Co-Diagnostics, Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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 No. 001-38148 CO-DIAGNOSTICS, INC. (Exact Name of Registrant as Specified in Its Charter) Utah 46-2609396 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number) 2401 S. Foothill Drive , Suite D , 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 Trading Symbol(s) Name of each exchange on which registered Common Stock CODX The Nasdaq Capital Market 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 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 ☐ Accelerated filer ☐ Non-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 is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ As of November 9, 2022, there were 30,917,856 shares of common stock, par value $0.001 per share, outstanding. CO-DIAGNOSTICS, INC. AND SUBSIDIARIES TABLE OF CONTENTS PART I FINANCIAL INFORMATION: Item 1. Financial Statements (unaudited): 3 Consolidated Balance Sheets 3 Consolidated Statements of Operations 4 Consolidated Statements of Cash Flows 5 Consolidated Statements of Stockholders’ Equity 6 Notes to Consolidated Financial Statements 7 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17 Item 3. Quantitative and Qualitative Disclosures About Market Risk 22 Item 4. Controls and Procedures 22 PART II OTHER INFORMATION: Item 1. Legal Proceedings 23 Item 1A. Risk Factors 23 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23 Item 3. Defaults Upon Senior Securities 23 Item 4. Mine Safety Disclosures 23 Item 5. Other Information 23 Item 6. Exhibits 24 Signatures 25 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements CO – DIAGNOSTICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, 2022 December 31, 2021 Assets Current assets Cash and cash equivalents $ 81,507,983 $ 88,607,234 Marketable investment securities 4,982,350 1,255,266 Accounts receivable, net 7,961,664 20,839,182 Inventory 5,441,726 2,004,169 Income taxes receivable 705,849 - Prepaid expenses and other current assets 1,241,143 2,338,444 Note receivable 75,000 75,000 Total current assets 101,915,715 115,119,295 Property and equipment, net 2,438,112 1,933,216 Operating lease right-of-use asset 456,251 - Goodwill 15,388,546 14,706,818 Intangible assets, net 26,875,000 27,195,000 Investment in joint venture 748,737 1,004,953 Note receivable 18,750 75,000 Total assets $ 147,841,111 $ 160,034,282 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 2,055,889 $ 607,506 Accrued expenses, current 1,511,720 3,859,652 Operating lease liability, current 292,536 - Contingent consideration liabilities, current 2,152,064 5,767,304 Income taxes payable - 2,213,088 Deferred revenue - 150,000 Total current liabilities 6,012,209 12,597,550 Long-term liabilities Income taxes payable 1,559,557 1,067,853 Deferred tax liability 3,797,158 7,228,444 Operating lease liability 126,280 - Contingent consideration liabilities 1,400,490 4,665,337 Total long-term liabilities 6,883,485 12,961,634 Total liabilities 12,895,694 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 September 30, 2022 and December 31, 2021, respectively - - Common stock, $ 0.001 par value; 100,000,000 shares authorized; 34,332,182 shares issued and 30,917,856 shares outstanding as of September 30, 2022 and 33,819,862 shares issued and outstanding as of December 31, 2021 34,332 33,820 Treasury stock, at cost; 3,414,326 and 0 shares held as of September 30, 2022 and December 31, 2021, respectively ( 12,994,373 ) - Additional paid-in capital 86,068,948 80,271,999 Accumulated earnings 61,836,510 54,169,279 Total stockholders’ equity 134,945,417 134,475,098 Total liabilities and stockholders’ equity $ 147,841,111 $ 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenue $ 5,094,456 $ 30,101,353 $ 32,816,726 $ 77,484,262 Cost of revenue 767,936 3,311,255 4,965,319 9,088,175 Gross profit 4,326,520 26,790,098 27,851,407 68,396,087 Operating expenses Sales and marketing 1,889,907 4,253,091 6,014,280 11,303,950 General and administrative 3,622,273 2,919,498 9,012,888 8,323,620 Research and development 5,037,461 5,893,350 12,698,632 12,779,573 Depreciation and amortization 312,494 94,038 984,100 232,757 Total operating expenses 10,862,135 13,159,977 28,709,900 32,639,900 Income (loss) from operations ( 6,535,615 ) 13,630,121 ( 858,493 ) 35,756,187 Other income (expense) Interest income 298,184 11,379 371,248 36,565 Gain (loss) on disposition of assets 4,044 - ( 138,117 ) - Gain on remeasurement of acquisition contingencies 2,886,734 - 7,079,446 - Loss on equity method investment in joint venture ( 129,047 ) ( 64,940 ) ( 256,911 ) ( 401,288 ) Total other income (expense) 3,059,915 ( 53,561 ) 7,055,666 ( 364,723 ) Income (loss) before income taxes ( 3,475,700 ) 13,576,560 6,197,173 35,391,464 Income tax provision (benefit) ( 2,114,638 ) 2,100,594 ( 1,470,058 ) 6,231,310 Net income (loss) $ ( 1,361,062 ) $ 11,475,966 $ 7,667,231 $ 29,160,154 Earnings per