Co-Diagnostics, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Table of Contents Reports of Independent Registered Public Accounting Firms (PCAOB ID No. 270 and ID No. 457 ) 34 Consolidated Balance Sheets 36 Consolidated Statements of Operations 37 Consolidated Statement of Changes in Stockholders’ Equity 38 Consolidated Statements of Cash Flows 39 Notes to Consolidated Financial Statements 40 33 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders Co-Diagnostics, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Co-Diagnostics Inc. and subsidiaries (the Company) as of December 31, 2023, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. 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 audit 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 consolidated 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 audit, 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 audit included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides 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 consolidated 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 consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated 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. Estimation of the Fair Value of Intangible Assets As more fully described in Notes 2 and 6 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 in-process research and development indefinite-lived intangible assets totaling $26,101,000. 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, 2023, required significant judgment to assess qualitative factors in determining whether it is more likely than not that the indefinite-lived intangible asset is impaired. As a result of their analysis, the Company determined there was no impairment as of year-end. Auditing the Company’s annual impairment assessment was complex and highly judgmental due to the significant judgement required in determining whether it is more likely than not that an indefinite-lived intangible asset is impaired. This required a high degree of auditor judgement, subjectivity and effort in performing procedures and evaluating audit evidence to evaluate management assessment in evaluating these indefinite-lived intangibles for impairment. These procedures included among others: (1) evaluating management’s process for evaluating for impairment, (2) evaluating the factors assessed by management (3) evaluating other relevant factors in making our own determination, and (4) evaluating and discussing considerations and conclusions made by management. /s/ Tanner LLC We have served as the Company’s auditor since 2023 Salt Lake City, Utah March 14, 202 4 34 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 sheet of Co-Diagnostics, Inc (the Company) as of December 31, 2022, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year 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 the results of its operations and its cash flows for the year 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 audit. 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 audit 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 audit, 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 audit 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 audit 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 audit provides a reasonable basis for our opinion. /s/ Haynie & Company Salt Lake City, Utah March 16, 2023 We began serving as the Company’s auditor in 2016. In 2023, we became the predecessor auditor. 35 CO-DIAGNOSTICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2023 December 31, 2022 Assets Current assets Cash and cash equivalents $ 14,916,878 $ 22,973,803 Marketable investment securities 43,631,510 58,289,066 Accounts receivable, net 303,926 3,453,723 Inventory, net 1,664,725 5,310,473 Income taxes receivable 26,955 1,870,419 Prepaid expenses and other current assets 1,597,114 761,187 Note receivable - 75,000 Total current assets 62,141,108 92,733,671 Property and equipment, net 3,035,729 2,539,483 Operating lease right-of-use asset 2,966,774 372,115 Intangible assets, net 26,403,667 26,768,333 Investment in joint venture 773,382 672,679 Total assets $ 95,320,660 $ 123,086,281 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 1,482,109 $ 952,296 Accrued expenses 2,172,959 934,447 Operating lease liability, current 838,387 297,209 Contingent consideration liabilities, current 891,666 1,689,471 Deferred revenue 362,449 - Total current liabilities 5,747,570 3,873,423 Long-term liabilities Income taxes payable 659,186 1,181,284 Deferred tax liability - 2,417,987 Operating lease liability 2,152,180 50,708 Contingent consideration