UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30,March 31, 20232024

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File No. 001-38148

 

CO-DIAGNOSTICS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Utah 46-2609396
(State or other jurisdiction
of incorporation or organization)
 (I.R.S. Employer
Identification Number)

 

2401 S. Foothill Drive, Suite D, Salt Lake City, Utah 84109

(Address of principal executive offices and zip code)

 

(801) 438-1036

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock CODX The Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No No

 

As of NovemberMay 8, 2023,2024, there were 30,580,90431,278,418  shares of common stock, par value $0.001 per share, outstanding.

 

 

 

 

 

CO-DIAGNOSTICS, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION: 
   
Item 1.Financial Statements (unaudited):3
   
 Condensed Consolidated Balance Sheets3
   
 Condensed Consolidated Statements of Operations4
   
 Condensed Consolidated Statements of Cash Flows5
   
 Condensed Consolidated Statements of Stockholders’ Equity6
   
 Notes to Condensed Consolidated Financial Statements7
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations18
   
Item 3.Quantitative and Qualitative Disclosures About Market Risk2321
   
Item 4.Controls and Procedures2321
   
PART II OTHER INFORMATION: 
   
Item 1.Legal Proceedings2422
   
Item 1A.Risk Factors2422
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds2422
   
Item 3.Defaults Upon Senior Securities2422
   
Item 4.Mine Safety Disclosures2422
   
Item 5.Other Information2422
   
Item 6.Exhibits2523
   
 Signatures2624

2

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CO – DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 September 30, 2023 December 31, 2022  March 31, 2024  December 31, 2023 
Assets             
Current assets                
Cash and cash equivalents $10,239,898  $22,973,803  $23,099,251  $14,916,878 
Marketable investment securities  53,188,999   58,289,066   26,864,435   43,631,510 
Accounts receivable, net  806,704   3,453,723   434,868   303,926 
Inventory, net  4,520,430   5,310,473   1,549,812   1,664,725 
Income taxes receivable  1,245,854   1,870,419   -   26,955 
Prepaid expenses and other current assets  1,290,146   761,187   1,750,467   1,597,114 
Note receivable  18,750   75,000 
Total current assets  71,310,781   92,733,671   53,698,833   62,141,108 
Property and equipment, net  2,808,339   2,539,483   3,183,116   3,035,729 
Deferred tax asset  4,272,002   - 
Operating lease right-of-use asset  3,032,337   372,115   2,758,757   2,966,774 
Intangible assets, net  26,479,333   26,768,333   26,328,000   26,403,667 
Investment in joint venture  778,943   672,679   702,427   773,382 
Total assets $108,681,735  $123,086,281  $86,671,133  $95,320,660 
Liabilities and stockholders’ equity                
Current liabilities                
Accounts payable $1,416,435  $952,296  $2,027,607  $1,482,109 
Accrued expenses, current  1,826,639   934,447 
Accrued expenses  1,324,779   2,172,959 
Operating lease liability, current  794,516   297,209   859,912   838,387 
Contingent consideration liabilities, current  710,651   1,689,471   750,877   891,666 
Deferred revenue  349,499   -   306,477   362,449 
Total current liabilities  5,097,740   3,873,423   5,269,652   5,747,570 
Long-term liabilities                
Income taxes payable  1,359,725   1,181,284   679,018   659,186 
Deferred tax liability  -   2,417,987 
Operating lease liability  2,250,393   50,708   1,931,164   2,152,180 
Contingent consideration liabilities  484,332   1,042,885   438,638   748,109 
Total long-term liabilities  4,094,450   4,692,864   3,048,820   3,559,475 
Total liabilities  9,192,190   8,566,287   8,318,472   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, 2023 and December 31, 2022, respectively  -   - 
Common stock, $0.001 par value; 100,000,000 shares authorized; 35,367,100 shares issued and 30,658,580 shares outstanding as of September 30, 2023 and 34,754,265 shares issued and 30,872,607 shares outstanding as of December 31, 2022  35,367   34,754 
Treasury stock, at cost; 4,708,520 and 3,881,658 shares held as of September 30, 2023 and December 31, 2022, respectively  (15,416,122)  (14,211,866)
Convertible preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively  -   - 
Common stock, $0.001 par value; 100,000,000 shares authorized; 36,127,096 shares issued and 31,278,418 shares outstanding as of March 31, 2024 and 36,108,346 shares issued and 31,259,668 shares outstanding as of December 31, 2023  36,127   36,108 
Treasury stock, at cost; 4,848,678 shares held as of March 31, 2024 and December 31, 2023, respectively  (15,575,795)  (15,575,795)
Additional paid-in capital  94,983,030   88,472,935   98,379,651   96,808,436 
Accumulated other comprehensive income  612,649   293,140   226,555   146,700 
Accumulated earnings  19,274,621   39,931,031 
Accumulated earnings (deficit)  (4,713,877)  4,598,166 
Total stockholders’ equity  99,489,545   114,519,994   78,352,661   86,013,615 
Total liabilities and stockholders’ equity $108,681,735  $123,086,281  $86,671,133  $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 INCOME (LOSS)LOSS

(Unaudited)

 

 2023 2022 2023 2022  2024 2023 
 Three Months Ended
September 30,
  Nine Months Ended
September 30,
  Three Months Ended March 31, 
 2023 2022 2023 2022  2024 2023 
Product revenue $136,533  $5,094,456  $936,296  $32,816,726  $252,745  $601,957 
Grant revenue  2,320,565   -   2,320,565   -   215,109   - 
Total revenue  2,457,098   5,094,456   3,256,861   32,816,726   467,854   601,957 
Cost of revenue  255,772   767,936   1,217,108   4,965,319   234,505   502,241 
Gross profit  2,201,326   4,326,520   2,039,753   27,851,407   233,349   99,716 
Operating expenses                        
Sales and marketing  1,904,395   1,889,907   5,343,692   6,014,280   1,563,682   1,706,331 
General and administrative  3,147,753   3,622,273   9,875,613   9,012,888   2,918,803   3,013,965 
Research and development  5,788,789   5,037,461   16,783,892   12,698,632   5,679,678   5,014,060 
Depreciation and amortization  296,340   312,494   917,596   984,100   330,573   316,010 
Total operating expenses  11,137,277   10,862,135   32,920,793   28,709,900   10,492,736   10,050,366 
(Loss) from operations  (8,935,951)  (6,535,615)  (30,881,040)  (858,493)
Loss from operations  (10,259,387)  (9,950,650)
Other income, net                        
Interest income  322,877   298,184   717,141   371,248   362,733   202,372 
Realized gain on investments  425,446   -   1,254,718   -   228,070   418,082 
Gain (loss) on disposition of assets  (2,578)  4,044   (2,578)  (138,117)
Gain on remeasurement of acquisition contingencies  140,296   2,886,734   1,537,373   7,079,446   450,260   1,037,672 
Gain (loss) on equity method investment in joint venture  (45,865)  (129,047)  106,264   (256,911)  (70,955)  277,322 
Total other income, net  840,176   3,059,915   3,612,918   7,055,666   970,108   1,935,448 
Income (loss) before income taxes  (8,095,775)  (3,475,700)  (27,268,122)  6,197,173 
Income tax (benefit)  (2,113,581)  (2,114,638)  (6,611,712)  (1,470,058)
Net income (loss) $(5,982,194) $(1,361,062) $(20,656,410) $7,667,231 
Other comprehensive income (loss)                
Loss before income taxes  (9,289,279)  (8,015,202)
Income tax provision (benefit)  22,764   (2,259,811)
Net loss $(9,312,043) $(5,755,391)
Other comprehensive loss        
Change in net unrealized gains on marketable securities, net of tax $33,522  $-  $319,509  $-   79,855   178,621 
Total other comprehensive income $33,522  $-  $319,509  $-  $79,855  $178,621 
Comprehensive income (loss) $(5,948,672) $(1,361,062) $(20,336,901) $7,667,231 
Comprehensive loss $(9,232,188) $(5,576,770)
                        
