Co-Diagnostics, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 AND 2021 Table of Contents Report of Independent Registered Public Accounting Firm (PCAOB ID No. 457 ) 34 Balance Sheets 35 Statements of Operations 36 Statement of Changes in Stockholders’ Equity 37 Statements of Cash Flows 38 Notes to Financial Statements 39 33 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Co-Diagnostics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Co-Diagnostics, Inc (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Goodwill and Intangible Assets As discussed in Note 4 and in Note 7 to the consolidated financial statements, the Company acquired Idaho Molecular, Inc., and Advanced Conceptions, Inc. in December 2021. As part of the transaction, the Company acquired intangible assets totaling $27,195,000, and goodwill totaling $15,388,546. The Company assesses these assets for impairment at least annually or whenever events or changes in circumstances occur that may indicate impairment. The Company’s analysis for the year ended December 31, 2022, required significant judgment to create a valuation based on future cash flows. As a result of their analysis, the Company fully impaired its goodwill, while no impairment was recorded for the intangible assets. We identified the carrying amount of goodwill and intangible assets as a critical audit matter because management’s assessment of the acquisition is highly subjective. This required an increased amount of effort, including the need to involve our internal valuation specialist, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, gaining an understanding of management’s process for developing the fair value estimate. We also evaluated the expertise, qualifications, and independence of management’s specialist engaged to complete the evaluation. We used professionals inside our firm with specialized skills and knowledge to assess the Company’s methodology. We considered the inputs, sources of data used, assumptions, and estimates used in the valuation model. We tested the mathematical accuracy of the underlying schedules used in the valuation assessment to ensure the completeness and accuracy of the reports. Finally, we considered the sensitivity of changes to key assumptions in the model. /s/ Haynie & Company Salt Lake City, Utah March 16, 2023 We have served as the Company’s auditor since 2016. 34 CO-DIAGNOSTICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2022 December 31, 2021 Assets Current assets Cash and cash equivalents $ 22,973,803 $ 88,607,234 Marketable investment securities 58,289,066 1,255,266 Accounts receivable, net 3,453,723 20,839,182 Inventory 5,310,473 2,004,169 Income taxes receivable 1,870,419 - Prepaid expenses and other current assets 761,186 2,338,444 Note receivable 75,000 75,000 Total current assets 92,733,670 115,119,295 Property and equipment, net 2,539,483 1,933,216 Operating lease right-of-use asset 372,115 - Goodwill - 14,706,818 Intangible assets, net 26,768,333 27,195,000 Investment in joint venture 672,679 1,004,953 Note receivable - 75,000 Total assets $ 123,086,280 $ 160,034,282 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 952,297 $ 607,506 Accrued expenses, current 934,447 3,859,652 Operating lease liability, current 297,209 - Contingent consideration liabilities, current 1,689,471 5,767,304 Income taxes payable - 2,213,088 Deferred revenue - 150,000 Total current liabilities 3,873,424 12,597,550 Long-term liabilities Income taxes payable 1,181,284 1,067,853 Deferred tax liability 2,417,987 7,228,444 Operating lease liability 50,708 - Contingent consideration liabilities 1,042,885 4,665,337 Total long-term liabilities 4,692,864 12,961,634 Total liabilities 8,566,288 25,559,184 Commitments and contingencies (Note 13) Stockholders’ equity Convertible preferred stock, $ 0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively - - Common stock, $ 0.001 par value; 100,000,000 shares authorized; 34,754,265 shares issued and 30,872,607 shares outstanding as of December 31, 2022 and 33,819,862 shares issued and outstanding as of December 31, 2021 34,754 33,820 Treasury stock, at cost; 3,881,658 and 0 shares held as of December 31, 2022 and December 31, 2021, respectively ( 14,211,866 ) - Additional paid-in capital 88,472,934 80,271,999 Accumulated other comprehensive income 293,140 - Accumulated earnings 39,931,030 54,169,279 Total stockholders’ equity 114,519,992 134,475,098 Total liabilities and stockholders’ equity $ 123,086,280 $ 160,034,282 See accompanying notes to consolidated financial statements. 35 CO-DIAGNOSTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) 2022 2021 Years Ended December 31, 2022 2021 Revenue $ 34,218,209 $ 97,885,603 Cost of revenue 5,481,092 11,574,944 Gross profit 28,737,117 86,310,659 Operating expenses Sales and marketing 7,344,628 13,397,813 General and administrative 14,262,963 11,550,615 Research and development 17,438,098 14,961,916 Depreciation and amortization 1,282,718 335,363 Goodwill impairment charges 15,388,546 - Total operating expenses 55,716,953 40,245,707 Income (loss) from operations ( 26,979,836 ) 46,064,952 Other income (expense) Interest income 704,044 45,631 Loss on disposition of assets ( 138,117 ) ( 44,355 ) Gain on remeasurement of acquisition contingencies 7,899,644 - Loss on equity method investment in joint venture ( 332,969 ) ( 430,433 ) Total other income (expense) 8,132,602 ( 429,157 ) Income (loss) before income taxes ( 18,847,234 ) 45,635,795 Income tax provision (benefit) ( 4,608,985 ) 8,977,231 Net income (loss) $ ( 14,238,249 ) $ 36,658,564 Other comprehensive income Change in net unrealized gains on marketable securities, net of tax $ 293,140 $ - Total other comprehensive income $ 293,140 $ - Comprehensive income (loss) $ ( 13,945,109 ) $ 36,658,564 Earnings per common share: Basic $ ( 0.45 ) $ 1.27 Diluted $ ( 0.45 ) $ 1.23 Weighted average shares outstanding: Basic 31,479,028 28,874,555 Diluted 31,479,028 29,903,686 See accompanying notes to consolidated financial statements. 