liabilities 748,109 1,042,885 Total long-term liabilities 3,559,475 4,692,864 Total liabilities 9,307,045 8,566,287 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 December 31, 2023 and December 31, 2022, respectively - - Common stock, $ 0.001 par value; 100,000,000 shares authorized; 36,108,346 shares issued and 31,259,668 shares outstanding as of December 31, 2023 and 34,754,265 shares issued and 30,872,607 shares outstanding as of December 31, 2022 36,108 34,754 Treasury stock, at cost; 4,848,678 and 3,881,658 shares held as of December 31, 2023 and December 31, 2022, respectively ( 15,575,795 ) ( 14,211,866 ) Additional paid-in capital 96,808,436 88,472,935 Accumulated other comprehensive income 146,700 293,140 Accumulated earnings 4,598,166 39,931,031 Total stockholders’ equity 86,013,615 114,519,994 Total liabilities and stockholders’ equity $ 95,320,660 $ 123,086,281 See accompanying notes to consolidated financial statements. 36 CO-DIAGNOSTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Years Ended December 31, 2023 2022 Product revenue $ 991,473 $ 34,218,209 Grant revenue 5,820,565 - Total revenue 6,812,038 34,218,209 Cost of revenue 4,184,949 5,481,093 Gross profit 2,627,089 28,737,116 Operating expenses Sales and marketing 6,860,815 7,344,628 General and administrative 14,279,441 14,262,963 Research and development 22,962,593 17,438,098 Depreciation and amortization 1,230,474 1,282,718 Goodwill impairment charges - 15,388,546 Total operating expenses 45,333,323 55,716,953 Loss from operations ( 42,706,234 ) ( 26,979,837 ) Other income, net Interest income 1,161,913 704,045 Realized gain on investments 2,243,059 - Loss on disposition of assets ( 2,578 ) ( 138,117 ) Gain on remeasurement of acquisition contingencies 1,092,581 7,899,644 Gain (loss) on equity method investment in joint venture 100,703 ( 332,969 ) Total other income, net 4,595,678 8,132,603 Loss before income taxes ( 38,110,556 ) ( 18,847,234 ) Income tax benefit ( 2,777,691 ) ( 4,608,985 ) Net loss $ ( 35,332,865 ) $ ( 14,238,249 ) Other comprehensive loss Change in net unrealized gains on marketable securities, net of tax $ ( 146,440 ) $ 293,140 Total other comprehensive income (loss) $ ( 146,440 ) $ 293,140 Comprehensive loss $ ( 35,479,305 ) $ ( 13,945,109 ) Loss per common share: Basic $ ( 1.20 ) $ ( 0.45 ) Diluted $ ( 1.20 ) $ ( 0.45 ) Weighted average shares outstanding: Basic 29,346,599 31,479,028 Diluted 29,346,599 31,479,028 See accompanying notes to consolidated financial statements. 37 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, 2021 - $ - 33,819,862 $ 33,820 $ - $ 80,271,999 $ - $ 54,169,280 $ 134,475,099 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 loss - - - - - - - ( 14,238,249 ) ( 14,238,249 ) Balance as of December 31, 2022 - $ - 34,754,265 $ 34,754 $ ( 14,211,866 ) $ 88,472,935 $ 293,140 $ 39,931,031 $ 114,519,994 Balance - $ - 34,754,265 $ 34,754 $ ( 14,211,866 ) $ 88,472,935 $ 293,140 $ 39,931,031 $ 114,519,994 Stock-based compensation expense - - 1,354,081 1,354 - 8,335,501 - - 8,336,855 Repurchases of common stock - - - - ( 1,363,929 ) - - - ( 1,363,929 ) Other comprehensive loss, net of tax - - - - - - ( 146,440 ) - ( 146,440 ) Net loss - - - - - - - ( 35,332,865 ) ( 35,332,865 ) Balance as of December 31, 2023 - $ - 36,108,346 $ 36,108 $ ( 15,575,795 ) $ 96,808,436 $ 146,700 $ 4,598,166 $ 86,013,615 Balance - $ - 36,108,346 $ 36,108 $ ( 15,575,795 ) $ 96,808,436 $ 146,700 $ 4,598,166 $ 86,013,615 See accompanying notes to consolidated financial statements. 38 CO-DIAGNOSTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2023 2022 Cash flows from operating activities Net loss $ ( 35,332,865 ) $ ( 14,238,249 ) Adjustments to reconcile net loss to cash (used in) provided by operating activities: Depreciation and amortization 1,230,474 1,282,718 Goodwill impairment charges - 15,388,546 Stock-based compensation expense 8,336,855 7,543,223 Change in fair value of acquisition contingencies ( 1,092,581 ) ( 7,899,644 ) Non-cash lease expense 47,992 30,430 Realized gain on investments ( 2,243,059 ) - (Gain) loss from equity method investment ( 100,703 ) 332,969 Loss on disposition of assets 2,578 138,117 Deferred income taxes ( 2,417,987 ) ( 4,810,457 ) Provision for credit losses 612,809 2,461,032 Inventory obsolescence expense 3,233,281 148,099 Changes in assets and liabilities: Accounts receivable 2,536,988 14,924,427 Prepaid expenses and other assets 1,082,536 ( 224,094 ) Inventory 413,140 ( 3,673,309 ) Deferred revenue 362,449 ( 150,000 ) Income taxes payable ( 522,098 ) ( 2,201,250 ) Accounts payable, accrued expenses and other liabilities 