common share: Basic $ ( 0.04 ) $ 0.40 $ 0.24 $ 1.01 Diluted $ ( 0.04 ) $ 0.38 $ 0.23 $ 0.98 Weighted average shares outstanding: Basic 31,321,368 28,941,357 32,109,213 28,800,450 Diluted 31,321,368 29,952,690 33,002,539 29,872,415 See accompanying notes to unaudited consolidated financial statements 4 CO – DIAGNOSTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) 2022 2021 Nine Months Ended September 30, 2022 2021 Cash flows from operating activities Net income $ 7,667,231 $ 29,160,154 Adjustments to reconcile net income to cash used in operating activities: Depreciation and amortization 984,100 232,757 Stock-based compensation expense 5,138,815 3,851,293 Change in fair value of acquisition contingencies ( 7,079,446 ) - Non-cash lease expense 17,193 - Loss from equity method investment 256,911 401,288 Loss on disposition of assets 138,117 - Deferred income taxes ( 3,431,286 ) 34,672 Bad debt expense 338,057 156,011 Changes in assets and liabilities: Accounts receivable 12,539,461 ( 2,608,777 ) Prepaid expenses 441,786 ( 116,068 ) Inventory ( 3,656,463 ) 4,432,048 Deferred revenue ( 150,000 ) ( 115,751 ) Income taxes payable ( 1,822,977 ) 692,823 Accounts payable, accrued expenses and other liabilities ( 802,955 ) 82,495 Net cash provided by operating activities 10,578,544 36,202,945 Cash flows from investing activities Purchases of property and equipment ( 1,134,208 ) ( 547,708 ) Proceeds from maturities of marketable investment securities 6,223,740 3,084,161 Purchases of marketable securities ( 9,950,824 ) - Investment in joint venture - 491,739 Net cash provided by (used in) investing activities ( 4,861,292 ) 3,028,192 Cash flows from financing activities Proceeds from exercise of options and warrants 177,870 450,398 Repurchases of common stock ( 12,994,373 ) - Net cash provided by (used in) financing activities ( 12,816,503 ) 450,398 Net increase in cash and cash equivalents ( 7,099,251 ) 39,681,535 Cash and cash equivalents at beginning of period 88,607,234 42,976,713 Cash and cash equivalents at end of period $ 81,507,983 $ 82,658,248 Supplemental disclosure of cash flow information Interest paid $ - $ - Income taxes paid $ 4,496,239 $ 4,733,200 Supplemental disclosure of non-cash investing and financing transactions Inventory moved to property, plant and equipment $ 218,906 $ 260,216 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 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 loss - - - - - - ( 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 Stock-based compensation - - 18,750 19 - 2,230,415 - 2,230,434 Repurchases of common stock - - - - ( 10,394,895 ) - - ( 10,394,895 ) Net loss - - - - - - ( 1,361,062 ) ( 1,361,062 ) Balance as of September 30, 2022 - $ - 34,332,182 $ 34,332 $ ( 12,994,373 ) $ 86,068,948 $ 61,836,510 $ 134,945,417 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 Common stock issued for option exercises - - 5,000 5 - 5,495 - 5,500 Stock-based compensation - - 18,750 - - 1,410,945 - 1,410,945 Net income - - - - - - 11,475,966 11,475,966 Balance as of September 30, 2021 - $ - 28,963,640 $ 28,895 $ - $ 53,458,590 $ 46,670,869 $ 100,158,354 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 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 nine months ended September 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 September 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 September 30, 2022, total accounts receivable was $ 8,969,317 with an allowance for uncollectable accounts of $ 1,007,653 resulting in a net amount of $ 7,961,664 . 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 September 30, 2022, the Company had $ 5,441,726 in inventory, of which $ 1,283,850 was finished goods and $ 4,157,876 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 nine months ended September 30, 2022, the Company expensed $ 5,037,461 and $ 12,698,632 of research and development costs, respectively. For the three and nine months ended September 30, 2021, the Company expensed $ 5,893,350 and $ 12,779,573 , 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 nine months ended September 30, 2022. One customer accounted for approximately 52 % of total revenue for the three months ended September 30, 2022, and two customers together accounted for approximately 47 % of total revenue for the nine months ended September 30, 2022. Two customers together accounted for approximately 56 % of total revenue for the three months ended September 30, 2021, and three customers together accounted for approximately 49 % of total revenue for the nine months ended September 30, 2021. Four customers accounted for more than 10 % of accounts receivable at September 30, 2022 and two customers accounted for more than 10 % of accounts receivable at December 31, 2021. These customers together accounted for approximately 67 % and 66 % of accounts receivable at September 30, 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 nine months ended September 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 . 