36 CO-DIAGNOSTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY Shares Amount Shares Amount Stock Capital Income Earnings Equity Convertible Preferred Stock Common Stock Treasury Additional Paid-in Accumulated Other Comprehensive Accumulated Total Stockholders’ Shares Amount Shares Amount Stock Capital Income 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 - - 189,225 189 450,209 - - 450,398 Stock-based compensation expense - - 444,050 444 - 5,508,960 - - 5,509,404 Common stock issued for acquisitions - - 4,628,554 4,629 25,155,594 - - 25,160,223 Net income - - - - - - 36,658,564 36,658,564 Balance as of December 31, 2021 - $ - 33,819,862 $ 33,820 $ - $ 80,271,999 $ - $ 54,169,279 $ 134,475,098 Balance - $ - 33,819,862 $ 33,820 $ - $ 80,271,999 $ - $ 54,169,279 $ 134,475,098 Common stock issued for option exercises - - 70,791 70 - 77,800 - - 77,870 Common stock issued for warrant exercises - - 50,000 50 - 99,950 - - 100,000 Stock-based compensation expense - - 725,166 725 - 7,542,498 - - 7,543,223 Common stock issued for acquisitions - - 88,446 89 - 480,687 - - 480,776 Repurchases of common stock - - - - ( 14,211,866 ) - - - ( 14,211,866 ) Other comprehensive income, net of tax - - - - - - 293,140 - 293,140 Net income - - - - - - - ( 14,238,249 ) ( 14,238,249 ) Balance as of December 31, 2022 - $ - 34,754,265 $ 34,754 $ ( 14,211,866 ) $ 88,472,934 $ 293,140 $ 39,931,030 $ 114,519,992 Balance - $ - 34,754,265 $ 34,754 $ ( 14,211,866 ) $ 88,472,934 $ 293,140 $ 39,931,030 $ 114,519,992 See accompanying notes to consolidated financial statements. 37 CO-DIAGNOSTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS 2022 2021 Years Ended December 31, 2022 2021 Cash flows from operating activities Net income $ ( 14,238,249 ) $ 36,658,564 Adjustments to reconcile net income to cash used in operating activities: Depreciation and amortization 1,282,718 335,363 Goodwill impairment charges 15,388,546 - Stock-based compensation expense 7,543,223 5,509,404 Change in fair value of acquisition contingencies ( 7,899,644 ) - Non-cash lease expense 30,430 - Loss from equity method investment 332,969 430,433 Loss on disposition of assets 138,117 44,355 Deferred income taxes ( 4,810,457 ) 930,081 Bad debt expense 2,428,930 69,672 Changes in assets and liabilities: Accounts receivable 14,956,529 ( 8,740,851 ) Prepaid expenses ( 224,094 ) ( 2,049,095 ) Inventory ( 3,525,210 ) 5,705,361 Deferred revenue ( 150,000 ) ( 155,307 ) Income taxes payable ( 2,201,250 ) 2,643,381 Accounts payable, accrued expenses and other liabilities ( 2,483,821 ) ( 299,937 ) Net cash provided by operating activities 6,568,737 41,081,424 Cash flows from investing activities Purchases of property and equipment ( 1,427,512 ) ( 669,463 ) Proceeds from maturities of marketable investment securities 11,255,266 3,080,180 Purchases of marketable securities ( 67,995,926 ) - Investment in joint venture - 491,739 Business combinations, net of cash acquired - 1,196,243 Net cash (used in) provided by investing activities ( 58,168,172 ) 4,098,699 Cash flows from financing activities Proceeds from exercise of options and warrants 177,870 450,398 Repurchases of common stock ( 14,211,866 ) - Net cash (used in) provided by financing activities ( 14,033,996 ) 450,398 Net increase in cash and cash equivalents ( 65,633,431 ) 45,630,521 Cash and cash equivalents at beginning of period 88,607,234 42,976,713 Cash and cash equivalents at end of period $ 22,973,803 $ 88,607,234 Supplemental disclosure of cash flow information Interest paid $ - $ - Income taxes paid $ 4,498,742 $ 5,403,769 Supplemental disclosure of non-cash investing and financing transactions Inventory moved to property, plant and equipment $ 218,906 $ 285,659 Right-of-use assets obtained in exchange for new operating lease liabilities $ 681,327 $ - Business acquisition measurement period adjustments $ 1,593 $ - Fair value of common stock issued as consideration for business acquisitions $ 480,776 $ 25,160,223 Fair value of contingent common stock issued as consideration for business acquisitions $ 199,359 $ 10,432,641 See accompanying notes to consolidated financial statements. 38 CO-DIAGNOSTICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2022 AND 2021 Note 1 – Overview and Basis of Presentation Description of Business Co-Diagnostics, Inc., a Utah corporation (the “Company” or “CODX”), is developing robust and innovative molecular tools for detection of infectious diseases, liquid biopsy for cancer screening, and agricultural applications. The Company develops, manufactures, and sells reagents used for diagnostic tests that function via the detection and/or analysis of nucleic acid molecules (DNA or RNA), including robust and innovative molecular tools for detection of infectious diseases, liquid biopsy for cancer screening, and agricultural applications. In connection with the sale of our tests we may sell diagnostic equipment from other manufacturers as self-contained lab systems. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Such estimates include receivables and other long-lived assets, legal and regulatory contingencies, income taxes, share based arrangements, and others. These estimates and assumptions are based on management’s best estimates and judgments. Actual amounts and results could differ from those estimates. Basis of Presentation The accompanying audited consolidated financial statements of Co-Diagnostics, Inc. and its wholly owned subsidiaries have been prepared to reflect the financial position, results of operations and cash flows of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated. Note 2 – Summary of Significant Accounting Policies Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand, money market funds and highly liquid investments with an original maturity date of 90 days or less from the date of purchase. The fair value of cash equivalents approximated their carrying value as of December 31, 2022 and December 31, 2021. The Company has its cash and cash equivalents with a large creditworthy financial institution and the balance exceeded federally insured limits. The Company has not experienced any losses in such accounts, and management believes the Company is not exposed to any significant credit risk on cash and cash equivalents. 