As filed with the Securities and Exchange Commission on April 28, 2017  

Registration No. 333-

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1


REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

CO-DIAGNOSTICS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Utah

 

3841

 

46-2609396

(State or other jurisdiction of
incorporation or organization)

 

(Primary Standard Industrial
Classification Code Number)

 

(I.R.S. Employer
Identification Number)

 

4049 S. Highland Drive Salt

Lake City, Utah 84124

(801) 278-9769

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

Dwight H. Egan

President and Chief Executive Officer

Co-Diagnostics, Inc.

8160 S. Highland Drive Salt

Lake City, Utah 84124 (801)

278-9769

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

Copies to:

 

Reed L. Benson, Esq. 4049 S. Highland Drive

Salt Lake City, Utah 84124 (801) 278-9769

 

Peter DiChiara, Esq.

261 Madison Avenue, 9th Floor New York, New York 10016 (212) 658-0458

 

Approximate date of commencement of proposed sale to the public:

From time to time after the effective date of this Registration Statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: x

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

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 the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

 

 
 
 
 

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered

Proposed maximum aggregate offering price (1)

Amount of registration fee

Total Common Stock (2)

$

$

Total Common Stock underlying Notes (2)

Total Common Stock underlying Warrants (2)

Total Common Stock (including Common Stock underlying Notes and Warrants)

$ 10,000,000

$ 1,159.00

_______________

(1) There is no current market for the securities or price at which the shares are being offered. Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2) Pursuant to Rule 416 under the Securities Act of 1933, as amended, there is also being registered hereby such indeterminate number of additional shares of common stock of the registrant as may be issued or issuable because of stock splits, stock dividends, stock distributions, and similar transactions.

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 
2

 

EXPLANATORY NOTE

 

This Registration Statement contains two forms of prospectuses: one to be used in connection with a public offering of up to [*] shares of our common stock (excluding [*] shares of common stock which may be sold upon exercise of the underwriters’ over-allotment option) through the underwriters named on the cover page of this prospectus (the “Prospectus”) and one to be used in connection with the potential resale by certain selling stockholders of an aggregate of [*] shares of our common stock (the “Selling Securityholder Prospectus”), consisting of (i) [*] shares of our common stock issuable upon conversion of notes held by selling stockholders and (ii) [*] shares of our common stock issuable upon exercise of outstanding warrants held by certain of the selling stockholders. The Prospectus and Selling Securityholder Prospectus will be identical in all respects except for the alternate pages for the Selling Securityholder Prospectus included herein which are labeled “Alternate Page for Selling Securityholder Prospectus.”

 

The Selling Securityholder Prospectus is substantively identical to the Prospectus, except for the following principal points:

 

· they contain different outside and inside front covers;

 

· they contain different Offering sections in the Prospectus Summary section on page 8;

 

· they contain different Use of Proceeds sections on page 31;

 

· the Capitalization section on page 32 is deleted from the Selling Securityholder Prospectus;

 

· a Selling Securityholder section is included in the Selling Securityholder Prospectus beginning on page 65;

 

· the Underwriting section from the Prospectus on page 60 is deleted from the Selling Securityholder Prospectus and a Plan of Distribution is inserted in its place on page 67; and

 

· the Legal Matters section in the Selling Securityholder Prospectus on page 69 deletes the reference to counsel for the underwriters;

 

The registrant has included in this Registration Statement, after the financial statements, a set of alternate pages to reflect the foregoing differences of the Selling Security holder Prospectus as compared to the Prospectus.

 

Sales of the shares of our common stock registered in the Prospectus and the Selling Securityholder Prospectus will result in two offerings taking place concurrently which might affect price, demand, and liquidity. This risk and other risks are included in “Risk Factors” beginning on page 13 of the Prospectus.

 

 
3

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, dated April 28, 2017

 

PRELIMINARY PROSPECTUS

 

 

Co-Diagnostics, Inc.

 

[*] Shares of Common Stock

 

This is an initial public offering of common stock of Co-Diagnostics, Inc. We are selling shares of our common stock. The estimated initial public offering price is between $ and $ per share (the “Offering”).

 

Prior to this Offering, there has been no public market for our common stock. We intend to apply to list our common stock on the NASDAQ Capital Market under the symbol “CODX.”

 

We intend to use the proceeds from this Offering to be used for working capital or general corporate purposes. See “Use of Proceeds.”

 

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 13 of this prospectus for a discussion of information that should be considered in connection with an investment in our common stock.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012, and we have elected to comply with certain reduced public company reporting requirements .

 

 

 

Per Share

 

Total

 

Public offering price

 

$

 

$ -

 

Underwriting discounts and commissions (1)

 

 

 

 

 

 

Proceeds to us, before expenses

 

$

 

$ -

 

______________

(1) Does not include a non-accountable expense allowance equal to [*]% of the gross proceeds of this offering payable to [*], the representative of the underwriters. See “Underwriting” for a complete description of compensation payable to the underwriters.

 

We plan to market this offering to potential investors through Network 1 Securities, Inc., acting as the underwriter. The underwriters expect to deliver the shares against payment therefor on or about , 2017.

 

 

The date of this prospectus is ___________, 2017

 

Until _______, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions

 

 
4

 

You should rely only on the information contained in this prospectus or any prospectus supplement or amendment. We have not authorized any other person to provide you with information that is different from, or adds to, that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. The selling stockholders are offering to sell and seeking offers to buy our common stock only in jurisdictions where offers and sales are permitted. You should assume that the information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date. We are not making an offer of any securities in any jurisdiction.

 

TABLE OF CONTENTS

 

ABOUT THIS PROSPECTUS.

6

MARKET DATA.

6

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.

7

PROSPECTUS SUMMARY.

8

THE OFFERING.

14

RISK FACTORS.

15

USE OF PROCEEDS.

33

DIVIDEND POLICY.

34

CAPITALIZATION.

34

DILUTION.

35

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

36

BUSINESS.

45

MANAGEMENT.

51

EXECUTIVE COMPENSATION.

53

PRINCIPAL STOCKHOLDERS.

57

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

58

DESCRIPTION OF OUR CAPITAL STOCK.

59

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES.

62

UNDERWRITING.

62

EXPERTS.

65

LEGAL MATTERS AND INTERESTS OF NAMED EXPERTS.

65

WHERE YOU CAN FIND MORE INFORMATION.

65

 

 
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‘No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

ABOUT THIS PROSPECTUS

 

Throughout this prospectus, unless otherwise designated or the context suggests otherwise, 

 

 

·

all references to the “Company,” the “registrant,” “Co-Diagnostics,” “we,” “our,” or “us” in this prospectus mean Co-Diagnostics, Inc. and its consolidated subsidiaries;

 

 

 

·

assumes a public offering price of our common stock of $[*] per share, the mid-range of the estimated $[*] to $[*] per share;

 

 

 

·

“year” or “fiscal year” mean the year ending December 31st

 

 

 

·

all dollar or $ references when used in this prospectus refer to United States dollars.

 

 

 

 

·

 

all share and per share information relating to our common stock in this prospectus has been adjusted to reflect a __________ reverse stock split immediately prior to the effectiveness of the registration statement of which this prospectus is a part.

 

Concurrent with this offering, the Company is registering shares of common stock in connection with the potential resale by certain selling stockholders of an aggregate of [*] shares of our common stock (the “Selling Securityholder Prospectus”), consisting of (i) [*] shares of our common stock issuable upon conversion of notes held by selling stockholders and (ii) [*] shares of our common stock issuable upon exercise of outstanding warrants held by certain of the selling stockholders. Please read the risk factors, including the risk factor titled “ Sales of our common stock in this Offering will be taking place concurrently with common stock registered by selling shareholders which might affect the price, demand, and liquidity of our common stock” on page 29.

 

MARKET DATA

 

Market data and certain industry data and forecasts used throughout this prospectus were obtained from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. We have not independently verified any of the data from third party sources, nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, internal surveys, industry forecasts and market research, which we believe to be reliable based on our management’s knowledge of the industry, have not been independently verified. Forecasts are particularly likely to be inaccurate, especially over long periods of time. Statements as to our market position are based on the most currently available data. While we are not aware of any misstatements regarding the industry data presented in this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus.

 

 
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Table of Contents

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains “forward-looking statements.” Forward-looking statements reflect the current view about future events. When used in this prospectus, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions, as they relate to us or our management, identify forward-looking statements. Such statements, include, but are not limited to, statements contained in this prospectus relating to our business strategy, our future operating results and liquidity and capital resources outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward–looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees of assurance of future performance. We caution you therefore against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation:

 

· 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 (including the risks contained in the section of this prospectus entitled “Risk Factors”) relating to our industry, our operations and results of operations.

 

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.

 

 
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PROSPECTUS SUMMARY

 

This summary provides a brief overview of the key aspects of our business and our securities. The reader should read the entire prospectus carefully, especially the risks of investing in our common stock discussed under “Risk Factors.” Some of the statements contained in this prospectus, including statements under “Summary” and “Risk Factors” as well as those noted in the documents incorporated herein by reference, are forward-looking statements and may involve a number of risks and uncertainties. Our actual results and future events may differ significantly based upon a number of factors. The reader should not put undue reliance on the forward-looking statements in this document, which speak only as of the date on the cover of this prospectus.

 

About Our Business

 

The Company

 

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”).

 

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. Our platform allows us to avoid paying existing patent royalties required by other PCR test systems, which has the potential of allowing CDI to sell diagnostic labs and tests at a lower cost 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.

 

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

 

 

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 (cooperative 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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Product Offering

 

We plan to manufacture molecular diagnostic kits for the following tests in the following regions, to be sold along with the MDx device:

 

Timetable

 

Region

 

Tests

Current (revenues in the 2nd quarter in 2017)

 

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

 

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 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. 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, h B and C, dengue then our full range of tests.

 

 

 
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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.

 

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. We are beginning to sell these products in India this quarter.

 

India is the country with the highest burden of tuberculosis. According to the 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).

 

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. 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 2017. We estimate the remaining costs for CE-marks to be approximately $100,000.

  
 
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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

 

 

 

 

 

 

 

 

1,991,680,000

 

 

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 tests have been designed to run on many vendors’ DNA diagnostic testing machines. It is 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 : Tests are believed by Company to be 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.

 
 
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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.

  

Risk Factors

 

Our business is subject to a number of risks. You should be aware of these risks before making an investment decision. These risks are discussed more fully in the section of this prospectus titled “Risk Factors,” which begins on page 13 of this prospectus and includes:

 

 

· We have a history of losses;

 

 

 

 

· We will be required to raise additional financing;

 

 

 

 

· We have a significant amount of indebtedness; and

 

 

 

 

· Market acceptance of our products is still uncertain.

 

Organizational History and Corporate Information

 

We were incorporated as Co-Diagnostics, Inc., in Utah on April 18, 2013. Our principal executive office is located 8160 S. Highland Drive, Salt Lake City, Utah 84124. Our telephone number is (801) 278-9769. Our web address is http://codiagnostics.com. Information included on our website is not part of this prospectus.

 
 
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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 the date of the first sale of our common stock pursuant to an effective registration statement under 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 and will no longer qualify as an emerging growth company. We refer to the Jumpstart Our Business Startups Act of 2012 herein as the "JOBS Act," and references herein to "emerging growth company" have the meaning associated with it in 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. We have taken advantage of certain of those reduced reporting burdens in this prospectus. 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.

 
 
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THE OFFERING

 

Common stock outstanding prior to the offering

 

108,704,025 shares Common stock

 

Offered by the Company

 

[*] shares

 

Over-allotment option

 

The underwriters have an option for a period of 45 days to purchase up to [*] additional shares of our common stock to cover over-allotments, if any.

 

Use of proceeds

 

We estimate that the net proceeds to us from this offering will be approximately $[*] or approximately $[*] if the underwriters exercise their option to purchase additional shares in full, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds of this offering: (1) for clinical development, expansion of laboratory facilities and regulatory filing of new diagnostic tests; (2) to increase our sales and marketing capabilities; (3) to create our own manufacturing facility to produce our reagents both here and in India and other locations in the developing world; (4) to expand the availability of MDx devices in developing nations under a rental program; and (5) for general corporate purposes, including working capital.

 

Proposed “Use of Proceeds’ are provided on page 31 of this prospectus.

 

NASDAQ Stock Market symbol:

 

We intend to apply to list our common stock on the NASDAQ Capital Market under the symbol “CODX.”

 

Risk Factors

 

You should carefully consider the information set forth in this prospectus and, in particular, the specific factors set forth in the “Risk Factors” section beginning on page 13 of this prospectus before deciding whether or not to invest in shares of our common stock.

 

Unless otherwise indicated, this prospectus reflects and assumes s ______ reverse stock split of our common stock immediately prior to the effectiveness of the registration statement of which this prospectus is a part.

 

 
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RISK FACTORS

 

Our business is subject to many risks and uncertainties, which may affect our future financial performance. If any of the events or circumstances described below occur, our business and financial performance could be adversely affected, our actual results could differ materially from our expectations, and the price of our stock could decline. The risks and uncertainties discussed below are not the only ones we face. There may be additional risks and uncertainties not currently known to us or that we currently do not believe are material that may adversely affect our business and financial performance. You should carefully consider the risks described below, together with all other information included in this prospectus including our financial statements and related notes, before making an investment decision. The statements contained in this prospectus that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and investors in our securities may lose all or part of their investment.

 

Risks Related to Our Business and Industry

 

We have a limited commercial history upon which to base our prospects, have not generated revenues or profits and do not expect to generate profits for the foreseeable future . We may never achieve or sustain profitability .

 

We began operations in April 2013, and we have a limited operating history. We have not earned significant revenue to date and do not expect to earn significant revenue in the near future. We had a net loss of $1.9 million and $2.0 million, in the years ended December 31, 2016 and December 31, 2015, respectively. Our accumulated deficit was $5.5 million and $3.5 million as of December 31, 2016 and December 31, 2015, respectively. Potential investors should be aware of the difficulties normally encountered by a new enterprise, many of which are beyond our control, including substantial risks and expenses in the course of developing new diagnostic tests, establishing or entering new markets, organizing operations and marketing procedures. The likelihood of our success must be considered in light of these risks, expenses, complications and delays, and the competitive environment in which we operate. There is, therefore, nothing at this time upon which to base an assumption that our business plan will prove successful, and we may not be able to generate significant revenue, raise additional capital or operate profitably. We will continue to encounter risks and difficulties frequently experienced by early commercial stage companies, including scaling up our infrastructure and headcount, and may encounter unforeseen expenses, difficulties or delays in connection with our growth. In addition, as a result of the start-up nature of our business, we can be expected to continue to sustain substantial operating expenses without generating sufficient revenues to cover expenditures. As discussed in Note 1 to the audited condensed financial statements and elsewhere in this Form S-1, our recurring operating losses from operations and our need for additional sources of capital to fund our ongoing operations raise substantial doubt about our ability to continue as a going concern. Any investment in our company is therefore highly speculative and could result in the loss of your entire investment.

 

We will need to raise additional capital, which may not be available on favorable terms, if at all, and which may cause dilution to stockholders, restrict our operations or adversely affect our ability to operate our business .

 

As of December 31, 2016, our consolidated cash balance was $998,737 and our working capital deficit was $2.6 million. We estimate our current rate of expenditures is approximately $150,000 per month, we estimate that our existing capital resources will fund our operations for approximately 7 months. Accordingly, we will need to raise approximately $750,000 additional funds through public or private debt or equity financing or through other means in order to sustain our operations and current business strategy for twelve months. We may be unable to obtain adequate financing on favorable terms, or at all, and any additional financings could result in additional dilution to our then existing stockholders or restrict our operations or adversely affect our ability to operate our business. If we are unable to obtain needed financing on acceptable terms, we may not be able to implement our business plan, which could have a material adverse effect on our business, financial condition and results of operations. We may not be able to meet our business objectives; our equity value may decrease and investors may lose some or all of their investment. If we raise funds by issuing equity securities, the percentage ownership of our then stockholders will be reduced. If we raise funds by issuing debt, the ability of our stockholders to receive earnings or distributions may be adversely affected and we may be subject to additional covenants and restrictions.


 
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Our near-term success is dependent upon our ability to commence sales of our tests .

 

Our success will depend, in part, upon our ability to commence sales of our tests. Attracting new customers and distribution networks requires substantial time and expense. Any failure to initiate sales of our tests to validate our platform would adversely affect our operating results. Many factors could affect the market acceptance and commercial success of our diagnostic tests, including:

 

 

· our ability to convince our potential customers of the advantages and economic value of our tests over competing technologies and diagnostic tests;

 

 

 

 

· the breadth of our test menu relative to competitors;

 

 

 

 

· changes to policies, procedures or currently accepted best practices in clinical diagnostic testing;

 

 

 

 

· the extent and success of our marketing and sales efforts;

 

 

 

 

· our ability to manufacture in quantity our commercial diagnostic tests and meet demand in a timely fashion.

 

If we cannot successfully develop, obtain regulatory approvals for and commercialize new diagnostic tests, our financial results will be harmed and our ability to compete will be harmed .

 

Our financial performance depends in part upon our ability to successfully develop and market new tests in a rapidly changing technological and economic environment. If we fail to successfully introduce new diagnostic tests, we could lose customers and market share. We could also lose market share if our competitors introduce new diagnostic tests or technologies that render our diagnostic tests less competitive or obsolete. In addition, delays in the introduction of new diagnostic tests due to regulatory, developmental or other obstacles could negatively impact our revenue and market share, as well as our earnings. Factors that can influence our ability to introduce new diagnostic tests, the timing associated with new product approvals and commercial success of these diagnostic tests include:

 

 

· the scope of and progress made in our research and development activities;

 

 

 

 

· our ability to successfully initiate and complete clinical trial studies;

 

 

 

 

· timely expansion of our menu of tests;

 

 

 

 

· the results of clinical trials needed to support any regulatory approvals of our tests;

 

 

 

 

· our ability to obtain requisite regulatory clearances or approvals, where required, for our tests under development on a timely basis;

 

 

 

 

· demand for the new diagnostic tests we introduce;

 

 

 

 

· product offerings from our competitors; and

 

 

 

 

· the functionality of new diagnostic tests that address market requirements and customer demands.

 

 
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We are subject to many laws and governmental regulations and any adverse regulatory action may materially adversely affect our financial condition and business operations .

 

Although we intend to sell our tests where regulatory approval is not required, our diagnostic tests may be subject to regulation by numerous government agencies, including the FDA and comparable foreign agencies. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our diagnostic tests. In the clinical market, our diagnostic tests, when sold in the United States, will be regulated by the FDA and comparable agencies of other countries. In particular, certain regulations govern activities such as product development, product testing, product labeling, product storage, premarket clearance or approval, manufacturing, advertising, promotion, product sales, reporting of certain product failures and distribution. Our diagnostic tests will require 510(k) clearance from the FDA prior to marketing in the United States directly to end users. Clinical trials are required to support a 510(k) submission.

 

Since 2009, the FDA has significantly increased its oversight of companies subject to its regulations, including medical device companies, by hiring new investigators and stepping up inspections of manufacturing facilities. Further, 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.

   

Foreign governmental regulations have become increasingly stringent and more common, and we may become subject to more rigorous regulation by foreign governmental authorities in the future. Penalties for a company’s non-compliance with foreign governmental regulation could be severe, including revocation or suspension of a company’s business license and criminal sanctions. Any domestic or foreign governmental law or regulation imposed in the future may have a material adverse effect on us.

 

Our current and potential customers in the United States and elsewhere may also be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.

 

The life sciences industry is highly competitive and subject to rapid technological change. If our competitors and potential competitors develop superior diagnostic tests and technologies, our competitive position and results of operations would suffer .

 

We face intense competition from a number of companies that offer diagnostic tests in our target markets, many of which have substantially greater financial resources and larger, more established marketing, sales and service organizations than we do. The life sciences industry is characterized by rapid and continuous technological innovation. We may need to develop new technologies for our diagnostic tests to remain competitive. One or more of our current or future competitors could render our present or future diagnostic tests obsolete or uneconomical by technological advances. We may also encounter other problems in the process of delivering new diagnostic tests to the marketplace, such as problems related to design, development or manufacturing of such diagnostic tests, and as a result we may be unsuccessful in selling such diagnostic tests. Our future success depends on our ability to compete effectively against current technologies, as well as to respond effectively to technological advances by developing and marketing diagnostic tests that are competitive in the continually changing technological landscape.


 
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If our diagnostic tests do not perform as expected or the reliability of the technology on which our diagnostic tests are based is questioned, we could experience delayed or reduced market acceptance of our diagnostic tests, increased costs and damage to our reputation .

 

Our success depends on the market’s confidence that we can provide reliable, high-quality diagnostic tests. We believe that customers in our target markets are likely to be particularly sensitive to product defects and errors. Our reputation and the public image of our diagnostic tests or technologies may be impaired if our diagnostic tests fail to perform as expected or our diagnostic tests are perceived as difficult to use. Despite quality control testing, defects or errors could occur in our diagnostic tests or technologies.

 

In the future, if our diagnostic tests experience a material defect or error, this could result in loss or delay of revenues, delayed market acceptance, damaged reputation, diversion of development resources, legal claims, increased insurance costs or increased service and warranty costs, any of which could harm our business. Such defects or errors could also prompt us to amend certain warning labels or narrow the scope of the use of our diagnostic tests, either of which could hinder our success in the market. Even after any underlying concerns or problems are resolved, any widespread concerns regarding our technology or any manufacturing defects or performance errors in our diagnostic tests could result in lost revenue, delayed market acceptance, damaged reputation, increased service and warranty costs and claims against us.

 

If our international distributor relationships are not successful, our ability to market and sell our diagnostic tests will be harmed and our financial performance will be adversely affected .

 

Outside of the United States, we depend on relationships with distributors for the marketing and sales of our diagnostic tests in various geographic regions, and we have a limited ability to influence their efforts. Relying on distributors for our sales and marketing could harm our business for various reasons, including:

 

 

· agreements with distributors may terminate prematurely due to disagreements or may result in litigation;

 

 

 

 

· our distributors may not devote sufficient resources to the sale of diagnostic tests;

 

 

 

 

· our distributors may be unsuccessful in marketing our diagnostic tests; and

 

 

 

 

·

we may not be able to negotiate future distributor agreements on acceptable terms.

 

If we become subject to claims relating to improper handling, storage or disposal of hazardous materials, we could incur significant cost and time to comply .

 

Our research and development processes involve the controlled storage, use and disposal of hazardous materials, including biological hazardous materials. We are subject to foreign, federal, state and local regulations governing the use, manufacture, storage, handling and disposal of materials and waste products. We may incur significant costs complying with both existing and future environmental laws and regulations. In particular, we are subject to regulation by the Occupational Safety and Health Administration, or OSHA, and the Environmental Protection Agency, or EPA, and to regulation under the Toxic Substances Control Act and the Resource Conservation and Recovery Act in the United States. OSHA or the EPA may adopt additional regulations in the future that may affect our research and development programs. The risk of accidental contamination or injury from hazardous materials cannot be eliminated completely. In the event of an accident, we could be held liable for any damages that result, and any liability could exceed the limits or fall outside the coverage of our workers’ compensation insurance. We may not be able to maintain insurance on acceptable terms, if at all.

 

 
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Our diagnostic tests have not been manufactured on a high volume scale and are subject to unforeseen scale-up risks .

 

While we have developed a process to manufacture diagnostic tests, there can be no assurance that we can manufacture our diagnostic tests at a scale that is adequate for our future commercial needs. We may face significant or unforeseen difficulties in manufacturing our diagnostic tests, including but not limited to:

 

 

· technical issues relating to manufacturing components of our diagnostic tests on a high volume commercial scale at reasonable cost, and in a reasonable time frame;

 

 

 

 

· difficulty meeting demand or timing requirements for orders due to excessive costs or lack of capacity for part or all of an operation or process;

 

 

 

 

· changes in government regulations or in quality or other requirements that lead to additional manufacturing costs or an inability to supply product in a timely manner, if at all; and

 

 

 

 

· increases in raw material or component supply cost or an inability to obtain supplies of certain critical supplies needed to complete our manufacturing processes.

 

These and other difficulties may only become apparent when scaling up to the manufacturing process of our diagnostic tests to a more substantive commercial scale. In the event our diagnostic tests cannot be manufactured in sufficient commercial quantities or manufacturing is delayed, our future prospects could be significantly impacted and our financial prospects would be materially harmed.

 

We or our suppliers may experience development or manufacturing problems or delays that could limit the growth of our revenue or increase our losses .

 

We may encounter unforeseen situations in the manufacturing of our diagnostic tests that could result in delays or shortfalls in our production. Our suppliers may also face similar delays or shortfalls. In addition, our or our suppliers’ production processes may have to change to accommodate any significant future expansion of our manufacturing capacity, which may increase our or our suppliers’ manufacturing costs, delay production of our diagnostic tests, reduce our product gross margin and adversely impact our business. If we are unable to keep up with demand for our diagnostic tests by successfully manufacturing and shipping our diagnostic tests in a timely manner, our revenue could be impaired, market acceptance for our diagnostic tests could be adversely affected and our customers might instead purchase our competitors’ diagnostic tests. In addition, developing manufacturing procedures for new diagnostic tests may require developing specific production processes for those diagnostic tests. Developing such processes could be time consuming and any unexpected difficulty in doing so can delay the introduction of a product.

 

We expect to rely on third parties to conduct studies of our diagnostic tests that will be required by the FDA or other regulatory authorities and those third parties may not perform satisfactorily .

 

Although we intend to sell our tests where regulatory approval is not required, we expect to rely on third parties, such as independent testing laboratories and hospitals, to conduct such studies. Our reliance on these third parties will reduce our control over these activities. These third-party contractors may not complete activities on schedule or conduct studies in accordance with regulatory requirements or our study design. We cannot control whether they devote sufficient time, skill and resources to our studies. Our reliance on third parties that we do not control will not relieve us of any applicable requirement to prepare, and ensure compliance with, various procedures required under good clinical practices. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our studies may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for additional diagnostic tests.

 
 
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Product liability claims could adversely impact our financial condition and our earnings and impair our reputation .

 

Inadequate disclosure of product-related risks or product-related information with respect to our diagnostic tests could result in an unsafe condition, injury to, or death of, a patient. The occurrence of such a problem could result in product liability claims, or safety alert relating to, one or more of our diagnostic tests. Product liability claims, regardless of their ultimate outcome, could have a material adverse effect on our business and reputation and on our ability to attract and retain customers for our diagnostic tests.

 

Health care policy changes, including U.S. health care reform legislation signed in 2010, may have a material adverse effect on us .

 

In March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 were signed into law. Elements of this legislation, such as comparative effectiveness research, an independent payment advisory board, payment system reforms, including shared savings pilots, and other provisions, could meaningfully change the way health care is developed and delivered, and may materially impact numerous aspects of our business.

 

Consolidation in the health care industry could have an adverse effect on our revenues and results of operations .

 

Many health care industry companies, including health care systems, are consolidating to create new companies with greater market power. As the health care industry consolidates, competition to provide goods and services to industry participants will become more intense. These industry participants may try to use their market power to negotiate price concessions or reductions for diagnostic tests. If we are forced to reduce our prices because of consolidation in the health care industry, our projected revenues would decrease and our earnings, financial condition, and/or cash flows would suffer.

 

Our ability to compete depends on our ability to attract and retain talented employees .

 

Our future success depends on our ability to identify, attract, train, integrate and retain highly qualified technical, development, sales and marketing, managerial and administrative personnel. Competition for highly skilled individuals is extremely intense and we face difficulty identifying and hiring qualified personnel in many areas of our business. We may not be able to hire and retain such personnel at compensation levels consistent with our existing compensation and salary structure. Many of the companies with which we compete for hiring experienced employees have greater resources than we have. If we fail to identify, attract, train, integrate and retain highly qualified and motivated personnel, our reputation could suffer and our business, financial condition and results of operations could be adversely affected.

 

Our future success also depends on the continued service and performance of our senior management team. The replacement of members of our senior management team likely would involve significant time and costs, and the loss of any these individuals may delay or prevent the achievement of our business objectives.

 

If we do not achieve, sustain or successfully manage our anticipated growth, our business and prospects will be harmed .

 

If we are unable to obtain or sustain adequate revenue growth, our financial results could suffer. Furthermore, significant growth will place strains on our management and our operational and financial systems and processes and our operating costs may escalate even faster than planned. If we cannot effectively manage our expanding operations and our costs, we may not be able to grow effectively or we may grow at a slower pace. Additionally, if we do not successfully forecast the timing of regulatory authorization for our additional tests, marketing and subsequent demand for our diagnostic tests or manage our anticipated expenses accordingly, our operating results will be harmed.

 

 
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Other companies or institutions have commercial diagnostic tests or may develop and market novel or improved methods for infectious disease diagnostic testing, which may make our diagnostic platform less competitive or obsolete .

 

The market for diagnostic testing is large and established, and our competitors may possess significantly greater financial resources and have larger development and commercialization capabilities than we do. We may be unable to compete effectively against these competitors either because their diagnostic platforms are superior or because they may have more expertise, experience, financial resources or stronger business relationships.

 

New technologies, techniques or diagnostic tests could emerge that might offer better combinations of price and performance than our current or future diagnostic tests .

 

It is critical to our success that we anticipate changes in technology and customer requirements and to successfully introduce, on a timely and cost-effective basis, new, enhanced and competitive technologies that meet the needs of current and prospective customers. If we do not successfully innovate and introduce new technology into our product lines or manage the transitions to new product offerings, our revenues, results of operations and business will be adversely impacted. Competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. We anticipate that we will face increased competition in the future as existing companies and competitors develop new or improved diagnostic tests and as new companies enter the market with new technologies.

 

We are dependent on single source suppliers for some of the components and materials used in our diagnostic tests, and supply chain interruptions could negatively impact our operations and financial performance .

 

Our diagnostic tests are manufactured by us and we obtain supplies from a limited number of suppliers. In some cases, critical components required to manufacture our diagnostic tests may only be available from a sole supplier or limited number of suppliers, any of whom would be difficult to replace. The supply of any of our manufacturing materials may be interrupted because of poor vendor performance or other events outside our control, which may require us, among other things, to identify alternate vendors and result in lost sales and increased expenses. Even if the manufacturing materials that we source are available from other parties, the time and effort involved in validating the new supplies and obtaining any necessary regulatory approvals for substitutes could impede our ability to replace such components in a timely manner or at all.

 

Risks Relating to Our Financial Position and Need for Additional Capital

 

We expect that we will need additional funding to expand our commercialization efforts for our new diagnostic tests .

 

Molecular diagnostic test development, which includes research and development, pre-clinical and human clinical trials, is a time-consuming and expensive process that takes time to complete. We expect that our expenses will increase substantially as we move new diagnostic tests through human clinical trials, seek regulatory approvals, and pursue development of additional innovations. If we obtain marketing approval for the diagnostic tests that we develop, license, or acquire, we expect to incur significant commercialization expenses related to regulatory compliance requirements, sales and marketing, manufacturing and distribution. Net loss for the years ended December 31, 2016 and December 31, 2015 was approximately $1.9 million and $2.0 million, respectively. As of December 31, 2016, we had an accumulated deficit of $5.5 million. We need to obtain additional financing to fund our operations and there can be no assurance that additional financing will be available to us or that such financing, if available, will be available on favorable terms. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.

 

 
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Our inability to raise capital on acceptable terms in the future may cause us to delay, diminish, or curtail certain operational activities, including research and development activities, clinical trials, sales and marketing, and other operations, in order to reduce costs and sustain the business, and such inability would have a material adverse effect on our business and financial condition .

 

We expect capital outlays and operating expenditures to increase over the next several years as we work to expand our commercial activities, expand our development activities, conduct clinical trials, expand manufacturing operations and expand our infrastructure. We may need to raise additional capital to, among other things:

 

 

· fund clinical trials and preclinical trials for our diagnostic tests as requested or required by regulatory agencies;

 

 

 

 

· sustain commercialization of our new diagnostic tests;

 

 

 

 

· expand and automate our manufacturing capabilities;

 

 

 

 

· increase our sales and marketing efforts to drive market adoption and address competitive developments;

 

 

 

 

· finance capital expenditures and our general and administrative expenses;

 

 

 

 

· develop new diagnostic tests;

 

 

 

 

· maintain, expand and protect our intellectual property portfolio;

 

 

 

 

· add operational, financial and management information systems; and

 

 

 

 

· hire additional research and development, quality control, scientific, and general and administrative personnel. Our present and future funding requirements will depend on many factors, including but not limited to:

 

 

 

 

· the progress and timing of our clinical trials;

 

 

 

 

· the level of research and development investment required to maintain and improve our technology position;

 

 

 

 

· cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights, if any;

 

 

 

 

· our efforts to acquire or license complementary technologies or acquire complementary businesses;

 

 

 

 

· changes in product development plans needed to address any difficulties in commercialization or changing market conditions;

 

 

 

 

· competing technological and market developments;

 

 

 

 

· changes in regulatory policies or laws that may affect our operations; and

 

 

 

 

· changes in physician acceptance or medical society recommendations that may affect commercial efforts.

 

 
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We may not be able to continue to operate as a going concern .

 

Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements. We may be unable to continue to operate without the threat of liquidation for the foreseeable future.

 

Raising additional capital may cause dilution to our existing stockholders, and restrict our operations or require us to relinquish certain intellectual property rights .

 

We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances, licensing arrangements and grants. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders may be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt and receivables financings may be coupled with an equity component, such as warrants to purchase shares, which could also result in dilution of our existing stockholders’ ownership. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, or grant licenses on terms that are not favorable to us. A failure to obtain adequate funds may cause us to curtail certain operational activities, including research and development, regulatory trials, sales and marketing, and manufacturing operations, in order to reduce costs and sustain the business, and would have a material adverse effect on our business and financial condition.

 

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

 

Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section entitled “Use of Proceeds.” Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our management may not apply our cash from this offering in ways that ultimately increase the value of any investment in our securities or enhance stockholder value. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not invest or apply our cash in ways that enhance stockholder value, we may fail to achieve expected financial results, which may result in a decline in the price of our shares of common stock, and, therefore, may negatively impact our ability to raise capital, invest in or expand our business, acquire additional products or licenses, commercialize our diagnostic tests, or continue our operations.

 

Market and economic conditions may negatively impact our business, financial condition and share price .

 

Concerns over inflation, energy costs, geopolitical issues, the U.S. mortgage market and a declining real estate market, unstable global credit markets and financial conditions, and volatile oil prices have led to periods of significant economic instability, diminished liquidity and credit availability, declines in consumer confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic growth going forward, increased unemployment rates, and increased credit defaults in recent years. Our general business strategy may be adversely affected by any such economic downturns, volatile business environments and continued unstable or unpredictable economic and market conditions. If these conditions continue to deteriorate or do not improve, it may make any necessary debt or equity financing more difficult to complete, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance, and share price and could require us to delay or abandon development or commercialization plans. In addition, there is a risk that one or more of our current and future service providers, manufacturers, suppliers, hospitals and other medical facilities, our third party payors, and other partners could be negatively affected by these difficult economic times, which could adversely affect our ability to attain our operating goals on schedule and on budget or meet our business and financial objectives.

 

 
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Risks Related to Intellectual Property

 

The extent to which we can protect our diagnostic tests and technologies through intellectual property rights that we own, acquire or license is uncertain .

 

We employ a variety of proprietary and patented technologies and methods in connection with the diagnostic tests we sell or are developing. We cannot provide any assurance that the intellectual property rights that we own or license provide effective protection from competitive threats or that we would prevail in any litigation in which our intellectual property rights are challenged. In addition, we may not be successful in obtaining new proprietary or patented technologies or methods in the future, whether through acquiring ownership or through licenses from third parties.

 

Our currently pending or future patent applications may not result in issued patents, and we cannot predict how long it may take for a patent to issue on any of our pending patent applications, assuming a patent does issue .

 

Other parties may challenge patents issued or exclusively licensed to us, or courts or administrative agencies will hold our patents or the patents we license on an exclusive basis to be valid and enforceable. We may not be successful in defending challenges made against our patents and other intellectual property rights. Any third-party challenge to any of our patents could result in the unenforceability or invalidity of some or all of the claims of such patents and could be time consuming and expensive.

 

The extent to which the patent rights of life sciences companies effectively protect their diagnostic tests and technologies is often highly uncertain and involves complex legal and factual questions for which important legal principles remain unresolved .

 

No consistent policy regarding the proper scope of allowable claims of patents held by life sciences companies has emerged to date in the United States. Various courts, including the U.S. Supreme Court, have rendered decisions that impact the scope of patentability of certain inventions or discoveries relating to diagnostic tests or genomic diagnostic testing. These decisions generally stand for the proposition that inventions that recite laws of nature are not themselves patentable unless they have sufficient additional features that provide practical assurance that the processes are genuine inventive applications of those laws rather than patent drafting efforts designed to monopolize a law of nature itself. What constitutes a “sufficient” additional feature for this purpose is uncertain. While we do not generally rely on gene sequence patents, this evolving case law in the United States may adversely impact our ability to obtain new patents and may facilitate third-party challenges to our existing owned and exclusively licensed patents.