1,768,326 ( 2,483,821 ) Net cash (used in) provided by operating activities ( 22,081,865 ) 6,568,737 Cash flows from investing activities Purchases of property and equipment ( 1,365,306 ) ( 1,427,512 ) Proceeds from maturities of marketable investment securities 127,251,619 11,255,266 Purchases of marketable securities ( 110,497,444 ) ( 67,995,926 ) Net cash (used in) provided by investing activities 15,388,869 ( 58,168,172 ) Cash flows from financing activities Proceeds from exercise of options and warrants - 177,870 Repurchases of common stock ( 1,363,929 ) ( 14,211,866 ) Net cash (used in) financing activities ( 1,363,929 ) ( 14,033,996 ) Net decrease in cash and cash equivalents ( 8,056,925 ) ( 65,633,431 ) Cash and cash equivalents at beginning of period 22,973,803 88,607,234 Cash and cash equivalents at end of period $ 14,916,878 $ 22,973,803 Supplemental disclosure of cash flow information Interest paid $ - $ - Income taxes paid $ 55,975 $ 4,498,742 Supplemental disclosure of non-cash investing and financing transactions Inventory moved to property, plant and equipment $ 673 $ 218,906 Right-of-use assets obtained in exchange for new operating lease liabilities $ 3,203,146 $ 681,327 Business acquisition measurement period adjustments $ - $ 1,593 Fair value of common stock issued as consideration for business acquisitions $ - $ 480,776 Fair value of contingent common stock issued as consideration for business acquisitions $ - $ 199,359 See accompanying notes to consolidated financial statements. 39 CO-DIAGNOSTICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2023 AND 2022 Note 1 – Overview and Basis of Presentation Description of Business Co-Diagnostics, Inc., a Utah corporation (the “Company” or “CODX”), is a molecular diagnostics company that develops, manufactures and markets state-of-the-art diagnostics technologies. The Company’s technologies are utilized for tests that are designed using the detection and/or analysis of nucleic acid molecules (DNA or RNA). The Company also uses its proprietary technology to design specific tests for its Co-Dx PCR platform and to locate genetic markers for use in applications other than infectious disease. 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 inventories, 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 Reclassifications Certain prior year amounts have been reclassified to conform with the current year’s presentation. These reclassifications have no impact on the previously reported results. 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, 2023 and December 31, 2022. 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. 40 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 consolidated statements of operations and comprehensive loss. 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, 2023 total accounts receivable was $ 504,264 with an allowance for uncollectable accounts of $ 200,338 resulting in a net amount of $ 303,926 . 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 . 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, 2023, the Company had $ 1,664,725 in inventory, of which $ 700,467 was finished goods and $ 964,258 was raw materials. 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. The Company establishes reserves to reduce low-moving, obsolete, or unusable inventories to their estimated useful or scrap values. The Company recognized $ 2,760,011 and $ 0 related to the change in inventory reserves during the years ended December 31, 2023 and 2022, respectively. 41 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 years ended December 31, 2023 and 2022, the Company recognized impairment charges related to goodwill of $ 0 and $ 15,388,546 , respectively. 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. For in-process research and development projects acquired in business combinations, the in-process research and development project is capitalized and evaluated for impairment until the development process has been completed. Once the development process has been completed the asset will be amortized over its remaining estimated useful life. The Company reviews its long-lived assets, including property and equipment, indefinite-lived and 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. 