39 Marketable Investment Securities The Company’s marketable investment securities are comprised of investments in certificates of deposit and U.S. Treasury bills and notes. The Company designates investments in debt securities as available-for-sale. Available-for-sale debt securities with original maturities of three months or less from the date of purchase are classified within cash and cash equivalents. Available-for-sale debt securities with original maturities longer than three months are available to fund current operations and are classified as marketable investment securities, within current assets on the consolidated balance sheets. The Company may sell these securities at any time for use in its current operations or for other purposes, even prior to maturity. Available-for-sale debt securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of stockholders’ equity, net of tax. Realized gains and losses on the sale of marketable securities are determined using the average cost method on a first-in, first-out basis and recorded in total other income (expense), net in the condensed consolidated statements of operations and comprehensive income. The available-for-sale debt securities are subject to a periodic impairment review. For investments in an unrealized loss position, the Company writes down the amortized cost basis of the investment if it is more likely than not that the Company will be required or will intend to sell the investment before recovery of its amortized cost basis. For investments not likely to be sold before recovery of the amortized cost basis, the Company determines whether a credit loss exists by considering information about the collectability of the instrument, current market conditions, and reasonable and supportable forecasts of economic conditions. The Company recognizes an allowance for credit losses up to the amount of the unrealized loss when appropriate. Allowances for credit losses and write-downs are recognized in total other income (expense), net, and unrealized losses not related to credit losses are recognized in accumulated other comprehensive income (loss). There are no allowances for credit losses recorded for the periods presented. Accounts Receivable Trade accounts receivable are recorded at the invoiced amount (net of allowance) and do not bear interest. The Company maintains an allowance for doubtful accounts for amounts the Company does not expect to collect. In establishing the required allowance, management considers historical losses, current market condition, customers’ financial condition, the age of receivables, and current payment patterns. Account balances are written off against the allowance once the receivable is deemed uncollectible. Recoveries of trade receivables previously written off are recorded when collected. At December 31, 2022 total accounts receivable was $ 6,552,249 with an allowance for uncollectable accounts of $ 3,098,526 resulting in a net amount of $ 3,453,723 . At December 31, 2021 total accounts receivable was $ 21,508,779 with an allowance for uncollectable accounts of $ 669,597 resulting in a net amount of $ 20,839,182 . Equity-Method Investments Our equity method investments are initially recorded at cost and are included in other long-term assets in the accompanying consolidated balance sheet. We adjust the carrying value of our investment based on our share of the earnings or losses in the periods which they are reported by the investee until the carrying amount is zero. The earnings or losses are included in other income (expense) in the accompanying consolidated statements of operations. Inventory Inventory is stated at the lower of cost or net-realizable value. Inventory cost is determined on a first-in first-out basis that approximates average cost in accordance with ASC 330-10-30-12. At December 31, 2022, the Company had $ 5,310,473 in inventory, of which $ 1,327,264 was finished goods and $ 3,983,209 was raw materials. At December 31, 2021, the Company had $ 2,004,169 in inventory, of which $ 983,088 was finished goods and $ 1,021,081 was raw materials. The Company establishes reserves to reduce low-moving, obsolete, or unusable inventories to their estimated useful or scrap values. 40 Goodwill and Intangible Assets Goodwill represents the excess of the purchase price and related costs over the value assigned to net tangible and identifiable intangible assets acquired in business combinations. Goodwill and indefinite-lived intangible assets are not amortized, but rather tested for impairment at least annually on December 31, or more often if and when circumstances indicate that the carrying value may not be recoverable. Finite-lived intangible assets are amortized over their useful lives. During the year ended December 31, 2022, the Company recognized impairment charges related to goodwill of $ 15,388,546 . Long-lived Assets Long-lived assets, such as property and equipment, are stated at cost less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over the estimated useful lives of the property, generally from three to five years. Repairs and maintenance costs are expensed as incurred except when such repairs significantly add to the useful life or productive capacity of the asset, in which case the repairs are capitalized. The Company reviews its long-lived assets, including property and equipment, finite-lived intangible assets, and ROU assets, for impairment whenever an event or change in facts and circumstances indicates that their carrying amounts may not be recoverable. Recoverability of these assets is measured by comparing the carrying amount to the estimated undiscounted future cash flows expected to be generated. If the carrying amount exceeds the undiscounted cash flows, the assets are determined to be impaired and an impairment charge is recognized as the amount by which the carrying amount exceeds fair value. Business Combinations We estimate the fair value of assets acquired and liabilities assumed in a business combination. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable, and as a result, actual results may differ from estimates. Revenue Recognition The Company generates revenue from product sales and license sales. The Company recognizes revenue when all of the following criteria are satisfied: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as the Company satisfies each performance obligation. Based on the criteria above, the Company typically recognizes revenue upon delivery. The Company constrains revenue by giving consideration to factors that could otherwise lead to a probable reversal of revenue. The Company records any payments received from customers prior to the Company fulfilling its performance obligation(s) as deferred revenue. Deferred Revenue Deferred revenue primarily consists of payments received from customers prior to the Company fulfilling its performance obligation of providing the product. When this occurs, the Company records a contract liability as deferred revenue. Deferred revenue is recognized as revenue as the related performance obligations are satisfied. 