# Co-Diagnostics, Inc.: Form 10-Q for the period ended Sep 30, 2019

- Company: [Co-Diagnostics, Inc.](/companies/codx.md) (CIK 1692415)
- Form: 10-Q
- Filed: 2019-11-12
- Accepted by EDGAR: Nov 12, 2019, 16:01 ET
- Period: 2019-09-30
- Accession: 0001493152-19-016885
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1692415/000149315219016885/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1692415/000149315219016885/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-07-01 to 2019-09-30 | $41.4k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2019-01-01 to 2019-09-30 | $106.4k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2019-07-01 to 2019-09-30 | $20.4k | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2019-01-01 to 2019-09-30 | $59.6k | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2019-07-01 to 2019-09-30 | $21.1k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2019-01-01 to 2019-09-30 | $46.8k | us-gaap:GrossProfit |
| Research and development | 3 months, 2019-07-01 to 2019-09-30 | $331.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2019-01-01 to 2019-09-30 | $990.9k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2019-07-01 to 2019-09-30 | −$1.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2019-01-01 to 2019-09-30 | −$4.3m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2019-07-01 to 2019-09-30 | −$1.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2019-01-01 to 2019-09-30 | −$4.5m | us-gaap:NetIncomeLoss |
| Operating cash flow | 9 months, 2019-01-01 to 2019-09-30 | −$3.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2019-01-01 to 2019-09-30 | $77.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2019-09-30 | $2.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-09-30 | $3.1m | us-gaap:AssetsCurrent |
| Total assets | at 2019-09-30 | $3.8m | us-gaap:Assets |
| Current liabilities | at 2019-09-30 | $307.9k | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2019-09-30 | $477.9k | us-gaap:Liabilities |
| Shareholders' equity | at 2019-09-30 | $3.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 29,521 characters.

### Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties. All statements other than statements of historical fact contained in this Quarterly Report and the documents incorporated by reference herein, including statements regarding future events, our future financial performance, business strategy, and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors and the documents incorporated by reference herein, which may affect our or our industry’s actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a highly regulated, very competitive, and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short term and long-term business operations, and financial needs. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report, and in particular, the risks discussed below and under the heading “Risk Factors” in other documents we file with the SEC. The following discussion should be read in conjunction with the Annual Report on Form 10-K for the fiscal years ended December 31, 2018 and 2017, notes incorporated by reference therein and other reports filed with the SEC. 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 Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statement.

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

- our ability complete capital raising transactions to fund continuing operations;
- our ability to develop and commercialize new and improved products and services;
- 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;
- the results of clinical trials and the regulatory approval process;
- the results of clinical trials and the regulatory approval process;
- changes in government regulation;
- and other factors relating to our industry, our operations and results of operations.

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

### Critical Accounting Policies

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

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

### Executive Overview

The following management’s discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of our operations, financial condition, and changes in financial condition. This discussion should be read in conjunction with the accompanying unaudited financial statements, and notes thereto, included elsewhere in this report. The information contained in this discussion is subject to a number of risks and uncertainties. We urge you to review carefully the section of this report entitled “*Forward-Looking Statements”* for a more complete discussion of the risks and uncertainties associated with an investment in our securities.

### Overview

Co-Diagnostics, Inc. (“we,” “our,” or “Company”) is developing robust and innovative molecular tools for detection of infectious diseases, liquid biopsy for cancer screening, and agricultural applications. We are 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 test products we may sell diagnostic equipment from other manufacturers as self-contained lab systems (which we refer to as the “MDx device”).

Our diagnostics systems enable very rapid, low-cost, molecular testing for organisms and genetic diseases by automating historically complex procedures in both the development and administration of tests. Our newest technical advance involves a novel approach to PCR test design (“CoPrimers”) that eliminates one of the key vexing issues of PCR amplification occurring especially in multiplexed transactions, which is the exponential growth of primer-dimer pairs (false positives and false negatives) adversely interfering 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 us to be a low-cost provider of molecular diagnostics and screening services.

