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, 2023

☐ 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 filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller 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 ☒

As of November 8, 2023, there were 30,580,904 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 Sheets	3

	Condensed Consolidated Statements of Operations	4

	Condensed Consolidated Statements of Cash Flows	5

	Condensed Consolidated Statements of Stockholders’ Equity	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	23

PART II OTHER INFORMATION:

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults Upon Senior Securities	24

Item 4.	Mine Safety Disclosures	24

Item 5.	Other Information	24

Item 6.	Exhibits	25

	Signatures	26

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CO – DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2023			December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	10,239,898		$	22,973,803
Marketable investment securities		53,188,999			58,289,066
Accounts receivable, net		806,704			3,453,723
Inventory, net		4,520,430			5,310,473
Income taxes receivable		1,245,854			1,870,419
Prepaid expenses and other current assets		1,290,146			761,187
Note receivable		18,750			75,000
Total current assets		71,310,781			92,733,671
Property and equipment, net		2,808,339			2,539,483
Deferred tax asset		4,272,002			-
Operating lease right-of-use asset		3,032,337			372,115
Intangible assets, net		26,479,333			26,768,333
Investment in joint venture		778,943			672,679
Total assets	$	108,681,735		$	123,086,281
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	1,416,435		$	952,296
Accrued expenses, current		1,826,639			934,447
Operating lease liability, current		794,516			297,209
Contingent consideration liabilities, current		710,651			1,689,471
Deferred revenue		349,499			-
Total current liabilities		5,097,740			3,873,423
Long-term liabilities
Income taxes payable		1,359,725			1,181,284
Deferred tax liability		-			2,417,987
Operating lease liability		2,250,393			50,708
Contingent consideration liabilities		484,332			1,042,885
Total long-term liabilities		4,094,450			4,692,864
Total liabilities		9,192,190			8,566,287
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	)
Additional paid-in capital		94,983,030			88,472,935
Accumulated other comprehensive income		612,649			293,140
Accumulated earnings		19,274,621			39,931,031
Total stockholders’ equity		99,489,545			114,519,994
Total liabilities and stockholders’ equity	$	108,681,735		$	123,086,281

See accompanying notes to unaudited condensed consolidated financial statements

CO – DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	2023			2022			2023			2022
	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Product revenue	$	136,533		$	5,094,456		$	936,296		$	32,816,726
Grant revenue		2,320,565			-			2,320,565			-
Total revenue		2,457,098			5,094,456			3,256,861			32,816,726
Cost of revenue		255,772			767,936			1,217,108			4,965,319
Gross profit		2,201,326			4,326,520			2,039,753			27,851,407
Operating expenses
Sales and marketing		1,904,395			1,889,907			5,343,692			6,014,280
General and administrative		3,147,753			3,622,273			9,875,613			9,012,888
Research and development		5,788,789			5,037,461			16,783,892			12,698,632
Depreciation and amortization		296,340			312,494			917,596			984,100
Total operating expenses		11,137,277			10,862,135			32,920,793			28,709,900
(Loss) from operations		(8,935,951	)		(6,535,615	)		(30,881,040	)		(858,493	)
Other income, net
Interest income		322,877			298,184			717,141			371,248
Realized gain on investments		425,446			-			1,254,718			-
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
Gain (loss) on equity method investment in joint venture		(45,865	)		(129,047	)		106,264			(256,911	)
Total other income, net		840,176			3,059,915			3,612,918			7,055,666
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)
Change in net unrealized gains on marketable securities, net of tax	$	33,522		$	-		$	319,509		$	-
Total other comprehensive income	$	33,522		$	-		$	319,509		$	-
Comprehensive income (loss)	$	(5,948,672	)	$	(1,361,062	)	$	(20,336,901	)	$	7,667,231

Earnings (loss) per common share:
Basic	$	(0.20	)	$	(0.04	)	$	(0.70	)	$	0.24
Diluted	$	(0.20	)	$	(0.04	)	$	(0.70	)	$	0.23
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

See accompanying notes to unaudited condensed consolidated financial statements

CO – DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	2023			2022
	Nine Months Ended September 30,
	2023			2022
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:
Depreciation and amortization		917,596			984,100
Stock-based compensation expense		6,510,708			5,138,815
Change in fair value of acquisition contingencies		(1,537,373	)		(7,079,446	)
Non-cash lease expense		36,770			17,193
Realized gain on investments		(1,254,718	)		-
(Gain) loss from equity method investment		(106,264	)		256,911
Loss on disposition of assets		2,578			138,117
Deferred income taxes		(6,689,989	)		(3,431,286	)
Bad debt expense		326,647			338,057
Changes in assets and liabilities:
Accounts receivable		2,320,372			12,539,461
Prepaid expenses and other assets		151,858			441,786
Inventory		790,716			(3,656,463	)
Deferred revenue		349,499			(150,000	)
Income taxes payable		178,441			(1,822,977	)
Accounts payable, accrued expenses and other liabilities		1,356,330			(802,955	)
Net cash (used in) provided by operating activities		(17,303,239	)		10,578,544
Cash flows from investing activities
Purchases of property and equipment		(900,704	)		(1,134,208	)
Proceeds from maturities of marketable investment securities		90,279,227			6,223,740
Purchases of marketable securities		(83,604,933	)		(9,950,824	)
Net cash (used in) provided by investing activities		5,773,590			(4,861,292	)
Cash flows from financing activities
Proceeds from exercise of options and warrants		-			177,870
Repurchases of common stock		(1,204,256	)		(12,994,373	)
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	)
Cash and cash equivalents at beginning of period		22,973,803			88,607,234
Cash and cash equivalents at end of period	$	10,239,898		$	81,507,983
Supplemental disclosure of cash flow information
Interest paid	$	-		$	-
Income taxes paid	$	49,197		$	4,496,239
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
Business acquisition measurement period adjustments	$	-		$	681,728