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. Grant Revenue The Company may submit applications to receive grant funding from governmental and non-governmental entities. The Company accounts for grants by analogizing to the contribution accounting model under ASC 958-605, Not-for-Profit Entities (“ASC 958”). Revenues from grants, contracts, and awards provided by governmental and non-governmental agencies are recorded based upon the terms of the specific agreements. The Company recognizes grant funding without conditions or continuing performance obligations as revenue in the consolidated statements of operations and comprehensive income (loss). The Company recognizes grant funding with conditions or continuing performance obligations as deferred revenue in the consolidated balance sheets if the conditions or performance obligations have not yet been met. The Company recognized grant funding revenue of $ 5.8 million during the year ended December 31, 2023. At December 31, 2023, the Company has also recorded $ 0.3 million of deferred revenue related to grant funding for which the cash was received, but the underlying conditions or performance obligations have not yet been met. Cash received from federal grants, contracts, and awards can be subject to audit by the grantor and, if the examination results in a disallowance of any expenditure, repayment could be required. 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. 42 Research and Development Research and development costs are expensed when incurred. The Company recorded $ 22,962,593 and $ 17,438,098 of research and development costs for the years ended December 31, 2023 and 2022, 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 (Loss) 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 (Loss) Comprehensive loss is comprised of net loss and unrealized gains and losses on marketable securities, net of income taxes. Concentrations Risk and Significant Customers The Company had certain customers which were each responsible for generating 10 % or more of the total revenue for the years ended December 31, 2023 and 2022, respectively. Two customers accounted for approximately 28 % of product revenue for the year ended December 31, 2023 and one customer accounted for approximately 37 % of product revenue for the year ended December 31, 2022. One granting agency accounted for 100 % of grant revenue for the year ended December 31, 2023. 43 Three customers accounted for more than 10 % of accounts receivable at December 31, 2023 and 2022, respectively. These customers together accounted for approximately 97 % and 61 % of accounts receivable at December 31, 2023 and 2022, 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 December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires an entity to disclose annually additional information related to the company’s income tax rate reconciliation and income taxes paid during the period. The guidance should be applied prospectively with the option to apply the standard retrospectively. The standard becomes effective for the Company for full year 2025 reporting. The Company is currently evaluating the impact of this new standard on its consolidated financial statements. 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: Schedule of Cash, Cash Equivalents and Marketable Investment Securities December 31, 2023 Adjusted Cost Allowance for Credit Losses Total Unrealized Gains / (Losses) Fair Value Cash and Cash Equivalents Marketable Investment Securities Cash $ 4,317,449 $ - $ - $ 4,317,449 $ 4,317,449 $ - Level 1: Money market funds 10,599,429 - - 10,599,429 10,599,429 - Subtotal 10,599,429 - - 10,599,429 10,599,429 - Level 2: U.S. treasury securities 43,484,810 - 146,700 43,631,510 - 43,631,510 Subtotal 43,484,810 - 146,700 43,631,510 - 43,631,510 Total $ 58,401,688 $ - $ 146,700 $ 58,548,388 $ 14,916,878 $ 43,631,510 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, 2023 mature over the next 12 months. Note 4 – 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. 44 The following table summarizes the assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 and December 31, 2022, by level within the fair value hierarchy: Schedule of Fair Value Assets and Liabilities (Level 1) (Level 2) (Level 3) Total December 31, 2023 (Level 1) (Level 2) (Level 3) Total Assets: Cash equivalents $ 13,806,864 $ - $ - $ 13,806,864 Marketable securities (U.S. treasury bills and notes) - 43,631,510 - 43,631,510 Total assets measured at fair value $ 13,806,864 $ 43,631,510 $ - $ 57,438,374 Liabilities: Contingent consideration - common stock $ - $ - $ 1,318,995 $ 1,318,995 Contingent consideration - warrants - - 320,780 320,780 Total liabilities measured at fair value $ - $ - $ 1,639,775 $ 1,639,775 (Level 1) (Level 2) (Level 3)  Total December 31, 2022 (Level 1) (Level 2) (Level 3) Total Assets: Cash equivalents $ 186,667 $ 9,993,000 $ - $ 10,179,667 Marketable securities (U.S. treasury bills and notes) - 58,289,066 - 58,289,066 Total assets measured at fair value $ 186,667 $ 68,282,066 $ - $ 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 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, 2023 and 2022, respectively. In connection with prior year acquisitions, the Company recorded a liability for contingent consideration in the form of shares of common stock and warrants to purchase common stock, both to be issued when certain milestones are achieved. 