UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549.
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______to_______
Commission File Number 0-13316
CO-DIAGNOSTICS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Utah
(State or other jurisdiction of
incorporation or organization)
3841
(Primary Standard Industrial
Classification Code Number)
46-2609396
(I.R.S. Employer
Identification Number)
2401 S. Foothill Drive, Salt Lake City, Utah 84109
(Address of principal executive offices and zip code)
(801) 438-1036
(Registrant’s telephone number including area code)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X]
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 [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
[ ]
[ ]
Accelerated filer
Smaller reporting company
Emerging Growth Company
[ ]
[X]
[X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common
stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $27,183,637.
As of March 22, 2019, there were 17,015,766 shares of common stock, par value $0.001 per share, outstanding.
Table of Contents
Page
PART I
Item 1.
Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2.
Properties.
Item 3.
Legal Proceedings.
Item 4.
Mine Safety Disclosures.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6.
Selected Financial Data.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8.
Financial Statements and Supplementary Data.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11.
Executive Compensation.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14.
Principal Accountant Fees and Services.
PART IV
Item 15.
Exhibits and Financial Statement Schedules.
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Forward-Looking Statements
PART I
This Annual Report on Form 10-K contains “forward-looking statements” that involve risks and uncertainties. All statements other than statements
of historical fact contained in this Annual 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 Annual 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 consolidated financial statements for the fiscal years ended December 31, 2018 and 2017 and notes incorporated by reference
therein. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. In
light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results
could differ materially and adversely from those anticipated or implied in the forward-looking statement.
You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this Annual 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 prospectus 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 reports on Forms 10-Q, 8-K and 10-K 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:
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the results of clinical trials and the regulatory approval process;
our ability to raise capital to fund continuing operations;
market acceptance of any products that may be approved for commercialization;
our ability to protect our intellectual property rights;
the impact of any infringement actions or other litigation brought against us;
competition from other providers and products;
our ability to develop and commercialize new and improved products and services;
changes in government regulation;
our ability to complete capital raising transactions;
and other factors relating to our industry, our operations and results of operations.
3
Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ
significantly from those anticipated, believed, estimated, expected, intended or planned.
Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We
cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the
United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
As used in this Annual Report, the terms “we”, “us”, “our”, and “Co-Diagnostics” means Co-Diagnostics, Inc., a Utah corporation and its
consolidated subsidiaries (the “Company”), unless otherwise indicated.
ITEM 1: BUSINESS
Overview
Co-Diagnostics, Inc. (“Company,” or “CDI,”) is developing robust and innovative molecular tools for detection of infectious diseases, liquid biopsy
for cancer screening, and agricultural applications.
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 newest technical advance involves a novel approach to PCR test design (“Co-Primers”)
that eliminates one of the key vexing issues of PCR amplification, the exponential growth of primer-dimer pairs (false positives and false negatives) which
adversely interferes with identification of the target DNA.
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 are able to accomplish this faster and more economically, allowing for wider
margins while still positioning Co-Diagnostics to be a low-cost provider of molecular diagnostics and screening services.
The Company, a Utah corporation, is a molecular diagnostics company that has developed and intends to 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”).
In addition, continued development has demonstrated the unique properties of our Co-Primer technology that make them 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 were the first to understand the complex mathematics of DNA test design, to “engineer” a DNA 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 Polymerase Chain Reaction (“PCR”) testing systems. CDI technologies are now protected by five granted or pending US 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 grants us the opportunity of selling diagnostic tests at a lower price than competitors, while generating a profit margin.
We may either sell or lease portable and in some cases OEM laboratory equipment to existing diagnostic centers and sell the reagents that comprise
our proprietary tests to those laboratories and other testing facilities.
We designed our tests by identifying the optimal locations on the target gene for amplification and paired 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 to at
the outset. Verification is a series of testing that concludes that the product is ready to proceed to validation in a clinical evaluation setting using initial
production tests to confirm that the product as designed meets the user needs.
Using its proprietary test design system and proprietary reagents, CDI will design and sell PCR diagnostic tests for diseases and pathogens starting
with tests for tuberculosis, a drug resistant tuberculosis test, hepatitis B and C, Malaria, dengue, HIV and Zika virus, all of which tests have been designed
and verified in CDI’s laboratory. Our tuberculosis test, Zika test, and a triplex test for Zika, Dengue and Chikungunya received a CE Marks in 2018 and
qualifying our test to be sold throughout the European community and in most countries in central and South America.
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Infectious Disease Product Offering
We plan to manufacture molecular diagnostic tests for the following diseases in the following regions, to be sold along with the MDx device:
Timetable
Current (revenues in the 1st
quarter in 2019)
2019-2020
2020-2025
Region
Caribbean and Central and South
Tests
Zika, Tuberculosis, Hepatitis B and C, Dengue, Zika/Dengue/Chikungunya
America
India
European Union; Asia
United States
triplex
Tuberculosis, Hepatitis B and C, Malaria, Dengue and HIV
Tuberculosis, Hepatitis B and C
To be determined based on need and regulatory barriers
Caribbean and Central and South America
Our initial sales will be to entities within the Caribbean Public Health Agency Members States (Anguilla, Antigua and Barbuda, Aruba, Bahamas,
Barbados, Belize, Bermuda, BES Islands, British Virgin Islands, Cayman Islands, Curacao, Dominica, Grenada, Haiti, Guyana, Jamaica, Montserrat, Saint
Kitts and Nevis, Saint Lucia, St Maarten, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago, Turks and Caicos Islands).
In some of these countries, there are no regulatory hurdles and we can start offering our tests immediately. The U.S. Food and Drug Administration
(FDA) has granted permission for us to export many of 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) applies to medical devices that are acceptable to the importing country and that are manufactured under the FDA’s Good Manufacturing Practices.
We first offered our Zika test in this region because of the demand for such test, followed quickly by tests for tuberculosis, hepatitis B and C, and
dengue, then our full range of tests. Products will be manufactured for sale upon receipt of purchase orders from labs and hospitals.
India
The Company has entered into an agreement to manufacture diagnostics tests for seven infectious diseases with a pharmaceutical manufacturing
company in India. The agreement provides for the manufacture of the tests named above and the joint sales and marketing of those tests in India. We have
commenced with our joint venture partner to construct a plant that will be used for testing and manufacturing to service the Indian market. We believe that the
plant will be completed and manufacturing activities will begin in the second quarter of 2019.
Since the tests will be conducted in India on Indian citizens, no FDA approval or inspection will be required. Certain Indian regulatory approval
from the Central Drugs Standard Control Organization (CDSCO) must be acquired. We are engaging the services of an experienced consultant in India to help
get us through this process. Research Use Only (RUO) reagents are able to be sold without requiring regulatory approval as long as they are labeled and
designated as such. Tests for some of the targeted diseases are available for sale currently in India. We have received test licenses from the CDSCO for the
following tests: tuberculosis, Hepatitis B, Hepatitis C, HIV, malaria, and a drug resistance test for tuberculosis. We will complete additional testing and then
apply for manufacturing and sales licenses for these tests.
India is the country with the highest burden of tuberculosis. World Health Organization (WHO) tuberculosis statistics for India for 2015 give an
estimated incidence figure of 2.2 million cases of tuberculosis for India out of a global incidence of 9.6 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).
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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 received CE Marks for our tuberculosis test, our Zika test, and our zika, dengue, chikungunya triplex test in
2018.
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 in each country. We estimate the remaining costs for
CE-marks on the initial tests we will offer to be approximately $100,000.
United States
We do not anticipate offering our tests in the United States in the near future. We believe, however, our tests may be able to qualify as Laboratory
Developed Tests (LDT’s), diagnostic tests that are developed and manufactured by CLIA certified laboratories. These tests are developed by the lab for use
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.
Market Opportunity
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, the World Health Organization and other international health agencies and sources,
the Company estimates that the global annual demand for our initial diagnostic tests could be as much as follows:
Tuberculosis
Multi-drug resistant Tuberculosis
Zika
Hepatitis B
Hepatitis C
Total Annual Tests
10,400,000 HIV
580,000 Malaria
324,000,000 Sexually Transmitted Illnesses
240,000,000 Human papilloma virus
130,000,000 Dengue
36,700,000
214,000,000
357,000,000
291,000,000
390,000,000
1,993,680,000
There are several advantages of molecular tests, such as the ones we market and sell, over other forms of diagnostic testing, which include higher
sensitivities, the ability to perform multiplex tests and the ability to test for drug resistance or individual genes.
Competitive Advantages of Co-Diagnostics
We believe that we have the following competitive advantages:
● Affordability: Lower-cost test kits and low-cost MDx-device.
● Flexibility: CDI’s tests have been designed to run on many vendors’ DNA diagnostic testing machines. These tests are particularly well
suited to the new generation of “lab-on-a-chip” and “point-of-care” (“LOC and POC”), highly portable analysis machinery for field, clinic
and office applications.
● Speed: We believe our rapid assay design system software provides shorter time to product release.
● Accuracy: We believe our tests are more accurate than competitors’ and can detect more strains of viruses.
● Exclusivity: CDI owns all patents and all intellectual property used in preparation of its tests.
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● Personalized Medicine: We project that rising health care costs in developed and developing nations will increasingly require that health care
systems be patient specific to eliminate waste, misdiagnoses, and ineffectiveness. A critical component will be accurate, more affordable
DNA-based diagnostics, which CDI plans to offer.
● Low-cost Provider: We plan to keep the Company’s overhead low. Its platform technology obviates the need to pay patent royalties typically
required of its competitors, which use patented test platforms to design their tests.
● Worldwide Footprint: With a dynamic technology that encompasses markets worldwide, the Company anticipates that it can identify the best
target markets, not only in high burden developing countries (HBDC’s) but also in developed nations.
● Growth Industry Category: We believe that DNA testing is the fastest-growing segment of in-vitro diagnostic testing.
● Combination Product Offering: CDI’s ultra-sensitive tests can be a well-designed match for a new generation of handheld and other small
point-of-care devices now entering the market. Used together, these affordable tests and devices may revolutionize the molecular diagnostics
industry in cost, speed of test results and simplification.
● Multi-plexing: Our initial development efforts have demonstrated that our Co-Primer designed tests will be able to test for multiple targets in
the same sample without the distortion caused by false negatives and false positives that generally occur in multiplexed tests.
Liquid Biopsy for Cancer Screening
The development of the liquid biopsy test will spur low cost testing in many developing countries. We believe that our liquid biopsy cancer screening
shall be ready for testing in 2019 if we have sufficient development resources to dedicate to the project. 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.
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 been to successfully demonstrate 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
agrigenomics industry, the licensee will pay 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 it will sell as BHQCoPrimers.
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 gen
sequencing. 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.
Organizational History and Corporate Information
We were incorporated as Co-Diagnostics, Inc., in Utah on April 18, 2013. Our principal executive office is located 2401 S. Foothill Drive, Salt Lake
City, Utah 84109. Our telephone number is (801) 438-1036. Our web address is http://codiagnostics.com.
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Implications of Being an Emerging Growth Company
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth
company until the earlier of (i) the last day of the fiscal year following the fifth anniversary of July 12, 2017, the date of the first sale of our common stock
pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”); (ii) the last day of the fiscal year in which
we have total annual gross revenues of $1 billion or more; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the
previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under applicable SEC rules. We expect that we will remain an
emerging growth company for the foreseeable future, but cannot retain our emerging growth company status indefinitely. We refer to the Jumpstart Our
Business Startups Act of 2012 herein as the “JOBS Act”. For so long as we remain an emerging growth company, we are permitted and intend to rely on
exemptions from specified disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions
include:
● being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with
correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
● not being required to comply with the requirement of auditor attestation of our internal controls over financial reporting;
● not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory
audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;
● reduced disclosure obligations regarding executive compensation; and
● not being required to hold a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not
previously approved.
For as long as we continue to be an emerging growth company, we expect that we will take advantage of the reduced disclosure obligations available
to us as a result of that classification. Accordingly, the information contained herein may be different than the information you receive from other public
companies in which you hold stock.
An emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for
complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until
those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this extended transition period and, as a result,
we will not be required to adopt new or revised accounting standards on the dates on which adoption of such standards is required for other public reporting
companies.
We are also a “smaller reporting company” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and
have elected to take advantage of certain of the scaled disclosure available for smaller reporting companies.
ITEM 1A. RISK FACTORS
Not applicable to smaller reporting companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our executive offices are located at 2401 S. Foothill Drive, Salt Lake City, Utah 84109. We occupy the space at the executive offices under a lease,
which expires January 31, 2020. The lease covers approximately 10,273 square feet of lab and office space leased at a rate of $14,086 per month. We have no
other properties.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. To the best
of our knowledge, the Company has no legal proceedings against it.