See accompanying notes to unaudited condensed consolidated financial statements

CO – DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Shares		Amount		Shares		Amount		Stock			Capital		Income		Earnings			Equity
	Convertible Preferred Stock				Common Stock				Treasury			Additional Paid-in		Accumulated Other Comprehensive		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Stock			Capital		Income		Earnings			Equity
Balance as of December 31, 2022		-	$	-		34,754,265	$	34,754	$	(14,211,866	)	$	88,472,935	$	293,140	$	39,931,031		$	114,519,994
Stock-based compensation		-		-		68,750		69		-			2,168,673		-		-			2,168,742
Repurchases of common stock		-		-		-		-		(482,196	)		-		-		-			(482,196	)
Other comprehensive income, net of tax		-		-		-		-		-			-		178,621		-			178,621
Net loss		-		-		-		-		-			-		-		(5,755,391	)		(5,755,391	)
Balance as of March 31, 2023		-		-		34,823,015		34,823		(14,694,062	)		90,641,608		471,761		34,175,640			110,629,770
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

	Convertible Preferred Stock				Common Stock				Treasury			Additional Paid-in		Accumulated Other Comprehensive		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Stock			Capital		Income		Earnings			Equity
Balance as of December 31, 2021		-	$	-		33,819,862	$	33,820	$	-		$	80,271,999	$	-	$	54,169,279		$	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		-		-		34,313,432		34,313		(2,599,478	)		83,838,533		-		63,197,570			144,470,940
Stock-based compensation		-		-		18,750		19		-			2,230,415		-		-			2,230,434
Repurchases of common stock		-		-		-		-		(10,394,895	)		-		-		-			(10,394,895	)
Net loss		-		-		-		-		-			-		-		(1,361,062	)		(1,361,062	)
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		-	$	-		34,332,182	$	34,332	$	(12,994,373	)	$	86,068,948	$	-	$	61,836,508		$	134,945,417

See accompanying notes to unaudited condensed consolidated financial statements

CO – DIAGNOSTICS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Overview and Basis of Presentation

Description of Business

Co-Diagnostics, Inc., a Utah corporation (the “Company” 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 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 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.

Unaudited Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q as they are prescribed for smaller reporting companies. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. These statements should be read in conjunction with the Company’s audited financial statements and related notes for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2023.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Such estimates include receivables and other long-lived assets, legal 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.

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount less estimates for credit losses. Management determines the allowance for credit losses by specifically identifying troubled accounts and by using historical write off experience, adjusted for current market conditions, customers’ financial condition and payment patterns, and reasonable supportable forecasts of future economic conditions, applied to an aging of all other accounts. 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, total accounts receivable was $4,231,877 with an allowance for credit losses of $3,425,173 resulting in a net amount of $806,704. At December 31, 2022, total accounts receivable was $6,552,249 with an allowance for credit losses of $3,098,526 resulting in a net amount of $3,453,723.

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, 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 $5,310,473 in inventory, of which $1,327,264 was finished goods and $3,983,209 was raw materials. The Company establishes reserves to reduce slow-moving, obsolete, or unusable inventories to their estimated useful or scrap values.

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.

Long-lived Assets

Long-lived assets, such as property and equipment, are stated at cost less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over the estimated useful lives of the property, generally from three to five years. Repairs and maintenance costs are expensed as incurred except when such repairs significantly add to the useful life or productive capacity of the asset, in which case the repairs are capitalized.

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

Business Combinations

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.

Revenue Recognition

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

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

Grant Funding

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 $2.3 million during the three and nine months ended September 30, 2023. At September 30, 2023, the Company has also recorded $0.3 million of deferred revenue related to grant funding for which the underlying conditions or performance obligations have not yet been met. Cash received from federal grants, contracts, and awards can be subject to audit by the grantor and, if the examination results in a disallowance of any expenditure, repayment could be required.

Deferred Revenue

Deferred revenue primarily consists of payments received from customers 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. Three customers accounted for approximately 47% 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, 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.

Two customers accounted for more than 10% of accounts receivable at September 30, 2023 and three customers accounted for more than 10% of accounts receivable at December 31, 2022. These customers together accounted for approximately 71% and 37% of accounts receivable at September 30, 2023 and December 31, 2022, respectively.

Recently Issued Accounting Standards

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

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:

	September 30, 2023
	Adjusted Cost			Allowance for Credit Losses		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			-
Level 2:
U.S. treasury securities		52,375,675			-		813,324