Earnings (loss) per common share:                
Basic $(0.20) $(0.04) $(0.70) $0.24 
Diluted $(0.20) $(0.04) $(0.70) $0.23 
Loss per common share:        
Basic and Diluted $(0.31) $(0.20)
Weighted average shares outstanding:                        
Basic  29,361,300   31,321,368   29,306,572   32,109,213 
Diluted  29,361,300   31,321,368   29,306,572   33,002,539 
Basic and Diluted  29,842,874   29,483,540 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

4

 

CO – DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 2023 2022  2024  2023 
 Nine Months Ended September 30,  Three Months Ended March 31, 
 2023 2022  2024  2023 
Cash flows from operating activities                
Net (loss) income $(20,656,410) $7,667,231 
Adjustments to reconcile net income to cash (used in) provided by operating activities:        
Net loss $(9,312,043) $(5,755,391)
Adjustments to reconcile net loss to cash used in operating activities:        
Depreciation and amortization  917,596   984,100   330,573   316,010 
Stock-based compensation expense  6,510,708   5,138,815   1,571,234   2,168,742 
Change in fair value of acquisition contingencies  (1,537,373)  (7,079,446)  (450,260)  (1,037,672)
Non-cash lease expense  36,770   17,193   8,527   7,449 
Realized gain on investments  

(1,254,718

)  -   (228,070)  (418,082)
(Gain) loss from equity method investment  (106,264)  256,911   70,955   (277,322)
Loss on disposition of assets  2,578   138,117 
Deferred income taxes  (6,689,989)  (3,431,286)  -   (2,214,652)
Bad debt expense  326,647   338,057 
Provision for credit losses  (14,658)  (113,998)
Inventory obsolescence expense  48,702   200,113 
Changes in assets and liabilities:                
Accounts receivable  2,320,372   12,539,461   (116,284)  865,525 
Prepaid expenses and other assets  151,858   441,786   (126,399)  60,451 
Inventory  790,716   (3,656,463)  66,211   (184,292)
Deferred revenue  349,499   (150,000)  (55,972)  18,120 
Income taxes payable  178,441   (1,822,977)  19,832   11,796 
Accounts payable, accrued expenses and other liabilities  1,356,330   (802,955)  (302,682)  435,686 
Net cash (used in) provided by operating activities  (17,303,239)  10,578,544 
Net cash used in operating activities  (8,490,334)  (5,917,517)
Cash flows from investing activities                
Purchases of property and equipment  (900,704)  (1,134,208)  (402,293)  (179,944)
Proceeds from maturities of marketable investment securities  90,279,227   6,223,740   17,382,925   30,539,621 
Purchases of marketable securities  (83,604,933)  (9,950,824)  (307,925)  (40,574,387)
Net cash (used in) provided by investing activities  5,773,590   (4,861,292)
Net cash provided by (used in) investing activities  16,672,707   (10,214,710)
Cash flows from financing activities                
Proceeds from exercise of options and warrants  -   177,870 
Repurchases of common stock  (1,204,256)  (12,994,373)  -   (482,196)
Net cash (used in) financing activities  (1,204,256)  (12,816,503)
Net (decrease) in cash and cash equivalents  (12,733,905)  (7,099,251)
Net cash used in financing activities  -   (482,196)
Net increase (decrease) in cash and cash equivalents  8,182,373   (16,614,423)
Cash and cash equivalents at beginning of period  22,973,803   88,607,234   14,916,878   22,973,803 
Cash and cash equivalents at end of period $10,239,898  $81,507,983  $23,099,251  $6,359,380 
Supplemental disclosure of cash flow information                
Interest paid $-  $- 
Income taxes paid $49,197  $4,496,239  $-  $29,500 
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 $3,063,782  $681,327  $-  $657,150 
Business acquisition measurement period adjustments $-  $681,728 

 

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 Earnings Equity  Shares  Amount  Shares  Amount  Stock  Capital  Income  (Deficit)  Equity 
 Convertible Preferred
Stock
  Common Stock  Treasury Additional Paid-in Accumulated Other Comprehensive Accumulated Total Stockholders’  Convertible Preferred Stock  Common Stock  Treasury  Additional Paid-in  Accumulated Other Comprehensive  Accumulated Earnings  Total Stockholders’ 
 Shares Amount  Shares Amount Stock Capital Income Earnings Equity  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 
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  -   -   68,750   69   -   2,168,673   -   -   2,168,742   -   -   18,750   19   -   1,571,215   -   -   1,571,234 
Repurchases of common stock  -   -   -   -   (482,196)  -   -   -   (482,196)
Other comprehensive income, net of tax  -   -   -   -   -   -   178,621   -   178,621   -   -   -   -   -   -   79,855   -   79,855 
Net loss  -   -   -   -   -   -   -   (5,755,391)  (5,755,391)  -   -   -   -   -   -   -   (9,312,043)  (9,312,043)
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 
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)
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 
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 

 

 Convertible Preferred
Stock
  Common
Stock
  Treasury Additional Paid-in Accumulated Other Comprehensive Accumulated Total Stockholders’  Convertible Preferred Stock  Common Stock  Treasury  Additional Paid-in  Accumulated Other Comprehensive  Accumulated
Earnings
  Total Stockholders’ 
 Shares Amount  Shares Amount Stock Capital Income Earnings Equity  Shares  Amount  Shares  Amount  Stock  Capital  Income  (Deficit)  Equity 
Balance as of December 31, 2021            -  $             -   33,819,862  $33,820  $-  $80,271,999  $            -  $54,169,279  $134,475,100 
Common stock issued for option exercises  -   -   45,456   45   -   49,956   -   -   50,001 
Common stock issued for warrant exercises  -   -   50,000   50   -   99,950   -       100,000 
Stock-based compensation  -   -   68,750   69   -   1,375,028   -   -   1,375,097 
Net income  -   -   -   -   -   -   -   11,714,595   11,714,595 
Balance as of March 31, 2022  -   -   33,984,068   33,984   -   81,796,933   -   65,883,874   147,714,793 
Common stock issued for option exercises  -   -   25,335   25   -   27,844   -   -   27,869 
Stock-based compensation  -   -   215,583   215   -   1,533,069   -   -   1,533,284 
Common stock issued for acquisitions  -   -   88,446   89   -   480,687   -   -   480,776 
Repurchases of common stock  -   -   -   -   (2,599,478)  -   -   -   (2,599,478)
Net loss  -   -   -   -   -   -   -   (2,686,304)  (2,686,304)
Balance as of June 30, 2022  -   -   34,313,432   34,313   (2,599,478)  83,838,533   -   63,197,570   144,470,940 
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  -   -   34,313,432   34,313   (2,599,478)  83,838,533   -   63,197,570   144,470,940   -  $-   34,754,265  $34,754  $(14,211,866) $88,472,935  $293,140  $39,931,031  $114,519,994 
Stock-based compensation  -   -   18,750   19   -   2,230,415   -   -   2,230,434   -   -   68,750   69   -   2,168,673   -   -   2,168,742 
Repurchases of common stock  -   -   -   -   (10,394,895)  -   -   -   (10,394,895)  -   -   -   -   (482,196)  -   -   -   (482,196)
Other comprehensive income, net of tax  -   -   -   -   -   -   178,621   -   178,621 
Net loss  -   -   -   -   -   -   -   (1,361,062)  (1,361,062)  -   -   -   -   -   -   -   (5,755,391)  (5,755,391)
Net loss  -   -   -   -   -   -   -   (1,361,062)  (1,361,062)
Balance as of September 30, 2022  -  $-   34,332,182  $34,332  $(12,994,373) $86,068,948  $-  $61,836,508  $134,945,417 
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  -  $-   34,332,182  $34,332  $(12,994,373) $86,068,948  $-  $61,836,508  $134,945,417   -  $-   34,823,015  $34,823  $(14,694,062) $90,641,608  $471,761  $34,175,640  $110,629,770 

 

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 sells reagents usedmarkets state-of-the-art diagnostics technologies. The Company’s technologies are utilized for diagnostic tests that function viaare designed using the detection and/or analysis of nucleic acid molecules (DNA or RNA), including robust. The Company also uses its proprietary technology to design specific tests for its Co-Dx PCR platform and innovative molecular toolsto locate genetic markers for detection ofuse in applications other than infectious diseases and agricultural applications.disease. 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, groundbreaking portable PCR device and proprietary test cups (the “Co-Dx™ PCR platform”) that have been designed to bring affordable, reliable polymerase chain reaction (“PCR”) to patients in point-of-care and 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 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.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 and with the instructions to Form 10-Q 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, theythe accompanying unaudited condensed consolidated financial statements do not include all the information and footnotes required by accounting principles generally accepted in the United States of AmericaU.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals)adjustments) considered necessary to make the financial statements not misleading have been included. Operating results for the three and nine months ended September 30, 2023March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.2024. These statements should be read in conjunction with the Company’s audited financial statements and related notes for the year ended December 31, 2022,2023, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”)SEC on March 16,14, 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.

