Note 4 – Revenue

The following table sets forth revenue by geographic area:

NOTE 3Deferred Revenue

Changes in the Company’s deferred revenue balance for the nine months ended September 30, 2020 were as follows:

The Company expects to perform its performance obligation and recognize the deferred revenue as revenue during the year ended December 31, 2020.

Note 4 – EQUITYStockholders’ Equity

2020Common Stock and Preferred Stock

On January 28, 2020, we completed the sale of 3,448,278 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $1.45 per share in a registered direct offering. The aggregate gross proceeds for the sale of the shares was $5,000,003 and we received net proceeds of $4,517,102 after deducting offering costs of $482,901.

On February 13, 2020, we completed the sale of 3,324,676 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $3.08 per share in a registered direct offering. The aggregate gross proceeds for the sale of the shares was $10,240,002 and we received net proceeds of $9,612,561 after deducting offering costs of $627,441.

On March 2, 2020, we completed the sale of 470,000 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $9.00 per share in a registered direct offering. The aggregate gross proceeds for the sale of the shares was $4,230,000 and we received net proceeds of $3,882,420 after deducting offering costs of $347,580.

On March 5, 2020 we received $50,000 from the exercise of 25,000 unregistered warrants at an exercise price of $2.00 per share and issued 25,000 shares of our common stock.

During the threenine months ended March 31,September 30, 2020, wethe Company issued an aggregate of 2,133,333 shares of our common stock inupon conversion of 2,560,000 sharesall of our Series A Preferred Stock at a conversion price calculated by multiplying the numberCompany’s convertible preferred stock outstanding as of preferred shares being converted by $100 and dividing the result by $1.20.

During the three months ended MarchDecember 31, 2020, we issued an aggregate of 694,492 shares of our common stock in relation to the cashless exercise of 759,445 previously issued unregistered warrants.

During the three months ended March 31, 2020. we issued 12,363 shares of our common stock valued at $31,193 to 2 companies for investment relations services rendered.2019.

During the threenine months ended JuneSeptember 30, 2020, we received $220,000 fromthe Company issued 829,492 shares of common stock upon the exercise of 110,000 unregistered warrants at an exercise price of $2.00 per share and issued an aggregate of 110,000 shares of our common stock to four individuals.received $270,000.

During the threenine months ended JuneSeptember 30, 2020, we received $643,465 fromthe Company issued 528,623 shares of common stock upon the exercise of 420,289 registered options by10 employees and two Members of our Board of Directors and issued an aggregate of 420,289 shares of our common stock.received $917,984.

During the threenine months ended JuneSeptember 30, 2020, wethe Company issued 9,68983,935 shares of our commonscommon stock valued at $86,050for services provided by third parties primarily related to 3 companies for investment relations services rendered.services.

2019Earnings per Share

On JanuaryThe following table reconciles the numerator and the denominator used to calculate basic and diluted earnings per share for three and nine months ended September 30, 2020:

50,000 options were excluded from the computation of diluted earnings per share because the effect would have been anti-dilutive.

As a result of incurring a net loss for the three and nine months ended September 30, 2019, we entered into ano potentially dilutive securities purchase agreement with accredited investors pursuant to whichare included in the calculation of diluted earnings per share because such investors purchased from an aggregateeffect would be anti-dilutive. The Company had potentially dilutive securities as of 30,000 shares of Series A Convertible Preferred Stock of the CompanySeptember 30, 2019, consisting of: (i) 2,021,817 options, (ii) 953,535 warrants and (iii) 2,133,333 for an aggregate purchase price of $3,000,000. The purchase price was paid by the investors with $1.0 million in cash and the conversion of a $2.0 million promissory note of the Company issued to the investors. The investors may not convert the Series A Preferred Stock to the extent that such conversion would result in beneficial ownership by the investors and their affiliates of more than 4.99% of the issued and outstanding common stock of the Company.

On February 4, 2019, we completed the sale of an aggregate of 3,925,716 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $1.40 per share in a registered direct offering. The aggregate gross proceeds for the sale of the shares of common stock was $5,496,002 and we received net proceeds of $4,903,238 after offering costs of $592,764.

On March 7, 2019, we issued an aggregate of 166,667 shares of our common stock in relation to 2,000 shares of our Series A Preferred Stock being converted to common stock at a conversion price calculated by multiplying the number ofconvertible preferred shares being converted by $100 and dividing the result by $1.20.stock.

In June 2019, we issued 100,000 shares of our common stock to a company valued at $80,400 pursuant to a professional services agreement.

NOTE 4Note 5 – STOCK-BASED COMPENSATIONStock-Based Compensation

Stock Incentive Plans

The Co-Diagnostics, Inc. 2015 Long Term Incentive Plan (the “Incentive Plan”) reserves an aggregate of 6,000,000 shares of common stock issuable upon the grant of awards under the plan.Incentive Plan. The number of unissued awards authorizedavailable for issuance under the planIncentive Plan was 3,828,183 at JuneSeptember 30, 2020 was 3,828,183.

Stock Options2020.

We useStock Options a Black-Scholes model to value granted stock options which requires various judgmental assumptions including the estimated volatility, risk-free interest rate and expected option term. In determining the expected volatility our computation is based the stock prices of 3 comparable companies and is based on a combination of historical and market-based implied volatility. The risk-free interest rate was based on the yield curve of a zero-coupon U.S. Treasury bond on the date the option was granted with a maturity equal to the expected term of the option. The fair values for the options granted were estimated at the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions:

We recognized $301,568 and $703,198 of stock-based compensation expense, related to stock options for the three and six months ended June 30, 2020 respectively, which is included in administrative and general expenses.