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 nine months ended September 30, 2022: Schedule of Goodwill Balance as of December 31, 2021 $ 14,706,818 Measurement period adjustments 681,728 Balance as of September 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 September 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 ( 320,000 ) 774,000 Total intangible assets $ 27,195,000 $ ( 320,000 ) $ 26,875,000 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 September 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 September 30, 2022 (Level 1) (Level 2) (Level 3) Total Assets: Cash equivalents $ - $ 5,060,362 $ - $ 5,060,362 Marketable securities (U.S. treasury bills) - 4,982,350 - 4,982,350 Total assets measured at fair value $ - $ 10,042,712 $ - $ 10,042,712 Liabilities: Contingent consideration - common stock $ - $ - $ 3,183,437 $ 3,183,437 Contingent consideration - warrants - - 369,117 369,117 Total liabilities measured at fair value $ - $ - $ 3,552,554 $ 3,552,554 (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 as of December 31, 2021 and September 30, 2022, respectively. 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 ( 7,079,446 ) Fair value as of September 30, 2022 $ 3,552,554 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 September 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 September 30, 2022. Prior to the probability adjustments, the warrants were valued based on the following inputs: Schedule of Contingent Consideration Common Stock and Warrants September 30, 2022 December 31, 2021 Stock price $ 3.21 $ 8.93 Strike price $ 9.13 $ 9.13 Volatility 75.00 % 80.00 % Risk-free rate 4.10 % 1.30 % Expected term 4.3 5.0 Note 6 – Revenue The following table sets forth revenue by geographic area: Summary of Revenue by Geographic Area Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 United States $ 4,699,444 $ 16,907,574 $ 23,425,186 $ 34,701,035 Rest of World 395,012 13,193,779 9,391,540 42,783,227 Total $ 5,094,456 $ 30,101,353 $ 32,816,726 $ 77,484,262 Percentage of revenue by area: United States 92 % 56 % 71 % 45 % Rest of World 8 % 44 % 29 % 55 % Deferred Revenue Changes in the Company’s deferred revenue balance for the nine months ended September 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 September 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 nine months ended September 30, 2022: Schedule of Basic and Diluted Earnings Per Share 2022 2021 2022 2021 Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Numerator Net income (loss), as reported $ ( 1,361,062 ) $ 11,475,966 $ 7,667,231 $ 29,160,154 Denominator Weighted average shares, basic 31,321,368 28,941,357 32,109,213 28,800,450 Dilutive effect of stock options, warrants and RSUs - 1,011,333 893,326 1,071,965 Shares used to compute diluted earnings per share 31,321,368 29,952,690 33,002,539 29,872,415 Basic earnings per share $ ( 0.04 ) $ 0.40 $ 0.24 $ 1.01 Diluted earnings per share $ ( 0.04 ) $ 0.38 $ 0.23 $ 0.98 For the three and nine months ended September 30, 2022, potentially dilutive securities of 2,631,642 and 1,385,869 were excluded from the calculation because their effect would have been anti-dilutive. For the three and nine months ended September 30, 2021, potentially dilutive securities of 50,000 and 147,436 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 nine months ended September 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 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 September 30, 2022. Stock Options The following table summarizes option activity during the nine months ended September 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 September 30, 2022 1,040,572 $ 2.19 $ 1.37 6.13 Exercisable at September 30, 2022 1,040,572 $ 2.19 $ 1.37 6.13 The total intrinsic value of options exercised during the nine months ended September 30, 2022 was approximately $ 0.4 million. The aggregate intrinsic value of outstanding options at September 30, 2022 was approximately $ 1.4 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 September 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 nine months ended September 30, 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 1,925,476 5.66 Vested ( 303,083 ) 10.01 Forfeited/Cancelled ( 41,000 ) 8.31 Unvested at September 30, 2022 2,848,808 $ 7.06 As of September 30, 2022, there was approximately $ 17.1 million of unrecognized stock-based compensation expense related to outstanding RSUs which is expected to be recognized over a weighted-average period of 2.4 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 nine months ended September 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 September 30, 2022 485,000 $ 8.81 $ 2.43 4.3 14 The intrinsic value of warrants exercised during the nine months ended September 30, 2022 and 2021 was approximately $ 0.3 million and $ 0 , respectively. The aggregate