# Co-Diagnostics, Inc.: Form 10-K for the period ended Dec 31, 2017

- Company: [Co-Diagnostics, Inc.](/companies/codx.md) (CIK 1692415)
- Form: 10-K
- Filed: 2018-03-28
- Accepted by EDGAR: Mar 28, 2018, 11:52 ET
- Period: 2017-12-31
- Accession: 0001477932-18-001468
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1692415/000147793218001468/codx_10k.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1692415/000147793218001468/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 12 months, 2017-01-01 to 2017-12-31 | $302 | us-gaap:CostOfRevenue |
| Gross profit | 12 months, 2017-01-01 to 2017-12-31 | $7.4k | us-gaap:GrossProfit |
| Research and development | 12 months, 2017-01-01 to 2017-12-31 | $1.0m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 12 months, 2017-01-01 to 2017-12-31 | −$4.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 12 months, 2017-01-01 to 2017-12-31 | $310.2k | us-gaap:InterestExpense |
| Net income | 12 months, 2017-01-01 to 2017-12-31 | −$7.0m | us-gaap:NetIncomeLoss |
| Operating cash flow | 12 months, 2017-01-01 to 2017-12-31 | −$3.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 12 months, 2017-01-01 to 2017-12-31 | $129.3k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2017-12-31 | $3.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2017-12-31 | $4.5m | us-gaap:AssetsCurrent |
| Total assets | at 2017-12-31 | $4.7m | us-gaap:Assets |
| Current liabilities | at 2017-12-31 | $628.3k | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2017-12-31 | $811.8k | us-gaap:Liabilities |
| Shareholders' equity | at 2017-12-31 | $3.9m | us-gaap:StockholdersEquity |

## Business

As filed, 18,176 characters.

### Overview

Co-Diagnostics, Inc. (“Company,” or “CDI,”), 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), and to sell diagnostic equipment from other manufacturers as self-contained lab systems (which we refer to as the “MDx device”).

In addition, the unique properties of our Co-Primer 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.

Dr. Brent Satterfield, our Chief Technology Officer, created the Company’s suite of intellectual properties. 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 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. 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 will 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.

CDI’s low-cost system (pictured at right) uses CDI’s tests to diagnose tuberculosis, Zika, hepatitis B and C, Malaria, dengue and HIV, all of which tests have been designed and verified in CDI’s laboratory as explained below.

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.

CDI’s diagnostics systems enable very rapid, low-cost, sophisticated molecular testing for organisms and genetic diseases by greatly 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.

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.

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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 | Region | Tests |
| --- | --- | --- |
| Current (revenues in the 2nd quarter in 2018) | Caribbean and Central and South America | Zika, Tuberculosis, Hepatitis B and C, Dengue |
|  | India | Tuberculosis, Hepatitis B and C, Malaria, Dengue and HIV |
| 2018-2019 | European Union; Asia | Tuberculosis, Hepatitis B and C |
| 2020-2025 | United States | 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 will first offer 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 third quarter of 2018.

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.

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). We currently have a tuberculosis test and tuberculosis test that measures drug resistance to aid in more effective treatment.

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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 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 expect to have our Zika and tuberculosis tests CE-marked in 2018. 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 diagnostic tests are:

|  |  |  |  |
| --- | ---: | --- | ---: |
| Tuberculosis | 10,400,000 | HIV | 36,700,000 |
| Multi-drug resistant Tuberculosis | 580,000 | Malaria | 214,000,000 |
| Zika | 324,000,000 | Sexually Transmitted Illnesses | 357,000,000 |
| Hepatitis B | 240,000,000 | Human papilloma virus | 291,000,000 |
| Hepatitis C | 130,000,000 | Dengue | 390,000,000 |
| Total Annual Tests |  |  | 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.

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### 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 development provides shorter time to results.
- ***Accuracy***: We believe our tests are more accurate than competitors’ and can detect more strains of viruses.
- ***Exclusivity:*** CDI owns all patents used in preparation of its tests, all intellectual property including a 100-year license on Co-Primers and all additional product and process development of Dr. Satterfield through March 2019.
- ***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:*** We believe 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.