In addition, continued development has demonstrated the unique properties of our CoPrimer technology that make them ideally suited to a variety of applications where specificity is key to optimal results, including multiplexing several targets simultaneously, 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” primers and probes for DNA tests 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. Our technologies are now protected by seven granted or pending US or foreign patents, as well as certain trade secrets and copyrights.

We may either sell or lease the MDx Device to existing diagnostic centers, through sale or lease agreements, and sell the reagents that comprise our proprietary test products to those laboratories and testing facilities.

### 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 are equal partners in the joint venture. The agreement provides for the constructions of a plant to manufacture 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 | Co-Diagnostics, Inc. 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 $96,000 in rent for the manufacturing plant and office space and the services of some of Synbiotics’ employees. 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 ready for production and we are waiting for final approval by the Indian regulatory body responsible for sales of such products (“CDSCO”). We have submitted or will submit technical files describing seven different diagnostic tests to the CDSCO requesting approval for those tests to be manufactured in our plant and sold in the Indian market. The technical files for three of the tests have been reviewed by the CDSCO and we are waiting for final approval to begin manufacturing and selling the tests. We have received test licenses for various diseases allowing us to sell test products for research. The joint venture is currently marketing our products in the Indian market and has commenced sales of our probes and primers to various laboratories and other users to be used as Research Use Only tests in their facilities, which are 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. As of September 30, 2019, we had four 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 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, Siemens, Qiagen, and Cepheid and with such pharmaceutical companies as Abbott Laboratories, Becton, Dickinson and Johnson and Johnson.

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

### Employees

We currently employ 21 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. We are in the process of registering our test products in various countries in South and Central America and Africa.

### Organizational History and Corporate Information

We were incorporated as Co-Diagnostics, Inc. in Utah on April 18, 2013. Our principal executive office is located at 2401 S. Foothill Drive, Suite D, Salt Lake City, Utah 84109. Our telephone number is (801) 438-1036. Our website address is http://codiagnostics.com. The information included on our website is not, and shall not be interpreted to be, a part of this quarterly report.

### RESULTS OF OPERATIONS

### Results of Operations for the Nine Months ended September 30, 2019 and 2018

### Net Sales

For the nine months ended September 30, 2019, we generated $106,408 of net sales compared to net sales of $29,088 in the nine months ended September 30, 2018. The revenue in 2019 represents sales of equipment sold to mosquito abatement districts of $63,800 and sales of testing products of $42,608. The 2018 revenue represented a license fee for licensing our Zika tests and certain other Flaviviruses to a Canadian company for limited distribution. That license has since been terminated.

### Cost of Sales

For the nine months ended September 30, 2019, we recorded cost of sales of $49,173 related to equipment sales and $10,453 related to sales of testing products. For the nine months ended September 30, 2018, we recorded no cost of sales.

### Operating Expenses

We incurred total operating expenses of $4,317,125 for the nine months ended September 30, 2019 compared to total operating expenses of $4,323,654 for the nine months ended September 30, 2018. Total expenses decreased by only $6,529 but the categories of expenditures changed materially. There was a decrease in general and administrative expenses of $371,989, which was offset by an increase of $351,129 in our sales and marketing expenses. Research and development expenses remained basically constant in that they increased by less than 1% or $5,197. Depreciation and amortization expense also increased $9,134 as a result of the purchase of additional equipment.

General and administrative expenses decreased $371,989 from $2,880,884 for the nine months ended September 30, 2018 to $2,508,895 for the nine months ended September 30, 2019. The decrease was primarily the result of a decrease of $929,483 in consulting fees and a decrease of $64,978 in legal fees that were partially offset by increases of $292,939 in other professional services, $87,631 in option and warrant expense, $77,245 in insurance expenses, $79,616 in salary and related benefits, and $58,398 in travel expenses.