We recognized $126,483 and $214,278 of stock-based compensation expense, related to stock options for the three and six months ended June 30, 2019, respectively, which is included in administrative and general expenses.

The following table summarizes option activity during the year ended December 31, 2019 and the sixnine months ended JuneSeptember 30, 2020, respectively.2020:

The total intrinsic value of options outstanding at Juneexercised during the nine months ended September 30, 2020 and 2019 was $15,462,981 and $72,093, respectively.approximately $8.3 million. The aggregate intrinsic value of outstanding options at September 30, 2020 was $15,476,739. There were 843,333 and 566,667296,667 of unvested option included the table aboveoptions as of JuneSeptember 30, 20202020.

Stock-based compensation cost is measured at the grant date based on the fair value of the award granted and 2019, respectively. At Junerecognized as expense over the vesting period using the straight-line method. The Company uses the Black-Scholes model to value options granted. The following weighted average assumptions were used in estimating the grant date fair value of options:

As of September 30, 2020, there were 843,333296,667 of unvested options.options and $339,951 of unrecognized stock-based compensation expense. The unrecognized stock-based compensation expense is expected to be recognized over 2.5 years.

Warrants

The Company has issued warrants related to past financings 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. The Black-Scholes valuation model requires various judgmental assumptions including the estimated volatility, risk-free interest rate and expected warrant term. In determining the expected volatility, our computation is based on the stock prices of three comparable companies and on a combination of historical and market-based implied volatility. The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the warrant was issued with a maturity equal to the expected term of the warrant.if granted for services.

The following table summarizes warrant activity during the year ended December 31, 2019 and the sixnine months ended JuneSeptember 30, 2020 respectively.

The intrinsic value of options and warrants exercised induring the sixnine months ended JuneSeptember 30, 2020 was $16,083,097. Totalapproximately $9.4 million. The aggregate intrinsic value of outstanding options warrants at September 30, 2020 was approximately $1.3 million. All outstanding warrants are exercisable at September 30, 2020 and there was no unrecognized stock-based compensation was $468,295 at June 30, 2020expense related to warrants.

Stock Issued for options granted. Services

The Company expectshas issued restricted stock to recognizethird parties for services provided. The grant date fair value of the aggregate amountrestricted stock granted is determined using the closing market price of thisthe Company’s common stock on the grant date with the associated compensation expense amortized over the next years in accordance with contractual provisions and vesting period of the stock awards. The Company has issued 83,935 of restricted stock for services during the nine months ended September 30, 2020.

Stock-Based Compensation Expense

The Company recognized stock-based compensation expense related to the types of awards discussed above as follows:

Note 6 – Income Taxes

The following table summarizes our benefit from income taxes and our effective tax rates for the three and nine months ended September 30, 2020 and 2019:

For the three months ended September 30, 2020, the Company recognized a benefit from income taxes of $2,914,781, representing an effective tax rate of (22.7%) which was lower than the statutory federal tax rate due primarily to the release of the valuation allowance during the quarter and the tax benefits related to tax-deductible stock-based compensation expense. For the three months ended September 30, 2019, no benefit from income taxes was recorded due to the Company being in a full valuation allowance position, resulting in an effective tax rate of 0.0%.

For the nine months ended September 30, 2020, the Company recognized a benefit from income taxes of $2,914,781, representing an effective tax rate of (10.9%), which was lower than the statutory federal tax rate due primarily to stock-based compensation adjustments, non-deductible lobbying expenses and state taxes, partially offset by research and development credits. For the nine months ended September 30, 2019, no benefit from income taxes was recorded due to the Company being in a full valuation allowance position, resulting in an effective tax rate of 0.0%.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of September 30, 2020, in part because in the current year the Company achieved three years of cumulative pre-tax income, management determined that there is sufficient positive evidence to conclude that it is more likely than not that its deferred tax assets, which are primarily made up of federal and state net operating losses, are realizable. Therefore, during the third quarter, the valuation allowance was fully released which resulted in a decrease to income tax expense for the period the release is recorded.

The impact of a tax position is recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. As of September 30, 2020, and 2019, the Company did not have any significant uncertain tax positions. The Company includes any interest and penalties associated with unrecognized tax benefits within the provision for income taxes. The Company does not expect a material change to the total amount of unrecognized tax benefits in the next twelve months.

The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law on March 27, 2020. The income tax provisions of the CARES Act include temporary changes to income-based tax laws, including the ability to utilize net operating losses, interest expense deductions, alternative minimum tax credit refunds, charitable contributions, and depreciation of qualified improvement property. The income tax provisions of the CARES Act did not have a material impact on our condensed consolidated financial statements for the nine months ended September 30, 2020.

NOTE 5Note 7 – RELATED PARTY TRANSACTIONSRelated Party Transactions

The Company acquired the exclusive rights to the CoPrimer technology pursuant to an exclusive license agreement, dated April 2014 (the “Exclusive License Agreement”), between the Company and DNA Logix, Inc., which was assigned to Dr. Brent Satterfield, one of oura current executive officers,officer, prior to ourthe Company’s acquisition of DNA Logix, Inc. On March 1, 2017, the Company entered into an amendment to its Exclusive License Agreement for its Cooperative Primers (“License”) technology with Dr. Satterfield. The amendment provides in part that all accrued royalties under the License cease as of January 1, 2017, and wethe Company began in January 2017 to pay to Dr. Satterfield $700,000 of accrued royalties at the rate of $10,000 per month. At JuneSeptember 30, 2020, the aggregate balance of this related party liability was $200,000.$180,000.