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ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER EQUITY SECURITIES
Market Information
Our common stock, from July 12, 2017, was quoted on the NASDAQ market under the symbol “CODX”. The following table sets forth the high and
low prices for our common stock for the periods indicated, as reported by NASDAQ.
2019
First Quarter (through March 15, 2019)
HIGH
LOW
$
3.77 $
0.93
2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders
$
$
$
$
$
$
$
$
3.27 $
6.66 $
4.30 $
3.10 $
HIGH
LOW
— $
— $
6.75 $
6.85 $
1.45
1.57
2.60
1.15
—
—
3.50
2.35
As of March 15, 2019, the last reported sales price reported on NASDAQ for our common stock was $1.15 per share. As of the date of this filing, we
had approximately 429 holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not
include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The
transfer agent for our common stock is VStock Transfer LLC located at 18 Lafayette Pl, Woodmere, New York 11598.
Dividends
We have never declared or paid any cash dividends on our capital stock. The payment of dividends on our common stock in the future will depend
on our earnings, capital requirements, operating and financial condition and such other factors as our Board of Directors may consider appropriate. We
currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying dividends on our
common stock in the foreseeable future.
Recent Sales of Unregistered Securities
On October 2, 2018, we issued 249,360 shares of our common stock to a Canadian corporation which had been a licensee of ours in consideration of
changing our license agreement to a distributor agreement restricted to a single country and transferring to us all of the Canadian corporation’s sales and
marketing contacts. In addition, we issued a warrant to the licensee to acquire up to 50,000 shares of our common stock at an exercise price of $2.00 per
share. The warrant may be exercised at any time within five years of the grant date.
On December 27, 2018, we issued 6,000 shares of our common stock to a limited liability company in consideration of consulting services
performed. The limited liability company is an accredited investor.
On December 27, 2018, we issued 3,000 shares of our common stock in consideration of consulting services performed by a limited liability
company.
9
We relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof for each of these issuances.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6. SELECTED FINANCIAL DATA
Not required.
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. The information contained in this discussion is subject to a number of risks
and uncertainties. We urge you to review carefully the sections of this report entitled “Risk Factors” and “Forward-Looking Statements” for a more complete
discussion of the risks and uncertainties associated with an investment in our securities.
Overview
Co-Diagnostics, Inc. (“Company,” or “CDI,”) is developing robust and innovative molecular tools for detection of infectious diseases, liquid biopsy
for cancer screening, and agricultural applications.
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 newest technical advance involves a novel approach to PCR test design (“Co-Primers”)
that eliminates one of the key vexing issues of PCR amplification, the exponential growth of primer-dimer pairs (false positives and false negatives) which
adversely interferes with identification of the target DNA.
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 are able to accomplish this faster and more economically, allowing for wider
margins while still positioning Co-Diagnostics to be a low-cost provider of molecular diagnostics and screening services.
The Company, a Utah corporation, is a molecular diagnostics company that has developed and intends to 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”).
In addition, continued development has demonstrated the unique properties of our Co-Primer technology that make them 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 were the first to understand the complex mathematics of DNA test design, to “engineer” a DNA 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 Polymerase Chain Reaction (“PCR”) testing systems. CDI technologies are now protected by five granted or pending US 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 grants us the opportunity of selling diagnostic tests at a lower price than competitors, while generating a profit margin.
We may either sell or lease our portable labs to existing diagnostic centers, through sale or lease agreements, and sell the reagents that comprise our
proprietary tests to those laboratories and testing facilities.
10
Agreement with Synbiotics
The Company has entered into a joint venture agreement to manufacture diagnostics tests for seven infectious diseases with Synbiotics Limited, a
pharmaceutical manufacturing company in India. The Company and Synbiotics shall be equal partners in the joint venture. The agreement provides for the
manufacture of the tests named above and the joint sales and marketing of those tests in India. The Company will license its technology to the joint venture on
a royalty-free basis. The profits from the partnership shall be divided as follows:
Profit Level
Up to $1,000,000
$1,000,000-$2,000,000
$2,000,000-$3,000,000
Above $3,000,000
CDI Share
Synbiotics Share
50%
60%
70%
80%
50%
40%
30%
20%
Synbiotics will be reimbursed by the joint venture for some expenses, such as approximately $96,000 in rent for the manufacturing plant and office
space. If the joint venture needs additional funding, it will be achieved through loans obtained by the joint venture, or if loans are not available on
commercially reasonable terms, from capital contributions. There is no term to the joint venture agreement but it can be dissolved by mutual agreement or by
one party upon a material breach by the other party. The manufacturing plant is completed and is scheduled to be ready for production in the second quarter of
2019. We have submitted technical files describing seven difference diagnostic tests to the Indian regulatory bodies requesting approval for those tests to be
manufactured in our plant and sold in the Indian market. The joint venture is currently marketing our products in the Indian market and has sold
approximately $200,000 of our probes and primers to various laboratories and other users to be used as Research Use Only tests in their facilities, which we
anticipate will be the beginning of sales of our products in India.
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. Four of our initial U.S. patents related to our technology have been granted by the U.S. Patent and Trademark Office, or 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 March 15, 2019, 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 can be used by any lab or developer 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
We currently have no major customers.
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 respect of the medical and testing professionals. In the diagnostic testing
industry, we compete with such companies as BioMerieux, Siemans, Qiagen, and Cephied 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.
11
Employees
We currently employ 20 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
We will be regulated by the U.S. Federal Drug Administration and our products must be approved by the FDA before we will be allowed to sell our
tests in the United States. Because our lab is ISO certified we are allowed to apply for CE-Marking, which will allow us to sell in most countries in Europe,
South America and Asia. We currently have CE Marks issued for our tuberculosis test, our zika virus test, and a triplex test that tests for zika, dengue, and
chikungunya simultaneously.
Properties
Our executive offices are located at 2401 S. Foothill Drive, Salt Lake City, Utah 84109. We occupy the space at the executive offices under a lease,
which expires January 31, 2020. The lease covers approximately 10,273 square feet of lab and office space leased at a rate of $14,086 per month. We have no
other properties.
Legal Proceedings
The Company has no legal proceedings and to the knowledge of management, no litigation has been threatened.
RESULTS OF OPERATIONS
Results of Operations for the Years Ended December 31, 2018 and 2017
Table derived from audited financial statements
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling and marketing
Administrative and general
Research and development
Depreciation and amortization
Total operating expenses
Total operating loss
Other expense:
Interest expense
Loss on extinguishment of debt
Net gain (loss) from investment in joint venture
Interest income
Total other expense
Loss before income taxes
Provision for income taxes
Net loss
Revenues
For the years ended
December 31,
2018
December 31,
2017
39,911 $
9,391
30,520
1,165,361
3,570,786
1,361,154
50,765
6,148,336
(6,117,816)
(134,947)
—
(38,764)
19,804
(153,907)
(6,271,723)
—
(6,271,723) $
7,662
302
7,360
426,711
3,095,791
1,003,167
45,758
4,571,427
(4,564,067)
(310,233)
(2,072,365)
(16,396)
3,829
(2,395,165)
(6,959,232)
—
(6,959,232)
$
$
Sales of products in the twelve months ended December 31, 2018 was $700, which represented the initial sales of our diagnostic tests. In addition,
we realized revenue from the sale of diagnostic equipment of $10,123 and had licensing revenue of $29,088 compared to no test revenue in the twelve months
ended December 31, 2017, but had licensing revenue of $6,062, other service revenue of $1,000 and leased equipment revenue of $600.
12
Cost of Revenues and Gross Profit
Although we had licensing revenue in the twelve months ended December 31, 2018 and for the twelve months ended December 31, 2017, there were
no costs associated with the license revenue. In addition, we recorded $9,200 of equipment costs of sales in 2018.
Operating Expenses
We incurred total operating expenses of $6,148,336 for the year ended December 31, 2018 compared to total operating expenses of $4,571,427 for
the year ended December 31, 2017. The increase of $1,576,909 was due to an increase in general and administrative expense of $474,995, an increase in sales
and marketing costs of $738,920, an increase of $357,987 in our research and development expenses and an increase in depreciation and amortization expense
of $5,007.
Our general and administrative expenses increased $474,995 from $3,095,791 for the year ended December 31, 2017 to $3,570,786 for the year
ended December 31, 2018. The increase was primarily the result of an increase of $417,549 in salaries and related benefits and an increase of $345,981in
option and warrant expense reflecting the issuance of options to our employees and others. In addition, legal and professional fees increased $83,158 and
directors’ fees increased $82,500, and regulatory expenses increased $52,636 all primarily incident to becoming a publically traded company. These increases
were partially offset by a decrease in other professional services of $600,572
Our sales and marketing expenses for the year ended December 31, 2018 were $1,165,631 compared to sales and marketing expenses of $426,711
for the year ended December 31, 2017. The increase of $738,920 is due primarily to incurring a marketing expense of $497,208 related to acquisition of a
distributor network and changing the licensee to a distributor with its territory restricted to one country. We also experience an increase of $118,950 in salaries
and related benefits, and an increase of $44,091 in travel expenses, which were incurred as we increased our sales efforts.
Our research and development expenses increased by $357,987 from $1,003,167 for the year ended December 31, 2017 to $1,361,154 for the year
ended December 31, 2018. The increase was primarily due to an increase of $119,789 in salaries and related benefits as we increased research and
development activities. In addition, lab supplies consumed by the increased research activities increased $93,733 and consulting fees for research services
increased by $70,754 and other professional services increased by $76,092 and building and lab rent increased by $58,093. The increase in expenses was
partially offset by a reduction of $107,500 in technology license royalties.
Interest and Other Expense
Interest and other expense items decreased for the year ended December 31, 2018 by $2,241,258. In the year ended December 31, 2017 we recorded
a loss on the extinguishment of debt incident to debt being retired following our initial public offering of $2,072,365, which expense was not repeated in the
year ended December 31, 2018. In addition, we recorded interest expense of $310,233 in the year ended December 31, 2017 compared with interest expense
of $134,947 in the year ended December 31, 2018. The decrease of $175,286 was primarily the result of having no debt outstanding for the first eight months
of 2018 compared with our bridge financing being outstanding for approximately six months in 2017. We incurred expenses incident to our India joint
venture of approximately $38,764 in 2018 compared to expenses for the joint venture of $15,115 for the year ended December 31, 2017.
Net Loss
We had net loss of $6,271,723 for the year ended December 31, 2018 compared to a net loss of $6,959,232 for the year ended December 31, 2017.
The decrease in net loss for the year ended December 31, 2018 compared to the year ended December 31, 2017 was $687,509 resulted primarily from the loss
on extinguishment of debt in 2017 of $2,072,365 being partially offset by increased operating expenses of $1,576,909 in 2018 explained in more detail above.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an
ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and
capital expenditures.
To date we have financed our operations through sales of common stock and the issuance of debt.
At December 31, 2018, we had cash and cash equivalents of $950,237, total current assets of $1,051,913, total current liabilities of $2,351,983 and
total stockholders’ deficit of $1,058,811. At December 31, 2017, we had cash and cash equivalents of $3,534,454, total current assets of $4,451,874, total
current liabilities of $628,256 and total stockholders’ equity of $3,850,524.
13
On July 12, 2017, we entered into an underwriting agreement (the “Underwriting Agreement”) with WallachBeth Capital, LLC and Network 1
Financial Securities, Inc. (the “Underwriters”), related to the Company’s initial public offering of 1,178,532 shares of the Company’s common stock, at a
price of $6.00 per share, less $0.60 constituting the underwriting commissions and non-accountable expense allowance. Under the terms of the Underwriting
Agreement, the Company granted the Underwriters an option, exercisable for 45 days, to purchase up to an additional 176,780 shares of common stock to
cover over-allotments, if any. Total gross proceeds from the offering were $7,071,192 and the Company received net proceeds after costs of $5,977,924.
Coincident with the closing of the IPO, the Company retired all of its principal debt of $3,440,000 and approximately $283,000 of accrued interest
through the issuance of approximately 857,048 shares.
