Co-Diagnostics, Inc. 10-Q

Item 1. Financial Statements CO – DIAGNOSTICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, 2022 December 31, 2021 Assets Current assets Cash and cash equivalents $ 86,045,405 $ 88,607,234 Marketable investment securities 9,951,550 1,255,266 Accounts receivable, net 12,260,009 20,839,182 Inventory 4,705,921 2,004,169 Prepaid expenses and other current assets 1,569,374 2,338,444 Note receivable 35,200 75,000 Total current assets 114,567,459 115,119,295 Property and equipment, net 2,421,349 1,933,216 Operating lease right-of-use asset 530,033 - Goodwill 15,388,546 14,706,818 Intangible assets, net 26,981,667 27,195,000 Investment in joint venture 877,089 1,004,953 Note receivable 75,000 75,000 Total assets $ 160,841,143 $ 160,034,282 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 848,379 $ 607,506 Accrued expenses, current 1,818,773 3,859,652 Operating lease liability, current 287,900 - Contingent consideration liabilities, current 3,761,084 5,767,304 Income taxes payable - 2,213,088 Deferred revenue - 150,000 Total current liabilities 6,716,136 12,597,550 Long-term liabilities Income taxes payable 1,464,024 1,067,853 Deferred tax liability 5,310,573 7,228,444 Operating lease liability 201,266 - Contingent consideration liabilities 2,678,204 4,665,337 Total long-term liabilities 9,654,067 12,961,634 Total liabilities 16,370,203 25,559,184 Commitments and contingencies (Note 12) - - Stockholders’ equity Convertible preferred stock, $ 0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively - - Common stock, $ 0.001 par value; 100,000,000 shares authorized; 34,313,432 shares issued and 33,780,992 shares outstanding as of June 30, 2022 and 33,819,862 shares issued and outstanding as of December 31, 2021 34,313 33,820 Treasury stock, at cost; 532,440 and 0 shares held as of June 30, 2022 and December 31, 2021, respectively ( 2,599,478 ) - Additional paid-in capital 83,838,533 80,271,999 Accumulated earnings 63,197,572 54,169,279 Total stockholders’ equity 144,470,940 134,475,098 Total liabilities and stockholders’ equity $ 160,841,143 $ 160,034,282 See accompanying notes to unaudited consolidated financial statements 3 CO – DIAGNOSTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) 2022 2021 2022 2021 Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenue $ 5,023,226 $ 27,358,140 $ 27,722,270 $ 47,382,909 Cost of revenue 915,432 2,504,355 4,197,383 5,776,920 Gross profit 4,107,794 24,853,785 23,524,887 41,605,989 Operating expenses Sales and marketing 1,472,225 5,853,313 4,124,373 7,050,859 General and administrative 2,468,421 2,468,433 5,390,616 5,404,122 Research and development 3,889,844 4,669,160 7,661,171 6,886,223 Depreciation and amortization 424,342 71,714 671,606 138,719 Total operating expenses 8,254,832 13,062,620 17,847,766 19,479,923 Income from operations ( 4,147,038 ) 11,791,165 5,677,121 22,126,066 Other income (expense) Interest income 61,671 10,529 73,064 25,186 (Loss) on disposition of assets ( 48,740 ) - ( 142,161 ) - Gain on remeasurement of acquisition contingencies 812,822 - 4,192,712 - Gain (loss) on equity method investment in joint venture ( 106,525 ) 128,595 ( 127,864 ) ( 336,348 ) Total other income (expense) 719,228 139,124 3,995,751 ( 311,162 ) Income (loss) before income taxes ( 3,427,810 ) 11,930,289 9,672,872 21,814,904 Income tax provision ( 741,507 ) 2,145,076 644,580 4,130,716 Net income (loss) $ ( 2,686,303 ) $ 9,785,213 $ 9,028,292 $ 17,684,188 Earnings per common share: Basic $ ( 0.08 ) $ 0.34 $ 0.28 $ 0.62 Diluted $ ( 0.08 ) $ 0.33 $ 0.27 $ 0.59 Weighted average shares outstanding: Basic 32,472,251 28,794,047 32,509,664 28,728,828 Diluted 32,472,251 29,741,265 33,253,612 29,833,955 See accompanying notes to unaudited consolidated financial statements 4 CO – DIAGNOSTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) 2022 2021 Six Months Ended June 30, 2022 2021 Cash flows from operating activities Net income $ 9,028,292 $ 17,684,188 Adjustments to reconcile net income to cash used in operating activities: Depreciation and amortization 671,105 138,719 Stock-based compensation expense 2,908,381 2,440,347 Change in fair value of acquisition contingencies ( 4,192,712 ) - Non-cash lease expense 13,761 - Loss from equity method investment 127,864 336,348 Loss on disposition of assets 142,161 - Deferred income taxes ( 1,917,871 ) 526,781 Bad debt expense 11,404 147,775 Changes in assets and liabilities: Accounts receivable 8,567,769 ( 766,894 ) Prepaid expenses 791,954 ( 670,478 ) Inventory ( 2,920,658 ) 3,874,485 Deferred revenue ( 150,000 ) ( 142,173 ) Income taxes payable ( 1,918,510 ) ( 590,380 ) Accounts payable, accrued