41 Research and Development Research and development costs are expensed when incurred. The Company expensed $ 17,438,098 and $ 14,961,916 of research and development costs for the years ended December 31, 2022 and 2021, respectively. Stock-based Compensation The Company has granted stock-based awards, including restricted stock, stock options, stock warrants and restricted stock units (“RSUs”), to its employees, certain consultants and members of its board of directors. The Company records stock-based compensation based on the grant date fair value of the awards and recognizes the fair value of those awards as expense using the straight-line method over the requisite service period of the award. The Company estimates the grant date fair value of stock options using the Black-Scholes option-pricing model. When an award is forfeited prior to the vesting date, the Company recognizes an adjustment for the previously recognized expense in the period of the forfeiture. Income Taxes The Company accounts for income taxes in accordance with the liability method of accounting for income taxes. Under this method, d eferred income tax assets and deferred income tax liabilities represent the tax effect of temporary differences between financial reporting and tax reporting measured at enacted tax rates in effect for the year in which the differences are expected to reverse. The Company recognizes only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority. Valuation allowances are provided when it is more-likely-than-not that some or all of the deferred income tax assets may not be realized. In assessing the need for a valuation allowance, the Company has considered its historical levels of income, expectations of future taxable income and ongoing tax planning strategies. Developing the provision for income taxes, including the effective tax rate and analysis of potential tax exposure items, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred income tax assets and liabilities and any estimated valuation allowances deemed necessary to value deferred income tax assets. Judgments and tax strategies are subject to audit by various taxing authorities. The Company has uncertain income tax positions in the consolidated financial statements, and adverse determinations by these taxing authorities could have a material adverse effect on the consolidated financial positions, result of operations, or cash flows. Net Income per Share Basic net income or loss per common share is computed by dividing net income or loss applicable to common shareholders by the weighted average number of shares outstanding during each period. Diluted net income or loss per share is computed by dividing net income or loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period increased by common shares that could be issued upon conversion or exercise of other outstanding securities to the extent those additional common shares would be dilutive. The dilutive effect of potentially dilutive securities is reflected in diluted net income or loss per share by application of the treasury stock method. During periods when the Company is in a net loss position, basic net loss per share is the same as diluted net loss per share as the effects of potentially dilutive securities are anti-dilutive. Comprehensive Income Comprehensive income is comprised of unrealized gains and losses on marketable securities, net of income taxes. Concentrations Risk and Significant Customers The Company had certain customers which are each responsible for generating 10 % or more of the total revenue for the years ended December 31, 2022 and 2021. One customer accounted for approximately 37 % and two customers together accounted for approximately 48 % of total revenue for the years ended December 31, 2022 and 2021, respectively. 42 Three customers accounted for more than 10 % of accounts receivable, and two customers each accounted for more than 10 % of accounts receivable, at December 31, 2022 and 2021, respectively. These customers together accounted for approximately 61 % and 66 % of accounts receivable at December 31, 2022 and 2021, respectively. Recently Issued Accounting Standards From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for certain financial instruments, which includes the Company’s accounts receivable. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The Company adopted ASU 2016-13 on January 1, 2022. The adoption did not have an impact on the Company’s financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires a lessee to recognize most leases on the balance sheet as lease liabilities with corresponding right-of-use assets. The objective of ASU 2016-02 is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The recognized lease liabilities and lease assets represent the obligation to make payments and the right to use or control the use of a specified asset for the lease term, respectively. On January 1, 2022, the Company adopted Topic 842 using the modified retrospective approach with the effective date as the date of initial application. Consequently, results for the year ended December 31, 2022 are presented under Topic 842. No prior period amounts were adjusted and continue to be reported in accordance with previous lease guidance, ASC Topic 840, Leases. The Company elected the practical expedients available under the provisions of the new standard, including not reassessing whether expired or existing contracts are or contain leases; not reassessing the classification of expired or existing leases; and not reassessing the initial direct cost for any existing leases. Upon adoption, the Company recognized an operating lease liability of $ 626,699 and a corresponding operating right-of-use asset of $ 681,327 . 