of the research and development
activities. The non-competition agreements are being amortized over a range of 1.5 to 3 years.
Note 5 – Fair Value Measurements
The Company measures and records certain financial assets and liabilities at fair value on a recurring basis. Fair value is based on the price that would be
received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The following three levels of inputs are used to measure the fair value of financial assets and liabilities:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
45
The following table summarizes the assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and December 31, 2021, by
level within the fair value hierarchy:
Assets:
Cash equivalents
Marketable securities (U.S. treasury bills and notes)
Total assets measured at fair value
Liabilities:
Contingent consideration - common stock
Contingent consideration - warrants
Total liabilities measured at fair value
Assets:
Marketable securities (certificates of deposit)
Total assets measured at fair value
Liabilities:
Contingent consideration - common stock
Contingent consideration - warrants
Total liabilities measured at fair value
(Level 1)
(Level 2)
(Level 3)
Total
December 31, 2022
$
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
$
$
$
$
$
$
$
$
10,179,667 $
58,289,066
68,468,733 $
- $
-
- $
10,179,667
58,289,066
68,468,733
- $
-
- $
2,499,147 $
233,209
2,732,356 $
2,499,147
233,209
2,732,356
December 31, 2021
(Level 2)
(Level 3)
Total
1,255,266 $
1,255,266 $
- $
- $
1,255,266
1,255,266
- $
-
- $
8,684,669 $
1,747,972
10,432,641 $
8,684,669
1,747,972
10,432,641
(Level 1)
The Company’s financial instruments that are measured at fair value on a recurring basis consist of certificates of deposit and U.S. treasury bills and notes
as of December 31, 2021 and 2022, respectively.
In connection with the acquisitions of IdMo and ACI on December 31, 2021, the Company recorded a liability for contingent consideration in the form of
shares of common stock and warrants to purchase common stock. The fair value of contingent consideration is calculated using a discounted probability
weighted valuation model. Discount rates used in such calculations are a significant assumption that are not observed in the market, and therefore, the
resulting fair value represents a Level 3 measurement.
The changes for Level 3 items measured at fair value on a recurring basis are as follows:
Fair value as of December 31, 2021
Change in contingent purchase consideration for measurement period adjustments
Change in fair value of contingent consideration issued for business acquisitions
Fair value as of December 31, 2022
46
$
$
10,432,641
199,359
(7,899,644)
2,732,356
The fair value of the contingent consideration is based on the fair value of the contingent consideration-common stock and contingent consideration-
warrants. The fair value of the contingent consideration-common stock is equal to the probability-adjusted value of the Company’s common stock as of the
valuation date. The fair value of the contingent consideration-warrants is equal to the probability adjusted value of a call option with terms consistent with
the terms of the warrants as of the valuation date. Prior to the probability adjustments, the warrants were valued based on the following inputs:
Stock price
Strike price
Volatility
Risk-free rate
Expected term
$
$
December 31, 2022
December 31, 2021
$
$
2.52
9.13
75.00%
4.10%
4.0
8.93
9.13
80.00%
1.30%
5.0
In order to calculate the probability-adjusted value of the contingent consideration-common stock and contingent consideration-warrants, the Company
estimated the probability as of the valuation date of achieving certain milestones, which include regulatory approval for identified products, as well as
production and net revenue targets. The probability of achieving the milestone related to net revenues was estimated as of the acquisition date using a
Monte Carlo simulation valuation model. Significant inputs other than the fair value assumptions noted above were consistent as of the valuation date. The
unobservable significant inputs to the valuation model were as follows:
Stock price
Risk-free rate
Expected term
Weighted-average cost of capital
Revenue discount rate
Equity volatility
Asset volatility
Revenue volatility
Fair Value of Other Financial Instruments
$
December 31, 2022
December 31, 2021
$
2.52
4.10%
4.0
27.00%
9.50%
75.00%
80.00%
30.00%
8.93
1.30%
5.0
27.00%
9.50%
80.00%
80.00%
30.00%
The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, notes receivable, accounts payable, accrued
liabilities, and other liabilities approximate fair value due to their short-term maturities and are excluded from the fair value tables above.
47
Note 6 – Property and Equipment
Property and equipment, net consisted of the following:
Lab equipment
Leasehold improvements
Office equipment, furniture and other
Less accumulated depreciation and amortization
Fixed assets, net
Note 7 - Goodwill and Intangible Assets
Goodwill
Estimated Useful Lives
December 31,
in years
3 - 5
0 -3
2 - 5
2022
2021
$
$
3,574,730 $
224,957
112,044
(1,372,248)
2,539,483 $
2,476,813
3,157
75,401
(622,155)
1,933,216
Goodwill represents the excess of purchase price and related costs over the value assigned to net tangible and identifiable intangible assets acquired in
business combinations. The following table presents the changes in the carrying amount of goodwill for the year ended December 31, 2022:
Balance as of December 31, 2021
Measurement period adjustments
Goodwill impairment charges
Balance as of December 31, 2022
$
$
14,706,818
681,728
(15,388,546)
-
The Company assesses goodwill for impairment at the reporting unit level on an annual basis, or whenever events or changes in circumstances occur that
indicate that the fair value of a reporting unit is below its carrying amount. The Company estimates the fair value of its reporting unit by using forecasts of
discounted future cash flows and peer market multiples. If the fair value is less than the carrying value, impairment will be recognized in the amount by
which the carrying value exceeds the fair value. The Company performed a qualitative and quantitative goodwill impairment assessment as of December
31, 2022. Based on the impairment assessment performed the Company concluded that it was more likely than not that the fair value of the Company’s
reporting unit was less than it’s carrying amount. Accordingly, the Company recorded an impairment charge to reduce the carrying value of goodwill to $0.
Intangible Assets, Net
Intangible assets, net consisted of the following:
In-process research and development
Non-competition agreements
Total intangible assets
Weighted-Average
Useful Life (1)
(in Years)
Indefinite
2.7
$
$
48
December 31, 2022
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
26,101,000 $
1,094,000
27,195,000 $
- $
(426,667)
(426,667) $
26,101,000
667,333
26,768,333
In-process research and development
Non-competition agreements
Total intangible assets
Weighted-Average
Useful Life (1)
(in Years)
Indefinite
2.7
December 31, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
$
26,101,000 $
1,094,000
27,195,000 $
- $
-
- $
26,101,000
1,094,000
27,195,000
The expected future annual amortization expense of the Company’s intangible assets held as of December 31, 2022 is as follows:
Year Ending December 31,
2023
2024
Total
Note 8 - Accrued Expenses
Accrued expenses consisted of the following:
Payroll liabilities
Distributor commissions
Other accrued liabilities
Total accrued expenses
Amortization
Expense
364,668
302,665
667,333
$
December 31, 2022
December 31, 2021
$
$
428,354 $
159,725
346,368
934,447 $
2,455,694
509,500
894,458
3,859,652
49
Note 9 – Revenue
The following table sets forth revenue by geographic area:
United States
Rest of World
Total
Percentage of revenue by area:
United States
Rest of World
Deferred Revenue
Years Ended December 31,
2021
2022
$
$
24,671,554
9,546,655
34,218,209
$
$
52,185,812
45,699,791
97,885,603
72%
28%
53%
47%
Changes in the Company’s deferred revenue balance for the years ended December 31, 2022 and 2021 were as follows:
Balance as of December 31, 2020
Revenue recognized included in deferred revenue balance at the beginning of the period
Increase due to prepayments from customers
Increase due to note receivable
Decrease due to refunds to customers and application to open balances
Balance as of December 31, 2021
Revenue recognized included in deferred revenue balance at the beginning of the period
Balance as of December 31, 2022
Note 10 – Earnings per Share
305,307
(256,110)
79,213
150,000
(128,410)
150,000
(150,000)
-
$
$
The following table reconciles the numerator and the denominator used to calculate basic and diluted earnings per share for years ended December 31,
2022 and 2021:
Numerator
Net income, as reported
Denominator
Weighted average shares, basic
Dilutive effect of stock options, warrants and RSUs
Shares used to compute diluted earnings per share
Basic earnings per share
Diluted earnings per share
Years Ended December 31,
2021
2022
$
(14,238,249) $
36,658,564
31,479,028
-
31,479,028
28,874,555
1,029,131
29,903,686
(0.45) $
(0.45) $
1.27
1.23
$
$
50
For the year ended December 31, 2021, potentially dilutive securities of 154,644 were excluded from the computation of diluted earnings per share because
the effect would have been anti-dilutive. The computation of diluted earnings per share for the years ended December 31, 2022 and December 31, 2021
also excludes the approximately 1.4 million shares of common stock and approximately 465,000 warrants to purchase shares of common stock mentioned
in Note 4 that are contingent upon the achievement of certain milestones.