 

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, money market funds and highly liquid investments with an original maturity date of 90 days or less from the date of purchase. The fair value of cash equivalents approximated their carrying value as of September 30, 2023 and December 31, 2022. The Company has its cash and cash equivalents with large creditworthy financial institutions 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 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 condensed 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 investment securities are determined using the average cost method on a first-in, first-out basis and recorded in total other income (expense), net in the condensed consolidated statements of operations and comprehensive income (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.

7

 

Accounts Receivable

 

Trade accounts receivable are recorded at the invoiced amount less estimates for credit losses. Management determines the(net of allowance) and do not bear interest. The Company maintains an allowance for creditdoubtful accounts for amounts the Company does not expect to collect. In establishing the required allowance, management considers historical losses, by specifically identifying troubled accounts and by using historical write off experience, adjusted for current market conditions,condition, customers’ financial condition, the age of receivables, and current payment patterns, and reasonable supportable forecasts of future economic conditions, applied to an aging of all other accounts.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, 2023,March 31, 2024 total accounts receivable was $4,231,877620,548 with an allowance for credit lossesuncollectable accounts of $3,425,173185,680 resulting in a net amount of $806,704434,868. At December 31, 2022,2023 total accounts receivable was $6,552,249504,264 with an allowance for credit lossesuncollectable accounts of $3,098,526200,338 resulting in a net amount of $3,453,723303,926.

Equity-Method Investments

The 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. The Company adjusts the carrying value of its 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 September 30, 2023,March 31, 2024, the Company had $4,520,430 in inventory, comprised of $788,104 of finished goods, and $3,732,326 of raw materials. At December 31, 2022, the Company had $5,310,4731,549,812 in inventory, of which $1,327,264674,142 was finished goods and $3,983,209875,670 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 slow-moving,low-moving, obsolete, or unusable inventories to their estimated useful or scrap values. The Company recognized $311,339

Intangible Assets

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.$43,717

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 related 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 factsinventory reserves during the three months ended March 31, 2024 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

The 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

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

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

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

 

8

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

 

Grant FundingRevenue

 

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 condensed consolidated statements of operations and comprehensive income (loss).

The Company recognizes grant funding with conditions or continuing performance obligations as deferred revenue in the condensed consolidated balance sheets if the conditions or performance obligations have not yet been met.

The Company recognized grant funding revenue of $0.2 million and $2.30 million during the three and nine months ended September 30, 2023.March 31, 2024 and 2023, respectively. At September 30, 2023,March 31, 2024, the Company has also recorded $0.3million 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

8

Deferred revenue primarily consists of payments received from customers related to product sales or from granting agencies for services to be rendered under research and development grants, prior to the Company fulfilling its performance obligation of providing the product or performing research and development 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 nine months ended September 30, 2023, the Company expensed $5,788,789 and $16,783,892 of research and development costs, respectively. For the three and nine months ended September 30, 2022, the Company expensed $5,037,461 and $12,698,632, respectively.

Stock-based Compensation

The Company has granted stock-based awards, including restricted stock, stock options, stock warrants and restricted stock units (“RSUs”), to its employees, certain consultants and members of its board of directors. The Company records stock-based compensation based on the grant date fair value of the awards and recognizes the fair value of those awards as expense using the straight-line method over the requisite service period of the award. The Company estimates the grant date fair value of stock options using the Black-Scholes option-pricing model. When an award is forfeited prior to the vesting date, the Company recognizes an adjustment for the previously recognized expense in the period of the forfeiture.

 

Income Taxes

 

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

 

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

 

Developing the provision for income taxes, including the effective tax rate and analysis of potential tax exposure items, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred income tax assets and liabilities and any estimated valuation allowances deemed necessary to value deferred income tax assets. Judgments and tax strategies are subject to audit by various taxing authorities. 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.

 

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 were each responsible for generating 10% or more of the total revenue for the three and nine months ended September 30, 2023. ThreeMarch 31, 2024. One customer accounted for approximately 26% of product revenue, and one granting agency accounted for all of the grant revenue recognized during the three months ended March 31, 2024. Two customers accounted for approximately 4744% of product revenue for the three months ended September 30, 2023, and two customers accounted for approximately 28% of product revenue for the nine months ended September 30,March 31, 2023. One granting agency accounted for approximately 94% of grant revenue for the three and nine months ended September 30, 2023. One customer accounted for approximately 52% of product revenue for the three months ended September 30, 2022, and two customers accounted for approximately 47% of product revenue for the nine months ended September 30, 2022.

 

TwoFour customers accounted for more than10% of accounts receivable at September 30, 2023March 31, 2024 and three customers accounted for more than 10% of accounts receivable at December 31, 2022.2023. These customers together accounted for approximately 7190% and 3797% of accounts receivable at September 30, 2023March 31, 2024 and December 31, 2022,2023, 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, 2023  March 31, 2024 
 Adjusted Cost Allowance for Credit Losses Total Unrealized Gains / (Losses) Fair
Value
 Cash and Cash Equivalents Marketable Investment Securities  Adjusted
Cost
  Total
Unrealized
Gains /
(Losses)
  Fair
Value
  Cash and
Cash
Equivalents
  Marketable
Investment
Securities
 
Cash and cash equivalents $(222,480) $-  $-  $(222,480) $(222,480) $- 
Level 1:                        
Money market funds  10,462,378   -   -   10,462,378   10,462,378   - 
Subtotal  10,462,378            -   -   10,462,378   10,462,378   - 
Cash $23,099,251  $-  $23,099,251  $23,099,251  $- 
Level 2:                                            
U.S. treasury securities  52,375,675   -   813,324   53,188,999   -   53,188,999   26,637,880   226,555   26,864,435   -   26,864,435 
Subtotal  52,375,675   -   813,324   53,188,999   -   53,188,999   26,637,880   226,555   26,864,435   -   26,864,435 
Total $62,615,573  $-  $813,324  $63,428,897  $10,239,898  $53,188,999  $49,737,131  $226,555  $49,963,686  $23,099,251  $26,864,435 

 

 December 31, 2022  December 31, 2023 
 Adjusted Cost Allowance for Credit Losses Total Unrealized Gains / (Losses) Fair
Value
 Cash and Cash Equivalents Marketable Investment Securities  Adjusted
Cost
  Total
Unrealized
Gains /
(Losses)
  Fair
Value
  Cash and
Cash
Equivalents
  Marketable
Investment
Securities
 
Cash and cash equivalents $12,834,444  $-  $-  $12,834,444  $12,834,444  $- 
Cash $4,317,449  $-  $4,317,449  $4,317,449  $- 
Level 1:                                                      
Money market funds  146,359   -   -   146,359   146,359   -   10,599,429   -   10,599,429   10,599,429   - 
Subtotal  146,359   -   -   146,359   146,359   -   10,599,429   -   10,599,429   10,599,429   - 
Level 2:                                            
U.S. treasury securities  67,892,825   -   389,241   68,282,066   9,993,000   58,289,066   43,484,810   146,700   43,631,510   -   43,631,510 
Subtotal  67,892,825   -   389,241   68,282,066   9,993,000   58,289,066   43,484,810   146,700   43,631,510   -   43,631,510 
Total $80,873,628  $-  $389,241  $81,262,869  $22,973,803  $58,289,066  $58,401,688  $146,700  $58,548,388  $14,916,878  $43,631,510 

 

Marketable investment securities held as of September 30, 2023March 31, 2024 mature over the next 12 months.