43 Note 3 - Cash, Cash Equivalents, and Financial Instruments The following table shows the Company’s cash, cash equivalents, and marketable investment securities by significant investment category as of December 31, 2022: Schedule of Cash, Cash Equivalents, and Marketable Investment Securities December 31, 2022 Adjusted Cost Allowance for Credit Losses Total Unrealized Gains / (Losses) Fair Value Cash and Cash Equivalents Marketable Securities Cash $ 12,834,444 $ - $ - $ 12,834,444 $ 12,834,444 $ - Level 1: Money market funds 146,359 - - 146,359 146,359 - Subtotal 146,359 - - 146,359 146,359 - Level 2: U.S. treasury securities 67,892,825 - 389,241 68,282,066 9,993,000 58,289,066 Subtotal 67,892,825 - 389,241 68,282,066 9,993,000 58,289,066 Total $ 80,873,628 $ - $ 389,241 $ 81,262,869 $ 22,973,803 $ 58,289,066 Marketable investment securities held as of December 31, 2022 mature over the next 12 months. Note 4 – Business Combinations On December 31, 2021, the Company completed its acquisitions of Advanced Conceptions, Inc. (“ACI”) and Idaho Molecular, Inc. (“IdMo”), which were related entities developing, with the Company, an at-home/point-of-care medical diagnostic device. Upon the completion of the acquisition, all outstanding ACI and IdMo common stock was initially exchanged for approximately 3.2 million shares of the Company’s common stock and contingent consideration that includes up to approximately 1.4 million shares and approximately 456,000 warrants to purchase shares of the Company’s common stock. The contingent consideration is based on the achievement of certain milestones, which include regulatory approval for identified products, as well as production and net revenue targets. Upon the completion of the acquisition, both ACI and IdMo became 100 % wholly-owned subsidiaries of the Company. The fair value of assets acquired and liabilities assumed was based on a preliminary valuation, with estimates and assumptions subject to change within the measurement period. During 2022, the Company finalized negotiations that were ongoing as of December 31, 2021 with one remaining shareholder of ACI, which resulted in an increase to the purchase consideration of $ 580,135 . Additionally, there was an increase of $ 101,593 in the estimated tax liabilities that resulted from the acquisition. Due to the change in purchase consideration and estimated tax liabilities, a measurement period adjustment was recorded, resulting in an increase to goodwill of $ 681,728 . Following the resolution with the remaining shareholder, the total number of shares exchanged as purchase consideration was approximately 3.3 million shares. Additionally, the updated purchase consideration includes contingent consideration of up to approximately 1.4 million shares and 465,000 warrants to purchase shares of the Company’s common stock. In addition, the adjustments to the provisional purchase consideration amount resulted in an increase in the gain on remeasurement of acquisition contingencies of $ 78,617 . 44 The total purchase consideration, including adjustment during the measurement period, was allocated to the assets acquired and liabilities assumed as set forth below: Schedule of Assets and Liabilities assumed Amounts Recognized as of Acquisition Date (as previously reported) Measurement Period Adjustments Amounts Recognized as of Acquisition Date (as adjusted) Purchase Consideration Fair value of common shares issued $ 25,160,223 $ 480,776 $ 25,640,999 Payable to shareholder 100,000 ( 100,000 ) - Fair value of contingent shares 8,684,669 165,957 8,850,626 Fair value of contingent warrants 1,747,972 33,402 1,781,374 Total fair value of consideration transferred $ 35,692,864 $ 580,135 $ 36,272,999 Identifiable assets acquired and liabilities assumed Cash $ 1,196,243 $ - $ 1,196,243 Accounts receivable 31,170 - 31,170 Prepaid expenses and other current assets 70,321 - 70,321 Property and equipment 408,173 - 408,173 Technology - In-process research and development 26,101,000 - 26,101,000 Non-competition agreements 1,094,000 - 1,094,000 Accounts payable and accrued other expenses ( 1,069,274 ) ( 101,593 ) ( 1,170,867 ) Deferred tax liability ( 6,845,587 ) - ( 6,845,587 ) Total identifiable net assets 20,986,046 ( 101,593 ) 20,884,453 Goodwill 14,706,818 681,728 15,388,546 Total $ 35,692,864 $ 580,135 $ 36,272,999 The in-process research and development is considered an indefinite-lived intangible until the completion or abandonment of the research and development activities. The non-competition agreements are being amortized over a range of 1.5 to 3 years. Note 5 – Fair Value Measurements The Company measures and records certain financial assets and liabilities at fair value on a recurring basis. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following three levels of inputs are used to measure the fair value of financial assets and liabilities: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs that are not corroborated by market data. 45 The following table summarizes the assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and December 31, 2021, by level within the fair value hierarchy: Schedule of Fair Value Assets and Liabilities (Level 1) (Level 2) (Level 3) Total December 31, 2022 (Level 1) (Level 2) (Level 3) Total Assets: Cash equivalents $ - $ 10,179,667 $ - $ 10,179,667 Marketable securities (U.S. treasury bills and notes) - 58,289,066 - 58,289,066 Total assets measured at fair value $ - $ 68,468,733 $ - $ 68,468,733 Liabilities: Contingent consideration - common stock $ - $ - $ 2,499,147 $ 2,499,147 Contingent consideration - warrants - - 233,209 233,209 Total liabilities measured at fair value $ - $ - $ 2,732,356 $ 2,732,356 (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 and notes as of December 31, 2021 and 2022, respectively. In connection with the acquisitions of IdMo and ACI on December 31, 2021, the Company recorded a liability for contingent consideration in the form of shares of common stock and warrants to purchase common stock. The fair value of contingent consideration is calculated using a discounted probability weighted valuation model. Discount rates used in such calculations are a significant assumption that are not observed in the market, and therefore, the resulting fair value represents a Level 3 measurement. The changes for Level 3 items measured at fair value on a recurring basis are as follows: 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 ( 7,899,644 ) Fair value as of December 31, 2022 $ 2,732,356 46 The fair value of the contingent consideration is based on the fair value of the contingent consideration-common stock and contingent consideration-warrants. The fair value of the contingent consideration-common stock is equal to the probability-adjusted value of the Company’s common stock as of the valuation date. The fair value of the contingent consideration-warrants is equal to the probability adjusted value of a call option with terms consistent with the terms of the warrants as of the valuation date. Prior to the probability adjustments, the warrants were valued based on the following inputs: Schedule of Contingent Consideration Common Stock and Warrants