As a result of incurring a net loss for the year ended December 31, 2022, no potentially dilutive securities are included in the calculation of diluted earnings
per share because such effect would be anti-dilutive. The Company had potentially dilutive securities as of December 31, 2022, consisting of: (i) 1,443,238
restricted stock units and (ii) 50,000 options.
Note 11 – Stock-Based Compensation
Stock Incentive Plans
The Company’s board of directors adopted, and shareholders approved, the Co-Diagnostics, Inc. Amended and Restated 2015 Long Term Incentive Plan
(the “Incentive Plan”) providing for the issuance of stock-based incentive awards to employees, officers, consultants, directors and independent contractors.
On August 31, 2022 the shareholders approved an increase in the number of awards available for issuance under the Incentive Plan to an aggregate of
12,000,000 shares of common stock. The number of awards available for issuance under the Incentive Plan was 6,210,790 at December 31, 2022.
Stock Options
The following table summarizes option activity during the years ended December 31, 2022 and 2021:
Outstanding at December 31, 2020
Granted
Expired
Forfeited/Cancelled
Exercised
Outstanding at December 31, 2021
Granted
Expired
Forfeited/Cancelled
Exercised
Outstanding at December 31, 2022
Exercisable at December 31, 2022
Number of
Options
1,300,588
-
-
-
(189,225)
1,111,363
-
-
-
(70,791)
1,040,572
1,040,572
51
$
$
$
Weighted
Average Fair
Value
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise Price
$
2.44 $
-
-
-
2.38
2.12 $
-
-
-
1.10
2.19 $
1.24
-
-
-
1.12
1.31
-
-
-
0.51
1.37
2.19 $
1.37
5.88
5.88
The total intrinsic value of options exercised during the years ended December 31, 2022 and 2021 was approximately $0.4 million and $1.3 million,
respectively. The aggregate intrinsic value of outstanding options at December 31, 2022 and 2021 was approximately $0.8 million and $7.6 million,
respectively. As of December 31, 2022, there were no unvested options and no unrecognized stock-based compensation expense related to options.
Restricted Stock Units
The grant date fair value of RSUs granted is determined using the closing market price of the Company’s common stock on the grant date with the
associated compensation expense amortized over the vesting period of the awards. The following table sets forth the outstanding RSUs and related activity
for the years ended December 31, 2022 and 2021:
Unvested at December 31, 2020
Granted
Vested
Forfeited/Cancelled
Unvested at December 31, 2021
Granted
Vested
Forfeited/Cancelled
Unvested at December 31, 2022
Number of RSUs
Weighted Average
Grant Date Fair Value
10.49
9.76
10.10
9.91
9.94
5.66
8.66
8.31
7.06
522,500 $
1,217,500
(438,502)
(34,083)
1,267,415 $
1,925,476
(725,166)
(41,000)
2,426,725 $
As of December 31, 2022, there was $14.7 million of unrecognized stock-based compensation expense related to outstanding RSUs which is expected to be
recognized over a weighted-average period of 2.2 years.
Warrants
The Company has issued warrants related to financings, acquisitions and as compensation to third parties for services provided. The Company estimates the
fair value of issued warrants on the date of issuance as determined using a Black-Scholes pricing model. The Company amortizes the fair value of issued
warrants using a vesting schedule based on the terms and conditions of each warrant if granted for services.
52
The following table summarizes warrant activity during the years ended December 31, 2022 and 2021:
Outstanding at December 31, 2020
Granted
Expired
Forfeited/Cancelled
Exercised
Outstanding at December 31, 2021
Issued for adjustments to contingent purchase consideration
Granted
Expired
Forfeited/Cancelled
Exercised
Outstanding at December 31, 2022
Number of
Warrants
70,000
456,281
-
-
-
526,281
8,719
-
-
-
(50,000)
485,000
$
$
Weighted
Average
Exercise Price
$
Weighted
Average Fair
Value
Weighted
Average
Remaining
Contractual
Life (Years)
5.21
3.83
-
-
-
4.01
1.88
-
-
-
1.22
2.43
3.3
4.7
4.0
1.83 $
9.13
-
-
-
8.15 $
9.13
-
-
-
2.00
8.81 $
The intrinsic value of warrants exercised during the years ended December 31, 2022 and 2021 was $0.3 million and $0.0 million, respectively. The
aggregate intrinsic value of outstanding warrants at December 31, 2022 was approximately $22,000.
20,000 warrants are exercisable at December 31, 2022. As discussed in Note 3 and Note 4, approximately 456,000 warrants to purchase shares of the
Company’s common stock were issued in connection with the acquisition of ACI and IdMo. The ability to exercise the warrants is contingent upon the
achievement of certain development and revenue milestones on or before January 1, 2027. There was no unrecognized stock-based compensation expense
related to warrants.
See Note 5 for additional information regarding the fair value calculation of the warrants issued during the year ended December 31, 2021.
Stock Issued for Services
The Company has issued restricted stock to third parties for services provided. The grant date fair value of the restricted stock granted is determined using
the closing market price of the Company’s common stock on the grant date with the associated compensation expense amortized over the vesting period of
the stock awards. The Company issued 0 and 5,548 shares of restricted stock for services during the years ended December 31, 2022 and 2021,
respectively, and there was no unrecognized stock-based compensation expense related to restricted stock issued.
53
Stock-Based Compensation Expense
The Company recognized stock-based compensation expense related to the types of awards discussed above as follows:
Options
Restricted stock units
Stock
Total stock-based compensation expense
Note 12 – Income Taxes
Years Ended December 31,
2022
2021
78,115 $
7,465,108
-
7,543,223 $
292,754
5,164,750
51,900
5,509,404
$
$
The components of the provision for income taxes consists of the following for the years ended December 31, 2022 and 2021:
Current:
Federal
State
Total current
Deferred:
Federal
State
Total deferred
Total income tax (benefit) expense
Year Ended December 31,
2022
2021
$
$
$
563,821 $
(266,248)
297,573 $
(3,945,090)
(961,468)
(4,906,558)
(4,608,985) $
6,092,730
886,173
6,978,903
1,394,686
603,642
1,998,328
8,977,231
A reconciliation of income tax expense at the statutory federal income tax rate and income taxes as reflected in the financial statements is as follows:
Federal income tax expense at statutory rate
State income tax expense, net of federal tax benefit
Permanent differences:
- Foreign derived intangible income deduction
- Stock based compensation
- Contingent consideration remeasurement
- Goodwill impairment
- Other permanent differences
Research and development credits
Change in uncertain tax positions
Change in valuation allowance
Other
Effective income tax rate
Net deferred tax liabilities consist of the following components as of December 31, 2022 and 2021:
Deferred tax assets:
Accrued liabilities
Reserves and allowances
Deferred compensation
Research and development credits
Lease liability
UNICAP
Total deferred tax assets
Deferred tax liabilities:
Property and equipment, net
Intangibles, net
Prepaids
Right of use asset
Other comprehensive income
Other
Total deferred tax liabilities
Net deferred tax (liabilities)
Less valuation allowance
Net deferred tax (liabilities)
Year Ended December 31,
2022
2021
21.0%
4.8%
1.4%
-3.6%
8.8%
-17.1%
-0.6%
11.1%
-2.1%
0.0%
0.8%
24.5%
21.0%
3.9%
-3.5%
0.2%
0.0%
0.0%
0.3%
-2.6%
1.4%
0.0%
-1.0%
19.7%
December 31,
2022
2021
$
98,141 $
765,004
566,076
3,460,159
85,899
168,936
5,144,215
(609,261)
(6,608,914)
(156,053)
(91,873)
(96,101)
-
(7,562,202)
(2,417,987)
-
$
(2,417,987) $
-
166,050
393,871
-
-
-
559,921
(477,542)
(6,743,972)
(560,093)
-
-
(6,758)
(7,788,365)
(7,228,444)
-
(7,228,444)
At December 31, 2022, the Company had no federal net operating loss carryforwards and no federal research and development credit carryforwards. At
December 31, 2022, the Company had no state net operating loss carryforwards and $288,292 of state research and development credit carryforwards. If
unused, the state research credit carryforward will expire in 2036.
