See accompanying notes to unaudited condensed consolidated financial statements

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”, “Co-Dx” or “CODX”), develops, manufactures and sells reagents used for diagnostic tests that function via the detection and/or analysis of nucleic acid molecules (DNA or RNA), including robust and innovative molecular tools for detection of infectious diseases liquid biopsy for cancer screening, and agricultural applications. In connection with the sale of our tests we may sell diagnostic equipment from other manufacturers as self-contained lab systems (which we refer to as the “MDx Device”). We are also developing a unique, ground-breakinggroundbreaking portable PCR testing platformdevice and proprietary test cups (the “Co-Dx PCR home testingHome™ platform”) that have been designed to bring affordable, reliable gold-standard polymerase chain reaction (“PCR”) to patients in point-of-care and even at-home settings. This platform is subject to U.S. Food and Drug Administration (“FDA”) review and is not available for sale at the time of this filing. There is no guarantee the Co-Dx PCR Home platform will receive the necessary regulatory approvals for commercialization, or that, if regulatory approval is received, we will be able to successfully commercialize this platform.

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 for interim financial information and with the instructions to Form 10-Q as they are prescribed for smaller reporting companies and emerging growth companies. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. Operating results for the three and six months ended June 30, 20222023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023. These statements should be read in conjunction with the Company’s audited financial statements and related notes for the year ended December 31, 2021,2022, included in the Company’s Annual Report on Form 10-K filed on March 24, 2022.16, 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 and regulatory contingencies, income taxes, share based arrangements, and others. These estimates and assumptions are based on management’s best estimates and judgments. Actual amounts and results could differ from those estimates.

Note 2 – Summary of Significant Accounting Policies

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 June 30, 20222023 and December 31, 2021. 2022. The Company has its cash and cash equivalents with a large creditworthy financial institutioninstitutions and the balance exceeded federally insured limits. The Company has not experienced any losses in such accounts, and management believes the Company is not exposed to any significant credit risk on cash and cash equivalents.

Marketable Investment Securities

The Company’s marketable investment securities are comprised of investments in certificates of deposit and U.S. treasury bills.Treasury bills and notes. The Company determinesdesignates investments in debt securities as available-for-sale. Available-for-sale debt securities with original maturities of three months or less from the appropriate classificationdate of itspurchase 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, atwithin current assets on the time of purchase and re-evaluates such designation at eachcondensed consolidated balance sheet date.sheets. The Company has classified and accounted for its marketable investment securities as available-for-sale securities as the Company may sell these securities at any time for use in its current operations or for other purposes, even prior to maturity. AsAvailable-for-sale debt securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a result,component of stockholders’ equity, net of tax. Realized gains and losses on the Company classifies itssale of marketable investment securities including securities with stated maturities beyond twelve months, within current assetsare determined using the average cost method on a first-in, first-out basis and recorded in total other income (expense), net in the condensed consolidated balance sheets. Any unrealized gains or losses are immaterial.statements of operations and comprehensive income (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 June 30, 2022,2023, total accounts receivable was $12,941,0104,510,545 with an allowance for uncollectable accounts of $681,0013,413,152 resulting in a net amount of $12,260,0091,097,393. At December 31, 2021,2022, total accounts receivable was $21,508,7796,552,249 with an allowance for uncollectable accounts of $669,5973,098,526 resulting in a net amount of $20,839,1823,453,723.

Equity-Method Investments

OurThe Company’s equity method investments are initially recorded at cost and are included in other long-term assets in the accompanying condensed consolidated balance sheet. We adjustThe Company adjusts the carrying value of ourits 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 condensed consolidated statements of operations.

Inventory

Inventory is stated at the lower of cost or net-realizable value. Inventory cost is determined on a first-in first-out basis that approximates average cost in accordance with ASC 330-10-30-12. At June 30, 2023, the Company had $4,691,068 in inventory, comprised of $842,087 of finished goods, and $3,848,981 of raw materials. At December 31, 2022, the Company had $4,705,9215,310,473 in inventory, of which $3,927,6981,327,264 was finished goods and $778,223 was raw materials. At December 31, 2021, the Company had $2,004,169 in inventory, of which $983,088 was finished goods and $1,021,0813,983,209 was raw materials. The Company establishes reserves to reduce slow-moving, obsolete, or unusable inventories to their estimated useful or scrap values.

Property and EquipmentIntangible Assets

PropertyIndefinite-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.