December 31, 2022 December 31, 2021 Stock price $ 2.52 $ 8.93 Strike price $ 9.13 $ 9.13 Volatility 75.00 % 80.00 % Risk-free rate 4.10 % 1.30 % Expected term 4.0 5.0 In order to calculate the probability-adjusted value of the contingent consideration-common stock and contingent consideration-warrants, the Company estimated the probability as of the valuation date of achieving certain milestones, which include regulatory approval for identified products, as well as production and net revenue targets. The probability of achieving the milestone related to net revenues was estimated as of the acquisition date using a Monte Carlo simulation valuation model. Significant inputs other than the fair value assumptions noted above were consistent as of the valuation date. The unobservable significant inputs to the valuation model were as follows: December 31, 2022 December 31, 2021 Stock price $ 2.52 $ 8.93 Risk-free rate 4.10 % 1.30 % Expected term 4.0 5.0 Weighted-average cost of capital 27.00 % 27.00 % Revenue discount rate 9.50 % 9.50 % Equity volatility 75.00 % 80.00 % Asset volatility 80.00 % 80.00 % Revenue volatility 30.00 % 30.00 % Fair Value of Other Financial Instruments The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, notes receivable, accounts payable, accrued liabilities, and other liabilities approximate fair value due to their short-term maturities and are excluded from the fair value tables above. 47 Note 6 – Property and Equipment Property and equipment, net consisted of the following: Schedule of Property and Equipment Estimated Useful Lives December 31, in years 2022 2021 Lab equipment 3 - 5 $ 3,574,730 $ 2,476,813 Leasehold improvements 0 - 3 224,957 3,157 Office equipment, furniture and other 2 - 5 112,044 75,401 Less accumulated depreciation and amortization ( 1,372,248 ) ( 622,155 ) Fixed assets, net $ 2,539,483 $ 1,933,216 Note 7 - 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 year ended December 31, 2022: Schedule of Goodwill Balance as of December 31, 2021 $ 14,706,818 Measurement period adjustments 681,728 Goodwill impairment charges ( 15,388,546 ) Balance as of December 31, 2022 $ - The Company assesses goodwill for impairment at the reporting unit level on an annual basis, or whenever events or changes in circumstances occur that indicate that the fair value of a reporting unit is below its carrying amount. The Company estimates the fair value of its reporting unit by using forecasts of discounted future cash flows and peer market multiples. If the fair value is less than the carrying value, impairment will be recognized in the amount by which the carrying value exceeds the fair value. The Company performed a qualitative and quantitative goodwill impairment assessment as of December 31, 2022. Based on the impairment assessment performed the Company concluded that it was more likely than not that the fair value of the Company’s reporting unit was less than it’s carrying amount. Accordingly, the Company recorded an impairment charge to reduce the carrying value of goodwill to $ 0 . Intangible Assets, Net Intangible assets, net consisted of the following: Schedule of Intangible Assets, Net December 31, 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 ( 426,667 ) 667,333 Total intangible assets $ 27,195,000 $ ( 426,667 ) $ 26,768,333 48 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 The expected future annual amortization expense of the Company’s intangible assets held as of December 31, 2022 is as follows: Schedule of Future Amortization Expense Year Ending December 31, Amortization Expense 2023 364,668 2024 302,665 Total $ 667,333 Note 8 - Accrued Expenses Accrued expenses consisted of the following: Schedule of Accrued Expenses December 31, 2022 December 31, 2021 Payroll liabilities $ 428,354 $ 2,455,694 Distributor commissions 159,725 509,500 Other accrued liabilities 346,368 894,458 Total accrued expenses $ 934,447 $ 3,859,652 49 Note 9 – Revenue The following table sets forth revenue by geographic area: Summary of Revenue by Geographic Area Years Ended December 31, 2022 2021 United States $ 24,671,554 $ 52,185,812 Rest of World 9,546,655 45,699,791 Total $ 34,218,209 $ 97,885,603 Percentage of revenue by area: United States 72 % 53 % Rest of World 28 % 47 % Deferred Revenue Changes in the Company’s deferred revenue balance for the years ended December 31, 2022 and 2021 were as follows: Schedule of Deferred Revenue Balance as of December 31, 2020 305,307 Revenue recognized included in deferred revenue balance at the beginning of the period ( 256,110 ) Increase due to prepayments from customers 79,213 Increase due to note receivable 150,000 Decrease due to refunds to customers and application to open balances ( 128,410 ) 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 December 31, 2022 $ - Note 10 – Earnings per Share The following table reconciles the numerator and the denominator used to calculate basic and diluted earnings per share for years ended December 31, 2022 and 2021: Schedule of Basic and Diluted Earnings Per Share 2022 2021 Years Ended December 31, 2022 2021 Numerator Net income, as reported $ ( 14,238,249 ) $ 36,658,564 Denominator Weighted average shares, basic 31,479,028 28,874,555 Dilutive effect of stock options, warrants and RSUs - 1,029,131 Shares used to compute diluted earnings per share 31,479,028 29,903,686 Basic earnings per share $ ( 0.45 ) $ 1.27 Diluted earnings per share $ ( 0.45 ) $ 1.23 50 For the year ended December 31, 2021, potentially dilutive securities of 154,644 were excluded from the computation of diluted earnings per share because the effect would have been anti-dilutive. The computation of diluted earnings per share for the years ended December 31, 2022 and December 31, 2021 also excludes the approximately 1.4 million shares of common stock and approximately 465,000 warrants to purchase shares of common stock mentioned in Note 4 that are contingent upon the achievement of certain milestones. As a result of incurring a net loss for the year ended December 31, 2022, no potentially dilutive securities are included in the calculation of diluted earnings per share because such effect would be anti-dilutive. The Company had potentially dilutive securities as of December 31, 2022, consisting of: (i) 1,443,238 restricted stock units and (ii) 50,000 options. Note 11 – Stock-Based Compensation Stock Incentive Plans The Company’s board of directors adopted, and shareholders approved, the