54
ASC Topic 740-10-05 requires that the impact of a tax position be recognized in the financial statements if that position is more likely than not of being
sustained on audit, based on the technical merits of the position. Our unrecognized tax benefit balances included $1,469,577 at December 31, 2022 and
$1,067,853 at December 31, 2021 of tax positions that, if recognized, would impact our effective tax rate. The Company expects no material changes to the
liability for unrecognized tax benefits in the next 12 months. Interest and penalties associated with uncertain tax positions are recorded as a component of
income tax expense. A reconciliation of the beginning and ending amount of unrecognized benefits is as follows:
Unrecognized tax benefits at the beginning of the year
Gross increases - current year tax positions
Gross increases - prior year tax positions
Gross decreases - prior year tax positions
Unrecognized tax benefits at end of year
Interest and penalties in year-end balance
December 31,
2022
2021
1,067,853 $
1,045,590
34,035
(677,901)
1,469,577 $
447,831
770,069
-
(150,047)
1,067,853
34,035 $
-
$
$
$
The Company is subject to taxation in the United States and other state jurisdictions. The tax years from December 31, 2019 through December 31, 2022
remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which the Company is subject. The Company is
not currently under examination by any taxing authority.
Note 13 – Commitments and Contingencies
Lease Obligations
The Company leases office space under a non-cancellable operating lease and leases cancellable with one month notice. The Company expenses the
cancelable leases in the period incurred in accordance with the practical expedient elected. As such, one lease makes up the entirety of the right-of-use asset
and lease liability disclosed.
For the year ended December 31, 2022, components of lease expense are summarized as follows:
Operating lease costs
Short-term lease costs
Total lease costs
Year Ended
December, 2022
346,349
384,902
731,251
$
$
Short-term lease costs under month-to-month lease agreements are paid to related parties.
As of December 31, 2022, the maturities of the Company’s lease liabilities are as follows:
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less: imputed interest
Present value of operating lease liabilities
Less: current portion
Long-term portion
Year Ending
December 31,
303,059
50,773
-
-
-
-
353,832
5,915
347,917
297,209
50,708
$
$
55
Other information related to operating leases was as follows:
Cash paid for operating leases included in operating cash flows
Remaining lease term of operating leases
Discount rate of operating leases
Litigation
Year Ended
December 31, 2022
$
700,821
1 year
3.1%
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a
liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as
incurred.
The Company is a defendant in two class action claims and three derivative actions claiming that the Company promulgated false and misleading press
releases to increase the price of our stock to improperly benefit the officers and directors of the Company. The plaintiffs demand compensatory damages
sustained as a result of the Company’s alleged wrongdoing in an amount to be proven at trial. The Company believes these lawsuits are without merit and
intends to defend the cases vigorously. The Company is unable to estimate a range of loss, if any, that could result were there to be an adverse final decision
in these cases. As of the date of this report, the Company does not believe it is probable that these cases will result in an unfavorable outcome; however, if
an unfavorable outcome were to occur in these cases, it is possible that the impact could be material to the Company’s results of operations in the period(s)
in which any such outcome becomes probable and estimable.
Note 14 – Share Repurchase Program
In March 2022, the Company’s board of directors authorized a share repurchase program that would allow the Company to repurchase up to $30.0 million
of CODX common stock. The repurchase program does not obligate the Company to acquire any particular number of common shares, and the repurchase
program may be suspended or discontinued at any time at the Company’s discretion. The timing and amount of any share repurchases under the share
repurchase program will be determined by Co-Diagnostics’ management at its discretion based on ongoing assessments of the capital needs of the business,
the market price of the Company’s common stock, corporate and regulatory requirements, and general market conditions.
For accounting purposes, common stock repurchased under the stock repurchase program is recorded based upon the transaction date of the applicable
trade. Such repurchased shares are held in treasury and are presented using the cost method. These shares are not retired and are considered issued but not
outstanding. The following table shows the changes in treasury stock for the periods presented:
Balance, beginning of period
Repurchases of common stock
Balance, end of period
56
Year Ended
December 31, 2022
-
3,881,658
3,881,658
Note 15 – Subsequent Events
None.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) designed to ensure that information required to
be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in
rules and forms adopted by the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the
Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required
disclosure.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures as of December 31, 2022. Based on the evaluation, management has concluded that our disclosure controls and procedures are
effective as of December 31, 2022 to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial
statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a- 15(f) and 15d-15(f)
under the Exchange Act) during the fourth quarter of 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s
internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our
internal control over financial reporting as of December 31, 2022. In making its evaluation, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013).
Based on this evaluation, management determined that our internal control over financial reporting was effective as of December 31, 2022.
This Annual Report does not include an attestation report by our independent registered public accounting firm regarding internal control over financial
reporting since we are a non-accelerated filer. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules
of the SEC that permit non-accelerated filers to provide only management’s report in the 10-K.
57
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal
control over financial reporting are intended to be designed to provide reasonable assurance of achieving their objectives. However, our management does
not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A
control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty,
and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or
procedures may deteriorate. Because of the inherent limitations in a cost–effective control system, misstatements due to error or fraud may occur and not be
detected.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
PART III
The following table sets forth the names, ages and positions of our executive officers and directors as of March 16, 2023. The following is information on
the business experience of each director and executive officer now serving and a discussion of the qualifications, attributes and skills that led to the board
of directors’ conclusion that each one is qualified to serve as a director or as an executive officer as the case may be. Executive officers serve at the
discretion of the board of directors.
Name
Dwight Egan
Brian Brown
Eugene Durenard
James Nelson
Richard Serbin
Ted Murphy
Age
69
47
53
70
78
58
Position
Chief Executive Officer, President and Chairman of the Board
Chief Financial Officer and Secretary
Director
Director
Director
Director
The following is a brief summary of the background of each of our directors:
Edward Murphy has been a member of our board of directors since June 2019. Since December 1999, Mr. Murphy has served as a senior vice president
and a partner of Dover Investments Ltd., a private investment firm. Throughout his career, Mr. Murphy’s duties have included investment analysis of
various types of investment projects in real estate and financial services. Currently, Mr. Murphy serves on the board of directors of several Canadian
publicly reporting companies that have interests in various industries. He has been a Director at Empire Minerals Corporation Inc. since January 2016, at
Digicrypts Blockchain Solutions Inc. from June 2011 to November 2022, at Lakefield Marketing Corporation since February 2018, CEO/CFO and Director
of Credo Resources Inc. since September 2019, at the Mosport Park Entertainment Corporation since April 30, 1997, at Essex Oil Ltd. Since July 2021, and
at Darkhorse Technologies Ltd. since November 2021. He served as a Director at Aurquest Resources from May 2003 to December 2017. Mr. Murphy’s
experience in the capital markets outside the United States and his involvement in investment analysis is a benefit to the board of directors.