 

10

 

Note 4 – IntangibleFair 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 March 31, 2024 and December 31, 2023, by level within the fair value hierarchy:

Schedule of Fair Value Assets Netand Liabilities

  (Level 1)  (Level 2)  (Level 3)  Total 
  March 31, 2024 
  (Level 1)  (Level 2)  (Level 3)  Total 
Assets:            
Cash equivalents $4,004,080  $-  $-  $4,004,080 
Marketable securities (U.S. treasury bills and notes)  -   26,864,435   -   26,864,435 
Total assets measured at fair value $4,004,080  $26,864,435  $-  $30,868,515 
Liabilities:                
Contingent consideration - common stock $-  $-  $1,110,733  $1,110,733 
Contingent consideration - warrants  -   -   78,782   78,782 
Total liabilities measured at fair value $-  $-  $1,189,515  $1,189,515 

  (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

 

Intangible assets, net consisted

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 March 31, 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  (450,260)
Fair value as of March 31, 2024 $1,189,515 

The fair value of the following:

Schedulecontingent consideration is based on the fair value of Intangible Assets, Net

  September 30, 2023 
   Weighted-Average Useful Life (1) (in Years)   Gross Carrying Amount   Accumulated Amortization   

Net

Carrying Amount

 
In-process research and development  Indefinite  $26,101,000  $-  $26,101,000 
Non-competition agreements  2.7   1,094,000   (715,667)  378,333 
Total intangible assets     $27,195,000  $(715,667) $26,479,333 

  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.

the contingent consideration-common stock and contingent consideration-warrants. The expected future annual amortization expensefair value of the contingent consideration-common stock is equal to the probability-adjusted value of the Company’s intangible assets heldcommon stock as of September 30, 2023the 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 follows:of the valuation date. Prior to the probability adjustments, the warrants were valued based on the following inputs:

 

Schedule of Future Amortization ExpenseContingent Consideration Common Stock and Warrants

Year Ending December 31, Amortization Expense 
2023 (remainder)  75,665 
2024  302,668 
Total $378,333 
  March 31, 2024  December 31, 2023 
Stock price $1.12  $1.33 
Strike price $9.13  $9.13 
Volatility  103.5%  187.5%
Risk-free rate  4.5%  4.0%
Expected term (years)  2.8   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 – Fair Value MeasurementsIntangible Assets, Net

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, 2023 and December 31, 2022, by level within the fair value hierarchy:

 

Intangible assets, net consisted of the following:

Schedule of Fair ValueIntangible Assets, and LiabilitiesNet

  (Level 1)  (Level 2)  (Level 3)  Total 
  September 30, 2023 
  (Level 1)  (Level 2)  (Level 3)  Total 
Assets:            
Cash equivalents $9,722,890  $-  $-  $9,722,890 
Marketable securities (U.S. treasury bills and notes)  -   53,188,999   -   53,188,999 
Total assets measured at fair value $9,722,890  $53,188,999  $-  $62,911,889 
Liabilities:                
Contingent consideration - common stock $-  $-  $1,051,229  $1,051,229 
Contingent consideration - warrants  -   -   143,754   143,754 
Total liabilities measured at fair value $-  $-  $1,194,983  $1,194,983 
  March 31, 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   (867,000)  227,000 
Total intangible assets   $27,195,000  $(867,000) $26,328,000 

  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

 

  (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 U.S. treasury bills and notes as of September 30, 2023 and December 31, 2022.

In connection with the acquisitions of Idaho Molecular, Inc. (IdMo) and Advanced Conceptions, Inc. (ACI) on December 31, 2021, the Company recorded a liability for contingent consideration in the form of shares of common stock and warrants to purchase common stock. The fair value of contingent consideration is calculated using a discounted probability weighted valuation model. Discount rates used in such calculations are a significant assumption that are not observed in the market, and therefore, the resulting fair value represents a Level 3 measurement.

The changes for Level 3 items measured at fair value on a recurring basis are as follows:

Schedule of Changes in 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  (1,537,373)
Fair value as of September 30, 2023 $1,194,983 

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 valueexpected future annual amortization expense of the Company’s common stockintangible assets held as of the valuation date. The fair value of the contingent consideration-warrantsMarch 31, 2024 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:follows:

 

Schedule of Contingent Consideration Common Stock and WarrantsFuture Amortization Expense

  September 30, 2023  December 31, 2022 
Stock price $1.06  $2.52 
Strike price $9.13  $9.13 
Volatility  125.00%  75.00%
Risk-free rate  4.70%  4.10%
Expected term (years)  3.3   4.0 
Year Ending December 31,Amortization Expense
2024 (remainder)227,000

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 6 –Revenue

The following table sets forth revenue by geographic area:

 

Summary of Revenue by Geographic Area

 2023 2022 2023 2022  2024  2023 
 

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

  Three Months Ended March 31, 
 2023 2022 2023 2022  2024  2023 
United States                        
Product revenue $88,107  $4,699,444  $618,491  $23,425,186  $86,295  $393,154 
Grant revenue  2,320,565   -   2,320,565   -   215,109   - 
Total United States  2,408,672   4,699,444   2,939,056   23,425,186   301,404   393,154 
Rest of World                        
Product revenue  48,426   395,012   317,805   9,391,540   166,450   208,803 
Grant revenue  -   -   -   -   -   - 
Total Rest of World  48,426   395,012   317,805   9,391,540   166,450   208,803 
Total $2,457,098  $5,094,456  $3,256,861  $32,816,726  $467,854  $601,957 
Revenue geographic area $2,457,098  $5,094,456  $3,256,861  $32,816,726  $467,854  $601,957 
Percentage of revenue by area:                        
United States  98%  92%  90%  71%  64%  65%
Rest of World  2%  8%  10%  29%  36%  35%

Deferred Revenue

Changes in the Company’s deferred revenue balance for the ninethree months ended September 30, 2023March 31, 2024 were as follows:

 

Schedule of Deferred Revenue

Balance as of December 31, 2022 $- 
Increase due to prepayments from customers  19,620 
Increase due to grant funding awarded  329,879 
Balance as of September 30, 2023 $349,499 
Balance as of December 31, 2023 $362,449 
Revenue recognized included in deferred revenue balance at the beginning of the period  (55,972)
Balance as of March 31, 2024 $306,477 

Note 7 – Earnings (Loss)Loss Per Share

The following table reconciles the numerator and the denominator used to calculate basic and diluted earnings (loss)loss per share for three and nine months ended September 30,March 31, 2024 and 2023, and 2022, respectively:

 

Schedule of Basis and Diluted Earnings Per Share

 2023 2022 2023 2022  2024  2023 
 

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

  Three Months Ended March 31, 
 2023 2022 2023 2022  2024  2023 
Numerator              
Net income (loss), as reported $(5,982,194) $(1,361,062) $(20,656,410) $7,667,231 
Net loss, as reported $(9,312,043) $(5,755,391)
                        
Denominator                        
Weighted average shares, basic  29,361,300   31,321,368   29,306,572   32,109,213   29,842,874   29,483,540 
Dilutive effect of stock options, warrants and RSUs  -   -   -   893,326   -   - 
Shares used to compute diluted earnings per share  29,361,300   31,321,368   29,306,572   33,002,539 
Shares used to compute diluted loss per share  29,842,874   29,483,540 
                        
Basic earnings (loss) per share $(0.20) $(0.04) $(0.70) $0.24 
Diluted earnings (loss) per share $(0.20) $(0.04) $(0.70) $0.23 
Basic loss per share $(0.31) $(0.20)
Diluted loss per share $(0.31) $(0.20)

13

 

For the three and nine months ended September 30, 2022, potentially dilutive securities of 2,631,642 and

1,385,869 were excluded from the calculation because their effect would have been anti-dilutive. The computation of basic and diluted earnings (loss)loss per share for the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, respectively, also excludes the approximately 1,400,0001.4 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,March 31, 2024 and 2023, respectively, no potentially dilutive securities are included in the calculation of diluted earnings (loss)loss per share because such effect would be anti-dilutive. The Company had potentially dilutive securities as of September 30, 2023,March 31, 2024, consisting of: (i) 2,750,3022,564,310 restricted stock units and (ii) 512,112532,112 options.options and warrants. The Company had potentially dilutive securities as of March 31, 2023, consisting of: (i) 2,732,517 restricted stock units and (ii) 120,445 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 4,361,8614,492,462 at September 30, 2023.March 31, 2024.