Co-Diagnostics, Inc. Amended and Restated 2015 Long Term Incentive Plan (the “Incentive Plan”) providing for the issuance of stock-based incentive awards to employees, officers, consultants, directors and independent contractors. On August 31, 2022 the shareholders approved an increase in the number of awards available for issuance under the Incentive Plan to an aggregate of 12,000,000 shares of common stock. The number of awards available for issuance under the Incentive Plan was 6,210,790 at December 31, 2022. Stock Options The following table summarizes option activity during the years ended December 31, 2022 and 2021: 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, 2020 1,300,588 $ 2.44 $ 1.24 Granted - - - Expired - - - Forfeited/Cancelled - - - Exercised ( 189,225 ) 2.38 1.12 Outstanding at December 31, 2021 1,111,363 $ 2.12 $ 1.31 Granted - - - Expired - - - Forfeited/Cancelled - - - Exercised ( 70,791 ) 1.10 0.51 Outstanding at December 31, 2022 1,040,572 $ 2.19 $ 1.37 5.88 Exercisable at December 31, 2022 1,040,572 $ 2.19 $ 1.37 5.88 51 The total intrinsic value of options exercised during the years ended December 31, 2022 and 2021 was approximately $ 0.4 million and $ 1.3 million, respectively. The aggregate intrinsic value of outstanding options at December 31, 2022 and 2021 was approximately $ 0.8 million and $ 7.6 million, respectively. As of December 31, 2022, there were no unvested options and no unrecognized stock-based compensation expense related to options. Restricted Stock Units The grant date fair value of RSUs granted is determined using the closing market price of the Company’s common stock on the grant date with the associated compensation expense amortized over the vesting period of the awards. The following table sets forth the outstanding RSUs and related activity for the years ended December 31, 2022 and 2021: Schedule of Outstanding Restricted Stock Units and Related Activity Number of RSUs Weighted Average Grant Date Fair Value Unvested at December 31, 2020 522,500 $ 10.49 Granted 1,217,500 9.76 Vested ( 438,502 ) 10.10 Forfeited/Cancelled ( 34,083 ) 9.91 Unvested at December 31, 2021 1,267,415 $ 9.94 Granted 1,925,476 5.66 Vested ( 725,166 ) 8.66 Forfeited/Cancelled ( 41,000 ) 8.31 Unvested at December 31, 2022 2,426,725 $ 7.06 As of December 31, 2022, there was $ 14.7 million of unrecognized stock-based compensation expense related to outstanding RSUs which is expected to be recognized over a weighted-average period of 2.2 years. Warrants The Company has issued warrants related to financings, acquisitions and as compensation to third parties for services provided. The Company estimates the fair value of issued warrants on the date of issuance as determined using a Black-Scholes pricing model. The Company amortizes the fair value of issued warrants using a vesting schedule based on the terms and conditions of each warrant if granted for services. 52 The following table summarizes warrant activity during the years ended December 31, 2022 and 2021: 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, 2020 70,000 $ 1.83 $ 5.21 3.3 Granted 456,281 9.13 3.83 Expired - - - Forfeited/Cancelled - - - Exercised - - - 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 Granted - - - Expired - - - Forfeited/Cancelled - - - Exercised ( 50,000 ) 2.00 1.22 Outstanding at December 31, 2022 485,000 $ 8.81 $ 2.43 4.0 The intrinsic value of warrants exercised during the years ended December 31, 2022 and 2021 was $ 0.3 million and $ 0.0 million, respectively. The aggregate intrinsic value of outstanding warrants at December 31, 2022 was approximately $ 22,000 . 20,000 warrants are exercisable at December 31, 2022. As discussed in Note 3 and Note 4, approximately 456,000 warrants to purchase shares of the Company’s common stock were issued in connection with the acquisition of ACI and IdMo. The ability to exercise the warrants is contingent upon the achievement of certain development and revenue milestones on or before January 1, 2027. There was no unrecognized stock-based compensation expense related to warrants. See Note 5 for additional information regarding the fair value calculation of the warrants issued during the year ended December 31, 2021. Stock Issued for Services The Company has issued restricted stock to third parties for services provided. The grant date fair value of the restricted stock granted is determined using the closing market price of the Company’s common stock on the grant date with the associated compensation expense amortized over the vesting period of the stock awards. The Company issued 0 and 5,548 shares of restricted stock for services during the years ended December 31, 2022 and 2021, respectively, and there was no unrecognized stock-based compensation expense related to restricted stock issued. 53 Stock-Based Compensation Expense The Company recognized stock-based compensation expense related to the types of awards discussed above as follows: Schedule of Recognized Stock-based Compensation Expense 2022 2021 Years Ended December 31, 2022 2021 Options $ 78,115 $ 292,754 Restricted stock units 7,465,108 5,164,750 Stock - 51,900 Total stock-based compensation expense $ 7,543,223 $ 5,509,404 Note 12 – Income Taxes The components of the provision for income taxes consists of the following for the years ended December 31, 2022 and 2021: Schedule of Components Income Tax Provision 2022 2021 Year Ended December 31, 2022 2021 Current: Federal $ 563,821 $ 6,092,730 State ( 266,248 ) 886,173 Total current $ 297,573 $ 6,978,903 Deferred: Federal ( 3,945,090 ) 1,394,686 State ( 961,468 ) 603,642 Total deferred ( 4,906,558 ) 1,998,328 Total income tax (benefit) expense $ ( 4,608,985 ) $ 8,977,231 A reconciliation of income tax expense at the statutory federal income tax rate and income taxes as reflected in the financial statements is as follows: Schedule of Benefit from Income Taxes and Effective Tax Rates 2022 2021 Year Ended December 31, 2022 2021 Federal income tax expense at statutory rate 21.0 % 21.0 % State income tax expense, net of federal tax benefit 4.8 % 3.9 % Permanent differences: - Foreign derived intangible income deduction 1.4 % - 3.5 % - Stock based compensation - 3.6 % 0.2 % - Contingent consideration remeasurement 8.8 % 0.0 % - Goodwill impairment - 17.1 % 0.0 % - Other permanent differences - 0.6 % 0.3 % Research and development credits 11.1 % - 2.6 % Change in uncertain tax positions - 2.1 % 1.4 % Change in valuation allowance 