58
Richard Serbin has been a member of our board of directors since May 2017. Mr. Serbin currently serves as a consultant to many companies in the
healthcare industry. He was the President of Corporate Development and In-House Legal Counsel at Life Science Institute, LLC, from June 1, 2013 to July
15, 2014. He was appointed to the Advisory Board of Cure Pharmaceutical in January 2017 and has been a Member of Advisory Board at Prime Access,
Inc. since September 2015. Mr. Serbin has been a Director at Rapid Nutrition Plc since November 18, 2014. He served as Director at Viropro Inc. from
May 2013 to June 2014. He was Head of Business Advisory Board at Mazal Plant Pharmaceuticals Inc. from October 2006 to September 2007 and also
served as its Member of Business Advisory Board. He served as Chief Executive Officer of Optigenex Inc. from July 2002 to September 15, 2005 and a
director from July 2004 to September 2005. From January 1999 until July 2002 Mr. Serbin served as a consultant to various pharmaceutical companies. He
served as the President of Bradley Pharmaceuticals. He served as Vice President of Corporate Development at Ortho Pharmaceuticals, a Johnson &
Johnson subsidiary, and practiced Patent and FDA law at Revlon Johnson & Johnson and Schering-Plough. He served as Patent Attorney for Schering
Plough Corporation and Chief FDA Counsel for Revlon Corporation and Johnson and Johnson Corporation. Subsequently, he worked at Revlon
Corporation, as its Chief Food, Drug and Cosmetic Counsel. He founded Radius Scientific Corporation. He was J&J’s Vice President of Corporate
Development, and later led a successful public offering venture based on technology developed at Stanford Medical School. Mr. Serbin spent a large
portion of his career focusing on international markets and clients. While at J&J, Mr. Serbin served on the board of directors of 16 US and international
subsidiary companies, including Ethicon, Ortho, J&J Consumer Products, Pittman-Moore, Mc Neil, and J&J Development Corporation. He worked on
multiple international acquisitions and strategic relationships, and sat on the board of directors of several of its international subsidiaries, including those in
India, Hong Kong, Japan, Taiwan, Germany, and England. Mr. Serbin has a B.S. and a B. Pharmacy from Rutgers University and Rutgers University
College of Pharmacy, a J.D. degree from Seton Hall Law School and a Master’s Degree in Trade Regulations and Law from NYU Law School. Mr.
Serbin’s experience in business, law and medicine and knowledge gained as an advisor to the healthcare industry is critical to our board of directors as we
continue to commercialize our products.
Dwight Egan serves as our President and Chief Executive Officer and has been an officer and director of the Company since April 2013. Mr. Egan has
been engaged in private investment business from February 1999 to the present. He was a senior executive at Data Broadcasting Corporation, a leading
provider of wireless, real-time financial market data, news and sophisticated fixed- income portfolio analytics to 27,000 individual and professional
investors from 1995 to 1999. He co-founded and served as CEO and Chairman of the Board of Broadcast International, Inc. from 1984 to 1995, when Data
Broadcasting Corporation acquired Broadcast International and created CBS MarketWatch, a leading financial news site and participated in its initial public
offering. Mr. Egan’s prior experience in executive leadership positions with public companies and working with capital markets qualifies him to serve as
our Chairman, President and Chief Executive Officer.
Eugene Durenard has been a member of our board of directors since June 2019. Dr. Durenard is the Founder and CEO of Hyperbolic Holdings, a Swiss-
based holding, management consulting and strategy advisory company specialized in healthcare. Dr. Durenard brings investment and entrepreneurial
experience spanning 20 years. For the last 7 years he has been working with family offices on direct investments and philanthropy focused on life sciences.
He serves on the advisory board of several private companies in the biotech and MedTech sectors. After an initial career in proprietary research and trading
at Salomon Brothers and Credit Suisse in London, he co-founded Orion Investment Management in Bermuda specializing in quantitative asset and liability
management for institutions and private clients. He subsequently sold it to Capital G Bank and co-headed their asset management. Dr. Durenard spent
several years establishing personal connections with representatives of 40+ clusters of life science innovation, families operating healthcare businesses and
industry leaders globally. He regularly visits labs and incubators, meets with leading scientists and innovators in order to keep abreast of current trends and
developments. His advice is based on a thorough analysis that combines in-depth knowledge of science, competitive forces and financial expertise. He has
published several articles in asset-liability management industry magazines as well as the book “Professional Automated Trading — Theory and Practice”
(Wiley 2013). He has a PhD in Mathematics from Harvard University. Dr. Durenard brings a thorough multi-asset class investment and entrepreneurial
experience spanning 25 years to the Company’s board of directors.
59
James Nelson has been a member of our board of directors since June 2019. Mr. Nelson is the retired Chairman and CEO of Sunworks, Inc., a NASDAQ
traded commercial, agriculture, and residential solar Integrator which he helped found in October 2010. Mr. Nelson spent most of his career working in
private equity as a general partner with Peterson Partners and with Millennial Capital Partners. In addition to his investment and financial responsibilities,
he served as CEO of two of his firms’ portfolio companies. Prior to his years in private equity, Mr. Nelson served as Vice President of Marketing at Banana
Republic, where he managed company-wide marketing, as well as the company’s international expansion initiative. He was also general manager for
Banana Republic’s catalog division. He was Vice President of Marketing and Corporate Development at Saga Corporation, a multi-billion-dollar food
service company. Mr. Nelson began his executive career over 35 years ago at Bain and Company, a business strategy consulting firm, where he managed
teams of consultants on four continents. Mr. Nelson received his MBA from Brigham Young University, where he graduated summa cum laude and was
named the Outstanding Master of Business Administration Graduate. Mr. Nelson’s advice to the board of directors from his experiences as a chief
executive officer and strategic advisor is useful to the board of directors.
The following is a brief summary of the background of each of our executive officers.
Dwight Egan - See narrative description above.
Brian Brown became our Chief Financial Officer in February 2021. From July 2020 until February 2021, Mr. Brown served as the Chief Financial Officer
of A-Core Concrete Cutting, Inc. where his duties included overseeing the company’s accounting and finance departments, mergers and acquisitions and
responsibility for financial forecasting and budgeting. From January 2020 to July 2020, Mr. Brown was an independent consultant. From August 2019 to
December 2019, Mr. Brown served as the Vice President of Accounting, Treasury and Investor Relations at Sportsman’s Warehouse Holdings, Inc., a
public company reporting on Nasdaq Global Select under the symbol SPWH, where his duties included overseeing the company’s accounting, treasury and
investor relations departments, preparing the company’s annual, quarterly and current reports with the SEC, overseeing all aspects of the company’s annual
audit, including, but not limited to, the preparation and review of audit support schedules, preparation of financial statements and footnotes, and providing
support to the company’s independent auditors. From October 2009 to August 2019, Mr. Brown served as the Director of Finance of Sportsman’s
Warehouse Holdings, Inc. where he assisted with the company’s initial public offering in April 2014 as well as effecting private and secondary public
offerings, acquisitions of a group of retail stores and preparing the company’s periodic and current reports with the SEC and complying with the Sarbanes
Oxley Act. From May 2005 to October 2009, Mr. Brown served as the Corporate Controller of Franklin Covey Products where he developed and
maintained the company’s internal controls over financial reporting structure in accordance with the control standards required under Section 404 of the
Sarbanes Oxley Act. From July 2001 to May 2005, Mr. Brown served as an Assurance Senior at KPMG, LLP where he provided audit services to various
clients in multiple industries. Mr. Brown holds a Bachelor of Arts in Accounting and Masters of Professional Accountancy from the University of Utah.
Mr. Brown is a licensed CPA in Utah.