expenses and other liabilities ( 1,702,718 ) 1,715,383 Net cash provided by operating activities 9,460,222 24,694,101 Cash flows from investing activities Purchases of property and equipment ( 904,160 ) ( 381,981 ) Proceeds from maturities of marketable investment securities 1,255,266 2,225,771 Purchases of marketable securities ( 9,951,550 ) - Investment in joint venture - 314,575 Net cash provided by (used in) investing activities ( 9,600,444 ) 2,158,365 Cash flows from financing activities Proceeds from exercise of options and warrants 177,871 444,899 Repurchases of common stock ( 2,599,478 ) - Net cash provided by (used in) financing activities ( 2,421,607 ) 444,899 Net increase in cash and cash equivalents ( 2,561,829 ) 27,297,365 Cash and cash equivalents at beginning of period 88,607,234 42,976,713 Cash and cash equivalents at end of period $ 86,045,405 $ 70,274,078 Supplemental disclosure of cash flow information Interest paid $ - $ - Income taxes paid $ 4,534,330 $ 3,423,700 Supplemental disclosure of non-cash investing and financing transactions Inventory moved to property, plant and equipment $ 218,906 $ - Right-of-use assets obtained in exchange for new operating lease liabilities $ 681,327 $ - Business acquisition measurement period adjustments $ 681,728 $ - See accompanying notes to unaudited consolidated financial statements 5 CO – DIAGNOSTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Shares Amount Shares Amount Stock Capital Earnings Equity Convertible Preferred Stock Common Stock Treasury Additional Paid-in Accumulated Total Stockholders’ Shares Amount Shares Amount Stock Capital Earnings Equity Balance as of December 31, 2021 - $ - 33,819,862 $ 33,820 $ - $ 80,271,999 $ 54,169,279 $ 134,475,098 Common stock issued for option exercises - - 45,456 45 - 49,956 - 50,001 Common stock issued for warrant exercises - - 50,000 50 - 99,950 100,000 Stock-based compensation - - 68,750 69 - 1,375,028 - 1,375,097 Net income - - - - - - 11,714,596 11,714,596 Balance as of March 31, 2022 - $ - 33,984,068 $ 33,984 $ - $ 81,796,933 $ 65,883,875 $ 147,714,792 Common stock issued for option exercises - - 25,335 25 - 27,844 - 27,869 Common stock issued for warrant exercises - - - - - - - - Stock-based compensation - - 215,583 215 - 1,533,069 - 1,533,284 Common stock issued for acquisitions - - 88,446 89 - 480,687 - 480,776 Repurchases of common stock - - - - ( 2,599,478 ) - - ( 2,599,478 ) Net income - - - - - - ( 2,686,303 ) ( 2,686,303 ) Balance as of June 30, 2022 - $ - 34,313,432 $ 34,313 $ ( 2,599,478 ) $ 83,838,533 $ 63,197,572 $ 144,470,940 Convertible Preferred Stock Common Stock Treasury Additional Paid-in Accumulated Total Stockholders’ Shares Amount Shares Amount Stock Capital Earnings Equity Balance as of December 31, 2020 - $ - 28,558,033 $ 28,558 $ - $ 49,157,236 $ 17,510,715 $ 66,696,509 Common stock issued for option exercises - - 65,891 66 - 148,914 - 148,980 Stock-based compensation - - 73,040 42 - 1,512,970 - 1,513,012 Net income - - - - - - 7,898,975 7,898,975 Balance as of March 31, 2021 - $ - 28,696,964 $ 28,666 $ - $ 50,819,120 $ 25,409,690 $ 76,257,476 Common stock issued for option exercises - - 118,334 118 - 295,799 - 295,917 Stock-based compensation - - 124,592 106 - 927,231 - 927,337 Net income - - - - - - 9,785,213 9,785,213 Balance as of June 30, 2021 - $ - 28,939,890 $ 28,890 $ - $ 52,042,150 $ 35,194,903 $ 87,265,943 See accompanying notes to unaudited consolidated financial statements 6 CO – DIAGNOSTICS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 – Overview and Basis of Presentation Description of Business Co-Diagnostics, Inc., a Utah corporation (the “Company”, “Co-Dx” 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, ground-breaking portable PCR testing platform (the “Co-Dx PCR home testing platform”) designed to bring affordable, reliable gold-standard polymerase chain reaction (“PCR”) to patients in point-of-care and even at-home settings. Unaudited Consolidated Financial Statements The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q as they are prescribed for smaller reporting companies and emerging growth companies. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. These statements should be read in conjunction with the Company’s audited financial statements and related notes for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K filed on March 24, 2022. 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. 