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.years. Repairs and maintenance costs are expensed as incurred except when such repairs significantly add to the useful life or productive capacity of the asset, in which case the repairs are capitalized.

The Company reviews its long-lived assets, including property and equipment, finite-lived intangible assets, and right-of-use (ROU) assets, for impairment whenever an event or change in facts and circumstances indicates that their carrying amounts may not be recoverable. Recoverability of these assets is measured by comparing the carrying amount to the estimated undiscounted future cash flows expected to be generated. If the carrying amount exceeds the undiscounted cash flows, the assets are determined to be impaired and an impairment charge is recognized as the amount by which the carrying amount exceeds fair value.

Business Combinations

We estimateThe Company estimates the fair value of assets acquired and liabilities assumed in a business combination. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable, and as a result, actual results may differ from estimates.

Leases

Leases

As described in “Recently Adopted Accounting Standards” below, theThe Company adopted ASC 842, Leases (“ASC 842”) effective January 1, 2022. Under ASC 842, the Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether it has the right to control the identified asset. Right-of-use (ROU) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. ROU assets are based on the measurement of the lease liability and also include any lease payments made prior to or on lease commencement and exclude lease incentives and initial direct costs incurred, as applicable.

As the implicit rate in the Company’s leases is generally unknown, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The Company considers its credit risk, term of the lease, total lease payments and adjusts for the impacts of collateral, as necessary, when calculating its incremental borrowing rates. The Company evaluates renewal options at lease inception and on an ongoing basis and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease costs for the Company’s operating leases are recognized on a straight-line basis within operating expenses and cost of revenue over the reasonably assured lease term.

The Company has elected to not separate lease and non-lease components for leases of office space and, as a result, accounts for any lease and non-lease components for office space as a single lease component, to the extent they are fixed. Non-lease components that are not fixed are expensed as incurred as variable lease payments. The Company’s office leases typically include non-lease components such as common-area maintenance costs. The Company has also elected to not apply the recognition requirement to any leases within its existing classes of assets with a term of 12 months or less.

Revenue Recognition

The Company generates revenue from product sales and license sales. The Company recognizes revenue when all of the following criteria are satisfied: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as the Company satisfies each performance obligation.

The Company constrains revenue by giving consideration to factors that could otherwise lead to a probable reversal of revenue. The Company records any payments received from customers prior to the Company fulfilling its performance obligation(s) as deferred revenue.

Deferred Revenue

Deferred revenue primarily consists of payments received from customers related to product sales or from granting agencies for services to be rendered under research grants, prior to the Company fulfilling its performance obligation of providing the product.product or performing research activities under the grant agreement. When this occurs, the Company records a contract liability as deferred revenue. Deferred revenue is recognized as revenue as the related performance obligations are satisfied.

Research and Development

Research and development costs are expensed when incurred. For the three and six months ended June 30, 2022,2023, the Company expensed $3,889,8445,981,043 and $7,661,17110,995,103 of research and development costs, respectively. For the three and six months ended June 30, 2021,2022, the Company expensed $4,669,1603,889,844 and $6,886,2237,661,171, 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.forfeiture.

Income Taxes

The Company accounts for income taxes in accordance with the liability method of accounting for income taxes. Under this method, deferreddeferred income tax assets and deferred income tax liabilities represent the tax effect of temporary differences between financial reporting and tax reporting measured at enacted tax rates in effect for the year in which the differences are expected to reverse. The Company recognizes only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority.

Valuation allowances are provided when it is more-likely-than-not that some or all of the deferred income tax assets may not be realized. In assessing the need for a valuation allowance, the Company has considered its historical levels of income, expectations of future taxable income and ongoing tax planning strategies.

Developing the provision for income taxes, including the effective tax rate and analysis of potential tax exposure items, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred income tax assets and liabilities and any estimated valuation allowances deemed necessary to value deferred income tax assets. Judgments and tax strategies are subject to audit by various taxing authorities. While theThe Company believes it has no significant 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.

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 income is comprised of unrealized gains and losses on marketable investment securities, net of income taxes.

Concentrations Risk and Significant Customers

The Company had certain customers which are each responsible for generating 10% or more of the total revenue for the three and six months ended June 30, 2022.2023. Three customers accounted for approximately 44% of total revenue for the three months ended June 30, 2023, and two customers accounted for approximately 33% of total revenue for the six months ended June 30, 2023. One customer accounted for approximately 55% of total revenue for the three months ended June 30, 2022, and two customers together accounted for approximately 46% of total revenue for the six months ended June 30, 2022. Two customers together accounted for approximately 68% of total revenue for the three months ended June 30, 2021, and three customers together accounted for approximately 56% of total revenue for the six months ended June 30, 2021.