60
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has been involved in any bankruptcy or criminal proceedings (other than traffic
and other minor offenses) or been subject to any of the items set forth under Item 401(f) of Regulation S-K, nor have there been any judgments or
injunctions brought against any of our directors or executive officers during the last ten years that we consider material to the evaluation of the ability and
integrity of any director or executive officer.
Board and Committee Matters
Our board of directors has five members. The Chairman of the Board and our Chief Executive Officer, Dwight Egan, is a member of the board and is a full-
time employee of the Company. Eugene Durenard, Edward Murphy, James Nelson and Richard Serbin are non-employee directors, and the board has
determined that these persons (who constitute a majority of the board) are “independent directors” under the criteria set forth in Rule 5605(a)(2) of the
Nasdaq Listing Rules. The board met eleven times during the year ended December 31, 2022. All directors attended more than seventy-five percent (75%)
of the meetings of the board and committee meetings of which such director was a member held during 2022.
We maintain an audit committee of the board, a compensation committee of the board and a corporate governance/nominating committee of the board, each
of which is discussed below. Our board has determined that Messrs. Durenard, Nelson, Murphy and Serbin are “independent” under the definition of
independence in the Marketplace Rules of the NASDAQ listing requirements. Our board of directors may from time to time establish other standing
committees. In addition, from time to time, special committees may be established under the direction of our board of directors when necessary to address
specific issues.
The following table sets forth a description of the three permanent board committees and the chairpersons and members of those committees, all of whom
are independent directors:
Committee
Independent Chairperson
Independent Members
Audit Committee
Eugene Durenard
Edward Murphy
James Nelson
Richard S. Serbin
Compensation Committee
Richard S. Serbin
Edward Murphy
Eugene Durenard
James Nelson
Governance Committee
James Nelson
Edward Murphy
Eugene Durenard
Richard S. Serbin
Nominating Committee
Edward Murphy
James Nelson
Eugene Durenard
Richard S. Serbin
Audit Committee and Financial Expert
Our audit committee currently is comprised of Messrs. Durenard, Nelson, Murphy and Serbin with Mr. Durenard serving as chairperson of the audit
committee. The functions of the audit committee include engaging an independent registered public accounting firm to audit our annual financial
statements, reviewing the independence of our auditors, the financial statements and the auditors’ report, and reviewing management’s administration of
our system of internal control over financial reporting and disclosure controls and procedures. The board of directors has adopted a written audit committee
charter. A current copy of the audit committee charter is available to security holders on our website at www.codiagnostics.com. Our board has determined
that all our directors that are serving on the audit committee are “independent” under the definition of independence in the Marketplace Rules of the
NASDAQ listing standards. The Audit Committee met five times during the year ended December 31, 2022. All committee members attended more than
seventy-five percent (75%) of the meetings of the Audit Committee held during 2022.
Our board of directors has determined that Mr. Durenard meets the requirements of an “audit committee financial expert” as defined in applicable SEC
regulations.
61
Compensation Committee
Our compensation committee currently includes Messrs. Serbin, Nelson, Murphy and Durenard with Mr. Serbin serving as chairperson of the compensation
committee. The functions of the compensation committee include reviewing and approving corporate goals relevant to compensation for executive officers,
evaluating the effectiveness of our compensation practices, evaluating and approving the compensation of our chief executive officer and other executives,
recommending compensation for board members, and reviewing and making recommendations regarding incentive compensation and other employee
benefit plans. The board of directors has adopted a written compensation committee charter. A current copy of the compensation committee charter is
available to shareholders on our website at www.codiagnostics.com. Our board has determined that all of our directors serving on the compensation
committee are “independent” under the definition of independence in the Marketplace Rules of the NASDAQ listing standards. The Compensation
Committee did not meet as a separate committee in 2022, but rather, because the committee is comprised of all four independent directors, committee
matters were addressed as necessary in meetings of the board. during the year ended December 31, 2022.
Corporate Governance Committee
Our Corporate Governance Committee currently includes Messrs. Nelson, Murphy, Durenard and Serbin with Mr. Nelson serving as chairperson of the
Corporate Governance Committee. Among other items, the committee is tasked by the board of directors to: develop and recommend to the board the
Corporate Governance Guidelines of the Company and oversee compliance therewith and evaluate and provide successor planning for the Chief Executive
Officer and other executive officers. A current copy of the Corporate Governance committee charter is available to shareholders on our website at
www.codiagnostics.com. Our board has determined all directors serving on the Corporate Governance committee are “independent” under the definition of
independence in the Marketplace Rules of the NASDAQ listing standards. The Corporate Governance Committee did not meet as a separate committee in
2022, but rather, because the committee is comprised of all four independent directors, committee matters were addressed as necessary in meetings of the
board the year ended December 31, 2022.
Nominating Committee
Our Nominating Committee was split from the Corporate Governance Committee in 2022 and currently includes Messrs. Nelson, Murphy, Durenard and
Serbin with Mr. Murphy serving as chairperson of the Nominating Committee. The Nominating Committee has been established by the board, among other
things to: assist the board in effecting board organization, membership and function including identifying qualified board nominees; assist the board in
effecting the organization, membership and function of board committees including the composition of board committees and recommending qualified
candidates therefor; evaluate and provide successor planning for the Chief Executive Officer and other executive officers; and develop criteria for board
membership, such as independence, term limits, age limits and ability of former employees to serve on the board and the evaluation of candidates’
qualifications for nominations to the board and its committees as well as removal therefrom. The Nominating Committee did not meet as a separate
committee in 2022, but rather, because the committee is comprised of all four independent directors, committee matters were addressed as necessary in
meetings of the board for the year ended December 31, 2022.
Board Nominations
In considering board candidates, the board seeks individuals of proven judgment and competence who have strong reputations in their respective fields.
Although we do not have a formal diversity policy, the board considers such factors as experience, education, employment history, special talents or
personal attributes, anticipated participation in board activities, and geographic and diversity factors. The process for identifying and evaluating nominees
would include detailed consideration of the recommendations and opinions of members of our board, our executive officers, and our stockholders. There
would be no difference in the process of evaluation of candidates recommended by a stockholder and those recommended by other sources.
62
Our Amended and Restated Bylaws (the “Bylaws”) set forth procedures for shareholders to recommend nominees to the Company’s board. Nominations of
persons for election to the board of directors to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the
Company’s notice of meeting, (ii) by or at the direction of the board of directors, or (iii) by any stockholder of the Company who (A) was a stockholder of
record at the time of giving of the notice, (B) is entitled to vote with respect to such matter at the meeting, and (C) complies with the notice procedures set
forth in the Bylaws.
The following is a summary of key provisions from our Bylaws. For nominations to be properly brought before an annual meeting by a stockholder, the
stockholder making such nominations must have given timely notice in writing to the secretary of the Company. To be timely, a stockholder’s notice shall
be delivered to the secretary at the principal executive offices of the Company not later than the close of business on the 75th day nor earlier than the close
of business on the 125th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the
annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered
not later than the close of business on the later of (x) the 75th day prior to the scheduled date of such annual meeting or (y) the 15th day following the day
on which public announcement of the date of such meeting is first made by the Company. To be in proper form, a stockholder’s notice to the secretary
must: set forth, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (A) the name
and address of such stockholder, as they appear on the Company’s books, and of such beneficial owner, if any, (B) the class or series and number of shares
of the Company that are, directly or indirectly, owned beneficially and of record by such stockholder and such beneficial owner, if any, as of the date of
such notice, and (C) any other information relating to such stockholder and beneficial owner, if any, that would be required to be disclosed in a proxy
statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors
in a contested election pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder
(the “Exchange Act”). In addition, shareholders who intend to solicit proxies in support of director nominees other than the company’s nominees must also
comply with the additional requirements of Rule 14a-19(b).
