Co-Diagnostics, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS 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 audited financial statements, and notes thereto, included elsewhere in this report. In addition to historical information, this Annual Report contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under the caption “Item 1A. Risk Factors” in this Annual Report on Form 10-K. Business Overview Co-Diagnostics, Inc., a Utah corporation (the “Company” or “CODX”), develops, manufactures and sells reagents used for diagnostic tests that function via the detection and/or analysis of nucleic acid molecules (DNA or RNA), including molecular tools for detection of infectious diseases. Our diagnostics systems enable dependable, low-cost, molecular testing for organisms and genetic diseases by automating or simplifying historically complex procedures in both the development and administration of tests. CODX’s technical advance involves a novel, proprietary approach to polymerase chain reaction (“PCR”) test design of primer and probe structure (“Co-Primers®”) that dramatically reduces one of the key vexing issues of PCR amplification: the exponential growth of primer-dimer amplification (false positives) which adversely interferes with identification of the target DNA/RNA. Using our proprietary test design system and reagents, we have designed and obtained regulatory approval to sell PCR diagnostic tests for the detection of COVID-19, influenza, tuberculosis, hepatitis B and C, human papillomavirus, malaria, chikungunya, dengue, and the Zika virus. These initial diagnostic tests are cleared for use in clinical labs only and not for point-of-care or at-home use. We have developed a portable diagnostic device and test system designed for point-of-care and at-home use. The system is comprised of our PCR instrument that we refer to as the Co-Dx™ PCR Pro ® instrument , our patent-pending diagnostic test cup system and a mobile application to be installed on the user’s mobile device. We refer to the system as the “Co-Dx™ PCR platform” which has been designed to bring affordable, reliable polymerase chain reaction (“PCR”) testing to patients in point-of-care and at-home settings. The Co-Dx PCR platform is subject to U.S. Food and Drug Administration (“FDA”) review and is not available for sale at the time of this filing. In June 2024, we completed our first FDA application for 510(k) clearance for the Co-Dx PCR Pro instrument, the Co-Dx PCR COVID-19 Test, and the Co-Dx PCR mobile app for over-the-counter (OTC) use. Following engagement with the FDA during the review process, the Company voluntarily withdrew the 510(k) submission after discussions regarding the analytical approach for detecting potential degradation of a test component over its intended shelf life. While the Company believes that the matter identified during the review process could have been addressed through additional development and clinical validation activities, management determined that the capital and time required to resubmit the COVID-19 test for 510(k) clearance would be more effectively deployed toward development and clinical validation of the Co-Dx PCR Flu A/B, COVID-19, RSV multiplex test (“ABCR”). Moving focus to this test allows the Company to incorporate more recent Co-Dx PCR platform developments into the design and test manufacturing process. Management believes that a multiplex test targeting influenza A/B, COVID-19, and RSV better aligns with current clinical demand for comprehensive upper respiratory infection testing in point-of-care settings. Accordingly, clinical performance studies for the ABCR test are currently underway. There is no guarantee that our Co-Dx PCR platform will receive the necessary regulatory approvals for commercialization, or that, if regulatory approval is received, we will be able to successfully commercialize this platform. Technology We believe our proprietary and patented molecular diagnostics technology is paving the way for innovation in disease detection and life sciences research through our enhanced detection of genetic material. For various reasons, including owning our own platform, we believe we will be able to accomplish this faster and more economically than some competitors, allowing for significant margins while still positioning ourselves as a low-cost provider of molecular diagnostics and screening services. For example, we were the first US-based company to receive a CE-marking for a COVID-19 test in early 2020, as we worked to help slow the spread of the pandemic through our global network of distributors covering clinical labs in more than 50 countries. Our Logix Smart® COVID-19 test was designed, developed, submitted for regulatory approval and ready to be used as an in vitro diagnostic (“IVD”) in countries that accept CE marking for regulatory clearance in a period of just over 30 days. This is a real-world example of how CODX technology can be used