We experienced negative cash flow used in operations during the twelve months ended December 31, 2018 of $4,080,036 compared to negative cash
flow used in operations for the twelve months ended December 31, 2017 of $3,211,401. In addition, we used $153,000 of our cash in financing transactions
and used $339,000 in contributions to our joint venture in India. The negative cash flow in 2018 was met by cash reserves from the issuances of common
stock incident to the completion of our initial public offering and in August 2018, we issued short term debt to an individual in the principal amount of $2.0
million that bore interest of 9% per annum and matured on July 31, 2019, which was converted to Series A Preferred Stock in January 2019. The amount of
our operating deficit could decrease or increase significantly depending on strategic and other operating decisions, thereby affecting our need for additional
capital. We expect our operating losses will continue until we are able to generate revenue. Until our operations become profitable, we will continue to rely on
proceeds received from our public offerings of stock. In August 2018 we filed a shelf registration of our securities with the SEC and in September 2018 it was
declared effective. In February 2019 we completed the registered direct offering described above pursuant to that registration. We expect additional
investment capital to come from (i) additional issuances of our common stock pursuant to our S-3 shelf registration with existing and new investors and (ii)
the private placement of other securities with investors similar to those that have provided funding in the past.
Our monthly cash operating expenses, including our technology research and development expenses and interest expense, were approximately
$385,000 per month during the year ended December 31, 2018. Our operating expenses increased significantly upon completion of our initial public offering
as we increased development and sales activities in furtherance of our business plan. We did not have sufficient capital resources at December 31, 2018 to
fund our negative cash flow for the next year without raising additional capital and therefore in January 2019 we completed a registered direct offering to
fund operations until we commence sales of products. 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 expenses fluctuate from period to period.
On January 30, 2019, we entered into a securities purchase agreement with investors, whereby the investors purchased from the Company 30,000
shares of Series A Convertible Preferred Stock of the Company for a 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 note owed by the Company to one of 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 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 Common Shares was $5,496,002 and we received net proceeds
after offering costs of $4,996,322.
The amount of our operating deficit could decrease or increase significantly depending on strategic and other operating decisions, thereby affecting
our need for additional capital. We expect our operating losses will continue until we are able to generate revenue. Revenue has commenced in 2019 and our
need for additional investment will depend on the amount of revenue generated. At our current level of operating expenditures, we have sufficient cash to
fund operations for the next twelve months.
Our long-term liquidity is dependent upon execution of our business model and the commencement of revenue generating activities and working
capital as described above, and upon capital needed for continued commercialization and development of our diagnostic testing technology.
Commercialization and future development of diagnostic tests utilizing our PCR technology are expected to require additional capital estimated to be
approximately $850,000 annually for the foreseeable future. This estimate will increase or decrease depending on specific opportunities and available
funding.
Off-Balance Sheet Arrangements
As of December 31, 2018, we had no off-balance sheet arrangements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATE.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
Table of Contents
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statement of Changes in Stockholders’ Equity (Deficit)
Statements of Cash Flows
Notes to Financial Statements
15
F-1
F-2
F-3
F-4
F-5
F-6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Co-Diagnostics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Co-Diagnostics, Inc. (the Company) as of December 31, 2018 and 2017, and the related
consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2018,
and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year
period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Haynie & Company
Haynie & Company
Salt Lake City, Utah
March 29, 2019
We have served as the Company’s auditor since 2016
F-1
CO-DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2018
December 31, 2017
ASSETS:
Current Assets
Cash and cash equivalents
Accounts receivable ,net
Inventory
Prepaid expenses
Total current assets
Property and equipment, net
Investment in joint venture
Total other long-term assets
Total assets
LIABILITIES AND STOCKHOLER’S EQUITY (DEFICIT):
Current Liabilities
Accounts payable
Accrued expenses
Accrued expenses (related party)
Current notes payable net of $91,428 and $0 discount, respectively
Deferred income current
Total current liabilities
Long-term Liabilities
Accrued liabilities (related-party)
Deferred income long-term
Total long-term liabilities
Total liabilities
Commitments and contingencies
$
$
$
950,237 $
13,420
18,153
70,103
1,051,913
156,138
345,121
501,259
3,534,454
—
9,068
908,352
4,451,874
165,567
44,885
210,452
1,553,172 $
4,662,326
148,967 $
174,444
120,000
1,908,572
—
2,351,983
260,000
—
260,000
2,611,983
40,819
96,645
480,000
—
10,792
628,256
—
183,546
183,546
811,802
STOCKHOLDERS’ EQUITY (DEFICIT):
Common stock, $.001 par value, 100,000,000 shares authorized; 12,923,383 and 12,317,184
shares issued and outstanding, respectively.
Preferred stock, $.001 par value, 5,000,000 shares authorized
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity (deficit)
12,923
—
17,622,433
(18,694,167)
(1,058,811)
12,317
—
16,260,651
(12,422,444)
3,850,524
Total liabilities and stockholders’ equity (deficit)
$
1,553,172 $
4,662,326
See accompanying notes to consolidated financial statements
F-2
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling and marketing
Administrative and general
Research and development
Depreciation and amortization
Total operating expenses
Total operating loss
Other expense:
Interest expense
Interest income
Loss on extinguishment of debt
Net loss from investment in joint venture
Total other expense
Loss before income taxes
Provision for income taxes
Net loss
Net loss per share – basic and diluted
Weighted average shares – basic and diluted
CO-DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
For the years ended
December 31,
2018
2017
39,911 $
9,391
30,520
1,165,631
3,570,786
1,361,154
50,765
6,148,336
(6,117,816)
(134,947)
19,804
—
(38,764)
(153,907)
(6,271,723)
—
(6,271,723) $
7,662
302
7,360
426,711
3,095,791
1,003,167
45,758
4,571,427
(4,564,067)
(310,233)
3,829
(2,072,365)
(16,396)
(2,395,165)
(6,959,232)
—
(6,959,232)
(0.50) $
(0.63)
12,484,617
10,960,326
$
$
$
See accompanying notes to consolidated financial statements.
F-3
CO-DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
(Deficit)
Equity
(Deficit)
Balance, December 31, 2016
9,882,395
$
9,882
$
2,458,744 $
(5,463,212) $
(2,994,586)
Stock issued for cash, net of offering costs of
$1,093,268
Stock issued for debt retirement
Stock-based compensation
Net loss
1,178,533
1,179
5,976,745
857,047
399,209
857
5,791,603
399
2,033,559
—
—
—
5,977,924
5,792,460
2,033,958
—
—
—
(6,959,232)
(6,959,232)
Balance, December 31, 2017
12,317,184
12,317
16,260,651
(12,422,444)
3,850,524
Stock issued for exercise of warrants
Stock-based compensation
Net loss
272,727
333,472
273
29,727
333
1,332,055
—
—
30,000
1,332,388
—
—
—
(6,271,723)
(6,271,723)
Balance, December 31, 2018
12,923,383
$
12,923
$
17,622,433 $ (18,694,167) $
(1,058,811)
See accompanying notes to consolidated financial statements.
F-4
CO-DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Stock based compensation
Accretion of notes payable discount
Loss on extinguishment of debt
Other losses
Changes in assets and liabilities:
Increase (decrease) deferred income
Decrease (increase) in prepaid and other assets
Increase in accounts receivable
Increase in inventory
Increase in accounts payable and accrued expenses
Net cash used in operating activities
Cash flows from investing activities:
Purchase of property and equipment
Investment in joint venture
Net cash used by investing activities
Cash flows from financing activities:
Proceeds from equity financing
Offering costs from equity financing
Proceeds from warrant exercise
Proceeds from debt financing
Debt financing acquisition costs
Principal payments on debt (related party)
Net cash provided by financing activities
Net increase (decrease) in cash
Cash and cash equivalents beginning of period
Cash and cash equivalents end of period
Supplemental disclosure of cash flow information:
Interest paid
Income taxes paid
Schedule of non-cash (investing) and financing activities:
Common stock issued for convertible debt
$
$
$
$
See accompanying notes to consolidated financial statements.
F-5
Years Ended
December 31,
2018
2017
$
(6,271,723) $
(6,959,232)
50,765
1,332,388
—
—
38,764
(194,338)
900,666
(13,420)
(9,085)
85,947
45,758
2,033,958
84,101
2,072,365
16,396
194,338
(698,389)
—
(9,068)
8,372
(4,080,036)
(3,211,401)
(41,336)
(339,000)
(380,336)
—
—
30,000
2,000,000
(153,845)
—
1,876,155
(2,584,217)
3,534,454
950,237 $
(129,306)
(60,000
(189,306)
7,071,192
(1,093,268)
—
—
—
(41,500)
5,936,424
2,535,717
998,737
3,534,454
71,000 $
— $
73,523
—
— $
5,792,460
CO-DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2018 AND 2017
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Co-Diagnostics, Inc. (“Company,” “CDI,” “we”), a Utah corporation headquartered in Salt Lake City, Utah, is a molecular diagnostics company
formed in April, 2013 that develops, manufactures and markets a new diagnostics technology.
The accompanying consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiary. All intercompany
account balances and transactions have been eliminated in consolidation.
We entered into a joint venture agreement with a company in India for the purpose of setting up a manufacturing location in India of our products
and for distribution of our products in India. We invested $339,000 and $60,000 in 2018 and 2017, respectively for our 50% interest in the joint venture. We
determined that we had a variable interest in the joint venture company, which is considered a variable interest entity, but that we were not the primary
beneficiary as the power to direct the significant activities of the joint venture company are shared. Therefore, we used the equity method of accounting to
record our investment in the joint venture. Our equity method investees are recorded in other long-term assets in the accompanying consolidated balance
sheet. Our share of earnings or losses from equity method investees is included in other losses in the accompanying consolidated statements of operations.
The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying
amounts of such investments may not be recoverable. The difference between the carrying value of the equity method investment and its estimated fair value
is recognized as an impairment charge when the loss in value is deemed other than temporary.
Profits from the joint venture shall be divided as follows:
Profit Level
Up to $1,000,000
$1,000,000-$2,000,000
$2,000,000-$3,000,000
Above $3,000,000
CDI Share
Partner Share
50%
60%
70%
80%
50%
40%
30%
20%
The joint venture partner will be reimbursed for some expenses, such as approximately $96,000 per year for office space. If the joint venture needs
additional funding, it will be achieved through loans obtained by the joint venture, or if loans are not available on commercially reasonable terms, from
capital contributions. There is no term to the joint venture agreement but it can be dissolved by mutual agreement or by one party upon a material breach by
the other party.
Basis of Presentation
The accompanying audited consolidated financial statements of Co-Diagnostics, Inc. have been prepared to reflect the financial position, results of
operations and cash flows of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of
America (“GAAP”).
Reverse Stock Split
On May 24, 2017 the Company affected an 11 to 1 reverse stock split. The statements in this report have been prepared showing the effect as of the
beginning of the periods included.
Initial Public Offering
On July 12, 2017, we entered into an underwriting agreement (the “Underwriting Agreement”) with WallachBeth Capital, LLC and Network 1
Financial Securities, Inc. (the “Underwriters”), related to the Company’s initial public offering of 1,178,533 shares of the Company’s common stock, at a
price of $6.00 per share, less $0.60 constituting the underwriting commissions and expense allowance. Under the terms of the Underwriting Agreement, the
Company granted the Underwriters an option, exercisable for 45 days, to purchase up to an additional 176,780 shares of common stock to cover over-
allotments, if any. Total gross proceeds from the offering were $7,071,192 and the Company received net proceeds after costs of $5,977,924.
Coincident with the closing of the IPO, the Company retired all of its principal debt of $3,440,440 and $283,423 of accrued interest through the
issuance of 857,047 shares of common stock.
F-6
Significant Account Policies
Cash and Cash Equivalents
The Company considers all cash on hand and in banks, and highly liquid investments to be cash equivalents. At December 31, 2018, the Company
had $700,237 in bank balances in excess of amounts insured by the Federal Deposit Insurance Corporation. At December 31, 2017, the Company had
$3,284,454 in bank balances in excess of amounts insured by the Federal Deposit Insurance Corporation. Included in cash and cash equivalents at December
31, 2017, was $2,200,288 in short-term federally insured certificates of deposits. 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.
Inventory
Inventory is stated at the lower of cost or market. Inventory cost is determined on a first-in first-out basis that approximates average cost in
accordance with ASC 330-10-30-12. Provisions are made to reduce slow-moving, obsolete, or unusable inventories to their estimated useful or scrap values.
The Company establishes reserves for this purpose.
Accounts Receivable
Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding
amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience
applied to an aging of accounts. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are
recorded when collected.
Property and Equipment
Property and equipment are stated at cost. 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.
Equity-Method Investments
Our equity method investments are initially recorded at costs and are included in other long-term assets in the accompanying consolidated balance
sheet. We adjust the carrying value of our 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 losses in the accompanying consolidated statements of operations.