The notice shall set forth, as to each person, if any, whom the stockholder proposes to nominate for election or reelection as a director (A) all information
relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of
proxies for election of directors in a contested election pursuant to Section 14 of the Exchange Act (including such person’s written consent to being named
in the proxy statement as a nominee and to serving as a director if elected) and (B) a description of all direct and indirect compensation and other monetary
agreements, arrangements and understandings during the past three years, and any other relationships, between or among such stockholder and beneficial
owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or
her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation all information that would be
required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if the stockholder making the nomination and any beneficial owner on
whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of
such rule and the nominee were a director or executive officer of such registrant; and with respect to each nominee for election or reelection to the board of
directors, include the completed and signed questionnaire, representation, and agreement required by the Bylaws. The Company may require any proposed
nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as
an independent director of the Company or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such
nominee.
Communication with the Board
We have not, to date, developed a formal process for shareholder communications with the board of directors. We believe our current informal process, in
which any communication sent to the board of directors, either generally or in care of the chief executive officer, secretary or other corporate officer or
director, is forwarded to all members of the board of directors, has served the board’s and the shareholders’ needs.
63
Conflicts of Interests
On an annual basis, each director and executive officer is obligated to complete a director and officer questionnaire that requires disclosure of any
transactions with our company, including related person transactions reportable under SEC rules, in which the director or executive officer, or any member
of his or her immediate family, have a direct or indirect material interest. Under our company’s standards of conduct for employees, all employees,
including the executive officers, are expected to avoid conflicts of interest. Pursuant to our code of ethics for the chief executive officer and senior finance
officers (as discussed below), such officers are prohibited from engaging in any conflict of interest unless a specific exception has been granted by the
board. All of our directors are subject to general fiduciary standards to act in the best interests of our company and our shareholders. Conflicts of interest
involving an executive officer or a director are generally resolved by the board.
Role of the Board in Risk Oversight
Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. Management is responsible for the day-to-
day management of the risks that we face, while our board of directors, as a whole and through its committees, has responsibility for the oversight of risk
management. In its risk oversight role, our board of directors is responsible for satisfying itself that the risk management processes designed and
implemented by management are adequate and functioning as designed.
Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through our board of
directors as a whole, as well as through various standing committees of the board of directors that address risks inherent in their respective areas of
oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure, including a determination of the nature
and level of risk appropriate for us. Our Audit Committee has the responsibility to consider and discuss our major financial risk exposures and the steps our
management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and
management is undertaken. The Audit Committee also monitors oversight of the performance of our internal audit function. Our Corporate
Governance/Nominating Committee monitors the effectiveness of our corporate governance guidelines, including whether they are successful in preventing
illegal or improper liability-creating conduct. Our Compensation Committee assesses and monitors whether any of our compensation policies and programs
have the potential to encourage excessive risk-taking or promote behaviors contra to our Code of Business Conduct.
Code of Ethics
We have adopted a code of ethics for our principal executive officer, principal financial officer, controller, or persons performing similar functions. A copy
of the code of ethics is included on our website at www.codiagnostics.com.
Family Relationships
There are no family relationships among our directors and executive officers.
ITEM 11. EXECUTIVE COMPENSATION
We are a “smaller reporting company” as defined in the rules and regulations of the SEC. As a smaller reporting company, we may take advantage of
specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not smaller reporting companies.
Accordingly, this Report includes reduced disclosure about our executive compensation arrangements.
Summary Compensation Table
The table below summarizes the total compensation paid or earned by each of the named executive officers in their respective capacities for the fiscal years
ended December 31, 2022 and 2021. We have omitted in this report certain columns otherwise required to be included because there was no compensation
made with respect to such columns, as permitted by applicable SEC regulations.
64
Name and Principal Position
Dwight Egan
President & Chief Executive Officer
Brian Brown
Chief Financial Officer and Secretary
Salary Bonus (1)
Year
2022 $ 366,146 $ 146,245 $ 1,454,750 $
2021 $ 350,000 $ 638,459 $ 1,208,750 $
All Other
Comp (3)
- $
26,793 $
Total
Compensation
1,967,141
2,224,002
Stock
Awards
(2)
2022 $ 280,875 $ 106,647 $ 1,190,250 $
2021 $ 209,731 $ 475,014 $ 1,441,600 $
- $
26,793 $
1,577,772
2,153,138
(1) Bonuses for the year ended December 31, 2021 include accrued bonus payments of $281,597 to Mr. Egan and $223,248 to Mr. Brown that were paid
in February 2022.
(2) The amounts reported in this column represent the aggregate grant date fair value of the restricted stock units, or RSUs, granted under our 2015 Plan as
computed in accordance with FASB ASC Topic 718. Note that the amounts reported in this column reflect the accounting value for these equity awards
and do not correspond to the actual economic value that may be received from the equity awards as the RSUs vest over three years.
(3) Company profit sharing payments to the Company’s 401 K Plan.
Narrative Disclosure to Summary Compensation Table: We do not have written employment agreements with any of our executive officers. All of our
executive officers serve on an at-will basis. The base salaries for our named executive officers were determined by our compensation committee after
reviewing a number of factors, including: the responsibilities associated with the position, the seniority of the executive’s position, the base salary level in
prior years, and our financial position; and for executive officers other than our Chief Executive Officer, recommendations made by our Chief Executive
Officer. By utilizing a combination of objective and subjective performance factors critical to our success, the board will award cash bonuses intended to
incentivize our executive officers to achieve results that benefit them and the Company. Performance factors include the achievement of predetermined
financial performance objectives, adherence to financial discipline measures and achievement of business development, product development and long-
term business stability. The board may modify or re-weight the objectives during the course of the fiscal year, if necessary, to reflect changes in our
business plan.
65
Outstanding Equity Awards at Fiscal Year-End 2022
The following table contains certain information concerning outstanding equity awards for the Named Executive Officers as of December 31, 2022.
Option Awards
Stock Awards
Number of Securities
Underlying Unexercised
Options (#)
Option
Exercise
Option
Expiration
Number
of Shares
or Units
of Stock
That
Have Not
Vested
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
Dwight Egan
Brian Brown
Name
Exercisable Unexercisable
50,000
50,000
-
-
-
-
-
-
- $
- $
-
-
-
-
-
-
Price
2.63
1.10
-
-
-
Date
09/20/28
09/02/29
-
-
-
(#)
-
-
($) (1)
-
-
25,000(2) $ 63,000
62,500(4) $ 157,500
229,167(5) $ 577,501
-
-
-
-
-
-
10,000(3) $ 25,200
50,000(4) $ 126,000
187,500(5) $ 472,500
Market
or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
($)
-
-
-
-
-
-
-
-
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)
-
-
-
-
-
-
-
-
(1) Based on $2.52 per share, which was the closing price of our common stock on December 31, 2022.
(2) Consists of restricted stock units granted on 11/23/2020, which vest in 6 installments commencing on 5/23/2021 and continuing every six months
thereafter.
(3) Consists of restricted stock units granted on 2/22/2021, which vest in 6 installments commencing on 5/23/2021 and continuing every six months
thereafter.
(4) Consists of restricted stock units granted on 8/12/2021, which vest in 6 installments commencing on 11/23/2021 and continuing every six months
thereafter.
(5) Consists of restricted stock units granted on 6/6/2022, which vest in 6 installments commencing on 11/23/2022 and continuing every six months
thereafter.
Potential Payments Upon Termination or Change of Control
There is no compensation payable to the named executive officers upon voluntary termination, retirement, involuntary not-for-cause termination,
termination following a change of control or in the event of disability or death of the executive.
Director Compensation
We use a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on its board of directors. In setting
director compensation, we consider the significant amount of time that directors expend in fulfilling their duties as well as the skill level required by our
members of the board.
66
The table below summarizes the compensation paid or accrued by us to each of our non-employee directors for the fiscal year ended December 31, 2022.
