Co-Diagnostics, Inc. 10-Q

Item 1. Financial Statements CO – DIAGNOSTICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, 2024 December 31, 2023 Assets Current assets Cash and cash equivalents $ 10,797,630 $ 14,916,878 Marketable investment securities 26,864,571 43,631,510 Accounts receivable, net 178,243 303,926 Inventory, net 1,266,016 1,664,725 Income taxes receivable - 26,955 Prepaid expenses and other current assets 996,698 1,597,114 Total current assets 40,103,158 62,141,108 Property and equipment, net 2,984,112 3,035,729 Operating lease right-of-use asset 2,332,877 2,966,774 Intangible assets, net 26,176,667 26,403,667 Investment in joint venture 784,357 773,382 Total assets $ 72,381,171 $ 95,320,660 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 2,176,426 $ 1,482,109 Accrued expenses 1,826,297 2,172,959 Operating lease liability, current 896,745 838,387 Contingent consideration liabilities, current 838,032 891,666 Deferred revenue 60,477 362,449 Total current liabilities 5,797,977 5,747,570 Long-term liabilities Income taxes payable 719,628 659,186 Operating lease liability 1,472,100 2,152,180 Contingent consideration liabilities 607,526 748,109 Total long-term liabilities 2,799,254 3,559,475 Total liabilities 8,597,231 9,307,045 Commitments and contingencies (Note 10) - - Stockholders’ equity Convertible preferred stock, $ 0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively - - Common stock, $ 0.001 par value; 100,000,000 shares authorized; 36,778,430 shares issued and 31,929,752 shares outstanding as of September 30, 2024 and 36,108,346 shares issued and 31,259,668 shares outstanding as of December 31, 2023 36,778 36,108 Treasury stock, at cost; 4,848,678 shares held as of September 30, 2024 and December 31, 2023, respectively ( 15,575,795 ) ( 15,575,795 ) Additional paid-in capital 100,924,241 96,808,436 Accumulated other comprehensive income 408,366 146,700 Accumulated earnings (deficit) ( 22,009,650 ) 4,598,166 Total stockholders’ equity 63,783,940 86,013,615 Total liabilities and stockholders’ equity $ 72,381,171 $ 95,320,660 See accompanying notes to unaudited condensed consolidated financial statements 3 CO – DIAGNOSTICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) 2024 2023 2024 2023 Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Product revenue $ 206,876 $ 136,533 $ 620,723 $ 936,296 Grant revenue 434,265 2,320,565 3,145,112 2,320,565 Total revenue 641,141 2,457,098 3,765,835 3,256,861 Cost of revenue 297,403 255,772 744,056 1,217,108 Gross profit 343,738 2,201,326 3,021,779 2,039,753 Operating expenses Sales and marketing 1,059,745 1,904,395 3,664,670 5,343,692 General and administrative 4,287,380 3,147,753 10,338,568 9,875,613 Research and development 4,880,315 5,788,789 16,172,684 16,783,892 Depreciation and amortization 351,235 296,340 1,020,143 917,596 Total operating expenses 10,578,675 11,137,277 31,196,065 32,920,793 Loss from operations ( 10,234,937 ) ( 8,935,951 ) ( 28,174,286 ) ( 30,881,040 ) Other income, net Interest income 263,335 322,877 968,256 717,141 Realized gain on investments 293,067 425,446 595,302 1,254,718 Gain (loss) on disposition of assets 3,513 ( 2,578 ) 7,013 ( 2,578 ) Gain (loss) on remeasurement of acquisition contingencies ( 11,927 ) 140,296 194,217 1,537,373 Gain (loss) on equity method investment in joint venture 12,683 ( 45,865 ) ( 132,775 ) 106,264 Total other income, net 560,671 840,176 1,632,013 3,612,918 Loss before income taxes ( 9,674,266 ) ( 8,095,775 ) ( 26,542,273 ) ( 27,268,122 ) Income tax provision (benefit) 22,189 ( 2,113,581 ) 65,543 ( 6,611,712 ) Net loss $ ( 9,696,455 ) $ ( 5,982,194 ) $ ( 26,607,816 ) $ ( 20,656,410 ) Other comprehensive loss Change in net unrealized gains on marketable securities, net of tax 37,158 33,522 261,666 319,509 Total other comprehensive income $ 37,158 $ 33,522 $ 261,666 $ 319,509 Comprehensive loss $ ( 9,659,297 ) $ ( 5,948,672 ) $ ( 26,346,150 ) $ ( 20,336,901 ) Loss per common share: Basic and Diluted $ ( 0.32 ) $ ( 0.20 ) $ ( 0.88 ) $ ( 0.70 ) Weighted average shares outstanding: Basic and Diluted 30,494,206 29,361,300 30,155,167 29,306,572 See accompanying notes to unaudited condensed consolidated financial statements 4 CO – DIAGNOSTICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) 2024 2023 Nine Months Ended September 30, 2024 2023 Cash flows from operating activities Net loss $ ( 26,607,816 ) $ ( 20,656,410 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 1,020,143 917,596 Stock-based compensation expense 4,116,475 6,510,708 Change in fair value of acquisition contingencies ( 194,217 ) ( 1,537,373 ) Non-cash lease expense 12,174 36,770 Realized gain on investments ( 595,302 ) ( 1,254,718 ) (Gain) loss from equity method investment 132,775 ( 106,264 ) (Gain) loss on disposition of assets ( 7,013 ) 2,578 Deferred income taxes - ( 6,689,989 ) Provision for credit losses 8,262 503,182 Inventory obsolescence expense 164,955 493,823 Changes in assets and liabilities: Accounts receivable 117,421 2,143,837 Prepaid expenses and other assets 627,370 151,858 Inventory 233,754 296,893 Deferred revenue ( 301,972 ) 349,499 Income taxes payable 60,442 178,441 Accounts payable, accrued expenses and other liabilities 288,510 1,356,330 Net cash used in operating activities ( 20,924,039 ) ( 17,303,239 ) Cash flows from investing activities Purchases of property and equipment ( 675,365 ) ( 900,704 ) Proceeds from maturities of marketable investment securities 45,031,967 90,279,227 Purchases of marketable securities ( 27,408,061 ) ( 83,604,933 ) Investment in joint venture ( 143,750 ) - Net cash provided by investing activities 16,804,791 5,773,590 Cash flows from financing activities Repurchases of common stock - ( 1,204,256 ) Net cash used in financing activities - ( 1,204,256 ) Net decrease in cash and cash equivalents ( 4,119,248 ) ( 12,733,905 ) Cash and cash equivalents at beginning of period 14,916,878 22,973,803 Cash and cash equivalents at end of period $ 10,797,630 $ 10,239,898 Supplemental disclosure of cash flow information Cash paid (received) for income taxes $ ( 23,350 ) $ 49,197 Supplemental disclosure of non-cash investing and financing transactions Inventory moved to property, plant and equipment $ - $ 673 Right-of-use assets obtained in exchange for new operating lease liabilities $ - $ 3,063,782 See accompanying notes to unaudited condensed consolidated financial statements 5 CO – DIAGNOSTICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Shares Amount Shares Amount Stock Capital Income (Deficit) Equity Convertible Preferred Stock Common Stock Treasury Additional Paid-in Accumulated Other Comprehensive Accumulated Earnings Total Stockholders’ Shares Amount Shares Amount Stock Capital Income (Deficit) Equity 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 Stock-based compensation - - 18,750 19 - 1,571,215 - - 1,571,234 Other comprehensive income, net of tax - - - - - - 79,855 - 79,855 Net loss - - - - - - - ( 9,312,043 ) ( 9,312,043 ) Balance as of March 31, 2024 - - 36,127,096 36,127 ( 15,575,795 ) 98,379,651 226,555 ( 4,713,877 ) 78,352,661 Stock-based compensation - - 632,584 633 - 1,499,025 - - 1,499,658 Other comprehensive income, net of tax - - - - - - 144,653 - 144,653 Net loss - - - - - - - ( 7,599,318 ) ( 7,599,318 ) Balance as of June 30, 2024 - - 36,759,680 36,760 ( 15,575,795 ) 99,878,676 371,208 ( 12,313,195 ) 72,397,654 Stock-based compensation - - 18,750 18 - 1,045,565 - - 1,045,583 Other comprehensive income, net of tax - - - - - - 37,158 - 37,158 Net loss - - - - - - - ( 9,696,455 ) ( 9,696,455 ) Balance as of September 30, 2024 - $ - 36,778,430 $ 36,778 $ ( 15,575,795 ) $ 100,924,241 $ 408,366 $ ( 22,009,650 ) $ 63,783,940 Convertible Preferred Stock Common Stock Treasury Additional Paid-in Accumulated Other Comprehensive Accumulated Earnings Total Stockholders’ Shares Amount Shares Amount Stock Capital Income (Deficit) Equity 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 Stock-based compensation - - 68,750 69 - 2,168,673 - - 2,168,742 Repurchases of common stock - - - - ( 482,196 ) - - - ( 482,196 ) Other comprehensive income, net of tax - - - - - - 178,621 - 178,621 Net loss - - - - - - - ( 5,755,391 ) ( 5,755,391 ) Balance as of March 31, 2023 - - 34,823,015 34,823 ( 14,694,062 ) 90,641,608 471,761 34,175,640 110,629,770 Balance - - 34,823,015 34,823 ( 14,694,062 ) 90,641,608 471,761 34,175,640 110,629,770 Stock-based compensation - - 525,335 525 - 2,169,276 - - 2,169,801 Repurchases of common stock - - - - ( 555,734 ) - - - ( 555,734 ) Other comprehensive income, net of tax - - - - - - 107,366 - 107,366 Net loss - - - - - - - ( 8,918,825 ) ( 8,918,825 ) Balance as of June 30, 2023 - - 35,348,350 35,348 ( 15,249,796 ) 92,810,884 579,127 25,256,815 103,432,378 Balance - - 35,348,350 