NOTE 6Note 8 – LEASE OBLIGATIONSCommitments and Contingencies

OurLease Obligations

The Company’s offices are located at 2401 S. Foothill Dr., Suite D, Salt Lake City, Utah 84109-1479. In February 2020, the Company entered into a 4-year lease agreement for its office space and in March 2020, the Company entered into an addendum with our landlord for additional space. The new aggregate space consists of approximately 13,687 square feet at a monthly rate of $28,825 and expires in February 2024. For the three and sixnine months ended JuneSeptember 30, 2020 the Company expensed $86,969$86,588 and $138,787,$225,374, respectively, for rent. For the three and sixnine months ended JuneSeptember 30, 2019, the Company expensed $45,040$42,259 and $90,621,$132,879, respectively, for rent. The Company’s ongoingfuture minimum lease obligationpayments were as follows as of JuneSeptember 30, 2020 is as follows:2020:

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.

In July and September, securities class action complaints were filed by certain stockholders of the Company against the Company 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 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 7Note 9 – SUBSEQUENT EVENTSSubsequent Events

In August, 2020, we discoveredThe Company evaluated subsequent events pursuant to ASC Topic 855 and has determined that a freezerthere are no events that held manufactured tests had failed and that approximately $1,200,000 of finished goods inventory had thawed and was no longer saleable and willneed to be written off.reported.

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.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short term and long-term business operations, and financial needs. 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 in this Quarterly Report, and in particular, the risks discussed below and under the heading “Risk Factors” in other documents we file with the SEC. The following discussion should be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on March 30, 2020 and the audited financial statements and notes included therein.

You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this Quarterly Report. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this Quarterly Report to conform our statements to actual results or changed expectations.

You are advised, however, to consult any further disclosures we make on related subjects in our periodic and current reports filed with the SEC. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider this list to be a complete set of all potential risks or uncertainties.

Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation:

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. GAAP requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our assumptions and estimates, including those related to recognition of revenue, valuation of investments, valuation of inventory, measurement of stock-based compensation expense and litigation. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

As an emerging growth company, we have elected to opt-in to the extended transition period for new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.

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” for a summary of the risks and uncertainties associated with an investment in our securities.

Overview

Co-Diagnostics, Inc., a Utah corporation (the “Company” or “CDI”), is developing robust and innovative molecular tools for detection of infectious diseases, liquid biopsy for cancer screening, and agricultural applications. We have developed anddevelop, manufacture and sell reagents used for diagnostic tests that function via the detection and/or analysis of nucleic acid molecules (DNA or RNA). 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”).

Our diagnostics systems enable very rapid, low-cost, molecular testing for organisms and genetic diseases by automating historically complex procedures in both the development and administration of tests. CDI’s technical advance involves a novel approach to Polymerase Chain Reaction (“PCR”) test design of primer and probe structure (“CoPrimers”) 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.DNA/RNA.

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. Because we own our platform, we believe we will be able to accomplish this faster and more economically, allowing for significant margins while still positioning the Company to be a low-cost provider of molecular diagnostics and screening services.

In addition, continued development has demonstrated the unique properties of our CoPrimer technology that make it ideally suited to 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 gen sequencing.

Our scientists use the complex mathematics of DNA/RNA test design, to engineer and optimize a DNA/RNA test and to automate algorithms that rapidly screen millions of possible options to pinpoint the optimum design. Dr. Satterfield, our Chief Technology Officer, developed the Company’s intellectual property consisting of the predictive mathematical algorithms and proprietary reagents used in the testing process, which together represent a major advance in PCR testing systems. CDI technologies are now protected by seven granted or pending US and foreign patents, as well as certain trade secrets and copyrights. Ownership of our proprietary platform permits us the advantage of avoiding payment of patent royalties required by other PCR test systems, which enables the sale of diagnostic tests at a lower price than competitors, while enabling us to maintain profit margins.

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.

We designeddesign our tests by identifying the optimal locations on the target gene for amplification and pairedpair the location 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, the data resulting from our tests verify that we succeeded in designing what we intended at the outset. Verification is a series of testing that concludes that the product is ready to proceed to validation in an evaluation either in our lab or in an independent laboratory setting using initial production tests to confirm that the product as designed meets the user needs.

Using our proprietary test design system and proprietary reagents, we have designed and obtained regulatory approval in the European Community and in India to sell PCR diagnostic tests for COVID-19, tuberculosis, hepatitis B and C, human papilloma virus, malaria, chikungunya, dengue, and the zika virus. In the United States, CDI has obtained Emergency Use Authorization (“EUA”) for its COVID-19 test from the FDA and sells that test to qualified labs. In addition, our LogixSmart COVID-19 test has been approved for sale in Australia and Mexico by the regulatory bodies in those countries and has been registered for sale in many more countries.

In addition to testing for infectious disease, the technology lends itself to identifying any section of a DNA or RNA strand that describe any type of genetic trait, which creates a number of significant applications. We, in conjunction with our customers, are active in designing and licensing 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 spraying mosquito populations on the specific areas known to be breeding the mosquitos that carry deadly viruses.