### Primer Design Product Offering

In addition, the unique properties of our Co-Primer 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 Co-Primers, 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.

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### 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.

### 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.

## Properties

As filed, 321 characters.

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 7,015 square feet of lab and office space leased at a rate of $11,109 per month. We have no other properties.

## Legal proceedings

As filed, 394 characters.

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, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties or businesses are subject, which would reasonably be likely to have a material adverse effect on the Company.

## Management's discussion and analysis

As filed, 17,871 characters.

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,”), a Utah corporation, is a molecular diagnostics company that has developed, and intends to sell molecular diagnostic technology such as lab systems (which we refer to as the “MDx device”) and manufacture and sell reagents used for tests that are designed using the detection and/or analysis of nucleic acid molecules (DNA or RNA).

In addition, the unique properties of our Co-Primer 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.

Dr. Brent Satterfield, our Chief Technology Officer, created the Company’s suite of intellectual properties. 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 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’s technologies are now protected by five granted or pending US patents, as well as certain trade secrets. Ownership of our proprietary platform permits us to avoid paying existing patent royalties required by other PCR test systems, which grants us the opportunity of selling diagnostic labs and tests at a lower cost than competitors, while generating a profit margin.

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### 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 | CDI Share | Synbiotics Share |
| --- | ---: | ---: |
| Up to $1,000,000 | 50% | 50% |
| $1,000,000-$2,000,000 | 60% | 40% |
| $2,000,000-$3,000,000 | 70% | 30% |
| Above $3,000,000 | 80% | 20% |

Synbiotics will be reimbursed by the joint venture for some expenses, such as approximately $84,000 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.

### 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. Three of our initial U.S. patents related to our technology have been granted by the U.S. Patent and Trademark Office, or PTO. As of March 19, 2018, we had two additional patents pending in the U.S. and foreign counterpart applications. Two of our issued patents expire in 2034 and the other patent expires in 2036.

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 through 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.

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

### Employees

We currently employ 15 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.

### 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 7,015 square feet of lab and office space leased at a rate of $11,109 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, 2017 and 2016

| Table derived from audited financial statements | For the years ended December 31, 2017 | December 31, 2016 |
| --- | ---: | ---: |
| Net sales | $7,662 | $-- |
| Cost of sales | 302 | -- |
| Gross profit | 7,360 | -- |
| Operating expenses: |  |  |
| Selling and marketing | 426,711 | 122,105 |
| Administrative and general | 3,095,791 | 796,896 |
| Research and development | 1,003,167 | 731,474 |
| Depreciation and amortization | 45,758 | 37,491 |
| Total operating expenses | 4,571,427 | 1,687,966 |
| Total operating loss | (4,564,067) | (1,687,966) |
| Other expense: |  |  |
| Interest expense | (310,233) | (240,720) |
| Loss on Extinguishment of Debt | (2,072,365) | -- |
| Net loss from investment in joint venture | (16,396) | -- |
| Interest income | 3,829 | -- |
| Total other expense | (2,395,165) | (240,720) |
| Loss before income taxes | (6,959,232) | (1,928,686) |
| Provision for income taxes | -- | -- |
| Net loss | $(6,959,232) | $(1,928,686) |

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### Revenues

We had no sales of products in the twelve months ended December 31, 2017 and 2016. However, we had licensing revenue of $6,062 in 2017, other service revenue of $1,000 and leased equipment revenue of $600, but no revenue from sales of diagnostic tests.

### Cost of Revenues and Gross Profit

We had no sales of products in the twelve months ended December 31, 2017 and 2016. We had licensing revenue in 2017, but there were no costs associated with the license revenue. We recorded $302 in depreciation on the leased equipment as a cost of sale.

### Operating Expenses

We incurred total operating expenses of $4,571,427 for the year ended December 31, 2017 compared to total operating expenses of $1,687,966 for the year ended December 31, 2016. The increase of $2,883,461 was due to an increase in general and administrative of $2,298,895, an increase in sales and marketing costs of $304,606, an increase of $271,693 in our research and development expenses and an increase in depreciation and amortization expense of $8,267.