Name
Richard Serbin (2)
James Nelson (3)
Edward Murphy (4)
Eugene Durenard (5)
Fees Earned or
Paid in Cash
Stock Awards:
Value of
Restricted
Stock Units (1)
$
$
$
$
87,500
87,500
87,500
87,500
$
$
$
$
429,100 $
429,100 $
429,100 $
429,100 $
Total
516,600
516,600
516,600
516,600
(1) The amounts reported in this column represent the aggregate grant date fair value of the restricted stock units, or RSUs, granted under our 2015 Plan as
computed in accordance with FASB ASC Topic 718. Note that the amounts reported in this column reflect the accounting value for these equity awards
and do not correspond to the actual economic value that may be received from the equity awards. The RSUs vested immediately upon grant.
(2) As of December 31, 2022, Mr. Serbin had 70,833 RSU awards outstanding.
(3) As of December 31, 2022, Mr. Nelson had 70,833 RSU awards outstanding.
(4) As of December 31, 2022, Mr. Murphy had 70,833 RSU awards outstanding.
(5) As of December 31, 2022, Mr. Durenard had 70,833 RSU awards outstanding.
Our non-employee directors receive cash compensation of $100,000 per year, paid quarterly. In 2021, the non-employee directors also each received 37,500
RSU’s vesting 1/3rd equally in January 2021, 2022, and 2023. In 2022, they also received 70,000 RSU’s vesting 1/6th equally in November 2022, 2023, and
2024 and May 2023, 2024, and 2025. In addition, non-employee directors may be entitled to receive special awards of stock options or RSUs from time to
time as determined by the board. The chairman of the board and the chairperson of each of the audit, corporate governance/nomination, and compensation
committees receive no additional fees for serving in such capacities. There is no additional compensation for meeting attendance. Directors who are
employees of the Company receive no additional compensation for serving as directors. All stock options granted to outside directors are immediately
exercisable and expire ten years from the date of grant or 30 days after the date they cease to be directors. Directors are reimbursed for ordinary expenses
incurred in connection with attending board and committee meetings.
67
Equity Incentive Plans
Under our Amended and Restated 2015 Long-term Incentive Plan (the “2015 Plan”), the board of directors may issue incentive stock-based awards to
employees, directors and consultants of the company. Options awarded generally expire ten years after being granted. Any stock-based awards granted vest
in accordance with the vesting schedule determined by the board of directors. Should an employee’s director’s or consultant’s relationship with the
company terminate before the vesting period is completed, the unvested portion of each grant is forfeited. We continue to maintain and grant awards under
the 2015 Plan which will remain in effect until its expiration by its terms.
The purpose of our incentive plan is to advance the interests of our stockholders by enhancing our ability to attract, retain and motivate persons who are
expected to make important contributions to the company by providing them with both equity ownership opportunities and performance-based incentives
intended to align their interests with those of our stockholders. These plans are designed to provide us with flexibility to select from among various equity-
based compensation methods, and to be able to address changing accounting and tax rules and corporate governance practices by optimally utilizing stock-
based awards.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The following table sets forth certain information, as of March 14, 2023, with respect to the holdings of (1) each person who is the beneficial owner of
more than 5% of our Common Stock, (2) each of our directors, (3) each named executive officer, and (4) all of our current directors and executive officers
as a group.
Beneficial ownership of the common stock is determined in accordance with the rules of the Securities and Exchange Commission and includes any shares
of common stock over which a person exercises sole or shared voting or investment power, or of which a person has a right to acquire ownership at any
time within 60 days of March 14, 2023. Applicable percentage ownership in the following table is based on 30,922,607 shares of common stock plus, for
each individual, any securities that individual has the right to acquire within 60 days of March 14, 2023.
The information in the table below is based on information known to us or ascertained by us from public filings made by the stockholders. Except as
otherwise indicated in the table below, addresses of the director, executive officers and named beneficial owners are in care of Co-Diagnostics, Inc., 2401
S. Foothill Drive, Suite D, Salt Lake City, Utah 84109.
5% Stockholders
Vanguard Group (1)
Named Executive Officers and Directors
Dwight Egan (2)
Brian Brown
Edward Murphy (3)
Eugene Durenard
James Nelson (4)
Richard Serbin (5)
All Directors and Executive Officers as a Group (6 persons)
*Represents beneficial ownership of less than 1%.
Number of Shares
Beneficially Owned
Percentage
of Class (1)
1,781,283
193,197
73,236
99,167
36,667
86,667
59,612
548,546
5.8%
*
*
*
*
*
*
1.7%
(1) Information obtained from Schedule 13G/A filed with the SEC on February 9, 2023. Vanguard Group has an address of 100 Vanguard Blvd, Malvern,
PA, 19355.
(2) Includes exercisable options to acquire 100,000 shares of common stock.
(3) Includes exercisable options to acquire 50,000 shares of common stock.
(4) Includes exercisable options to acquire 50,000 shares of common stock.
(5) Includes exercisable options to acquire 20,445 shares of common stock.
Equity Compensation Plan Information
(c) Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans (Excluding
Securities
Referenced in
Column (a))
(a) Number of
Shares to be Issued
upon Exercise of
Outstanding
Options and Rights
(b) Weighted-
average Exercise
Price of
Outstanding
Options and Rights
3,467,297(1) $
$
-
3,467,297(1) $
2.19(2)
-
2.19(2)
6,210,790
-
6,210,790
Plan Category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
Total
(1) Includes options and restricted stock units outstanding under our 2015 Equity Incentive Plan.
(2) Represents weighted-average exercise price per share of common stock acquirable upon exercise of outstanding stock options.
68
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The Company employs two persons who are related to current or former executive officers. Seth Egan is the Company’s Director of Sales and Marketing,
and is the son of Dwight Egan, the Company’s President and Chief Executive Officer. Andrew Benson is the Company’s Director of Investor Relations, and
is the son of Reed Benson, the Company’s former Chief Financial Officer and Secretary. During the year ended December 31, 2022, the total compensation
paid to or earned by these persons, including salaries, bonuses, and the grant date fair value of equity awards which vest over three years, was $962,800 and
$489,000, respectively.
Policy for Review of Related Party Transactions
The review of transactions with related persons policy is set forth in our Corporate Governance Committee Charter. The Corporate Governance Committee
is to oversee the administration of any related party transactions policy in effect with respect to transactions in which the Company is a participant and
involving directors, nominees for director, executive officers of the Company or holders of more than 5% of the Company’s common stock or immediate
family members of any such person.
Director Independence
For information regarding the independence of our directors, see “Directors, Executive Officers and Corporate Governance” in Part III, Item 10 of this
Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table presents aggregate fees for professional services rendered by our independent auditors for the respective periods.
Audit fees
Audit related fees
Other consulting fees
Tax fees
Total fees
Years Ended December 31,
2022
2021
136,600 $
-
-
-
136,600 $
113,100
-
-
-
113,100
$
$
Audit fees consist of fees for professional services provided in connection with the audit of our annual consolidated financial statements, review of our
quarterly consolidated financial statements and our offerings.
The audit committee has adopted a policy that requires advance approval of all services performed by the independent auditor when fees are expected to
exceed $15,000. The audit committee has delegated to the audit committee chairperson, Mr. Durenard, the authority to approve services, subject to
ratification by the audit committee at its next committee meeting. All fees incurred were pre-approved by the audit committee.
69
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this Annual Report on Form 10-K:
PART IV
(1) Financial Statements. The Consolidated Financial Statements filed as part of this Annual Report on Form 10-K are included in Part II, Item 8 of
this Annual Report on Form 10-K.
(2) Financial statement schedules. There are no financial statements schedules included because they are either not applicable or the required
information is shown in the consolidated financial statements or the notes thereto.
(3) Exhibits. The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Annual Report are listed in the Exhibit Index below. The
exhibits listed in the Exhibit Index are incorporated by reference herein.