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 the Fair Value Measurement Fair value as of December 31, 2022 $ 2,732,356 Change in fair value of contingent consideration issued for business acquisitions ( 1,092,581 ) Fair value as of December 31, 2023 $ 1,639,775 45 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, 2023 December 31, 2022 Stock price $ 1.33 $ 2.52 Strike price $ 9.13 $ 9.13 Volatility 187.5 % 75.0 % Risk-free rate 4.0 % 4.1 % Expected term (years) 3.0 4.0 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. Note 5 – Property and Equipment Property and equipment, net consisted of the following: Schedule of Property and Equipment Estimated December 31, Useful Lives in years 2023 2022 Lab equipment 3 - 5 $ 4,545,908 $ 3,574,730 Leasehold improvements 0 - 5 548,648 224,957 Office equipment, furniture and other 2 - 5 173,668 112,044 Less accumulated depreciation and amortization ( 2,232,495 ) ( 1,372,248 ) Fixed assets, net $ 3,035,729 $ 2,539,483 Note 6 – 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: 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 $ - 46 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, 2023 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 ( 791,333 ) 302,667 Total intangible assets $ 27,195,000 $ ( 791,333 ) $ 26,403,667 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 (1) Based on weighted-average useful life established as of the acquisition date. 47 The expected future annual amortization expense of the Company’s intangible assets held as of December 31, 2023 is as follows: Schedule of Future Amortization Expense Year Ending December 31, Amortization Expense 2024 302,667 Total $ 302,667 Note 7 - Accrued Expenses Accrued expenses consisted of the following: Schedule of Accrued Expenses December 31, 2023 December 31, 2022 Payroll liabilities $ 1,643,186 $ 428,354 Distributor commissions 9,958 159,725 Other accrued liabilities 519,815 346,368 Total accrued expenses $ 2,172,959 $ 934,447 Note 8 – Revenue The following table sets forth revenue by geographic area: Summary of Revenue by Geographic Area 2023 2022 Years Ended December 31, 2023 2022 United States Product revenue $ 659,618 $ 24,671,554 Grant revenue 5,820,565 - Total United States 6,480,183 24,671,554 Rest of World Product revenue 331,855 9,546,655 Grant revenue - - Total Rest of World 331,855 9,546,655 Total $ 6,812,038 $ 34,218,209 Revenue geographic area $ 6,812,038 $ 34,218,209 Percentage of revenue by area: United States 95 % 72 % Rest of World 5 % 28 % Deferred Revenue Changes in the Company’s deferred revenue balance for the year ended December 31, 2023 were as follows: Schedule of Deferred Revenue Balance as of December 31, 2022 $ - Increase due to prepayments from customers 32,570 Increase due to grant funding awarded 329,879 Balance as of December, 2023 $ 362,449 Note 9 – 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, 2023 and 2022: Schedule of Basis and Diluted Earnings Per Share 2023 2022 Years Ended December 31, 2023 2022 Numerator Net loss, as reported $ ( 35,332,865 ) $ ( 14,238,249 ) Denominator Weighted average shares, basic 29,346,599 31,479,028 Dilutive effect of stock options, warrants and RSUs - - Shares used to compute diluted earnings per share 29,346,599 31,479,028 Basic earnings per share $ ( 1.20 ) $ ( 0.45 ) Diluted earnings per share $ ( 1.20 ) $ ( 0.45 ) 48 The computation of diluted earnings per share for the years ended December 31, 2023 and December 31, 2022 also excludes 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. As a result of incurring a net loss for the years ended December 31, 2023 and 2022, respectively, 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, 2023, consisting of: (i) 2,618,362 restricted stock units and (ii) 512,112 options, and potentially dilutive securities as of December 31, 2022, consisting of: (i) 1,443,238 restricted stock units and (ii) 50,000 options. Note 10 – 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 4,357,937 at December 31, 2023. Stock Options The following table summarizes option activity during the years ended December 31, 2023 and 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 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 