intrinsic value of outstanding warrants at September 30, 2022 was approximately $ 0.1 million. The total number of warrants exercisable at September 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 nine months ended September 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Options $ - $ 66,247 $ 78,115 $ 219,033 Restricted stock units 2,230,434 1,344,698 5,060,700 3,580,360 Stock - - - 51,900 Total stock-based compensation expense $ 2,230,434 $ 1,410,945 $ 5,138,815 $ 3,851,293 Note 9 – Income Taxes For the three months ended September 30, 2022, the Company recognized a benefit from income taxes of $ 2,114,638 , representing an effective tax rate of 43.8 %. For the nine months ended September 30, 2022, the Company recognized a benefit from income taxes of $ 1,470,058 , representing an effective tax rate of 30.0 %. 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 nine months ended September 30, 2021, the Company recognized expense from income taxes of $ 2,100,594 and $ 6,231,310 , 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 September 30, 2022 and 2021, the aggregate balance of this related party liability was $ 0 and $ 30,000 , 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 nine months ended September 30, 2022, components of lease expense are summarized as follows: Schedule of Lease Expense Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022 Operating lease costs $ 82,797 $ 253,748 Short-term lease costs 113,294 277,454 Total lease costs $ 196,091 $ 531,202 Short-term lease costs under month-to-month lease agreements are paid to related parties. As of September 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) $ 73,783 2023 303,059 2024 50,773 2025 - 2026 - Thereafter - Total lease payments 427,615 Less: imputed interest 8,799 Present value of operating lease liabilities 418,816 Less: current portion 292,536 Long-term portion $ 126,280 Other information related to operating leases was as follows: Schedule of Other Information Related to Operating Lease Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022 Cash paid for operating leases included in operating cash flows $ 192,659 $ 514,009 Remaining lease term of operating leases 1 year 1 year 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 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: Schedule of Treasury Stock Nine Months Ended September 30, 2022 Balance, beginning of period - Repurchases of common stock 3,414,326 Balance, end of period 3,414,326 Note 14 – Subsequent Events The Company evaluated subsequent events pursuant to ASC Topic 855 and determined that there are no subsequent events to be reported. 16 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties. All statements other than statements of historical fact contained in this Quarterly 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 and the documents incorporated by reference herein, 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 Quarterly Report, and in particular, the risks discussed below and under the heading “Risk Factors” in other documents we file with the SEC. The following discussion should be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 24, 2022, and the audited financial statements and notes included therein. You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this Quarterly Report. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this Quarterly Report to conform our statements to actual results or changed expectations. You are advised, however, to consult any further disclosures we make on related subjects in our periodic and current reports filed with the SEC. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider this list to be a complete set of all potential risks or uncertainties. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation: ● the results of clinical trials 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. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. As used in this Quarterly Report, the terms “we”, “us”, “our”, and “Co-Diagnostics” means Co-Diagnostics, Inc., a Utah corporation and its consolidated subsidiaries (the “Company”), unless otherwise indicated. Executive Overview 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 unaudited financial statements and notes thereto included elsewhere in this report. The information contained in this discussion is subject to a number of risks and uncertainties. We urge you to review carefully the section of this report entitled “ Cautionary Note Regarding Forward-Looking Statements ” for a summary of the risks and uncertainties associated with an investment in our securities. 17 Business Overview 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 at-home settings. Our diagnostics systems enable dependable, low-cost, molecular testing for organisms and genetic diseases by automating historically complex procedures in both the development and administration of tests. 