 

We cannot predict the breadth of claims that may be allowed or enforced in patents we own. For example:

 

 

· the inventor(s) named in one or more of our patents or patent applications might not have been the first to have made the relevant invention;

 

 

 

 

· the inventor (or his assignee) might not have been the first to file a patent application for the claimed invention;

 

 

 

 

· others may independently develop similar or alternative diagnostic tests and technologies or may successfully replicate our product and technologies;

 

 

 

 

· it is possible that the patents we own or in which have exclusive license rights may not provide us with any competitive advantages or may be challenged by third parties and found to be invalid or unenforceable;

 

 
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· any patents we obtain or exclusively license may expire before, or within a limited time period after, the diagnostic tests and services relating to such patents are commercialized;

 

 

 

 

· we may not develop or acquire additional proprietary diagnostic tests and technologies that are patentable; and

 

 

 

 

· others may acquire patents that could be asserted against us in a manner that could have an adverse effect on our business.

 

Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property rights .

 

On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art, may affect patent litigation and switch the U.S. patent system from a “first-to-invent” system to a “first-to-file” system. Under a first-to-file system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to the patent on an invention regardless of whether another inventor had made the invention earlier. The U.S. Patent and Trademark Office, or USPTO, recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, including the first-to-file provisions in particular, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our owned and licensed patent applications and the enforcement or defense of issued patents that we own or license, all of which could have a material adverse effect on our business and financial condition.

 

Patent applications in the United States and many foreign jurisdictions are not published until at least eighteen months after filing and it is possible for a patent application filed in the United States to be maintained in secrecy until a patent issues on the application. In addition, publications in the scientific literature often lag behind actual discoveries. We therefore cannot be certain that others have not filed patent applications that cover inventions that are the subject of pending applications that we own or exclusively license or that we were the first to invent the technology (if filed prior to the Leahy-Smith Act) or first to file (if filed after the Leahy-Smith Act). Our competitors may have filed, and may in the future file, patent applications covering technology that is similar to or the same as our technology. Any such patent application may have priority over patent applications that we own and, if a patent issues on such patent application, we could be required to obtain a license to such patent in order to carry on our business. If another party has filed a U.S. patent application covering an invention that is similar to, or the same as, an invention that we own, we may have to participate in an interference or other proceeding in the USPTO or a court to determine priority of invention in the United States, for applications and patents made prior to the enactment of the Leahy-Smith Act. For applications and patents made following the enactment of the Leahy-Smith Act, we may have to participate in a derivation proceeding to resolve disputes relating to inventorship. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in our inability to obtain or retain any U.S. patent rights with respect to such invention.

 

In addition, the laws of foreign jurisdictions may not protect our rights to the same extent as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than U.S. law does. Publications of discoveries in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions. Moreover, the USPTO might require that the term of a patent issuing from a pending patent application be disclaimed and limited to the term of another patent that is commonly owned or names a common inventor. As a result, the issuance, scope, validity, term, enforceability and commercial value of our patent rights are highly uncertain.

 

 
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The patent prosecution process is expensive and time-consuming, is highly uncertain and involves complex legal and factual questions. Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents .

 

Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary technology and product candidates. We seek to protect our proprietary position by filing in the United States and in certain foreign jurisdictions patent applications related to our novel technologies and product candidates that are important to our business.

 

The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. In addition, we may not pursue or obtain patent protection in all major markets. Moreover, in some circumstances, we may not have the right to control the preparation, filing or prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties. In some circumstances, our licensors may have the right to enforce the licensed patents without our involvement or consent, or to decide not to enforce or to allow us to enforce the licensed patents. Therefore, these patents and patent applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. If any of our licensors fail to maintain such patents, or lose rights to those patents, the rights that we have licensed may be reduced or eliminated and our right to develop and commercialize any of our product candidates that are the subject of such licensed rights could be adversely affected.

 

Our pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. In particular, during prosecution of any patent application, the issuance of any patents based on the application may depend upon our ability to generate additional nonclinical or clinical data that support the patentability of our proposed claims. We may not be able to generate sufficient additional data on a timely basis, or at all. Moreover, changes in either the patent laws or interpretation of the patent laws in the United States or other countries may diminish the value of our patents or narrow the scope of our patent protection.

 

Moreover, we may be subject to a third-party pre-issuance submission of prior art to the USPTO, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings or other patent office proceedings or litigation, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such submission or proceeding could reduce the scope of, or invalidate, our patent rights; allow third parties to commercialize our technology or products and compete directly with us, without payment to us; or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our owned and licensed patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

 

Obtaining and maintaining our patent protection depends upon compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements .

 

The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent prosecution process and following the issuance of a patent. There are situations in which noncompliance with these requirements can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case if our patent were in force.

 

Our intellectual property rights may not be sufficient to protect our competitive position and to prevent others from manufacturing, using or selling competing diagnostic tests .

 

The scope of our owned and exclusively licensed intellectual property rights will not be sufficient to prevent others from manufacturing, using or selling competing diagnostic tests. Competitors could purchase our product and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies and thereby avoid infringing our intellectual property rights. If our intellectual property is not sufficient to effectively prevent our competitors from developing and selling similar diagnostic tests, our competitive position and our business could be adversely affected.

 

 
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We may become involved in disputes relating to our intellectual property rights, and may need to resort to litigation in order to defend and enforce our intellectual property rights .

 

Extensive litigation regarding patents and other intellectual property rights has been common in the medical diagnostic testing industry. Litigation may be necessary to assert infringement claims, protect trade secrets or know-how and determine the enforceability, scope and validity of certain proprietary rights. Litigation may even be necessary to resolve disputes of inventorship or ownership of proprietary rights. The defense and prosecution of intellectual property lawsuits, USPTO interference or derivation proceedings and related legal and administrative proceedings ( e.g. , a re-examination) in the United States and internationally involve complex legal and factual questions. As a result, such proceedings are costly and time consuming to pursue, and their outcome is uncertain.

 

Even if we prevail in such a proceeding in which we assert our intellectual property rights against third parties, the remedy we obtain may not be commercially meaningful or adequately compensate us for any damages we may have suffered. If we do not prevail in such a proceeding, our patents could potentially be declared to be invalid, unenforceable or narrowed in scope, or we could otherwise lose valuable intellectual property rights. Similar proceedings involving the intellectual property we exclusively license could also have an impact on our business. Further, if any of our other owned or exclusively licensed patents are declared invalid, unenforceable or narrowed in scope, our competitive position could be adversely affected.

 

We could face claims that our activities or the manufacture, use or sale of our diagnostic tests infringe the intellectual property rights of others, which could cause us to pay damages or licensing fees and limit our ability to sell some or all of our diagnostic tests and services .

 

Our research, development and commercialization activities may infringe or be claimed to infringe patents or other intellectual property rights owned by other parties of which we may be unaware because the relevant patent applications may have been filed but not yet published. Certain of our competitors and other companies have substantial patent portfolios, and may attempt to use patent litigation as a means to obtain a competitive advantage or to extract licensing revenue. In addition to patent infringement claims, we may also be subject to other claims relating to the violation of intellectual property rights, such as claims that we have misappropriated trade secrets or infringed third party trademarks. The risks of being involved in such litigation may also increase as we gain greater visibility as a public company and as we gain commercial acceptance of our diagnostic tests and move into new markets and applications for our diagnostic tests.

 

Regardless of merit or outcome, our involvement in any litigation, interference or other administrative proceedings could cause us to incur substantial expense and could significantly divert the efforts of our technical and management personnel. Any public announcements related to litigation or interference proceedings initiated or threatened against us could cause our share price to decline. An adverse determination, or any actions we take or agreements we enter into in order to resolve or avoid disputes, may subject us to the loss of our proprietary position or to significant liabilities, or require us to seek licenses that may include substantial cost and ongoing royalties. Licenses may not be available from third parties, or may not be obtainable on satisfactory terms. An adverse determination or a failure to obtain necessary licenses may restrict or prevent us from manufacturing and selling our diagnostic tests and offering our services. These outcomes could materially harm our business, financial condition and results of operations.

 

We may not be able to adequately protect our intellectual property outside of the United States .

 

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to medical devices, diagnostic testing and biotechnology, which could make it difficult for us to stop the infringement of our patents and for licensors, if they were to seek to do so, to stop infringement of patents that are licensed to us. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business. Additionally, prosecuting and maintaining intellectual property (particularly patent) rights are very costly endeavors, and for these and other reasons we may not pursue or obtain patent protection in all major markets. We do not know whether legal and government fees will increase substantially and therefore are unable to predict whether cost may factor into our global intellectual property strategy.

 

 
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In addition to the risks associated with patent rights, the laws in some foreign jurisdictions may not provide protection for our trade secrets and other intellectual property. If our trade secrets or other intellectual property are misappropriated in foreign jurisdictions, we may be without adequate remedies to address these issues. Additionally, we also rely on confidentiality and assignment of invention agreements to protect our intellectual property in foreign jurisdictions. These agreements may provide for contractual remedies in the event of misappropriation, but we do not know to what extent, if any, these agreements and any remedies for their breach, will be enforced by a foreign court. In the event our intellectual property is misappropriated or infringed upon and an adequate remedy is not available, our future prospects will likely diminish. The sale of diagnostic tests that infringe our intellectual property rights, particularly if such diagnostic tests are offered at a lower cost, could negatively impact our ability to achieve commercial success and may materially and adversely harm our business.

 

Our failure to secure trademark registrations could adversely affect our business and our ability to market our diagnostic tests and product candidates .

 

Our trademark applications in the United States and any other jurisdictions where we may file may not be allowed for registration, and our registered trademarks may not be maintained or enforced. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in corresponding foreign agencies, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our applications and/or registrations, and our applications and/or registrations may not survive such proceedings. Failure to secure such trademark registrations in the United States and in foreign jurisdictions could adversely affect our business and our ability to market our diagnostic tests and product candidates.

 

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information, or the misappropriation of the intellectual property we regard as our own .

 

We rely on trade secrets to protect our proprietary know how and technological advances in test design, particularly where we do not believe patent protection is appropriate or obtainable. Nevertheless, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, third party contractors, third party collaborators and other advisors to protect our trade secrets and other proprietary information. These agreements generally require that the other party to the agreement keep confidential and not disclose to third parties all confidential information developed by us or made known to the other party by us during the course of the other party’s relationship with us. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Monitoring unauthorized disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate. If we were to seek to pursue a claim that a third party had illegally obtained and was using our trade secrets, it would be expensive and time consuming, and the outcome would be unpredictable. Further, courts outside the United States may be less willing to protect trade secrets. In addition, others may independently discover our trade secrets and proprietary information and therefore be free to use such trade secrets and proprietary information. Costly and time consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. In addition, our trade secrets and proprietary information may be misappropriated as a result of breaches of our electronic or physical security systems in which case we may have no legal recourse. Failure to obtain, or maintain, trade secret protection could enable competitors to use our proprietary information to develop diagnostic tests that compete with our diagnostic tests or cause additional, material adverse effects upon our competitive business position.

 

 
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Risks Related to Owning our Common Stock and Other Securities

 

The price of our common stock may fluctuate substantially .

 

Our stock has not been trading in the market place prior to this Offering. The market price of our common stock may be subject to wide fluctuation in response to various factors, some of which are beyond our control. Some factors that may cause the market price of our common stock to fluctuate, in addition to the other risks mentioned in this “Risk Factors” section and elsewhere in this prospectus, are:

 

 

· sales of our common stock by our stockholders, executives, and directors;

 

 

 

 

· our ability to enter new markets;

 

 

 

 

· actual or un-anticipated fluctuations in our annual and quarterly financial results;

 

 

 

 

· our ability to obtain financings to continue and expand our commercial activities, expand our manufacturing operations, conduct research and development activities including, but not limited to, human clinical trials, and other business activities;

 

 

 

 

· our ability to secure resources and the necessary personnel to continue and expand our commercial activities, develop additional diagnostic tests, conduct clinical trials and gain approval for our diagnostic tests on our desired schedule;

 

 

 

 

· commencement, enrollment or results of our clinical trials of our diagnostic tests or any future clinical trials we may conduct;

 

 

 

 

· changes in the development status of our diagnostic tests;

 

 

 

 

· any delays or adverse developments or perceived adverse developments with respect to review by the FDA or other similar foreign regulatory authorities of our planned clinical trials;

 

 

 

 

· any delay in our submission for studies or test approvals or adverse regulatory decisions, including failure to receive regulatory approval for our diagnostic tests;

 

 

 

 

· our announcements or our competitors’ announcements regarding new tests, enhancements, significant contracts, acquisitions or strategic investments;

 

 

 

 

· failures to meet external expectations or management guidance;

 

 

 

 

· changes in our capital structure or dividend policy, including as a result of future issuances of securities and sales of large blocks of common stock by our stockholders;

 

 
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· announcements and events surrounding financing efforts, including debt and equity securities;

 

 

 

 

· competition from existing technologies and diagnostic tests or new technologies and diagnostic tests that may emerge;

 

 

 

 

· announcements of acquisitions, partnerships, collaborations, joint ventures, new diagnostic tests, capital commitments, or other events by us or our competitors;

 

 

 

 

· changes in general economic, political and market conditions in any of the regions in which we conduct our business;

 

 

 

 

· changes in industry conditions or perceptions;

 

 

 

 

· changes in valuations of similar companies or groups of companies;

 

 

 

 

· analyst research reports, recommendations and changes in recommendations, price targets and withdrawals of coverage;

 

 

 

 

· departures and additions of key personnel;

 

 

 

 

· disputes and litigations related to intellectual properties, proprietary rights and contractual obligations;

 

 

 

 

· changes in applicable laws, rules, regulations, or accounting practices and other dynamics;

 

 

 

 

· actions taken by our principal stockholders and release or expiry of lockup or other transfer restrictions; and

 

 

 

 

· other events or factors, many of which may be out of our control.

 

In addition, if the market for stocks in our industry or industries related to our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition and results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

 

You may experience immediate and substantial dilution in the book value per share of any common stock you receive from conversion or exercise of the securities underlying the Units issued in this offering .

 

The purchase price per Share in this offering is substantially higher than the net tangible book value per share of our common stock, and, therefore, you will suffer immediate and substantial dilution in the net tangible book value of the common stock you purchase in this offering. See “Dilution” on page 33 for a discussion of the dilution you may incur in connection with this offering.

 

 
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Sales of our common stock in this Offering will be taking place concurrently with common stock registered by selling shareholders which might affect the price, demand, and liquidity of our common stock.

 

We are registering shares of common stock to certain security holders (“Selling Shareholders”) concurrently with this Offering. We issued to the Selling Shareholders senior convertible notes with warrants. The senior secured convertible notes are convertible into our common stock at the lower of $0.75 per share or a discount of 30% to the price of the stock issued in an anticipated initial public offering. The warrants have an exercise price equal to 85% of the price of the stock issued in this initial public offering. The amount of common stock issued to the Selling Shareholder shall be 50% of the shares of our common stock that the Selling Shareholder are entitled to receive in connection with the conversion of the Selling Shareholder’s convertible notes when such senior convertible notes first become convertible. Sales by selling shareholders may reduce the price of our common stock, demand for the shares sold in the Offering and, as a result, the liquidity of your investment.

  

Future sales and issuances of our common stock or rights to purchase common stock could result in additional dilution of the percentage ownership of our stockholders and could cause our share price to fall .

 

We expect that significant additional capital will be needed in the future to continue our planned operations, including expanding research and development, funding clinical trials, purchasing of capital equipment, hiring new personnel, commercializing our diagnostic tests, and continuing activities as an operating public company. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.

 

Future sales of our common stock in the public market may cause our stock price to decline and impair our ability to raise future capital through the sale of our equity securities .

 

There are a substantial number of shares of our common stock held by stockholders who owned shares of our capital stock prior to our initial public offering that may be able to sell in the public market. Sales by such stockholders of a substantial number of shares could significantly reduce the market price of our common stock.

 

Shares issued by us upon exercise of options granted under our equity plan will be eligible for sale in the public market. If any of these holders cause a large number of securities to be sold in the public market, the sales could reduce the trading price of our common stock. These sales also could impede our ability to raise capital in the future.

 

“Penny stock” rules may make buying or selling our securities difficult, which may make our stock less liquid and make it harder for investors to buy and sell our securities .

 

If at any time in the future our shares of common stock are not listed for trading by NASDAQ and begin to trade on an over-the-counter market such as the Over- the-Counter Bulletin Board or any quotation system maintained by OTC Markets, Inc., trading in our securities will be subject to the SEC’s “penny stock” rules and it is anticipated that trading in our securities will continue to be subject to the penny stock rules for the foreseeable future. The Securities and Exchange Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer who recommends our securities to persons other than prior customers and accredited investors must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by these requirements may discourage broker-dealers from recommending transactions in our securities, which could severely limit the liquidity of our securities and consequently adversely affect the market price for our securities.

 

NASDAQ may delist our common stock from its exchange, which could limit investors’ ability to make transactions in our common stock and subject us to additional trading restrictions .

 

Should we fail to satisfy the continued listing requirements of the NASDAQ Capital Market, such as the corporate governance requirements or the minimum closing bid price requirement, NASDAQ may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock, and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we would take actions to restore our compliance with the NASDAQ Capital Market’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the NASDAQ Capital Market’s minimum bid price requirement or prevent future non-compliance with the NASDAQ Capital Market’s listing requirements.

  

 
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If the NASDAQ Capital Market does not maintain the listing of our securities for trading on its exchange, we could face significant material adverse consequences, including:

  

 

· a limited availability of market quotations for our securities;

 

 

 

 

· reduced liquidity with respect to our securities;

 

 

 

 

· a determination that our shares of common stock are “penny stock” which will require brokers trading in our shares of common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock;

 

 

 

 

· a limited amount of news and analyst coverage for our company; and

 

 

 

 

· decreased ability to issue additional securities or obtain additional financing in the future.


Therefore, it may be difficult for our stockholders to sell any shares if they desire or need to sell them.


Financial reporting obligations of being a public company in the United States are expensive and time consuming, and may place significant demands on our management and other personnel
.

 

The additional obligations of being a public company in the United States require significant expenditures and may place significant demands on our management and other personnel, including costs resulting from public company reporting obligations under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the listing requirements of the NASDAQ Capital Market. Our management and other personnel devote a substantial amount of time to ensure that we comply with all of these requirements. Moreover, despite recent reforms made possible by the JOBS Act (certain provisions of which we are taking advantage of), the reporting requirements, rules, and regulations will make some activities more time-consuming and costly, particularly after we are no longer an “emerging growth company.” Any changes that we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all.

 

We do not intend to pay cash dividends on our shares of common stock so any returns will be limited to the value of our shares .

 

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the increase, if any, of our share price.

 

We are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors .

 

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Investors may find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our initial public offering; (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 the rules of the Securities and Exchange Commission.

 

 
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We have elected to use the extended transition periods for complying with new or revised accounting standards .

 

We have elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transaction period provided in Section 7(a)(2)(B). As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.

 

Our management is required to devote substantial time to compliance initiatives .

 

As a public company, we incur significant legal, accounting and other expenses that we did not incur as a newly formed entity. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the Securities and Exchange Commission, and NASDAQ, have imposed various new requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time consuming and costly. We expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage.

 

USE OF PROCEEDS

 

We estimate that the net proceeds from our issuance and sale of [*] shares of our common stock in this offering will be approximately $[*], assuming an initial public offering price of $[*] per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, we estimate that the net proceeds from this offering will be approximately $8,000,000.

 

A $1.00 increase or decrease in the assumed initial public offering prices of $[*] per share would increase or decrease the net proceeds from this offering by approximately $[*], assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions.

 

We expect the net proceeds from this offering will allow us to fund our operations for up to 36 months, assuming no revenues from sales of our tests, following the closing of the offering, including the completion of our planned expansion of the number of tests we will offer to the public. We intend to use the net proceeds from this offering as follows:

 

 

1.

$2,500,000 development tests, expansion of laboratory facilities and clinical and in-field validation for regulatory filings of diagnostic tests;

 

 

2.

$2,000,000 to increase our sales and marketing capabilities;

 

 

3.

$1,500,000 to expand the availability of PCR machines in developing nations under a reagent rental program; and

 

 

4.

$1,000,000 for the financing cost of this offering including professional fees.

 

 

5.

$500,000 to fund our share of the manufacturing facility to produce our reagents in India and other locations in the developing world;

 

 

6.

$500,000 of the remaining proceeds, if any, will be used for general corporate purposes, including working capital.

 

 
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This expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the status of and results from clinical trials of and acceptance of our full menu of diagnostic tests. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering. We may find it necessary or advisable to use the net proceeds from this offering for other purposes, and we will have broad discretion in the application of net proceeds from this offering.

 

Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.

 

DIVIDEND POLICY

 

We have never declared or paid any cash dividends on our common stock and we currently do not anticipate paying any cash dividends for the foreseeable future. Instead, we anticipate that all of our earnings on our common stock will be used to provide working capital, to support our operations, and to finance the growth and development of our business, or investment in, businesses, technologies or products that complement our existing business. Any future determination relating to dividend policy will be made at the discretion of our Board and will depend on a number of factors, including, but not limited to, our future earnings, capital requirements, financial condition, future prospects and other factors our Board might deem relevant.

 

CAPITALIZATION

 

The following table sets forth our consolidated capitalization, as of December 31, 2016, and on a pro forma basis giving effect to the sale of [*] shares of common stock by us in this offering at the estimated initial public offering price of $[*] per share after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. In addition, the following table gives effect to the ______ reverse stock split of our common stock immediately prior to the effectiveness of the registration statement of which this prospectus is a part.

 

 

 

 

December 31,

2016

 

 

 

Actual

 

 

As Adjusted

 

Current notes payable net of $87,605 discount

 

$ 2,111,895

 

 

 

 

Current notes payable (related party) net of $263 discount

 

 

837,177

 

 

 

 

Total current notes payable, net of $87,868 discount

 

 

2,949,072

 

 

 

 

 

 

 

 

 

 

 

 

 Long-term notes payable

 

 

445,000

 

 

 

 

 

 

 

 

 

 

 

 

Total debt obligations

 

 

3,394,072

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.001 par value, 180,000,000 shares authorized, 108,704,025 actual shares outstanding

 

 

108,704

 

 

 

 

Additional paid-in capital

 

 

2,359,922

 

 

 

 

Accumulated deficit

 

 

(5,463,212 )

 

 

 

Total stockholders' equity (deficit)

 

 

(2,994,586 )

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity (deficit)

 

 

(1,295,827 )

 

 

 

 

 
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DILUTION

 

Purchasers of our common stock in this offering will experience an immediate and substantial dilution in the as adjusted net tangible book value of their shares of common stock. Dilution in as adjusted net tangible book value represents the difference between the public offering price per share and the as adjusted net tangible book value per share of our common stock immediately after the offering.

 

The historical net tangible book value of our common stock as of December 31, 2016 was $(2,994,586) or $(0.028) per share. Historical net tangible book value per share of our common stock represents our total tangible assets (total assets less intangible assets) less total liabilities divided by the number of shares of common stock outstanding as of that date. On a pro forma basis, after giving effect to the sale of [*] shares in this offering at an assumed initial public offering price of $[*] per share for net proceeds of $[*], as if such offering had occurred at the end of the [*], 2017, and giving effect to ______ reverse stock split of our common stock immediately prior to the effectiveness of the registration statement of which this prospectus is a part, our pro forma net tangible book value as of December 31, 2016 would have been approximately $[*], or approximately $[*] per share of our common stock. This represents an immediate increase in as adjusted pro forma, net tangible book value per share of $[*] to the existing stockholders and an immediate dilution in as adjusted pro forma net tangible book value per share of $[*] to new investors who purchase shares in the offering. The following table illustrates this per share dilution to new investors:

  

Assumed public offering price per share

 

$

 

Historical net tangible book value per share as of December 31, 2016

 

$ (0.028 )

Pro forma net tangible book value (deficit) per share as of December 31, 2016

 

 

 

 

Increase in as adjusted pro forma net tangible book value per share attributable to the offering

 

 

 

 

Dilution in net tangible book value per share to new investors

 

 

 

If the underwriters exercise their option to purchase additional shares in full, the as adjusted net tangible book value per share after giving effect to the offering would be $[*] per share. This represents an increase in as adjusted net tangible book value of $[*] per share to existing stockholders and dilution in as adjusted net tangible book value of $[*] per share to new investors.

 

A $1.00 increase in the assumed public offering price of $[*] per share of common stock would increase our as adjusted net tangible book value by $[*] to approximately $[*] per share, and dilution per share to new investors to approximately $[*] per share, assuming that the number of shares of common stock offered by us remains the same. A $1.00 decrease in in the assumed public offering price of $[*] per share of common stock would decrease our as adjusted net tangible book value by $[*] to approximately $[*] per share and dilution per share to new investors by approximately $[*].

 

Sales of [*] shares of common stock by the selling stockholders in the offering covered by a separate prospectus will reduce the number of shares of common stock held by existing stockholders to [*], or approximately [*]% of the total shares of common stock outstanding after this offering, and will increase the [*] shares held by new investors to approximately [*]% of the total shares of common stock outstanding after this offering.

 

If the underwriters’ option to purchase additional shares to cover over-allotments is exercised in full, our existing stockholders would own approximately [*]% and our new investors would own approximately [*]% of the total number of shares of our common stock outstanding after this offering, and before sales of any of the [*] shares by the selling stockholders.

 

To the extent that outstanding options or warrants are exercised and outstanding convertible notes are converted into common stock, you will experience further dilution. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities may result in further dilution to our stockholders.

 

The following table summarizes, on an as adjusted basis as of December 31, 2016, the differences between the number of shares of common stock purchased from us, the total consideration and the average price per share paid by existing stockholders and by investors participating in this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses, at an assumed public offering price of $[*] as shown on the cover page of this prospectus.

 

Shares Purchased

 

Total Consideration

Average Price

 

Existing stockholders

 

New investors from this offering

 

Total

 

 

 

 

Number__________ %__________ Amount ____________%_______________ Per Share

 

 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and related notes that are included elsewhere in this prospectus. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the caption “Risk Factors” or in other parts of this prospectus. See “Cautionary Note Regarding Forward-Looking Statements.”

 

Critical Accounting Policies

 

Management Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

We consider all cash on hand and in banks, and highly liquid investments with maturities of three months or less, to be cash equivalents. At December 31, 2016, we had bank balances of $643,715 in the excess of amounts insured by the Federal Deposit Insurance Corporation. We have not experienced any losses in such accounts, and believe we are not exposed to any significant credit risk on cash and cash equivalents.

  

Current financial market conditions have had the effect of restricting liquidity of cash management investments and have increased the risk of even the most liquid investments and the viability of some financial institutions. We do not believe, however, that these conditions will materially affect our business or our ability to meet our obligations or pursue our business plans.

 

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 received.

 

A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for more than 90 days. After the receivable becomes past due, it is on non-accrual status and accrual of interest is suspended.

 

Inventories

 

Inventories consisting of diagnostic tests are stated at the lower of cost or market determined using the first-in, first-out method.

 

 
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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.

 

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. We have filed patent applications in the United States and foreign countries. As of August 31, 2016, the U.S. Patent and Trademark Office or PTO had approved three patents. Additionally, we had two pending patent applications, including 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.

 

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, 2016, it was determined that no adjustment was required.

 

Stock-based Compensation

 

Stock-based compensation cost is estimated at the grant date, based on the estimated fair value of the awards, and recognized as expense ratably over the requisite service period of the award for awards expected to vest.

 

Income Taxes

 

We account for income taxes in accordance with the asset and liability method of accounting for income taxes. 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.

 

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.

 

 
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Research and Development

 

Research and development costs are expensed when incurred. We expensed $731,474 in 2016 and $806,913 in 2015 of research and development costs.

  

Concentration of Credit Risk

 

Financial instruments, which potentially subject us to concentration of credit risk, consist primarily of trade accounts receivable. In the normal course of business, we provide credit terms to our customers. Accordingly, we will, when we have receivables, perform ongoing credit evaluations of our customers and maintain allowances for possible losses.

 

Weighted Average Shares

 

Basic earnings 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. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the year, plus the dilutive common stock equivalents that would rise from the exercise of stock options, warrants and restricted stock units outstanding during the period, using the treasury stock method and the average market price per share during the period, plus the effect of assuming conversion of the convertible debt. The computation of diluted earnings per share does not assume conversion or exercise of securities that would have an anti-dilutive effect on earnings.

 

Advertising Expenses

 

We follow the policy of charging the costs of advertising to expense as incurred. No advertising expenses were incurred for the years ended December 31, 2016 and 2015.

  

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the 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.

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02 Leases, 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, 2018.

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address some questions about the presentation and classification of certain cash receipts and payments in the statement of cash flows. These classification issues had arisen because there was either unclear or no applicable guidance for such cash flows in FASB ASC Topic 230, Statement of Cash Flows. The Company is evaluating the impact of this standard on its financial statements.

      

 
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Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Executive Overview

 

Co-Diagnostics, Inc. (“Company,” “CDI,”), a Utah corporation, is a molecular diagnostics company that has developed, and intends to manufacture and market molecular diagnostic tests that are designed using the detection and/or analysis of nucleic acid molecules (DNA or RNA) to provide better diagnostic tests .. Dr. Brent Satterfield created unique mathematical models instead of relying on costly laboratory infrastructure which resulted in methods used to predict the optimum formulas for DNA based diagnostic tests. Using the speed and computational abilities of computers to sift through millions of possible formulations, the Company has created a new DNA-based testing platform, for detection of disease, genetic disorders and other conditions. 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. Diagnostic testing systems using PCR technology are generally conceded to be the industry standard for accuracy and specificity. CDI technologies are now protected by five granted or pending US patents, as well as certain trade secrets. The platform also bypasses existing patent royalties required by other PCR test systems, which has the potential of allowing CDI to sell diagnostic tests at a lower cost than competitors, while generating a profit margin.

   

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 (cooperative 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. In addition CDI scientists have enhanced the understanding of the structure of PCR test design, so as to “engineer” a PCR test and automate algorithms to screen millions of possible designs to find the optimum PCR test design. CDI’s proprietary platform of design elements and technologies integrates and streamlines these steps as it analyzes biological make up of pathogens. 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 resistance tuberculosis test, hepatitis B and C, Malaria, dengue, HIV and Zika virus, all of which tests have been designed and validated in CDI’s laboratory. Using the proceeds of this offering, CDI will conduct field validation for each of the tests on human blood, tissue, or sputum samples to comply with regulatory guidelines in the countries where the tests will be introduced for first sale. Costs for the field validation will vary by test. The costs for the field validation of the tuberculosis tests was less than $25,000 and the remainder of the tests is estimated by the Company to be in the same range.

 

In January 2015, we entered into a stock exchange agreement with Dr. Satterfield pursuant to which we acquired all of the issued and outstanding stock of DNA Logix, Inc., a corporation owned by Dr. Satterfield which was conducting all of our development work on the Original Technology and the Co-Primer technology. We issued 6,420,000 shares of our common stock in the exchange. We deemed the transaction necessary to have complete control over the development of our technologies and the production of specific tests. At the time, the DNA Logix lab had received ISO 13485 and ISO 9001 lab certification for our tuberculosis test. CDI has since received ISO 13485 and ISO 9001 certifications relating to the design and manufacture of all 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.

 

Effective April 20, 2013, we entered into a subscription agreement with an accredited investor for the sale of 15,000,000 shares of our common stock at a purchase price of $0.083 per share. The proceeds from the sale of our stock aggregated $1,250,000 were paid to the Company over a fifteen month period and constituted our first equity financing. Following the completion of the subscription payments, the Company requested additional funding from the investor and pursuant to the terms of the subscription agreement for subsequent investments, the investor paid an additional $500,000 to the Company in exchange for common stock at a purchase price of $0.058 per share. The subscription agreement was amended May 1, 2015 to provide for another $500,000 investment on the same terms and the Company received $199,985 pursuant to the amendment at a purchase price of $0.058 per share.

  

In June 2014, we entered into a subscription agreement with an accredited investor for the sale of 500,000 shares of our common stock in consideration of the payment of $100,000.

 

 
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In May 2015, we entered into a convertible note with an accredited investor. The convertible note was in the principal amount of $500,000 with interest payable monthly at the rate of 12% per annum with the convertible note due and payable on April 30, 2016. The investor withheld 2% as a financing fee from the proceeds of the note and we received total proceeds of $490,000. The note is convertible into common stock of the Company at a conversion price of the lower of $0.75 per share or 20% less than the offering price of an initial public offering should one take place during the term of the convertible note. We have a best efforts obligation to register the shares issuable pursuant to a conversion of the convertible note. We paid a finder’s fee of $25,000 for locating the investor. In December 2016, we replaced the convertible note with a new note in the principal amount of $583,500 that includes $83,500 of accrued interest and bears interest at the rate of 15% per annum. In addition, the holder agreed to subordinate its interest to the bridge lender described below, convert all or a portion of its note in this offering, and will receive a warrant exercisable into a number of warrants equal to 50% of the shares received on conversion of its note. The warrants have a five year life and are exercisable at the price of shares in this offering.

 

On August 1, 2015 we entered into a revolving line of credit promissory note in the principal amount of $750,000 with a foreign shareholder of ours. The note bears interest at the rate of 12% per annum. To date we have received $609,940 in advances under the line of credit. On September 14, 2016 we amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if we were to file a Registration Statement before December 31, 2016.

 

On November 12, 2015, we entered into a convertible note with a limited liability company, which is a principal shareholder of ours. The convertible note was in the principal amount of $100,000 with interest payable at the rate of 8.5% per annum with the convertible note due and payable on September 30, 2017. The note is convertible into common stock of the Company at a conversion price of the lower of $1.00 per share or 20% less than the offering price of an initial public offering should one take place during the term of the convertible note. In addition, we issued warrants to the note holder to purchase up to 50,000 shares of our common stock at an exercise price of $1.50 or the offering price of an initial public offering should one occur during the term of the warrant, whichever is less. The warrant has a five year term.

 

On December 1, 2015, we entered into a convertible note with an accredited investor. The convertible note was in the principal amount of $100,000 with interest payable at the rate of 8.5% per annum with the convertible note due and payable on September 30, 2017. The note is convertible into common stock of the Company at a conversion price of the lower of $1.00 per share or 20% less than the offering price of an initial public offering should one take place during the term of the convertible note. In addition, we issued warrants to the note holder to purchase up to 50,000 shares of our common stock at an exercise price of $1.50 or the offering price of an initial public offering should one occur during the term of the warrant, whichever is less. The warrant has a five year term.

 

On December 30, 2015, we entered into a revolving line of credit promissory note with a limited liability company in the principal amount of $100,000. The note bears interest at the rate of 12% per annum. To date we have received $86,000 in advances under the line of credit. On September 14, 2016 we amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if we were to file a Registration Statement before December 31, 2016.

 

On January 15, 2016, we granted options to eleven employees pursuant to our 2015 Long Term Incentive Plan to acquire up to an aggregate of 1,800,000 shares of our common stock at $0.05 per share, but not less than the fair market value on the date of grant. In the transaction, we relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof.

 

On February 22, 2016, we entered into a promissory note in the principal amount of $10,000 with a corporation. The note bears interest at the rate of 12% per annum. On September 14, 2016 we amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if we were to file a Registration Statement before December 31, 2016.

 

 
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On March 1, 2016, we entered into a revolving line of credit promissory note with a limited liability company in the principal amount of $100,000. The investor is a principal shareholder of ours. The note bears interest at the rate of 12% per annum. To date we have received $80,000 in advances under the line of credit. On September 14, 2016 we amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if we were to file a Registration Statement before December 31, 2016.

 

On May 15, 2016, we entered into a revolving line of credit promissory note with a corporation in the principal amount of $75,000. The note bears interest at the rate of 12% per annum. To date we have received $66,000 in advances under the line of credit. On September 14, 2016 we amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if we were to file a Registration Statement before December 31, 2016.

 

On May 30, 2016, we entered into a revolving line of credit promissory note with a trust in the principal amount of $50,000. The note bears interest at the rate of 12% per annum. To date we have received $41,500 in advances under the line of credit. On September 14, 2016 we amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if we were to file a Registration Statement before December 31, 2016.

 

On August 18, 2016, and on August 25, 2016 we entered into two convertible promissory notes in the principal amounts of $10,000 and $15,000, respectively, with a limited liability company. The notes bear interest at the rate of 10% per annum. The notes provide that the principal and interest on the notes would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 15% to the conversion price of a bridge financing anticipated to close prior to filing a Registration Statement, which bridge financing was completed on December 12, 2016.

 

On September 1, 2016, we entered into a convertible promissory note in the principal amount of $200,000, with an individual. The note bears interest at the rate of 10% per annum. The note provides that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 15% to the conversion price of a bridge financing anticipated to close prior to filing a Registration Statement, which bridge financing was completed on December 12, 2016.

 

In November and December, 2016, we entered into three convertible promissory notes in the principal amounts of $50,000, $40,000 and $15,000, respectively, with three individuals. The notes bear interest at the rate of 10% per annum. The notes provide that the principal and interest on the notes would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if we were to file a Registration Statement before December 31, 2016.

 

Bridge Notes

 

In December 2016, the Company entered into convertible promissory notes with six individuals and five companies, in the aggregate principal amount of $1,683,500, which consisted of (a) $1,100,000 of new investor funding and (b) $583,500 representing the satisfaction of the $500,000 note principal plus $83,500 of accrued interest on the Beaufort Capital Partners, LLC Convertible Note. The notes bear interest at the rate of 15% per annum and are due in June 2017. The notes provide that the principal and interest on the notes would be convertible to shares of common stock at a conversion rate of $0.75 per share or seventy percent (70%) of the initial public offering (“IPO”) price per share or, if the IPO has not occurred by the Maturity Date, 70% of the Company’s initial public offering (“IPO”) price per share or, if the IPO has not occurred by June 12, 2017, 85% of the offering price of the Company's next bona fide sale of its preferred stock or common stock in excess of $1,000,000. The notes are secured by all of the assets of the Company.