Earnings (Loss) per Share
Basic earnings 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. As the Company experienced net losses during the years ending December 31, 2018 and 2017, no common
stock equivalents have been included in the diluted earnings per common share calculations as the effect of such common stock equivalents would be anti-
dilutive. As of December 31, 2018, and 2017, there were 1,656,242 and 1,028,969 potentially dilutive shares, respectively.
Stock-based Compensation
The Company accounts for stock-based compensation under the provisions of FASB ASC Topic 718, Compensation-Stock Compensation (“ASC
718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on
estimated fair values on the grant date. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes-Merton
option-pricing model (the “Black-Scholes Model”). The value of the portion of the award that is ultimately expected to vest is recognized as expense over the
requisite service periods using the straight-line method.
The Company estimates forfeitures at the time of grant and revises its estimate in subsequent periods if actual forfeitures differ from those estimates.
The Company accounts for stock-based compensation awards to non-employees in accordance with FASB ASC Topic 505-50, Equity-Based
Payments to Non-Employees (“ASC 505-50”). Under ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation
awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
F-7
All issuances of stock options or other equity instruments to employees and non-employees as the consideration for goods or services received by the
Company are accounted for based on the fair value of the equity instruments issued or the fair market value of the services provided. Any stock options issued
to non-employees are recorded in expense and additional paid-in capital in shareholders’ equity over the applicable service periods using variable accounting
through the vesting dates based on the fair value of the options at the end of each reporting period.
Income Taxes
We account for income taxes in accordance with the asset and liability method of accounting for income taxes prescribed by ASC Topic 740. Under
the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to the taxable income in the years in which those temporary differences are expected to be recovered or settled.
Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of enactment.
Research and Development
Research and development costs are expensed when incurred. The Company expensed $1,361,154 and $1,003,167 of research and development
costs for the years ended December 31, 2018 and 2017, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the accompanying notes. Such estimates include receivables and other long-lived
assets, legal and regulatory contingencies, income taxes, share based arrangements, and others. These estimates and assumptions are based on management’s
best estimates and judgments. Actual amounts and results could differ from those estimates.
Fair Value Measurements
The carrying amounts of our accounts receivable, accounts payable and accrued liabilities approximate their fair values due to their immediate or
short-term maturities. The aggregate carrying amount of the notes payable approximates fair value as the individual notes bear interest at market interest rates
and there has not been a significant change in our operations and risk profile.
Patents and Intangibles
Patents represent initial legal costs incurred to apply for United States and international patents on the diagnostic testing technology, and are
amortized on a straight-line basis over their useful life of approximately 20 years. Because much of our future success and value depends on our proprietary
technology, our patent and intellectual property strategy is of critical importance. Four of our initial U.S. patents related to our technology have been granted
by the U.S. Patent and Trademark Office, or 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 March 15, 2019, we had two additional patents pending in the U.S.
and foreign counterpart applications. While we are unsure whether we can develop the technology in order to obtain the full benefits of the issued patents, the
patents themselves hold value and could be sold to companies with more resources to complete the development. On-going legal expenses incurred for patent
follow-up have been expensed from April 2013 forward.
F-8
Long-Lived Assets
We review our long-lived assets, including patents, whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to future un-discounted net cash
flows expected to be generated by the asset. If such assets are considered to be impaired, then the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the estimated fair value of the assets. Fair value is determined by using cash flow analyses and other market
valuations. After our review at December 31, 2018, it was determined that no adjustment was required.
Customer Leased Equipment
Customer leased equipment is capitalized and depreciated using the straight-line method over the estimated useful life of the equipment, generally
from three to five years. The expense for the depreciation on this equipment is included in cost of sales. The company typically retains ownership of this
equipment.
Revenue Recognition
We recognize revenue when evidence exists that there is an arrangement between us and our customers, delivery of products sold or service has
occurred, the selling price to our customers is fixed and determinable with required documentation, and collectability is reasonably assured. We recognize as
deferred revenue, payments made in advance by customers for products not yet provided.
In instances where we have entered into license agreements with a third parties to use our technology within their product offering, we recognize any
base or prepaid revenues over the term of the agreement and any per occurrence or periodic usage revenues in the period they are earned.
Related-Party Transactions
Parties are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by,
or are under common control with the Company. Related parties also include principal stockholders of the Company, its management, members of the
immediate families of principal stockholders of the Company and its management and other parties with which the Company may deal where one party
controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented
from fully pursuing its own separate interests. The Company discloses all material related-party transactions. All transactions shall be recorded at fair value of
the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the
related party in excess of the cost is reflected as compensation or distribution to related parties depending on the transaction.
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.
The Company, an emerging growth company (“EGC”), has elected to take advantage of the benefits of the extended transition period provided for in
Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards which allows the Company to defer
adoption of certain accounting standards until those standards would otherwise apply to private companies.
In March 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic
310-20). The amendments in this update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments
require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the
discount continues to be amortized to maturity. For public business entities, the amendments in this update are effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2019, for public EGC companies like us. This update is not expected to have a significant impact on
the Company’s financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments, to clarify guidance on the presentation and classification of certain cash receipts and payments in the statement of cash flows. This update was
issued with the intent of reducing diversity in practice with respect to eight types of cash flows. This guidance is effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years, for public EGC companies like us. The update did not have a significant impact on
the Company’s financial statements.
In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842), which requires recognition of leased assets and liabilities on the balance
sheet and disclosing key information about leasing arrangements. This update is effective for annual periods and interim periods with those periods beginning
after December 15, 2019, for public EGC companies like us. Management is currently evaluating the impact that the updated standard will have on its
consolidated financial statements and related disclosures.
F-9
In May 2014, the FASB issued ASU No. 2014-09: “Revenue from Contracts with Customers (Topic 606)” which supersedes the revenue recognition
requirements in ASC Topic 605, “Revenue Recognition”, and requires entities to recognize revenue in a way that depicts the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional
revenue recognition updates were also issued in 2016 and 2017, which further clarified certain aspects of the new revenue recognition guidance. The new
authoritative guidance is effective for interim and annual periods beginning after December 15, 2018, for public EGC companies like us. The guidance
permits two methods of adoption: retrospectively to each prior reporting period presented (the full retrospective method), or retrospectively with the
cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company adopted
the modified retrospective method. The update did not to have a significant impact on the Company’s financial statements.
NOTE 2: NOTES PAYABLE
The recorded value of our notes payable (net of $91,428 debt discount) for the years ending December 31, 2018 and 2017, were as follows:
Notes payable, net of debt discount
Robert Salna Promissory Note Payable
Total
Less Current Portion
Total Long-term
Robert Salna Promissory Note
December 31, 2018
December 31, 2017
1,908,572
1,908,572
(1,908,572)
$
— $
—
—
—
—
On August 3, 2018, we entered into a Note Purchase Agreement with Robert Salna, an existing shareholder of the Company and prior investor in the
Company’s convertible debt securities. Pursuant to the agreement, the Company issued to Mr. Salna a Promissory Note, dated August 3, 2018, in the principal
amount of $2,000,000 (the “Note”) in exchange for a loan to the Company of equal principal amount.
The Note bears interest at the rate of nine percent (9.0%) per annum, payable quarterly in arrears. The maturity date of the Note is July 31, 2019. All
unpaid principal and accrued interest on the Note will become due and payable on the maturity date. The Note is unsecured and provides for a default interest
rate of eighteen percent (18.0%) per annum. The note is repayable in Canadian dollars with a minimum of 2.6 million in Canadian dollars due at maturity, at
December 31, 2018 if the note had been retired the company would have paid the $2,000,000 principal amount. For the 12 months ended December 31, 2018,
we included $71,000 in interest expense. We incurred $153,845 in note origination costs which are being accreted of the life of the note. For the 12 months
ended December 31, 2018 we included $62,417 in interest expense for the accretion these note origination costs.
At December 31, 2017 we had no outstanding notes payable. However, for the 12 months ended December 31 2017, we included $310,233 of
interest expense for notes outstanding prior to December 31, 2017.
NOTE 3: STOCK-BASED COMPENSATION
Stock Incentive Plans
Under the Co-Diagnostics, Inc. 2015 Long-term Incentive Plan (the “2015 Plan”), the board of directors may issue incentive stock options, share
equivalents such as restricted stock awards, stock bonus awards, performance shares and restricted stock units to employees and directors and non-qualified
stock options to consultants of the company. Options generally expire ten years after being granted. Options granted vest in accordance with the vesting
schedule determined by the board of directors, usually ratably over a three-year vesting schedule upon anniversary date of the grant with the first 1/3 vesting
on the grant date. Should an employee terminate before the vesting period is completed, the unvested portion of each grant is forfeited. The Company has
used the Black-Scholes valuation model to estimate fair value of our stock-based awards, which requires various judgmental assumptions including estimated
stock price volatility, forfeiture rates, and expected life. Our computation of expected volatility is based on market-based implied volatility. The 2015 Plan
reserves an aggregate of 6,000,000 shares. The number of unissued stock options authorized under the 2015 Plan at December 31, 2018 was 4,827,293.
F-10
Stock Options
There were 850,000 and 61,335 options granted in the years ended December 31, 2018 and 2017, respectively. The Black-Scholes valuation model
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 warrant was issued 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:
Risk free interest rate
Expected life (in years)
Expected volatility
Expected dividend yield
Stock price
Year Ended
December 31, 2018
Year Ended
December 31, 2017
2.95%
5.5
47.75%
0.00%
2.63
$
1.53%
5.0
95.24%
0.00%
3.85
$
The weighted average fair value of options granted during the years ended December 31, 2018 and 2017 was $1.24 and $1.59, respectively.
Included in stock-based compensation for the 12 months ended December 31, 2018, the Company recognized expense of $468,240 recorded in our
general and administrative department for 850,000 options granted to nine employees.
Included in stock-based compensation for the year ended December 31, 2017, the Company recognized expense of $122,259 recorded in our general
and administrative department (i) $97,474 for 61,335 options granted to three members of our board of directors and (ii) $24,785 for options vesting which
had been granted prior to January 1, 2017.
The following table summarizes option activity during the years ended December 31, 2018 and December 31, 2017, respectively.
Options
Outstanding
Weighted
Average Exercise
Price
Weighted Average
Fair Value
Weighted
Average
Remaining
Contractual
Life (years)
Outstanding at January 1, 2017
Options granted
Expired
Forfeited options
Exercised
Outstanding at December 31, 2017
Options granted
Expired
Forfeited options
Exercised
261,372 $
61,335
—
—
—
322,707 $
850,000
—
—
—
0.55 $
3.85
—
—
—
1.29 $
2.63
—
—
—
Outstanding at December 31, 2018
1,172,707 $
2.23 $
Warrants
0.49
1.59
—
—
—
0.70
1.24
—
—
—
1.09
8.63
4.60
—
—
—
7.05
9.73
—
—
—
8.72
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 associated underlying contract, as earned. 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 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 warrant was
issued with a maturity equal to the expected term of the warrant.
F-11
There were 50,000 and 595,133 warrants issued in the years December 31, 2018 and 2017, respectively. The fair values for the warrants issued were
estimated at the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions:
Risk free interest rate
Expected life (in years)
Expected volatility
Expected dividend yield
Stock price
Year Ended
December 31, 2018
Year Ended
December 31, 2017
2.94%
5.0
47.95%
0.00%
2.41
$
1.89%
4.7
46.80%
0.00%
2.98
$
The weighted average fair value of warrants issued during the years ended December 31, 2018 and 2017 was $1.22 and $1.74 per share, respectively.
In the year ended December 31, 2018, the Company included $61,100 in our sales and marketing department for 50,000 warrants issued to 1
company as part of the repurchasing of a market licensing agreement, as stock-based compensation.
Included in stock-based compensation for the year ended December 31, 2017, the Company recognized expense of $256,199 recorded in our general
and administrative department for 297,727 warrants issued to 2 companies for services rendered.
The following table summarizes warrant activity during the years ended December 31, 2018 and 2017, respectively.
Warrants
Outstanding
Weighted
Average Exercise
Price
Weighted Average
Fair Value
Weighted
Average
Remaining
Contractual
Life (years)
Outstanding at January 1, 2017
Warrants issued
Expired
Forfeited warrants
Exercised
Outstanding at December 31, 2017
Warrants issued
Expired
Forfeited warrants
Exercised
111,129 $
595,133
—
—
—
706,262 $
50,000
—
—
272,727
8.25 $
2.91
—
—
—
3.27 $
2.00
—
—
0.11
Outstanding at December 31, 2018
483,535 $
4.92 $
0.11
1.74
—
—
—
1.48
1.22
—
—
0.54
1.99
4.91
4.28
—
—
—
4.22
5.00
—
—
3.39
3.29
The following table summarizes information about stock options and warrants outstanding at December 31, 2018.