Recent2020 Developments

On January 23, 2020, we announced the completion of the principle design work for a PCR screening test for new coronavirus, COVID-19, intended to address the potential need for detection of the virus. An outbreak of respiratory illness caused by the pneumonia-like COVID-19 has spread rapidly throughout the world since first being discovered in the Chinese city of Wuhan on December 31, 2019. China confirmed human-to-human transmission of the virus and the United States announced the first infection in this country, detected in a traveler returning from Wuhan. Our COVID-19 test features the Company’s patented CoPrimer™ technology, and was designed using our proprietary software system, following the guidelines published by the World Health Organization (WHO) and Centers for Disease Control (CDC).

On February 20, 2020, we announced that our Logix Smart™ COVID-19 Test technical file had been submitted for registration with the European Union, and that it was expected to be available late February as an in vitro diagnostic (“IVD”) for markets that accept a CE marking as valid regulatory approval. Subsequently, on February 24, 2020, we announced that our test obtained regulatory clearance to be sold as an IVD for the diagnosis of COVID-19 in markets that accept CE-marking as valid regulatory approval, and became available for purchase from the Company’s Utah-based ISO-13485:2016 certified facility. The Declaration of Conformity for the Logix Smart COVID-19 test confirms that it meets the Essential Requirements of the European Community’s In-Vitro Diagnostic Medical Device Directive (IVDD 98/79/EC), permitting export and sales of the product as an IVD to commence immediately in the European Community. We shipped samples of the Research Use Only version of our test to distributors in various countries, which allowed future customers to confirm the quality and sensitivity of the product, and for us to accelerate the sales efforts of the COVID-19 test.

We commenced sales of the COVID-19 tests in February and March of 2020 to international customers and sold the tests in numerous countries around the world through an expanding distributor network.

On April 6, 2020, we announced that we had received an Emergency Use Authorization from the FDA allowing us to commence sales of our Logix Smart COVID-19 test to laboratories certified by the Center for Medicare and Medicaid Services under the Clinical Laboratories Improvements Act (“CLIA”) to accept human samples for diagnostics testing throughout the United States and we have been actively marketing to such CLIA labs since that time.

Infectious Disease Product Offering

Using its proprietary test design system and proprietary reagents, CDI designs and sells PCR diagnostic tests for diseases and pathogens such as COVID-19, tuberculosis, hepatitis B and C, malaria, dengue, human papilloma virus, chikungunya, and zika virus, all of which tests have been designed and verified in CDI’s laboratory. Our tuberculosis test and zika test received a CE Mark in 2018, and a triplex test for zika, dengue and chikungunya received a CE Mark in 2019, qualifying the tests to be sold throughout the European community and in most countries in central and South America. In December, 2019, our Indian joint venture received a license to manufacture and sell tuberculosis, hepatitis B, hepatitis C, human papilloma virus 16/18 and malaria tests in India from the Central Drugs Standard Control Organization (“CDSCO”). In February 2020, we received a CE Mark for our Logix Smart COVID-19 test and in April 2020, our COVID-19 test was approved for manufacture and sale in India by the CDSCO and in Mexico by the INDRE, Mexico’s equivalent to the United States Center for Disease Control. In August 2020, we received approval from the Australian Department of Health Therapeutic Goods Division to sell our COVID-19 in Australia.

As explained above, the development of our Logix Smart COVID-19 test was designed, developed, submitted for regulatory approved and ready to be used both as a Research Use Only (“RUO”) and as an IVD in countries that accept a CE Mark as approval for use of the test in a period of just over thirty days. This is a real-world example of how in an evolving epidemic that the CDI technology can be used to get diagnostics tools in the hands of medical professionals without delay. It can be similarly used to design a test for mutations of the virus should they occur.

Caribbean and Central and South America

Our initial sales were to entities located in South and Central America.

In some of those countries, there are limited regulatory hurdles and salesso we started offering our tests immediately. We have applied for registration of our tests in those countries that require registration and our distributors in those countries have provided us with in country assistance in completing such registrations.

We first offered our zika test in this region because of the demand for such test, followed quickly by tests for tuberculosis, our triplex test for zika, chikungunya, and dengue, hepatitis B and C, and dengue. Sales of those tests have not been material, but with the granting of a CE mark for our Logix Smart COVID-19, we began significant sales in this region. Products are manufactured for sale upon receipt of purchase orders from distributors, labs and hospitals.

India

In January, 2017, the Company entered into an agreement to manufacture diagnostics tests for seven infectious diseases with a pharmaceutical manufacturing company in India and formed an Indian joint venture organized as CoSara Diagnostics, Pvt. The agreement provided for the construction of a manufacturing plant and the manufacture of the tests named above and the joint sales and marketing of those tests in India. We have received a license for the plant in Rinoli,Ranoli, India to manufacture approved tests and it will be used for testing and manufacturing for the Indian market.

As mentioned above, the CDSCO has given us the approval for manufacture and sale of the five tests referred above and the Company has begun manufacture and sale of those tests. Sales of those tests has not been material to date. The Company has commenced a reagent rental program in India with a thermocycler purchased from a third-party vendor and which we refer to as our MDx Device. We have placed thirty-nine thermocyclers, twenty-one of which are our MDx Devices, with labs in India. Each of the reagent rental placements requires the purchase of a minimum number of 250 tests per month. The placement of thermocyclers in India has facilitated the sale of the SaraGene COVID-19 tests in India, which has made CoSara profitable in the last two quarters. The World Health Organization (“WHO”) 2019 Global Tuberculosis Report indicates that India is the country with the highest burdennumber of tuberculosis. World Health Organization (WHO)cases of tuberculosis in the world and has recently exceeded all countries in the world for cases of COVID-19. WHO tuberculosis statistics for India for 20152018 give an estimated incidence figure of 2.22.69 million cases of tuberculosis for India out of a global incidence of 9.6approximately 10.0 million. The tuberculosis incidence for India is the number of new cases of active tuberculosis disease in India during a certain time period (usually a year). We believe that we will be able to sell our tuberculosis test in India through our sales distribution network that we are building currently.