in an evolving epidemic or pandemic to get diagnostic tools in the hands of medical professionals in a timely manner. It can be similarly used to design a test for mutated strains of SARS-CoV-2 or other viruses should they not be detectable using currently available tests. In addition, continued development has demonstrated the unique properties of our Co-Primers technology that we believe makes it ideally suited for a variety of applications where specificity is key to optimal results, including multiplexing several targets, enhanced Single Nucleotide Polymorphism (“SNP”) detection and enrichment for next generation sequencing. Our scientists use the complex mathematics of DNA/RNA PCR test design to engineer and optimize PCR tests and to automate algorithms that rapidly screen millions of possible options to pinpoint the optimum design. The intellectual property we use in our business consists of the predictive mathematical algorithms and patented molecular structure used in the testing process, which together represent a major advance in PCR testing systems. CODX technologies are now protected by more than 20 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 may allow for the sale of diagnostic PCR tests at a lower price than competitors, while enabling us to maintain profit margins. 28 Our proprietary test design process involves identifying the optimal locations on the target genes for amplification and pairing the locations with the optimized primer and probe structure to achieve outputs that meet the design input requirements identified from market research. This is done by following planned and documented processes, procedures and testing. In other words, we use the data resulting from our tests to verify whether we succeeded in designing what we intended. Verification involves a series of testing that concludes that the product is ready to proceed to validation in an evaluation either in our laboratory or in an independent laboratory setting using initial production tests to confirm that the product as designed meets the user’s needs. Using our proprietary test design system and reagents, we have designed and obtained regulatory clearance in the European Community and in India (along with our joint venture, CoSara) to sell PCR diagnostic tests for the detection of COVID-19, influenza, tuberculosis, hepatitis B and C, human papillomavirus, malaria, chikungunya, dengue, and the Zika virus. In the United States, we obtained Emergency Use Authorization (“EUA”) for our Logix Smart® COVID-19 detection test from the FDA, and we sell that test to qualified labs. In addition, our COVID-19 detection test and certain of our other suite of COVID-19 products have been cleared for sale in countries such as the United Kingdom, Australia, India, and Mexico by the regulatory bodies in those countries and have been registered for sale in many more countries. In connection with the sale of our tests we may sell diagnostic equipment from other manufacturers, including an OEM’s PCR instrument which we refer to here as the “Co-Dx Box™”. In addition to testing for infectious diseases, Co-Primers technology lends itself to identifying any section of a DNA or RNA strand that describes any type of genetic trait, which creates several significant applications. We, in conjunction with our customers, have designed tests that identify genetic traits in plant and animal genomes. We also have commercialized three multiplexed tests to test mosquitos for the presence of diseases they carry, which enables municipalities to concentrate their efforts in managing mosquito populations in specific areas where mosquitos carrying deadly viruses are known to breed. RESULTS OF OPERATIONS Results of Operations for the Years Ended December 31, 2025 and 2024 The table below provides a comparison of our operating results for the year ended December 31, 2025 as compared to the year ended December 31, 2024. Years Ended December 31, Year Change 2025 2024 Change % Product revenue $ 418,205 $ 770,048 $ (351,843 ) -46 % Grant revenue 204,284 3,145,112 (2,940,828 ) -94 % Total revenue 622,489 3,915,160 (3,292,671 ) -84 % Cost of revenue 222,377 999,124 (776,747 ) -78 % Gross profit 400,112 2,916,036 (2,515,924 ) -86 % Operating expenses Sales and marketing 2,381,131 4,483,339 (2,102,208 ) -47 % General and administrative 9,058,283 16,157,152 (7,098,869 ) -44 % Research and development 19,137,242 20,979,589 (1,842,347 ) -9 % Depreciation and amortization 1,106,808 1,377,266 (270,458 ) -20 % Impairment charges 18,882,000 - 18,882,000 - Total operating expenses 50,565,464 42,997,346 7,568,118 18 % Loss from operations (50,165,352 ) (40,081,310 ) (10,084,042 ) 25 % Other income Interest income, net 292,932 1,091,825 (798,893 ) -73 % Realized gain on investments 683,365 870,745 (187,380 ) -22 % Gain (loss) on disposition of assets (82,421 ) 8,291 (90,712 ) -1094 % Gain on remeasurement of acquisition contingencies 805,863 714,876 