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 June 30, 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. Marketable Investment Securities The Company’s marketable investment securities are comprised of investments in certificates of deposit and U.S. treasury bills. The Company determines the appropriate classification of its marketable investment securities at the time of purchase and re-evaluates such designation at each balance sheet date. The Company has classified and accounted for its marketable investment securities as available-for-sale securities as the Company may sell these securities at any time for use in its current operations or for other purposes, even prior to maturity. As a result, the Company classifies its marketable investment securities, including securities with stated maturities beyond twelve months, within current assets in the consolidated balance sheets. Any unrealized gains or losses are immaterial. 7 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 June 30, 2022, total accounts receivable was $ 12,941,010 with an allowance for uncollectable accounts of $ 681,001 resulting in a net amount of $ 12,260,009 . 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 June 30, 2022, the Company had $ 4,705,921 in inventory, of which $ 3,927,698 was finished goods and $ 778,223 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 slow-moving, obsolete, or unusable inventories to their estimated useful or scrap values. Property and Equipment 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, 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. Leases As described in “Recently Adopted Accounting Standards” below, the Company adopted ASC 842, Leases (“ASC 842”) effective January 1, 2022. Under ASC 842, the Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether it has the right to control the identified asset. Right-of-use (ROU) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. ROU assets are based on the measurement of the lease liability and also include any lease payments made prior to or on lease commencement and exclude lease incentives and initial direct costs incurred, as applicable. As the implicit rate in the Company’s leases is generally unknown, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The Company considers its credit risk, term of the lease, total lease payments and adjusts for the impacts of collateral, as necessary, when calculating its incremental borrowing rates. The Company evaluates renewal options at lease inception and on an ongoing basis and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease costs for the Company’s operating leases are recognized on a straight-line basis within operating expenses and cost of revenue over the reasonably assured lease term. The Company has elected to not separate lease and non-lease components for leases of office space and, as a result, accounts for any lease and non-lease components for office space as a single lease component, to the extent they are fixed. Non-lease components that are not fixed are expensed as incurred as variable lease payments. The Company’s office leases typically include non-lease components such as common-area maintenance costs. The Company has also elected to not apply the recognition requirement to any leases within its existing classes of assets with a term of 12 months or less. 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. 8 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. Research and Development Research and development costs are expensed when incurred. For the three and six months ended June 30, 2022, the Company expensed $ 3,889,844 and $ 7,661,171 of research and development costs, respectively. For the three and six months ended June 30, 2021, the Company expensed $ 4,669,160 and $ 6,886,223 , 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. While the Company believes it has no significant uncertain income tax positions in the consolidated financial statements, 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. 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 three and six months ended June 30, 2022. One customer accounted for approximately 55 % of total revenue for the three months ended June 30, 2022, and two customers together accounted for approximately 46 % of total revenue for the six months ended June 30, 2022. Two customers together accounted for approximately 68 % of total revenue for the three months ended June 30, 2021, and three customers together accounted for approximately 56 % of total revenue for the six months ended June 30, 2021. Four customers accounted for more than 10 % of accounts receivable at June 30, 2022 and two customers accounted for more than 10 % of accounts receivable at December 31, 2021. These customers together accounted for approximately 75 % and 66 % of accounts receivable at June, 2022 and December 31, 2021, respectively. 