On March 19, 2020, we announced that CoSara Diagnostics, Pvt., our Indian joint venture (“CoSara”), received authorization to begin manufacture and sale of COVID-19 tests in India. Those tests in India are branded as SaraGene COVID-19 tests and are sold exclusively by CoSara. Because any commercial activity in India was severely restricted until May 2020, CoSara was not able to commence the manufacturing and sale of the SaraGene COVID-19 tests until late in the second quarter, but sales efforts stillhave resulted in CoSara being profitable since the commencement of sales significant enough to make CoSara profitable forof the quarter ending June 30, 2020.COVID-19 tests.

Although the efforts of CoSara are currently concentrated in providing the SaraGene COVID-19 test to the Indian market, we are preparing to submit technical files to the CDSCO requesting approval tests for the human immunodeficiency virus (HIV) and dengue as well as a blood bank panel before the end of the third quarter of 2020 to increase the number of tests to be sold in that market.

Europe

Molecular diagnostics, such as our tests, are governed in Europe by the framework for in vitro diagnostics (IVDs), which encompasses diagnostic products such as reagents, instruments and systems intended for use in diagnosis of disease. The regulatory system for IVDs is built largely on a self-certification procedure, placing heavy responsibility on manufacturers. Non self-certified products are subject to the same standards as self-certified products but are subject to audit and review by a notified body prior to receiving approval to be CE-marked. A CE-marking is a manufacturer’s declaration that a product meets the requirements of the applicable European Commission directive. Examples of current obligations include having in place a qualitative manufacturing process, user instructions that are clear and fit for purpose, ensuring that the ‘physical’ features of devices and diagnostics do not pose any danger. If a product fulfils these and other related control requirements, it may be CE-marked as an indication that the product is compliant with EU legislation and sold in the European Union. We have received CE Marks for four of our tests including COVID-19, tuberculosis, Zika, and our zika, dengue, chikungunya triplex tests.

We have received ISO 13485 and ISO 9001 certifications relating to the design and manufacture of our medical device products. The ISO certification indicates that we meet the standards required to self-certify certain of our products and affix a CE-marking for sales of our products in countries accepting the CE marking (not in the United States) with only minimal further governmental approvals and registrations in most countries.

United States

The U.S. Food and Drug Administration (FDA) has granted permission for us to export all of our IVD our products. The FDA’s permission to export was granted under Section 801(e) of the Federal Food, Drug, and Cosmetic Act, as amended (the “FDC Act”). Section 801(e) of the FDA Act covers certain medical devices that have not yet received an approved Premarket Approval in the United States by the FDA, such as our products. We have not commenced any Premarket Approval steps with the FDA. Section 801(e) of the FDA Act applies to medical devices that are acceptable to the importing country and that are manufactured under the FDA’s Good Manufacturing Practices. We have received Emergency Use Authorization (EUA) for our COVID-19 test, which allows sales to qualified labs in the United States.

Under our EUA we are actively marketing our LogixSmart COVID-19 test to CLIA certified laboratories in the United States and the CLIA labs are able to qualify our LogixSmart test as a Laboratory Developed Test (LDT), a diagnostic test that has been validated for use in the CLIA lab. These tests may be used by the lab only in that laboratory. CLIA laboratories develop the performance characteristics, perform the analytical validation for their LDT’s and obtain licenses to offer them as diagnostic services. The FDA has publicly announced its intention to regulate certain LDTs in a phased-in approach, but draft guidance that was published a couple of years ago was withdrawn at the end of the Obama administration and replaced by an informal non-enforceable discussion paper reflecting some of the feedback that it received on LDT regulation. We are currently marketing to CLIA laboratories throughout the US.

Market Opportunity

The market opportunity for our tests changed radically with the emergence of the COVID-19 pandemic. Because we were able to respond rapidly and produce a quality product, we have been able to build a distribution network that extends to more than 80 countries with over 50 active distributors, most of which have been the sales network that has allowed us to export products throughout the world. We believe that after the pandemic is brought under control, the network of distributors that we have built in these extra-ordinary times will serve us well in sales of other diagnostic tests.

The molecular diagnostics market is a fast-growing portion of the in vitro (test tube-based, controlled environment) diagnostics market. Using estimates of the incidence of disease by the Centers for Disease Control (CDC), the World Health Organization (WHO) and other international health agencies and sources, the Company estimates that the global annual demand for diagnostic tests are:

There are several advantages of molecular tests, such as the ones we market and sell, over other forms of diagnostic testing. These advantages include higher specificity sensitivities, the ability to perform multiplex tests and the ability to test for drug resistance or individual genes.

Mosquito Vector Control Services

In response to market demand, we introduced our first diagnostics tests to be used exclusively to test for mosquito borne pathogens in June 2019. Municipalities in the US and many other countries in the world are concerned about the diseases carried by mosquitos and which infect the human population. To prevent outbreaks of potentially harmful viruses, such as zika or west nile, from infecting the public the municipalities conduct spraying operations to eliminate the mosquito populations carrying the diseases. Because it is too expensive and potentially harmful to the environment to spray all mosquito breeding areas, the problem is to identify which particular area has mosquitos that are carrying the harmful viruses. To know where the host mosquitos with the harmful viruses are located, traps are set, mosquitos collected and then tested to find the areas that most needed spraying. There are over three thousand mosquito abatement districts throughout the United States and almost all of them conduct testing to help make the spraying more effective.