35,348 ( 15,249,796 ) 92,810,884 579,127 25,256,815 103,432,378 Stock-based compensation - - 18,750 19 - 2,172,146 - - 2,172,165 Repurchases of common stock - - - - ( 166,326 ) - - - ( 166,326 ) Other comprehensive income, net of tax - - - - - - 33,522 - 33,522 Net loss - - - - - - - ( 5,982,194 ) ( 5,982,194 ) Balance as of September 30, 2023 - $ - 35,367,100 $ 35,367 $ ( 15,416,122 ) $ 94,983,030 $ 612,649 $ 19,274,621 $ 99,489,545 Balance - $ - 35,367,100 $ 35,367 $ ( 15,416,122 ) $ 94,983,030 $ 612,649 $ 19,274,621 $ 99,489,545 See accompanying notes to unaudited condensed consolidated financial statements 6 CO – DIAGNOSTICS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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™ 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. Unaudited Condensed Consolidated Financial Statements The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information as they are prescribed for smaller reporting companies. As permitted under those rules and regulations, certain notes or other financial information normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, the accompanying unaudited condensed consolidated financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to make the financial statements not misleading have been included. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. These statements should be read in conjunction with the Company’s audited financial statements and related notes for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 14, 2024. The Company’s significant accounting policies are set forth in Note 2 to the consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2023. 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 contingencies, income taxes, share based arrangements, and others. These estimates and assumptions are based on management’s best estimates and judgments. Actual amounts and results could differ from those estimates. Note 2 – Summary of Significant Accounting Policies 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. 7 Accounts Receivable Trade accounts receivable are recorded at the invoiced amount (net of allowance) and do not bear interest. The Company maintains an allowance for doubtful accounts for amounts the Company does not expect to collect. In establishing the required allowance, management considers historical losses, current market condition, customers’ financial condition, the age of receivables, and current payment patterns. Account balances are written off against the allowance once the receivable is deemed uncollectible. Recoveries of trade receivables previously written off are recorded when collected. At September 30, 2024 total accounts receivable was $ 384,643 with an allowance for uncollectable accounts of $ 206,400 resulting in a net amount of $ 178,243 . 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 . Inventory Inventory is stated at the lower of cost or net-realizable value. Inventory cost is determined on a first-in first-out basis that approximates average cost in accordance with ASC 330-10-30-12. At September 30, 2024, the Company had $ 1,266,016 in inventory, of which $ 566,186 was finished goods and $ 699,830 was raw materials. 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. The Company establishes reserves to reduce low-moving, obsolete, or unusable inventories to their estimated useful or scrap values. The Company recognized $ 72,872 and $ 214,134 related to the change in inventory reserves during the three and nine months ended September 30, 2024, respectively, compared to $ 152,274 and $ 96,073 during the three and nine months ended September 30, 2023, respectively. Revenue Recognition The Company generates revenue from customers from product and license sales. The Company recognizes revenue from customers 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. 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 $ 434,265 and $ 3,145,112 during the three and nine months ended September 30, 2024, respectively, compared to $ 2,320,565 during the three and nine months ended September 30, 2023, respectively. At September 30, 2024, the Company has also recorded $ 40,856 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. 8 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 condensed consolidated financial statements, and adverse determinations by these taxing authorities could have a material adverse effect on the condensed consolidated financial positions, result of operations, or cash flows. 