FourThree customers accounted for more than 10% of accounts receivable at June 30, 20222023 and two customersone customer accounted for more than 10% of accounts receivable at December 31, 2021.2022. These customers together accounted for approximately 7577% and 6637% of accounts receivable at June 202230, 2023 and December 31, 2021,2022, respectively.

RecentRecently Issued Accounting PronouncementsStandards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for certain financial instruments, which includes the Company’s accounts receivable. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The Company adopted ASU 2016-13 on January 1, 2022. The adoption did not have an impact on the Company’s financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires a lessee to recognize most leases on the balance sheet as lease liabilities with corresponding right-of-use assets. The objective of ASU 2016-02 is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The recognized lease liabilities and lease assets represent the obligation to make payments and the right to use or control the use of a specified asset for the lease term, respectively.

On January 1, 2022, the Company adopted Topic 842 using the modified retrospective approach with the effective date as the date of initial application. Consequently, results for the three and six months ended June 30, 2022 are presented under Topic 842. No prior period amounts were adjusted and continue to be reported in accordance with previous lease guidance, ASC Topic 840, Leases. The Company elected the practical expedients available under the provisions of the new standard, including not reassessing whether expired or existing contracts are or contain leases; not reassessing the classification of expired or existing leases; and not reassessing the initial direct cost for any existing leases. Upon adoption, the Company recognized an operating lease liability of $626,699 and a corresponding operating right-of-use asset of $681,327.

Note 3 –- Business CombinationsCash, Cash Equivalents, and Financial Instruments

On December 31, 2021, the Company completed its acquisition of Advanced Conceptions, Inc. (“ACI”) and Idaho Molecular Inc. (“IdMo”), which were related entities developing, with the Company, an at-home/point-of-care medical diagnostic device. Upon the completion of the acquisition, all outstanding ACI and Idaho Molecular common stock was initially exchanged for approximately 3.2 million shares ofThe following table shows the Company’s common stockcash, cash equivalents, and contingent consideration that includes up to approximately marketable investment securities by significant investment category:

1.4 million sharesSchedule of Cash, Cash Equivalents and approximately 456,000Marketable Investment Securities warrants to purchase shares of the Company’s common stock. The contingent consideration is based on the achievement of certain milestones, which include regulatory approval for identified products, as well as production and net revenue targets. Upon the completion of the acquisition, both ACI and IdMo became 100% wholly-owned subsidiaries of the Company.

During the quarter endedMarketable investment securities held as of June 30, 2022,2023 mature over the Company finalized negotiations that were ongoing as of December 31, 2021, with one remaining shareholder of ACI, which resulted in an increase to the purchase consideration of $580,135. Additionally, there was an increase of $101,593 in the estimated tax liabilities that resulted from the acquisition. Due to the change in purchase consideration and estimated tax liabilities, a measurement period adjustment was recorded, resulting in an increase to goodwill of $681,728.next 12 months.

Following the resolution with the remaining shareholder, the total number of shares exchanged as purchase consideration was approximately 3.3 million shares. Additionally, the updated purchase consideration includes contingent consideration of up to approximately 1.4 million shares and 465,000 warrants to purchase shares of the Company’s common stock.

In addition, the adjustments to the provisional purchase consideration amount resulted in an increase in the gain on remeasurement of acquisition contingencies of $78,617, of which $64,587 relates to the quarter ended March 31, 2022.

Note 4 – Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess of purchase price and related costs over the value assigned to net tangible and identifiable intangible assets acquired in business combinations. The following table presents the changes in the carrying amount of goodwill for the six months ended June 30, 2022:

Schedule of Goodwill

Intangible Assets, Net

The following table presents detailsIntangible assets, net consisted of the Company’s intangible assets, excluding goodwill:following:

 Schedule of Intangible Assets, Net

The expected future annual amortization expense of the Company’s intangible assets held as of June 30, 2023 is as follows:

Schedule of Future Amortization Expense

Note 5 – Fair Value Measurements

The Company measures and records certain financial assets and liabilities at fair value on a recurring basis. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company’s financial instruments that are measured at fair value on a recurring basis consist of money market funds. The following three levels of inputs are used to measure the fair value of financial instruments: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 June 30, 2022,2023 and December 31, 2021,2022, by level within the fair value hierarchy:

 Schedule of Fair Value Assets and Liabilities