Range of
Exercise
Prices
$
$
0.55
2.00-3.85
5.10-7.20
0.55-7.20
Number
Outstanding
261,372
986,335
408,535
1,656,242
Outstanding
Weighted
Average
Remaining
Contractual
Life (years)
Weighted
Average
Exercise
Price
6.63 $
8.94
3.08
7.13 $
F-12
Exercisable
Number
Exercisable
0.55
2.66
5.46
3.02
261,372 $
419,668
408,535
1,089,575 $
Weighted
Average
Exercise
Price
0.55
2.70
5.46
3.22
Common Stock
In the year ended December 31, 2018, the Company issued 606,199 shares of our common stock as follows: 1) 272,727 shares for the exercise of
outstanding warrants for $30,000 in cash, 2) 84,112 shares valued at $202,090 to 4 companies for consulting services, in our general and administrative
department and, 3) 249,360 shares valued at $600,958 issued to 1 company as part of the repurchasing of a market licensing agreement in our sales and
marketing department.
In the year ended December 31, 2017, the Company issued 399,209 shares of our common stock valued at $1,655,500 to 4 companies for consulting
services, as stock-based compensation. For the year ended December 31, 2017, the Company recognized expense of $813,229 in our general and
administrative department for to-date services rendered.
Total unrecognized stock-based compensation was $585,311 at December 31, 2018 which the Company expects to recognize as follows:
Year
2019
2020
Total
NOTE 4: LEASE OBLIGATIONS
Amount
351,180
234,131
585,311
$
$
Our offices are located at 2401 S Foothill Dr. Suite D Salt Lake City Utah 84109-1479. The space consists of approximately 10,273 square feet and
is leased under a multi-year contract a rate of $14,086 per month expiring on January 31, 2020. For the years December 31, 2018 and 2017, the Company
expensed $166,146 and $53,132, respectively for rent. The Company’s future lease rent obligation is as follows:
Year
2019
2020
Total
Amount
169,033
14,086
218,119
$
$
NOTE 5: RELATED PARTY TRANSACTIONS
The Company acquired the exclusive rights to the Co-Primer technology pursuant to a license agreement dated April 2014, between us and DNA
Logix, Inc., which was assigned to Dr. Satterfield prior to our acquisition of DNA Logix, Inc. Pursuant to the license the Company was to pay Dr. Satterfield
minimum royalty payments of $30,000 per month until the Company receives an equity funding of at least $4,000,000, at which time the payments increase
to $60,000 per month for the remainder of the year. The payment terms were orally modified to maintain the monthly royalties at $30,000 per month through
December 2016. On March 1, 2017, the Company entered into an amendment effective January 1, 2017, to its Exclusive License Agreement for its
Cooperative Primers (“License”) technology with Dr. Satterfield, a member of our Board of Directors. The amendment provides in part that all accrued
royalties under the License cease as of January 1, 2017, and we began in January to pay $700,000 of accrued royalties at the rate of $10,000 per month. For
the years ended December 31, 2018 and 2017, the Company paid $100,000 and $170,000, respectively for this license agreement. For the year ended
December 31, 2017, the Company included $107,500 as an expense for this license agreement in research and development.
The Company financed operations partly through short term loans with related parties and through the deferral of payment to related parties for
expenses incurred. At December 31, 2018, and 2017 the Company had $480,000 and $380,000 respectively, in unpaid accrued expenses for technology
royalties payable to Dr. Satterfield
F-13
NOTE 6: EQUITY
2018
For the year ended December 31, 2018, the Company issued warrants to purchase 50,000 shares of our common stock with a weighted average
exercise price of $2.00 with an aggregate value of $61,100 to 1 company as part of the repurchasing of a market licensing agreement, as stock-based
compensation.
In the year ended December 31, 2018, the Company issued 606,199 shares of common stock as follows: (i) 272,727 shares for the exercise of
warrants, (ii) 249,360 shares for the repurchasing of a market licensing agreement, and (iii) 84,122 shares for services rendered.
On December 28, 2018 the Company amended it’s Articles of Incorporation to authorized two classes of stock, Common Stock and Preferred Stock.
The total number of shares which the company is authorized to issue is 105,000,000 shares, 100,000,000 shares shall be Commons Stock, par value $.001 and
5,000,000 shares shall be Preferred Stock, par value $.001.
2017
For the year ended December 31, 2017, the Company issued warrants to purchase 595,133 shares of our common stock with a weighted average
exercise price of $2.91 with an aggregate value of $1,035,624 as follows: (i) 297,727 for consulting services to two companies, (ii) 211,740 for debt
conversion to six individuals and four companies, and (iii) 85,666 for agency fees related to equity funding to four companies.
In the year ended December 31, 2017, the Company issued 2,434,789 shares of common stock as follows: (i) 1,178,533 shares related to the sale of
equity, (ii) 857,047 shares associated with the conversion of debt, and (iii) 399,209 shares for services rendered.
NOTE 7: INCOME TAXES
Net deferred tax assets consist of the following components as of December 31, 2018 and 2017:
Deferred tax assets
NOL carry-forward
Sec 179 carry-forwards
Depreciation
Valuation allowance
Net deferred tax asset
2018
2017
$
$
3,841,400 $
1,600
9,500
(3,852,500)
— $
2,537,300
1,600
2,500
(2,541,400)
—
The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from
continuing operations for the years ended December 31, 2018 and 2017 due to the following:
Book loss
Depreciation
Meals and entertainment
Other non-deductible expenses
Change in valuation allowance
2018
2017
$
$
(1,630,600) $
(3,000)
400
356,500
1,276,700
— $
(1,809,400)
4,900
1,100
359,300
1,444,100
—
At December 31, 2018, the Company had net operating loss carry-forwards of approximately $14,775,000 that may be offset against future taxable
income from the year 2019 through 2035. No tax benefit has been reported in the December 31, 2018 and 2017, consolidated financial statements since the
potential tax benefit is offset by a valuation allowance of the same amount. Additionally, DNA Logix, Inc. is a pass-through entity and therefore no provision
or liability for federal income tax has been included in the consolidated financial statements for that entity.
F-14
Due to change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry-forwards for Federal income tax reporting purposes
are subject to annual limitations. Should a change in ownership occur, net operating loss carry-forwards may be limited as to use in future years.
The Company’s policy on the classification of interest and penalties related to income taxes is to recognize the interest and penalties in the period
incurred. There were no penalties or interest incurred for the years ending December 31, 2018 and 2017, related to income taxes.
NOTE 8: SUBSEQUENT EVENTS
On January 30, 2019, we entered into a securities purchase agreement with investors, whereby the investors purchased from the Company 30,000
shares of Series A Convertible Preferred Stock of the Company for a 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 note owed by the Company to one of 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 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 Common Shares was $5,496,002 and we received net proceeds
after offering costs of $4,996,322.
On March 7, 2019, we issued 166,667 shares of our common stock to an individual who converted 2,000 shares of our Series A Preferred Stock to
common stock at a conversion price calculated by multiplying the number of preferred shares being converted by $100 and dividing the result by $1.20.
The Company evaluated subsequent events pursuant to ACS Topic 855 and determined that there are no additional events that need to be reported.
F-15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) designed to ensure that information
required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods
specified in rules and forms adopted by the SEC.
In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this annual report on Form 10-K, an evaluation was
carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to assess
the effectiveness of our disclosure controls and procedures. As of the end of the period covered by this annual report on Form 10-K our disclosure controls
and procedures were not effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and
communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
In performing its assessment of the effectiveness of the Company’s internal control over financial reporting, management applied the criteria
described in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO -
2013”).
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness identified during management’s assessment was the lack of sufficient technical expertise on certain accounting and tax
requirements for new and unusual transactions. These control deficiencies could result in a material misstatement of accounts or disclosures that would result
in a material misstatement to the Company’s interim or annual financial statements that would not be prevented or detected. Accordingly, management has
determined that these control deficiencies constitute a material weakness. The Company plans to hire, in the second quarter of 2019, consultants with the
necessary technical accounting expertise to improve the Company’s accounting processes and internal control program.
Because of the material weakness, management concluded that the Company did not maintain effective internal control over financial reporting as of
December 31, 2018, based on the criteria in Internal Control-Integrated Framework issued by COSO -2013.
(b) Management’s Report on Internal Control over Financial Reporting and Attestation Report of Registered Public Accounting Firm
This annual report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an
attestation report of our registered public accounting firm due to a transition period established by rules of the SEC applicable to newly public companies.
(c) Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s last three-month period
that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
16
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The following table sets forth the names, ages and positions of our executive officers and directors:
Name
Dwight H. Egan
Brent Satterfield
Reed L Benson
Edward J. Borkowski
Frank J. Kiesner
Richard S. Serbin
Age
64
42
72
59
74
74
Position
Chief Executive Officer, President and Chairman of the Board
Chief Science Officer and Director
Chief Financial Officer and Secretary
Director
Director
Director
Dwight H. Egan has been an officer and director since April 2013. Mr. Egan has been engaged in private investment business from February 1999
to the present. He was a senior executive at Data Broadcasting Corporation, a leading provider of wireless, real-time financial market data, news and
sophisticated fixed- income portfolio analytics to 27,000 individual and professional investors from 1995 to 1999. He co-founded and served as CEO and
Chairman of the Board of Broadcast International, Inc. from 1984 to 1995, when Data Broadcasting Corporation acquired Broadcast International and created
CBS MarketWatch, a leading financial news site and participated in its initial public offering. Mr. Egan’s prior experience in directing a public company and
working with capital markets gives him valuable experience in advising the board on matters of finance and operations.
Brent Satterfield has been our chief science officer and director since April 2013. Dr. Satterfield has been employed by the Company from January
31, 2015 to the present. Prior to that he was the sole shareholder and owner of DNA Logix, Inc. from January 2013 to January 31, 2015, and in DNA Logix
he developed and patented the technology now owned by the Company. He founded Co-Diagnostics in April 2013 and is the first in his field to use
engineering mathematics to design new DNA testing technology. From 2006 to 2008, he was employed by Arcxis Biotechnologies where he developed new
diagnostic platforms for groups such as the Department of Homeland Security, the National Biodefense Analysis and Countermeasures Center, the United
States Army Medical Research Institute of Infectious Disease, Sandia National Laboratories, the California Department of Public Health and numerous
others. Under fellowship from the Department of Homeland Security, he received his Ph.D. in 2007 in Bioengineering with an emphasis in entrepreneurship
and intellectual property law from Arizona State University in a dual-enrollment program with UC Berkeley. Dr. Satterfield’s experience with the science
underlying all of the Company’s products and technology gives him valuable experience in advising the board on the status of the products and our
positioning in the diagnostic testing industry.
Reed L Benson has been Chief Financial Officer and Secretary from November 2014 to the present and a director from November 2014 to May
2017. Since September, 2008 to the present, in addition to the private practice of law, he is a founder and partner of Legends Capital Group, LLC, a privately
held venture capital group that identifies investment opportunities in natural resources, bio tech and technology fields. From October 2004 to September 2008
he was employed as Chief Financial Officer, Secretary, and General Counsel and member of Board of Directors of Broadcast International, Inc., a publicly
traded communications services company. From 2001 to October 2004, he was in the private practice of law where his practice focused on tax and business
related matters. From July 1995 to January 2001 he was secretary and general counsel for Data Broadcasting Corporation, a provider of market information to
individual investors. Mr. Benson received his J.D. degree from the University of Utah School of Law in 1976 and a Bachelor of Science Degree in
Accounting from the University of Utah in 1971. Mr. Benson became a Certified Public Accountant in 1974. Mr. Benson’s experience in finance, accounting
and business consulting, together with his role as our CFO and prior public company directorship, provide Mr. Benson with expertise enabling critical input to
our company.
Edward Borkowski joined our Board of Directors in May 2017. He was appointed Executive Vice President April 18, 2018 and Interim Chief
Financial Officer effective June 6, 2018 of Mimedx, an advanced wound care and late stage biologics company. He served as the Chief Financial Officer of
ACETO Corporation, an international company engage in the development, marketing, sales and distribution of pharmaceutical products from February 2018
to April 2018 and from May 2015 to April 2018 he held several executive level positions with Concordia International Corp., an international specialty
pharmaceutical company including Chief Financial Officer and Executive Vice President. From 2013 to 2016 he served as Chief Financial Officer at
Amerigen Pharmaceuticals, a pharmaceutical company focused on generic products, and from 2012 to 2013 as Chief Financial Officer at ConvaTec, an
international medical products and technologies company. He is a member of the American Institute of Certified Public Accountants and the New York State
Society of CPAs. He currently also serves on the boards of AzurRx BioPharma (Nasdaq: AZRX) and Acacia Pharma Group, Plc (EPA: ACPH), and during
the previous five years also served on the board of WhereverTV (OTCMKTS: TVTV). Mr. Borkowski holds a Bachelor of Science in Economics and
Political Science from Allegheny College and a Master in Business Administration in Finance and Accounting from Rutgers University.