Our first vector related test was a triplex test that tests for west nile, western equine and St. Louis encephalitis. We began shipping the tests in June 2019. We added a second test that tests mosquitos for zika, chikungunya and dengue in a triplex test. Finally, in November 2019, we completed a test for west nile, eastern equine and St. Louis encephalitis, specifically for use in the eastern United States. As a result, mosquito abatement districts can test for three target viruses in one test as compared to needing to perform three different tests using other market available PCR tests, which saves our customers money. Additionally, the districts are more effective because they can get test results in a matter of hours using our product instead of weeks when they have to wait for a central lab to process the mosquito tests.

We have sold our Vector Smart test products and/or related lab equipment to testing districts in in different sections of the country and are marketing our products through trade shows, electronic and regular mail solicitations and have hired additional sales personnel in the eastern US to more economically and efficiently market to the east coast areas.

Competitive Advantages of Co-Diagnostics

We believe that we have the following competitive advantages:

Liquid Biopsy for Cancer Screening

The development of the liquid biopsy test will betests is expected to spur low cost testing in many developing countries. We believe that our liquid biopsy cancer screening may be ready for testing in the second quarter of 2021 if we have sufficient development resources to dedicate to the project.foreseeable future. Medical applications of our SNP detection technology can determine the presence of cancer cells or cell-free genetic material in a liquid or tissue biopsy, and to determine the distinct type of cancer involved. A real-life example of this includes being able to identify specific mutation(s) in genes linked to breast cancer in order to determine a patient’s prognosis, initiate the most effective and affordable treatment and to determine whether chemotherapy is necessary. After diagnosis the relative cost of our technology would allow for frequent testing to measure the effectiveness of the treatment and thus could be a companion diagnostic for a range of treatments.

Our technology has for all practical purposes essentially eliminated, primer-dimers, which opens up some very unique applications for liquid biopsy for cancer detection. Our ability to multiplex the reaction in testing for several DNA targets allows technicians to detect multiple cancers as free-circulating DNA fragments or whole cells in a blood sample at the same time

Agricultural Applications

SNP detection is also used in the agricultural industry to identify variations in crop genomes to achieve improved seed viability and other desired characteristics, including drought resistance, disease resistance, pest resistance and higher yield.

In mid-2017, the Company was first approached by a large agribusiness to evaluate our ability to multiplex certain target genomes. The results of the development project have successfully demonstrated our ability to not only multiplex the target genomes, but targeted SNP’s as well. The project was undertaken in conjunction with the manufacturer of our CoPrimer tests. The results of the project encouraged the parent of our manufacturer to seek a world-wide licensing arrangement for our CoPrimers in the agricultural industry, which was completed in October 2018. Pursuant to the exclusive license for the agronomics industry, the licensee will paypays us a royalty for all CoPrimers sold to the licensee’s customers. In January 2019, the licensee formally introduced the product at a large agricultural conference and has branded the product to sell asunder the name “BHQ CoPrimers”.

Additional Licensing and Assay Development

In addition, the unique properties of our CoPrimer technology make them ideally suited to a variety of applications where sensitivity is key to optimal results, including multiplexing several targets, enhanced SNP detection and enrichment for next generation sequencing. Our licensee for our agricultural testing requested an expansion of our license agreement to include test design services for their customers and potential customers, both in the infectious disease arena as well as for agricultural customers. The license was amended in July 2019 and we willexpect to derive a license fee from our licensee for its design services. If any of its customers desire to commercialize the tests designed, they will need to seek a commercial license directly from us. Because of these unique characteristics of CoPrimers, research companies and institutions have requested that we design diagnostics to locate and identify uncommon gene sequences and SNPs and create tests for the target sequences in a multiplexed reaction. This application of our technology is in its beginning stages, but we believe that the results from our initial research indicate a significant step forward in defining the capabilities of our technology, which we believe can be translated to revenue producing licensing arrangements.

Intellectual Property Protection

Because much of our future success and value depends on our proprietary technology, our patent and intellectual property strategy is of critical importance. Five of our initial U.S. patents related to our technology have been granted by the U.S. Patent and Trademark Office (PTO), including the patent for our CoPrimer technology, which we consider our most important patent. One of our patents has been issued in Great Britain, but is still pending in the United States. As of July 31,October 2020, we had two additional patents pending in the U.S. and foreign counterpart applications. Two of our issued patents expire in 2034, one in 2036 and one in 2038.

We have identified additional applications of the technology, which represent potential patents that further define specific applications of the processes that are covered by the original patents. We intend to continue building our intellectual property portfolio as development continues and resources are available.

We have copyrighted our development software that is used by us to develop diagnostic tests based on our technology. We have allowed one potential customer access to our development software and intend to sell customized reagents through that customer to labs serviced by that customer throughout the world. To date we have not sold any products to that customer.

Major Customers

The Company had certain customers which are each responsible for generating 10% or more of the Company’s total revenue for the three and sixnine months ended JuneSeptember 30, 2020. These threeThree customers together accounted for approximately 58% and 55%64% of the Company’s total revenue for the three and six months ended JuneSeptember 30, 2020 respectively.and two customers together accounted for 42% of total revenue for the nine months ended September 30, 2020. These customers may not account for the same percentage of sales in future periods. If we were to sell nothing to those customers in the future, it would have a material adverse effect on our financial condition unless we were able to replace those customers with others.