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 three and nine months ended September 30, 2024. Three customers accounted for approximately 61 % of product revenue, and one granting agency accounted for 100 % of the grant revenue recognized during the three months ended September 30, 2024. Two customers accounted for approximately 31 % of product revenue, and two granting agencies accounted for approximately 95 % of grant revenue recognized during the nine months ended September 30, 2024. Three customers accounted for approximately 47 % of product revenue and two customers accounted for approximately 28 % of product revenue recognized for the three and nine months ended September 30, 2023, respectively. One granting agency accounted for 100 % of grant revenue recognized during the three and nine months ended September 30, 2023, respectively. Three customers individually accounted for more than 10 % of accounts receivable at September 30, 2024 and three customers individually accounted for more than 10 % of accounts receivable at December 31, 2023. These customers together accounted for approximately 92 % and 97 % of accounts receivable at September 30, 2024 and December 31, 2023, respectively. 9 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 September 30, 2024 Adjusted Cost Total Unrealized Gains / (Losses) Fair Value Cash and Cash Equivalents Marketable Investment Securities Cash $ 10,797,630 $ - $ 10,797,630 $ 10,797,630 $ - Level 2: U.S. treasury securities 26,456,205 408,366 26,864,571 - 26,864,571 Subtotal 26,456,205 408,366 26,864,571 - 26,864,571 Total $ 37,253,835 $ 408,366 $ 37,662,201 $ 10,797,630 $ 26,864,571 December 31, 2023 Adjusted Cost 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 Marketable investment securities held as of September 30, 2024 mature over the next 12 months. 10 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. The following table summarizes the assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023, by level within the fair value hierarchy: Schedule of Fair Value Assets and Liabilities (Level 1) (Level 2) (Level 3) Total September 30, 2024 (Level 1) (Level 2) (Level 3) Total Assets: Cash equivalents $ 51,982 $ - $ - $ 51,982 Marketable securities (U.S. treasury bills and notes) - 26,864,571 - 26,864,571 Total assets measured at fair value $ 51,982 $ 26,864,571 $ - $ 26,916,553 Liabilities: Contingent consideration - common stock $ - $ - $ 1,239,657 $ 1,239,657 Contingent consideration - warrants - - 205,901 205,901 Total liabilities measured at fair value $ - $ - $ 1,445,558 $ 1,445,558 (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 11 The Company’s financial instruments that are measured at fair value on a recurring basis consist of U.S. treasury bills and notes as of September 30, 2024 and December 31, 2023. 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, 2023 $ 1,639,775 Change in fair value of contingent consideration issued for business acquisitions ( 194,217 ) Fair value as of September 30, 2024 $ 1,445,558 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 September 30, 2024 December 31, 2023 Stock price $ 1.25 $ 1.33 Strike price $ 9.13 $ 9.13 Volatility 164.1 % 187.5 % Risk-free rate 3.6 % 4.0 % Expected term (years) 2.3 3.0 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 – Intangible Assets, Net Intangible assets, net consisted of the following: Schedule of Intangible Assets, Net September 30, 2024 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 ( 1,018,333 ) 75,667 Total intangible assets $ 27,195,000 $ ( 1,018,333 ) $ 26,176,667 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 (1) Based on weighted-average useful life established as of the acquisition date. 12 The expected future annual amortization expense of the Company’s intangible assets held as of September 30, 2024 is as follows: Schedule of Future Amortization Expense Year Ending December 31, Amortization Expense 2024 (remainder) $ 75,667 Note 6 – Revenue The following table sets forth revenue by geographic area: Summary of Revenue by Geographic Area 2024 2023 2024 2023 Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 United States Product revenue $ 129,776 $ 88,107 $ 473,482 $ 618,491 Grant revenue 434,265 2,320,565 3,145,112 2,320,565 Total United