Our sales and marketing expenses for the nine months ended September 30, 2019 were $770,539 compared to sales and marketing expenses of $419,410 for the nine months ended September 30, 2018. The increase of $351,129 was due primarily to an increase of $167,783 in salary and related benefits expense, an increase of $88,762 in travel and convention expenses, and an increase of $81,864 in consulting expenses.

Our research and development expenses increased by only $5,197 from $985,726 for the nine months ended September 30, 2018 to $990,923 for the nine months ended September 30, 2019. The increase reflected, however, an increase of $131,288 in payroll and employee related expenses from the addition of more lab employees, partially offset by a decrease of $58,234 in consulting expenses and a decrease of $51,546 in other professional services, and a decrease of $17,581 in lab supplies.

### Interest Expense

For the nine months ended September 30, 2019, we incurred interest expense of $28,196 compared to $48,857 for the nine months ended September 30, 2018. The decrease of $20,661 was the result of having all of our indebtedness retired incident to the conversion of our debt in January 2019 to preferred stock and having no debt for the majority of the nine-month period ended September 30, 2019. We realized interest income of $32,255 from the investment of funds not used in the operations of the business compared to interest income of $17,361 for the nine months ended September 30, 2018.

### Net Loss

We realized a net loss for the nine months ended September 30, 2019 of $4,460,551 compared with a net loss for the nine months ended September 30, 2018 of $4,323,555. The increase in net loss of $136,996 was primarily the result of realizing an increased loss of $119,383 on our investment in our Indian joint venture and a loss on the extinguishment of debt of $78,241 incident to the retirement of our outstanding debt in January 2019 when the debt was converted of preferred stock. The increase in loss occasioned by the extinguishment of debt and the loss in our joint venture, was partially offset by the increase in interest income and the decrease in interest expense.

### Results of Operations for the Three Months ended September 30, 2019 and 2018

### Net Sales

For the three months ended September 30, 2019, we generated $41,434 of net sales compared to net sales of $9,696 in the three months ended September 30, 2018. The revenue in 2019 represented sales of our diagnostics tests as well as fees charged for design services and $14,000 of which was for the sale of equipment. The revenue in 2018 represented a license fee for licensing our Zika tests and certain other Flaviviruses to a Canadian company for limited distribution. This license fee has since been terminated.

### Cost of Sales

For the three months ended September 30, 2019 we recorded costs of sales of $20,365 related to the tests and equipment sold. For the three months ended September 30, 2018, we recorded no cost of sales.

### Operating Expenses

We incurred total operating expenses of $1,671,156 for the three months ended September 30, 2019 compared to total operating expenses of $1,673,465 for the three months ended September 30, 2018. The decrease of $2,309 actually reflected progress in our business plan in that our sales and marketing expenses increased by $82,103 representing increased emphasis in selling diagnostics tests that are ready for general distribution, which increases were offset by general and administrative expenses that decreased $89,407. Research and development expenses remained constant.

General and administrative expenses decreased $89,407 from $1,150,170 for the three months ended September 30, 2018 to $1,060,763 for the three months ended September 30, 2019. The decrease was primarily the result of a decrease of $219,106 for consulting services and a decrease of $126,647 in option and warrant expenses. These decreases were partially offset by an increase of $197,295 in other professional services and to a lesser extent by smaller increases in salaries and benefits of $34,327, insurance of $21,722 and travel expenses of $28,899.

Our sales and marketing expenses for the three months ended September 30, 2019 were $262,360 compared to sales and marketing expenses of $180,257 for the three months ended September 30, 2018. The increase of $82,103 was due primarily to an increase of $30,940 in salary and related benefits expense related to the addition of sales personnel, an increase of $43,992 in advertising, trade shows and related travel and an increase of $8,524 in consulting expenses for sales professionals in other countries. In addition, we incurred expenses of $5,947 specifically in acquiring and training our distributor network in other countries.