Stock Options

The following table summarizes option activity during the ninethree months ended September 30, 2023:March 31, 2024:

 

Schedule of Option Activity

 Number of Options Weighted Average Exercise Price Weighted Average Fair Value Weighted Average Remaining Contractual Life (Years)   Number of
Options
  Weighted
Average
Exercise
Price
  Weighted
Average Fair
Value
  Weighted
Average
Remaining
Contractual
Life (Years)
 
Outstanding at December 31, 2022  1,040,572  $2.19  $1.37   5.88 
Outstanding at December 31, 2023   1,040,572  $2.19  $1.37   4.89 
Granted  -   -   -        -   -   -     
Expired  -   -   -        -   -   -     
Forfeited/Cancelled  -   -   -        -   -   -     
Exercised  -   -   -        -   -   -     
Outstanding at September 30, 2023  1,040,572  $2.19  $1.37   5.13 
Outstanding at March 31, 2024   1,040,572  $2.19  $1.37   4.63 
      ��                          
Exercisable at September 30, 2023  1,040,572  $2.19  $1.37   5.13 
Exercisable at March 31, 2024   1,040,572  $2.19  $1.37   4.63 

The aggregate intrinsic value of outstanding options at September 30, 2023March 31, 2024 was approximately $0.1 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, 2023,March 31, 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 ninethree months ended September 30, 2023:March 31, 2024:

 

Schedule of Outstanding Restricted Stock Units and Related Party

 Number of RSUs Weighted Average Grant Date Fair Value  Number of RSUs  Weighted Average
Grant Date Fair
Value
 
Unvested at December 31, 2022  2,426,725  $6.95 
Unvested at December 31, 2023   2,925,497  $3.99 
Granted  1,918,750   1.93    -   - 
Vested  (612,835)  7.24    (18,750)  9.54 
Forfeited/Cancelled  (69,821)  6.20    (134,525)  3.02 
Unvested at September 30, 2023  3,662,819  $4.29 
Unvested at March 31, 2024   2,772,222  $4.04 

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As of September 30, 2023,March 31, 2024, there was approximately $11.57.6 million of unrecognized stock-based compensation expense related to outstanding RSUs which is expected to be recognized over a weighted-average period of 1.91.5 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 ninethree months ended September 30, 2023:March 31, 2024:

 

Schedule of Warrant Activity

 Number of Warrants Weighted Average Exercise Price Weighted Average Fair Value Weighted Average Remaining Contractual Life (Years)  Number of
Warrants
 Weighted
Average
Exercise
Price
 Weighted
Average
Fair Value
  Weighted
Average
Remaining
Contractual
Life (Years)
 
Outstanding at December 31, 2022  485,000  $8.81  $2.43   4.0 
Outstanding at December 31, 2023   485,000  $8.81  $1.29   3.0 
Granted  -   -   -        -   -   -     
Expired  -   -   -        -   -   -     
Forfeited/Cancelled  -   -   -        -   -   -     
Exercised  -   -   -        -   -   -     
Outstanding at September 30, 2023  485,000  $8.81  $0.92   3.2 
Outstanding at March 31, 2024   485,000  $8.81  $0.79   2.7 

There were no warrants exercised during the nine months ended September 30, 2023. The intrinsic value of warrants exercised during the nine months ended September 30, 2022 was approximately $0.3 million.

The aggregate intrinsic value of outstanding warrants at September 30, 2023March 31, 2024 was approximately $0.

The total number of warrants exercisable at September 30, 2023March 31, 2024 is 20,000. The ability to exercise the approximatelyremaining 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 2023 2022  2024  2023 
 

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

  Three Months Ended
March 31,
 
 2023 2022 2023 2022  2024  2023 
Cost of revenue $12,075  $18,836  $36,140  $45,290  $8,141  $12,008 
Sales and marketing  564,962   526,159   1,666,868   1,340,716   370,381   529,117 
General and administrative  1,278,674   1,218,211   3,732,398   2,831,371   1,086,495   1,192,214 
Research and development  316,454   467,228   1,075,302   921,438   106,217   435,403 
Total stock-based compensation expense $2,172,165  $2,230,434  $6,510,708  $5,138,815  $1,571,234  $2,168,742 

Note 9 – Income Taxes

For the three months ended September 30, 2023,March 31, 2024, the Company recognized a benefitexpense from income taxes of $2,113,58122,764, representing an effective tax rate of 26.1%. For the nine months ended September 30, 2023, the Company recognized a benefit from income taxes of $6,611,712, representing an effective tax rate of 24.2-0.2%. 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 months ended September 30, 2022,March 31, 2023, the Company recognized a benefit from income taxes of $2,114,6382,259,811. For the nine months ended September 30, 2022, the Company recognized a benefit from income taxes of $

1,470,058.

15

Note 10 – Commitments and Contingencies

Lease Obligations

The Company leases office spaceadministrative, R&D, sales and marketing and manufacturing facilities under non-cancellable operating leases and leases cancellable with one month notice. The Company expenses the cancellablecancelable leases in the period incurred in accordance with the practical expedient elected. During the nine months ended September 30, 2023, the Company amended two operating leases to extend the lease term and entered into one new operating lease. As a result, the Company recognized additional operating lease liabilities and corresponding operating right-of-use assets of $3,063,782.

For the three and nine months ended September 30, 2023,March 31,2024, components of lease expense are summarized as follows:

 

Schedule of Lease Expense

 

Three Months Ended

September 30, 2023

 

Nine Months Ended

September 30, 2023

  Three Months
Ended
March 31, 2024
 
Operating lease costs $244,941  $529,089  $267,984 
Short-term lease costs  38,110   192,261   8,750 
Total lease costs $283,051  $721,350  $276,734 

As of September 30, 2023,March 31, 2024, the maturities of the Company’s lease liabilities are as follows:

 

Schedule of Maturities on Company Lease Liabilities

 Year Ending December 31,  Year Ending
December 31,
 
2023 (remainder) $233,826 
2024  966,451 
2024 (remainder) $752,656 
2025  987,252   1,018,383 
2026  682,806   714,630 
2027  300,591 
2028  308,463 
Thereafter  542,512   - 
Total lease payments  3,412,847   3,094,723 
Less: imputed interest  367,938   303,647 
Present value of operating lease liabilities  3,044,909   2,791,076 
Less: current portion  794,516   859,912 
Long-term portion $2,250,393  $1,931,164 

Other information related to operating leases was as follows:

 

Schedule of Other Information Related to Operating Lease

 Nine Months Ended September 30, 2023  Three Months Ended
March 31, 2024
 
Cash paid for operating leases included in operating cash flows $680,580  $262,208 
Remaining lease term of operating leases  4 years   3.4 years 
Discount rate of operating leases  6.2%  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.

16

 

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 commercial litigation lawsuitscivil actions, one in which plaintiffs are claiming they are owned certain remunerationthe US and the other in the United Kingdom. Each of the civil actions is based on alleged agreements withbreach 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. The following table showsNo shares were repurchased during the changes in treasury stock (in shares) for the periods presented:three months ended March 31, 2024.

 

ScheduleNote 12 – Related Party Transactions

In 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 three months ended March 31, 2024, the Company recognized $0.1 million of Treasury Stockexpense related to this agreement.

Nine Months Ended
September 30, 2023
Balance, beginning of period3,881,658
Repurchases of common stock826,862
Balance, end of period4,708,520

Note 1213Subsequent Events

In October 2023, the Company was awarded additional grant funding of a total of approximately $9.0 million, from onecontingent on the attainment of the granting entities from whom the Company had previously been awarded grant funding during the three months ended September 30, 2023.certain milestones. The first $3.5 million of funding under this grant was received by the Company at the time the grant was awarded in October 2023. In April 2024, a milestone under this grant was met and accepted, which resulted in the disbursement of an additional $2.0 million of funding per the grant agreement. These funds were received by the Company in April 2024.