Exhibit Description
Agreement and Plan of Merger by and between Co-Diagnostics, Inc, IDMO
Acquisition Corp., Idaho Molecular Inc., and Company Representative dated as of
December 21, 2021.
Filed
with this
Report
Incorporated by
Reference herein
from Form or
Schedule
Form 8-K (Exhibit
2.1)
Filing
Date
12/23/21
SEC
File/Reg.
Number
001-
38148
Amendment to Agreement and Plan of Merger by and among Co-Diagnostics, Inc.,
Idaho Molecular, Inc., and Kirk Ririe, as Company Representative
Form 8-K (Exhibit
2.2)
06/16/22
Agreement and Plan of Merger by and between Co-Diagnostics, Inc, ACI
Acquisition Corp., Advanced Conceptions, Inc., and Company Representative
dated as of December 21, 2021
Form 8-K (Exhibit
2.2)
12/23/21
Amendment to Agreement and Plan of Merger by and among Co-Diagnostics, Inc.,
Advanced Conceptions, Inc., and Richard Abbott, as Company Representative
Form 8-K (Exhibit
2.1)
06/16/22
3.1
Articles of Incorporation
3.1.1
Amendment to the Articles of Incorporation
3.1.2
Articles of Amendment to Articles of Incorporation
3.1.3
Articles of Amendment
3.1.3
Articles of Amendment
3.2
Amended and Restated Bylaws of Co-Diagnostics, Inc.
Description of Registrant’s securities
Draft Registration
Statement (Exhibit
3.1)
Draft Registration
Statement (Exhibit
3.1.1)
01/12/17
01/12/17
Form 8-K (Exhibit
3.2)
01/03/19
Form 10-K (Exhibit
3.1.3)
03/24/22
X
X
Form 8-K (Exhibit
3.1)
04/01/22
001-
38148
Exclusive Agreement between Co-Diagnostics, Inc. and DNA Logix, Inc., dated
April 18, 2014
Draft Registration
Statement (Exhibit
10.2)
01/12/17
377-
01467
Co-Diagnostics, Inc. Amended and Restated 2015 Long Term Incentive Plan
Form S-8/A
11/20/20
10.3
Form of Indemnification Agreement
Form S-1/A
(Exhibit 10.13.8)
05/24/17
10.4
10.5
10.6
Shareholders’ Agreement between Co-Diagnostics and Synbiotics Limited, dated
January 27, 2017
Form S-1 (Exhibit
10.16)
04/28/17
Amended Exclusive License Agreement between Co-Diagnostics, Brent
Satterfield, and DNA Logix, Inc., dated January 1, 2017
Form S-1 (Exhibit
10.17)
04/28/17
Warrant Agreement between Co-Diagnostics, Inc and VStock Transfer, LLC.
Dated December 31, 2021 (ACI Warrant)
Form 10-K (Exhibit
10.6)
03/24/22
Exhibit
Number
2.1*+
2.1.2
2.2*+
2.2.1
4.1
10.1
10.2#
001-
38148
001-
38148
001-
38148
377-
01467
377-
01467
001-
38148
001-
38148
333-
237684
333-
217542
333-
217542
333-
217542
001-
38148
70
03/24/22
001-38148
02/27/20
001-38148
03/24/22
001-38148
03/24/22
001-38148
03/24/22
001-38148
03/30/20
001-38148
Form 10-K
(Exhibit
10.7)
Form 8-K
(Exhibit
10.1)
Form 10-
K (Exhibit
10.9)
Form 10-K
(Exhibit
10.9.1)
Form 10-
K (Exhibit
10.9.2)
Form 10-K
(Exhibit
14.1)
10.7
Warrant Agreement between Co-Diagnostics, Inc and VStock Transfer, LLC. Dated
December 31, 2021 (IDMO Warrant)
10.8
Form of Securities Purchase Agreement, dated February 27, 2020
10.9
Lease Agreement 2401 Foothill Drive
10.9.1
Amendment #1 to Lease
10.9.2
Amendment #2 to Lease
14.1
Code of Ethics for Senior Financial Officers
21.1
23.1
31.1
31.2
32.1
32.2
Subsidiaries of Registrant
Consent of Haynie & Company
Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley
Act of 2002
Certification of Principal Financial Officer pursuant to section 302 of the Sarbanes-Oxley
Act of 2002
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 SCH Inline XBRL Taxonomy Extension Schema Document (A)
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document (A)
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document (A)
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document (A)
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document (A)
104
(A)
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
IXBRL (INLINE EXTENSIBLE BUSINESS REPORTING LANGUAGE) information is
furnished and not filed for purposes of Section 11 and 12 of the Securities Act of 1933 and
Section 18 of the Securities Exchange Act of 1934.
#Management Contract or Compensatory Plan or Arrangement
X
X
X
X
X
X
X
X
X
X
X
X
X
*Schedules and exhibits to these Exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish
supplementally a copy of any omitted schedule or exhibit to the SEC upon request.
+ Portions of Exhibit 2.1 and Exhibit 2.2 have been omitted as they contain information that (i) is not material and (ii) is the type of information the issuer
both customarily and actually treats as private and confidential.
Item 16. Form 10-K Summary.
None
71
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SIGNATURES
Date: March 16, 2023
CO-DIAGNOSTICS, INC.
By: /s/ Dwight Egan
Dwight Egan
Chief Executive Officer, President and Director
(Principal Executive Officer)
By: /s/ Brian Brown
Brian Brown
Chief Financial Officer
(Principal Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the date indicated.
Signature
Title
/s/ Dwight Egan
Dwight Egan
/s/ Brian Brown
Brian Brown
/s/ Eugene Durenard
Eugene Durenard
/s/ Edward Murphy
Edward Murphy
/s/ James Nelson
James Nelson
/s/ Richard Serbin
Richard Serbin
Chief Executive Officer, President and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
72
Date
March 16, 2023
March 16, 2023
March 16, 2023
March 16, 2023
March 16, 2023
March 16, 2023
LIST OF SUBSIDIARIES
Co-Diagnostics, Inc. (the “Company”) has the following direct and indirect subsidiaries:
List of Subsidiaries
Subsidiary Name
DNA Logix, Inc.
Idaho Molecular, Inc.
Advanced Conceptions, Inc.
Exhibit 21.1
Jurisdiction of
Formation
Percentage of
Ownership
Utah
Idaho
Utah
100%
100%
100%
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements No. 333-226835 and 333-249651 on Form S-3 and 333-237684 and 333-269350
Form S-8 of Co-Diagnostics, Inc. of our report dated March 16, 2023, relating to our audits of the consolidated financial statements which appear in this
Annual Report on Form 10-K of Co-Diagnostics, Inc. for the years ended December 31, 2022 and 2021.
EXHIBIT 23.1
/s/ Haynie & Company
Salt Lake City, Utah
March 16, 2023
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
AND RULE 13A-14 OF THE EXCHANGE ACT OF 1934
EXHIBIT 31.1
I, Dwight Egan, certify that:
1.
I have reviewed this annual report on Form 10-K of Co-Diagnostics, Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d –
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 16, 2023
/s/ Dwight Egan
Dwight Egan
Chief Executive Officer, President and Principal Executive Officer
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
AND RULE 13A-14 OF THE EXCHANGE ACT OF 1934
EXHIBIT 31.2
I, Brian Brown, certify that:
1.
I have reviewed this annual report on Form 10-K of Co-Diagnostics, Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d –
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 16, 2023
/s/ Brian Brown
Brian Brown
Chief Financial Officer and Principal Financial and Accounting Officer
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S. C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of Co-Diagnostics, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2022, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Dwight Egan, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 16, 2023
/s/ Dwight Egan
Dwight Egan
Chief Executive Officer, President and Principal Executive Officer
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S. C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report of Co-Diagnostics, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2022 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Brian Brown, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 16, 2023
/s/ Brian Brown
Brian Brown
Chief Financial Officer and Principal Financial and Accounting Officer