Competition

The molecular diagnostics industry is extremely competitive. There are many firms that provide some or all of the products we provide and provide many diagnostic tests that we have yet to develop. Many of these competitors are larger than us and have significantly greater financial resources. Because we are not established, many of our competitors have a competitive advantage in the diagnostic testing industry because they also have other lines of business in the pharmaceutical industry from which they derive revenues and for which they are well known and respected in the medical profession. We will need to overcome the disadvantage of being a start up with no history of success and no significant respect from the medical and testing professionals, although this is changing as we continue to market our LogixSmart COVID-19 tests and other tests in the United States to well-known and successful laboratories. In the diagnostic testing industry, we compete with such companies as BioMerieux, Siemens, Qiagen, and Cepheid and with such pharmaceutical companies as Abbott Laboratories, Becton Dickinson and Johnson and Johnson.

Many of these competitors already have an established customer base with industry standard technology, which we must overcome to be successful.

Competition is, and will likely continue to be, particularly intense in the market for COVID-19 diagnostic tests. Numerous companies in the United States and internationally have announced their intention to offer new products, services and technologies that could be used in substitution for our LogixSmart COVID-19 teststests. Many of those competitors are significantly larger, and have substantially greater financial, engineering and other resources, than our company. Existing and potential competitors in the market for COVID-19 diagnostic tests include developers of both serological and molecular tests.

We expect competition to continue to increase as other established and emerging companies enter the market, as customer requirements evolve, and as new products, services and technologies are introduced. The entrance of new competitors is being encouraged by governmental authorities, who are offering funding to support development of testing solutions for COVID-19. For example, on April 29, 2020, the U.S. National Institutes of Health announced it would be using a portion of its $1.5 billion in federal stimulus funding to fund a $500 million national challenge designed to help the agency identify the best candidates for an at-home or point-of-care test for COVID-19. Some of our existing or new competitors may have strong relationships with current and potential customers, including governmental authorities, and, as a result, may be able to respond more quickly to new or changing regulatory requirements, new or emerging technologies, and changes in customer requirements.

Employees

We currently employ 37 full-time personnel at our executive offices and lab facilities in Salt Lake City, Utah, and two employees outside of Utah. We have engaged independent contractors in India to promote the use of our products and develop outlets for products and employ the services of independent sales representatives on an “as needed” basis.

Government Regulation

In the United States, we will be regulated by the U.S. Federal Drug Administration (FDA) and our products must be approved by the FDA before we will be allowed to sell our tests in the United States. However, the FDA granted us an Emergency Use Authorization (EUA) to manufacture and sell our Logix Smart COVID-19 test to CLIA labs in the United States. Because our lab is ISO certified, we are allowed to apply for CE-Marking, which will allow us to sell any CE Marked test in most countries in Europe, South America and Asia. We currently have CE Marks issued for our Logix Smart COVID-19 test, tuberculosis test, our zika virus test, and a triplex test that tests for zika, dengue, and chikungunya simultaneously. In addition, our Logix Smart COVID-19 has received the license to manufacture and sell in India from India’s CDSCO and the National Epidemiology Institute in Mexico evaluated our Logix Smart COVID-19 test and approved it for sale in Mexico. We have also received approval to sell in Australia. We are in the process of registering for sale our Logix Smart COVID-19 test in a number of major countries around the world.

Organizational History and Corporate Information

We were incorporated as Co-Diagnostics, Inc. in Utah on April 18, 2013. Our principal executive office is located at 2401 S. Foothill Drive, Suite D, Salt Lake City, Utah 84109. Our telephone number is (801) 438-1036. Our website address is http://codiagnostics.com. The contents of our website are not incorporated by reference in this Quarterly Report.

RESULTS OF OPERATIONS

Results of Operations for the SixThe Nine Months ended JuneEnded September 30, 2020 andCompared to the Nine Months Ended September 30, 2019

Net SalesRevenue

For the sixnine months ended JuneSeptember 30, 2020, we generated $25,588,802$47,407,555 of net salesrevenue compared to net salesrevenue of $64,974$106,408 in the sixnine months ended JuneSeptember 30, 2019. The increase in salesrevenue of $25,523,828$47,301,147 was primarily due to sales of our LogixSmart COVID-19 test duedeveloped in response to the current COVID-19 pandemic. Of the total sales, $1,782,312revenue, $3,239,471 was from the sale of third party manufactured equipment and supplies that we sourced and sold to customers to facilitate usage of our test. $49,800$63,800 of the revenue in 2019 was the result of sales of equipment and tests to two mosquito abatement districts and the remainder was sales of our test reagents.

Cost of SalesRevenues

For the sixnine months ended JuneSeptember 30, 2020, we recorded cost of salesrevenues increased by $12,218,700 from $59,626 to $12,278326. The increase in cost of $8,826,414,revenues was due to the significant increase in revenue discussed above. Of the total costs of which $7,175,019revenues for the nine months ended September 30, 2020, $9,413,497 was for the cost of test reagents sold and $1,651,395$2,864,829 was the cost of equipment sold. For the sixnine months ended JuneSeptember 30, 2019, we recorded cost of salesrevenues of $39,261 primarily$59,626, $49,173 of which was for the cost of equipment included in the sales to mosquito abatement districts.

Operating Expenses

We incurred total operating expenses of $5,505,429$9,464,699 for the sixnine months ended JuneSeptember 30, 2020 compared to total operating expenses of $2,645,969$4,317,125 for the sixnine months ended JuneSeptember 30, 2019. The increase in operationoperating expenses was primarily due to the increase in business activities experienced as a result of the sales increases due to the COVID-19 pandemic.our increase in revenue.