0.0 % 0.0 % Other 0.8 % - 1.0 % Effective income tax rate 24.5 % 19.7 % Net deferred tax liabilities consist of the following components as of December 31, 2022 and 2021: Schedule of Deferred Tax Assets 2022 2021 December 31, 2022 2021 Deferred tax assets: Accrued liabilities $ 98,141 $ - Reserves and allowances 765,004 166,050 Deferred compensation 566,076 393,871 Research and development credits 3,460,159 - Lease liability 85,899 - UNICAP 168,936 - Total deferred tax assets 5,144,215 559,921 Deferred tax liabilities: Property and equipment, net ( 609,261 ) ( 477,542 ) Intangibles, net ( 6,608,914 ) ( 6,743,972 ) Prepaids ( 156,053 ) ( 560,093 ) Right of use asset ( 91,873 ) - Other comprehensive income ( 96,101 ) - Other - ( 6,758 ) Total deferred tax liabilities ( 7,562,202 ) ( 7,788,365 ) Net deferred tax (liabilities) ( 2,417,987 ) ( 7,228,444 ) Less valuation allowance - - Net deferred tax (liabilities) $ ( 2,417,987 ) $ ( 7,228,444 ) At December 31, 2022, the Company had no federal net operating loss carryforwards and no federal research and development credit carryforwards. At December 31, 2022, the Company had no state net operating loss carryforwards and $ 288,292 of state research and development credit carryforwards. If unused, the state research credit carryforward will expire in 2036. 54 ASC Topic 740-10-05 requires that the impact of a tax position be recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. Our unrecognized tax benefit balances included $ 1,469,577 at December 31, 2022 and $ 1,067,853 at December 31, 2021 of tax positions that, if recognized, would impact our effective tax rate. The Company expects no material changes to the liability for unrecognized tax benefits in the next 12 months. Interest and penalties associated with uncertain tax positions are recorded as a component of income tax expense. A reconciliation of the beginning and ending amount of unrecognized benefits is as follows: Schedule of Unrecognized Tax Benefits December 31, 2022 2021 Unrecognized tax benefits at the beginning of the year $ 1,067,853 $ 447,831 Gross increases - current year tax positions 1,045,590 770,069 Gross increases - prior year tax positions 34,035 - Gross decreases - prior year tax positions ( 677,901 ) ( 150,047 ) Unrecognized tax benefits at end of year $ 1,469,577 $ 1,067,853 Interest and penalties in year-end balance $ 34,035 $ - The Company is subject to taxation in the United States and other state jurisdictions. The tax years from December 31, 2019 through December 31, 2022 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which the Company is subject. The Company is not currently under examination by any taxing authority. Note 13 – Commitments and Contingencies Lease Obligations The Company leases office space under a non-cancellable operating lease and leases cancellable with one month notice. The Company expenses the cancelable leases in the period incurred in accordance with the practical expedient elected. As such, one lease makes up the entirety of the right-of-use asset and lease liability disclosed. For the year ended December 31, 2022, components of lease expense are summarized as follows: Schedule of Lease Expense Year Ended December, 2022 Operating lease costs $ 346,349 Short-term lease costs 384,902 Total lease costs $ 731,251 Short-term lease costs under month-to-month lease agreements are paid to related parties. As of December 31, 2022, the maturities of the Company’s lease liabilities are as follows: Schedule of Maturities on Company Lease Liabilities Year Ending December 31, 2023 $ 303,059 2024 50,773 2025 - 2026 - 2027 - Thereafter - Total lease payments 353,832 Less: imputed interest 5,915 Present value of operating lease liabilities 347,917 Less: current portion 297,209 Long-term portion $ 50,708 55 Other information related to operating leases was as follows: Schedule of Other Information Related to Operating Lease Year Ended December 31, 2022 Cash paid for operating leases included in operating cash flows $ 700,821 Remaining lease term of operating leases 1 year Discount rate of operating leases 3.1 % 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 a defendant in two class action claims and three derivative actions claiming that the Company promulgated false and misleading press releases to increase the price of our stock to improperly benefit the officers and directors of the Company. The plaintiffs demand compensatory damages sustained as a result of the Company’s alleged wrongdoing in an amount to be proven at trial. The Company believes these lawsuits are without merit and intends to defend the cases vigorously. The Company is unable to estimate a range of loss, if any, that could result were there to be an adverse final decision in these cases. As of the date of this report, the Company does not believe it is probable that these cases will result in an unfavorable outcome; however, if an unfavorable outcome were to occur in these cases, it is possible that the impact could be material to the Company’s results of operations in the period(s) in which any such outcome becomes probable and estimable. Note 14 – Share Repurchase Program In March 2022, the Company’s board of directors authorized a share repurchase program that would allow the Company to repurchase up to $ 30.0 million of CODX common stock. The repurchase program does not obligate the Company to acquire any particular number of common shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion. The timing and amount of any share repurchases under the share repurchase program will be determined by Co-Diagnostics’ management at its discretion based on ongoing assessments of the capital needs of the business, the market price of the Company’s common stock, corporate and regulatory requirements, and general market conditions. For accounting purposes, common stock repurchased under the stock repurchase program is recorded based upon the transaction date of the applicable trade. Such repurchased shares are held in treasury and are presented using the cost method. These shares are not retired and are considered issued but not outstanding. The following table shows the changes in treasury stock for the periods presented: Schedule of Treasury Stock Year Ended December 31, 2022 Balance, beginning of period - Repurchases of common stock 3,881,658 Balance, end of period 3,881,658 56 Note 15 – Subsequent Events None. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.