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, allowing for significant margins while still positioning the Company to be a low-cost provider of molecular diagnostics and screening services. In addition, continued development has demonstrated the unique properties of our CoPrimers™ 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 test design to engineer and optimize DNA/RNA tests and to automate algorithms that rapidly screen millions of possible options to pinpoint the optimum design. Dr. Brent Satterfield, our founder, developed the Company’s intellectual property consisting of the predictive mathematical algorithms and patented molecular structure used in the testing process, which together represent a major advance in PCR testing systems. CODX technologies are now protected by more than 20 granted or pending US and foreign patents, as well as certain trade secrets and copyrights. Ownership of our proprietary platform permits us the advantage of avoiding payment of patent royalties required by other PCR test systems, which may allow the sale of diagnostic PCR tests at a lower price than competitors, while enabling us to maintain profit margins. 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. 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 at the outset. Verification is a series of testing that concludes that the product is ready to proceed to validation in an evaluation either in our laboratory or in an independent laboratory setting using initial production tests to confirm that the product as designed meets the user needs. Using our proprietary test design system and proprietary reagents, we have designed and obtained regulatory approval in the European Community and in India to sell PCR diagnostic tests for the detection of COVID-19, influenza, tuberculosis, hepatitis B and C, human papillomavirus, malaria, chikungunya, dengue, and the zika virus. In the United States, CODX has obtained Emergency Use Authorization (“EUA”) for its Logix Smart™ COVID-19 detection test from the Food and Drug Administration, or FDA, and sells that test to qualified labs. In addition, our COVID-19 detection test and certain of our other suite of COVID-19 products have been approved for sale in countries such as the United Kingdom, Australia and Mexico by the regulatory bodies in those countries and have been registered for sale in many more countries. In addition to testing for infectious disease, the technology lends itself to identifying any section of a DNA or RNA strand that describe any type of genetic trait, which creates a number of significant applications. 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. Because we believe that testing for COVID-19 is going to be a consideration for public health worldwide even after the current pandemic has subsided, we have initiated the Co-Dx PCR home testing platform to facilitate frequent testing in homes, schools, businesses, and the hospitality industry. We believe this may be accomplished through the development of a 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 the final result is believed to be approximately equivalent to those processed by a high-complexity clinical laboratory, it 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 such a device using our CoPrimers™ as the reagent chemistry. On December 31, 2021, we completed 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 frequent screening to reduce the spread of the COVID-19 virus and other contagions in the future. 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 prior to commercialization. 18 RESULTS OF OPERATIONS The Three Months Ended September 30, 2022 Compared to the Three Months ended September 30, 2021 Revenues For the three months ended September 30, 2022, we generated revenues of $5,094,456, compared to revenues of $30,101,353 for the three months ended September 30, 2021. The decrease in revenue of $25,006,897 was primarily due to lower sales of our Logix Smart™ COVID-19 test developed in response to the current COVID-19 pandemic. Cost of Revenues We recorded cost of revenues of $767,936 for the three months ended September 30, 2022, compared to $3,311,255 for the three months ended September 30, 2021. The decrease in revenues combined with a larger percentage of fixed product production costs resulted in a lower cost of revenues and gross margin percentage. Expenses We incurred total operating expenses of $10,862,135 for the three months ended September 30, 2022, compared to total operating expenses of $13,159,977 for the three months ended September 30, 2021. The decrease in operating expenses was due to a decrease in business activities experienced as a result of our decrease in revenue, variable compensation, third party sales commissions reflected in sales and marketing, and a lower investment in third-party research and development. These decreases were partially offset by increased stock-compensation expense. Our sales and marketing expenses for the