Our research and development expenses remained constant. We incurred research and development expenses of $330,422 for the three months ended September 30, 2018 and $331,027 for the three months ended September 30, 2019.

### Interest Expense

For the three months ended September 30, 2019, we incurred minimal interest expense compared to interest expense of $48,857 for the three months ended September 30, 2018. The decrease of $48,847 was the result of having no debt in 2019 compared to having a short term note of $2,000,000 outstanding beginning in August 2018. We also realized interest income of $12,207 from the investment of funds not used in the operations of the business.

### Net Loss

We realized a net loss for the three months ended September 30, 2019 of $1,747,766 compared with a net loss for the three months ended September 30, 2018 of $1,641,145. The increase in net loss of $106,621 was primarily the result of realizing a loss of $109,876 from our Indian joint venture compared to a gain of $67,961 reported in 2018 due to audit adjustments recorded by Indian joint venture. The increase in net loss was partially offset by the decrease in interest expenses explained above and the realization of increased interest income. Since operational expenses did not vary materially from year to year, the increase of net loss was primarily the result of non-operating activities.

### 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 September 30, 2019, we had cash and cash equivalents of $2,544,159, total current assets of $3,084,448, total current liabilities of $307,884 and total stockholders’ equity of $3,333,995.

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 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 of $4,903,238 after offering costs of $592,764.

We experienced negative cash flow used in operations during the nine months ended September 30, 2019 of $3,912,850 compared to negative cash flow used in operations for the nine months ended September 30, 2018 of $3,119,401. During the nine months ended September 30, 2019 and 2018, we received net cash from financing activities of $5,903,238 and $1,899,012 as described above and used $319,440 and $135,000, respectively of our cash in contributions to our joint venture in India. The negative cash flow in the quarter was met by cash reserves from the issuances of common stock incident to the completion of registered direct offering in February and the issuance of preferred stock in January. 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 material revenue. Until our operations become profitable, we will continue to rely on proceeds received from our 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.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses and has not demonstrated the ability to generate sufficient cash flows from operations to satisfy our liabilities and sustain operations. These factors raise substantial doubt about our ability to continue as a going concern. Our continuation as a going concern is dependent on our ability to generate sufficient income and cash flow to meet our obligations on a timely basis and to obtain additional financing as may be required. The Company is actively seeking options to obtain additional capital and financing.

Our monthly cash operating expenses, including our technology research and development expenses and interest expense, were approximately $435,000 per month during the nine months ended September 30, 2019. 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.

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. Sales and marketing efforts have resulted in revenue being generated from sales of our diagnostics products in India, South and Central America and for our mosquito vector control program in the United States. The amount of revenue from these and other revenue sources will determine the amount of additional investment needed to bridge the gap until we achieve a breakeven status.

Our long-term liquidity is dependent upon execution of our business model and the increase 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 annually for the foreseeable future. The amount required will increase or decrease depending on the opportunities we determine to pursue and available funding.

### Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

## Controls and procedures

As filed, 3,831 characters.

#### Evaluation of 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 quarterly report on Form 10-Q, 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 quarterly report on Form 10-Q 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 hired, in the second quarter of 2019, consultants with the necessary technical accounting expertise to improve the Company’s accounting processes and internal control program. The Company has unconsolidated foreign subsidiaries over which it does not exercise any financial reporting control.

Because of the material weakness, management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company did not maintain effective internal control over financial reporting as of September 30, 2019, based on the criteria in Internal Control-Integrated Framework issued by COSO -2013.

#### Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the Company’s last three-month period that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company hired an independent consulting company to render a report on the Company’s internal control systems and provide recommendations for improving our internal control given the size of the Company’s accounting staff. To the extent possible with the current accounting staff the internal control recommendations have been implemented.

Filed Nov 12, 2019.
Source: SEC EDGAR, the filing index for accession 0001493152-19-016885. Last ingested by Listed: Nov 4, 2026, 18:23 ET. No prices; not investment advice.