 

The note holders also received warrants to purchase up to 50% of the shares receivable upon conversion of the senior notes at a price of eighty-five percent (85%) of the Company’s IPO price per share or, if the IPO has not occurred by June 12, 2017, 85% of the offering price of the Company's next bona fide sale of its preferred stock or common stock in excess of $1,000,000.. The warrants expire in December 2021.

 

Upon any default of the notes for non-payment, any bankruptcy event or breach of the note or other transaction documents, the Company may be liable to pay a default redemption amount equal to 130% of the amount due under the note and deliver an additional warrant to purchase 50% of the common stock issuable upon conversion of the notes.

 

 

 
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Results of Operation for the Years Ended December 31, 2016 and December 31, 2015

 

Table derived from audited financial statements

 

 

 

For the years

ended

 

 

 

 

 

 

December 31,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

Net sales

 

$ --

 

 

$ 10,000

 

Cost of sales

 

 

--

 

 

 

--

 

Gross profit

 

 

--

 

 

 

10,000

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling and marketing

 

 

122,105

 

 

 

281,101

 

Administrative and general

 

 

796,896

 

 

 

846,825

 

Research and development

 

 

731,474

 

 

 

806,913

 

Depreciation and amortization

 

 

37,491

 

 

 

43,140

 

Total operating expenses

 

 

1,687,966

 

 

 

1,977,979

 

Total operating loss

 

 

(1,687,966 )

 

 

(1,967,979 )

 

 

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

 

 

 

Interest expense

 

 

(240,720 )

 

 

(75,189 )

Total other expense

 

 

(240,720 )

 

 

(75,189 )

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(1,928,686 )

 

 

(2,043,168 )

Provision for income taxes

 

 

--

 

 

 

--

 

Net loss

 

$ (1,928,686 )

 

$ (2,043,168 )

 

 

 

 

 

 

 

 

 

Net loss per share – basic and diluted

 

$ (0.02 )

 

$ (0.02 )

 

Net Sales

 

We had no sales of products in the twelve months ended December 31, 2016 and 2015. However, we had licensing revenue of $10,000 in 2015 that was not repeated in 2016.


 
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Cost of Sales

 

We had no sales of products in the twelve months ended December 31, 2016 and 2015. We had licensing revenue in 2015, but there was no costs associated with the license revenue.

  

O perating Expenses

 

We incurred total operating expenses of $1,687,966 for the year ended December 31, 2016 compared to total operating expenses of $1,977,979 for the year ended December 31, 2015. The decrease of $290,013 was due to a decrease in sales and marketing costs of $158,996, a decrease of $75,439 in our research and development expenses and a decrease in general and administrative expenses of $49,929 and a decrease in depreciation and amortization expense of $5,649.

 

Our sales and marketing expenses for the year ended December 31, 2016 were $122,105 compared to sales and marketing expenses of $281,101 for the year ended December 31, 2015. The decrease of $158,996 is due primarily to a decrease of $117,945 expenses in independent consultants engaged in marketing activities and a decrease of $30,290 in travel related expenses.

 

Our research and development expenses decreased by $75,439 from $806,913 for the year ended December 31, 2015 to $731,474 for the year ended December 31, 2016. The decrease was primarily due to a reduction of $80,482 in lab supplies and services partially offset by an increase of $7,504 in personnel related expenses.

 

Our general and administrative expenses decreased $49,929 from $846,825 for the year ended December 31, 2015 to $796,896 for the year ended December 31, 2016. The decrease was primarily the result of a decrease of $98,178 in legal and professional expenses and a decrease of $64,691 in independent consulting expenses partially offset by an increase of $126,138 in employee related expenses.

 

Interest Expense

 

We recorded interest expense of $75,189 in the year ended December 31, 2015 compared with interest expense of $240,720 in the year ended December 31, 2016. The increase of $165,531 was primarily the result of our $500,000 loan being outstanding for the entire year in 2016 and we increased our total notes payable from $1,011,530 outstanding at December 31, 2015 to $3,394,072 outstanding at December 31, 2016.

 

Net Loss

 

We had net loss of $1,928,686 for the year ended December 31, 2016 compared to a net loss of $2,043,168 for the year ended December 31, 2015. The decrease in net loss for the year ended December 31, 2016 compared to the year ended December 31, 2015 was $114,482, which resulted primarily from decreased operating expenses partially offset by the increase in interest expense as explained above.

 
 
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Contractual Obligations

 

The following table summarizes our contractual obligations as of December 31, 2016:

 

Payments Due

Within

One Year to

Three

Years to Five

After Five

One Year

Three Years

Years

Years

Total

Long-term debt obligations

$ 2,949,072

$ -

$ 445,000

$

$ 3,394,072

Capital lease obligations

-

-

-

-

-

Operating lease obligations

41,591

-

-

41,591

Purchase obligations

-

-

-

-

-

Other obligations

-

-

-

-

-

Total contractual obligations

$ 2,990,663

$ -

$ 445,000

$

$ 3,435,663

 

Liquidity and Capital Resources

 

At December 31, 2016, we had cash 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.

 

We experienced negative cash flow used in operations during the twelve months ending December 31, 2016 of $1,312,267 compared to negative cash flow used in operations for the twelve months ended December 31, 2015 of $1,530,371. The negative cash flow was met by cash reserves, sales of our common stock, sale of an exclusive license to sell our Zika test and related mosquito borne illnesses and most recently from the issuances of short term debt. The exclusive license agreement was later rescinded and the advanced royalty converted to debt. 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 external funding. We expect additional investment capital may 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 operating expenses, including our technology research and development expenses and interest expense, were approximately $160,723 per month during the year ended December 31, 2016. 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 completed the sale of promissory notes and will continue to need to raise additional capital through sales of common stock or issuance of debt financing 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.

 

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 2017 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 (i) this offering (ii) additional private placements of our common stock with existing and new investors and (iii) the private placement of other securities with investors similar to those that have provided funding in the past.


 
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Recent Developments

 

On December 12, 2016, we issued senior secured convertible notes and warrants when we entered into a securities purchase agreement. Under the terms of the securities purchase agreement, we executed senior secured convertible 15% notes for a total indebtedness of $1,100,000 in favor of the investors. At the same time we replaced our $500,000 convertible note and accrued interest of $83,500 with a new note convertible in the principal amount of $583,500 with the same terms as our new indebtedness. The senior secured convertible notes are convertible into our common stock at $0.75 per share or a discount of 30% to the price of the stock issued in an anticipated initial public offering, whichever is less. The senior secured convertible notes bear interest at the annual rate of 15% per annum and are due June 12, 2017. Interest-only payments are due quarterly in arrears. The senior secured convertible notes are convertible anytime until their due date.

 

On October 11, 2016, the Company entered into an exclusive license agreement with Watermark Group, Inc., a Nevada corporation, (“Watermark”) which granted the exclusive license to sell the Company’s proprietary molecular diagnostic tests for the Zika virus and other mosquito borne illnesses in exchange for an initial royalty of $500,000 and a royalty of 10% of net sales. The license was cancelled as described hereafter. Also as part of the transaction the Company entered into a stock purchase agreement with the major shareholder of Watermark for the purchase of 3,600,000 shares of common stock in Watermark for $55,000 (the “Former Shareholder”), which constituted a controlling interest in Watermark. Watermark subsequently changed its name to Zika Diagnostics, Inc. Contemporaneously, with the execution of those two agreements, Watermark secured an investment of $1.05 million from an individual for the purchase of shares of Watermark, $0.5 million of which was paid to the Company pursuant to the exclusive license agreement as an initial royalty payment. As an integral part of the license agreement and the stock purchase agreement, the Company required that Watermark be debt free for the transaction to close. It was represented that a related party loan (“Related Note”) on the books of Watermark as of July 31, 2016 in the approximate amount of $172,000 plus accrued interest was satisfied. The Company was furnished written documentation from what was purported to be the then holder of the Related Note (“Tide Pool Ventures”) and a purported written confirmation from the original holder of the Related Note (“P&G Holdings”) that the debt was satisfied. The seller of the Watermark stock purchased by the Company also represented that the Related Note was satisfied as a condition to the stock purchase agreement. On or about January 10, 2017, the Company and Watermark were notified by P&G Holdings that the Related Note was not only still outstanding, but that it was in default and payment was demanded. On January 31, 2017, P&G Holdings filed a lawsuit in Federal District Court in New York demanding payment of the Related Note, all accrued interest thereon and attorney’s fees and that stock be issued such that P&G Holdings would own 80% of the issued and outstanding shares of stock of Watermark.

 

As a result of the lawsuit and its investigation into the Related Note, the Company determined that it would unwind the transaction by terminating the license agreement effective as of October 11, 2016 and rescinding the stock purchase, which it did on March 22, 2017, in an agreement with the Former Shareholder. Under the terms of the rescission and cancellation of the license agreement, the Company returned the shares of stock of Watermark that it held to the seller of the stock and agreed to repay a portion of the initial license fee it received. In that connection the Company executed a note payable to Watermark in the principal amount of $445,000. The note principal is due December 31, 2020. Following the rescission of the stock purchase agreement and the cancellation of the license, the Related Note was paid by Watermark and the lawsuit by P&G Holdings was dismissed.

 

Quantitative and Qualitative Disclosures about Market Risk

 

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. We do not issue financial instruments for trading purposes. As discussed above, however, the embedded conversion feature of our convertible notes and our related warrants are derivatives, but have been deemed to be non-beneficial.

 

Our cash and cash equivalents are also exposed to market risk. However, because of the short-term maturities of our cash and cash equivalents, we do not believe that an increase in market rates would have any significant impact on the realized value of our cash and cash equivalent investments. We currently do not hedge interest rate exposure and are not exposed to the impact of foreign currency fluctuations.

 

BUSINESS

    

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).

 

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. Our platform allows us to avoid paying existing patent royalties required by other PCR test systems, which has the potential of allowing CDI to sell diagnostic labs and tests at a lower cost than competitors, while generating a profit margin.

  
 
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We will either sell or lease our portable labs to existing diagnostic centers, through sale or lease agreements, and sell reagents used in our proprietary tests.

 

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 validated in CDI’s laboratory

 

 

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 (cooperative 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 validated in CDI’s laboratory.

 

Product Offering

 

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 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 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. 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 test for tuberculosis, h B and C, dengue then our full range of tests.

 

 

 
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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.

 

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. We are beginning to sell these products in India this quarter. I leave it to you to decide whether to mention the CDSCO or RUO sales.

 

India is the country with the highest burden of tuberculosis. According to the 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).

 

Europe

 

Most molecular tests, 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. 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 2017. We estimate the remaining costs for CE-marks 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. There are several advantages of molecular tests 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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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 for some expenses, such as approximately $30,000 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.

 

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 tests have been designed to run on many vendors’ DNA diagnostic testing machines. It is 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 : Tests are believed by Company to be 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.

 

 
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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 December 31, 2016, we had two additional patents pending in the US 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.

 

Major Customers

 

We have yet to generate any material revenue from sales of products or from licensing.

 

 
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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.

 

Employees

 

We currently employ 12 full-time personnel at our executive offices and lab facilities in Salt Lake City, Utah, and two employees outside of Utah. We engage independent contractors 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 8160 S. Highland Drive, Salt Lake City, Utah 84093. We occupy the space at the executive offices under month to month lease. The lease covers approximately 1,000 square feet of office space leased at a rate of $1,300 per month. Our lab is located at 585 W. 500 S., Suite 210, Bountiful, Utah 84010, and consists of approximately 5,000 square feet of space leased under a thirty six month term lease at a rate of $3,671 per month, which has been extended one year and expires November 30, 2017. We have no other properties.

 

Legal Proceedings

 

The Company has no legal proceedings and to the knowledge of management, no litigation has been threatened.

 

 
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MANAGEMENT

 

Executive Officers and Directors

 

The following table sets forth the names, ages and positions of our executive officers and directors:

 

Name

Age

Position

Dwight H. Egan

 

62

 

Chief Executive Officer, President and Chairman of the Board

Brent Satterfield

 

40

 

Chief Science Officer and Director

Reed L Benson

 

70

 

Chief Financial Officer, Secretary and 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’ 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 co-founder, 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 patented 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 has 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. Mr. 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, Secretary and director from November 2014 to the present. 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 publically 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 Board decision-making process.

 

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. Mr. Egan, Mr. Benson and Mr. Satterfield are employees. Mr. Egan serves as our president and chief executive officer, Mr. Benson serves as our Chief Financial Officer and Mr. Satterfield serves as our Chief Science Officer.


 
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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 and a compensation committee of the board, each of which is discussed below. We have not established a nominating committee of the board. Our entire board of directors participates in the selection and nomination of candidates to serve as directors. Our board has determined that none of our current directors are “independent” under the definition of independence in the Marketplace Rules of the NASDAQ listing standards.

 

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: 8160 S. Highland Drive, Salt Lake City, Utah 84093, 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.

 

Audit Committee and Financial Expert

 

Our audit committee currently includes Messrs. Egan, Satterfield and Benson. Mr. Benson serves 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 none of the members of the audit committee is “independent” under the definition of independence in the Marketplace Rules of the NASDAQ listing standards.

 

Our board of directors has determined that Mr. Benson meets the requirements of an “audit committee financial expert” as defined in applicable SEC regulations.

 

Compensation Committee

 

Our compensation committee currently includes Messrs. Egan, Satterfield and Benson. Mr. Egan serves 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 security holders on our website at www.codiagnostics.com . Our board has determined that none of the members of the compensation committee is “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.

 

 
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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

 

We have not been required to be in compliance with Section 16(a) of the Exchange Act since we have been privately held.

 

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.

 

EXECUTIVE COMPENSATION

 

Throughout this section, the individuals who served as our chief executive officer and chief financial officer during 2015 and 2016 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 2015 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.


 
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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.

 

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 may be exercised any time after vesting. The options expire five 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 with one third of the options vesting upon grant and thereafter 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. The 2015 Plan was adopted in January 2015 at which time a total of 1,500,000 were granted, but none to named executive officers or directors. In January 2016, a total of 1,800,000 options were granted, but none to named executive officers or directors. We will maintain and grant awards under our 2015 Plan which will remain in effect until it expires by its terms. The number of unissued stock options authorized under the 2015 Plan currently is 3,125,000.

 

The purpose of our incentive plan is to advance the interests of our shareholders by enhancing our ability to attract, retain and motivate persons who are expected to make important contributions to us by providing them with both equity ownership opportunities and performance-based incentives intended to align their interests with those of our shareholders. 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 our common stock.


 
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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, 2016, 2015 and 2014. 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.

 

 

 

 

Option

 

 

All

 

 

 

Name and

 

 

Salary

 

 

Bonus

 

 

Awards

 

 

Other

 

 

Total

 

Principal Position

 

Year

 

($)

 

 

($)

 

 

($)(1)

 

 

Compensation

 

 

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dwight H. Egan

 

2016

 

$ 23,750

 

 

 

 

 

 

 

 

 

 

 

$ 23,570

 

President & Chief Executive Officer (1)

 

2015

 

 

48,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

48,000

 

 

 

2014

 

 

48,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

48,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reed L Benson

 

2016

 

$ -

 

 

 

-

 

 

 

-

 

 

 

-

 

 

$ -

 

Chief Financial Officer and Secretary (2)

 

2015

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2014

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

(1) The amounts shown in the salary column reflect 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 2014 and 2015. However, Mr. Benson did not receive any of the funds received by Legends Capital Group.

 

Other Compensation

 

We do not have any non-qualified deferred compensation plan.

 

Outstanding Equity Awards at Fiscal Year-End

 

 

 

Option Awards

 

 

Stock Awards

 

 

 

 

 

 

 

 

 

 

 

 

Market

 

 

Number of

Unearned

 

 

Market or

 

 

 

 

 

 

 

 

 

 

Number of

 

 

Value of

 

 

shares,

 

 

payout value

 

 

 

Number of

 

Number of

 

 

 

 

 

 

 

 

Shares or

 

 

shares or

 

 

units or

 

 

of unearned

 

 

 

Securities

 

Securities

 

 

 

 

 

 

 

 

Units of

 

 

Units of

 

 

other

 

 

shares, units

 

 

 

Underlying

 

Underlying

 

 

Option

 

 

 

 

 

Stock that

 

 

Stock that

 

 

rights that

 

 

or other

 

 

 

Unexercised

 

Unexercised

 

 

Exercise

 

 

Option

 

 

have not

 

 

have not

 

 

have not

 

 

rights that

 

 

 

Options (#)

 

Options (#)

 

 

Price

 

 

Expiration

 

 

Vested

 

 

Vested

 

 

vested

 

 

have not

 

Name

 

Exercisable

 

Unexercisable

 

 

($)

 

 

Date

 

 

(#)

 

 

($)

 

 

(#)

 

 

vested ($)

 

(a)

 

(b)

 

(c)

 

 

(d)

 

 

(e)

 

 

(f)

 

 

(g)

 

 

(h)

 

 

(i)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dwight H. Egan

 

none

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Reed L Benson

 

none

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 
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Potential Payments Upon Termination or Change of Control

 

The 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, one of whose executive officers served as a member of the compensation committee of the board or as a director during 2016 or 2015.

 

Director Compensation

 

No director was compensated for his services as a director.

 

Director Summary Compensation Table

 

The table below summarizes the compensation paid by us to our directors for the fiscal year ended December 31, 2016.

 

(a)

 

(b)

 

 

(c)

 

 

(d)

 

 

(e)

 

 

 

Fees Earned or

Paid in Cash

 

 

Options/

Awards

 

 

Restricted

Stock Units

 

 

Total

 

Name

 

($)

 

 

($)(1)

 

 

($)(1)

 

 

($)

 

Dwight H. Egan (1)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Dr. Brent Satterfield (2)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Reed L Benson (3)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

_____________

(1) Mr. Egan receives no compensation for serving as a director, but is compensated in his capacity as our president and CEO.
(2) Dr. Satterfield receives no compensation for serving as a director, but is compensated in his capacity as our Chief Science Officer.
(3) Mr. Benson received no compensation for serving as a director, but is compensated in his capacity as our Chief Financial Officer.

 
 
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PRINCIPAL STOCKHOLDERS

 

The following table sets forth certain information, as of March 27, 2017, 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 before offering 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 prospectus. 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 108,704,025 shares of common stock plus, for each individual, any securities that individual has the right to acquire within 60 days of January 11, 2017.

 

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.

 

Title of Class: Common Stock – Before Offering

 

Name and Address of Beneficial Owner Officers and Directors

 

Title

 

Beneficially Owned*  

 

 

Percent of

Class**  

 

 

 

 

 

 

 

 

 

Dwight H. Egan (1)

 

Chief Executive Officer, President and Chairman

 

 

-

 

 

*%

 

Reed L. Benson (1)

 

Chief Financial Officer, Secretary and Director

 

 

-

 

 

*%

 

Dr. Brent Satterfield (1)

 

Chief Science Officer and Director

 

 

28,967,735

 

 

 

26.6 %

 

 

 

 

 

 

 

 

 

 

 

Officers and Directors as a Group (total of 3 persons)

 

 

 

 

28,967,735

 

 

 

26.6 %

 

 

 

 

 

 

 

 

 

 

 

5% Stockholders

 

 

 

 

 

 

 

 

 

 

Legends Capital Group, LLC (2)

 

 

 

 

14,000,000

 

 

 

13.0 %

Co-Diagnostics, Ltd. (3)

 

 

 

 

27,069,740

 

 

 

24.9 %

Reagents, LLC (4)

 

 

 

 

21,489,752

 

 

 

19.8 %

_____________

(1)

The address is 8160 S. Highland Drive, Salt Lake City, Utah 84124

(2)

Legends Capital Group, LLC, with an address of 4049 S Highland Dr, Salt Lake City, UT 84124, is beneficially owned by Jason Briggs. Reed Benson, a director of the Company, owns an 11% equity interest in Legends Capital Group, LLC.

(3)

Co-Diagnostics, Ltd., with an address of PO Box 267, Leeward Highway, Providenciales, Turks and Caicos Islands, is beneficially owned by Hugh O'Neill.

(4)

Reagents, LLC, with an address of 8160 S. Highland Dr, Salt Lake City, UT 84093, is beneficially owned Seth Egan.

 

 
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

On March 1, 2016 we entered into a revolving line of credit promissory note with a limited liability company in the principal amount of $100,000. The investor is Legends Capital Group, LLC, a principal shareholder of ours. The control person of Legends is Jason Briggs. The note bears interest at the rate of 12% per annum. To date we have received $80,000 in advances under the line of credit. On September 14, 2016 we amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if we were to file a Registration Statement before December 31, 2016.

  

On November 12, 2015, we entered into a convertible note with Legends Capital Group, LLC, a limited liability company, which is a principal shareholder of ours. The convertible note was in the principal amount of $100,000 with interest payable at the rate of 8.5% per annum with the convertible note due and payable on September 30, 2017. The note is convertible into common stock of the Company at a conversion price of the lower of $1.00 per share or 20% less than the offering price of an initial public offering should one take place during the term of the convertible note. In addition, we issued warrants to the note holder to purchase up to 50,000 shares of our common stock at an exercise price of $1.50 or the offering price of an initial public offering should one occur during the term of the warrant, whichever is less. The warrant has a five year term.

 

On May 1, 2015 we entered into an amended subscription agreement with Co-Diagnostics, Ltd., a major shareholder of ours, pursuant to which Co-Diagnostics, Ltd. agreed to buy up to $500,000 of additional common stock at a purchase price of $0.058 per share. The control person for Co-Diagnostics, Ltd is Hugh O’Neill. We received $199,985 pursuant to the amended agreement and issued 3,448,312 shares of common stock.

  

Effective January 22, 2015, we entered into a stock exchange agreement with Dr. Brent Satterfield, a director and major shareholder of ours, as the sole owner of DNA Logix, Inc., under the terms of which we acquired all of the issued and outstanding shares of common stock of DNA Logix in exchange for 6,420,000 shares of our common stock. Pursuant to instructions given by Dr. Satterfield we issued to him 2,868,139 of our shares and issued the remainder of the shares to 30 other individuals none of whom are related to the Company. Proceeding the transaction, DNA Logix assigned the exclusive license for Co-Primer technology to Dr. Satterfield and we commenced making payments to Dr. Satterfield under the license as explained below.

 

We 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 we were to pay Dr. Satterfield minimum royalty payments of $30,000 per month until we received 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, we 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 begin payment of the accrued royalties at the rate of $10,000 per month. During 2015 and 2016, we paid Dr. Satterfield $270,000 and $2,500, respectively, pursuant to the license agreement and as of December 31, 2016 we had accrued $592,500 of royalties payable to him. For each of the years ending December 31, 2016 and 2015, we included a $360,000 expense for this license agreement in research and development.

 

On August 1, 2015 we entered into a revolving line of credit promissory note in the principal amount of $750,000 with Co-Diagnostics, Ltd, a Turks and Caicos company, a principal shareholder of ours. The note bears interest at the rate of 12% per annum. To date we have received $609,940 in advances under the line of credit. On September 14, 2016 we amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if we were to file a Registration Statement before December 31, 2016.

  

We pay consulting fees to two companies who are also significant shareholders. Legends Capital Group, LLC, one of the consultants, payment is $5,000 per month and is pursuant to a written consulting contract the term of which is for two years commencing May 13, 2013 and continuing thereafter on a month to month basis until terminated. It was terminated effective September 30, 2016. During the year ended December 31, 2015 we paid that consultant a total of $25,000 and nothing in 2016. The other consultant, Reagents, LLC, is paid $8,000 per month for consulting fees a portion of which accrues to the benefit of our president, Dwight H. Egan, and, in addition, has advanced funds to pay for Company operating expenses and is reimbursed for such advances as funds have been available. The control person for Reagents, LLC is Seth Egan. During the years ended December 31, 2015 and 2016 we paid that consultant a total of $146,000 and $46,385 respectively.

  

We entered into revolving loan agreements with three entities, Clavo Rico Incorporated, a Utah corporation, Hamilton Mining Resources, Inc., a Utah corporation, and Machan 1988 Property Trust, the advances under which total $10,000, $66,000, and $41,500, respectively. Reed L Benson, our CFO, is the President of Clavo Rico and Hamilton and is the Trustee of the Trust. Each of the notes were amended on September 14, 2016 to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of any IPO if we were to file a Registration Statement before December 31, 2016.

 

 
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On October 11, 2016, the Company entered into an exclusive license agreement with Watermark Group, Inc., a Nevada corporation, (“Watermark”) which granted the exclusive license to sell the Company’s proprietary molecular diagnostic tests for the Zika virus and other mosquito borne illnesses in exchange for an initial royalty of $500,000 and a royalty of 10% of net sales. The license was cancelled as described hereafter. Also as part of the transaction the Company entered into a stock purchase agreement with the major shareholder of Watermark for the purchase of 3,600,000 shares of common stock in Watermark for $55,000, which constituted a controlling interest in Watermark. Watermark subsequently changed its name to Zika Diagnostics, Inc. Contemporaneously, with the execution of those two agreements, Watermark secured an investment of $1.05 million from an individual for the purchase of shares of Watermark, $0.5 million of which was paid to the Company pursuant to the exclusive license agreement as an initial royalty payment. As an integral part of the license agreement and the stock purchase agreement, the Company required that Watermark be debt free for the transaction to close. It was represented that a related party loan (“Related Note”) on the books of Watermark as of July 31, 2016, in the approximate amount of $172,000 plus accrued interest was satisfied. The Company was furnished written documentation from what was purported to be the then holder of the Related Note (“Tide Pool Ventures”) and a written confirmation from the original holder of the Related Note (“P&G Holdings”) that the debt was satisfied. The seller of the Watermark stock purchased by the Company also represented that the Related Note was satisfied as a condition to the stock purchase agreement. On or about January 10, 2017, the Company and Watermark were notified by P&G Holdings that the Related Note was not only still outstanding, but that it was in default and payment was demanded. On January 31, 2017, P&G Holdings filed a lawsuit in Federal District Court in New York demanding payment of the Related Note, all accrued interest thereon and attorney’s fees and that stock be issued such that P&G Holdings would own 80% of the issued and outstanding shares of stock of Watermark.

 

As a result of the lawsuit and its investigation into the Related Note, the Company determined that it would unwind the transaction by terminating the license agreement effective as of October 11, 2016 and rescinding the stock purchase, which it did on March 22, 2017, in an agreement with the Former Shareholder. Under the terms of the rescission and cancellation of the license agreement, the Company returned the shares of stock of Watermark that it held to the seller of the stock and agreed to repay a portion of the initial license fee it received. In that connection the Company executed a note payable to Watermark in the principal amount of $445,000. The note principal is due December 31, 2020. Following the rescission of the stock purchase agreement and the cancellation of the license, the Related Note was paid by Watermark and the lawsuit by P&G Holdings was dismissed.

  

For a description of our policies and procedures related to the review, approval or ratification of related person transactions, see “Conflict of Interest Policy” under Item 10, “Directors, Executive Officers and Corporate Governance.”

 

DESCRIPTION OF OUR CAPITAL STOCK

 

Our authorized capital stock presently consists of 180,000,000 shares of common stock, par value $0.001 per share. As of March 27, 2017, we had 108,704,025 shares of common stock outstanding and 52 holders of our common stock. The following is a summary of the terms of our capital stock.

 

Common Stock

 

Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of the shareholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of common stock are entitled to receive ratably any dividends, as may be declared by the board of directors out of funds legally available therefor, subject to the rights of the holders of preferred stock. Upon the liquidation, dissolution or winding up of our company, the holders of common stock are entitled to receive ratably our net assets available after the payment of our debts and other liabilities. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of common stock are fully paid and nonassessable.

 

Shares Eligible for Future Sale

 

Immediately prior to this offering, there was no public market for our common stock. Future sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices.

 

Based on the number of shares of our common shares outstanding as of [*], assuming the sale by us of [*] common shares in this offering, we will have outstanding an aggregate of [*] common shares. Of these shares [*] common shares to be sold in this offering and any shares sold to the underwriters pursuant to their option to purchase additional shares, will be freely tradable in the public market without restriction or further registration under the Securities Act, except for any of such shares that are held by our “affiliates” as such term is defined in Rule 144 of the Securities Act, in which case they are eligible for public sale but subject to certain restrictions applicable to sales of such shares by affiliates under Rule 144.

 

 
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Notes and Warrants

 

Senior Secured Convertible Notes and related Warrants

 

We issued senior secured convertible notes and warrants when we entered into a securities purchase agreement dated December 12, 2016 with investors. Under the terms of the securities purchase agreement, we executed senior secured convertible 15% notes for a total indebtedness of $1,100,000 in favor of the investors, which senior secured convertible notes are convertible into 1,466,668 shares of our common stock at $0.75 per share or a discount of 30% to the price of the stock issued in this offering, whichever is less. The senior secured convertible notes bear interest at the annual rate of 15% per annum and are due June 12, 2017. Interest-only payments are due quarterly in arrears. The senior secured convertible notes are convertible anytime until their due date.

  

In connection with the notes, we issued warrants to the investors exercisable for 733,334 shares of our common stock, which is equal to 50% of the shares receivable upon conversion of the senior notes at a per share price equal to 85% of the offering price of our initial public offering. The warrants are exercisable anytime until the fifth anniversary of their issuance.

 

The conversion price of the senior secured convertible notes and the exercise price of the warrants are subject to adjustment in certain circumstances. For a description of these price adjustments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

 

Subordinated Convertible Note and related warrant

 

In May 2015, we entered into a convertible note with a limited liability company. The convertible note was in the principal amount of $500,000 with interest payable monthly at the rate of 12% per annum with the convertible note due and payable on April 30, 2016. The investor withheld 2% as a financing fee from the proceeds of the note and we received total proceeds of $490,000. In December 2016, in connection with the issuance of the senior secured convertible notes, we replaced the convertible note with a new note in the principal amount of $583,500 that includes $83,500 of accrued interest and bears interest at the rate of 15% per annum and is due June 12, 2017. In addition, the holder agreed to subordinate its interest to the senior secured convertible notes described above, convert all or a portion of its note in this offering at a 30% discount to the offering price of this offering, and received a warrant exercisable into a number of shares of our common stock equal to 50% of the shares received on conversion of its note. The note is convertible into 778,000 shares of our common stock and the warrants are exercisable into 389,000 shares of our common stock. The warrants have a five year life and are exercisable at the price of shares in this offering.

 

Unsecured Convertible Notes

 

On November 12, 2015 and December 1, 2015, we entered into convertible notes with two investors. Each note was in the principal amount of $100,000 with interest payable semi-annually at the rate of 8.5% per annum with the convertible notes due and payable on September 30, 2017. The notes are each convertible to 100,000 shares of our common stock at a conversion price equal the lesser of $1.00 per share or a discount of 20% of the price of the shares sold in this offering. In addition, each of the investors received a warrant to acquire 50,000 shares of our common stock exercisable at the lesser of $1.00 per share or the price of the shares sold in this offering. The warrants have a five year life.

 

On August 18, 2016 and on August 25, 2016, we entered into two convertible promissory notes in the principal amounts of $10,000 and $15,000, respectively, with a limited liability company. The notes bear interest at the rate of 10% per annum. The notes provide that the principal and interest on the notes would be convertible to 33,333 shares of common stock at a conversion rate of $0.75 per share or a discount of 15% to the offering price per share of this offering, whichever is the lesser.

 

On September 1, 2016, we entered into a convertible promissory note in the principal amount of $200,000, with an individual. The note bears interest at the rate of 10% per annum. The note provides that the principal and interest on the note would be convertible to 266,667 shares of common stock at a conversion rate of $0.75 per share or a discount of 15% the conversion price of the senior secured convertible notes.

 

In November and December, we entered into convertible promissory notes with two individuals and one entity in the principal amounts of $50,000, $40,000 and $15,000 respectively. The notes bear interest at the rate of 10% per annum. The notes provide that the principal and interest on the notes would be convertible to a total of 140,000 shares of our common stock at a conversion rate of $0.75 per share or a discount of 30% to the offering price per share of this offering, whichever is the lesser.

 

The following table summarizes information about warrants outstanding at December 31, 2016.

 

 

Outstanding

 

Exercisable

 

Weighted
Average
Remaining

 

Weighted

Average

 

Weighted

Average

 

Range of

Exercise Prices

 

Number

Outstanding

 

Contractual

Life (years)

 

Exercise

Price

 

Number

Exercisable

 

Exercise

Price

 

1.00-1.50

 

1,222,339

 

4.91

 

0.79

 

1,222,339

 

0.79

 

$0.05-1.50

 

4,097,339

 

7.52

 

$

0.27

 

2,580,672

 

$

0.40

 

 

 
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Other Notes

 

From August 1, 2015 through December 31, 2016, we entered into promissory notes with six different entities pursuant to which we borrowed an aggregate amount of $913,440 with interest payable at the maturity date of the notes at a rate of 12% per annum. The notes were not convertible when issued. On September 14, 2016, all of the notes were amended to make them convertible to common stock at a conversion price of 70% of the price of the stock sold in this offering and to extend the maturity date of each note to September 30, 2017, if a registration statement were filed before December 31, 2016.

 

In connection with the termination of the license granted to Zika Diagnostics, Inc. f/k/a/ Watermark Group, Inc. the Company executed a note payable to Watermark of $445,000, which is due December 31, 2020.

 

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

 

Equity Compensation Plans

 

The following table sets forth, as of December 31, 2016, information regarding our compensation plans under which shares of our common stock are authorized for issuance.

 

 

 

 

 

Number of securities to be issued upon exercise of outstanding options, warrants and rights

 

 

 

Weighted- average exercise price of outstanding options, warrants and rights

 

 

 

Number of securities remaining available for future issuance under equity compensation plans (excluding outstanding securities)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity compensation plans approved by security holders

 

 

-

 

 

 

-

 

 

 

-

 

Equity compensation plans not approved by security holders (1)

 

 

2,875,000

 

 

$ 0.05

 

 

 

3,125,000

 

Total

 

 

2,875,000

 

 

$ 0.05

 

 

 

3,125,000

 

___________

(1) Our 2015 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, and restricted stock units to our employees, directors and consultants. The plan covers a total of 6,000,000 shares of our common stock. The plan is administered by our board of directors or compensation committee of the board. Awards may be vested on such schedules determined by the plan administrator.

 

Transfer Agent and Registrar

 

Our transfer agent and registrar is Colonial Stock Transfer Company, Inc. Its telephone number is 1-801-355-5740.

 

Listing

 

We intend to apply to list our common stock on the NASDAQ Capital Market under the symbol “CODX.” There can be no assurance that our application to list our shares will be approved by the NASDAQ Capital Market.

  

 
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INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

 

Our amended and restated articles of incorporation provide for limitation of liability of our directors and for indemnification of our directors and officers to the fullest extent permitted under Utah law. Our directors and officers may be liable for a breach or failure to perform their duties in accordance with Utah law only if their breach or failure to perform constitutes gross negligence, willful misconduct or intentional harm on our company or our shareholders. Our directors may not be personally liable for monetary damages for action taken or failure to take action as a director except in specific instances established by Utah law.

 

In accordance with Utah law, we may generally indemnify a director or officer against liability incurred in a proceeding if he or she acted in good faith, and believed that his or her conduct was in our best interest and that he or she had no reason to believe his or her conduct was unlawful. We may not indemnify a director or officer if the person was adjudged liable to us or in the event it is adjudicated that the director or officer received an improper personal benefit.

 

Under Utah law, we will indemnify a director or officer who is successful on the merits or otherwise in defense of any proceeding, or in the defense of any claim, issue or matter in the proceeding, to which he or she was a party because he or she is or was a director or an officer, as the case may be, against reasonable expenses incurred by him or her in connection with the proceeding or claim with respect to which he or she has been successful.

 

We maintain a directors’ and officers’ liability insurance policy which, subject to the limitations and exclusions stated therein, covers our directors and officers for certain actions or inactions they may take or omit to take in their capacities as directors and officers.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

UNDERWRITING

 

We have entered into an underwriting agreement with Network 1 Securities. Inc., for itself and as sole representative (the “Representative”) of the underwriters named therein, with respect to the shares of our common stock we are selling in this offering. Subject to the terms and conditions set forth in an underwriting agreement between us and the Representative, we have agreed to sell to the underwriters named below, and each underwriter has severally agreed to purchase from us, the number of shares of common stock listed next to its name in the following table.

 

Underwriters

Network 1 Securities, Inc.

 

Number of Shares of Common Stock

 

The underwriters are committed to purchase all the shares of common stock offered by us if they purchase any shares of common stock. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated. The underwriters are not obligated to purchase the shares of common stock covered by the underwriters’ over-allotment option described below. The underwriters are offering the shares of common stock, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

 

The public offering price was determined by negotiations between us and the Representative. Among the factors considered in determining the initial public offering price were our future prospects and those of our industry in general, our revenues, earnings and certain other financial and operating information in recent periods, and certain financial and operating information of companies engaged in activities similar to ours.

 

 
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Discounts and Commissions

 

The underwriters propose initially to offer the shares of common stock to the public at the public offering price set forth on the cover page of this prospectus and to dealers at those prices less a concession not in excess of $[·] per share of common stock. If all of the shares of common stock offered by us are not sold at the public offering price, the underwriters may change the offering price and other selling terms by means of a supplement to this prospectus.

 

The following table shows the public offering price, underwriting discounts and commissions and proceeds before expenses to us. The information assumes either no exercise or full exercise of the over-allotment option we granted to the Representative.