17

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties. All statements other than statements of historical fact contained in this Quarterly Report and the documents incorporated by reference herein, including statements regarding future events, our future financial performance, business strategy, and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors and the documents incorporated by reference herein, which may affect our or our industry’s actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a highly regulated, very competitive, and rapidly changing environment. New risks emerge from time to time, and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.

These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under the heading “Risk Factors” in other documents we file with the SEC, including our Annual Report on form 10-K for the year ended December 31, 2022.2023. The following discussion should be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended December 31, 2022,2023, filed with the SEC on March 16, 2023,14, 2024, and the audited financial statements and notes included therein.

As used in this Quarterly Report, the terms “we”, “us”, “our”, and “Co-Diagnostics” means Co-Diagnostics, Inc., a Utah corporation and its consolidated subsidiaries (the “Company”), unless otherwise indicated.

Executive Overview

The following management’s discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of our operations, financial condition, and changes in financial condition. This discussion should be read in conjunction with the accompanying unaudited financial statements and notes thereto included elsewhere in this report. The information contained in this discussion is subject to a number of risks and uncertainties. We urge you to review carefully the section of this report entitled “Cautionary Note Regarding Forward-Looking Statements.

Business Overview

Co-Diagnostics, Inc., a Utah corporation (the “Company” 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, groundbreaking portable PCR device and proprietary test cups (the “Co-Dx PCR platform”) that have been designed to bring affordable, reliable polymerase chain reaction (“PCR”) to patients in point-of-care and 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 that our Co-Dx PCR 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.

Our diagnostics systems enable dependable, low-cost, molecular testing for organisms and genetic diseases by automating or simplifying historically complex procedures in both the development and administration of tests. CODX’s technical advance involves a novel, patented approach to PCR test design of primer and probe structure (“Co-Primers™Co-Primers®”) that eliminates one of the key vexing issues of PCR amplification: the exponential growth of primer-dimer pairs (false positives and false negatives) which adversely interferes with identification of the target DNA/RNA. Using our proprietary test design system and proprietary reagents, we have designed and obtained regulatory approval to sell PCR diagnostic tests for the detection of COVID-19, influenza, tuberculosis, hepatitis B and C, human papillomavirus, malaria, chikungunya, dengue, and the Zika virus. These initial diagnostic tests are cleared for use in clinical labs only and not for point-of-care or at-home use.

We are currently developing a unique, groundbreaking portable diagnostic device and test system designed for point-of-care and at-home use. The system is comprised of our PCR instrument that we refer to as the Co-Dx™ PCR Pro™ instrument, our proprietary diagnostic test cup system and a mobile application to be installed on the user’s mobile device. We refer to the system as the “Co-Dx™ PCR platform that is being designed to bring affordable, reliable polymerase chain reaction (“PCR”) testing to patients in point-of-care and at-home settings. The Co-Dx PCR platform is subject to U.S. Food and Drug Administration (“FDA”) review and is not available for sale at the time of this filing. In December 2023, we submitted the Co-Dx PCR platform for review by the U.S. Food and Drug Administration (FDA) for Emergency Use Authorization (EUA). The submission included the PCR Pro instrument, Co-Dx PCR COVID-19 detection test cups, and mobile app, all designed for use in point-of-care and at-home settings. There is no guarantee that our Co-Dx PCR 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.

18

 

Technology

We believe our proprietary molecular diagnostics technology is paving the way for innovation in disease detection and life sciences research through our enhanced detection of genetic material. For various reasons, including owning our own platform, we believe we will be able to accomplish this faster and more economically than some competitors, allowing for significant margins while still positioning ourselves as a low-cost provider of molecular diagnostics and screening services. For example, we were the first US-based company to receive a CE-marking for a COVID-19 test in early 2020, as we worked to help slow the spread of the pandemic through our global network of distributors covering clinical labs in more than 50 countries. Our Logix Smart® COVID-19 test was designed, developed, submitted for regulatory approval and ready to be used as an in vitro diagnostic or IVD in countries that accept a CE Mark as approval for use of the test in a period of just over 30 days. This is a real-world example of how the CODX technology can be used in an evolving epidemic or pandemic to get diagnostic tools in the hands of medical professionals in a timely manner. It can be similarly used to design a test for mutated strains of the virus should they not be detectable using currently available tests.

In addition, continued development has demonstrated the unique properties of our Co-PrimerCoPrimer technology that we believe makes it ideally suited for a variety of applications where specificity is key to optimal results, including multiplexing several targets, enhanced Single Nucleotide Polymorphism (“SNP”) detection and enrichment for next generation sequencing.

Our scientists use the complex mathematics of DNA/RNA PCR test design to engineer and optimize PCR tests and to automate algorithms that rapidly screen millions of possible options to pinpoint the optimum design. Dr. Brent Satterfield, our founder, developed theThe intellectual property we use in our business, consisting of the predictive mathematical algorithms and patented molecular structure used in the testing process, which together representrepresents a major advance in PCR testing systems. Our flagship CoPrimers technology is coveredCODX technologies are now protected by U.S.more than 20 granted or pending US and foreign patents, titled “Cooperative primers, probes, and applications thereof” as well as by grantedcertain trade secrets and pending foreign counterparts. We have other U.S. patents directed to our earlier work in primer and assay designs. For more recent works, we have filed international and U.S. patent applications directed to “Methods and Compositions for Next Generation Sequencing (NGS) Library Preparation,” “Allele-Specific Design of Cooperative Primers for Improved Nucleic Acid Variant Genotyping,” “Methods and Compositions Related to Cooperative Primers and Reverse Transcription,” and “Systems, Methods, and Apparatus for Automated Self-Contained Biological Analysis” which is the basis of our Co-Dx Platform. We intend to continue building our patent portfolio as development continues and resources are available.copyrights. Ownership of our proprietary platform permits us the advantage of avoiding payment of patent royalties required by other PCR test systems, which may allow the sale of diagnostic PCR tests at a lower price than competitors, while enabling us to maintain profit margins.

Our proprietary test design process involves identifying the optimal locations on the target genes for amplification and pair the locations with the optimized primer and probe structure to achieve outputs that meet the design input requirements identified from market research. This is done by following planned and documented processes, procedures and testing. In other words, we use the data resulting from our tests to verify whether we succeeded in designing what we intended. Verification involves a series of testing that concludes that the product is ready to proceed to validation in an evaluation either in our laboratory or in an independent laboratory setting using initial production tests to confirm that the product as designed meets the user needs.

We may either sell or lease the MDx Device to labs and diagnostic centers, through sale or lease agreements, and sell the reagents that comprise our proprietary tests to those laboratories and testing facilities.

Using our proprietary test design system and proprietary reagents, we have designed and obtained regulatory approval in the United States, the European Community and/orand in India.India to sell PCR diagnostic tests for the detection of COVID-19, influenza, tuberculosis, hepatitis B and C, human papillomavirus, malaria, chikungunya, dengue, and the Zika virus. In the United States, we are regulated by the FDA and our products must be approved, cleared, or authorized by the FDA before we are allowed to sell our tests in the United States as in vitro diagnostics. The FDA granted us an EUA to manufacture and sell our Logix Smart COVID-19 test to CLIA labs in the United States. We are ISO 13485:2016 certified, relating to the design and manufacture of our medical device products. Being ISO certified greatly facilitates our applications for CE-Marking, which allows us to sell any CE Marked test in most countries in Europe, South America and Asia, depending on the country and following that country’s registration process. We currently have CE Markings issuedobtained Emergency Use Authorization (“EUA”) for our Logix Smart® COVID-19 detection test tuberculosisfrom the Food and Drug Administration, or FDA, and we sell that test our Zika virus test, a triplex test that tests for Zika, dengue, and chikungunya simultaneously, a triplex “ABC” test that identifies and distinguishes between Flu A, Flu B and Covid-19, our SARS-CoV-2 2-gene multiplex test, and our DS (Direct Saliva, extraction-free) COVID-19 test.to qualified labs. In addition, our Logix Smart COVID-19 has received the required license to manufacturedetection test and sell in India from India’s CDSCO, and The National Epidemiology Institute in Mexico evaluatedcertain of our Logix Smartother suite of COVID-19 and ABC tests andproducts have been approved them for sale in Mexico. Wecountries such as the United Kingdom, Australia and Mexico by the regulatory bodies in those countries and have also received approval to sell our Logix Smart COVID-19 test in Australia. We are in the process of registeringbeen registered for sale in many more countries. In connection with the sale of our Logix Smart COVID-19 andtests we may sell diagnostic equipment from other tests in a number of major countries aroundmanufacturers as self-contained lab systems (which we refer to as the world.“MDx Device”).