17
Frank J. Kiesner joined our Board of Directors in May 2017 and is the founder of several companies in the medical diagnostic field. Mr. Kiesner is
the Chairman and Chief Executive Officer of OvaGene Oncology, Inc., a molecular diagnostics company which he founded in 2008. OvaGene Oncology, Inc.
provides gene-based assays to assist physicians/gynecologic oncologists in the diagnosis, radiation and chemotherapy, prognosis, and therapy selection of
gynecologic cancers in women. Mr. Kiesner served as Chairman, President and CEO of Oncotech Inc. for 17 years until its acquisition by Exiqon in 2008.
Oncotech became the leading company in the USA and Europe in the field of individualizing cancer treatment and drug selection. Mr. Kiesner was previously
a partner at Northstar Ventures, General Counsel and Treasurer of public-company ADC Telecommunications, and President of ADC Corporation’s Magnetic
Division. He served on multiple committees and boards for the American Laboratory Association and has extensive experience in the regional, federal and
congressional workings of health care reimbursement. Working with Congressman Bill Thomas, Chairman of the Congress’s Ways and Means Sub-
Committee on Health, Mr. Kiesner was the leading force behind the passage of the “Patients Benefit Improvement Act Of 1999” which rewrote the new
technology approval and patient- provider appellate process for the Medicare and other federal Statutory Programs. Mr. Kiesner obtained his J.D. from the
University of Minnesota School of Law. Mr. Kiesner’s experience running diagnostic companies, especially companies in the molecular diagnostic field, will
be invaluable to the Board of Directors and our company.
Richard S. Serbin, who joined our Board of Directors in May 2017, currently serves as a consultant to many companies in the healthcare industry.
He was the President of Corporate Development and In-House Legal Counsel at Life Science Institute, LLC, from June 1, 2013 to July 15, 2014. Mr. Serbin
is a global strategy advisor, pharmacist and entrepreneur with credentials both in pharmacy and law, complemented by more than 40 years of service as an
FDA regulatory attorney and patent attorney in the healthcare industry. He was appointed to the Advisory Board of Cure Pharmaceutical in January 2017 and
has been a Member of Advisory Board at Prime Access, Inc. since September 2015. Mr. Serbin has been a Director at Rapid Nutrition Plc since November 18,
2014. He served as Director at Viropro Inc. from May 2013 to June 2014. He was Head of Business Advisory Board at Mazal Plant Pharmaceuticals Inc. from
October 2006 to September 2007 and also served as its Member of Business Advisory Board. He served as Chief Executive Officer of Optigenex Inc. from
July 2002 to September 15, 2005 and a director from July 2004 to September 2005. From January 1999 until July 2002 Mr. Serbin served as a consultant to
various pharmaceutical companies. He served as the President of Bradley Pharmaceuticals. He served as Vice President of Corporate Development at Ortho
Pharmaceuticals, a Johnson & Johnson subsidiary, and practiced Patent and FDA law at Revlon Johnson & Johnson and Schering-Plough. He served as Patent
Attorney for Schering Plough Corporation and Chief FDA Counsel for Revlon Corporation and Johnson and Johnson Corporation. Subsequently, he worked
at Revlon Corporation, as its Chief Food, Drug and Cosmetic Counsel. He founded Radius Scientific Corporation. He was J&J’s Vice President of Corporate
Development, and later led a successful public offering venture based on technology developed at Stanford Medical School. Mr. Serbin spent a large portion
of his career focusing on international markets and clients. While at J&J, Mr. Serbin served on the Board of Directors of 16 US and international subsidiary
companies, including Ethicon, Ortho, J&J Consumer Products, Pittman-Moore, Mc Neil, and J&J Development Corporation. He worked on multiple
international acquisitions and strategic relationships, and sat on the Board of Directors of several of its international subsidiaries, including those in India,
Hong Kong, Japan, Taiwan, Germany, and England. Mr. Serbin has a B.S. and a B. Pharmacy from Rutgers University and Rutgers University College of
Pharmacy, a J.D. degree from Seton Hall Law School and a Masters Degree in Trade Regulations and Law from NYU Law School. Mr. Serbin’s experience in
business, law and medicine and knowledge gained as an advisor to the healthcare industry will be critical to our Board of Directors as it commercializes its
products.
Our directors generally serve until the next annual or special meeting of shareholders held for the purpose of electing directors. Our officers
generally serve at the discretion of the Board of Directors. Messrs. Egan and Satterfield are employees. Mr. Egan serves as our president and chief executive
officer and Mr. Satterfield serves as our Chief Science Officer.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers have, during the past ten years, been involved in any legal proceedings
described in subparagraph (f) of Item 401 of Regulation S-K.
Board and Committee Matters
We maintain an audit committee of the board, a compensation committee of the board and a corporate governance and nominating committee of the
board, each of which is discussed below. We have not established a nominating committee of the board. Our board has determined that Messrs. Borkowski,
Kiesner and Serbin are “independent” under the definition of independence in the Marketplace Rules of the NASDAQ listing requirements.
We do not have a formal policy concerning shareholder recommendations of candidates for board of director membership. Our board views that such
a formal policy is not necessary at the present time given the board’s willingness to consider candidates recommended by shareholders. Shareholders may
recommend candidates by writing to our Secretary at our principal offices: 2401 S. Foothill Drive, Suite D, Salt Lake City, Utah 84109, giving the candidate’s
name, contact information, biographical data and qualifications. A written statement from the candidate consenting to be named as a candidate and, if
nominated and elected, to serve as a director should accompany any such recommendation. Shareholders who wish to nominate a director for election are
generally advised to submit a shareholder proposal no later than December 31 for the next year’s annual meeting of shareholders.
18
Audit Committee and Financial Expert
Our audit committee currently is comprised of Messrs. Borkowski, Kiesner and Serbin with Mr. Borkowski serving as chairman of the audit
committee. The functions of the audit committee include engaging an independent registered public accounting firm to audit our annual financial statements,
reviewing the independence of our auditors, the financial statements and the auditors’ report, and reviewing management’s administration of our system of
internal control over financial reporting and disclosure controls and procedures. The Board of Directors has adopted a written audit committee charter. A
current copy of the audit committee charter is available to security holders on our website at www.codiagnostics.com. Our board has determined that both of
our directors that are serving on the audit committee are “independent” under the definition of independence in the Marketplace Rules of the NASDAQ listing
standards.
Our Board of Directors has determined that Mr. Borkowski meets the requirements of an “audit committee financial expert” as defined in applicable
SEC regulations.
Compensation Committee
Our compensation committee currently includes Messrs. Serbin and Borkowski with Mr. Serbin serving as chairman of the compensation committee.
The functions of the compensation committee include reviewing and approving corporate goals relevant to compensation for executive officers, evaluating
the effectiveness of our compensation practices, evaluating and approving the compensation of our chief executive officer and other executives,
recommending compensation for board members, and reviewing and making recommendations regarding incentive compensation and other employee benefit
plans. The Board of Directors has adopted a written compensation committee charter. A current copy of the compensation committee charter is available to
shareholders on our website at www.codiagnostics.com. Our board has determined that both of our directors serving on the compensation committee are
“independent” under the definition of independence in the Marketplace Rules of the NASDAQ listing standards.
Corporate Governance and Nominating Committee
Our corporate governance and nominating committee currently includes Messrs. Kiesner, Borkowski and Serbin with Mr. Kiesner serving as
chairman of the corporate governance and nominating committee. The functions of the corporate governance and nominating committee is identifying and
recommending candidates to fill vacancies on the Board of Directors. Among its duties and responsibilities, the corporate governance and nominating
committee periodically evaluates and assesses the performance of the officers and directors; reviews the qualifications of candidates for director positions;
assists in identifying, interviewing and recruiting candidates for the Board of Directors and reviews the composition of each committee of the Board of
Directors. A current copy of the corporate governance and nominating committee charter is available to shareholders on our website at
www.codiagnostics.com. Our board has determined all directors serving on the corporate governance and nominating committee are “independent” under the
definition of independence in the Marketplace Rules of the NASDAQ listing standards.
Communication with the Board
We have not, to date, developed a formal process for shareholder communications with the board of directors. We believe our current informal
process, in which any communication sent to the board of directors, either generally or in care of the chief executive officer, secretary or other corporate
officer or director, is forwarded to all members of the board of directors, has served the board’s and the shareholders’ needs.
Conflicts of Interests
On an annual basis, each director and executive officer is obligated to complete a director and officer questionnaire that requires disclosure of any
transactions with our company, including related person transactions reportable under SEC rules, in which the director or executive officer, or any member of
his or her immediate family, have a direct or indirect material interest. Under our company’s standards of conduct for employees, all employees, including the
executive officers, are expected to avoid conflicts of interest. Pursuant to our code of ethics for the chief executive officer and senior finance officers (as
discussed below), such officers are prohibited from engaging in any conflict of interest unless a specific exception has been granted by the board. All of our
directors are subject to general fiduciary standards to act in the best interests of our company and our shareholders. Conflicts of interest involving an
executive officer or a director are generally resolved by the board.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of our common stock, to file
with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Executive officers, directors
and greater than 10% shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, and based on representations from our directors and executive officers, during the year ended December 31, 2018, our directors,
executive officers and greater than 10% shareholders complied with all Section 16(a) filing requirements.
19
Code of Ethics
We have adopted a code of ethics for our principal executive officer, principal financial officer, controller, or persons performing similar functions. A
copy of the code of ethics is included on our website at www.codiagnostics.com.
Family Relationships
There are no family relationships among our directors and executive officers.
ITEM 11. EXECUTIVE COMPENSATION
Throughout this section, the individuals who served as our chief executive officer and chief financial officer during 2017 and 2018 are collectively
referred to as the “named executive officers.”
The compensation committee has overall responsibility to review and approve our compensation structure, policy and programs and to assess
whether the compensation structure establishes appropriate incentives for management and employees. The compensation committee annually reviews and
determines the salary and any bonus and equity compensation that may be awarded to our chief executive officer, or CEO, and our chief financial officer, or
CFO. The compensation committee oversees the administration of our long-term incentive plan and employee benefit plans.
The compensation committee’s chairman regularly reports to the board on compensation committee actions and recommendations. The
compensation committee has authority to retain, at our expense, outside counsel, experts, compensation consultants and other advisors as needed.
Company Performance. Because of the stage of our company’s development, the compensation committee looks at various factors in evaluating the
progress the company has made and the services provided by the named executive officers. In considering executive compensation, the compensation
committee noted certain aspects of our financial performance and accomplishments in 2018 and 2017 including the following: (a) Development Milestones,
(b) Financial Milestones and (c) Sales and Marketing Milestones.
Compensation Philosophy. Our general compensation philosophy is designed to link an employee’s total cash compensation with our performance,
the employee’s department goals and individual performance. Given our stage of operations and limited capital resources, we are subject to various financial
restraints in our compensation practices. As an employee’s level of responsibility increases, there is a more significant level of variability and compensation at
risk. The compensation committee believes linking incentive compensation to our performance creates an environment in which our employees are
stakeholders in our success and, thus, benefits all shareholders.
Executive Compensation Policy. Our executive compensation policy is designed to establish an appropriate relationship between executive pay and
our annual performance, our long-term growth objectives, individual performance of the executive officer and our ability to attract and retain qualified
executive officers. The compensation committee attempts to achieve these goals by integrating competitive annual base salaries with bonuses based on
corporate performance and on the achievement of specified performance objectives, and to a lesser extent, awards through our long-term incentive plan. The
compensation committee believes that cash compensation in the form of salary and bonus provides our executives with short-term rewards for success in
operations. The compensation committee also believes our executive compensation policy and programs do not promote inappropriate risk-taking behavior by
executive officers that could threaten the value of our company.