States 564,041 2,408,672 3,618,594 2,939,056 Rest of World Product revenue 77,100 48,426 147,241 317,805 Grant revenue - - - - Total Rest of World 77,100 48,426 147,241 317,805 Total $ 641,141 $ 2,457,098 $ 3,765,835 $ 3,256,861 Revenue geographic area $ 641,141 $ 2,457,098 $ 3,765,835 $ 3,256,861 Percentage of revenue by area: United States 88 % 98 % 96 % 90 % Rest of World 12 % 2 % 4 % 10 % Changes in the Company’s deferred revenue balance for the nine months ended September 30, 2024 were as follows: Schedule of Deferred Revenue Balance as of December 31, 2023 $ 362,449 Revenue recognized included in deferred revenue balance at the beginning of the period ( 301,972 ) Balance as of September 30, 2024 $ 60,477 Note 7 – Loss Per Share The following table reconciles the numerator and the denominator used to calculate basic and diluted loss per share for three and nine months ended September 30, 2024 and 2023, respectively: Schedule of Basis and Diluted Earnings Per Share 2024 2023 2024 2023 Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Numerator Net loss, as reported $ ( 9,696,455 ) $ ( 5,982,194 ) $ ( 26,607,816 ) $ ( 20,656,410 ) Denominator Weighted average shares, basic 30,494,206 29,361,300 30,155,167 29,306,572 Dilutive effect of stock options, warrants and RSUs - - - - Shares used to compute diluted earnings per share 30,494,206 29,361,300 30,155,167 29,306,572 Basic loss per share $ ( 0.32 ) $ ( 0.20 ) $ ( 0.88 ) $ ( 0.70 ) Diluted loss per share $ ( 0.32 ) $ ( 0.20 ) $ ( 0.88 ) $ ( 0.70 ) 13 The computation of diluted loss per share for the three and nine months ended September 30, 2024 and 2023, respectively, 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 three and nine months ended September 30, 2024 and 2023, respectively, no potentially dilutive securities are included in the calculation of diluted loss per share because such effect would be anti-dilutive. The Company had potentially dilutive securities as of September 30, 2024, consisting of: (i) 1,598,891 restricted stock units and (ii) 532,112 options and warrants. The Company had potentially dilutive securities as of September 30, 2023, consisting of: (i) 2,750,302 restricted stock units and (ii) 512,112 options and warrants. Note 8 – Stock-Based Compensation Stock Incentive Plans The Company’s board of directors adopted, and shareholders approved, the Co-Diagnostics, Inc. Amended and Restated 2015 Long Term Incentive Plan (the “Incentive Plan”) providing for the issuance of stock-based incentive awards to employees, officers, consultants, directors and independent contractors. On August 31, 2022, the shareholders approved an increase in the number of awards available for issuance under the Incentive Plan to an aggregate of 12,000,000 shares of common stock. The number of awards available for issuance under the Incentive Plan was 2,939,242 at September 30, 2024. Stock Options The following table summarizes option activity during the nine months ended September 30, 2024: 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, 2023 1,040,572 $ 2.19 $ 1.37 4.89 Granted - - - Expired - - - Forfeited/Cancelled - - - Exercised - - - Outstanding at September 30, 2024 1,040,572 $ 2.19 $ 1.37 4.13 Exercisable at September 30, 2024 1,040,572 $ 2.19 $ 1.37 4.13 The aggregate intrinsic value of outstanding options at September 30, 2024 was approximately $ 0.2 million. Stock-based compensation cost is measured at the grant date based on the fair value of the award granted and recognized as expense over the vesting period using the straight-line method. The Company uses the Black-Scholes model to value options granted. As of September 30, 2024, there were no unvested options and no unrecognized stock-based compensation expense related to options. Restricted Stock Units The grant date fair value of RSUs granted is determined using the closing market price of the Company’s common stock on the grant date with the associated compensation expense amortized over the vesting period of the awards. The following table sets forth the outstanding RSUs and related activity for the nine months ended September 30, 2024: Schedule of Outstanding Restricted Stock Units and Related Party Number of RSUs Weighted Average Grant Date Fair Value Unvested at December 31, 2023 2,925,497 $ 3.99 Granted 1,555,000 1.11 Vested ( 670,084 ) 4.91 Forfeited/Cancelled ( 246,512 ) 4.10 Unvested at September 