 

Public offering price

 

$

 

Underwriting discounts and commissions Non-accountable expense allowance

 

 

 

 

Proceeds, before expenses, to us

 

$

 

 

Per Share of Common Stock

 

Total Without Over-Allotment Option

 

Maximum Total With

Over-Allotment Option

 

We have agreed to pay a non-accountable expense allowance to the Representative equal to [*]% of the gross proceeds received at the closing of the offering. We have advanced $[*] of the non-accountable expense allowance to the Representative.

 

We have also agreed to bear all accountable expenses relating to the offering, including the costs of preparing, printing, mailing and delivering the registration statement, the preliminary and final prospectus contained therein and amendments thereto, post-effective amendments and supplements thereto, the underwriting agreement and related documents (all in such quantities as the Representative may reasonably require); preparing and printing stock certificates and warrant certificates; the costs of any “due diligence” meetings; all reasonable and documented fees and expenses for conducting a net road show presentation; all filing fees (including SEC filing fees) and communication expenses relating to the registration of the shares offered hereby; FINRA filing fees; the reasonable and documented fees and disbursements of the Representative’s counsel up to an amount of $40,000; preparation of bound volumes and mementos in such quantities as the Representative may reasonably request up to an amount of $2,500; transfer taxes, if any, payable upon the transfer of securities from us to the underwriters; and the fees and expenses of the transfer agent, clearing firm and registrar for the shares.

 

The total estimated expenses of the offering, excluding underwriting discounts, commissions, and non-accountable expense allowances are approximately $[*] and are payable by us.

 

Over-Allotment Option

 

We have granted to the Representative an option to purchase up to [·] additional shares of common stock (15% of the shares of common stock sold in this offering) at the per share purchase price on the cover page hereof, which price reflects underwriting discounts and commissions. The Representative may exercise this option for 45 days from the date of the underwriting agreement solely to cover sales of shares of common stock by the underwriters in excess of the total number of shares of common stock set forth in the table above. We will pay the expenses associated with the exercise of the over-allotment option.

 

 
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Lock-Up Agreements

 

We, our officers and directors have agreed, subject to limited exceptions, for a period of 90 days after the date of the underwriting agreement, not to offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of, directly or indirectly any shares of common stock or any securities convertible into or exchangeable for our common stock either owned as of the date of the underwriting agreement or thereafter acquired without the prior written consent of the representatives. This 90-day period may be extended if (1) during the last 17 days of the 90-day period, we issue an earnings release or material news or a material event regarding us occurs or (2) prior to the expiration of the 90-day period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 90-day period, then the period of such extension will be 18 days, beginning on the issuance of the earnings release or the occurrence of the material news or material event. If after any announcement described in clause (2) of the preceding sentence, we announce that we will not release earnings results during the 16-day period, the lock-up period shall expire the later of the expiration of the 90-day period and the end of any extension of such period made pursuant to clause (1) of the preceding sentence. The Representative may, in its sole discretion and at any time or from time to time before the termination of the lock-up period, without notice, release all or any portion of the securities subject to lock-up agreements.

 

Indemnification

 

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make for these liabilities.

 

Price Stabilization, Short Positions and Penalty Bids

 

In order to facilitate the offering of our shares of common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our shares of common stock. In connection with the offering, the underwriters may purchase and sell our shares of common stock in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares of common stock in the offering pursuant to the exercise of their over- allotment option to purchase additional shares of common stock. The underwriters may close out any covered short position by either exercising the over- allotment option or purchasing shares of common stock in the open market. In determining the source of shares of common stock to close out the covered short position, the underwriters will consider, among other things, the price of shares of common stock available for purchase in the open market as compared to the price at which they may purchase shares of common stock through the over-allotment option. “Naked” short sales are sales in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares of common stock in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our shares of common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of shares of common stock made by the underwriters in the open market prior to the completion of the offering.

 

Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our shares of common stock or preventing or retarding a decline in the market price of our shares of common stock. As result, the price of our shares of common stock may be higher than the price that might otherwise exist in the open market.

 

The underwriters have advised us that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of our shares of common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase shares of common stock in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares of common stock, as applicable as part of this offering to repay the underwriting discount received by them.

 

The underwriters make no representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our shares of common stock. In addition, neither we nor the underwriters make any representation that the underwriters will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

 

 
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Electronic Offer, Sale and Distribution of Common Stock

 

A prospectus in electronic format may be made available on the websites maintained by one or more underwriters or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares of common stock to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the Representative to underwriters and selling group members that may make Internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on the underwriters’ websites and any information contained in any other website maintained by the underwriters is not part of this prospectus or the registration statement of which this prospectus forms a part.

 

Other Relationships

 

From time to time, certain of the underwriters and their affiliates have provided, and may provide in the future, various advisory, investment and commercial banking and other services to us in the ordinary course of business, for which they have received and may continue to receive customary fees and commissions. However, except as disclosed in this prospectus, we have no present arrangements with any of the underwriters for any further services.

 

EXPERTS

 

Haynie & Company, an independent registered public accounting firm, has audited our consolidated financial statements for the years ended December 31, 2016 and 2015 as set forth in their report dated March 30, 2017 which is included in this prospectus. Our financial statements are included herein in reliance on Haynie & Company and its respective report, given its authority as an expert in accounting and auditing matters.

 

LEGAL MATTERS AND INTERESTS OF NAMED EXPERTS

 

The validity of the securities being offered by this prospectus will be passed upon for us by Carmel, Milazzo & DiChiara LLP, New York, New York.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed with the SEC a registration statement on Form S-1, together with any amendments and related exhibits, under the Securities Act, with respect to our shares of common stock offered by this prospectus. The registration statement contains additional information about us and our shares of common stock that we are offering in this prospectus. We are subject to the informational requirements of the Exchange Act and file annual, quarterly and current reports and other information with the SEC. You can read our filings over the Internet at the SEC’s website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facility at 100 F Street, N.E., Washington, D.C., 20549, on official business days during the hours of 10 a.m. to 3 p.m. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C., 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facility. In addition, you can find more information about us on our website at http://codiagnostics.com.

 

 
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CO-DIAGNOSTICS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Page

 

 

 

Report of Independent Registered Public Accounting Firm

F-2

 

Consolidated Balance Sheets As of December 31, 2016 and 2015

F-3

 

Consolidated Statements of Operations For the Years Ended December 31, 2016 and 2015

F-4

 

Consolidated Statements of Stockholders’ Equity (Deficit) For the Years Ended December 31, 2016 and 2015

F-5

 

Consolidated Statements of Cash Flows For the Years Ended December 31, 2016 and 2015

F-6

 

Notes to Consolidated Financial Statements

F-7

 

 
F-1
 
Table of Contents

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors

Co-Diagnostics, Inc. and subsidiaries

Sandy, Utah

 

We have audited the accompanying consolidated balance sheets of Co-Diagnostics, Inc. as of December 31, 2016 and 2015, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Co-Diagnostics, Inc. as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As disclosed in Note 1 to the financial statements, the Company does not generate significant revenue, and has negative cash flows from operations. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Haynie & Company

 

Haynie & Company

Salt Lake City, Utah

March 30, 2017
 

 
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Table of Contents

   

CO – DIAGNOSTICS, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

December 31,

2016

 

 

December 31,

2015

 

ASSETS:

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash

 

$ 998,737

 

 

$ 33,805

 

Other receivables

 

 

3,183

 

 

 

2,000

 

Prepaid expenses

 

 

206,478

 

 

 

116,120

 

Total current assets

 

 

1,208,398

 

 

 

151,925

 

Property and equipment, net

 

 

87,429

 

 

 

112,679

 

Long-term Assets

 

 

 

 

 

 

 

 

Long-term prepaid expenses

 

 

--

 

 

 

106,326

 

Total-long term assets

 

 

--

 

 

 

106,326

 

 

 

 

 

 

 

 

 

 

Total assets

 

$ 1,295,827

 

 

$ 370,930

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT):

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$ 29,934

 

 

$ 98,857

 

Accounts payable (related party)

 

 

75,000

 

 

 

15,000

 

Accrued expenses

 

 

101,239

 

 

 

116,028

 

Accrued expenses (related party)

 

 

690,168

 

 

 

276,894

 

Current notes payable net of $87,605 and $12,065 discount, respectively

 

 

2,111,895

 

 

 

487,935

 

Current notes payable (related party) net of $263 and $0 discount, respectively

 

 

837,177

 

 

 

--

 

Total current liabilities

 

 

3,845,413

 

 

 

994,714

 

Long-term Liabilities

 

 

 

 

 

 

 

 

Notes payable net of $0 and $787 discount, respectively

 

 

445,000

 

 

 

119,213

 

Notes payable (related party) net of $0 and $618 discount, respectively

 

 

--

 

 

 

404,382

 

Total long-term liabilities

 

 

445,000

 

 

 

523,595

 

Total liabilities

 

 

4,290,413

 

 

 

1,518,309

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY (DEFICIT):

 

 

 

 

 

 

 

 

Common stock, $0.001 par value, 180,000,000 shares authorized; 108,704,025 shares issued as of both December 31, 2016 and 2015, respectively.

 

 

108,704

 

 

 

108,704

 

Additional paid-in capital

 

 

2,359,922

 

 

 

2,278,443

 

Accumulated deficit

 

 

(5,463,212 )

 

 

(3,534,526 )

Total stockholders’ equity (deficit)

 

 

(2,994,586 )

 

 

(1,147,379 )

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity (deficit)

 

$ 1,295,827

 

 

$ 370,930

 

 

See accompanying notes to consolidated financial statements.


 
F-3
Table of Contents

 

CO – DIAGNOSTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

For the years

ended

 

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

Net sales

 

$ --

 

 

$ 10,000

 

Cost of sales

 

 

--

 

 

 

--

 

Gross profit

 

 

--

 

 

 

10,000

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling and marketing

 

 

122,105

 

 

 

281,101

 

Administrative and general

 

 

796,896

 

 

 

846,825

 

Research and development

 

 

731,474

 

 

 

806,913

 

Depreciation and amortization

 

 

37,491

 

 

 

43,140

 

Total operating expenses

 

 

1,687,966

 

 

 

1,977,979

 

Total operating loss

 

 

(1,687,966 )

 

 

(1,967,979 )

 

 

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

 

 

 

Interest expense

 

 

(240,720 )

 

 

(75,189 )

Total other expense

 

 

(240,720 )

 

 

(75,189 )

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(1,928,686 )

 

 

(2,043,168 )

Provision for income taxes

 

 

--

 

 

 

--

 

Net loss

 

$ (1,928,686 )

 

$ (2,043,168 )

 

 

 

 

 

 

 

 

 

Net loss per share – basic and diluted

 

$ (0.02 )

 

$ (0.02 )

 

 

 

 

 

 

 

 

 

Weighted average shares – basic and diluted

 

 

108,704,025

 

 

 

102,998,550

 

 

See accompanying notes to consolidated financial statements.


 
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Table of Contents

 

CO – DIAGNOSTICS , INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 2015 AND 2016

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Retained

Earnings

 

 

Equity

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Deficit)

 

 

(Deficit)

Balance, December 31, 2014

 

 

90,179,883

 

 

$ 90,180

 

 

$ 1,539,806

 

 

$ (1,491,358 )

 

$ 138,628

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash

 

 

8,104,142

 

 

 

8,104

 

 

 

461,896

 

 

 

--

 

 

 

470,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for services

 

 

4,000,000

 

 

 

4,000

 

 

 

227,980

 

 

 

--

 

 

 

231,980

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DNA Logix, Inc. stock exchange

 

 

6,420,000

 

 

 

6,420

 

 

 

1,775

 

 

 

--

 

 

 

8,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

--

 

 

 

--

 

 

 

45,498

 

 

 

--

 

 

 

45,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of convertible debt warrants

 

 

--

 

 

 

--

 

 

 

1,488

 

 

 

--

 

 

 

1,488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(2,043,168 )

 

 

(2,043,168 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2015

 

 

108,704,025

 

 

 

108,704

 

 

 

2,278,443

 

 

 

(3,534,526 )

 

 

(1,147,379 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

--

 

 

 

--

 

 

 

69,565

 

 

 

--

 

 

 

69,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of convertible debt warrants

 

 

--

 

 

 

--

 

 

 

11,914

 

 

 

--

 

 

 

11,914

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(1,928,686 )

 

 

(1,928,686 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2016

 

 

108,704,025

 

 

$ 108,704

 

 

$ 2,359,922

 

 

$ (5,463,212 )

 

$ (2,994,586 )

 

See accompanying notes to consolidated financial statements.

 

 
F-5
Table of Contents

 

CO – DIAGNOSTICS , INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Years Ended

December 31,

 

 

 

2016

 

 

2015

 

Cash flows from operating activities :

 

 

 

 

 

 

Net loss

 

$ (1,928,686 )

 

$ (2,043,168 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Issuance of common stock for services

 

 

--

 

 

 

9,662

 

Stock based compensation

 

 

69,565

 

 

 

45,498

 

Accretion of notes payable discount

 

 

21,516

 

 

 

23,019

 

Depreciation and amortization

 

 

37,491

 

 

 

43,140

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Decrease (increase) in prepaid and other assets

 

 

14,785

 

 

 

5,917

 

Increase in accounts payable and accrued expenses

 

 

473,062

 

 

 

385,561

 

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

(1,312,267 )

 

 

(1,530,371 )

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of fixed assets

 

 

(12,241 )

 

 

(118,465 )

Proceeds from stock exchange

 

 

--

 

 

 

8,195

 

 

 

 

 

 

 

 

 

 

Net cash used by investing activities

 

 

(12,241 )

 

 

(110,270 )

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from equity financing (related party)

 

 

--

 

 

 

470,000

 

Proceeds from debt financing

 

 

1,871,950

 

 

 

585,000

 

Proceeds from debt financing (related party)

 

 

502,440

 

 

 

405,000

 

Principal payments on debt

 

 

(14,950 )

 

 

--

 

Principal payments on debt (related party)

 

 

(70,000 )

 

 

--

 

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

2,289,440

 

 

 

1,460,000

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

964,932

 

 

 

(180,641 )

 

 

 

 

 

 

 

 

 

Cash beginning of period

 

 

33,805

 

 

 

214,446

 

 

 

 

 

 

 

 

 

 

Cash end of period

 

$ 998,737

 

 

$ 33,805

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$ 10,050

 

 

$ 32,669

 

Income taxes paid

 

$ --

 

 

$ --

 

 

 

 

 

 

 

 

 

 

Schedule of non-cash (investing) and financing activities:

 

 

 

 

 

 

 

 

Warrants issued with convertible debt

 

$ 11,914

 

 

$ 1,488

 

Shares issued for acquisition

 

$ --

 

 

$ 8,195

 

Shares issued for prepaid services

 

$ --

 

 

$ 231,980

 

 

See accompanying notes to consolidated financial statements.


 
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Table of Contents

 

CO – DIAGNOSTICS , INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016

 

Note 1 – Description of Business

 

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, state-of-the-art diagnostics technology.

 

In January 2015, the Company entered into a stock exchange agreement with Dr. Satterfield pursuant to which we acquired all of the issued and outstanding stock of DNA Logix, Inc., a corporation owned by Dr. Satterfield which was conducting all of our development work on the Original Technology and the Co-Primer Technology. The Company issued 6,420,000 shares of our common stock in the exchange. Additionally, the Company received $8,195 in cash from DNA Logix, Inc. As part of the acquisition transaction, DNA Logix assigned the exclusive license agreement for the Co-Primer technology to Dr. Satterfield and we pay royalties to him under the license.

 

On April 1, 2013, the Company entered into an exclusive license agreement with DNA Logix, Inc. The consideration required by the license agreement financed the entire operations of DNA Logix as it was the sole source of funding for DNA Logix. All of the research and development work required to create a product for the Company to sell was undertaken by DNA Logix. Because of the significant funding provided and co-dependent operations, DNA Logix was deemed to be under common control of the Company and the operations of DNA Logix were consolidated with the Company’s operations. In 2015 the Company acquired all of the issued and outstanding shares of common stock of DNA Logix pursuant to a share exchange agreement. In accordance with ASC 805-Business Combinations, the transaction meets the definition of a business combination. However, because the two companies were deemed to be under common control from 2013 on, the exception for treatment of businesses under common control listed at ASC 805-10-15-4 determines the accounting treatment and the transaction is not treated as a business combination. The assets and liabilities of DNA Logix are accounted for at their carrying amounts in the Company’s financial statements since the date of the stock exchange agreement.

 

The Company deemed the stock exchange transaction necessary in order to benefit from the DNA Logix lab receiving ISO 13485 and ISO 9001 lab certification for our tuberculosis test. The company has since received ISO 13485 and ISO 9001 certifications relating to the design and manufacture of all 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.

 

In January 2017, the Company 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 for some expenses, such as approximately $30,000 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. The Company is analyzing this transaction for Variable Interest Entity accounting treatment. As of the date of this report there has been no sales nor operating expenses other than the registration of the name.

 

 
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CO – DIAGNOSTICS , INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016

 

Going Concern

 

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.

 

We experienced negative cash flow used in operations during the twelve months ending December 31, 2016 of $1,312,267 compared to negative cash flow used in operations for the twelve months ended December 31, 2015 of $1,530,371. The negative cash flow was met by cash reserves, sales of our common stock, sale of an exclusive license to sell our Zika test and related mosquito borne illnesses and most recently from the issuances of short term debt. The exclusive license agreement was later rescinded and the advanced royalty converted to debt. 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 external funding. We expect additional investment capital may 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 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. The Company has commenced discussions with potential funding partners for a placement of our stock of up to $10,000,000. There is no assurance the Company will be successful in our efforts. The accompanying statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Basis of Presentation

 

In the opinion of management, the accompanying audited consolidated financial statements of Co-Diagnostics, Inc. (“we” or the “Company”) contain the adjustments, all of which are of a normal recurring nature, necessary to present fairly our financial position at December 31, 2016 and 2015, and the results of operations for the years ended December 31, 2016 and 2015, with the cash flows for years ended December 31, 2016 and 2015, respectively in conformity with U.S. generally accepted accounting principles. All intercompany accounts and transactions have been eliminated in consolidation.

 

Significant Accounting Policies

 

Cash and Cash Equivalents

  

The Company considers all cash on hand and in banks, and highly liquid investments with maturities of three months or less, to be cash equivalents. At December 31, 2016, the Company had $643,715 in bank balances in excess of amounts insured by the Federal Deposit Insurance Corporation. At December 31, 2015, the Company had no bank balances in excess of amounts insured by the Federal Deposit Insurance Corporation. 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.

  

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.

 

 
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Table of Contents

 

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.

 

As of December 31, 2016 and 2015, property and equipment consisted of the following:

 

 

 

December 31,

 

 

 

2016

 

 

2015

 

Computers and office equipment

 

$ 160,891

 

 

$ 175,170

 

Furniture and fixtures

 

 

2,715

 

 

 

2,715

 

Leasehold improvements

 

 

4,740

 

 

 

--

 

Total

 

 

168,346

 

 

 

177,885

 

Less: accumulated depreciation

 

 

(80,917 )

 

 

(65,206 )

Total property and equipment, net

 

$ 87,429

 

 

$ 112,679

 

 

 

 

 

 

 

 

 

 

Total depreciation expense

 

$ 37,491

 

 

$ 43,140

 

 

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, 2016 and 2015, 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, 2016 and 2015, there were 6,982,007 and 2,466,667 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.

 

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.

 

 
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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.

 

Revenue Recognition

 

The Company recognizes revenue when evidence exists that there is an arrangement between us and our customers, delivery of equipment sold or service has occurred, the selling price to our customers is fixed and determinable with required documentation, and collectability is reasonably assured. The Company recognizes as deferred revenue, payments made in advance by customers for services not yet provided.

 

In instances where the Company has entered into license agreements with a third parties to use our mobile test laboratories and test kits, the Company recognizes 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.

  

Research and Development

 

Research and development costs are expensed when incurred. The Company expensed $731,474 and $806,913 of research and development costs for the years ended December 31, 2016 and 2015, 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.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the 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.

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02 Leases , 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, 2018.

  

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. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2017. The Company is in the process of evaluating the potential impact of this standard to the Company's results of operations or financial position.

 

 
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Table of Contents

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address some questions about the presentation and classification of certain cash receipts and payments in the statement of cash flows. These classification issues had arisen because there was either unclear or no applicable guidance for such cash flows in FASB ASC Topic 230, Statement of Cash Flows. Company is evaluating the impact of this standard on its financial statements.

 

Note 2 – Notes Payable

 

The recorded value of our notes payable (net of debt discount) for the years ending December 31, 2016 and 2015, were as follows:

 

 

 

December 31,

2016

 

 

December 31,

2015

 

Notes payable, net of debt discount

 

 

 

 

 

 

Beaufort Capital Partners, LLC Convertible Note

 

$ --

 

 

$ 487,935

 

R. Phillip Zobrist Convertible Note

 

 

99,664

 

 

 

99,213

 

Pine Valley Investments, LLC. Revolving Line of Credit Promissory Note

 

 

86,000

 

 

 

20,000

 

Legends Capital Opportunity Fund, LLC Convertible Notes

 

 

25,000

 

 

 

--

 

Robert Salna Convertible Promissory Note

 

 

192,427

 

 

 

--

 

December 2016 Notes Payable

 

 

105,000

 

 

 

--

 

Zika Diagnostics, Inc.

 

 

445,000

 

 

 

--

 

Bridge Notes Payable

 

 

1,603,804

 

 

 

--

 

Total

 

 

2,556,895

 

 

 

607,148

 

Less Current Portion

 

 

(2,111,895 )

 

 

(487,935 )

Total Long-term

 

$ 445,000

 

 

$ 119,213

 

 

 

 

 

 

 

 

 

 

Notes payable (related party), net of debt discount

 

 

 

 

 

 

 

 

Co Diagnostics, Ltd. Revolving Line of Credit Promissory Note

 

$ 609,940

 

 

$ 305,000

 

Legends Capital Group, LLC Convertible Note

 

 

99,737

 

 

 

99,382

 

Clavo Rico Promissory Note

 

 

10,000

 

 

 

--

 

Legends Capital Group, LLC. Revolving Line of Credit Promissory Note

 

 

10,000

 

 

 

--

 

Hamilton Mining Resources, Inc. Revolving Line of Credit Promissory Note

 

 

66,000

 

 

 

--

 

Machan 1988 Property Trust Revolving Line of Credit Promissory Note

 

 

41,500

 

 

 

--

 

Total Related Party

 

 

837,177

 

 

 

404,382

 

Less Current Portion Related Party

 

 

(837,177 )

 

 

--

 

Total Long-term Related Party

 

$ --

 

 

$ 404,382

 


 
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Table of Contents

 

Annual principal payments are as follows:

 

Year

 

December 31, 2016

 

2017

 

$ 2,949,072

 

2018

 

 

--

 

2019

 

 

--

 

2020

 

 

445,000

 

2021

 

 

--

 

Total

 

$ 3,394,072

 

 

Beaufort Capital Partners, LLC Convertible Note

 

On May 15, 2015, the Company entered into a $500,000 Convertible Promissory Note with Beaufort Capital Partners, LLC. The note bore a 12% annual interest rate and is due monthly. The principal was due on April 30, 2016, and because it was not paid, the note was in default. The holder filed a lawsuit in Third District Court in Salt Lake City, Utah and was awarded a judgment on June 6, 2016. The holder agreed to forbear any collection proceedings pursuant to a Forbearance Agreement dated August 8, 2016, through October 31, 2016, in consideration of interest payments which have been made since the Forbearance Agreement was executed. The note contained a conversion feature allowing the principal and any unpaid accrued interest to be converted into common shares of the company at a rate of $0.75 or 20% less than the price of the anticipated Initial Public Offering, whichever is less, per share at the discretion of the note holder. The conversion feature was not accounted for as a derivative because it was not deemed to be beneficial. In addition, the equity and liability components of the convertible note were not separately accounted for since the conversion price did not bear any relationship to the value of the privately held stock rendering the exercise of the conversion feature improbable. In December, 2016, the holder agreed to convert the $500,000 principal of the note along with $83,500 of unpaid accrued interest into the Company’s Bridge Notes Payable detailed below.

  

The Company had received $490,000 on the origination date with $10,000 being withheld as points paid by the Company, additionally the Company paid a $25,000 finders fee. The $35,000 represented by the points and finders fee has been recorded as a discount to the principal of the note and is being accreted over the term of the note. For the years ended December 31, 2016 and 2015, $12,066 and $22,934 respectively, was accreted for the note discount and included in interest expense. Interest of $91,000 and $37,500 related to the note principal was included in interest expense for the years ended December 31, 2016 and 2015, respectively.

 

R. Phillip Zobrist Convertible Note

 

On December 1, 2015, the Company entered into a $100,000 Convertible Promissory Note with R. Phillip Zobrist. The note bears an 8.5% annual interest rate and is due semi annually. The principal is due on September 30, 2017. The note holder agreed that in the event the Company was able to file a Registration Statement for an Initial Public Offering on or before December 31, 2016, the note holder agreed to include the Note principal and accrued interest outstanding on the filing date with the Registration Statement to convert all of the Note principal and accrued interest to common stock of the Company. The Company did not file the afore mentioned Registration Statement until after December 31, 2016, and is in negotiations with the note holder to amend the filing date requirement if the Company is unsuccessful the note holder would not be required to convert their outstanding note principal or accrued interest. The note contains a conversion feature allowing the principal and any unpaid accrued interest to be converted into common shares of the company at a rate of $1.00 or 20% less than the price of the anticipated Initial Public Offering, whichever is less, per share at the discretion of the note holder. The conversion feature was not accounted for as a derivative because it was not deemed to be beneficial. In addition, the equity and liability components of the convertible note were not separately accounted for since the conversion price did not bear any relationship to the value of the privately held stock rendering the exercise of the conversion feature improbable.

  

The note holder also received a warrant to purchase up to 50,000 shares of our common stock at a price of the lesser of $1.00 or the offering price of an initial public offering of the Company common stock during the term of the warrant. The warrant expires on November 12, 2020, the Company calculated a note discount for the value of the warrant received by the note holder of $824 using a Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 1.59%, (ii) expected life (in years) of 5; (iii) expected volatility of 97.60%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.058. The $824 valuation of warrant is being accreted over the term of the note and for the years ended December 31, 2016 and 2015, $451 and $37, respectively was included in interest expense. Interest of $8,500 and $708 related to the note principal was included in interest expense for the years ended December 31, 2016 and 2015, respectively.

 

Pine Valley Investments, LLC. Revolving Line of Credit Promissory Note

 

On December 30, 2015, the Company entered into a Revolving Line of Credit Promissory Note with Pine Valley Investments, LLC, a Utah limited Liability Company, with a maximum limit on advances of $100,000. The note bears a 12% annual interest rate on advances received. All accrued and unpaid interest along with the total sum of any outstanding advances are due on September 30, 2017. The note holder agrees that in the event the Company is able to file a Registration Statement for an Initial Public Offering on or before December 31, 2016, the note holder agrees to include the Note principal and accrued interest outstanding on the filing date with the Registration Statement to convert all of the Note principal and accrued interest to common stock of the Company. At December 31, 2016 and 2015, the Company had net outstanding balances due on advances received of $86,000 and $20,000 respectively. Interest of $5,826 and $5 related to the note principal was included in interest expense for the years ended December 31, 2016 and 2015, respectively.

 

 
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Legends Capital Opportunity Fund, LLC Convertible Notes

 

In August 2016, the Company entered into two convertible promissory notes with Legends Capital Opportunity Fund, LLC. At December 31, 2016, the aggregate principal due on these notes was $25,000. The notes bear interest at the rate of 10% per annum and are due on December 31, 2017. The notes provide that the principal and interest on the notes would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 15% to the conversion price of a bridge financing anticipated closing prior to filing a Registration Statement, which bridge financing was completed on December 12, 2016. Interest of $874 related to the notes principal was included in interest expense for the year ended December 31, 2016.

  

Robert Salna Convertible Promissory Note

 

In September 2016, the Company entered into a convertible promissory note in the principal amount of $200,000, with Robert Salna. The note bears interest at the rate of 10% per annum and is due on December 31, 2017. The note provides that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 15% to the conversion price of a bridge financing anticipated closing prior to filing a Registration Statement, which bridge financing was completed on December 12, 2016. The Company paid a $10,000 finders fee which has been recorded as a discount to the principal of the note and is being accreted over the term of the note. For the year ended December 31, 2016, $2,427 was accreted for the note discount and included in interest expense. Interest of $6,333 related to the note principal was included in interest expense for the year ended December 31, 2016.

  

December 2016 Notes Payable

 

In December 2016, the Company entered into convertible promissory notes with two individuals and one company in the aggregate of $105,000. The notes bear interest at the rate of 10% per annum and are due on December 31, 2017. The notes provide that the principal and interest on the notes would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 15% to the conversion price of a bridge financing anticipated closing prior to filing a Registration Statement, which bridge financing was completed on December 12, 2016. Interest of $763 related to the notes principal was included in interest expense for the year ended December 31, 2016.

 

Zika Diagnostics, Inc. Note Payable

 

On October 11, 2016, the Company entered into an exclusive license agreement with Watermark Group, Inc., a Nevada corporation, (“Watermark”) which granted the exclusive license to sell the Company’s proprietary molecular diagnostic tests for the Zika virus and other mosquito borne illnesses in exchange for an initial royalty of $500,000 and a royalty of 10% of net sales. The license was cancelled as described hereafter. Also as part of the transaction the Company entered into a stock purchase agreement with the major shareholder of Watermark for the purchase of 3,600,000 shares of common stock in Watermark for $55,000, which constituted a controlling interest in Watermark. Watermark subsequently changed its name to Zika Diagnostics, Inc. Contemporaneously, with the execution of those two agreements, Watermark secured an investment of $1.05 million from an individual for the purchase of shares of Watermark, $0.5 million of which was paid to the Company pursuant to the exclusive license agreement as an initial royalty payment. As an integral part of the license agreement and the stock purchase agreement, the Company required that Watermark be debt free for the transaction to close. It was represented that a related party loan (“Related Note”) on the books of Watermark as of July 31, 2016 in the approximate amount of $172,000 plus accrued interest was satisfied. The Company was furnished written documentation from what was purported to be the then holder of the Related Note (“Tide Pool Ventures”) and a written confirmation from the original holder of the Related Note (“P&G Holdings”) that the debt was satisfied. The seller of the Watermark stock purchased by the Company also represented that the Related Note was satisfied as a condition to the stock purchase agreement. On or about January 10, 2017, the Company and Watermark were notified by P&G Holdings that the Related Note was not only still outstanding, but that it was in default and payment was demanded. On January 31, 2017, P&G Holdings filed a lawsuit in Federal District Court in New York demanding payment of the Related Note, all accrued interest thereon and attorney’s fees and that stock be issued such that P&G Holdings would own 80% of the issued and outstanding shares of stock of Watermark.

  

 
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As a result of the lawsuit and its investigation into the Related Note, the Company determined that it would unwind the transaction by terminating the license agreement effective as of October 11, 2016 and rescinding the stock purchase, which it did on March 22, 2017, in an agreement with the Former Shareholder. Under the terms of the rescission and cancellation of the license agreement, the Company returned the shares of stock of Watermark that it held to the seller of the stock and agreed to repay a portion of the initial license fee it received. In that connection the Company executed a note payable to Watermark in the principal amount of $445,000. The note principal is due December 31, 2020. Following the rescission of the stock purchase agreement and the cancellation of the license, the Related Note was paid by Watermark and the lawsuit by P&G Holdings was dismissed.

 

Bridge Notes Payable

 

In December 2016, the Company entered into convertible promissory notes with six individuals and five companies, in the aggregate principal amount of $1,683,500, which consisted of (a) $1,100,000 of new investor funding and (b) $583,500 representing the satisfaction of the $500,000 note principal plus $83,500 of accrued interest on the Beaufort Capital Partners, LLC Convertible Note. The notes bear interest at the rate of 15% per annum and are due in June 2017. The notes provide that the principal and interest on the notes would be convertible to shares of common stock at a conversion rate of $0.75 per share or seventy percent (70%) of the initial public offering (“IPO”) price per share or, if the IPO has not occurred by the Maturity Date, 70% of the Company’s initial public offering (“IPO”) price per share or, if the IPO has not occurred by June 12, 2017, 85% of the offering price of the Company's next bona fide sale of its preferred stock or common stock in excess of $1,000,000. The notes are secured by all of the assets of the Company. The Company (i) received $1,041,000 in cash (net of $59,000 in commissions withheld) and, (ii) converted $583,500 of principal and interest from the Beaufort Capital Partners, LLC Convertible Note mentioned above. The Company agreed to register the shares underlying the bridge notes and the warrants underlying the bridge notes. The transaction documents contain negative covenants that include restrictions on the repayment of debt and issuance of dividends, restrictions on new debt (including restrictions on variable rate loans) and new security interests on the Company’s assets and other customary restrictions.

 

The note holders also received warrants to purchase up to an aggregate of 1,122,339 shares of our common stock at a price of eighty-five percent (85%) of the Company’s IPO price per share or, if the IPO has not occurred by June 12, 2017, 85% of the offering price of the Company's next bona fide sale of its preferred stock or common stock in excess of $1,000,000. The warrants expire in December 2021. The Company calculated a note discount for the value of the warrants received by the note holders of $11,914 using a Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 1.96%, (ii) expected life (in years) of 5; (iii) expected volatility of 80.49%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.058.

 

Upon any default of the notes for non-payment, any bankruptcy event or breach of the note or other transaction documents, the Company may be liable to pay a default redemption amount equal to 130% of the amount due under the note and deliver an additional warrant to purchase 50% of the common stock issuable upon conversion of the notes.

 

The Company may have to issue additional warrants due to stock dividends, stock splits, reclassification or other actions such as a merger or reorganization of the Company. If, at any time when the notes or warrants issued to the bridge note holders, the Company issues any common stock or common stock equivalents at a lower conversion or exercise price, the conversion or exercise price of the notes and/or warrants shall be reduced to such lower conversion or exercise price.

 

Additionally, the Company paid $15,000 in loan preparation fees. The $59,000 withheld as finders fees, the $11,914 warrant valuation and the $15,000 for loan preparation have all been recorded as a discount to the principal of the note and is being accreted over the term of the note. For the year ended December 31, 2016, $6,218 was accreted for the note discount and included in interest expense. Interest of $10,700 related to the note principal was included in interest expense for the year ended December 31, 2016.

 

Co Diagnostics, Ltd. Revolving Line of Credit Promissory Note

 

On August 1, 2015, the Company entered into a Revolving Line of Credit Promissory Note with Co Diagnostics, Ltd a Turks and Caicos limited company, with a maximum limit on advances of $750,000. Co Diagnostics, Ltd. is a greater than 20% shareholder of the Company. The note bears a 12% annual interest rate on advances received. All accrued and unpaid interest along with the total sum of any outstanding advances are due on September 30, 2017. The note holder agreed that in the event the Company was able to file a Registration Statement for an Initial Public Offering on or before December 31, 2016, the note holder agreed to include the Note principal and accrued interest outstanding on the filing date with the Registration Statement to convert all of the Note principal and accrued interest to common stock of the Company. The Company did not file the afore mentioned Registration Statement until after December 31, 2016, and is in negotiations with the note holder to amend the filing date requirement if the Company is unsuccessful the note holder would not be required to convert their outstanding note principal or accrued interest. As of December 31, 2016 and 2015, the Company had an outstanding balance due on advances received of $609,940 and $305,000, respectively. Interest of $63,371 and $10,761 related to the note principal was included in interest expense for the years ended December 31, 2016 and 2015, respectively.

  

 
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Legends Capital Group, LLC Convertible Note

 

On November 12, 2015, the Company entered into a $100,000 Convertible Promissory Note with Legends Capital Group, LLC, a Utah limited liability company . Legends Capital Group is a 12% shareholder of the Company and one of its members is a member of our Board of Directors. The note bears an 8.5% annual interest rate and is due semi annually. The principal is due on September 30, 2017. The note holder agreed that in the event the Company was able to file a Registration Statement for an Initial Public Offering on or before December 31, 2016, the note holder agreed to include the Note principal and accrued interest outstanding on the filing date with the Registration Statement to convert all of the Note principal and accrued interest to common stock of the Company. The Company did not file the afore mentioned Registration Statement until after December 31, 2016, and is in negotiations with the note holder to amend the filing date requirement if the Company is unsuccessful the note holder would not be required to convert their outstanding note principal or accrued interest. The note contains a conversion feature allowing the principal and any unpaid accrued interest to be converted into common shares of the company at a rate of $1.00 or 20% less than the price of the anticipated Initial Public Offering, whichever is less, per share at the discretion of the note holder. The conversion feature was not accounted for as a derivative because it was not deemed to be beneficial. In addition, the equity and liability components of the convertible note were not separately accounted for since the conversion price did not bear any relationship to the value of the privately held stock rendering the exercise of the conversion feature improbable.

  

The note holder also received a warrant to purchase up to 50,000 shares of our common stock at a price of the lesser of $1.50 or the offering price of an initial public offering of the Company common stock during the term of the warrant. The warrant expires on November 12, 2020, the Company calculated a note discount for the value of the warrant received by the note holder of $665 using a Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 1.67%, (ii) expected life (in years) of 5; (iii) expected volatility of 97.71%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.058. The $665 valuation of warrant is being accreted over the term of the note and for the years ended December 31, 2016 and 2015, $354 and $47, respectively was included in interest expense. Interest of $8,500 and $1,133 related to the note principal was included in interest expense for the years ended December 31, 2016 and 2015, respectively.