9 Recent Accounting Pronouncements 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. Recently Adopted Accounting Standards 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 three and six months ended June 30, 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 . Note 3 – Business Combinations On December 31, 2021, the Company completed its acquisition 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 Idaho Molecular 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. During the quarter ended June 30, 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 , of which $ 64,587 relates to the quarter ended March 31, 2022. 10 Note 4 – Goodwill and Intangible Assets Goodwill 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 six months ended June 30, 2022: Schedule of Goodwill Balance as of December 31, 2021 $ 14,706,818 Measurement period adjustments 681,728 Balance as of June 30, 2022 $ 15,388,546 Intangible Assets, Net The following table presents details of the Company’s intangible assets, excluding goodwill: Schedule of Intangible Assets, Net June 30, 2022 Weighted-Average Gross Net Useful Life (1) Carrying Accumulated Carrying (in Years) Amount Amortization Amount In-process research and development Indefinite $ 26,101,000 $ - $ 26,101,000 Non-competition agreements 2.7 1,094,000 ( 213,333 ) 880,667 Total intangible assets $ 27,195,000 $ ( 213,333 ) $ 26,981,667 December 31, 2021 Weighted-Average Gross Net Useful Life (1) Carrying Accumulated Carrying (in Years) Amount Amortization Amount In-process research and development Indefinite $ 26,101,000 $ - $ 26,101,000 Non-competition agreements 2.7 1,094,000 - 1,094,000 Total intangible assets $ 27,195,000 $ - $ 27,195,000 (1) Based on weighted-average useful life established as of the acquisition date. Note 5 – Fair Value Measurements The Company measures and records certain financial assets 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 Company’s financial instruments that are measured at fair value on a recurring basis consist of money market funds. The following three levels of inputs are used to measure the fair value of financial instruments: 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. 11 The following table summarizes the assets measured at fair value on a recurring basis as of June 30, 2022, and December 31, 2021, by level within the fair value hierarchy: Schedule of Fair Value Assets and Liabilities (Level 1) (Level 2) (Level 3) Total June 30, 2022 (Level 1) (Level 2) (Level 3) Total Assets: Cash equivalents $ - $ 56,587 $ - $ 56,587 Marketable securities (U.S. treasury bills) - 9,951,500 - 9,951,500 Total assets measured at fair value $ - $ 10,008,087 $ - $ 10,008,087 Liabilities: Contingent consideration - common stock $ - $ - $ 5,563,577 $ 5,563,577 Contingent consideration - warrants - - 875,711 875,711 Total liabilities measured at fair value $ - $ - $ 6,439,288 $ 6,439,288 (Level 1) (Level 2) (Level 3) Total December 31, 2021 (Level 1) (Level 2) (Level 3) Total Assets: Marketable securities (certificates of deposit) $ - $ 1,255,266 $ - $ 1,255,266 Total assets measured at fair value $ - $ 1,255,266 $ - $ 1,255,266 Liabilities: Contingent consideration - common stock $ - $ - $ 8,684,669 $ 8,684,669 Contingent consideration - warrants - - 1,747,972 1,747,972 Total liabilities measured at fair value $ - $ - $ 10,432,641 $ 10,432,641 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. The changes for Level 3 items measured at fair value on a recurring basis are as follows: Schedule of Changes in Fair Value Measurement Fair value as of December 31, 2021 $ 10,432,641 Change in contingent purchase consideration for measurement period adjustments 199,359 Change in fair value of contingent consideration issued for business acquisitions ( 4,192,712 ) Fair value as of June 30, 2022 $ 6,439,288 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 June 30, 2022. 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 June 30, 2022. Prior to the probability adjustments, the warrants were valued based on the following inputs: Schedule of Contingent Consideration Common Stock and Warrants June 30, 2022 December 31, 2021 Stock price $ 5.61 $ 8.93 Strike price $ 9.13 $ 9.13 Volatility 75.00 % 80.00 % Risk-free rate 3.00 % 1.30 % Expected term 4.5 5.0 Note 6 – Revenue The following table sets forth revenue by geographic area: Summary of Revenue by Geographic Area Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 United States $ 4,499,354 $ 5,365,323 $ 18,725,742 $ 17,856,273 Rest of World 523,872 21,992,817 8,996,528 29,526,636 Total $ 5,023,226 $ 27,358,140 $ 27,722,270 $ 47,382,909 Percentage of revenue by area: United