In addition to testing for infectious disease, the technology lends itself to identifying any section of a DNA or RNA strand that describes any type of genetic trait, which creates several significant applications. We, in conjunction with our customers, are active in designinghave designed and licensinglicensed tests that identify genetic traits in plant and animal genomes. We also have three multiplexed tests developed to test mosquitos for the identification of diseases carried by the mosquitos to enable municipalities to concentrate their efforts in managing mosquito populations on the specific areas known to be breeding the mosquitos that carry deadly viruses.

RESULTS OF OPERATIONS

The Three Months Ended September 30, 2023March 31, 2024 Compared to the Three Months ended September 30, 2022March 31, 2023

Revenues

For the three months ended September 30, 2023,March 31, 2024, we generated revenues of $2,457,098,$467,854, compared to revenues of $5,094,456$601,957 for the three months ended September 30, 2022.March 31, 2023. Grant funding awarded to the Companyrevenue accounted for $2,320,565$215,109 of revenue for the three months ended September 30,March 31, 2024, compared to $0 for the three months ended March 31, 2023. The decrease in total revenue of $2,637,358$134,103 was primarily due to lower sales of our Logix Smart COVID-19 test developed in response tothroughout the COVID-19 pandemic.world.

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Cost of Revenues

We recorded cost of revenues of $255,772$234,505 for the three months ended September 30, 2023,March 31, 2024, compared to $767,936$502,241 for the three months ended September 30, 2022. The decrease in revenues combined with a larger percentage of fixed product production costs, as well as costs related to expired inventory, resulted in a lower cost of revenues and lower gross margin percentage, afterMarch 31, 2023. After adjusting for the effect of the grant revenue awarded.in the current period, cost of revenues and gross margins are comparable for the three months ended March 31, 2024 and 2023, respectively.

Expenses

We incurred total operating expenses of $11,137,277$10,492,736 for the three months ended September 30, 2023,March 31, 2024, compared to total operating expenses of $10,862,135$10,050,366 for the three months ended September 30, 2022.March 31, 2023. The increase in operating expenses was primarily due to increased personnel expenses including stock-compensation expense, and additional investment in research and development. These increases were partially offset by decreased expenses experienced in conjunction with our decrease in revenues, such as third-party sales commissions, reflected in sales and marketing and variable compensation.stock compensation expense.

Our sales and marketing expenses for the three months ended September 30, 2023March 31, 2024 were $1,904,395,$1,563,682, compared to $1,889,907$1,706,331 for the three months ended September 30, 2022.March 31, 2023. The increasedecrease was primarily a result of increaseddecreased stock-based compensation expense and professional services expense, partially offset by decreased variable compensation, such as bonuses and commissions, decreased third-party sales commissions, andincreased tradeshow and travel expenses.

General and administrative expenses decreased from $3,622,273remained materially consistent at $2,918,803 for the three months ended September 30, 2022March 31, 2024, compared to $3,147,753$3,013,965 for the three months ended September 30,March 31, 2023. The decrease in general and administrative expenses was primarily due to decreased bad debt expense,decreases in stock compensation, insurance expense, variable compensation expense, and professional services expenses, partially offset by increased stock-based compensation expense.legal expenses.

Our research and development expenses increased from $5,037,461to $5,679,678 for the three months ended September 30, 2022March 31, 2024, compared to $5,788,789$5,014,060 for the three months ended September 30,March 31, 2023. The primary increase in expenses was a result of increases in personnel related expenses and increases in expenses related to development and clinical trials of the Co-Dx PCR platform.

Other Income (expense)

For the three months ended September 30, 2023March 31, 2024 we had total other income of $840,176,$970,108, compared to total other income of $3,059,915$1,935,448 for the three months ended September 30, 2022.March 31, 2023. The primary components of other income include a change in the fair value of contingent consideration liabilities recorded in conjunction with the acquisitions of IdMo and ACI and interest income and realized gains from investments in marketable securities.

Net Income (loss)Loss

We realized a net loss for the three months ended September 30, 2023March 31, 2024 of $5,982,194,$9,312,043, compared to a net loss for the three months ended September 30, 2022March 31, 2023 of $1,361,062.$5,755,391. The larger net loss was primarily the result of a decrease in revenues, combined with an increase ofin operating expenses, partially offset byas well as changes in the fair value of acquisition contingencies and income related to investments in marketable securities. Additionally, we recorded an income tax benefitexpense of $2,113,581$22,764 for the three months ended September 30, 2023,March 31, 2024, compared to an income tax benefit of $2,114,638$2,259,811 for the three months ended September 30, 2022.

March 31, 2023. The Nine Months Ended September 30, 2023 Compared to the Nine Months ended September 30, 2022

Revenues

For the nine months ended September 30, 2023, we generated revenues of $3,256,861, compared to revenues of $32,816,726primary reason for the nine months ended September 30, 2022. The decreasechange in revenue of $29,559,865 was primarily due to lower sales of our Logix Smart COVID-19 test developed in response to the COVID-19 pandemic.

Cost of Revenues

We recorded cost of revenues of $1,217,108provision for the nine months ended September 30, 2023, compared to $4,965,319 for the nine months ended September 30, 2022. The decrease in revenues combined with a larger percentage of fixed product production costs, as well as costs related to expired inventory, resulted in a lower cost of revenues and lower gross margin percentage.

Expenses

We incurred total operating expenses of $32,920,793 for the nine months ended September 30, 2023, compared to total operating expenses of $28,709,900 for the nine months ended September 30, 2022. The increase in operating expenses was primarily due to increased personnel expenses, including stock-compensation expense, and additional investment in research and development. These increases were partially offset by decreased expenses experienced in conjunction with our decrease in revenues, such as third-party sales commissions reflected in sales and marketing, and variable compensation.

Our sales and marketing expenses for the nine months ended September 30, 2023 were $5,343,692, compared to $6,014,280 for the nine months ended September 30, 2022. The decrease was primarilyincome taxes is a result of decreased variable compensation, such as bonuses and commissions, and decreased third-party sales commissions, partially offset by increased stock-based compensation expense, tradeshow and travel expenses, and professional services expense.the Company now being in a full valuation allowance.

General and administrative expenses increased from $9,012,888 for the nine months ended September 30, 2022 to $9,875,613 for the nine months ended September 30, 2023. The increase in general and administrative expenses was primarily due to increased professional, legal, and advisory fees expenses, increased stock-based compensation expense, and increased bad debt expense, partially offset by decreased variable compensation expense and decreased insurance expense.

Our research and development expenses increased from $12,698,632 for the nine months ended September 30, 2022 to $16,783,892 for the nine months ended September 30, 2023. The primary increase in expenses was a result of increases in personnel related expenses, increases in expenses related to development and clinical trials of the Co-Dx PCR platform, and increased stock-based compensation expense.

Other Income (expense)

For the nine months ended September 30, 2023 we had total other income of $3,612,918, compared to total other income of $7,055,666 for the nine months ended September 30, 2022. The primary components of other income include a change in the fair value of contingent consideration liabilities recorded in conjunction with the acquisitions of IdMo and ACI and interest income and realized gains from investments in marketable securities.