 

Clavo Rico Promissory Note

 

In February 2016, the Company entered into a promissory note in the principal amount of $10,000 with Clavo Rico Inc. a Utah corporation. The president of Clavo Rico is a member of the Company’s Board of Directors. The note bears interest at the rate of 12% per annum with an amended maturity date of September 30, 2017. On September 14, 2016 we amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if the Company were to file a Registration Statement before December 31, 2016. The Company did not file the afore mentioned Registration Statement until after December 31, 2016, and is in negotiations with the note holder to amend the filing date requirement if the Company is unsuccessful the note holder would not be required to convert their outstanding note principal or accrued interest. The maturity date of the note was extended to September 30, 2017. Interest of $1,029 related to the note principal was included in interest expense for the year ended December 31, 2016.

  

Legends Capital Group, LLC. Revolving Line of Credit Promissory Note

 

In March 2016, the Company entered into a revolving line of credit promissory note Legends Capital Group, LLC in the principal amount of $100,000. The investor is a principal shareholder of ours and owns approximately 12% of the issued and outstanding shares of the Company. The note bears interest at the rate of 12% per annum with an amended maturity date of September 30, 2017. At December 31, 2016, the company had net outstanding advances due of $10,000 under the line of credit. On September 14, 2016, the Company amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if we were to file a Registration Statement before December 31, 2016. The Company did not file the afore mentioned Registration Statement until after December 31, 2016, and is in negotiations with the note holder to amend the filing date requirement if the Company is unsuccessful the note holder would not be required to convert their outstanding note principal or accrued interest. Interest of $5,481 related to the note principal was included in interest expense for the year ended December 31, 2016.

  

 
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Hamilton Mining Resources, Inc. Revolving Line of Credit Promissory Note

 

In May 2016, the Company entered into a revolving line of credit promissory note with Hamilton Mining Resources Inc. in the principal amount of $75,000. The president of Hamilton is a member of the Company’s Board of Directors. The note bears interest at the rate of 12% per annum and an amended maturity date of September 30, 2017. At December 31, 2016, the Company had net outstanding advances due of $66,000 under the line of credit. On September 14, 2016 the Company amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if the Company were to file a Registration Statement before December 31, 2016. The Company did not file the afore mentioned Registration Statement until after December 31, 2016, and is in negotiations with the note holder to amend the filing date requirement if the Company is unsuccessful the note holder would not be required to convert their outstanding note principal or accrued interest. Interest of $4,524 related to the note principal was included in interest expense for the year ended December 31, 2016.

   

Machan 1988 Property Trust Revolving Line of Credit Promissory Note

 

In May 2016, the Company entered into a revolving line of credit promissory note with Machan 1988 Property Trust in the principal amount of $50,000. The Trustee of the Trust is a member of the Company’s Board of Directors. The note bears interest at the rate of 12% per annum. At December 31, 2016, the Company had net outstanding advances due of $41,500 under the line of credit. On September 14, 2016, the Company amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if the Company were to file a Registration Statement before December 31, 2016. The Company did not file the afore mentioned Registration Statement until after December 31, 2016, and is in negotiations with the note holder to amend the filing date requirement if the Company is unsuccessful the note holder would not be required to convert their outstanding note principal or accrued interest. Interest of $2,870 related to the note principal was included in interest expense for the year ended December 31, 2016.

  

Note 3 – Stock-based Compensation

 

In accordance with ASC Topic 718, stock-based compensation cost is estimated at the grant date, based on the estimated fair value of the awards, and recognized as expense ratably over the requisite service period of the award for awards expected to vest.

 

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 have 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. In determining the expected volatility our computation is based the stock prices of three comparable companies and based on a combination of historical and 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, 2016 was 3,125,000.

 

Stock Options

 

The Company estimates the fair value of stock option awards granted using a Black-Scholes option-pricing model. The Company then amortizes the fair value of awards expected to vest on a straight-line basis over the requisite service periods of the awards, which is generally the period from the grant date to the end of the vesting period. 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 three comparable companies. The risk-free interest rate was based on the yield curve of a zero-coupon U.S. Treasury bond on the date the stock option award was granted with a maturity equal to the expected term of the stock option award. The expected option term is derived from an analysis of historical experience of similar awards combined with expected future exercise patterns based on several factors including the strike price in relation to the current and expected stock price, the minimum vest period and the remaining contractual period.

 

 
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The fair values for the options granted in 2016 and 2015 were estimated at the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions:

 

 

 

December 31,

2016

 

 

December 31,

2015

 

Risk free interest rate

 

 

1.52 %

 

 

1.22 %

Expected life (in years)

 

 

5.5

 

 

 

5.5

 

Expected volatility

 

 

95.24 %

 

 

97.73 %

Expected dividend yield

 

 

0.00 %

 

 

0.00 %

Stock price

 

$ 0.058

 

 

$ 0.058

 

 

The weighted average fair value of options granted during the years ended December 31, 2016 and 2015, were $0.04 per share.

 

For the year ended December 31, 2016, the Company recognized $69,565 of stock based compensation expense recorded in our general and administrative department for options granted to ten employees and one consultant of the company to purchase an aggregate of 1,800,000 shares of our common stock. The $69,565 consists of (i) $51,432 for the options granted in 2016 and (ii) $18,133 for vesting of options granted prior to January 1, 2016.

 

For the year ended December 31, 2015, the Company recognized $45,498 of stock based compensation expense recorded in our general and administrative department for options granted to ten employees of the company to purchase an aggregate of 1,550,000 shares of our common stock.

 

The following tables summarize option and warrant activity during the years ended December 31, 2016 and December 31, 2015, respectively.

 

 

 

Options
Outstanding

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Fair

Value

 

 

Weighted
Average
Remaining Contractual

Life (years)

 

Outstanding at January 1, 2015

 

 

--

 

 

$ --

 

 

$ --

 

 

 

--

 

Options granted

 

 

1,550,000

 

 

 

0.05

 

 

 

0.04

 

 

 

9.05

 

Expired

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Forfeited options

 

 

(50,000 )

 

 

0.05

 

 

 

0.04

 

 

 

9.05

 

Exercised

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Outstanding at December 31, 2015

 

 

1,500,000

 

 

$ 0.05

 

 

$ 0.04

 

 

 

9.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options granted

 

 

1,800,000

 

 

 

0.05

 

 

 

0.04

 

 

 

9.04

 

Expired

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Forfeited options

 

 

(425,000 )

 

 

0.05

 

 

 

0.04

 

 

 

8.04

 

Exercised

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2016

 

 

2,875,000

 

 

$ 0.05

 

 

$ 0.04

 

 

 

8.63

 

 

Warrants

 

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 three comparable companies and 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.

  

 
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The fair values for the warrants granted in 2016 and 2015 were estimated at the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions:

 

 

 

December, 31,

2016

 

 

December, 31,

2015

 

Risk free interest rate

 

 

1.96 %

 

1.59%-1.67

%

Expected life (in years)

 

 

5.0

 

 

 

5.0

 

Expected volatility

 

 

80.49 %

 

97.60%-97.71

%

Expected dividend yield

 

 

0.00 %

 

 

0.00 %

Stock price

 

$ 0.058

 

 

$ 0.058

 

 

The weighted average fair value of warrants granted during the years ended December 31, 2016 and 2015 was $0.010 and $0.013-$0.017, respectively per share.

 

 

 

Warrants
Outstanding

 

 

Weighted Average

Exercise

Price

 

 

Weighted Average

Fair

Value

 

 

Weighted
Average
Remaining Contractual

Life (years)

 

Outstanding at January 1, 2015

 

 

--

 

 

$ --

 

 

$ --

 

 

 

--

 

Warrants issued

 

 

100,000

 

 

 

1.25

 

 

 

0.01

 

 

 

4.90

 

Expired

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Forfeited warrants

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Exercised

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Outstanding at December 31, 2015

 

 

100,000

 

 

$ 1.25

 

 

$ 0.01

 

 

 

4.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued

 

 

1,122,339

 

 

 

0.75

 

 

 

0.01

 

 

 

5.00

 

Expired

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Forfeited warrants

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Exercised

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2016

 

 

1,222,339

 

 

$ 0.79

 

 

$ 0.01

 

 

 

4.91

 

 

The following table summarizes information about stock options and warrants outstanding at December 31, 2016.

 

 

 

Outstanding

 

 

Exercisable

 

 

 

 

 

Weighted
Average
Remaining

 

 

Weighted

Average

 

 

 

 

 

Weighted

Average

 

Range of

Exercise Prices

 

Number

Outstanding

 

 

Contractual

Life (years)

 

 

Exercise

Price

 

 

Number

Exercisable

 

 

Exercise

Price

 

$0.05-0.99

 

 

2,875,000

 

 

 

8.63

 

 

$ 0.05

 

 

 

1,358,333

 

 

$ 0.05

 

1.00-1.50

 

 

1,222,339

 

 

 

4.91

 

 

 

0.79

 

 

 

1,222,339

 

 

 

0.79

 

$0.05-1.50

 

 

4,097,339

 

 

 

7.52

 

 

$ 0.27

 

 

 

2,580,672

 

 

$ 0.40

 

 

Total unrecognized stock-based compensation was $24,785 at December 31, 2016, which the Company expects to recognize over the next year in accordance with vesting provisions.

 

Note 4 – 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 begin payment of the accrued royalties at the rate of $10,000 per month. For each of the years ending December 31, 2016 and 2015, the Company included a $360,000 expense for this license agreement in research and development.

 

 
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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, 2016, the Company accrued $690,168 in expenses and had accounts payable of $75,000 for technology royalties, consulting fees, and interest on related party debts. In addition the Company had short-term notes outstanding from six related party entities totaling $837,177. At December 31, 2015, the Company accrued $276,894 in expenses and had accounts payable of $15,000 for technology royalties, consulting fees, and interest on related party debts. In addition the Company had long-term notes outstanding from two related party entities totaling $404,382.

 

Note 5 – Lease Obligations

 

Our executive offices are located at 8160 S Highland Dr. Sandy Utah 84093. The Company occupies three suites at an executive office facility on a month to month basis at a rate of $1,555 plus usage charges per month. Our laboratory and product development facility is located at 585 W 500 S Bountiful Utah, 84010, and consists of approximately 3,971 square feet of space leased under a multi-year contract which was extended in September 2016 at a rate of $3,781 per month and expires on November 30, 2017. For the years December 31, 2016 and 2015, the Company expensed $66,807 and $62,795, respectively for rent. The Company’s lease rent obligation is as follows:

 

Year

 

Amount

 

2016

 

$ 41,591

 

Total

 

$ 41,591

 

 

Note 6 – Income Taxes

 

Net deferred tax assets consist of the following components as of December 31, 2016 and 2015:

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

Deferred tax assets

 

 

 

 

 

 

NOL carry-forward

 

$ 1,550,900

 

 

$ 1,009,800

 

Sec 179 carry-forwards

 

 

2,400

 

 

 

2,400

 

Depreciation

 

 

43,200

 

 

 

11,100

 

 

 

 

 

 

 

 

 

 

Valuation allowance

 

(1,596,500

)

 

 

(1,023,300 )

Net deferred tax asset

 

$ --

 

 

$ --

 

 

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, 2016 and 2015 due to the following:

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

Book loss

 

$

(752,200

)

 

$ (799,500 )

Depreciation

 

(9,700

)

 

 

(1,400 )

Meals and entertainment

 

400

 

 

 

1,000

 

Other non-deductible expenses

 

63,800

 

 

 

21,500

 

Change in valuation allowance

 

697,700

 

 

 

778,400

 

 

 

$ -

 

 

$ -

 

 

At December 31, 2016, the Company had net operating loss carry-forwards of approximately $3,977,000 that may be offset against future taxable income from the year 2017 through 2033. No tax benefit has been reported in the December 31, 2016 and 2015, 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.

 

 
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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, 2016 and 2015, related to income taxes.

 

Note 7 – Equity

 

2016

 

For the year ended December 31, 2016, the Company issued warrants to purchase 1,122,339 shares of our common stock with an exercise price of $0.75 to eleven entities related to the funding received on our Bridge Notes Payable with an aggregate value of $11,914. See Note 2 Notes Payable.

 

In the year ended December 31, 2015, the Company issued 4,000,000 shares of our common stock a single corporation pursuant to a services agreement valued at $231,980. The term of the services agreement expires on May 31, 2017. For the year ending December 31, 2016, the Company included $115,992 related to the services provided in general and administrative expense.

 

2015

 

For the year ended December 31, 2015, the Company issued 8,104,142 shares of our common stock to a single corporation for $470,000.

 

For the year ended December 31, 2015, the Company issued warrants to purchase 50,000 shares of our common stock with an exercise price of $1.50 to one company. The Company also issued warrants to purchase 50,000 shares of our common stock with an exercise price of $1.00 to one individual. These warrants were issued to our convertible note holders with an aggregate value of $1,488.

 

For year ended December 31, 2015, the Company issued 6,420,000 shares of our common stock to DNA Logix, Inc. in exchange for all of DNA Logix, Inc.’s issued and outstanding shares, additionally the Company received $8,195 in cash.

 

For year ended December 31, 2015, the Company issued 4,000,000 shares of our common stock a single corporation pursuant to a services agreement valued at $231,980. The term of the services agreement expires on May 31, 2017. For the year ending December 31, 2015, the Company included $9,662 related to the services provided in general and administrative expense.

 

Note 8 – Subsequent Events.

 

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 Brent Satterfield, the inventor and a member of our Board of Directors. The amendment provides in part that all royalties under the License cease as of January 1, 2017, we will accrue an additional $107,500 of royalties making a total of accrued royalties payable of $700,000 and we will begin to pay those accrued royalties at the rate of $10,000 per month. The amendment also contains provision for partial payment of the accrued royalties in the event of a successful capital raise and for a change in control payment in the event the technology or Company is sold.

 

 
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On October 11, 2016, the Company entered into an exclusive license agreement with Watermark Group, Inc., a Nevada corporation, (“Watermark”) which granted the exclusive license to sell the Company’s proprietary molecular diagnostic tests for the Zika virus and other mosquito borne illnesses in exchange for an initial royalty of $500,000 and a royalty of 10% of net sales. The license was cancelled as described hereafter. Also as part of the transaction the Company entered into a stock purchase agreement with the major shareholder of Watermark for the purchase of 3,600,000 shares of common stock in Watermark for $55,000, which constituted a controlling interest in Watermark. Watermark subsequently changed its name to Zika Diagnostics, Inc. Contemporaneously, with the execution of those two agreements, Watermark secured an investment of $1.05 million from an individual for the purchase of shares of Watermark, $0.5 million of which was paid to the Company pursuant to the exclusive license agreement as an initial royalty payment. As an integral part of the license agreement and the stock purchase agreement, the Company required that Watermark be debt free for the transaction to close. It was represented that a related party loan (“Related Note”) on the books of Watermark as of July 31, 2016, in the approximate amount of $172,000 plus accrued interest was satisfied. The Company was furnished written documentation from what was purported to be the then holder of the Related Note (“Tide Pool Ventures”) and a written confirmation from the original holder of the Related Note (“P&G Holdings”) that the debt was satisfied. The seller of the Watermark stock purchased by the Company also represented that the Related Note was satisfied as a condition to the stock purchase agreement. On or about January 10, 2017, the Company and Watermark were notified by P&G Holdings that the Related Note was not only still outstanding, but that it was in default and payment was demanded. On January 31, 2017, P&G Holdings filed a lawsuit in Federal District Court in New York demanding payment of the Related Note, all accrued interest thereon and attorney’s fees and that stock be issued such that P&G Holdings would own 80% of the issued and outstanding shares of stock of Watermark.

  

As a result of the lawsuit and its investigation into the Related Note, the Company determined that it would unwind the transaction by terminating the license agreement effective as of October 11, 2016 and rescinding the stock purchase, which it did on March 22, 2017, in an agreement with the Former Shareholder. Under the terms of the rescission and cancellation of the license agreement, the Company returned the shares of stock of Watermark that it held to the seller of the stock and agreed to repay a portion of the initial license fee it received. In that connection the Company executed a note payable to Watermark in the principal amount of $445,000. The note principal is due December 31, 2020. Following the rescission of the stock purchase agreement and the cancellation of the license, the Related Note was paid by Watermark and the lawsuit by P&G Holdings was dismissed.

 

The Company evaluated subsequent events pursuant to ASC Topic 855 and have determined that there are no additional events that need to be reported.

 

 
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[*] Shares

 

Common Stock PROSPECTUS

 

________________, 2017

 

 

 

 

 

 

 
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ALTERNATE PAGES FOR SELLING STOCKHOLDER PROSPECTUS

 

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, dated April 28, 2017

 

PROSPECTUS

 

CO-DIAGNOSTICS, INC.

 

[*] Shares of Common Stock[1]

 

An aggregate of up to [*] shares of our common stock are currently being offered under this prospectus by certain stockholders who were investors in the December 2016 bridge loan financing. Pursuant to the promissory notes and security agreements entered into in connection with the December 2016 bridge loan financing, as amended to date, $1,100,000 principal amount of term notes, together with all accrued and unpaid interest thereon, will be converted into shares of our common stock at a conversion price equal to 70% of the price shares of the initial public offering (“IPO”) price or, if the IPO has not occurred by the Maturity Date, 70% of the Company’s next financing.

 

The selling shareholders must sell their shares at a fixed price per share of $[*] until there is a public market for our shares of common stock. Thereafter, the shares offered by this prospectus may be sold by the selling stockholders from time to time in the open market, through privately negotiated transactions or a combination of these methods, at market prices prevailing at the time of sale or at negotiated prices. By separate prospectus, we have registered an aggregate of [*] shares of our common stock which we are offering for sale to the public through [*], as representative of the underwriters, which we refer to herein as the Company Offering.

 

We intend to apply to list our shares of common stock for trading on the NASDAQ Capital Market under the symbol “CODX”, but this offering is contingent upon the approval of our initial listing application.

  

The distribution of the shares by the selling stockholders is not subject to any underwriting agreement. We will not receive any proceeds from the sale of the shares by the selling stockholders. We will bear all expenses of registration incurred in connection with this offering, but all selling and other expenses incurred by the selling stockholders will be borne by them.

 

We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements. An investment in our common stock may be considered speculative and involves a high degree of risk, including the risk of a substantial loss of your investment. See “Risk Factors” beginning on page 13 to read about the risks you should consider before buying shares of our common stock. An investment in our common stock is not suitable for all investors. See “Risk Factors—Risks Relating to Ownership of Our Securities.”

 

Sales of the shares of our common stock registered in this Prospectus and a prospectus related to an underwritten offering will result in two offerings taking place concurrently which might affect price, demand, and liquidity.

 

You should rely only on the information contained in this prospectus and any prospectus supplement or amendment. We have not authorized anyone to provide you with different information. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus is only accurate on the date of this prospectus, regardless of the time of any sale of securities.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

The date of this prospectus is ________, 2017

_________

1 Number of shares of common stock will be based upon the issuance price.

 

 
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EXPLANATORY NOTE

 

Concurrent with this offering, the Company is registering shares of common stock in connection with a public offering of up to [*] shares of our common stock (excluding [*] shares of common stock which may be sold upon exercise of the underwriters’ over-allotment option) through the underwriters. Sales by shareholders that purchased shares in our common stock from the underwritten offering may reduce the price of our common stock, demand for our shares and, as a result, the liquidity of your investment.

 

SELLING STOCKHOLDERS

 

This prospectus covers the resale from time to time by the selling stockholders identified in the table below of up to [*] shares of our common stock.

 

The selling stockholders identified in the table below may, from time to time, offer and sell under this prospectus any or all of the shares of our common stock described under the columns “Shares of Common Stock owned Prior to this Offering and Registered hereby” and “Shares Issuable Upon Exercise of Warrants owned Prior to this Offering and Registered hereby” in the table below.

 

Certain selling stockholders may be deemed to be “underwriters” as defined in the Securities Act. Any profits realized by such selling stockholder may be deemed to be underwriting commissions.

 

The table below has been prepared based upon information furnished to us. The selling stockholders identified below may have sold, transferred or otherwise disposed of some or all of their shares since the date on which the information in the following table is presented in transactions exempt from or not subject to the registration requirements of the Securities Act. Information concerning the selling stockholders may change from time to time and, if necessary, we will amend or supplement this prospectus accordingly. We cannot give an estimate as to the number of shares of our common stock that will actually be held by the selling stockholders upon termination of this offering because the selling stockholders may offer some or all of their common stock under the offering contemplated by this prospectus or acquire additional shares of common stock. The total number of shares that may be sold hereunder will not exceed the number of shares offered hereby. Please read the section entitled “Plan of Distribution” in this prospectus.

 

The following table sets forth the name of each selling stockholder, the number of shares of our common stock beneficially owned by such stockholder before this offering, the number of shares to be offered for such stockholder’s account and the number and (if one percent or more) the percentage of the class to be beneficially owned by such stockholder after completion of the offering. The number of shares owned are those beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares of our common stock as to which a person has sole or shared voting power or investment power and any shares of common stock which the person has the right to acquire within 60 days of _____, 2017 (the “Determination Date”) through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power of attorney or revocation of a trust, discretionary account or similar arrangement, and such shares are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the person holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other person. Beneficial ownership percentages are calculated based on [*] shares of our common stock outstanding as of the Determination Date.

  

Unless otherwise set forth below, based upon the information furnished to us, (a) the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the selling stockholder’s name, subject to community property laws, where applicable, (b) no selling stockholder had any position, office or other material relationship within the past three years, with us or with any of our predecessors or affiliates, and (c) no selling stockholder is a broker-dealer or an affiliate of a broker-dealer. Selling stockholders who are broker-dealers or affiliates of broker-dealers are indicated by footnote. We have been advised that these broker-dealers and affiliates of broker-dealers purchased our common stock in the ordinary course of business, not for resale, and, at the time of purchase, did not have any agreements or understandings, directly or indirectly, with any person to distribute such common stock. The number of shares of our common stock shown as beneficially owned before the offering is based on information furnished to us or otherwise based on information available to us at the timing of the filing of the registration statement of which this prospectus forms a part.

 

Selling Stockholder

 

Shares of Common Stock Beneficially Owned

Prior to the Offering (A)

 

 

Shares of Common Stock owned Prior to this Offering and Registered Hereby

 

 

Shares Issuable Upon Exercise of Warrants owned Prior to this Offering and Registered Hereby

 

 

Shares of Common Stock Beneficially Owned Upon Completion of the Offering

 

 

Percentage of Common Stock Beneficially Owned Upon Completion of the Offering

 

Brian FitzPatrick

 

 

 

 

 

 

 

 

 

 

 

Catalytic Capital LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corram Holdings, LLC (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forum Consulting Group, LLC (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael Semidubersky

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mohsen Khorassani

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nata Solutions, Inc. (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rock Mills Capital Partners LLC (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sergey Gorgin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

William Peck

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beaufort Capital Partners, LLC (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

____________

1. Jeffrey Ramson is the chief executive officer and managing member of Corram Holdings, LLC.
2. Daniel Tulbovich is the sole member and 100% initial contributor to Forum Consulting Group, LLC.
3. Natalia Shapiro is the President of Nata Solutions, Inc.
4. William McCluskey is the manager of Rock Mills Capital Partners LLC.

5.

Robert Marino is the managing member of Beaufort Capital Partners LLC.

 

A We issued to the Selling Shareholders senior convertible notes with warrants. The senior secured convertible notes are convertible into our common stock at the lower of $0.75 per share or a discount of 30% to the price of the stock issued in an anticipated initial public offering, The warrants have an exercise price equal to 85% of the price of the stock issued in an anticipated initial public offering. The amount of common stock issued to the Selling Shareholder shall be 50% of the shares of our common stock that the Selling Shareholder are entitled to receive in connection with the conversion of the Selling Shareholder’s convertible notes when such senior convertible notes first become convertible.

 

 
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PLAN OF DISTRIBUTION

 

The selling stockholders may, from time to time, sell any or all of their shares of our common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. If the shares of our common stock are sold through underwriters, the selling stockholders will be responsible for underwriting discounts or commissions or agent’s commissions. All selling stockholders who are broker-dealers are deemed to be underwriters. The selling shareholders must sell their shares at a fixed price per share of $[*] until there is a public market for our shares of common stock. Thereafter, these sales may be at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale or at negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:

 

· any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;
· ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
· block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
· purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
· transactions other than on these exchanges or systems or in the over-the-counter market;
· through the writing of options, whether such options are listed on an options exchange or otherwise;
· an exchange distribution in accordance with the rules of the applicable exchange;
· privately negotiated transactions;
· short sales;
· broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;
· a combination of any such methods of sale; and
· any other method permitted pursuant to applicable law.

 

The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus. Rule 144 under the Securities Act, which generally permits the resale, subject to various terms and conditions, of restricted securities after they have been held for six months will not immediately apply to our common stock because we were at one time designated as a “shell company” under SEC regulations. Pursuant to Rule 144(i), securities issued by a current or former shell company that otherwise meet the holding period and other requirements of Rule 144 nevertheless cannot be sold in reliance on Rule 144 until one year after the date on which the issuer filed current “Form 10 information” (as defined in Rule 144(i)) with the SEC reflecting that it ceased being a shell company, and provided that at the time of a proposed sale pursuant to Rule 144, the issuer has satisfied certain reporting requirements under the Exchange Act.

 

The selling stockholders may also engage in short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades.

 

Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. Any profits on the resale of shares of our common stock by a broker-dealer acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by a selling stockholder. The selling stockholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.

 

 
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In connection with the sale of the shares of our common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of our common stock in the course of hedging in positions they assume. The selling stockholders may also sell shares of our common stock short and deliver shares of our common stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge shares of our common stock to broker-dealers that in turn may sell such shares.

 

The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares of our common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of our common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.

 

The selling stockholders also may transfer the shares of our common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares of our common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgees, transferees or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer and donate the shares of our common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

 

The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions paid, or any discounts or concessions allowed to, such broker-dealers or agents and any profit realized on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares of our common stock is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of shares of our common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling stockholders and any discounts, commissions or concessions allowed or re-allowed or paid to broker-dealers. Under the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of our common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. There can be no assurance that any selling stockholder will sell any or all of the shares of our common stock registered pursuant to the shelf registration statement, of which this prospectus forms a part.

 

Each selling stockholder has informed us that it does not have any agreement or understanding, directly or indirectly, with any person to distribute our common stock. None of the selling stockholders who are affiliates of broker-dealers, other than the initial purchasers in private transactions, purchased the shares of common stock outside of the ordinary course of business or, at the time of the purchase of the common stock, had any agreements, plans or understandings, directly or indirectly, with any person to distribute the securities.

 

 
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We are required to pay all fees and expenses incident to the registration of the shares of common stock. Except as provided for indemnification of the selling stockholders, we are not obligated to pay any of the expenses of any attorney or other advisor engaged by a selling stockholder. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

If we are notified by any selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, we will file a post-effective amendment to the registration statement. If the selling stockholders use this prospectus for any sale of the shares of our common stock, they will be subject to the prospectus delivery requirements of the Securities Act.

 

The anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of our common stock and activities of the selling stockholders, which may limit the timing of purchases and sales of any of the shares of common stock by the selling stockholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in passive market-making activities with respect to the shares of common stock. Passive market making involves transactions in which a market maker acts as both our underwriter and as a purchaser of our common stock in the secondary market. All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the shares of common stock.

 

Once sold under the registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.

 

USE OF PROCEEDS

 

We will not receive proceeds from sales of our common stock made under this prospectus.

 

DETERMINATION OF OFFERING PRICE

 

There currently is no public market for our common stock. The selling stockholders will determine at what price they may sell the offered shares, and such sales may be made at prevailing market prices or at privately negotiated prices. See “Plan of Distribution” below for more information.

 

LEGAL MATTERS AND INTERESTS OF NAMED EXPERTS

 

The validity of the securities being offered by this prospectus will be passed upon for us by Carmel, Milazzo & DiChiara LLP located in New York, New York.

 

 
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* Shares

 

Common Stock

 

PROSPECTUS

 

_____________, 2017

 

 

 

 

 

 

 

 

 
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PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13. Other Expenses of Issuance and Distribution.

 

The following is an itemized statement of all expenses, all of which we will pay, in connection with the registration of the common stock offered hereby:

 

 

 

 

Amount

 

SEC registration fee

 

 

 $

 

Printing fees

 

 

2,500 *

Legal fees

 

 

150,000 *

Accounting fees and expenses

 

 

100,000 *

Transfer Agent Fees and Expenses

 

 

*

Miscellaneous Fees and Expenses

 

 

*

Total

 

$ 252,500 *

________

* Estimated.

 

Item 14. Indemnification of Directors and Officers.

 

The Company’s Articles of Incorporation provide that to the fullest extent permitted by the Company’s bylaws (the “Bylaws”) or the Utah Revised Business Corporation Act (the “Act”), or any other applicable law, as either may be amended, a director shall have no liability to the Company or its shareholders for monetary damages for conduct, any action taken, or any failure to take any action as a director. As permitted by the Act, directors will not be personally liable to the Company or the Company’s shareholders for monetary damages for any action taken or any failure to take action as a director except liability for (a) the amount of a financial benefit received by a director to which he’s not entitled; (b) an intentional infliction of harm on the Company or its shareholders; (c) an unlawful distribution in violation of Section 16-10a-842 of the Act; or (d) an intentional violation of criminal law.

 

These limitations of liability do not alter director liability under the federal securities laws and do not affect the availability of equitable remedies, such as an injunction or rescission.

 

In addition, the Bylaws provide that:

 

 

· the Company will indemnify its directors to the fullest extent permitted by the Act, including advancing expenses in connection with legal proceedings, subject to limited exceptions; and

 

 

 

 

· the Company may, to the extent permitted by the Act, by action of its board of directors, agree to indemnify officers, employees and other agents of the Company and may advance expenses to such persons.

 

The Company has entered into indemnification agreements with each of the Company’s executive officers and directors. These agreements provide that, subject to limited exceptions and among other things, the Company will indemnify each of its executive officers and directors to the fullest extent permitted by law and advance expenses to each indemnity in connection with any proceeding in which a right to indemnification is available.

 

The Company maintains general liability insurance that covers certain liabilities of its directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers, including liabilities under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons who control the Company, the Company has been informed that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

These provisions may discourage shareholders from bringing a lawsuit against the Company’s directors for breach of their fiduciary duty, or may have the practical effect in some cases of eliminating the Company’s shareholders’ ability to collect monetary damages from its directors and officers. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit the Company and its shareholders. Furthermore, a shareholder’s investment may be adversely affected to the extent the Company pays the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

 

 
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Item 15. Recent Sales of Unregistered Securities.

 

During the past three years, the registrant has issued and sold the following unregistered securities:

 

The following sets forth all securities issued by us within the past three years without registration under the Securities Act. No underwriters were involved in any of the stock issuances and, unless otherwise noted, no commissions were paid in connection therewith. In each of the following transactions, we relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof, except as indicated otherwise.

 

Effective April 20, 2013, we entered into a subscription agreement with an accredited foreign investor for the sale of 15,000,000 shares of our common stock at a purchase price of $0.083 per share. The proceeds from the sale of our stock aggregated $1,250,000 were paid to the Company over a fifteen month period. In the transaction, we relied on the exemption from registration under the Securities Act set forth in Section 4(2) and Regulation S thereof.

 

In June 2014, we entered into a subscription agreement with an accredited investor for the sale of 500,000 shares of our common stock in consideration of the payment of $100,000 or $0.20 per share. In the transaction, we relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof.

 

Effective November 1, 2014, we authorized additional investment by our accredited foreign investor pursuant to the April 20, 2013 subscription agreement and pursuant to that authorization we sold 8,622,176 shares in consideration of the payment of $500,000 or $0.058 per share. In the transaction, we relied on the exemption from registration under the Securities Act set forth in Section 4(2) and Regulation S thereof.

 

On December 1, 2015, we issued 4,000,000 shares of our common stock to a consultant pursuant to a written contract for services performed pursuant to the contract. The consultants is a foreign entity. The consultant is an accredited investor and was fully informed regarding the transaction. We relied on the exemption from registration under the Securities Act set forth in Section 4(2).

 

On January 15, 2015, we granted options to ten employees pursuant to our 2015 Long Term Incentive Plan to acquire up to an aggregate of 1,550,000 shares of our common stock at $0.05 per share, but not less than the fair market value on the date of grant. In the transaction, we relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof.

 

On January 22, 2015, we entered into a Stock Exchange Agreement with the sole shareholder of DNA Logix, Inc. to acquire all of the issued and outstanding shares of stock of DNA Logix. Pursuant to the agreement we issued 6,420,000 shares of common stock in consideration of all of the shares of DNA Logix. The sole shareholder is a member of our board of directors and was fully informed concerning the transaction. In the transaction, we relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof.

 

On May 5, 2015, we amended the subscription agreement with our accredited foreign investor to provide for an additional $500,000 of investment at $0.058 per share. We issued 3,447,564 shares in consideration of the payment of $199,985. In the transaction, the investor was fully informed concerning the loan. We relied on the exemption from registration under the Securities Act set forth in Section 4(2) and Regulation S thereof.

 

On May 15, 2015, we entered into a convertible note with an accredited investor. The convertible note was in the principal amount of $500,000 with interest payable monthly at the rate of 12% per annum with the convertible note due and payable on April 30, 2016. The investor withheld 2% as a financing fee from the proceeds of the note and we received total proceeds of $490,000. The note is convertible into common stock of the Company at a conversion price of the lower of $0.75 per share or 20% less than the offering price of an initial public offering should one take place during the term of the convertible note. In September 2016, we replaced the convertible note with a new convertible note in the principal amount of $564,250 that includes $64,250 of accrued interest and bears interest at the rate of 15% per annum. In addition, the holder agreed to subordinate its interest to the bridge lender described below, convert all or a portion of its note in this offering, and will receive a warrant exercisable into a number of warrants equal to 50% of the shares received on conversion of its note. The warrants have a five year life and are exercisable at the price of shares in this offering. In the transaction, we relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof.

  

 
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On August 1, 2015, we entered into a revolving line of credit promissory note in the principal amount of $750,000 with a foreign shareholder of ours which is an accredited investor. The note bears interest at the rate of 12% per annum. To date we have received $609,940 in advances under the line of credit. On September 14, 2016 we amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if we were to file a Registration Statement before December 31, 2016. The investor was fully informed concerning the loan. We relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof.

 

On November 12, 2015, we entered into a convertible note with a limited liability company, which is an accredited investor and a principal shareholder of ours. The convertible note was in the principal amount of $100,000 with interest payable at the rate of 8.5% per annum with the convertible note due and payable on September 30, 2017. The note is convertible into common stock of the Company at a conversion price of the lower of $1.00 per share or 20% less than the offering price of an initial public offering should one take place during the term of the convertible note. In addition, we issued warrants to the note holder to purchase up to 50,000 shares of our common stock at an exercise price of $1.50 or the offering price of an initial public offering should one occur during the term of the warrant, whichever is less. The warrant has a five year term. In the transaction, we relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof.

 

On December 1, 2015, we entered into a convertible note with an accredited investor. The convertible note was in the principal amount of $100,000 with interest payable at the rate of 8.5% per annum with the convertible note due and payable on September 30, 2017. The note is convertible into common stock of the Company at a conversion price of the lower of $1.00 per share or 20% less than the offering price of an initial public offering should one take place during the term of the convertible note. In addition, we issued warrants to the note holder to purchase up to 50,000 shares of our common stock at an exercise price of $1.50 or the offering price of an initial public offering should one occur during the term of the warrant, whichever is less. The warrant has a five year term. In the transaction, we relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof.

 

On December 30, 2015, we entered into a revolving line of credit promissory note with a limited liability company in the principal amount of $100,000. The investor is an accredited investor. The note bears interest at the rate of 12% per annum. To date we have received $86,000 in advances under the line of credit. On September 14, 2016 we amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if we were to file a Registration Statement before December 31, 2016. The investor was fully informed concerning the loan. We relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof.

 

On January 15, 2016, we granted options to eleven employees pursuant to our 2015 Long Term Incentive Plan to acquire up to an aggregate of 1,800,000 shares of our common stock at $0.05 per share, but not less than the fair market value on the date of grant. In the transaction, we relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof.

 

On February 22, 2016, we entered into a promissory note in the principal amount of $10,000 with a corporation. The note bears interest at the rate of 12% per annum. On September 14, 2016 we amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if we were to file a Registration Statement before December 31, 2016. The investor was fully informed concerning the loan. We relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof.

 

On March 1, 2016, we entered into a revolving line of credit promissory note with a limited liability company in the principal amount of $100,000. The investor is an accredited investor and a principal shareholder of ours. The note bears interest at the rate of 12% per annum. To date we have received $80,000 in advances under the line of credit. On September 14, 2016 we amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if we were to file a Registration Statement before December 31, 2016. The investor was fully informed concerning the loan. We relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof.

 

On May 15, 2016, we entered into a revolving line of credit promissory note with a corporation in the principal amount of $75,000. The note bears interest at the rate of 12% per annum. To date we have received $66,000 in advances under the line of credit. On September 14, 2016 we amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if we were to file a Registration Statement before December 31, 2016. The investor was fully informed concerning the loan. We relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof.

  

 
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On May 30, 2016, we entered into a revolving line of credit promissory note with a trust in the principal amount of $50,000. The note bears interest at the rate of 12% per annum. To date we have received $41,500 in advances under the line of credit. On September 14, 2016 we amended the note to provide that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if we were to file a Registration Statement before December 31, 2016. The investor was fully informed concerning the loan. We relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof.