States 90 % 20 % 68 % 38 % Rest of World 10 % 80 % 32 % 62 % Deferred Revenue Changes in the Company’s deferred revenue balance for the six months ended June 30, 2022 were as follows: Schedule of Deferred Revenue Balance as of December 31, 2021 $ 150,000 Revenue recognized included in deferred revenue balance at the beginning of the period ( 150,000 ) Balance as of June 30, 2022 $ - 12 Note 7 – Earnings Per Share The following table reconciles the numerator and the denominator used to calculate basic and diluted earnings per share for three and six months ended June 30, 2022: Schedule of Basic and Diluted Earnings Per Share 2022 2021 2022 2021 Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Numerator Net income (loss), as reported $ ( 2,686,303 ) $ 9,785,213 $ 9,028,292 $ 17,684,188 Denominator Weighted average shares, basic 32,472,251 28,794,047 32,509,664 28,728,828 Dilutive effect of stock options, warrants and RSUs - 947,218 743,948 1,105,127 Shares used to compute diluted earnings per share 32,472,251 29,741,265 33,253,612 29,833,955 Basic earnings per share $ ( 0.08 ) $ 0.34 $ 0.28 $ 0.62 Diluted earnings per share $ ( 0.08 ) $ 0.33 $ 0.27 $ 0.59 For the three and six months ended June 30, 2022, potentially dilutive securities of 1,391,156 and 1,155,136 were excluded from the calculation because their effect would have been anti-dilutive. For the three and six months ended June 30, 2021, potentially dilutive securities of 931,341 and 146,133 were excluded from the calculation because their effect would have been anti-dilutive. The computation of basic and diluted earnings per share for the three and six months ended June 30, 2022 also excludes the approximately 1.4 million shares of common stock and approximately 465,000 warrants to purchase shares of common stock that are contingent upon the achievement of certain milestones. Note 8 – Stock-Based Compensation Stock Incentive Plans The Co-Diagnostics, Inc. Amended and Restated 2015 Long Term Incentive Plan (the “Incentive Plan”) reserves an aggregate of 6,000,000 shares of common stock issuable upon the grant of awards under the Incentive Plan. The number of awards available for issuance under the Incentive Plan was 1,091,766 at June 30, 2022. Stock Options The following table summarizes option activity during the six months ended June 30, 2022: Schedule of Option Activity Number of Options Weighted Average Exercise Price Weighted Average Fair Value Weighted Average Remaining Contractual Life (Years) Outstanding at December 31, 2021 1,111,363 $ 2.12 $ 1.31 6.62 Granted - - - Expired - - - Forfeited/Cancelled - - - Exercised ( 70,791 ) 1.10 0.51 Outstanding at June 30, 2022 1,040,572 $ 2.19 $ 1.37 6.39 Exercisable at June 30, 2022 1,040,572 $ 2.19 $ 1.37 6.39 The total intrinsic value of options exercised during the six months ended June 30, 2022 was approximately $ 0.4 million. The aggregate intrinsic value of outstanding options at June 30, 2022 was approximately $ 3.7 million. 13 Stock-based compensation cost is measured at the grant date based on the fair value of the award granted and recognized as expense over the vesting period using the straight-line method. The Company uses the Black-Scholes model to value options granted. As of June 30, 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 six months ended June, 2022: Schedule of Outstanding Restricted Stock Units and Related Activity Number of RSUs Weighted Average Grant Date Fair Value Unvested at December 31, 2021 1,267,415 $ 9.94 Granted 1,019,000 5.29 Vested ( 284,333 ) 10.04 Forfeited/Cancelled ( 15,500 ) 9.91 Unvested at June 30, 2022 1,986,582 $ 7.54 As of June 30, 2022, there was approximately $ 13.6 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. The following table summarizes warrant activity during the six months ended June 30, 2022: Schedule of Warrant Activity Number of Warrants Weighted Average Exercise Price Weighted Average Fair Value Weighted Average Remaining Contractual Life (Years) Outstanding at December 31, 2021 526,281 $ 8.15 $ 4.01 4.7 Issued for adjustments to contingent purchase consideration 8,719 9.13 1.88 4.6 Granted - - - Expired - - - Forfeited/Cancelled - - - Exercised ( 50,000 ) 2.00 1.22 Outstanding at June 30, 2022 485,000 $ 8.81 $ 2.43 4.5 14 The intrinsic value of warrants exercised during the six months ended June 30, 2022 and 2021 was approximately $ 0.3 million and $ 0 , respectively. The aggregate intrinsic value of outstanding warrants at June 30, 2022 was approximately $ 0.1 million. The total number of warrants exercisable at June 30, 2022 are 20,000 . The ability to exercise the approximately 465,000 warrants issued in connection with acquisitions in the prior year 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. 