In making compensation decisions, the compensation committee compares each element of total compensation against companies referred to as the
“compensation peer group.” The compensation peer group is a group of companies that the compensation committee selected from readily available
information about small companies engaged in similar businesses and with similar resources. The compensation committee selected these companies from
research on its own and with limited consultation with outside consultants given the size of the company and its resources to retain such experts. The types of
companies selected for the peer group included publically-traded technology development companies in the diagnostic testing industry. Since there are
relatively few companies in the rather narrow field of diagnostic testing the comparisons were limited to those that are publically traded whose financial
information could be readily accessed. The compensation committee determined these companies were appropriate for inclusion in the peer group because of
the similar nature of their businesses and their general stage of development and financial resources.
20
Role of Executive Officers in Compensation Decisions
The compensation committee makes all compensation decisions for the named executive officers and approves recommendations regarding equity
awards to all of our other senior management personnel. The CEO annually reviews the performance of the CFO and other senior management. The
conclusions reached and recommendations based on these reviews, including with respect to salary adjustments and annual award amounts, are presented to
the compensation committee. The compensation committee is charged with the responsibility of ensuring a consistent compensation plan throughout the
company and providing an independent evaluation of the proposed adjustments or awards at all levels of management. As such, the compensation committee
has determined that it have the discretion to modify or adjust any proposed awards and changes to management compensation to be able to satisfy these
responsibilities.
Stock Option Plans
Under our 2015 Long-term Incentive Plan (the “2015 Plan”), the board of directors may issue incentive stock options to employees and directors and
non-qualified stock options to consultants of the company. Options expire ten years after being granted. Options granted vest in accordance with the vesting
schedule determined by the board of directors, usually ratably over a two-year vesting schedule upon the anniversary date of the grant. Should an employee’s
director’s or consultant’s relationship with the company terminate before the vesting period is completed, the unvested portion of each grant is forfeited. We
continue to maintain and grant awards under the 2015 Plan which will remain in effect its expiration by its terms. The number of unissued stock options
authorized under the 2015 Plan at December 31, 2018 was 4,827,293.
The purpose of our incentive plan is to advance the interests of our stockholders by enhancing our ability to attract, retain and motivate persons who
are expected to make important contributions to the company by providing them with both equity ownership opportunities and performance-based incentives
intended to align their interests with those of our stockholders. These plans are designed to provide us with flexibility to select from among various equity-
based compensation methods, and to be able to address changing accounting and tax rules and corporate governance practices by optimally utilizing stock
options and shares of common stock.
Summary Compensation Table
The table below summarizes the total compensation paid or earned by each of the named executive officers in their respective capacities for the
fiscal years ended December 31, 2018, 2017 and 2016. When setting total compensation for each of the named executive officers, the compensation
committee reviewed tally sheets which show the executive’s current compensation, including equity and non-equity based compensation. We have omitted in
this report certain columns otherwise required to be included because there was no compensation made with respect to such columns, as permitted by
applicable SEC regulations.
Name and
Principal Position
Dwight H. Egan
President & Chief Executive Officer (1)
Reed L Benson
Chief Financial Officer and Secretary (2)
Brent Satterfield
Chief Technology Officer (3)
Salary
($)
Bonus
($)
Option
Awards
($)
All
Other
Compensation
Total
($)
275,000 $
195,000
23,750
200,000 $
195,000
—
237,500 $
159,300
81,096
12,500 $
15,000
—
10,000 $
10,000
—
— $
—
—
186,000 $
—
—
155,000 $
—
—
— $
—
—
— $
—
—
— $
—
—
— $
—
—
463,500
210,000
23,750
365,000
205,000
—
237,500
159,300
81,096
Year
2018
2017
2016
2018
2017
2016
2018
2017
2016
$
$
$
(1)
The amounts shown in the salary column for 2016 reflects amounts paid by the Company to Reagents, LLC that were specifically designated as
compensation for Mr. Egan.
(2) Mr. Benson is a member of Legends Capital Group, LLC, which received consulting income from the Company in 2016. However, Mr. Benson did not
receive any of the funds received by Legends Capital Group from the Company.
(3) Dr. Satterfield also received royalties from the Company in the amount of $2,500 in 2016, $170,000 in 2017 and $100,000 in 2018 pursuant to a
technology license agreement that was amended in January 2017 to terminate the ongoing royalties and the payments in 2017 and 2018 reduced accrued
royalties.
21
Other Compensation
We do not have any non-qualified deferred compensation plan.
Outstanding Equity Awards at Fiscal Year-End
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(b)
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(c)
50,000
41,667
100,000
83,333
Name
(a)
Dwight H. Egan
Reed L Benson
Option Exercise
Price ($)
(d)
2.63
2.63
Option Expiration
Date
(e)
01/15/2025
01/15/2025
Number of
Shares or Units
of Stock that
have not Vested
(#)
(f)
Market Value of
shares or Units
of Stock that
have not Vested
($)
(g)
Number of
Unearned
shares, units or
other rights that
have not vested
(#)
(h)
Market or
payout value of
unearned
shares, units or
other rights that
have not vested
($)
(i)
—
—
—
—
—
—
—
—
Potential Payments Upon Termination or Change of Control
There is no compensation payable to the named executive officers upon voluntary termination, retirement, involuntary not-for-cause termination,
termination following a change of control or in the event of disability or death of the executive.
Compensation Committee Interlocks and Insider Participation in Compensation Decisions
None of our executive officers served as a member of the compensation committee or as a director of any other company.
Director Compensation
We use a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on its board of directors. In
setting director compensation, we consider the significant amount of time that directors expend in fulfilling their duties as well as the skill-level required by
our members of the board.
Our non-employee directors generally receive fees of $35,000 per year, paid quarterly, $10,000 per year for serving as chairman of any Board
committee and $5,000 for serving as a member of other Board committees. In addition, each director receives an initial grant of stock options to purchase
20,455 shares (thereafter annual grants of 4,545 options or restricted stock units) of our common stock with an exercise price equal to the fair market value of
the stock on the date of grant. The board approved and the non-employee directors accepted the 2018 compensation set forth in the director summary
compensation table below. In addition, non-employee directors may be entitled to receive special awards of stock options from time to time as determined by
the board. The chairman of the board and the chairman of each of the audit and compensation committees receive no additional fees for serving in such
capacities. There is no additional compensation for meeting attendance. Directors who are employees of the Company receive no additional compensation for
serving as directors. All stock options granted to outside directors are immediately exercisable and expire ten years from the date of grant. Directors are
reimbursed for ordinary expenses incurred in connection with attending board and committee meetings.
22
Director Summary Compensation Table
The table below summarizes the compensation paid or accrued by us to our directors for the fiscal year ended December 31, 2018.
(a)
Name
Dwight H. Egan (1)
Dr. Brent Satterfield (1)
Frank Kiesner
Richard Serbin
Edward J. Borkowski
(b)
Fees Earned or Paid
in Cash
($)
(c)
Options/Awards
($)
(d)
Restricted Stock
Units
($)
(e)
Total
($)
$
$
—
—
55,000
55,000
55,000
$
$
—
—
—
—
—
— $
—
— $
—
—
—
—
55,000
55,000
55,000
(1) Messers Egan and Satterfield receive no compensation for serving as a director, but are compensated in their capacity as Company President and Chief
Science Officer, respectively.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The following table sets forth certain information, as of March 19, 2019, with respect to the holdings of (1) each person who is the beneficial owner
of more than 5% of our Common Stock, (2) each of our directors, (3) each executive officer, and (4) all of our current directors and executive officers as a
group.
Beneficial ownership of the common stock is determined in accordance with the rules of the Securities and Exchange Commission and includes any
shares of common stock over which a person exercises sole or shared voting or investment power, or of which a person has a right to acquire ownership at
any time within 60 days of the date of this Annual Report. Except as otherwise indicated, we believe that the persons named in this table have sole voting and
investment power with respect to all shares of common stock held by them. Applicable percentage ownership in the following table is based on 17,015,766
shares of common stock plus, for each individual, any securities that individual has the right to acquire within 60 days of March 19, 2019.
To the best of our knowledge, except as otherwise indicated, each of the persons named in the table has sole voting and investment power with
respect to the shares of our common stock beneficially owned by such person, except to the extent such power may be shared with a spouse. To our
knowledge, none of the shares listed below are held under a voting trust or similar agreement, except as noted. To our knowledge, there is no arrangement,
including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the
Company.
Name and Address of Beneficial Owner
Officers and Directors
Title
Beneficially
Percent of Class
Dwight H. Egan (1)(2)
Reed L. Benson (1)(3)
Dr. Brent Satterfield (1)(7)
Edward J. Borkowski
Frank J. Kiesner
Richard S. Serbin
Chief Executive Officer, President and Chairman
Chief Financial Officer and Secretary
Chief Science Officer and Director
Director
Director
Director
Officers and Directors as a Group (total of 6 persons)(4)
5% Stockholders
Legends Capital Group, LLC (5)
Reagents, LLC (6)
* less than 1%
50,000
41,667
1,359,794
20,455
20,455
20,455
1,512,826
1,266,784
1,746,796
*
*
8%
*
*
*
9%
7%
10%
(1) The address is 2401 S. Foothill Drive, Suite D, Salt Lake City, Utah 84109.
(2) Includes presently exercisable options to acquire 50,000 shares of common stock.
(3) Includes presently exercisable options to acquire 41,667 shares of common stock.
(4) Includes presently exercisable options to acquire a total of 153,032 shares of common stock held by all directors and executive officers.
(5) Legends Capital Group, LLC, with an address of 782 E Foothill Drive, Draper, Utah 84020, is beneficially owned by Jason Briggs, who has voting power
of the stock. Reed Benson, an officer of the Company, owns an 11% equity interest in Legends Capital Group, LLC.
(6) Reagents, LLC, with an address of 8160 S. Highland Drive, Salt Lake City, UT 84093, is beneficially owned by Seth Egan.
(7) The shares owned by Dr. Satterfield are subject to pending litigation regarding a loan and pledge agreement with lenders.
23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The Company acquired the exclusive rights to the CoPrimer technology pursuant to a license agreement dated April 2014, between us and DNA
Logix, Inc., which was assigned to Dr. Satterfield prior to our acquisition of DNA Logix, Inc. Pursuant to the license the Company was to pay Dr. Satterfield
minimum royalty payments of $30,000 per month until the Company receives an equity funding of at least $4,000,000, at which time the payments increase
to $60,000 per month for the remainder of the year. The payment terms were orally modified to maintain the monthly royalties at $30,000 per month through
December 2016. On March 1, 2017, the Company entered into an amendment effective January 1, 2017, to its Exclusive License Agreement for its CoPrimer
(“License”) technology with Dr. Satterfield, a member of our Board of Directors. The amendment provides in part that all royalties under the License cease as
of January 1, 2017, and we began in January 2017 to pay $700,000 of accrued royalties at the rate of $10,000 per month. For the year ending December 31,
2017, the Company included $107,500 as an expense for this license agreement in research and development. In 2017 and 2018, we paid Dr. Satterfield
$170,000 and $100,000, respectively, in payment of the accrued royalties.
We paid consulting fees to a company who is also a significant shareholder. The shareholder was paid a total of $75,000 in 2017 for expenses
accrued in 2016.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees for professional services provided by our current independent auditors for each of the last two fiscal years, in each of the following categories,
are as follows:
Audit fees
Audit-related fees
Tax fees
All other fees
Total
$
$
2018
2017
67,650 $
—
2,913
—
70,563 $
96,531
—
—
—
96,531
Audit fees included fees associated with the annual audit and reviews of our annual and quarterly reports for 2018 and our annual report for 2107. In
addition, the fees for 2017 included fees associated with our registration statement under the Securities Act of 1933, as amended, filed with the SEC. All audit
fees incurred during 2018 were pre-approved by the audit committee. All audit fees incurred during 2017 were pre-approved by our Board of Directors.
Tax fees included fees associated with tax compliance and tax consultations. All tax fees incurred during 2018 were pre-approved by the audit
committee. All tax fees incurred during 2017 were pre-approved by our Board of Directors.
The audit committee has adopted a policy that requires advance approval of all services performed by the independent auditor when fees are
expected to exceed $15,000. The audit committee has delegated to the audit committee chairman, Mr. Borkowski, authority to approve services, subject to
ratification by the audit committee at its next committee meeting.