Our general and administrative expenses increased $2,298,895 from $796,896 for the year ended December 31, 2016 to $3,095,791 for the year ended December 31, 2017. The increase was primarily the result of an increase of $972,403 in other professional services and an increase of $900,662 in consulting services both of which primarily represented expenses incurred related to our stock being publicly traded. Salaries and related benefits increased $225,368 resulting from an increase in staff and salaries following the closing of our public financing. Legal and professional fees increased $69,410 primarily incident to the completion of our public financing and our stock being publicly traded. Our option and warrant expense increased $52,694 representing options issued to our board of directors.

Our sales and marketing expenses for the year ended December 31, 2017 were $426,711 compared to sales and marketing expenses of $122,105 for the year ended December 31, 2016. The increase of $304,606 is due primarily to an increase of $170,932 in salaries and related benefits, and an increase of $93,513 in travel expenses, which were incurred as we increased our sales efforts. In addition, advertising and promotion expense increased $12,931.

Our research and development expenses increased by $271,693 from $731,474 for the year ended December 31, 2016 to $1,003,167 for the year ended December 31, 2017. The increase was primarily due to an increase of $324,389 in salaries and related benefits as we increased staff following completion of our public financing. In addition, lab supplies consumed by the increased research activities increased $194,463. The increase in expenses was partially offset by a reduction of $252,500 reduction in technology license royalties and a reduction of $50,626 in consulting fees.

### Interest and Other Expense

We recorded interest expense of $240,720 in the year ended December 31, 2016 compared with interest expense of $310,233 in the year ended December 31, 2017. The increase of $69,513 was primarily the result of our bridge financing of approximately $1,100,000 being outstanding for approximately six months in 2017 compared with one month in 2016.

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We incurred a loss on the extinguishment of debt of $2,072,365 when all of our outstanding debt was retired through conversion of the debt to common stock incident to our public financing. In addition, we incurred expenses incident to our India joint venture of approximately $16,396, all of which was partially offset by realizing $3,829 in interest income.

### Net Loss

We had net loss of $6,959,232 for the year ended December 31, 2017 compared to a net loss of $1,928,686 for the year ended December 31, 2016. The increase in net loss for the year ended December 31, 2017 compared to the year ended December 31, 2016 was $5,030,546 resulted primarily from increased operating expenses explained in more detail above and the realization of the loss on extinguishment of debt referenced 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, 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. At December 31, 2016, we had cash and cash equivalents of $998,737, total current assets of $1,208,398, total current liabilities of $3,845,413 and total stockholders' deficit of $2,994,586.

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, 2017 of $3,211,401 compared to negative cash flow used in operations for the twelve months ended December 31, 2016 of $1,312,267. The negative cash flow was met by cash reserves, issuances of short term debt, sale of an exclusive license to sell our Zika test and related mosquito borne illnesses and most recently from the issuances of common stock incident to the completion of our initial public offering. 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 initial public offering. We expect additional investment capital to come from (i) additional private placements of our common stock 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 $267,616 per month during the year ended December 31, 2017. 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, 2016 to fund our negative cash flow for the next year without raising additional capital and therefore in July completed our initial public 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.

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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 expenses will continue until we are able to generate revenue. Our business model contemplates that revenue will commence in 2018 and our need for additional investment will depend on the amount of revenue generated.

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.

To date, we have met our working capital needs primarily through funds received from sales of our common stock and from convertible debt financings. Until our operations become profitable, we will continue to rely on proceeds received from external funding. We expect additional investment capital may come from additional private placements of our common stock with existing and new investors and the private placement of other securities with investors similar to those that have provided funding in the past.

### Off-Balance Sheet Arrangements

As of December 31, 2017, we had no off-balance sheet arrangements.

## Controls and procedures

As filed, 2,087 characters.

### (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 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.

### (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.

Filed Mar 28, 2018.
Source: SEC EDGAR, the filing index for accession 0001477932-18-001468. Last ingested by Listed: Nov 4, 2026, 18:23 ET. No prices; not investment advice.