three months ended September 30, 2022 were $1,889,907, compared to $4,253,091 for the three months ended September 30, 2021. The decrease 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 from $2,919,498 for the three months ended September 30, 2021 to $3,622,273 for the three months ended September 30, 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 decreased from $5,893,350 for the three months ended September 30, 2021 to $5,037,461 for the three months ended September 30, 2022. The primary decrease in expenses was a result of decreased expenditures to third parties related our point-of-care device development, partially offset by increases in personnel expenses related to 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. 19 Other Income (Expense) For the three months ended September 30, 2022 we had total other income of $3,059,915, compared to total other expense of $53,561 for the three months ended September 30, 2021. The increase was due primarily to a change in the fair value of contingent consideration liabilities recorded in conjunction with the acquisitions of IdMo and ACI. Net Income We realized a net loss for the three months ended September 30, 2022 of $1,361,062, compared with net income for the three months ended September 30, 2021 of $11,475,966. The decrease in net income was primarily the result of a decrease in revenues, partially offset by a decrease of operating expenses, as well as changes in the fair value of acquisition contingencies. Additionally, we recorded an income tax benefit of $2,114,638 for the three months ended September 30, 2022, compared to income tax expense of $2,100,594 for the three months ended September 30, 2021. The Nine Months Ended September 30, 2022 Compared to the Nine Months ended September 30, 2021 Revenues For the nine months ended September 30, 2022, we generated revenues of $32,816,726, compared to revenues of $77,484,262 for the nine months ended September 30, 2021. The decrease in revenue of $44,667,536 was primarily due to lower sales of our Logix Smart™ COVID-19 test developed in response to the current COVID-19 pandemic. Cost of Revenues We recorded cost of revenues of $4,965,319 for the nine months ended September 30, 2022, compared to $9,088,175 for the nine months ended September 30, 2021. The decrease in revenues combined with a larger percentage of fixed product production costs resulted in a lower cost of revenues and gross margin percentage. Expenses We incurred total operating expenses of $28,709,900 for the nine months ended September 30, 2022, compared to total operating expenses of $32,639,900 for the nine months ended September 30, 2021. The decrease in operating expenses was due to a decrease in business activities experienced as a result of our decrease in revenue, variable compensation, and third party sales commissions reflected in sales and marketing, partially offset by increased stock-based compensation expense. Our sales and marketing expenses for the nine months ended September 30, 2022 were $6,014,280, compared to $11,303,950 for the nine months ended September 30, 2021. The decrease 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 from $8,323,620 for the nine months ended September 30, 2021 to $9,012,888 for the nine months ended September 30, 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 decreased slightly from $12,779,573 for the nine months ended September 30, 2021 to $12,698,632 for the nine months ended September 30, 2022. The primary increase in expenses was a result of increases in personnel expenses related to our acquisitions of IdMo and ACI on December 31, 2021, the primary focus of which relates to the point-of-care device development, partially offset by a decrease in third-party research and development investment, as well as increased stock-based compensation expense. 20 Other Income (Expense) For the nine months ended September 30, 2022 we had total other income of $7,055,666, compared to total other expense of $364,723 for the nine months ended September 30, 2021. The increase was due primarily to a change in the fair value of contingent consideration liabilities recorded in conjunction with the acquisitions of IdMo and ACI. Net Income We realized net income for the nine months ended September 30, 2022 of $7,667,231, compared with net income for the nine months ended September 30, 2021 of $29,160,154. The decrease in net income was primarily the result of a decrease in revenues, partially offset by a decrease of operating expenses, as well as changes in the fair value of acquisition contingencies. Additionally, we recorded an income tax benefit of $1,470,058 for the nine months ended September 30, 2022, compared to income tax expense of $6,231,310 for the nine months ended September 30, 2021. Liquidity and Capital Resources At September 30, 2022, we had cash and cash equivalents of $81,507,983. Additionally, we had $4,982,350 of marketable securities that