Granted - - - Expired - - - Forfeited/Cancelled - - - Exercised - - - Outstanding at December 31, 2023 1,040,572 $ 2.19 $ 1.37 4.89 Exercisable at December 31, 2023 1,040,572 $ 2.19 $ 1.37 4.89 49 The total intrinsic value of options exercised during the years ended December 31, 2023 and 2022, respectively, was $ 0 and approximately $ 0.4 million. The aggregate intrinsic value of outstanding options at December 31, 2023 and 2022 was approximately $ 0.2 million and $ 0.8 million, respectively. As of December 31, 2023, 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, 2023 and 2022: Schedule of Outstanding Restricted Stock Units and Related Party 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 ( 725,166 ) 8.66 Forfeited/Cancelled ( 41,000 ) 8.31 Unvested at December 31, 2022 2,426,725 $ 6.95 Granted 1,948,750 1.92 Vested ( 1,354,081 ) 6.17 Forfeited/Cancelled ( 95,897 ) 6.16 Unvested at December 31, 2023 2,925,497 $ 3.99 As of December 31, 2023, there was $ 9.5 million of unrecognized stock-based compensation expense related to outstanding RSUs which is expected to be recognized over a weighted-average period of 1.7 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. 50 The following table summarizes warrant activity during the years ended December 31, 2023 and 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 Granted - - - Expired - - - Forfeited/Cancelled - - - Exercised ( 50,000 ) 2.00 1.22 Outstanding at December 31, 2022 485,000 $ 8.81 $ 2.43 4.0 Granted - - - Expired - - - Forfeited/Cancelled - - - Exercised - - - Outstanding at December 31, 2023 485,000 $ 8.81 $ 1.29 3.0 The intrinsic value of warrants exercised during the years ended December 31, 2023 and 2022, respectively, was $ 0 and approximately $ 0.3 million. The aggregate intrinsic value of outstanding warrants at December 31, 2023 was approximately $ 0 . The total number of warrants exercisable at December 31, 2023 is 20,000 . The ability to exercise the approximately 465,000 warrants issued in connection with acquisitions in prior years 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-Based Compensation Expense The Company recognized stock-based compensation expense as follows: Schedule of Recognized Stock-based Compensation Expense 2023 2022 Years Ended December 31, 2023 2022 Cost of sales $ 46,586 $ 63,058 Sales and marketing 2,153,974 1,866,116 General and administrative 4,933,822 4,050,967 Research and development 1,202,473 1,563,082 Total stock-based compensation expense $ 8,336,855 $ 7,543,223 Note 11 – Income Taxes The components of the provision (benefit) for income taxes consists of the following for the years ended December 31, 2023 and 2022: Schedule of Components Income Tax Provision 2023  2022 Year Ended December 31, 2023 2022 Current: Federal $ 84,435 $ 563,821 State ( 540,240 ) ( 266,248 ) Total current $ ( 455,805 ) $ 297,573 Deferred: Federal ( 7,228,611 ) ( 3,945,090 ) State ( 2,068,509 ) ( 961,468 ) Change in valuation allowance 6,975,234 - Total deferred ( 2,321,886 ) ( 4,906,558 ) Total income tax benefit $ ( 2,777,691 ) $ ( 4,608,985 ) 51 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 2023 2022 Year Ended December 31, 2023 2022 Federal income tax expense at statutory rate 21.0 % 21.0 % State income tax expense, net of federal tax benefit 1.6 % 4.8 % Permanent differences: - Foreign derived intangible income deduction 0.0 % 1.4 % - Stock based compensation - 3.5 % - 3.6 % - Contingent consideration remeasurement 0.6 % 8.8 % - Goodwill impairment 0.0 % - 17.1 % - Other permanent differences - 0.2 % - 0.6 % Research and development credits 4.6 % 11.1 % Change in uncertain tax positions 1.2 % - 2.1 % Change in valuation allowance - 18.3 % 0.0 % Other 0.3 % 0.8 % Effective income tax rate 7.3 % 24.5 % Net deferred tax liabilities consist of the following components as of December 31, 2023 and 2022: Schedule of Deferred Tax Assets and Liabilities 2023 2022 December 31, 2023 2022 Deferred tax assets: Accrued liabilities $ 58,158 $ 98,141 Reserves and allowances 734,631 765,004 Deferred compensation 620,551 566,076 Section 174 costs 7,337,629 3,460,159 Lease liability 742,131 85,899 UNICAP 43,943 168,936 Net operating loss carryforwards 4,040,601 - Research and development credits 1,688,255 - Total gross deferred tax assets 15,265,899 5,144,215 Less valuation allowance ( 6,938,829 ) - Total deferred tax assets 8,327,070 5,144,215 Deferred tax liabilities: Property and equipment, net ( 672,416 ) ( 609,261 ) Intangibles, net ( 6,552,255 ) ( 6,608,914 ) Prepaids ( 329,768 ) ( 156,053 ) Right of use asset ( 736,226 ) ( 91,873 ) Other comprehensive income ( 36,405 ) ( 96,101 ) Other - - Total deferred tax liabilities ( 8,327,070 ) ( 7,562,202 ) Net deferred tax liability $ - $ ( 2,417,987 ) At December 31, 2023, the Company had federal net operating loss carryforwards of $ 16.3 million and federal research and development credit carryforwards of $ 1.4 million. At December 31, 2023, the Company had state net operating loss carryforwards of $ 16.9 million and $ 0.8 million of state research and development credit carryforwards. If unused, the state research credit carryforward will expire in 2037. 