 

On August 18, 2016 and on August 25, 2016, we entered into two convertible promissory notes in the principal amounts of $10,000 and $15,000, respectively, with a limited liability company, which is an accredited investor. The notes bear interest at the rate of 10% per annum. The notes provide that the principal and interest on the notes would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 15% to the conversion price of a bridge financing anticipated to close prior to filing a Registration Statement, which bridge financing was completed on December 12, 2016. The investor was fully informed concerning the loans. We relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof.

 

On September 1, 2016, we entered into a convertible promissory note in the principal amount of $200,000, with an individual who is an accredited investor. The note bears interest at the rate of 10% per annum. The note provides that the principal and interest on the note would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 15% to the conversion price of a bridge financing anticipated to close prior to filing a Registration Statement, which bridge financing was completed on December 12, 2016. The investor was fully informed concerning the loan. We relied on the exemption from registration under the Securities Act set forth in Section 4(2) thereof.

 

In November and December, 2016, we entered into three convertible promissory notes in the principal amounts of $50,000, $40,000 and $15,000, respectively, with three individuals. The notes bear interest at the rate of 10% per annum. The notes provide that the principal and interest on the notes would be convertible to shares of common stock at a conversion rate of $0.75 per share or a discount of 30% to the price of an IPO if we were to file a Registration Statement before December 31, 2016.

 

Bridge Notes

 

In December 2016, the Company entered into convertible promissory notes with six individuals and five companies, in the aggregate principal amount of $1,683,500, which consisted of (a) $1,100,000 of new investor funding and (b) $583,500 representing the satisfaction of the $500,000 note principal plus $83,500 of accrued interest on the Beaufort Capital Partners, LLC Convertible Note. The notes bear interest at the rate of 15% per annum and are due in June 2017. The notes provide that the principal and interest on the notes would be convertible to shares of common stock at a conversion rate of $0.75 per share or seventy percent (70%) of the initial public offering (“IPO”) price per share or, if the IPO has not occurred by the Maturity Date, 70% of the Company’s initial public offering (“IPO”) price per share or, if the IPO has not occurred by June 12, 2017, 85% of the offering price of the Company's next bona fide sale of its preferred stock or common stock in excess of $1,000,000. The notes are secured by all of the assets of the Company.

 

The note holders also received warrants to purchase up to 50% of the shares receivable upon conversion of the senior notes at a price of eighty-five percent (85%) of the Company’s IPO price per share or, if the IPO has not occurred by June 12, 2017, 85% of the offering price of the Company's next bona fide sale of its preferred stock or common stock in excess of $1,000,000.. The warrants expire in December 2021.

 

Upon any default of the notes for non-payment, any bankruptcy event or breach of the note or other transaction documents, the Company may be liable to pay a default redemption amount equal to 130% of the amount due under the note and deliver an additional warrant to purchase 50% of the common stock issuable upon conversion of the notes.

   

Item 16. Exhibits and Financial Statement Schedules.

 

The following exhibits are filed as part of this registration statement.

 

In reviewing the agreements included (or incorporated by reference) as exhibits to this registration statement, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about us or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:

 

 

· should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

 

 

 

 

· have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

 

 

 

 

· may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

 

 

 

 

· were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about us may be found elsewhere in this registration statement and our other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

 

 
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ITEM 16. Exhibits and Financial Statement Schedules

 

(a) Exhibits

 

Exhibit

 

Number Description

 

1.1

 

Underwriting Agreement ***

 

3.1

 

Articles of Incorporation **

 

3.1.1

 

Amendment to the Articles of Incorporation **

 

3.2

 

Bylaws

 

5.1

 

Legal Opinion of Carmel, Milazzo & DiChiara LLP ***

 

10.1

 

Subscription Agreement between Co-Diagnostics, Inc. and Turks and Caicos Islands, dated April 30, 2013 **

 

10.1.1

 

Amendment to Subscription Agreement between Co-Diagnostics, Inc. and Turks and Caicos Islands, dated May 1, 2015 **

 

10.2

 

Exclusive Agreement between Co-Diagnostics, Inc. and DNA Logix, Inc., dated April 18, 2014 **

 

10.3

 

Stock Exchange Agreement among Co-Diagnostics, Inc., DNA Logix, Inc., and the Shareholders of DNA Logix, Inc., dates January 22, 2015 **

 

10.4

 

Revolving Line of Credit Promissory Note between Co-Diagnostics, Inc. and Co-Diagnostics, LTD, dated August 1, 2015 **

 

10.5

 

10% Convertible Note between Co-Diagnostics, Inc. and Robert Salna for $200,000, dated September 1, 2016 **

 

10.6

 

Exclusive License Agreement between Co-Diagnostics, Inc. and Watermark Group Inc., dated October 13, 2016 **

 

10.7

 

Securities Purchase Agreement with Exhibits between Co-Diagnostics and Senior Holders, dated December 12, 2016 **

 

10.8

 

Securities Purchase Agreement with Exhibits between Co-Diagnostics and Beaufort Capital Partners, LLC, dated December 12, 2016 **

 

10.9

 

2015 Long-Term Incentive Plan

 

10.10

 

Subscription Agreement between Co-Diagnostics and Turks and Caicos Islands for 5,000,000 shares of Co-Diagnostic’s common stock, dated April 20, 2013

 

10.11

 

Subscription Agreement between Co-Diagnostics and Prosperity Investments for $100,000, dated June 2014.

 

10.12

 

12% Convertible Note between Co-Diagnostics and Beaufort Capital Partners, LLC for $500,000, dated May 15, 2015.

 

10.13

 

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.

 
 
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10.13.1

 

Amendment to 12% Revolving Line of Credit Promissory Note, dated August 1, 2015, between Co-Diagnostics and Turks and Caicos Limited Company for $750,000, dated September 14, 2016.

 

10.13.2

 

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.

 

10.13.3

 

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.

 

10.13.4

 

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.

 

10.13.5

 

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.

 

10.13.6

 

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.

 

10.14

 

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.

 

10.15

 

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.

 

10.16

 

Shareholders’ Agreement between Co-Diagnostics and Synbiotics Limited, dated January 27, 2017.

 

10.17

 

Amended Exclusive License Agreement between Co-Diagnostics, Brent Satterfield, and DNA Logix, Inc., dated January 1, 2017.

 

10.18

 

Stock Purchase Agreement between Co-Diagnostics and Ted Murphy for 19,800,000 shares of Watermark Group, Inc.’s common stock, dated September 22, 2016.

 

10.19

 

Non-Interest Bearing Note between Co-Diagnostics and Zika Diagnostics, Inc. f/k/a/ Watermark Group, Inc. for $445,000, dated March 20, 2017.

 

10.20

 

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.

 

14.1

 

Code of Ethics of the Company ***

 

21.1

 

Subsidiaries of Registrant

 

23.1

 

Consent of Haynie & Company

 

23.2

 

Consent of Carmel, Milazzo & DiChiara LLP ***

____________

* Management contract or compensatory plan or arrangement.

** Previously filed

*** To be filed by amendment

 

(b) Financial Statement Schedules

 

All financial statement schedules not included in Co-Diagnostic’s consolidated financial statements are omitted since the information is either not applicable, deemed immaterial, or is shown in the consolidated financial statements or in the notes thereto.

 

* Management contract or compensatory plan or arrangement.

 

 
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Item 17. Undertakings.

 

(a) The undersigned registrant hereby undertakes:

 

 

 

1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

 

 

 

i. To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

 

 

 

 

ii.

To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

 

 

 

 

iii. To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; and

 

 

 

 

iv. To provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

 

 

 

 

2. That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

 

  

 

3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

 

 

(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by the registrant of expenses incurred and paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding, is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

 

 

(c) Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness; provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

 
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SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in Salt Lake City, Utah, on April 28, 2017.

  
  CODIAGNOSTICS, INC.
       
By: /s/ Dwight Egan

 

 

Dwight Egan  
    Chief Executive Officer, President and Director (Principal Executive Officer and Interim Principal Financial and Accounting Officer)  

 

 

 

 

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on April 28, 2017.

 

 

 

 

 

By:

/s/ Dwight H. Egan

 

 

 

Dwight H. Egan

 

 

 

Chief Executive Officer, President and Chairman of the Board (Principal Executive Officer)

 

 

 

 

 

 

By:

/s/ Reed L Benson

 

 

 

Reed L Benson

 

 

 

Chief Financial Officer, Secretary and Director (Principal Financial and Accounting Officer

 

 

 

 

 

 

By:

/s/ Brent Satterfield

 

 

 

Brent Satterfield

 

 

 

Chief Science Officer and Director

 

 

 

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EXHIBIT 10.9

 

CO-DIAGNOSTICS, INC.

2015 LONG TERM INCENTIVE PLAN

 

1. GENERAL

 

1. Purpose . The Co-Diagnostics, Inc. 2015 Long Term Incentive Plan (the “Plan”) has been established by Co-Diagnostics, Inc. (the “Company”) to:

 

(1) attract and retain key executive and managerial employees of the Company;

 

(2) attract and retain directors, independent contractors and consultants;

 

(3) motivate Participants by means of appropriate incentives to achieve long-range goals;

 

(4) provide incentive compensation opportunities that are competitive with those of comparable corporations; and

 

(5) further identify Participants’ interests with those of the Company’s other shareholders through compensation alternatives based on the Company’s common stock;

 

and thereby promote the long-term financial interest of the Company and its Subsidiaries (if any), including the growth in value of the Company’s equity and enhancement of long-term shareholder return.

 

2. Effective Date . The Plan shall be effective as of January 1, 2015. The Plan shall terminate on December 31, 2025, the tenth anniversary of the Plan’s effective date.

 

3. Definitions . The following definitions are applicable to the Plan.

 

(1) “Option Grant Certificate” means a written agreement between the Company and a Participant documenting an award under this Plan.

 

(2) “Board” means the Board of Directors of the Company.

 

(3) “Change of Control” has the meaning ascribed to it in Section 1.11.

 

(4) “Code” means the Internal Revenue Code of 1986, as amended.

 

(5) “Committee” means the Compensation Committee of the Board.

 

(6) “Disabled” means the inability of a Participant, by reason of a physical or mental impairment, to engage in any substantial gainful activity, of which the Board shall be the sole judge.

 

 
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(7) “Fair Market Value” of any share of Stock means (i) if the Stock is listed on a national securities exchange, the closing price on the Stock on a given date; (ii) if the Stock is traded on an exchange or market in which prices are reported on a bid and asked price, the mean between the high bid and low asked price, at the closing, for the Stock on a given date; and (iii) if the Stock is not listed on a national securities exchange nor traded on the over-the-counter market, such value as the Committee, in good faith, shall determine.

 

(8) “1934 Act” means the Securities Exchange Act of 1934, as amended, or any successor statute.

 

(9) “Option Date” means, with respect to any Stock Option, the date on which the Stock Option is awarded under the Plan.

 

(10) “Participant” means (i) any employee of the Company or any Subsidiary (meaning an employee who works twenty (20) hours or more per week) who is selected by the Committee to participate in the Plan, or (ii) any consultant, independent contractor or director of the Company or any Subsidiary.

 

(11) “Performance Award” has the meaning ascribed to it in Article VI.

 

(12) “Performance Period” has the meaning ascribed to it in Article VI.

 

(13) “Related Company” means any corporation during any period in which it is a Subsidiary, or during any period in which it directly or indirectly owns fifty percent (50%) or more of the total combined voting power of all classes of securities that are entitled to vote.

 

(14) “Restricted Period” has the meaning ascribed to it in Article V.

 

(15) “Restricted Stock” has the meaning ascribed to it in Article V.

 

(16) “Retirement” means (i) termination of employment in accordance with the retirement procedures set by the Company from time to time; (ii) termination of employment because a participant becomes Disabled; or (iii) termination of employment voluntarily with the consent of the Company (of which the Board shall be the sole judge).

 

(17) “Stock” means the common stock, $.001 par value per share, of Co-Diagnostics, Inc.

 

(18) “Stock Appreciation Right” means the right of a holder of a Stock Option to receive Stock or cash as described in Article IV.

 

 
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(19) “Stock Option” means the right of a Participant to purchase Stock pursuant to an Incentive Stock Option, a Non-Qualified Option or a Reload Option awarded pursuant to the provisions of the Plan.

 

(20) “Subsidiary” means any corporation during any period of which fifty percent (50%) or more of the total combined voting power of all classes of securities entitled to vote is owned, directly or indirectly, by the Company.

 

4. Administration . The authority to manage and control the operation and administration of the Plan shall be vested in the Board. Subject to the provisions of the Plan, the Board will have authority to select employees to receive awards of Stock Options, with or without tandem Stock Appreciation Rights, Performance Awards and/or Restricted Stock, to determine the time or times of receipt, to determine the types of awards and the number of shares covered by the awards, to establish the terms, conditions, performance criteria, restrictions, and other provisions of such awards, and to amend, modify or suspend awards. In making such award determinations, the Board may take into account the nature of services rendered by the respective employee, his or her present and potential contribution to the Company=s success and such other factors as the Board deems relevant.

 

The Board is authorized to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any agreements made pursuant to the Plan, to modify such agreements, and to make all other determinations that may be necessary or advisable for the administration of the Plan. With respect to persons subject to Section 16 of the 1934 Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successor rule or statute under the 1934 Act. To the extent any provision of the Plan or action by the Board of Directors or the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law.

 

The Board, in its discretion, may delegate any or all of its authority, powers and discretion under this Plan to the Committee, and the Board in its discretion may revest any or all such authority, powers and discretion in itself at any time. If any or all of the authority, powers and discretion under this Plan are delegated to the Committee and the Company has registered any of its equity securities under Section 12 of the 1934 Act, the Committee shall consist solely of two or more non-employee directors (as defined in Rule 16b-3 under the 1934 Act) until such time as such other requirements are imposed by applicable law. If appointed, the Committee shall function as follows: A majority of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by all members of the Committee, shall be the acts of the Committee, unless provisions to the contrary are embodied in the Company=s Bylaws or resolutions duly adopted by the Board. All actions taken and decisions and determinations made by the Board or the Committee pursuant to the Plan shall be binding and conclusive on all persons interested in the Plan. No member of the Board or the Committee shall be liable for any action or determination taken or made in good faith with respect to the Plan.

 

 
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5. Participation . Subject to the terms and conditions of the Plan, the Board shall determine and designate, from time to time, (i) the full-time employees of the Company and/or its Subsidiaries who will participate in the Plan, and (ii) any consultants, independent contractors or directors of the Company and/or its Subsidiaries who will participate in the Plan. In the discretion of the Board, a Participant may be awarded Stock Options with or without tandem Stock Appreciation Rights, Performance Units or Restricted Stock or any combination thereof, and more than one award may be granted to a Participant; provided, however, that Incentive Stock Options shall not be awarded to Participants who are not employees of the Company. Except as otherwise agreed to by the Company and the Participant, any award under the Plan shall not affect any previous award to the Participant under the Plan or any other plan maintained by the Company or its Subsidiaries.

 

6. Shares Subject to the Plan . The shares of Stock with respect to which awards may be made under the Plan shall be either authorized and unissued shares or issued and outstanding shares (including, in the discretion of the Board, shares purchased in the market). Subject to the provisions of Section 1.10, the number of shares of Stock available under the Plan for the grant of Stock Options with or without tandem Stock Appreciation Rights, Performance Units and Restricted Stock shall not exceed 6,000,000 shares in the aggregate. If, for any reason, any award under the Plan or any portion of the award, shall expire, terminate or be forfeited or canceled, or be settled in cash pursuant to the terms of the Plan and, therefore, any such shares are no longer distributable under the award, such shares of Stock shall again be available for award under the Plan.

 

7. Compliance With Applicable Laws and Withholding of Taxes .

 

(1) Notwithstanding any other provision of the Plan, the Company shall have no liability to issue any shares of Stock under the Plan unless such issuance would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity. Prior to the issuance of any shares of Stock under the Plan, the Company may require a written statement that the recipient is acquiring the shares for investment and not for the purpose or with the intention of distributing the shares.

 

(2) All awards and payments under the Plan are subject to withholding of all applicable taxes, which withholding obligations may be satisfied, with the consent of the Board, through the surrender of shares of Stock that the Participant already owns, or to which a Participant is otherwise entitled under the Plan. The Company shall have the right to deduct from all amounts paid in cash in consequence of the exercise of a Stock Option, Performance Unit or Stock Appreciation Right or in connection with an award of Restricted Stock under the Plan any taxes required by law to be withheld with respect to such cash payments. Where an employee or other person is entitled to receive shares of Stock pursuant to the exercise of a Stock Option, a Performance Unit or a Stock Appreciation Right pursuant to the Plan, the Company shall have the right to require the employee or such other person to pay to the Company the amount of any taxes that the Company is required to withhold with respect to such shares, or, in lieu thereof, to retain, or sell without notice, a sufficient number of such shares to cover the amount required to be withheld.

 

 
4
 
 

 

(3) Upon the disposition (within the meaning of Code Section 424(c)) of shares of Stock acquired pursuant to the exercise of an Incentive Stock Option prior to the expiration of the holding period requirements of Code Section 422(a)(1), the employee shall be required to give notice to the Company of such disposition and the Company shall have the right to require the employee to pay to the Company the amount of any taxes that are required by law to be withheld with respect to such disposition.

 

(4) Upon termination of the Restricted Period with respect to an award of Restricted Stock (or such earlier time, if any, as an election is made by the employee under Code Section 83(b), or any successor provisions thereto, to include the value of such shares in taxable income), the Company shall have the right to require the employee or other person receiving shares of Stock in respect of such Restricted Stock award to pay to the Company the amount of taxes that the Company is required to withhold with respect to such shares of Stock or, in lieu thereof, to retain or sell without notice a sufficient number of shares of Stock held by it to cover the amount required to be withheld. The Company shall have the right to deduct from all dividends paid with respect to Restricted Stock the amount of taxes that the Company is required to withhold with respect to such dividend payments.

 

8. Transferability . Performance Awards, Incentive Stock Options with or without tandem Stock Appreciation Rights, and, during the period of restriction, Restricted Stock awarded under the Plan are not assignable or transferable except as designated by the Participant by will or by the laws of descent and distribution. Incentive Stock Options may be exercised during the lifetime of the Participant only by the Participant or his guardian or legal representative.

 

9. Employee and Stockholder Status . The Plan does not constitute a contract of employment, and selection as a Participant will not give any employee the right to be retained in the employ of the Company or any Subsidiary or any director or consultant the right to continue to provide services to the Company or any Subsidiary. No award under the Plan shall confer upon the holder thereof any right as a stockholder of the Company prior to the date on which he fulfills all service requirements and other conditions for receipt of shares of Stock. If the redistribution of shares is restricted pursuant to Section 1.7, certificates representing such shares may bear a legend referring to such restrictions.

 

10. Adjustments to Number of Shares Subject to the Plan . In the event of any change in the outstanding shares of Stock of the Company by reason of any stock dividend, split, spinoff, recapitalization, merger, consolidation, combination, extraordinary dividend, exchange of shares or other similar change, the aggregate number of shares of Stock with respect to which awards may be made under the Plan, the terms and the number of shares of any outstanding Stock Options, Stock Appreciation Rights, Performance Units and Restricted Stock, and the purchase price of a share of Stock under Stock Options, may be equitably adjusted by the Board in its sole discretion.

 

 
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11. Business Combinations . In addition to the rights and obligations of the Committee to modify, adjust or accelerate exercisability of outstanding options, in the event that, while any Stock Options, Stock Appreciation Rights, Performance Units or Restricted Shares are outstanding under the Plan, there shall occur (i) a merger or consolidation of the Company with or into another corporation in which the Company shall not be the surviving corporation (for purposes of this Section 1.11, the Company shall not be deemed the surviving corporation in any such transaction if, as the result thereof, the existing shareholders of the Company hold less than 51% of the outstanding stock of the Company), (ii) a dissolution of the Company, or (iii) a transfer of all or substantially all of the assets or shares of stock of the Company in one transaction or a series of related transactions to one or more other persons or entities (any of the foregoing events as described in (i)-(iii) above, a “Change of Control”), then, with respect to each Stock Option, Stock Appreciation Right, Performance Unit and share of Restricted Stock outstanding immediately prior to the consummation of such transaction and without the necessity of any action by the Committee:

 

(1) If provision is made in writing in connection with such transaction for the continuance and/or assumption of the Stock Options, Stock Appreciation Rights, Performance Units and Restricted Shares granted under the Plan, or the substitution for such Stock Options, Stock Appreciation Rights, Performance Units and Restricted Shares of new Stock Options, Stock Appreciation Rights, Performance Units and Restricted Shares, with appropriate adjustment as to the number and kind of shares or other securities deliverable with respect thereto, the Stock Options, Stock Appreciation Rights, Performance Units and Restricted Shares granted under the Plan, or the new Stock Options, Stock Appreciation Rights, Performance Units and Restricted Shares substituted therefor, shall continue, subject to such adjustment, in the manner and under the terms provided in the respective agreements.

 

(2) In the event provision is not made in connection with such transaction for the continuance and/or assumption of the Stock Options, Stock Appreciation Rights, Performance Units and Restricted Shares granted under the Plan, or for the substitution of equivalent options, rights, units and awards, then (i) each holder of an outstanding option shall be entitled, immediately prior to the effective date of such transaction, to purchase the full number of shares that he or she would otherwise have been entitled to purchase during the entire remaining term of the option; (ii) the holder of any right or unit shall be entitled, immediately prior to the effective date of such transaction, to exercise such right to the extent the related option is or becomes exercisable at such time in accordance with its terms; (iii) all restrictions on any award of Restricted Shares shall lapse, and (iv) any restriction or risk of forfeiture imposed under the Plan shall lapse immediately prior to the effective date of such transaction. The unexercised portion of any option or right shall be deemed canceled and terminated as of the effective date of such transaction.

 

12. Agreement With Company . At the time of any awards under the Plan, the Board will require a Participant to enter into an agreement with the Company in a form specified by the Board (the “Option Grant Certificate”), agreeing to the terms and conditions of the Plan and to such additional terms and conditions, not inconsistent with the Plan, as the Board may, in its sole discretion, prescribe.

 

 
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13. Amendment and Termination of Plan . Subject to the following provisions of this Section 13, the Board may at any time and in any way amend, suspend or terminate the Plan. No amendment of the Plan and, except as provided in Section 1.10, no action by the Board shall, without further approval of the stockholders of the Company, increase the total number of shares of Stock with respect to which awards may be made under the Plan, materially increase the benefits accruing to Participants under the Plan or materially modify the requirements as to eligibility for participation in the Plan, if stockholder approval of such amendment is a condition of Securities and Exchange Commission Rule 16b-3 or its successor rule or statute, the Code or any exchange or market system on which the Stock is listed at the time such amendment is adopted. No amendment, suspension or termination of the Plan shall alter or impair any Stock Option with or without tandem Stock Appreciation Right, Performance Award or share of Restricted Stock previously awarded under the Plan without the consent of the holder thereof.

 

2. INCENTIVE STOCK OPTIONS

 

1. Definition . The award of an Incentive Stock Option under the Plan entitles the Participant to purchase shares of Stock at a price fixed at the time the option is awarded, subject to the following terms of this Article II.

 

2. Eligibility . The Board shall designate the Participants to whom Incentive Stock Options, as described in Code Section 422(b) or any successor section thereto, are to be awarded under the Plan and shall determine the number of option shares to be offered to each of them. Incentive Stock Options may be awarded only to employees.

 

3. Price . The purchase price of a share of Stock under each Incentive Stock Option shall be determined by the Board, provided, however, that in no event shall such price be less than the greater of (i) 100% of the Fair Market Value of a share of Stock as of the Option Date (or 110% of such Fair Market Value if the holder of the option owns stock possessing more than 10% of the combined voting power of all classes of stock of the Company or any Subsidiary) or (ii) the par value of a share of Stock on such date. To the extent provided by the Board, the full purchase price of each share of Stock purchased upon the exercise of any Incentive Stock Option shall be paid in cash or in shares of Stock (valued at Fair Market Value as of the day of exercise), or in any combination thereof, at the time of such exercise and, as soon as practicable thereafter, a certificate representing the shares so purchased shall be delivered to the person entitled thereto.

 

4. Exercise . Each Option shall become and be exercisable at such time or times and during such period or periods, in full or in such installments as may be determined by the Board at the Option Date. In addition, if permitted by the Board or the terms of the Option Grant Certificate evidencing such Stock Option, Participants may elect to pay the purchase price of shares of Stock purchased upon the exercise of Incentive Stock Options in cash or through delivery at the time of such exercise of shares of Stock (valued at Fair Market Value as of the date of exercise) already owned by the Participant, or any combination thereof, equivalent to the purchase price of such Incentive Stock Options. A Participant’s payment of the purchase price in connection with the exercise of an Incentive Stock Option through delivery of share of Stock (“ISO Stock”) that were acquired through the exercise of an Incentive Stock Option and that have not been held for more than one year will be considered a disposition (within the meaning of Code Section 422(c)) of ISO Stock, resulting in the disqualification of the ISO Stock from treatment as an Incentive Stock Option under Code Section 422, and the Participant’s recognition of ordinary income. Participants should consult with their tax advisors prior to electing to exercise an Incentive Stock Option by this method.

 

 
7
 
 

 

5. Option Expiration Date . Unless otherwise provided by the Option Grant Certificate , the “Expiration Date” with respect to an Incentive Stock Option or any portion thereof awarded to a Participant under the Plan means the earliest of:

 

(1) the date that is ten (10) years after the date on which the Incentive Stock Option is awarded (or, if the Participant owns stock possessing more than ten percent (10%) of the combined voting power of all classes of stock of the Company or any Subsidiary, the date that is five (5) years after the date on which the Incentive Stock Option is awarded);

 

(2) the date that is one year after the Participant’s employment with the Company and all Related Companies is terminated by reason of the Participant becoming Disabled or by reason of the Participant’s death; or

 

(c) thirty (30) days following the date that the Participant’s employment with the Company and all Related Companies is terminated by reasons other than death or becoming Disabled. All rights to purchase shares of Stock pursuant to an Incentive Stock Option shall cease as of such option’s Expiration Date.

 

All rights to purchase shares of Stock pursuant to an Incentive Stock Option shall cease as of such option’s Expiration Date.

 

6. Reload Options . The Committee may, in its discretion, provide in the terms of any Option Grant Certificate that if the Participant delivers shares of Stock already owned or to be received upon exercise of the Option in full or partial payment of the option price, or in full or partial payment of the tax withholding obligations incurred on account of the exercise of the Option, the Optionee shall automatically and immediately upon such exercise be granted an additional option (a “Reload Option”) to purchase the number of shares of Stock delivered by the Optionee to the Company, on such terms and conditions as the Committee may determine under the terms of the Plan. Notwithstanding the preceding, the purchase price of shares of Stock acquired under a Reload Option shall be not less than the Fair Market Value of a share of Stock on the date the Reload Option is issued.

 

3. NON-QUALIFIED STOCK OPTIONS

 

1. Definition . The award of a Non-Qualified Stock Option under the Plan entitles the Participant to purchase shares of Stock at a price fixed at the time the option is awarded, subject to the following terms of this Article III.

 

2. Eligibility . The Board shall designate the Participants to whom Non-Qualified Stock Options are to be awarded under the Plan and shall determine the number of option shares to be offered to each of them.

 

 
8
 
 

 

3. Price . The purchase price of a share of Stock under each Non-Qualified Stock Option shall be determined by the Board; provided, however, that in no event shall such price be less than the Fair Market Value of a share of Stock as of the Option Date.

 

4. Exercise . Each Option shall become and be exercisable at such time or times and during such period or periods, in full or in such installments as may be determined by the Board at the Option Date. To the extent provided by the Board, the full purchase price of each share of Stock purchased upon the exercise of any Non-Qualified Stock Option shall be paid in cash or in shares of Stock (valued at Fair Market Value as of the day of exercise), or in any combination thereof, at the time of such exercise and, as soon as practicable thereafter, a certificate representing the shares so purchased shall be delivered to the person entitled thereto. In addition, unless restricted by the Board, Participants may elect to pay the purchase price of shares of Stock purchased upon the exercise of Non-Qualified Stock Options in cash or through the constructive delivery at the time of such exercise of shares of Stock (valued at Fair Market Value as of the day of exercise) already owned by the Participant, or any combination thereof, equivalent to the purchase price of such Non-Qualified Stock Options, and, as soon as practicable thereafter, a certificate representing the net number of shares so purchased shall be delivered to the person entitled thereto. Participants also may elect to pay, unless restricted by the Board, the purchase price, in whole or in part, of shares of Stock purchased upon the exercise of Non-Qualified Options through the Company=s withholding of shares of Stock (valued at Fair Market Value as of the day of exercise) that would otherwise by issuable upon exercise of such options equivalent to the purchase price of such Non-Qualified Stock Options and, as soon as practicable thereafter, a certificate representing the net number of shares so purchased shall be delivered to the person entitled thereto.

 

5. Option Expiration Date . Unless otherwise provided in a Participants Option Grant Certificate, the “Expiration Date” with respect to a Non-Qualified Stock Option or any portion thereof awarded to a Participant under the Plan means the earliest of:

 

(a) the date that is one (1) year after the Participant=s employment with the Company and all Related Companies is terminated by reason of the Participant becoming Disabled or by reason of the Participant’s death; or

 

(b) thirty (30) days following the date that the Participant’s employment with the Company and all Related Companies is terminated by reasons other than death or becoming Disabled.

 

All rights to purchase shares of Stock pursuant to a Non-Qualified Stock Option shall cease as of such option’s Expiration Date.

 

6. Reload Options . The Committee may, in its discretion, provide in the terms of any Option Grant Certificate that if the Participant delivers shares of Stock already owned or to be received upon exercise of the Option in full or partial payment of the option price, or in full or partial payment of the tax withholding obligations incurred on account of the exercise of the Option, the Optionee shall automatically and immediately upon such exercise be granted a Reload Option to purchase the number of shares of Stock delivered by the Optionee to the Company, on such terms and conditions as the Committee may determine under the terms of the Plan. Notwithstanding the preceding, the purchase price of shares of Stock acquired under a Reload Option shall be not less than the Fair Market Value of a share of Stock on the date the Reload Option is issued.

 

 
9
 
 

 

4. STOCK APPRECIATION RIGHTS

 

1. Definition . A Stock Appreciation Right is an award that may or may not be granted in tandem with a Non-Qualified Stock Option or Incentive Stock Option, and entitles the holder to receive an amount equal to the difference between the Fair Market Value of the shares of option Stock at the time of exercise of the Stock Appreciation Right and the option price, subject to the applicable terms and conditions of the tandem options and the following provisions of this Article IV.

 

2. Eligibility . The Board may, in its discretion, award Stock Appreciation Right under this Article IV concurrent with, or subsequent to, the award of the option.

 

3. Exercise . A Stock Appreciation Right shall entitle the holder of a Stock Option to receive, upon the exercise of the Stock Appreciation Right, shares of Stock (valued at their Fair Market Value at the time of exercise), cash or a combination thereof, in the discretion of the Board, in an amount equal in value to the excess of the Fair Market Value of the shares of Stock subject to the Stock Appreciation Right as of the date of such exercise over the purchase price of the Stock Appreciation Right, as shall be prescribed by the Board in its sole discretion and as shall be contained in the Participant’s Award Agreement. If granted in tandem with an option, the exercise of a Stock Appreciation Right will result in the surrender of the related Incentive Stock Option or Non-Qualified Stock Option and, unless otherwise provided by the Board in its sole discretion, the exercise of a Stock Option will result in the surrender of a related Stock Appreciation Right, if any.

 

4. Expiration Date . The “Expiration Date” with respect to a Stock Appreciation Right shall be determined by the Board and documented in the Participant’s Option Grant Certificate, and if granted in tandem with an option, shall be not later than the Expiration Date for the related Stock Option. If neither the right nor the related Stock Option is exercised before the end of the day on which the right ceases to be exercisable, such right shall be deemed exercised as of such date and payment shall be made to the holder in cash.

 

5. RESTRICTED STOCK

 

1. Definition . Restricted Stock awards are grants of Stock to Participants, the vesting of which is subject to a required period of employment and any other conditions established by the Board.

 

2. Eligibility . The Board shall designate the Participants to whom Restricted Stock is to be awarded and the number of shares of Stock that are subject to the award.

 

 
10
 
 

 

3. Terms and Conditions of Awards . All shares of Restricted Stock awarded to Participants under the Plan shall be subject to the following terms and conditions and to such other terms and conditions, not inconsistent with the Plan, as shall be prescribed by the Board in its sole discretion and as shall be contained in the Participant’s Option Grant Certificate.

 

(a) Restricted Stock awarded to Participants may not be sold, assigned, transferred, pledged or otherwise encumbered, except as hereinafter provided, for a period of ten (10) years or such shorter period as the Board may determine, but not less than one (1) year, after the time of the award of such stock (the “Restricted Period”). Except for such restrictions, the Participant as owner of such shares shall have all the rights of a shareholder, including but not limited to the right to vote such shares and, except as otherwise provided by the Board, the right to receive all dividends paid on such shares.

 

(b) The Board may in its discretion, at any time after the date of the award of Restricted Stock, adjust the length of the Restricted Period to account for individual circumstances of a Participant or group of Participants, but in no case shall the length of the Restricted Period be less than one (1) year.

 

(c) Except as otherwise determined by the Board in its sole discretion, a Participant whose employment with the Company and all Related Companies terminates prior to the end of the Restricted Period for any reason shall forfeit all shares of Restricted Stock remaining subject to any outstanding Restricted Stock Award.

 

(d) Each certificate issued in respect of shares of Restricted Stock awarded under the Plan shall be registered in the name of the Participant and, at the discretion of the Board, each such certificate may be deposited in a bank designated by the Board. Each such certificate shall bear the following (or a similar) legend:

 

“The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) contained in the Co-Diagnostics, Inc. 2015 Long Term Incentive Plan and an agreement entered into between the registered owner and Co-Diagnostics, Inc. A copy of such plan and agreement is on file in the office of the Secretary of Co-Diagnostics, Inc. in Salt Lake City, Utah.

 

(e) At the end of the Restricted Period for Restricted Stock, such Restricted Stock will be transferred free of all restrictions to a Participant (or his or her legal representative, beneficiary or heir).

 

6. PERFORMANCE UNITS

 

1. Definition . Performance Units are awards to Participants who may receive value for the units at the end of a Performance Period. The number of units earned, and value received for them, will be contingent on the degree to which the performance measures established at the time of the initial award are met.

 

 
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2. Eligibility . The Board shall designate the Participants to whom Performance Units are to be awarded, and the number of units to be the subject of such awards.

 

3. Terms and Conditions of Awards . For each Participant, the Board will determine the timing of awards; the number of units awarded; the value of units, which may be stated either in cash or in shares of Stock; the performance measures used for determining whether the Performance Units are earned; the performance period during which the performance measures will apply; the relationship between the level of achievement of the performance measures and the degree to which Performance Units are earned; whether, during or after the performance period, any revision to the performance measures or performance period should be made to reflect significant events or changes that occur during the performance period; and the number of earned Performance Units that will be paid in cash and/or shares of Stock, as shall be prescribed by the Board in its sole discretion and as shall be contained in the Participant’s Option Grant Certificate.

 

4. Payment . The Board will compare the actual performance to the performance measures established for the performance period and determine the number of units to be paid and their value. Payment for units earned shall be wholly in cash, wholly in Stock or in a combination of the two, in a lump sum or installments, and subject to vesting requirements and such other conditions as the Board shall provide. The Board will determine the number of earned units to be paid in cash and the number to be paid in Stock. For Performance Units valued when awarded in shares of Stock, one share of Stock will be paid for each unit earned, or cash will be paid for each unit earned equal to either (i) the Fair Market Value of a share of Stock at the end of the Performance Period or (ii) the Fair Market Value of the Stock averaged for a number of days determined by the Board. For Performance Units valued when awarded in cash, the value of each unit earned will be paid in its initial cash value, or shares of Stock will be distributed based on the cash value of the units earned divided by (i) the Fair Market Value of a share of Stock at the end of the Performance Period or (ii) the Fair Market Value of a share of Stock averaged for a number of days determined by the Board.

 

5. Retirement, Death or Termination . A Participant whose employment with the Company and Related Companies terminates during a performance period because of Retirement or death shall be entitled to the prorated value of earned Performance Units, issued with respect to that performance period, at the conclusion of the performance period based on the ratio of the months employed during the period to the total months of the performance period. If the Participant=s employment with the Company and Related Companies terminates during a performance period for any reason other than Retirement or death, the Performance Units issued with respect to that performance period will be forfeited on the date his employment with the Company and Related Companies terminates. Notwithstanding the foregoing provisions of this Part VI, if a Participant’s employment with the Company and Related Companies terminates before the end of the Performance Period with respect to any Performance Units awarded to him, the Board may determine that the Participant will be entitled to receive all or any portion of the units that he or she would otherwise receive, and may accelerate the determination and payment of the value of such units or make such other adjustments as the Board, in its sole discretion, deems desirable.

 

 

12

 

EXHIBIT 10.10

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 

 

 


 

 

EXHIBIT 10.11

 

 

CO-DIAGNOSTICS, INC.

 

PROSPERITY INVESTMENTS SUBSCRIPTION AGREEMENT

 

1. SUBSCRIPTION . The undersigned hereby applies to subscribe to purchase 500,000 shares of the common stock of Co-Diagnostics, Inc., a Utah corporation (the “Corporation”), $.001 par value per share (the “Shares”), in consideration of the payment to the Corporation of the sum of $100,000.