90,987 13 % Loss on equity method investment in joint venture (46,301 ) (186,067 ) 139,766 -75 % Total other income, net 1,653,438 2,499,670 (846,232 ) -34 % Loss before income taxes (48,511,914 ) (37,581,640 ) (10,930,274 ) 29 % Income tax provision (benefit) (1,615,978 ) 57,368 (1,673,346 ) -2917 % Net loss $ (46,895,936 ) $ (37,639,008 ) $ (9,256,928 ) 25 % 29 Revenues For the year ended December 31, 2025, we generated $0.6 million of revenue compared to revenue of $3.9 million in the year ended December 31, 2024. The decrease in revenue of $3.3 million was primarily due to lower grant revenues, as the majority of revenue for grants previously awarded was recognized in the prior year. Cost of Revenues and Gross Profit Cost of revenues decreased by $0.8 million from $1.0 million for the year ended December 31, 2024 to $0.2 million for the year ended December 31, 2025. Included within cost of revenues is a decrease of approximately $0.1 million for the year ended December 31, 2025, and a decrease of approximately $0.1 million for the year ended December 31, 2024, related to reserves against certain raw materials and finished goods inventories. The initial recording of the reserves for obsolete inventory in the prior year, partially offset by the decrease in revenues in the current year, resulted in a higher gross margin percentage. Operating Expenses Total operating expenses were $50.6 million for the year ended December 31, 2025, compared to total operating expenses of $43.0 million for the year ended December 31, 2024. The increase in operating expenses was primarily due to the impairment charge recognized for in-process research and development intangible assets, partially offset by decreased legal expenses, stock-based compensation expense, and personnel related expenses. Sales and marketing expenses for the year ended December 31, 2025, were $2.4 million compared to $4.5 million for the year ended December 31, 2024. The decrease of $2.1 million primarily a result of decreased stock-based compensation expense, tradeshow and travel expenses, consulting and professional services expenses, and personnel related expenses. General and administrative expenses for the year ended December 31, 2025, were $9.1 million compared to $16.2 million for the year ended December 31, 2024. The decrease of $7.1 million was primarily due to decreases in legal expense, stock-based compensation expense and consulting and professional services expense, partially offset by increased expenses related to transaction advisory services and fees. Research and development expenses for the year ended December 31, 2025, were $19.1 million compared to $21.0 million for the year ended December 31, 2024. The decrease of $1.8 million was primarily a result of decreased expenses related to development of the Co-Dx PCR platform, personnel related expenses, and stock-based compensation expense, partially offset by increases in expenses related to clinical trials for the Co-Dx PCR platform and professional services expense. During the year ended December 31, 2025, the Company recognized impairment charges of $18.9 million related to in-process research and development intangible assets recorded in conjunction with the acquisitions of Idaho Molecular, Inc. and Advanced Conceptions, Inc. in 2021. Other Income Other income was $1.7 million for the year ended December 31, 2025, compared to other income of $2.5 million for the year ended December 31, 2024. The decrease in other income of $0.8 million was primarily due to decreases in interest income and realized gains from investments in marketable securities. 30 Net Loss We realized a net loss for the year ended December 31, 2025 of $46.9 million compared to $37.6 million for the year ended December 31, 2024. The larger net loss of $9.3 million was primarily the result of the recognition of intangible asset impairment charges and decreases in grant revenues, partially offset by decreases in operating expenses. Additionally, we recorded an income tax benefit of $1.6 million during the year ended December 31, 2025, compared to an income tax expense of $0.1 million for the year ended December 31, 2024. The current year income tax benefit relates primarily to new United States tax legislation which was signed into law during 2025 which resulted in the Company being eligible for certain federal and state tax refunds related to prior years. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2025, we had cash and cash equivalents of $11.9 million. Additionally, our total current assets at December 31, 2025, were $13.7 million compared to total current liabilities of $3.5 million. Net cash used in operating activities during the year ended December 31, 2025 was $29.1 million, compared to net cash used in operating activities of $29.2 million for the year ended December 31, 2024. The slight decrease in cash used in operating activities was primarily due to lower operating expenses, primarily legal expenses, offset by decreases in grant revenue, net interest income, and realized gains on investments. Net cash provided by investing activities was $26.3 million for the year ended December 31, 2025, compared to net cash provided by investing activities of $17.1 million during the year ended December 31, 2024. The increase in cash provided by investing activities is primarily due to the timing of the redemption of certain investments as they matured. Net cash provided by financing activities was $11.8 million for the year ended December 31, 2025, compared to $0.1 million of cash provided by financing activities for the year ended December 31, 2024. The cash provided by financing activities during 2025 relates to issuances of common stock under the ATM and through registered direct offerings. Since commencing sales of our Logix Smart COVID-19 test in March 2020, we have used our cash generated from those sales to fund the purchase of inventories and the development of our Co-Dx PCR Platform, and to pay our operating expenses. Our available capital resources may be consumed more rapidly than currently expected and we may need or want to raise additional financing for strategic opportunities. It is anticipated that the Company will continue to generate operating losses and use cash in operations in the near term. If needed, we expect additional investment capital to come from additional issuances of our common stock or other equity-based securities with existing and new investors similar to those that have provided funding in the past or debt financing. In September 2025, the Company completed a registered direct offering of 320,634 shares of its common stock to two institutional investors at an offering price of $12.00 per share, resulting in gross proceeds of approximately $3.8 million before deducting placement agent fees and other offering expenses. The shares were offered and sold pursuant to the Company’s effective shelf Registration Statement on Form S-3 (File No. 333-270628). Maxim Group LLC acted as placement agent for the transaction. The Company intends to use the net proceeds from the offering for working capital and general corporate purposes. See Note 16 – Registered Direct Offerings to the consolidated financial statements for additional information regarding this transaction. 31 In October 2025, the Company terminated its Amended and Restated Equity Distribution Agreement with Piper Sandler & Co. and Clear Street, LLC, under which it had previously sold an aggregate of 151,675 shares of common stock for net proceeds of approximately $1.7 million. Concurrently, the Company entered into a new Equity Distribution Agreement with Maxim Group LLC to establish an at-the-market (“ATM”) equity offering program, under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $10.0 million from time to time. In October 2025, the Company filed a prospectus supplement with the SEC relating to the new ATM program, registering up to approximately $4.1 million of shares under the shelf registration statement. The Company expects that any proceeds from sales under the new ATM program, if utilized, would provide additional financial flexibility to support its working capital requirements and general corporate purposes. As of December 31, 2025, the Company had sold 31,667 shares of common stock under the Agreement, resulting in net proceeds to the Company of approximately $258,563. There can be no assurance as to the timing or amount of any further sales under the new ATM program. See Note 15 – At the Market Agreement to the consolidated financial statements for additional information regarding this transaction. In October 2025 the Company completed a second registered direct offering of 400,076 shares of its common stock and 24,167 pre-funded common stock purchase warrants to two institutional investors at offering prices of $16.50 per share and $16.497 per pre-funded warrant, resulting in gross proceeds of approximately $7.0 million before deducting placement agent fees and other offering expenses. The shares were offered and sold pursuant to the Company’s effective shelf Registration Statement on Form S-3 (File No. 333-270628). Maxim Group LLC acted as placement agent for the transaction. The Company intends to use the net proceeds from the offering for working capital and general corporate purposes. See Note 16 – Registered Direct Offerings to the consolidated financial statements for additional information regarding this transaction. On January 1, 2026, we effected a 1-for-30 reverse stock split. The Reverse Stock Split reduced the number of shares of common stock outstanding from approximately 62.9 million shares to approximately 2.1 million shares. Although this Reverse Stock Split allowed us to regain compliance with Nasdaq’s continued listing requirements, there can be no assurance that we will maintain compliance with all applicable listing standards in the future. Although