52 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 $ 1,078,431 at December 31, 2023 and $ 1,469,577 at December 31, 2022 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, 2023 2022 Unrecognized tax benefits at the beginning of the year $ 1,469,577 $ 1,067,853 Gross increases - current year tax positions 273,569 1,045,590 Gross increases - prior year tax positions 66,127 34,035 Gross decreases - prior year tax positions ( 730,842 ) ( 677,901 ) Unrecognized tax benefits at end of year $ 1,078,431 $ 1,469,577 Interest and penalties in year-end balance $ 100,162 $ 34,035 The Company is subject to taxation in the United States and other state jurisdictions. The tax years from December 31, 2020 through December 31, 2023 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 12 – Commitments and Contingencies Lease Obligations The Company leases administrative, R&D, sales and marketing and manufacturing facilities under non-cancellable operating leases and leases cancellable with one month notice. The Company expenses the cancelable leases in the period incurred in accordance with the practical expedient elected. During the year December 31, 2023, the Company amended two operating leases to extend the lease term and entered into two new operating leases. As a result, the Company recognized additional operating lease liabilities and corresponding operating right-of-use assets of $ 3,203,146 . For the year ended December 31, 2023, components of lease expense are summarized as follows: Schedule of Lease Expense Year Ended December 31, 2023 Operating lease costs $ 813,743 Short-term lease costs 198,261 Total lease costs $ 1,012,004 As of December 31, 2023, the maturities of the Company’s lease liabilities are as follows: Schedule of Maturities on Company Lease Liabilities Year Ending December 31, 2024 $ 996,676 2025 1,018,383 2026 714,630 2027 300,591 Thereafter 308,462 Total lease payments 3,338,742 Less: imputed interest 348,175 Present value of operating lease liabilities 2,990,567 Less: current portion 838,387 Long-term portion $ 2,152,180 53 Other information related to operating leases was as follows: Schedule of Other Information Related to Operating Lease Year Ended December 31, 2023 Cash paid for operating leases included in operating cash flows $ 954,013 Remaining lease term of operating leases 3.7 years Discount rate of operating leases 6.2 % 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 is also a party to two civil actions, one in the US and the other in the United Kingdom. Each of the civil actions is based on breach of contract claims against the Company. 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 Year Ended December 31, 2023 Balance, beginning of period 3,881,658 Repurchases of common stock 967,020 Balance, end of period 4,848,678 Note 14 – Related Party Transactions The Company employs one person who is related to current or former executive officers. Seth Egan is the Company’s Director of Sales and Marketing, and is the son of Dwight Egan, the Company’s President and Chief Executive Officer and Chairman of the Board. During the year ended December 31, 2023, the total compensation paid to this person, including salaries, bonuses, and the grant date fair value of equity awards which vest over three years , was $ 0.6 million. The Company also uses the services of Winston Egan as an independent contractor for sales operations consulting. Winston Egan is also the son of Dwight Egan, the Company’s President and Chief Executive Officer and Chairman of the Board. During the year ended December 31, 2023, the total compensation paid to this contractor, comprised of consulting fees, was $ 0.1 million. In August 2023, the Company entered into a services agreement with CoSara, the Company’s equity method investment, under which CoSara provides certain research and development consulting and support services. During the year ended December 31, 2023, the Company recognized $ 0.2 million of expense related to this agreement. Note 15 – Subsequent Events None. 54 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.