 

THE UNDERSIGNED ACKNOWLEDGES THAT THE SHARES BEING SUBSCRIBED FOR HEREUNDER ARE OFFERED SUBJECT TO ALL OF THE TERMS AND CONDITIONS SET FORTH IN THIS SUBSCRIPTION AGREEMENT. THE UNDERSIGNED ALSO ACKNOWLEDGES THAT HIS PURCHASE IS BEING MADE AS AN ISOLATED SALE AND IS BASED UPON HIS OWN DUE DILIGENCE AND ACKNOWLEDGES THAT THE UNDERSIGNED HAS RECEIVED ALL INFORMATION REGARDING THE CORPORATION THAT HAS BEEN REQUESTED ALLOWING THE UNDERSIGNED TO MAKE AN INFORMED INVESTMENT DECISION.

 

2. REPRESENTATIONS BY UND E RSIGNED . The undersigned represents and warrants as follows:

 

 

(a) The undersigned has received and read all information requested by the undersigned concerning the business and financial status of the Corporation;

 

 

 

 

(b) The undersigned understands that the merits of this transaction have not been passed on by the Securities and Exchange Commission (“SEC”) or any State securities agency.

 

 

 

 

(c) The undersigned (and the undersigned) purchase representative(s), if any), represent that he (they) has (have) such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of this investment; and the undersigned is aware that this investment represents A SUBSTANTIAL RISK OF LOSS.

 

 

 

 

(d) The undersigned is an “accredited investor” as that term is defined in Regulation D of the Securities Act of 1933.

 

 

 

 

(e) The undersigned is aware that the Shares are not being registered with the SEC or with any state and that the undersigned may be required to bear the economic risk of this investment for an indefinite period of time because the Shares cannot be resold or otherwise transferred unless applicable securities laws are complied with or exemptions there from are available.

 

 
1
 
 

 

 

(f) The undersigned understands that any projections are merely estimates and cannot be warranted or, indeed, fully proven at this point, and all books, records and documents of the Corporation relating to this investment have been and remain available for inspection by the undersigned upon reasonable notice. The undersigned confirms that all documents requested by the undersigned have been made available, and that the undersigned has been supplied with all of the additional information concerning this investment that has been requested. In making a decision to purchase the Shares, the undersigned has relied exclusively upon information found in the books, records or documents of the Corporation and this Subscription Agreement.

 

 

 

 

(g) None of the following information has ever been represented, guaranteed, or warranted to the undersigned expressly or by implication, by any broker, the Corporation, or agents or employees of the foregoing, or by any other person: (i) The length of time that the undersigned will be required to hold the Shares; (ii) The percentage of profit and/or amount of or type of consideration, profit or loss to be realized, if any, as a result of an investment in the Shares; or (iii) That the past performance or experience of the Corporation or any other person, will in any way indicate or predict economic results in connection with the purchase of the Shares.

 

 

 

 

(h) The undersigned is purchasing the Shares for investment only and has no present intention of reselling the shares or otherwise disposing of the shares.

 

 

 

 

(i) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED IN ANY JURISDICTION ALLOWING FOR PUBLIC TRADING IN ANY COUNTRY. THE SHARES MAY BE FREELY TRADED ONLY IF THE SHARES ARE REGISTERED.

 

 

 

 

(j) All information which the undersigned has provided to the Corporation concerning him/herself is correct and complete as of the date set forth at the end hereof.

 

 

(k) I will hold title to my Shares as follows:

 

PROSPERITY INVESTMENTS, LLC 

 

Dated: October 11, 2014. 
       
/s/ Jahn Harold      
Signature (Individual)     Name of Entity, if any  
     

 

 

 

 

 

Name (s) Typed or Printed  

 

 

Name Typed or Printed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Address

 

 

 

 

 

 

 

 

 

Telephone Number

 

 

 

 

 

 
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ACKNOWLEDGMENT FORM IF PURCHASE IS BY AN ENTITY

 

On the____day of ___________, 2014, personally appeared before me,_______________ the signer of the above instrument, who duly acknowledged to me that he was duly authorized to execute the same on behalf of the subscriber.

 

 

       

 

 

 

 

Notary or Witness  

 

     

SUBSCRIPTION ACCEPTANCE

     

 

 

 

 

 

Co-Diagnostics, Inc.

 

 

 

 

 

 

 

 

By:

/s/ Dwight Egan

 

 

 

Its

President

 

 

 

 

 

3

 

 

EXHIBIT 10.12

 

THIS NOTE AND THE SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT.

 

THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THIS NOTE IN THE EVENT OF A PARTIAL REDEMPTION, REPAYMENT OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION, REPAYMENT OR CONVERSION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT SET FORTH BELOW.

 

12% CONVERTIBLE NOTE DUE 2016

 

OF

 

CO-DIAGNOSTICS, INC.

 

 

 

Original Principal Amount:

Original Issuance Date: May 15, 2015

 

$500,000

  

FOR VALUE RECEIVED , Co-Diagnostics, Inc., a Utah corporation (“Company”) hereby promises to pay to or upon the order of Beaufort Capital Partners, LLC , or its registered assigns or successors-in-interest (the “ Holder ”) the principal sum of Five Hundred Thousand Dollars ($500,000.00) , together with all accrued but unpaid interest thereon, if any, on the Final Maturity Date, to the extent such principal amount and interest have not been repaid or converted into shares of the Company’s Common Stock, $.005 par value, (the “ Common Stock ”), in accordance with the terms hereof. Interest on the unpaid principal balance hereof shall accrue at the rate of 12% per annum from the date of original issuance hereof (the “ Issuance Date ”) until the Final Maturity Date, or such earlier date upon acceleration or by conversion, repayment or redemption in accordance with the terms hereof. Interest on this Note shall accrue daily commencing on the Issuance Date, shall be paid monthly and shall be computed on the basis of a 360-day year, 30-day months and actual days elapsed and shall be payable in accordance with Section 2 hereof. Notwithstanding anything contained herein, this Note shall bear interest on the outstanding Principal Amount from and after the occurrence and during the continuance of an Event of Default, at the rate (the “ Default Rate ”) equal to the lower of eighteen percent (18%) per annum or the highest rate permitted by applicable law. Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs, then to unpaid interest and fees and any remaining amount to unpaid principal.

 

 
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All payments of principal of and interest on this Note shall be made in lawful money of the United States of America by wire transfer of immediately available funds to such account as the Holder may from time to time designate by written notice in accordance with the provisions of this Note. This Note may not be prepaid in whole or in part except as specifically provided herein. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day (as defined below), the same shall instead be due on the next succeeding day which is a Business Day and such extension shall be taken into account in determining the amount of interest accrued on this Note.

 

The following terms and conditions shall apply to this Note:

 

1. Definitions.

 

(a) Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Purchase Agreement.

 

(b) For purposes hereof the following terms shall have the meanings ascribed to them below:

 

“Bankruptcy Event” means any of the following events: (a) the Company or any material subsidiary commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any material subsidiary thereof; (b) there is commenced against the Company or any material subsidiary any such case or proceeding that is not dismissed within 60 days after commencement; (c) the Company or any material subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) the Company or any material subsidiary suffers any appointment of any trustee, custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 days; (e) the Company or any material subsidiary makes a general assignment for the benefit of creditors; (f) the Company or any material subsidiary fails to pay, states that it is unable to pay, or is unable to pay, its debts (excluding those reasonably disputed in good faith by the Company in the case of failure to pay and for which it has reserves on its books and financial statements) generally as they become due; (g) the Company or any material subsidiary calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (h) the Company or any material subsidiary, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

 
-2-
 
 

 

“Cash” or “cash” means at any time such coin or currency of the United States of America as shall at such time be legal tender for the payment of public and private debts.

 

“Company Notice Date” shall have the meaning provided in Section 2(c).

 

“Company Prepayment Notice” shall have the meaning provided in Section 2(d).

 

“Conversion Date” shall have the meaning provided in Section 3(b).

 

“Conversion Price” means $.75 or 20% less than the price of the anticipated Initial Public Offering, whichever is less, subject to adjustment as set forth herein.

 

“Event of Default” shall have the meaning provided in Section 4(a).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Final Maturity Date” means April 30, 2016.

 

“Force Majeure Event” means an event or circumstance that prevents the Company from performing its obligations under this Note or that prevents an act or event required hereunder from happening or occurring (including, without limitation, an act of God, war, insurrection, riot, nuclear disaster, labor strike or threat of violence, labor and material shortage, fire, explosion, flood, river freeze-up, breakdown or damage to mines, plant, equipment, or facilities (including a forced outage or an extension of a scheduled outage of equipment or facilities to make repairs to avoid breakdowns thereof or damage thereto), interruption to or slowdown in transportation, railcar shortage, barge shortage, embargo, order, or act of civil or military authority, law, regulation, or administrative ruling, or total or partial interruption of the Company’s operations which are due to any enforcement action or other administrative or judicial action arising from an environmental law or regulation), but in any case which is not within the reasonable control of, or the result of the negligence of, the Company, and which by the exercise of due diligence, the Company is unable to overcome or avoid or cause to be avoided or is unable in good faith to obtain a substitute acceptable to the Holder therefor.

 

“Holder Share Notice” shall mean a written notice by Holder of its intent to convert the Note to common stock.

 

“Optional Conversion Notice” shall have the meaning provided in Section 3(a).

 

“Principal Amount” means at any time the sum of (i) the outstanding principal amount of this Note at such time, (ii) all accrued but unpaid interest hereunder to such time, and (iii) any default payments owing at such time to the Holder under the Note but not theretofore paid or added to the Principal Amount.

 

 
-3-
 
 

 

“Registrable Securities” means the shares of Common Stock issued and issuable pursuant to the conversion of the Note, and upon any stock split, stock dividend, recapitalization or similar event with respect to such shares of Common Stock and any other securities issued in exchange of or replacement of such shares of Common Stock (collectively, the “Conversion Shares”) until in the case of any of the Conversion Shares (a) a Registration Statement covering such Conversion Shares has been declared effective by the SEC and continues to be effective until the Conversion Shares have been sold or (b) such Conversion Shares may sold in compliance with Rule 144 or may be sold pursuant to Rule 144(k), after which time such Conversion Shares shall not be a Registrable Security.

 

“SEC” means the United States Securities and Exchange Commission.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Underlying Shares” means the shares of Common Stock issued or issuable upon conversion of, in lieu of cash payment of principal of, or interest on, as repayment of principal under, or otherwise pursuant to, this Note in accordance with the terms hereof.

 

Section 2. Payments of Principal and Interest.

 

(a) Points. Holder shall advance $490,000 with $10,000 being withheld as points paid by the Company for the Loan made herewith.

 

(b) Interest . The Company shall pay interest accruing on this Note (from the date hereof or the date of actual receipt of the proceeds of the loan) on all principal outstanding at the Interest Rate, monthly on the Interest Payment Dates, commencing on the date hereof, in cash.

 

(c) Principal . The entire Principal Amount of this Note, plus any and all default payments owing under the Note but not previously paid, shall become due and payable on the Final Maturity Date. Any principal of this Note that is converted pursuant to Section 3 shall be applied to reduce the principal payable under this Section 2(b).

 

Section 3. Conversion.

 

(a) Conversion Rights. Upon the terms and subject to the conditions hereof, the Holder shall have the right, at the Holder’s option, to convert the outstanding Principal Amount and accrued and unpaid interest thereon into Common Stock, in whole at any time or in part from time to time, by delivering to the Company a duly executed notice of conversion in the form attached hereto as Exhibit A (the “ Optional Conversion Notice ”), which may be transmitted by telephone line facsimile transmission.

 

 
-4-
 
 

 

(b) Common Stock Issuance Upon Conversion.

 

(i) Conversion Procedures . Upon any conversion of this Note pursuant to Section 3(a) above, the outstanding Principal Amount being converted and accrued and unpaid interest thereon to the applicable Conversion Date shall be converted into such number of fully paid, validly issued and non-assessable shares of Common Stock, free of any liens, claims and encumbrances, as is determined by dividing the outstanding Principal Amount being converted and accrued and unpaid interest thereon to the applicable Conversion Date by the then applicable Conversion Price. The date of any Conversion Notice hereunder shall be referred to herein as the “ Conversion Date ”. If a conversion under this Note cannot be effected in full for any reason, or if the Holder is converting less than all of the outstanding Principal Amount hereunder pursuant to a Conversion Notice, the Company shall, upon request of the Holder, promptly deliver to the Holder a new Note having a Principal Amount equal to the amount of such outstanding Principal Amount as has not been converted. The Holder shall not be required physically to surrender this Note to the Company upon any conversion unless the full outstanding Principal Amount of this Note is being converted or repaid. The Holder and the Company shall maintain records showing the outstanding Principal Amount so converted and repaid and the dates of such conversions or repayments or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon each such conversion or repayment. The Holder agrees that, if the outstanding Principal Amount of this Note is less than the Principal Amount stated on the face of this Note, the Holder will not voluntarily transfer this Note at any time when no Event of Default has occurred and is continuing without first surrendering this Note to the Company for issuance, without charge to the Holder, of a replacement instrument that reflects the outstanding Principal Amount of this Note. The Company will deliver such replacement instrument to the Holder as promptly as practical, but in no event later than three days, after surrender by the Holder.

 

(ii) Stock Certificates . The Company will deliver to the Holder not later than three days after a particular Conversion Date, a certificate or certificates, for the number of shares of Common Stock issuable upon such conversion of this Note.

 

(iii) Liability for Late Delivery; Force Majeure. If in any case the Company shall fail to issue and deliver the shares of Common Stock to the Holder pursuant to this Note on the due date therefor, in addition to any other liabilities the Company may have hereunder and under applicable law the Company shall pay or reimburse the Holder on demand for all out-of-pocket expenses, including, without limitation, reasonable fees and expenses of legal counsel, incurred by the Holder as a result of such failure, so long as the Holder shall have given the Company a Holder Share Notice with respect to such shares of Common Stock.

 

(c) Conversion Price Adjustments.

 

(i) Stock Dividends, Splits and Combinations . In the event that the Company shall (A) pay a dividend or make a distribution to all its stockholders, in shares of Common Stock, on any class of capital stock of the Company or any subsidiary which is not directly or indirectly wholly owned by the Company, (B) split or subdivide its outstanding Common Stock into a greater number of shares, or (C) combine its outstanding Common Stock into a smaller number of shares, then in each such case the Conversion Price in effect immediately prior thereto shall be adjusted so that the Holder of this Note thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock that such Holder would have owned or have been entitled to receive after the occurrence of any of the events described above had this Note been fully converted immediately prior to the occurrence of such event. An adjustment made pursuant to this Section 3(c)(i) shall become effective immediately after the close of business on the record date in the case of a dividend or distribution and shall become effective immediately after the close of business on the effective date in the case of such subdivision, split or combination, as the case may be. Any shares of Common Stock issuable in payment of a dividend shall be deemed to have been issued immediately prior to the close of business on the record date for such dividend for purposes of calculating the number of outstanding shares of Common Stock under clause (ii) below.

 

 
-5-
 
 

 

(ii) Rounding of Adjustments . No adjustment in the Conversion Price shall be required unless the adjustment would require an increase or decrease of at least 1% in the Conversion Price then in effect; provided, however, that any adjustments that by reason of this Section 3(c) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 3 or Section 2 shall be made to the nearest cent or nearest 1/100th of a share.

 

(iii) Notice of Adjustments . Whenever the Conversion Price is adjusted pursuant to this Section 3(c), the Company shall promptly deliver to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment, provided that any failure to so provide such notice shall not affect the automatic adjustment hereunder.

 

(iv) Notice of Certain Events . If:

 

 

A. the Company shall declare a dividend (or any other distribution) on its Common Stock; or

 

 

 

 

B. the Company shall declare a special nonrecurring cash dividend on or a tender offer for, offer to purchase or redemption of its Common Stock; or

 

 

 

 

C. the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; or

 

 

 

 

D. the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock of the Company, any consolidation, amalgamation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share of exchange whereby the Common Stock is converted into other securities, cash or property; or

 

 

 

 

E. the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; or

 

 

 

 

F. there exists an agreement to which the Company is a party or by which it is bound providing for a Change in Control Transaction, or a Change in Control Transaction has occurred;

 

 
-6-
 
 

 

then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be mailed to the Holder at its last address as it shall appear upon the books of the Company, on or prior to the date notice of such matter to the Company’s stockholders generally is given, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, tender offer, offer to purchase, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distributions, tender offer, offer to purchase, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, amalgamation, merger, sale, transfer, share exchange or Change in Control Transaction is expected to become effective or close, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, amalgamation, merger, sale, transfer, share exchange or Change in Control Transaction.

 

(d) Reservation and Issuance of Underlying Securities . The Company covenants that it will at all times reserve from its authorized and unissued Common Stock a sufficient number of shares solely for the purpose of issuance upon conversion in full of this Note, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder. The Company represents, warrants and covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid, and nonassessable.

 

(e) No Fractions. Upon a conversion hereunder the Company shall not be required to issue stock certificates for a fraction of a share of Common Stock. The Holder shall be entitled to receive, in lieu of the fraction of a share, one whole share of Common Stock.

 

(f) Charges, Taxes and Expenses. Issuance of shares of Common Stock upon the conversion of this Note shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such shares, all of which taxes and expenses shall be paid by the Company, and such shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the Holder, the applicable Conversion Notice, when given for such conversion shall be accompanied or followed by an assignment form for the applicable portion of this Note or such shares, as the case may be; and provided further, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any such transfer.

 

(g) Cancellation. After the entire Principal Amount (including accrued but unpaid interest and default payments at any time owed on this Note) has been paid in full or converted into Common Stock, this Note shall automatically be deemed canceled and the Holder shall promptly surrender this Note to the Company at the Company’s principal executive offices; provided, however, that the failure to surrender this Note shall not delay or limit such cancellation.

 

 
-7-
 
 

 

(h) Notice Procedures. Any and all notices or other communications or deliveries to be provided by the Holder under this Note, including, without limitation, any Conversion Notice, shall be in writing and delivered personally, by confirmed facsimile, or by a nationally recognized overnight courier service to the Company at the facsimile telephone number or address of the principal place of business of the Company as set forth in, or provided pursuant to, the Purchase Agreement. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or by a nationally recognized overnight courier service addressed to the Holder at the facsimile telephone number or address of the Holder appearing on the books of the Company, or if no such facsimile telephone number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed delivered (i) upon receipt, when delivered personally, (ii) when sent by facsimile, upon receipt if received on a Business Day prior to 5:00 p.m. (Mountain Time), or on the first Business Day following such receipt if received on a Business Day after 5:00 p.m. (Mountain Time) or on a day that is not a Business Day or (iii) upon receipt, when deposited with a nationally recognized overnight courier service.

 

Section 4. Defaults and Remedies.

 

(a) Events of Default. An “Event of Default” is: (i) a failure to pay any Principal Amount of this Note when due, whether at the Final Maturity Date or otherwise, (ii) a failure to pay any interest due on this Note on the date such payment is due, which failure continues for two Business Days (or ten Business Days if such failure results from a Force Majeure Event or if the Company can prove that funds were in fact wired from the Company’s account by the due date); (iii) a failure timely to issue Underlying Shares upon and in accordance with terms hereof, which failure continues for ten Business Days after the Company has received written notice from the Holder informing the Company that it has failed to issue shares or deliver stock certificates prior to the fifth Business Day following the applicable Conversion Date; (iv) failure by the Company for 20 days (or 90 days if such failure results from a Force Majeure Event) after written notice has been received by the Company from the Holder to comply with any material provision (other than as provided in the immediately preceding clauses (i), (ii) and (iii)) of any of this Note; (v) a material breach by the Company of its representations or warranties in this Note that continues for 10 days after written notice to the Company; (vi) any default after any cure period under, or acceleration prior to maturity of, any note, mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company for in excess of $1 million, or for money borrowed the repayment of which is guaranteed by the Company for in excess of $1 million, whether such indebtedness or guarantee now exists or shall be created hereafter; (vii) if the Company is subject to any Bankruptcy Event; or (ix) any material provisions of the Note shall at any time and for any reason be declared by a court of competent jurisdiction to be null and void, or the Company or any Subsidiary of the Company shall repudiate or deny any portion of its liabilities or obligations thereunder.

 

 
-8-
 
 

 

(b) Remedies. If an Event of Default occurs and is continuing, the Holder may declare all of the then outstanding Principal Amount of this Note, and any accrued and unpaid interest thereon, to be due and payable immediately in cash, except that in the case of an Event of Default arising from events described in clauses (vi) and (vii) of Section 4(a), this Note shall become automatically due and payable without further action or notice, and the Holder may exercise all other rights and remedies available at law or in equity. In any event the Company shall pay interest on such amount in cash at the Default Rate to the Holder if such amount is not paid within one Business Day after such acceleration. The remedies under this Note shall be cumulative.

 

Section 5. Registration Obligations. In connection with the registration of the Registrable Securities, the Company shall:

 

(a) Prepare and file with the SEC a Registration Statement on Form S-1, shall include the Registrable Securities in the Registration Statement and use its best efforts to cause the Registration Statement to become effective and remain effective as provided herein.

 

(b) Prepare and file with the SEC such amendments, including post-effective amendments, to the Registration Statement as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities until such time as all of the Registerable Securities have been sold by the Holder or he is eligible to otherwise remove the restrictive legend and effect a sale other than through the Registration Statement.

 

(c) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of, (i) any order suspending the effectiveness of the Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any U.S. jurisdiction, at the earliest practicable moment.

 

(d) Furnish to the Holder, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by the Holder (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the SEC.

 

Section 6. Certain Covenants; General.

 

(a) Payment of Expenses. The Company agrees to pay all charges and expenses, including attorneys’ fees and expenses, which may be incurred by the Holder in seeking to enforce this Note.

 

(b) Savings Clause. In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby. In no event shall the amount of interest paid hereunder exceed the maximum rate of interest on the unpaid principal balance hereof allowable by applicable law. If any sum is collected in excess of the applicable maximum rate, the excess collected shall be applied to reduce the principal debt. If the interest actually collected hereunder is still in excess of the applicable maximum rate, the interest rate shall be reduced so as not to exceed the maximum allowable under law.

 

 
-9-
 
 

 

(c) Amendment. Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and Holder.

 

(d) Assignment, Etc. The Holder may assign or transfer this Note, subject to compliance with applicable securities laws, without the consent of the Company. The Holder shall notify the Company of any such assignment or transfer promptly. The Company may not assign its rights or obligations under this Note. This Note shall be binding upon the Company and its successors and shall inure to the benefit of the Holder and its successors and permitted assigns.

 

(e) No Waiver. No failure on the part of the Holder to exercise, and no delay in exercising any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Holder of any right, remedy or power hereunder preclude any other or future exercise of any other right, remedy or power. Each and every right, remedy or power hereby granted to the Holder or allowed it by law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by the Holder from time to time.

 

(f) Governing Law; Jurisdiction.

 

(i) Governing Law . THIS NOTE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF UTAH WITHOUT REGARD TO ANY CONFLICTS OF LAWS PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION.

 

(iii) NO JURY TRIAL. The Company knowingly and voluntarily waives any and all rights it may have to a trial by jury with respect to any litigation based on, or arising out of, under, or in connection with, this Note.

 

(g) Replacement Notes . This Note may be exchanged by Holder at any time and from time to time for a Note or Notes with different denominations representing an equal aggregate outstanding Principal Amount, as reasonably requested by Holder, upon surrendering the same. No service charge will be made for such registration or exchange. In the event that Holder notifies the Company that this Note has been lost, stolen or destroyed, a replacement Note identical in all respects to the original Note (except for registration number and Principal Amount, if different than that shown on the original Note), shall be issued to the Holder, without requirement for any surety bond, provided that the Holder executes and delivers to the Company an agreement reasonably satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with this Note.

 

[Signature Page Follows]

 

 
-10-
 
 

 

IN WITNESS WHEREOF , the Company has caused this Note to be duly executed on the day and in the year first above written.

 

  CO-DIAGNOSTICS, INC.
       

By:

/s/ Reed Benson

 

 

Reed L Benson

 
    Secretary and General Counsel  
       

 

By:

/s/ Dwight Egan

 

 

 

Dwight H. Egan

 

 

 

President and CEO

 

 

 
-11-
 
 

 

ASSIGNMENT

 

For value received hereby sell(s), assign(s) and transfer(s) unto (Please insert social security or other Taxpayer Identification Number of assignee: ) the within Note, and hereby irrevocably constitutes and appoints attorney to transfer the said Note on the books of CO-DIAGNOSTICS, INC., a Utah corporation (the “Company”), with full power of substitution in the premises.

 

 

       
Dated: NAME:

 

 

 
   
 

Signature(s)

 

  
 
-12-
 
 

 

EXHIBIT A

 

FORM OF CONVERSION NOTICE

 

(To be executed by the Holder in order

to convert 12% Convertible Note Due 2016)

 

 

Re: 12% Convertible Note Due 2016 issued by CO-DIAGNOSTICS, INC. identified below (the “ Note ”)

  

The undersigned hereby elects to convert the outstanding Principal Amount (as defined in the Note) indicated below of the Note into shares of Common Stock, of CO-DIAGNOSTICS, INC ., a Utah corporation (the “Company”), according to the terms hereof and of the Note, as of the date written below. If shares are to be issued in the name of a person other than undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the Holder for any conversion, except for such transfer taxes, if any.

 

Conversion information:
 

Note Number

 

 

 

 

 

Conversion Date

 

 

 

 

 

 

 

 

Principal Amount of Note Being Converted

 

 

 

 

 

 

 

 

Number of Shares of Common Stock to Be Issued

 

 

 

 

 

 

 

 

Applicable Conversion Price

 

 

 

 

 

 

 

 

Signature

 

 

 

 

 

 

 

 

Name

 

 

 

 

 

 

 

 

Address

 

 

 

13

 

 

EXHIBIT 10.13

 

REVOLVING LINE OF CREDIT PROMISSORY NOTE

 

Amount: $__________

 

Date: _____, 2016

 

WHEREAS, the Borrower desires to borrow funds from the Lender from time to time and the parties desire to enter into a note which provides for advances from time to time on an unsecured basis.

 

THEREFOR, FOR VALUE RECEIVED, CO-DIAGNOSTICS, INC. a Utah corporation, (referred to as the "Borrower") promises to pay to MACHAN 1988 PROPERTY TRUST, a Utah trust, ( referred to as the "Lender"), or order, at its address the sum of _________________ or the aggregate unpaid principal balance of all advances made to the Borrower by Lender pursuant to this Note from time to time ("Advances"), whichever is less, on _______ 2016 ("Matu1ity Date") in lawful money of the United States and in immediately available funds, with interest on the unpaid p1incipal balance of this Revolving Line of Credit Note ("Note") at the rate of Twelve percent (12 %) per annum and shall be computed on the basis of a 360 day year.

 

All Advances made pursuant to this Note shall be made in the sole discretion of the Lender and Lender may refuse to make additional Advances at any time and for any reason.

 

The principal balance and all accrued but unpaid interest is due in full on the Maturity Date.

 

If the final payment due under this Note is not paid on its due date or within fifteen (15) days thereafter, or if the Borrower otherwise defaults under the terms of this Note, then the holder hereof may accelerate this Note and declare the entire balance due and owing whereupon the Borrower agrees to pay the entire balance of the Note upon demand.

 

Each payment shall be applied first to the payment of interest and thereafter to the payment of principal. In the event of non-payment of any interest, the final payment or the accelerated principal in the event of default, the Borrower agrees to pay all expenses of collection of this Note, including reasonable attorney' s fees and court costs incurred in any proceeding including any proceedings in the United States Bankruptcy Court. After acceleration, in the event of default, and after the due date and before and after judgment, this Note shall accrue interest at the rate of 18% per annum for each day after the Maturity Date that the principal amount remains unpaid until paid.

 

This Note shall be governed by the laws of the State of Utah.

 

Every maker, endorser or guarantor of this Note waives presentment, demand, notice, protest and all other notices in connection with the deliver, acceptance, default or enforcement of this Note and each agrees that the holder, from time to time, may renew, modify or extend performance of obligations hereunder without their consent.

 

IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of the date above set forth.

 

 

 

BORROWER:

 

CO-DIAGNOSTICS, INC.

a Utah corporation

       
  by

 

 

 
  its  

 

EXHIBIT 10.13.1

 

AMENDMENT

TO

12% REVOLVING LINE OF CREDIT PROIVIISSOPRY NOTE DUE 2016

 

OF

 

CO-DIAGNOSTICS, INC.

 

Original Principal Amount: $750,000

Original Issuance Date: August 1, 2015

 

Whereas, THIS AMENDMENT TO THE 12% PROMlSSORY NOTE dated August 1, 2015, as amended (the ''Note ") is entered into, by and between Co-Diagnostics, Inc., a Utah corporation (the " Company' ) and Co-Diagnostics, Ltd, a Turks and Caicos Limited Company ("Holder'');

 

Now therefore, the Note is hereby amended as follows:

 

The Maturity Date shall be September 30, 2017.

 

The Holder agrees that in the event the Company is able to file a Registration Statement for an Initial Public Offering on or before December 31, 2016, the Holder agrees to include the Note principal and accrued interest outstanding on the filing date with the Registration Statement and to convert all of the Note principal and accrued interest to Company common stock.

 

The “Conversion Price” means shall be the same as the anticipated Bridge Financing to be provided by Alexander Capital, LP, as reflected in the Registration Statement.

 

All other terms and conditions of the Note, as amended, shall continue in full force and effect.

 

IN WITNESS WHEREOF, the Parties have amended the Note effective as of September 14, 2016.

 

 

CO-DIAGNOSTICS, INC.

 

CO-DIAGNOSTICS, LTD.

 

 

 

By: /s/ Dwight Egan

 

By: /s/ Reed Benson

Dwight H. Egan

 

 

President & CEO

 

Its: President

 

EXHIBIT 10.13.2  

 

AMENDMENT

TO

12% REVOLVING LINE OF CREDIT PROMISSOPRY NOTE DUE 2016

 

OF

 

CO-DIAGNOSTICS, INC.

 

Original Principal Amount: $100,000

Original Issuance Date: December 30, 2015

 

Whereas, THIS AMENDMENT TO THE 12% PROMISSORY NOTE dated December 30, 2015, as amended (the “ Note ”) is entered into, by and between Co-Diagnostics, Inc., a Utah corporation (the “ Company ”) and Pine Valley Investments, LLC, a Utah limited liability company (“Holder”);

 

Now therefore, the Note is hereby amended as follows:

 

The Maturity Date shall be September 30, 2017.

 

The Holder agrees that in the event the Company is able to file a Registration Statement for an Initial Public Offering on or before December 31, 2016, the Holder agrees to include the Note principal and accrued interest outstanding on the filing date with the Registration Statement and to convert all of the Note principal and accrued interest to Company common stock.  


The “Conversion Price” means shall be the same as the anticipated Bridge Financing to be provided by Alexander Capital, LP, as reflected in the Registration Statement.

 

All other terms and conditions of the Note, as amended, shall continue in full force and effect.

 

IN WITNESS WHEREOF , the Parties have amended the Note effective as of September 14, 2016.

 

CO-DIAGNOSTICS, INC.

 

PINE VALLEY INVESTMENTS, LLC

 

 

 

By: /s/ Dwight Egan

 

By: /s/ Jason Briggs

Dwight H. Egan,

 

Jason Briggs, Manager

President & CEO

 

 

 

EXHIBIT 10.13.3 

 

 

AMENDMENT

TO

12% PROMISSOPRY NOTE DUE 2016

 

OF

 

CO-DIAGNOSTICS, INC.

 

Original Principal Amount: $10,000

Original Issuance Date: February 22, 2016

 

Whereas, THIS AMENDMENT TO THE 12% PROMISSORY NOTE dated February 22, 2016, as amended (the “ Note ”) is entered into, by and between Co-Diagnostics, Inc., a Utah corporation (the “ Company ”) and Clavo Rico Incorporated, a Utah corporation (“Holder”);

 

Now therefore, the Note is hereby amended as follows:

 

The Maturity Date shall be September 30, 2017.

 

The Holder agrees that in the event the Company is able to file a Registration Statement for an Initial Public Offering on or before December 31, 2016, the Holder agrees to include the Note principal and accrued interest outstanding on the filing date with the Registration Statement and to convert all of the Note principal and accrued interest to Company common stock.  


The “Conversion Price” means shall be the same as the anticipated Bridge Financing to be provided by Alexander Capital, LP, as reflected in the Registration Statement.

 

All other terms and conditions of the Note, as amended, shall continue in full force and effect.

 

IN WITNESS WHEREOF , the Parties have amended the Note effective as of September 14, 2016.

 

 

CO-DIAGNOSTICS, INC.

 

CLAVO RICO INCORPORATED

 

 

 

By: /s/ Dwight Egan

 

By: /s/ Reed Benson

Dwight H. Egan,

 

Reed L Benson, President

President & CEO

 

 

 

EXHIBIT 10.13.4

 

AMENDMENT

TO

12% REVOLVING LINE OF CREDIT PROMISSOPRY NOTE DUE 2016

 

OF

 

CO-DIAGNOSTICS, INC.

 

Original Principal Amount: $100,000

Original Issuance Date: March 1, 2016

 

Whereas, THIS AMENDMENT TO THE 12% PROMISSORY NOTE dated March 1, 2016 as amended (the “ Note ”) is entered into, by and between Co-Diagnostics, Inc., a Utah corporation (the “ Company ”) and Legends Capital Group, LLC (“Holder”);

 

Now therefore, the Note is hereby amended as follows:

 

The Maturity Date shall be September 30, 2017.

 

The Holder agrees that in the event the Company is able to file a Registration Statement for an Initial Public Offering on or before December 31, 2016, the Holder agrees to include the Note principal and accrued interest outstanding on the filing date with the Registration Statement and to convert all of the Note principal and accrued interest to Company common stock.  


The “Conversion Price” means shall be the same as the anticipated Bridge Financing to be provided by Alexander Capital, LP, as reflected in the Registration Statement.

 

All other terms and conditions of the Note, as amended, shall continue in full force and effect.

 

IN WITNESS WHEREOF , the Parties have amended the Note effective as of September 14, 2016.

 

 

CO-DIAGNOSTICS, INC.

 

LEGENDS CAPITAL GROUP, LLC

 

 

 

By: /s/ Dwight Egan

 

By: /s/ Jason Briggs

Dwight H. Egan,

 

 

President & CEO

 

Its: Manager

 

EXHIBIT 10.13.5

 

AMENDMENT

TO

12% REVOLVING LINE OF CREDIT PROMISSOPRY NOTE DUE 2016

 

OF

 

CO-DIAGNOSTICS, INC.

 

Original Principal Amount: $75,000

Original Issuance Date: May 15, 2016

 

Whereas, THIS AMENDMENT TO THE 12% PROMISSORY NOTE dated May 15, 2016, as amended (the “ Note ”) is entered into, by and between Co-Diagnostics, Inc., a Utah corporation (the “ Company ”) and Hamilton Mining Resources, Inc., a Utah corporation (“Holder”);

 

Now therefore, the Note is hereby amended as follows:

 

The Maturity Date shall be September 30, 2017.

 

All other terms and conditions of the Note, as amended, shall continue in full force and effect.

 

IN WITNESS WHEREOF , the Parties have amended the Note effective as of September 14, 2016.

 

 

CO-DIAGNOSTICS, INC.

 

HAMILTON MINING RESOURCES, INC.

 

 

 

By: /s/ Dwight Egan

 

By: /s/ Reed Benson

Dwight H. Egan

 

 

President & CEO

 

Its: President

 

 

 

 

 

 

EXHIBIT 10.13.6

  

 

AMENDMENT

TO

12% REVOLVING LINE OF CREDIT PROMISSORY NOTE DUE 2016

 

OF

 

CO-DIAGNOSTICS, INC.

 

Original Principal Amount: $50,000

Original Issuance Date: May 30, 2016

 

Whereas, THIS AMENDMENT TO THE 12% PROMISSORY NOTE dated May 30, 2016, as amended (the “ Note ”) is entered into, by and between Co-Diagnostics, Inc., a Utah corporation (the “ Company ”) and Machan 1988 Property Trust (“Holder”);

 

Now therefore, the Note is hereby amended as follows:

 

The Maturity Date shall be September 30, 2017.

 

All other terms and conditions of the Note, as amended, shall continue in full force and effect.

 

IN WITNESS WHEREOF , the Parties have amended the Note effective as of September 14, 2016.

 

 

CO-DIAGNOSTICS, INC.

 

MACHAN 1988 PROPERTY TRUST

 

 

 

By: /s/ Dwight Egan

 

By: /s/ Reed Benson

Dwight H. Egan

 

 

President & CEO  

 

Its: Trustee

EXHIBIT 10.14

 

TIDS NOTE AND THE SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED WIIB THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT.

 

TmS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THIS NOTE IN THE EVENT OF AP ARTIAL REDEMPTION, REPAYMENT OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION, REPAYMENT OR CONVERSION OF ANY PORTION OF TIDS NOTE, THE OUTSTANDING PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT SET FORTH BELOW.

 

8.5% CONVERTIBLE NOTE DUE 2017

 

OF

 

CO - DIAGNOSTICS, INC.