24
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Exhibit
Number Description
1.1
3.1
Underwriting Agreement (5)
Articles of Incorporation (1)
3.1.1
Amendment to the Articles of Incorporation (1)
3.2
5.1
Bylaws (1)
Legal Opinion of Carmel, Milazzo & DiChiara LLP (6)
10.1
Subscription Agreement between Co-Diagnostics, Inc. and CoDiagnostics, Ltd., dated April 30, 2013 (1)
10.1.1
Amendment to Subscription Agreement between Co-Diagnostics, Inc. and CoDiagnostics, Ltd., dated May 1, 2015 (1)
10.2
10.3
10.4
10.5
10.6
10.7
Exclusive Agreement between Co-Diagnostics, Inc. and DNA Logix, Inc., dated April 18, 2014 (1)
Stock Exchange Agreement among Co-Diagnostics, Inc., DNA Logix, Inc., and the Shareholders of DNA Logix, Inc., dated January 22, 2015
(1)
Revolving Line of Credit Promissory Note between Co-Diagnostics, Inc. and Co-Diagnostics, LTD, dated August 1, 2015 (1)
10% Convertible Note between Co-Diagnostics, Inc. and Robert Salna for $200,000, dated September 1, 2016 (1)
Exclusive License Agreement between Co-Diagnostics, Inc. and Watermark Group Inc., dated October 13, 2016 (1)
Securities Purchase Agreement with Exhibits between Co-Diagnostics and Senior Holders, dated December 12, 2016 (1)
10.7.1
Form of Amendment Agreement (6)
10.7.2
Form of Second Amendment Agreement
10.8
10.9
10.10
10.11
10.12
10.13
Securities Purchase Agreement with Exhibits between Co-Diagnostics and Beaufort Capital Partners, LLC, dated December 12, 2016 (1)
2015 Long-Term Incentive Plan (2)
Subscription Agreement between Co-Diagnostics and Co-Diagnostics, Ltd. for 454,545 shares of Co-Diagnostic’s common stock, dated April
20, 2013 (3)
Subscription Agreement between Co-Diagnostics and Prosperity Investments for $100,000, dated June 2014. (3)
12% Convertible Note between Co-Diagnostics, Inc. and Beaufort Capital Partners, LLC for $500,000, dated May 15, 2015 (3)
Form Revolving Line of Credit Promissory Note between Co-Diagnostics and Turks and Caicos Limited Company, Pine Valley Investments,
LLC, Clavo Rico Incorporated, Legends Capital Group, LLC, Hamilton Mining Resources, Inc., and Machan 1988 Property Trust. (3)
10.13.1
Amendment to 12% Revolving Line of Credit Promissory Note, dated August 1, 2015, between Co-Diagnostics and Co-Diagnostics, Ltd., for
$750,000, dated September 14, 2016. (3)
25
10.13.2
10.13.3
10.13.4
10.13.5
10.13.6
Amendment to 12% Revolving Line of Credit Promissory Note, December 30, 2015, between Co-Diagnostics and Pine Valley Investments,
LLC for $100,000, dated September 14, 2016. (3)
Amendment to 12% Revolving Line of Credit Promissory Note, February 22, 2016, between Co-Diagnostics and Clavo Rico Incorporated for
$10,000, dated September 14, 2016. (3)
Amendment to 12% Revolving Line of Credit Promissory Note, March 1, 2016, between Co-Diagnostics and Legends Capital Group, LLC for
$100,000, dated September 14, 2016. (3)
Amendment to 12% Revolving Line of Credit Promissory Note, May 15, 2016, between Co-Diagnostics and Hamilton Mining Resources, Inc.
for $75,000, dated September 14, 2016. (3)
Amendment to 12% Revolving Line of Credit Promissory Note, May 30, 2016, between Co-Diagnostics and Machan 1988 Property Trust for
$50,000, dated September 14, 2016. (3)
10.13.7
Form Second Amendment to 12% Revolving Line of Credit Promissory Note Due 2017 between Co-Diagnostics, Inc. and CoDiagnostics,
Ltd., Pine Valley Investments, LLC, Clavo Rico Incorporated, Legends Capital Group, LLC, and Hamilton Mining Resources, Inc. (4)
10.13.8
Form of Indemnification Agreement. (4)
10.14
10.15
10.16
10.17
10.18
10.19
10.20
14.1
21.1
23.1
23.2
31.1
31.2
32.1
Form 8.5% Convertible Note between Co-Diagnostics and Legends Capital Group, LLC for $100,000, dated November 12, 2015 and R.
Phillip Zobrist for $100,000, dated December 1, 2015. (3)
Form 10% Convertible Note between Co-Diagnostics and Legends Capital Opportunity Fund, LLC for $15,000, DAV Capital Management
Corp. for $15,000, April Kameka for $40,000, and Mark Kovacic for $50,000. (3)
Shareholders’ Agreement between Co-Diagnostics and Synbiotics Limited, dated January 27, 2017. (3)
Amended Exclusive License Agreement between Co-Diagnostics, Brent Satterfield, and DNA Logix, Inc., dated January 1, 2017. (3)
Stock Purchase Agreement between Co-Diagnostics and Ted Murphy for 1,800,000 shares of Watermark Group, Inc.’s common stock, dated
September 22, 2016. (3)
Non-Interest Bearing Note between Co-Diagnostics and Zika Diagnostics, Inc. f/k/a/ Watermark Group, Inc. for $445,000, dated March 20,
2017. (3)
Mutual Rescission Agreement of the Stock Purchase Agreement, dated September 22, 2016, and the License Agreement, dated October 13,
2016, between Co-Diagnostics, Robert Salna, and Ted Murphy, dated March 30, 2017. (3)
Code of Ethics of the Company
Subsidiaries of Registrant (1)
Consent of Haynie & Company
Consent of Carmel, Milazzo & DiChiara LLP (see Exhibit 5.1)
Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
* Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the Draft Registration Statement filed with the SEC on January 11, 2017.
(2) Incorporated by reference to the Draft Registration Statement filed with the SEC on March 27, 2017.
(3) Incorporated by reference to the Form S-1 filed with the SEC on April 28, 2017.
(4) Incorporated by reference to the Form S-1/A filed with the SEC on May 24, 2017.
(5) Incorporated by reference to the Form S-1/A filed with the SEC on June 9, 2017.
(6) Incorporated by reference to the Form S-1/A filed with the SEC on June 23, 2017.
26
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIGNATURES
Date: March 29, 2019
CO-DIAGNOSTICS, INC.
By: /s/ Dwight Egan
Dwight Egan
Chief Executive Officer, President and Director
(Principal Executive Officer and Interim Principal Financial and
Accounting Officer)
By: /s/ Reed L. Benson
Reed L. Benson
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer
In accordance with the Exchange Act, this report has been signed below by the following persons on March 29, 2019, on behalf of the registrant and
in the capacities Indicated.
/s/ Dwight Egan
Dwight Egan
/s/ Reed L. Benson
Reed L. Benson
/s/ Brent Satterfield
Brent Satterfield
/s/ Edward J. Borkowski
Edward J. Borkowski
/s/ Frank J.Kiesner
Frank J. Kiesner
/s/ Richard S. Serbin
Richard S. Serbin
Signature
Title
Chief Executive Officer, President and Director
Chief Financial Officer and Secretary
Director
Director
Director
Director
27
Co-Diagnostics, Inc.
Code of Ethics for Senior Financial Officers
Co-Diagnostics, Inc. (the “Corporation”) believes that senior financial officers, including, but not limited to the Corporation’s chief executive officer,
principal financial officer, controller or principal accounting officer, and persons who perform similar functions (collectively, the “Senior Financial Officers”),
hold an important and elevated role in corporate governance. The Corporation vests Senior Financial Officers with both the responsibility and authority to
protect, balance, and preserve the interests of all persons involved with the Corporation, including but not limited to shareholders, customers, employees, and
suppliers. Senior Financial Officers fulfill this responsibility by prescribing and enforcing the policies and procedures employed in the operation of the
Corporation’s finance department.
The Corporation shall consistently enforce its Code of Ethics through appropriate means of discipline. Violations of the Code of Ethics shall be
promptly reported to the Corporation’s Audit Committee. Pursuant to procedures adopted by it, the Audit Committee shall determine whether violations of
the Code of Ethics have occurred and, if so, shall determine the disciplinary measures to be taken against any Senior Financial Officer or member of the
Corporation’s finance department who has so violated this Code of Ethics.
The disciplinary measures, which may be invoked at the discretion of the Audit Committee, include, but are not limited to, counseling, oral or
written reprimands, warnings, probation or suspension without pay, demotions, reductions in salary, termination of employment, and restitution.
Persons subject to disciplinary measures shall include, in addition to the violator, others involved in the wrongdoing such as (i) persons who fail to
use reasonable care to detect a violation, (ii) persons who if requested to divulge information withhold material information regarding a violation, and (iii)
supervisors who approve or condone the violations or attempt to retaliate against employees or agents for reporting violations or violators.
I. Honest and Ethical Conduct
Senior Financial Officers will exhibit and promote the highest standards of honesty and ethical conduct through the establishment and operation of
policies and procedures that:
● Encourage and reward professional integrity in all aspects of the finance department, by eliminating inhibitions and barriers to responsible behavior,
such as coercion, fear of reprisal, or alienation from the finance department or the Corporation itself.
● Prohibit and eliminate the appearance or occurrence of conflicts between what is in the best interest of the Corporation and what could result in
material personal gain for a member of the finance department, including Senior Financial Officers. Such conflicts may include (i) employment by a
competitor, or potential competitor, regardless of the nature of the employment, while employed by the Corporation, (ii) acceptance of gifts,
payment, or services from those seeking to do business with the Corporation, (iii) placement of business with a firm owned or controlled by an
officer, director or employee of the Corporation or his/her family, (iv) ownership of, or substantial interest in, a company that is a competitor, client
or supplier of the Corporation, (v) acting as a consultant to a customer, client or supplier of the Corporation, or (vi) seeking the services or advice of
an accountant or attorney who has provided services to the Corporation. Members of the finance department, including Senior Financial Officers, are
under a continuing obligation to disclose any situation that presents the possibility of a conflict or disparity of interest between the member and the
Corporation. Disclosure of any potential conflict is the key to remaining in full compliance with this Code of Ethics.
1
● Provide a mechanism for members of the finance department to inform senior management promptly of deviations in practice from policies and
procedures governing honest and ethical behavior.
● Ensure that the Corporation’s proprietary information not be disclosed to anyone without proper authorization.
● Demonstrate their personal support for such policies and procedures through periodic communication reinforcing these ethical standards throughout
the finance department.
II. Financial Records and Periodic Reports
Senior Financial Officers will establish and manage the Corporation’s transaction and reporting systems and procedures to ensure that:
● Business transactions are properly authorized and completely and accurately recorded on the Corporation’s books and records in accordance with
Generally Accepted Accounting Principles (“GAAP”) and established Corporation financial policy.
● The retention or proper disposal of Corporation records shall be in accordance with established industry financial policies and applicable legal and
regulatory requirements.
● Periodic financial communications and reports will be delivered in a manner that facilitates the highest degree of clarity of content and meaning so
that readers and users will quickly and accurately determine their significance and consequence.
III. Compliance with Applicable Laws, Rules and Regulations
Senior Financial Officers will establish and maintain mechanisms to:
● Educate members of the finance department about any federal, state or local statute, regulation or administrative procedure that affects the operation
of the finance department and the Corporation generally, including but not limited to prohibitions against insider trading.
● Monitor the compliance of the finance department with any applicable federal, state or local statute, regulation or administrative rule.
● Identify, report, and correct in a swift and certain manner any detected deviations from applicable federal, state or local statute or regulation.
● Ensure that disclosure in documents filed with the Securities and Exchange Commission and in other public communications is full, fair, accurate,
timely, and understandable.
2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
AND RULE 13A-14 OF THE EXCHANGE ACT OF 1934
CERTIFICATION
EXHIBIT 31.1
I, Dwight Egan, certify that:
1.
I have reviewed this annual report on Form 10-K of Co-Diagnostics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d –
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: March 29 , 2019
/s/ Dwight Egan
Dwight Egan
Chief Executive Officer, President and Principal Executive Officer
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
AND RULE 13A-14 OF THE EXCHANGE ACT OF 1934
CERTIFICATION
EXHIBIT 31.2
I, Reed Benson, certify that:
1.
I have reviewed this annual report on Form 10-K of Co-Diagnostics, Inc..;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d –
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: March 29 , 2019
/s/ Reed Benson
Reed Benson
Chief Financial Officer and Principal Financial and Accounting Officer
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S. C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of Co-Diagnostics, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2018, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Dwight Egan, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 29 , 2019
/s/ Dwight Egan
Dwight Egan
Chief Executive Officer, President and Principal Executive Officer
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S. C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report of Co-Diagnostics, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2018 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Reed Benson, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 29 , 2019
/s/ Reed Benson
Reed L Benson
Chief Financial Officer and Principal Financial and Accounting Officer