Net Income (loss)

We realized a net loss for the nine months ended September 30, 2023 of $20,656,410, compared with net income for the nine months ended September 30, 2022 of $7,667,231. The shift from net income to net loss was primarily the result of a decrease in revenues, combined with an increase of operating expenses, partially offset by changes in the fair value of acquisition contingencies and income related to investments in marketable securities. Additionally, we recorded an income tax benefit of $6,611,712 for the nine months ended September 30, 2023, compared to an income tax benefit of $1,470,058 for the nine months ended September 30, 2022.

Liquidity and Capital Resources

At September 30, 2023,March 31, 2024, we had cash and cash equivalents of $10,239,898.$23,099,251. Additionally, we had $53,188,999$26,864,435 of marketable investment securities that could readily be converted into cash if needed. Additionally, our total current assets of September 30, 2023,March 31, 2024, were $71,310,781$53,698,833 compared to total current liabilities of $5,097,740.$5,269,652.

Net cash used in operating activities during the ninethree months ended September 30, 2023March 31, 2024 was $17,303,239,$8,490,334, compared to cash provided by operating activities of $10,578,544$5,917,517 for the ninethree months ended September 30, 2022.March 31, 2023. The decrease in cash from operating activities was primarily due to decreased revenues and increased operating expenses, and the impact of non-cash items.

Net cash provided by investing activities during the ninethree months ended September 30, 2023March 31, 2024 was $5,773,590,$16,672,707, primarily from maturities of marketable investment securities, compared to cash used in investing activities of $4,861,292$10,214,710 during the ninethree months ended September 30, 2022.March 31, 2023.

Net cash used in financing activities was $1,204,256$0 for the ninethree months ended September 30, 2023,March 31, 2024, compared to net cash used in financing activities of $12,816,503$482,196 for the same period in the prior year. This decrease is due to the repurchase of fewer outstanding common shares during the first nine months of the year,prior period, compared to no such repurchases in the same period of the prior year.current period.

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Since commencing sales of our Logix Smart COVID-19 test in March 2020, we have used our cash generated from those sales to fund the procurementpurchase of inventories and productionthe development of inventoryour Co-Dx PCR platform, and to pay our operating expenses. We have increased our work force primarilymost significantly in the area of research and development in order to developcontinue development of the Co-Dx PCR platform and complete development of additional tests tothat will enable us tocontinued use of our distributor network to sell otheradditional products throughout the world and become profitable in the future. In March 2022 our board of directors authorized the repurchase of up to $30.0 million of the company’s outstanding common stock. We have no obligation to repurchase any shares under the repurchase program and may suspend or discontinue it at any time without prior notice. As of September 30, 2023 we have repurchased 4,708,520 outstanding common shares under the repurchase program for a total of $15.4 million.world.

Additionally, in March 2023, we filed a shelf registration statement on Form S-3 (the “Shelf Registration Statement”) with the SEC registering the sale, from time-to-time of up to $150 million of our securities. In connection with the Shelf Registration Statement, we filed an equity distribution agreement prospectus covering the offering, issuance and sale of up to a maximum of $50 million shares of our common stock that may be issued and sold under an equity distribution agreement with Piper Sandler & Co. We are under no obligation to sell any securities under the Shelf Registration Statement or the equity distribution agreement with Piper Sandler & Co. We have not sold any shares under the equity distribution agreement with Piper Sandler & Co.

We believe that our existing capital resources and the cash generated from future sales will be sufficient to meet our projected operating requirements for the next 12 months. However, our available capital resources may be consumed more rapidly than currently expected and we may need or want to raise additional financing for strategic opportunities.

It is anticipated that the Company will continue to generate operating losses and use cash in operations in the near term. If needed, we expect additional investment capital to come from (i) additional issuances of our common stock or other equity-based securities with existing and new investors or (ii) the private placement of other securities with investors similar to those that have provided funding in the past. On March 16, 2023, the Company entered into an Equity Distribution Agreement with Piper Sandler & Co. (“Piper”), pursuant to which we may sell from time to time, shares of our common stock, having an aggregate offering price of up to $50.0 million through Piper, as agent. No shares have been sold under the distribution agreement as of March 31, 2024. We may not be able to secure such financing in a timely manner or on favorable terms, if at all.

The foregoing estimates, expectations and forward-looking statements are subject to change as we make strategic operating decisions from time to time and as our revenue and expenses fluctuate from period to period.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required under Regulation S-K for “smaller reporting companies.”

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15I and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023.March 31, 2024. Based on the evaluation of our disclosure controls and procedures as of September 30, 2023,March 31, 2024, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls were effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the three months ended September 30, 2023,March 31, 2024, that have materially affected or, are reasonably likely to materially affect, our internal control over financial reporting.

21

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

 

Co-Diagnostics, Inc. v. Hukui Technology, Inc., et al. (Third Judicial District Court, Salt Lake County, State of Utah, Civil No. 210902131, filed on April 21, 2021).

The Company previously disclosed that it had filed a complaint against Defendants Hukui Technology, Inc., Hukui Tech, Inc., and Hukui Bio Co., Ltd (collectively, “Hukui”) seeking a declaratory judgment that the Company is not obligated to any of them in any amount. On August 24, 2021, Hukui filed their Answer and Counterclaim seeking damages on a number of theories, including breach of contract for letter agreements, breach of oral agreement, promissory estoppel, unjust enrichment, and interference with economic relations. On June 1, 2023 the Company filed a Motion for Summary Judgment asking the court for summary judgment on its sole claim for declaratory relief and for summary judgment with respect to all Hukui counterclaims. On November 7, 2023, the Court issued it decision and granted the Company summary judgment on its sole claim for declaratory relief and on all Hukui counterclaims.

There have been no othermaterial developments to the legal proceedings previously disclosed under Part I. Item 3 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and under Part II. Item 1. of our Quarterly Reports on form 10-Q previously filed with the SEC.2023.

Item 1A. Risk Factors.

Not required under Regulation S-K for “smaller reporting companies.”

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Dividends

We have never declared or paid any cash dividends on our capital stock. The payment of dividends on our common stock in the future will depend on our earnings, capital requirements, operating and financial condition and such other factors as our Boardboard of Directorsdirectors may consider appropriate. We currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying dividends on our common stock in the foreseeable future.

Pursuant to Section 16-10a-640 of the Utah Revised Business Corporation Act, no distribution may be made if, after giving it effect:

 (a)the corporation would not be able to pay its debts as they become due in the usual course of business; or
   
 (b)the corporation’s total assets would be less than the sum of its total liabilities plus, unless the articles of incorporation permit otherwise, the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.

Share Repurchase Program

Period (a) Total number of shares purchased (1)  (b) Average price paid per share (1)  (c ) Total number of shares purchased as part of publicly announced plans or programs (1)  (d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs (1) 
07/01/23 – 07/31/23  -  $-   -  $14,750,204 
08/01/23 – 08/31/23  -  $-   -  $14,750,204 
09/01/23 – 09/30/23  149,041  $1.12   149,041  $14,583,878 
                 
Total  149,041  $1.12   149,041  $14,583,878 

(1)In March 2022 the company announced that its board of directors authorized the repurchase of up to $30.0 million of the company’s outstanding common stock. The extent to which the company repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors, including trading volume, market conditions, legal requirements, business conditions and other factors. The repurchase program may be discontinued at any time, and the program does not obligate the company to acquire any specific number of shares of its common stock.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

22

 

None.

Item 6. Exhibits

Exhibit Index

(a) Exhibits

Exhibit Number Description
   
10.1*Commercial Lease Agreement, dated September 18, 2023, between Ge Estate, LLC and Co-Diagnostics, Inc.
31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File

* Filed herewith.

# Management Contract or Compensatory Plan or Arrangement

SIGNATURES

23

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 CO-DIAGNOSTICS, INC.
   
Date: NovemberMay 9, 20232024By:/s/ Dwight H. Egan
 Name:Dwight H. Egan
 Title:Chief Executive Officer President and Principal Executive Officer
   
Date: NovemberMay 9, 20232024By:/s/ Brian Brown
 Name:Brian Brown
 Title:Chief Financial Officer and Principal Financial and Accounting Officer

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