General and administrative expenses increased $2,202,386$3,345,040 from $1,448,132$2,508,895 for the sixnine months ended JuneSeptember 30, 2019 to $3,650,518$5,853,935 for the sixnine months ended JuneSeptember 30, 2020. The increase in general and administrative expenses resulted from an increase of $888,572 in other professional services, and increase of $514,266 in bad debt expense as an allowance for bad debts was establishedprimarily due to increased activity to support the significant increasegrowth of our business. The primary drivers of the increased expenses related to increases in receivables. Additionally, stock-based compensation, expenseemployee related to optionsexpenses and warrants increased by $488,920 due to options granted to employees and directors, salaries and related benefits increased by $112,935, attorneys’ fees increased by $54,001 and a 401K contribution of $40,600 was also incurred.expenses for professional services.

Our sales and marketing expenses for the sixnine months ended JuneSeptember 30, 2020 were $658,674$1,457,148 compared to sales and marketing expenses of $508,179$770,539 for the sixnine months ended JuneSeptember 30, 2019. The increase of $150,495$686,609 was theprimarily a result of an increase in salaries and related benefits of $131,903, an increase of $23,966 in advertising and trade shows, and an increase of $21,600 for a 401K contribution. These increases were partially offset by a decrease in travel andincreased personnel related expenses, of $43,462 as travel was curtailed byincluding commissions paid to our sales team, due to the current pandemic.growth in revenue noted above.

Our research and development expenses increased by $490,376$1,081,237 from $659,896$990,923 for the sixnine months ended June 20,September 30, 2019, to $1,150,271$2,072,160 for the sixnine months ended JuneSeptember 30, 2020. The increase was primarily due to an increase of $193,117 in other profession services related to development of the capability of freeze drying our COVID-19 test to enable easier international shipping. In addition, salaries and related benefits, increased $113,946 reflectingincluding stock-based compensation, as we have added additional employees to our research and development team to increase our product development activities. Additionally, there has been an increase in professional and lab personnel, expenditures for lab supplies increased $89,252,services utilized to further help us in our 401K contribution increased by $37,800,research and the rent for lab space increased $34,929.product development activities.

Interest ExpenseOther Income (Expense)

For the sixnine months ended JuneSeptember 30, 2020, we incurredOther income was $1,092,037 for the nine months ended September 30, 2020 compared to other expense of $190,208 for the nine months ended September 30, 2019. The increase in other income of $1,282,245 was primarily related to recording a gain of $1,016,297 from our India joint venture and incurring no interest expense compared toduring 2020 as we have had no debt during the current year. For the nine months ended September 30, 2019 we had recorded a loss $116,876 from our India joint venture and incurred interest expense for the six months ended June 30, 2019 of $28,187. The decrease of $28,187was the result of having a $2,000,000 loan outstanding during the month of January 2019 for which we incurred $28,187 in interest. Additionally, we incurred a loss of $78,241 on extinguishment of debt incident to the payoff of the loan referenced herein. For the six months ended June 30, 2020 we recorded interest income of $45,748 from interest on our cash not used in the operations of the business compared to interest income of $20,049 for the six months ending June 30, 2019$106,437.

Net Income

We realized net income for the sixnine months ended JuneSeptember 30, 2020 of $11,570,447$29,671,348 compared with a net loss for the sixnine months ended JuneSeptember 30, 2019 of $2,712,785.$4,460,551. The increase in net income of $14,283,232$34,131,899 was primarily the result of sales of our LogixSmart COVID-19 test and resulting margins from those sales. In addition,sales offset by increased operating expenses as discussed above. Additionally, we realizedrecorded an income fromtax benefit of $2,914,781 during the nine months ended September 30, 2020, as a result of releasing our Indian joint venture of $267,740 compared todeferred tax asset valuation allowance and recording a loss in the joint venture of $7,000 in the six months ending June 30, 2019 asdeferred tax asset since we have determined that our joint venture began sales of the Saragene COVID-19 test after clearance to begin manufacture and sale of the test in India. The sales in India were primarily made in the month of June.net operating losses will be realizable.

The three months ended JuneThree Months Ended September 30, 2020 comparedCompared to the three monthsThree Months ended JuneSeptember 30, 2019

RevenuesRevenue

For the three months ending Juneended September 30, 2020 we generated revenuesrevenue of $24,040,274$21,818,753 compared to revenuesrevenue of $61,574$41,434 for the three months ending Juneended September 30, 2019. The increase in revenue in the quarter ending June 30, 2020of $21,777,310 was primarily representeddue to sales of our LogixSmart COVID-19 test.test developed in response to the current COVID-19 pandemic. Of the total revenue in the three months ending Juneended September 30, 2020, $1,676,820$1,457,160 related to the sale of third party manufactured equipment and consumables, which we sourcesourced and sold to customers to facilitate the sales of our COVID-19 test.

Cost of Revenues

For the three months ended June 30, 2020 weWe recorded costscost of revenues of $8,344,674 and$5,821,281 for the three months ended JuneSeptember 30, 2019, we recorded costs of revenues of $38,809.2020, compared to $20,365 for the three months ended September 30, 2019. This increase is due to the increase in revenue in 2020 due to the sale of our LogixSmart COVID-19 test. Of the total cost of sale, $1,580,968sales during the three months ended September 30, 2020, $1,213,434 was due tofrom equipment that was sold to our customers.