could readily be converted into cash if needed. Additionally, our total current assets of September 30, 2022, were $101,915,715 compared to total current liabilities of $6,012,209. Net cash provided by operating activities during the nine months ended September 30, 2022 was $10,578,544, compared to $36,202,945 for the nine months ended September 30, 2021. The decrease in cash from operating activities was primarily due to decreased revenues, increases in inventory, and the impact of non-cash items. We used $4,861,292 of cash in investing activities during the nine months ended September 30, 2022, primarily from purchases of marketable securities, offset by maturities of marketable investments and purchases of property and equipment, compared to cash provided by investing activities of $3,028,192 during the nine months ended September 30, 2021. Net cash used in financing activities was $12,816,503 for the nine months ended September 30, 2022, compared to net cash provided by financing activities of $450,398 for the same period in the prior year. This decrease is 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 increase in our inventories and receivables and pay our operating expenses. We have increased our work force primarily in the area of research and development to develop the Co-Dx PCR home testing platform and complete development of additional tests to enable us to use our distributor network to sell other products throughout the world and remain profitable in the future. In March 2022 our board of directors authorized the repurchase of up to $30.0 million of the company’s outstanding common stock. We have no obligation to repurchase any shares under the repurchase program and may suspend or discontinue it at any time without prior notice. During the nine months ended September 30, 2022 we have repurchased 3,414,326 outstanding common shares under the repurchase program. 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. 21 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. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not required under Regulation S-K for “smaller reporting companies.” Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are 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 recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. 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 September 30, 2022. Based on the evaluation of our disclosure controls and procedures as of September 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls were effective. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting during the three months ended September 30, 2022, that have materially affected or, are reasonably likely to materially affect, our internal control over financial reporting. 22 PART II – OTHER INFORMATION Item 1. Legal Proceedings There have been no material developments to the legal proceedings previously disclosed under Part I. Item 3 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. Although we have received inquiries from FINRA, NASDAQ and the SEC, to which we have responded, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties or businesses are subject, which would reasonably be likely to have a material adverse effect on the Company. Item 1A. Risk Factors. Not required under Regulation S-K for “smaller reporting companies.” Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None. 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) the corporation would not be able to pay its debts as they become due in the usual course of business; or (b) 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. Share Repurchase Program Issuer Purchase of Equity Securities Period (a) Total number of shares purchased (1) (b) Average price paid per share (1) (c ) Total number of shares purchased as part of publicly announced plans or programs (1) (d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs (1) 07/01/22 – 07/31/22 - $ - - $ 27,400,522 08/01/22 – 08/31/22 1,938,355 $ 3.82 1,938,355 $ 20,000,035 09/01/22 – 09/30/22 943,531 $ 3.17 943,531 $ 17,005,627 Total 2,881,886 $ 3.61 2,881,886 $ 17,005,627 (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 3. Defaults Upon Senior Securities None. Item 4. Mine Safety Disclosures Not applicable. Item 5. Other Information None. 23 Item 6. Exhibits Exhibit Index (a) Exhibits Exhibit Number Description 31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1* 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 32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File * Filed herewith. 24 SIGNATURES Pursuant to the requirements 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. CO-DIAGNOSTICS, INC. Date: November 10, 2022 By: /s/ Dwight H. Egan Name: Dwight H. Egan Title: Chief Executive Officer, President and Principal Executive Officer Date: November 10, 2022 By: /s/ Brian Brown Name: Brian Brown Title: Chief Financial Officer and Principal Financial and Accounting Officer 25