we are seeking to obtain additional equity and/or debt financing, such funding is not assured and may not be available to us on favorable or acceptable terms and may involve significant restrictive covenants. Any additional equity financing is also not assured and, if available to us, will most likely be dilutive to our current stockholders. If we are not able to obtain additional debt or equity financing on a timely basis, the impact on us will be material and adverse. These uncertainties create substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in Item 8 of this Annual Report on Form 10-K, within Note 2 of our consolidated financial statements in the section titled “Summary of Significant Accounting Policies”, we believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. Accounts Receivable Trade accounts receivable are recorded at the invoiced amount, net of any allowance. The Company maintains an allowance for doubtful accounts for amounts the Company does not expect to collect. In establishing the required allowance, management considers historical losses, current market condition, customers’ financial condition, the age of receivables, and current payment patterns. Account balances are written off against the allowance once the receivable is deemed uncollectible. If actual accounts receivable collections are less favorable than those projected by management at the time of the assessment, however, additional accounts receivable write-downs may be required, which could reduce our earnings. 32 Intangible Assets The useful lives of intangible assets with definite lives are based on the expected number of years the asset will generate revenue or otherwise be used by us and the related amortization is based on the straight-line method. Goodwill, which has an indefinite life, is not amortized but instead is tested at least annually for impairment, or more frequently when events or changes in circumstances indicate that the asset might be impaired. Examples of such events or circumstances include: ● the assets’ ability to continue to generate income from operations and positive cash flow in future periods; ● any volatility or significant decline in our stock price and market capitalization compared to our net book value; ● loss of legal ownership or title to an asset; ● significant changes in our strategic business objectives and utilization of our assets; and ● the impact of significant negative industry or economic trends. If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported results would increase. During the fourth quarter of 2025, we identified impairment indicators for our in-process research and development intangible assets, primarily due to a significant and sustained decline in our stock price and market capitalization compared to the assets’ net book value. We remeasured the fair value of these assets and recognized non-cash impairment charges of $18.9 million. This amount is reflected as impairment charges in the consolidated statements of operations and comprehensive loss for 2025. We did not recognize any impairment charges during 2024. Inventories We periodically review inventory for both potential obsolescence and potential declines in anticipated selling prices. In this review, we make assumptions about the future demand for and market value of the inventory and based on these assumptions estimate the amount of any obsolete, unmarketable, slow moving or overvalued inventory. We write down the value of our inventories by an amount equal to the difference between the cost of the inventory and the net realizable value. If actual market conditions are less favorable than those projected by management at the time of the assessment, however, additional inventory write-downs may be required, which could reduce our earnings. Income Taxes Significant judgment is required in determining our provision for income taxes, current tax assets and liabilities, deferred tax assets and liabilities, and our future taxable income, both as a whole and in various tax jurisdictions, for purposes of assessing our ability to realize future benefit from our deferred tax assets. We recognize in the financial statements the impact of a tax position if that position is more likely than not to be sustained during an audit, including resolution of related appeals or litigation processes, if any. While we believe that we have appropriate support for the positions taken on our tax returns, we regularly assess the potential outcome of examinations by tax authorities in determining the adequacy of our provision for income taxes. See Note 12 to our Consolidated Financial Statements for more information on income taxes. The foregoing estimates, expectations and forward-looking statements are subject to change as we make strategic operating decisions from time to time and as our revenue and expenses fluctuate from period to period. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required. 33