30, 2024 3,563,901 $ 2.55 14 As of September 30, 2024, there was approximately $ 6.2 million of unrecognized stock-based compensation expense related to outstanding RSUs which is expected to be recognized over a weighted-average period of 1.6 years. Warrants The Company has issued warrants related to financings, acquisitions and as compensation to third parties for services provided. The Company estimates the fair value of issued warrants on the date of issuance as determined using a Black-Scholes pricing model. The Company amortizes the fair value of issued warrants using a vesting schedule based on the terms and conditions of each warrant if granted for services. The following table summarizes warrant activity during the nine months ended September 30, 2024: 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, 2023 485,000 $ 8.81 $ 1.29 3.0 Granted - - - Expired - - - Forfeited/Cancelled - - - Exercised - - - Outstanding at September 30, 2024 485,000 $ 8.81 $ 1.05 2.2 The aggregate intrinsic value of outstanding warrants at September 30, 2024 was $ 0 . The total number of warrants exercisable at September 30, 2024 is 20,000 . The ability to exercise the remaining 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 2024 2023 2024 2023 Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Cost of revenue $ 3,306 $ 12,075 $ 17,501 $ 36,140 Sales and marketing 181,190 564,962 844,553 1,666,868 General and administrative 924,539 1,278,674 3,057,184 3,732,398 Research and development ( 63,452 ) 316,454 197,237 1,075,302 Total stock-based compensation expense $ 1,045,583 $ 2,172,165 $ 4,116,475 $ 6,510,708 Note 9 – Income Taxes For the three months ended September 30, 2024, the Company recognized expense from income taxes of $ 22,189 , representing an effective tax rate of ( 0.2 %). For the nine months ended September 30, 2024, the Company recognized expense from income taxes of $ 65,543 , representing an effective tax rate of ( 0.2 %). The Company’s effective tax rate will generally differ from the U.S. Federal statutory rate of 21.0 %, primarily due to the full valuation allowance as well as state taxes, permanent items, and discrete items. For the three and nine months ended September 30, 2023, the Company recognized a benefit from income taxes of $ 2,113,581 and $ 6,611,712 , respectively. 15 Note 10 – 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. The components of lease expense are summarized as follows: Schedule of Lease Expense 2024 2023 2024 2023 Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Operating lease costs $ 258,145 $ 244,941 $ 761,986 $ 529,089 Short-term lease costs 8,250 38,110 46,039 192,261 Total lease costs $ 266,395 $ 283,051 $ 808,025 $ 721,350 As of September 30, 2024, the maturities of the Company’s lease liabilities are as follows: Schedule of Maturities on Company Lease Liabilities Year Ending December 31, 2024 (remainder) $ 251,210 2025 1,018,383 2026 714,630 2027 300,591 2028 308,462 Thereafter - Total lease payments 2,593,276 Less: imputed interest 224,431 Present value of operating lease liabilities 2,368,845 Less: current portion 896,745 Long-term portion $ 1,472,100 Other information related to operating leases was as follows: Schedule of Other Information Related to Operating Lease Nine Months Ended September 30, 2024 Cash paid for operating leases included in operating cash flows $ 785,851 Remaining lease term of operating leases 3.0 Discount rate of operating leases 6.3 % 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. 16 The Company is a defendant in two class action claims and four 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 three civil actions, two 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 11 – 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. No shares were repurchased during the three or nine months ended September 30, 2024. Note 12 – Related Party Transactions In 2023, the Company entered into a services agreement with CoSara Diagnostics Pvt Ltd (“CoSara”), our joint venture for manufacturing in India, under which CoSara provides certain research and development consulting and support services. The Company recognized $ 181,878 and $ 361,843 of expense related to this agreement during the three and nine months ended September 30, 2024, respectively. The Company recognized $ 70,000 of expense for the three and nine months ended September 30, 2023. 17