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 six months ended June 30, 2022 and 2021, respectively. There was no unrecognized stock-based compensation expense related to restricted stock issued. Stock-Based Compensation Expense The Company recognized stock-based compensation expense related to the types of awards discussed above as follows: Schedule of Recognized Stock-based Compensation Expense 2022 2021 2022 2021 Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Options $ 37,241 $ 76,114 $ 78,115 $ 152,786 Restricted stock units 1,496,045 839,223 2,830,266 2,235,661 Stock - 12,000 - 51,900 Total stock-based compensation expense $ 1,533,286 $ 927,337 $ 2,908,381 $ 2,440,347 Note 9 – Income Taxes For the three months ended June 30, 2022, the Company recognized a benefit from income taxes of $ 741,507 , representing an effective tax rate of 21.6 %. For the six months ended June 30, 2022, the Company recognized expense from income taxes of $ 644,580 , representing an effective tax rate of 6.7 %. The Company’s effective tax rate will generally differ from the U.S. Federal statutory rate of 21.0 % due to state taxes, permanent items, and discrete items. For the three and six months ended June 30, 2021, the Company recognized expense from income taxes of $ 2,145,076 and $ 4,130,716 , respectively. Note 10 – Related Party Transactions The Company acquired the exclusive rights to the CoPrimer technology pursuant to an exclusive license agreement, dated April 2014 (the “Exclusive License Agreement”), between the Company and DNA Logix, Inc., which was assigned to Dr. Brent Satterfield, a former executive officer, prior to the Company’s acquisition of DNA Logix, Inc. On March 1, 2017, the Company entered into an amendment to its Exclusive License Agreement for its Cooperative Primers (“License”) technology with Dr. Satterfield. The amendment provides in part that all accrued royalties under the License cease as of January 1, 2017, and the Company began in January 2017 to pay to Dr. Satterfield $ 700,000 of accrued royalties at the rate of $ 10,000 per month through December 2021. At June 30, 2022 and 2021, the aggregate balance of this related party liability was $ 0 and $ 90,000 , respectively. 15 Note 11 – Leases The Company leases office space under a non-cancellable operating lease and leases cancellable with one month notice. The Company expenses the cancellable 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 three and six months ended June 30, 2022, components of lease expense are summarized as follows: Schedule of Lease Expense Three Months Ended June 30, 2022 Six Months Ended June 30, 2022 Operating lease costs $ 84,364 $ 170,951 Short-term lease costs 88,080 164,160 Total lease costs $ 172,444 $ 335,111 Short-term lease costs under month-to-month lease agreements are paid to related parties. As of June 30, 2022, the maturities of the Company’s lease liabilities are as follows: Schedule of Maturities on Company Lease Liabilities Year Ending December 31, 2022 (remainder) $ 147,566 2023 303,059 2024 50,774 2025 - 2026 - Thereafter - Total lease payments 501,399 Less: imputed interest 12,233 Present value of operating lease liabilities 489,166 Less: current portion 287,900 Long-term portion $ 201,266 Other information related to operating leases was as follows: Schedule of Other Information Related to Operating Lease Three Months Ended June 30, 2022 Six Months Ended June 30, 2022 Cash paid for operating leases included in operating cash flows $ 167,445 $ 321,350 Remaining lease term of operating leases 2 years 2 years Discount rate of operating leases 3.1 % 3.1 % As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, future lease payments under ASC 840 for operating leases were as follows: Schedule of Future Minimum Lease Payments Year Ending December 31, 2022 $ 293,595 2023 303,059 2024 50,774 Total lease payments $ 647,428 Note 12 – Commitments and Contingencies Litigation 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 currently a defendant in five different securities class action complaints that were filed by certain stockholders of the Company 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 13 – 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 amount 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: Schedule of Treasury Stock Six Months Ended June 30, 2022 Balance, beginning of period - Repurchases of common stock 532,440 Balance, end of period 532,440 Note 14 – Subsequent Events The Company evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no subsequent events to be reported. 16