 

Original Principal Amount: $___________

Original Issuance Date: _____________ ,_____

 

FOR VALUE RECEIVED, Co-Diagnostics Inc., a Utah corporation ("Company") hereby promises to pay to or upon the order of ________________________, a __________________________, or its registered assigns or successors-in-interest(the " Holder ") the principal sum of __________________ ($_______), together with all accrued but unpaid interest thereon, if any, on the Final Maturity Date, to the extent such principal amount and interest have not been repaid or converted into shares of the Company's Common Stock, $.005 par value, (the " Common Stock "), in accordance with the terms hereof. Interest on the unpaid principal balance hereof shall accrue at the rate of 8.5% per annum from the date of original issuance hereof (the " Issuance Date ") until the Final Maturity Date, or such earlier date upon acceleration or by conversion, repayment or redemption in accordance with the terms hereof. Interest on this Note shall accrue daily commencing on the Issuance Date, shall be paid semi-annually and shall be computed on the basis of a 360-day year, 30-day months and actual days elapsed and shall be payable in accordance with Section 2 hereof. Notwithstanding anything contained herein, this Note shall bear interest on the outstanding Principal Amount from and after the occurrence and during the continuance of an Event of Default, at the rate (the "Defa ul t Rate ") equal to the lower of eighteen percent (18%) per annum or the highest rate permitted by applicable law. Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs, then to unpaid interest and fees and any remaining amount to unpaid principal.

 
 
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All payments of principal of and interest on this Note shall be made in lawful money of the United States of America by wire transfer of immediately available funds to such account as the Holder may from time to time designate by written notice in accordance with the provisions of this Note. This Note may not be prepaid in whole or in part except as specifically provided herein. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day (as defined below), the same shall instead be due on the next succeeding day which is a Business Day and such extension shall be taken into account in determining the amount of interest accrued on this Note.

 

The following terms and conditions shall apply to this Note:

 

1. Definitions.

 

(a) Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Purchase Agreement.

 

(b) For purposes hereof the following terms shall have the meanings ascribed to them below:

 

"Bankruptcy Event" means any of the following events: (a) the Company or any material subsidiary commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any material subsidiary thereof; (b) there is commenced against the Company or any material subsidiary any such case or proceeding that is not dismissed within 60 days after commencement; (c) the Company or any material subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) the Company or any material subsidiary suffers any appointment of any trustee, custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 days; (e) the Company or any material subsidiary makes a general assignment for the benefit of creditors; (f) the Company or any material subsidiary fails to pay, states that it is unable to pay, or is unable to pay, its debts (excluding those reasonably disputed in good faith by the Company in the case of failure to pay and for which it has reserves on its books and financial statements) generally as they become due; (g) the Company or any material subsidiary calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (h) the Company or any material subsidiary, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 
 
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"Cash" or "cash" means at any time such coin or currency of the United States of America as shall at such time be legal tender for the payment of public and private debts.

 

"Company Notice Date" shall have the meaning provided in Section 2(c). "Company Prepayment Notice" shall have the meaning provided in Section 2(d). "Conversion Date" shall have the meaning provided in Section 3(b).

 

"Conversion Price" means $1.00 or 20% less than the price of the anticipated Initial Public Offering, whichever is less, subject to adjustment as set forth herein.

 

"Event of Default" shall have the meaning provided in Section 4(a). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Final Maturity Date" means September 30, 2017.

 

"Force Majeure Event" means an event or circumstance that prevents the Company from performing its obligations under this Note or that prevents an act or event required hereunder from happening or occurring (including, without limitation , an act of God, war, insurrection, riot, nuclear disaster, labor strike or threat of violence, labor and material shortage, fire, explosion, flood, river freeze-up, breakdown or damage to mines, plant, equipment, or facilities (including a forced outage or an extension of a scheduled outage of equipment or facilities to make repairs to avoid breakdowns thereof or damage thereto), interruption to or slowdown in transportation, railcar shortage, barge shortage, embargo, order, or act of civil or military authority, law, regulation, or administrative ruling, or total or partial interruption of the Company' s operations which are due to any enforcement action or other administrative or judicial action arising from an environmental law or regulation), but in any case which is not within the reasonable control of, or the result of the negligence of, the Company, and which by the exercise of due diligence, the Company is unable to overcome or avoid or cause to be avoided or is unable in good faith to obtain a substitute acceptable to the

Holder therefor.

 

"Holder Share Notice" shall mean a written notice by Holder of its intent to convert the Note to common stock.

 

"Optional Conversion Notice" shall have the meaning provided in Section 3(a).

 
 
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"Principal Amount" means at any time the sum of (i) the outstanding principal amount of this Note at such time, (ii) all accrued but unpaid interest hereunder to such time, and (iii) any default payments owing at such time to the Holder under the Note but not theretofore paid or added to the Principal Amount.

 

"Registrable Securities" means the shares of Common Stock issued and issuable pursuant to the conversion of the Note, and upon any stock split, stock dividend, recapitalization or similar event with respect to such shares of Common Stock and any other securities issued in exchange of or replacement of such shares of Common Stock (collectively, the "Conversion Shares") until in the case of any of the Conversion Shares (a) a Registration Statement covering such Conversion Shares has been declared effective by the SEC and continues to be effective until the Conversion Shares have been sold or (b) such Conversion Shares may sold in compliance with Rule 144 or may be sold pursuant to Rule 144(k), after which time such Conversion Shares shall not be a Registrable Security.

 

"SEC" means the United States Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended.

 

"Underlying Shares" means the shares of Common Stock issued or issuable upon conversion of, in lieu of cash payment of principal of, or interest on, as repayment of principal under, or otherwise pursuant to, this Note in accordance with the terms hereof.

 

Section 2. Payments of Principal and Interest.

 

(a) Interest. The Company shall pay interest accruing on this Note (from the date hereof or the date of actual receipt of the proceeds of the loan) on all principal outstanding at the Interest Rate, semi-annually on the Interest Payment Dates, commencing on the date six months after issuance hereof, in cash.

 

(b) Principal. The entire Principal Amount of this Note, plus any and all default payments owing under the Note but not previously paid, shall become due and payable on the Final Maturity Date. Any principal of this Note that is converted pursuant to Section 3 shall be applied to reduce the principal payable under this Section 2(b).

 

Section 3. Conversion.

 

(a) Conversion Rights. Upon the terms and subject to the conditions hereof, the Holder shall have the right, at the Holder's option, to convert the outstanding Principal Amount and accrued and unpaid interest thereon into Common Stock, in whole at any time or in part from time to time, by delivering to the Company a duly executed notice of conversion in the form attached hereto as Exhibit A (the " Optional Conversion Notice "), which may be transmitted by telephone line facsimile transmission.

 
 
4
 
 

 

(b) Common Stock Issuance Upon Conversion.

 

(i) Conversion Procedures. Upon any conversion of this Note pursuant to Section 3(a) above, the outstanding Principal Amount being converted and accrued and unpaid interest thereon to the applicable Conversion Date shall be converted into such number of fully paid, validly issued and non-assessable shares of Common Stock, free of any liens, claims and encumbrances, as is determined by dividing the outstanding Principal Amount being converted and accrued and unpaid interest thereon to the applicable Conversion Date by the then applicable Conversion Price. The date of any Conversion Notice hereunder shall be referred to herein as the "Co n version Date". If a conversion under this Note cannot be effected in full for any reason, or if the Holder is converting less than all of the outstanding Principal Amount hereunder pursuant to a Conversion Notice, the Company shall, upon request of the Holder, promptly deliver to the Holder a new Note having a Principal Amount equal to the amount of such outstanding Principal Amount as has not been converted. The Holder shall not be required physically to surrender this Note to the Company upon any conversion unless the full outstanding Principal Amount of this Note is being converted or repaid. The Holder and the Company shall maintain records showing the outstanding Principal Amount so converted and repaid and the dates of such conversions or repayments or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon each such conversion or repayment. The Holder agrees that, if the outstanding Principal Amount of this Note is less than the Principal Amount stated on the face of this Note, the Holder will not voluntarily transfer this Note at any time when no Event of Default has occurred and is continuing without first surrendering this Note to the Company for issuance, without charge to the Holder, of a replacement instrument that reflects the outstanding Principal Amount of this Note. The Company will deliver such replacement instrument to the Holder as promptly as practical, but in no event later than three days, after surrender by the Holder.

 

(ii) Stock Certificates. The Company will deliver to the Holder not later than three days after a particular Conversion Date, a certificate or certificates, for the number of shares of Common Stock issuable upon such conversion of this Note.

 

(iii) Liability for Late Delivery; Force Majeure. If in any case the Company shall fail to issue and deliver the shares of Common Stock to the Holder pursuant to this Note on the due date therefor, in addition to any other liabilities the Company may have hereunder and under applicable law the Company shall pay or reimburse the Holder on demand for all out-of-pocket expenses, including, without limitation, reasonable fees and expenses of legal counsel, incurred by the Holder as a result of such failure, so long as the Holder shall have given the Company a Holder Share Notice with respect to such shares of Common Stock.

 

 
5
 
 

 

(c) Conversion Price Adjustments.

 

(i) Stock Dividends, Splits and Combinations. In the event that the Company shall (A) pay a dividend or make a distribution to all its stockholders, in shares of Common Stock, on any class of capital stock of the Company or any subsidiary which is not directly or indirectly wholly owned by the Company, (B) split or subdivide its outstanding Common Stock into a greater number of shares, or (C) combine its outstanding Common Stock into a smaller number of shares, then in each such case the Conversion Price in effect immediately prior thereto shall be adjusted so that the Holder of this Note thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock that such Holder would have owned or have been entitled to receive after the occurrence of any of the events described above had this Note been fully converted immediately prior to the occurrence of such event. An adjustment made pursuant to this Section 3(c)(i) shall become effective immediately after the close of business on the record date in the case of a dividend or distribution and shall become effective immediately after the close of business on the effective date in the case of such subdivision, split or combination, as the case may be. Any shares of Common Stock issuable in payment of a dividend shall be deemed to have been issued immediately prior to the close of business on the record date for such dividend for purposes of calculating the number of outstanding shares of Common Stock under clause (ii) below.

 

(ii) Rounding of Adjustments. No adjustment in the Conversion Price shall be required unless the adjustment would require an increase or decrease of at least 1% in the Conversion Price then in effect; provided, however, that any adjustments that by reason of this Section 3(c) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 3 or Section 2 shall be made to the nearest cent or nearest l /100th of a share.

 

(iii) Notice of Adjustments. Whenever the Conversion Price is adjusted pursuant to this Section 3(c), the Company shall promptly deliver to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment, provided that any failure to so provide such notice shall not affect the automatic adjustment hereunder.

 

(iv) Notice of Certain Events. If:

 

A. the Company shall declare a dividend (or any other distribution) on its Common Stock; or

 

B. the Company shall declare a special nonrecurring cash dividend on or a tender offer for, offer to purchase or redemption of its Common Stock; or

 

C. the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; or

 

 
6
 
 

 

D. the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock of the Company, any consolidation, amalgamation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share of exchange whereby the Common Stock is converted into other securities, cash or property; or

 

E. the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; or

 

F. there exists an agreement to which the Company is a party or by which it is bound providing for a Change in Control Transaction, or a Change in Control Transaction has occurred;

 

then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be mailed to the Holder at its last address as it shall appear upon the books of the Company, on or prior to the date notice of such matter to the Company's stockholders generally is given, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, tender offer, offer to purchase, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distributions, tender offer, offer to purchase, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, amalgamation, merger, sale, transfer, share exchange or Change in Control Transaction is expected to become effective or close, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, amalgamation, merger, sale, transfer, share exchange or Change in Control Transaction.

 

(d) Reservation and Issuance of Underlying Securities. The Company covenants that it will at all times reserve from its authorized and unissued Common Stock a sufficient number of shares solely for the purpose of issuance upon conversion in full of this Note, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder. The Company represents, warrants and covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid, and nonassessable.

 

(e) No Fractions. Upon a conversion hereunder the Company shall not be required to issue stock certificates for a fraction of a share of Common Stock. The Holder shall be entitled to receive, in lieu of the fraction of a share, one whole share of Common Stock.

 

U) Charges, Taxes and Expenses. Issuance of shares of Common Stock upon the conversion of this Note shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such shares, all of which taxes and expenses shall be paid by the Company, and such shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; p ro vid ed, ho weve r , that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the Holder, the applicable Conversion Notice, when given for such conversion shall be accompanied or followed by an assignment form for the applicable portion of this Note or such shares, as the case may be; and provided further , that the Company shall not be required to pay any tax or taxes which may be payable in respect of any such transfer.

 

 
7
 
 

 

(g) Cancellation. After the entire Principal Amount (including accrued but unpaid interest and default payments at any time owed on this Note) has been paid in full or converted into Common Stock, this Note shall automatically be deemed canceled and the Holder shall promptly surrender this Note to the Company at the Company's principal executive offices; provided, however , that the failure to surrender this Note shall not delay or limit such cancellation.

 

(h) Notice Procedures. Any and all notices or other communications or deliveries to be provided by the Holder under this Note, including, without limitation, any Conversion Notice, shall be in writing and delivered personally, by confirmed facsimile, or by a nationally recognized overnight courier service to the Company at the facsimile telephone number or address of the principal place of business of the Company as set forth in, or provided pursuant to, the Purchase Agreement. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or by a nationally recognized overnight courier service addressed to the Holder at the facsimile telephone number or address of the Holder appearing on the books of the Company, or if no such facsimile telephone number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed delivered (i) upon receipt, when delivered personally, (ii) when sent by facsimile, upon receipt if received on a Business Day prior to 5:00 p.m. (Mountain Time), or on the first Business Day following such receipt if received on a Business Day after 5:00 p.m. (Mountain Time) or on a day that is not a Business Day or (iii) upon receipt, when deposited with a nationally recognized overnight courier service.

 

Section 4. Defaults and Remedies.

 

(a) Events of Default. An "Event of Default" is: (i) a failure to pay any Principal Amount of this Note when due, whether at the Final Maturity Date or otherwise, (ii) a failure to pay any interest due on this Note on the date such payment is due, which failure continues for two Business Days (or ten Business Days if such failure results from a Force Majeure Event or if the Company can prove that funds were in fact wired from the Company' s account by the due date); (iii) a failure timely to issue Underlying Shares upon and in accordance with terms hereof, which failure continues for ten Business Days after the Company has received written notice from the Holder informing the Company that it has failed to issue shares or deliver stock certificates prior to the fifth Business Day following the applicable Conversion Date; (iv) failure by the Company for 20 days (or 90 days if such failure results from a Force Majeure Event) after written notice has been received by the Company from the Holder to comply with any material provision (other than as provided in the immediately preceding clauses (i), (ii) and (iii)) of any of this Note; (v) a material breach by the Company of its representations or warranties in this Note that continues for 10 days after written notice to the Company; (vi) any default after any cure period under, or acceleration prior to maturity of, any note, mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company for in excess of $1 million, or for money borrowed the repayment of which is guaranteed by the Company for in excess of $1 million, whether such indebtedness or guarantee now exists or shall be created hereafter; (vii) if the Company is subject to any Bankruptcy Event; or (ix) any material provisions of the Note shall at any time and for any reason be declared by a court of competent jurisdiction to be null and void, or the Company or any Subsidiary of the Company shall repudiate or deny any portion of its liabilities or obligations thereunder.

 
 
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(b) Remedies. If an Event of Default occurs and is continuing, the Holder may declare all of the then outstanding Principal Amount of this Note, and any accrued and unpaid interest thereon, to be due and payable immediately in cash, except that in the case of an Event of Default arising from events described in clauses (vi) and (vii) of Section 4(a), this Note shall become automatically due and payable without further action or notice, and the Holder may exercise all other rights and remedies available at law or in equity. In any event the Company shall pay interest on such amount in cash at the Default Rate to the Holder if such amount is not paid within one Business Day after such acceleration. The remedies under this Note shall be cumulative.

 

Section 5 . Registration. In the event the Company proceeds with an initial public offering of its securities it shall include the Registrable Securities in such registration and the Company shall:

 

(a) Include the Registrable Securities in the Registration Statement and use its best efforts to cause the Registration Statement to become effective and remain effective as provided herein.

 

(b) Prepare and file with the SEC such amendments, including post-effective amendments, to the Registration Statement as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities until such time as all of the Registerable Securities have been sold by the Holder or he is eligible to otherwise remove the restrictive legend and effect a sale other than through the Registration Statement.

 

(c) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of,

 

(i) any order suspending the effectiveness of the Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any U.S. jurisdiction, at the earliest practicable moment.

 

(d) Furnish to the Holder, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by the Holder (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the SEC.

 

 
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Section 6. Certain Covenants; General.

 

(a) Payment of Expenses. The Company agrees to pay all charges and expenses, including attorneys' fees and expenses, which may be incurred by the Holder in seeking to enforce this Note.

 

(b) Savings Clause. In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby. In no event shall the amount of interest paid hereunder exceed the maximum rate of interest on the unpaid principal balance hereof allowable by applicable law. If any sum is collected in excess of the applicable maximum rate, the excess collected shall be applied to reduce the principal debt. If the interest actually collected hereunder is still in excess of the applicable maximum rate, the interest rate shall be reduced so as not to exceed the maximum allowable under law.

 

(c) Amendment Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and Holder.

 

(d) Assignment, Etc. The Holder may assign or transfer this Note, subject to compliance with applicable securities laws, without the consent of the Company. The Holder shall notify the Company of any such assignment or transfer promptly. The Company may not assign its rights or obligations under this Note. This Note shall be binding upon the Company and its successors and shall inure to the benefit of the Holder and its successors and permitted assigns.

 

(e) No Waiver. No failure on the part of the Holder to exercise, and no delay in exercising any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Holder of any right, remedy or power hereunder preclude any other or future exercise of any other right, remedy or power. Each and every right, remedy or power hereby granted to the Holder or allowed it by law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by the Holder from time to time.

 

(I) Governing Law; Jurisdiction.

 

(i) Governing Law. THIS NOTE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF UTAH WITHOUT REGARD TO ANY CONFLICTS OF LAWS PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER WRISDICTION.

 

 
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(ii) NO JURY TRIAL. The Company knowingly and voluntarily waives any and all rights it may have to a trial by jury with respect to any litigation based on, or arising out of, under, or in connection with, this Note.

 

(g) Replacement Notes. This Note may be exchanged by Holder at any time and from time to time for a Note or Notes with different denominations representing an equal aggregate outstanding Principal Amount, as reasonably requested by Holder, upon surrendering the same. No service charge will be made for such registration or exchange. In the event that Holder notifies the Company that this Note has been lost, stolen or destroyed, a replacement Note identical in all respects to the original Note (except for registration number and Principal Amount, if different than that shown on the original Note), shall be issued to the Holder, without requirement for any surety boncL provided that the Holder executes and delivers to the Company an agreement reasonably satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with this Note.

 

[Signature Page Follows]

 

 
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IN WITNESS WHEREOF , the Company has caused this Note to be duly executed on the day and in the year first above written.

 

 

  CO-DIAGNOSTICS, INC.
       
  BY:  

 

 

Dwight H. Egan  
    President and Chief Executive Officer  

 

 

12

 

EXHIBIT 10.15

 

THIS NOTE AND THE SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTSOF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT.

 

THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THIS NOTE IN THE EVENT OF A PARTIAL REDEMPTION, REPAYMENT OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION, REPAYMENT OR CONVERSION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT SET FORTH BELOW .

 

10% CONVERTIBLE NOTE DUE 2017

 

OF

 

CO-DIAGNOSTICS, INC.

 

 

Original Issuance Date:_________________

 

Original Principal Amount:

 

 

$___________________

 

FOR VALUE RECEIVED , Co-Diagnostics, Inc., a Utah corporation ("Company") hereby promises to pay to or upon the order of __________________, or registered assigns or successors-in-interest (the "Holder") the principal sum of ______________ ($ ), together with all accrued but unpaid interest thereon, if any, on the Final Maturity Date, to the extent such principal amount and interest have not been repaid or converted into shares of the Company's Common Stock, $.001 par value, (the "Common Stock"), in accordance with the terms hereof Interest on the unpaid principal balance hereof shall accrue at the rate of 10% per annum from the date of original issuance hereof (the "Issuance Date") until the Final Maturity Date, or such earlier date upon acceleration or by conversion, repayment or redemption in accordance with the terms hereof Interest on this Note shall accrue daily commencing on the Issuance Date, shall be paid at the Final Maturity Date and shall be computed on the basis of a 360-day year, 30-day months and actual days elapsed and shall be payable in accordance with Section 2 hereof Notwithstanding anything contained herein, this Note shall bear interest on the outstanding Principal Amount from and after the occurrence and during the continuance of an Event of Default, at the rate (the "Default Rate") equal to the lower of eighteen percent (18%) per annum or the highest rate permitted by applicable law. Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs, then to unpaid interest and fees and any remaining amount to unpaid principal.

 

 
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All payments of principal of and interest on this Note shall be made in lawful money of the United States of America by wire transfer of immediately available funds to such account as the Holder may from time to time designate by written notice in accordance with the provisions of this Note. This Note may not be prepaid in whole or in part except as specifically provided herein. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day (as defined below), the same shall instead be due on the next succeeding day which is a Business Day and such extension shall be taken into account in determining the amount of interest accrued on this Note.

 

The following terms and conditions shall apply to this Note:

 

1. Definitions.

 

(a) Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Purchase Agreement.

 

(b) For purposes hereof the following terms shall have the meanings ascribed to them below:

 

"Bankruptcy Event" means any of the following events: (a) the Company or any material subsidiary commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any material subsidiary thereof; (b) there is commenced against the Company or any material subsidiary any such case or proceeding that is not dismissed within 60 days after commencement; (c) the Company or any material subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) the Company or any material subsidiary suffers any appointment of any trustee, custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 days; (e) the Company or any material subsidiary makes a general assignment for the benefit of creditors; (f) the Company or any material subsidiary fails to pay, states that it is unable to pay, or is unable to pay, its debts (excluding those reasonably disputed in good faith by the Company in the case of failure to pay and for which it has reserves on its books and financial statements) generally as they become due; (g) the Company or any material subsidiary calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (h) the Company or any material subsidiary, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

"Cash" or "cash" means at any time such coin or currency of the United States of America as shall at such time be legal tender for the payment of public and private debts.

 

"Company Notice Date" shall have the meaning provided in Section 2(c).

 

"Company Prepayment Notice" shall have the meaning provided in Section 2(d).

 

"Conversion Date" shall have the meaning provided in Section 3(b).

 

"Conversion Price" means $.75 or the conversion price of the anticipated Bridge Financing to be provided by Alexander Capital, LP, whichever is less, subject to adjustment as set forth herein.

 

"Event of Default" shall have the meaning provided in Section 4(a).

 

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

 

"Final Maturity Date" means December 31, 2017.

 

 
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"Force Majeure Event" means an event or circumstance that prevents the Company from performing its obligations under this Note or that prevents an act or event required hereunder from happening or occurring (including, without limitation, an act of God, war, insurrection, riot, nuclear disaster, labor strike or threat of violence , labor and material shortage, fire, explosion, flood, river freeze-up, breakdown or damage to mines, plant, equipment, or facilities (including a forced outage or an extension of a scheduled outage of equipment or facilities to make repairs to avoid breakdowns thereof or damage thereto, interruption to or slowdown in transportation, railcar shortage, barge shortage, embargo, order, or act of civil or military authority, law, regulation, or administrative ruling, or total or partial interruption of the Company' s operations which are due to any enforcement action or other administrative or judicial action arising from an environmental law or regulation), but in any case which is not within the reasonable control of, or the result of the negligence of, the Company, and which by the exercise of due diligence, the Company is unable to overcome or avoid or cause to be avoided or is unable in good faith to obtain a substitute acceptable to the Holder therefor.

 

"Holder Share Notice" shall mean a written notice by Holder of its intent to convert the Note to common stock.

 

"Optional Conversion Notice" shall have the meaning provided in Section 3(a). "Principal Amount” means at any time the sum of (i) the outstanding principal amount of this Note at such time, (ii) all accrued but unpaid interest hereunder to such time, and (iii) any default payments owing at such time to the Holder under the Note but not theretofore paid or added to the Principal Amount.

 

"Registrable Securities" means the shares of Common Stock issued and issuable pursuant to the conversion of the Note, and upon any stock split, stock dividend, recapitalization or similar event with respect to such shares of Common Stock and any other securities issued in exchange of or replacement of such shares of Common Stock (collectively, the "Conversion Shares") until in the case of any of the Conversion Shares (a) a Registration Statement covering such Conversion Shares has been declared effective by the SEC and continues to be effective until the Conversion Shares have been sold or (b) such Conversion Shares may sold in compliance with Rule 144 or may be sold pursuant to Rule l 44(k), after which time such Conversion Shares shall not be a Registrable Security.

 

"SEC" means the United States Securities and Exchange Commission.

 

"Securities Act" means the Securities Act of 1933, as amended.

 

"Underlying Shares" means the shares of Common Stock issued or issuable upon conversion of, in lieu of cash payment of principal of, or interest on, as repayment of principal under, or otherwise pursuant to, this Note in accordance with the terms hereof.

 

Section 2. Payments of Principal and Interest.

 

(a) Interest . The Company shall pay interest accruing on this Note (from the date hereof or the date of actual receipt of the proceeds of the loan) on all principal outstanding at the Interest Rate, on the Final Maturity Date

 

(c) Principal . The entire Principal Amount of this Note, plus any and all default payments owing under the Note but not previously paid, shall become due and payable on the Final Maturity Date. Any principal of this Note that is converted pursuant to Section 3 shall be applied to reduce the principal payable under this Section 2(b).

 

 
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Section 3. Conversion.

 

(a) Conversion Rights . Upon the terms and subject to the conditions hereof, the Holder shall have the right, at the Holder' s option, to convert the outstanding Principal Amount and accrued and unpaid interest thereon into Common Stock, in whole at any time or in part from time to time, by delivering to the Company a duly executed notice of conversion in the form attached hereto as Exhibit A (the " Optional Conversion Notice "), which may be transmitted by telephone line facsimile transmission.

 

(b) Common Stock Issuance Upon Conversion .

 

(i) Conversion Procedures . Upon any conversion of this Note pursuant to Section 3(a) above, the outstanding Principal Amount being converted and accrued and unpaid interest thereon to the applicable Conversion Date shall be converted into such number of fully paid, validly issued and non-assessable shares of Common Stock, free of any lien s, claims and encumbrances, as is determined by dividing the outstanding Principal Amount being converted and accrued and unpaid interest thereon to the applicable Conversion Date by the then applicable Conversion Price. The date of any Conversion Notice hereunder shall be referred to herein as the " Conversion Date ". If a conversion under this Note cannot be effected in full for any reason, or if the Holder is converting less than all of the outstanding Principal Amount hereunder pursuant to a Conversion Notice, the Company shall, upon request of the Holder, promptly deliver to the Holder a new Note having a Principal Amount equal to the amount of such outstanding Principal Amount as has not been converted. The Holder shall not be required physically to surrender this Note to the Company upon any conversion unless the full outstanding Principal Amount of this Note is being converted or repaid. The Holder and the Company shall maintain records showing the outstanding Principal Amount so converted and repaid and the dates of such conversions or repayments or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon each such conversion or repayment. The Holder agrees that, if the outstanding Principal Amount of this Note is less than the Principal Amount stated on the face of this Note, the Holder will not voluntarily transfer this Note at any time when no Event of Default has occurred and is continuing without first surrendering this Note to the Company for issuance, without charge to the Holder, of a replacement instrument that reflects the outstanding Principal Amount of this Note. The Company will deliver such replacement instrument to the Holder as promptly as practical, but in no event later than three days, after surrender by the Holder.

 

(ii) Stock Certificates . The Company will deliver to the Holder not later than three days after a particular Conversion Date, a certificate or certificates, for the number of shares of Common Stock issuable upon such conversion of this Note.

 

(iii) Liability for Late Delivery; Force Majeure . If in any case the Company shall fail to issue and deliver the shares of Common Stock to the Holder pursuant to this Note on the due date therefor, in addition to any other liabilities the Company may have hereunder and under applicable law the Company shall pay or reimburse the Holder on demand for all out-of-pocket expenses, including, without limitation, reasonable fees and expenses of legal counsel, incurred by the Holder as a result of such failure, so long as the Holder shall have given the Company a Holder Share Notice with respect to such shares of Common Stock.

 

 
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(c) Conversion Price Adjustments.

 

(i) Stock Dividends, Splits and Combinations . In the event that the Company shall (A) pay a dividend or make a distribution to all its stockholders, in shares of Common Stock, on any class of capital stock of the Company or any subsidiary which is not directly or indirectly wholly owned by the Company, (B) split or subdivide its outstanding Common Stock into a greater number of shares, or (C) combine its outstanding Common Stock into a smaller number of shares, then in each such case the Conversion Price in effect immediately prior thereto shall be adjusted so that the Holder of this Note thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock that such Holder would have owned or have been entitled to receive after the occurrence of any of the events described above had this Note been fully converted immediately prior to the occurrence of such event. An adjustment made pursuant to this Section 3(c)(i) shall become effective immediately after the close of business on the record date in the case of a dividend or distribution and shall become effective immediately after the close of business on the effective date in the case of such subdivision, split or combination, as the case may be. Any shares of Common Stock issuable in payment of a dividend shall be deemed to have been issued immediately prior to the close of business on the record date for such dividend for purposes of calculating the number of outstanding shares of Common Stock under clause (ii) below.

 

(ii) Rounding of Adjustments . No adjustment in the Conversion Price shall be required unless the adjustment would require an increase or decrease of at least 1% in the Conversion Price then in effect; provided, however, that any adjustments that by reason of this Section 3(c) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 3 or Section 2 shall be made to the nearest cent or nearest 1/100th of a share.

 

(iii) Notice of Adjustments . Whenever the Conversion Price is adjusted pursuant to this Section 3(c), the Company shall promptly deliver to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment, provided that any failure to so provide such notice shall not affect the automatic adjustment hereunder.

 

(iv) Notice of Certain Events . If:

 

 

A. the Company shall declare a dividend (or any other distribution) on its Common Stock; or

 

 

 

 

B. the Company shall declare a special nonrecurring cash dividend on or a tender offer for, offer to purchase or redemption of its Common Stock; or

 

 

 

 

C. the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; or

 

 

 

 

D. the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock of the Company, any consolidation, amalgamation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share of exchange whereby the Common Stock is converted into other securities, cash or property; or

 

 

 

 

E. the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; or

 

 

 

 

F. there exists an agreement to which the Company is a party or by which it is bound providing for a Change in Control Transaction, or a Change in Control Transaction has occurred;

 

 
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then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be mailed to the Holder at its last address as it shall appear upon the books of the Company, on or prior to the date notice of such matter to the Company' s stockholders generally is given, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, tender offer, offer to purchase, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distributions, tender offer, offer to purchase, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, amalgamation, merger, sale, transfer, share exchange or Change in Control Transaction is expected to become effective or close, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, amalgamation, merger, sale, transfer, share exchange or Change in Control Transaction.

 

(d) Reservation and Issuance of Underlying Securities . The Company covenants that it will at all times reserve from its authorized and unissued Common Stock a sufficient number of shares solely for the purpose of issuance upon conversion in full of this Note, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder. The Company represents, warrants and covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid, and nonassessable.

 

(e) No Fractions . Upon a conversion hereunder the Company shall not be required to issue stock certificates for a fraction of a share of Common Stock. The Holder shall be entitled to receive, in lieu of the fraction of a share, one whole share of Common Stock.

 

(f) Charges, Taxes and Expenses . Issuance of shares of Common Stock upon the conversion of this Note shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such shares, all of which taxes and expenses shall be paid by the Company, and such shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however , that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the Holder, the applicable Conversion Notice, when given for such conversion shall be accompanied or followed by an assignment form for the applicable portion of this Note or such shares, as the case may be; and provided further , that the Company shall not be required to pay any tax or taxes which may be payable in respect of any such transfer.

 

(g) Cancellation . After the entire Principal Amount (including accrued but unpaid interest and default payments at any time owed on this Note) has been paid in full or converted into Common Stock, this Note shall automatically be deemed canceled and the Holder shall promptly surrender this Note to the Company at the Company' s principal executive offices; provided, however , that the failure to surrender this Note shall not delay or limit such cancellation.

 

(h) Notice Procedures . Any and all notices or other communications or deliveries to be provided by the Holder under this Note, including, without limitation, any Conversion Notice, shall be in writing and delivered personally, by confirmed facsimile, or by a nationally recognized overnight courier service to the Company at the facsimile telephone number or address of the principal place of business of the Company as set forth in, or provided pursuant to, the Purchase Agreement. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or by a nationally recognized overnight courier service addressed to the Holder at the facsimile telephone number or address of the Holder appearing on the books of the Company, or if no such facsimile telephone number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed delivered (i) upon receipt, when delivered personally, (ii) when sent by facsimile, upon receipt if received on a Business Day prior to 5:00 p.m. (Mountain Time), or on the first Business Day following such receipt if received on a Business Day after 5:00 p.m. (Mountain Time) or on a day that is not a Business Day or (iii) upon receipt, when deposited with a nationally recognized overnight courier service.

 

 
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Section 4. Defaults and Remedies.

 

(a) Events of Default . An "Event of Default" is: (i) a failure to pay any Principal Amount of this Note when due, whether at the Final Maturity Date or otherwise, (ii) a failure to pay any interest due on this Note on the date such payment is due, which failure continues for two Business Days (or ten Business Days if such failure results from a Force Majeure Event or if the Company can prove that funds were in fact wired from the Company's account by the due date); (iii) a failure timely to issue Underlying Shares upon and in accordance with terms hereof, which failure continues for ten Business Days after the Company has received written notice from the Holder informing the Company that it has failed to issue shares or deliver stock certificates prior to the fifth Business Day following the applicable Conversion Date; (iv) failure by the Company for 20 days (or 90 days if such failure results from a Force Majeure Event) after written notice has been received by the Company from the Holder to comply with any material provision (other than as provided in the immediately preceding clauses (i), (ii) and (iii)) of any of this Note; (v) a material breach by the Company of its representations or warranties in this Note that continues for 10 days after written notice to the Company; (vi) any default after any cure period under, or acceleration prior to maturity of, any note, mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company for in excess of $1 million, or for money borrowed the repayment of which is guaranteed by the Company for in excess of $1 million, whether such indebtedness or guarantee now exists or shall be created hereafter; (vii) if the Company is subject to any Bankruptcy Event; or (ix) any material provisions of the Note shall at any time and for any reason be declared by a court of competent jurisdiction to be null and void, or the Company or any Subsidiary of the Company shall repudiate or deny any portion of its liabilities or obligations thereunder.

 

(b) Remedies . If an Event of Default occurs and is continuing, the Holder may declare all of the then outstanding Principal Amount of this Note, and any accrued and unpaid interest thereon, to be due and payable immediately in cash, except that in the case of an Event of Default arising from events described in clauses (vi) and (vii) of Section 4(a), this Note shall become automatically due and payable without further action or notice, and the Holder may exercise all other rights and remedies available at law or in equity. In any event the Company shall pay interest on such amount in cash at the Default Rate to the Holder if such amount is not paid within one Business Day after such acceleration. The remedies under this Note shall be cumulative.

 

Section 5. Registration Obligations . In connection with the registration of the Registrable Securities, the Company shall:

 

(a) Prepare and file with the SEC a Registration Statement on Form S-1, shall include the Registrable Securities in the Registration Statement and use its best efforts to cause the Registration Statement to become effective and remain effective as provided herein.

 

(b) Prepare and file with the SEC such amendments, including post-effective amendments, to the Registration Statement as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities until such time as all of the Registerable Securities have been sold by the Holder or he is eligible to otherwise remove the restrictive legend and effect a sale other than through the Registration Statement.

 

 
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(c) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of, (i) any order suspending the effectiveness of the Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any U.S. jurisdiction, at the earliest practicable moment.

 

(d) Furnish to the Holder, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by the Holder (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the SEC.

 

Section 6. Certain Covenants; General.

 

(a) Payment of Expenses . The Company agrees to pay all charges and expenses, including attorneys' fees and expenses, which may be incurred by the Holder in seeking to enforce this Note.

 

(b) Savings Clause . In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby. In no event shall the amount of interest paid hereunder exceed the maximum rate of interest on the unpaid principal balance hereof allowable by applicable law. If any sum is collected in excess of the applicable maximum rate, the excess collected shall be applied to reduce the principal debt. If the interest actually collected hereunder is still in excess of the applicable maximum rate, the interest rate shall be reduced so as not to exceed the maximum allowable under law.

 

(c) Amendment. Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and Holder.

 

( d) Assignment, Etc . The Holder may assign or transfer this Note, subject to compliance with applicable securities laws, without the consent of the Company. The Holder shall notify the Company of any such assignment or transfer promptly. The Company may not assign its rights or obligations under this Note. This Note shall be binding upon the Company and its successors and shall inure to the benefit of the Holder and its successors and permitted assigns.

 

(e) No Waiver . No failure on the part of the Holder to exercise, and no delay in exercising any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Holder of any right, remedy or power hereunder preclude any other or future exercise of any other right, remedy or power. Each and every right, remedy or power hereby granted to the Holder or allowed it by law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by the Holder from time to time.

 

 
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(f) Governing Law; Jurisdiction.

 

(i) Governing Law . THIS NOTE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF UTAH WITHOUT REGARD TO ANY CONFLICTS OF LAWS PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER JURJSDICTION.

 

(iii) NO JURY TRIAL . The Company knowingly and voluntarily waives any and all rights it may have to a trial by jury with respect to any litigation based on, or arising out of, under, or in connection with, this Note.

 

(g) Replacement Notes . This Note may be exchanged by Holder at any time and from time to time for a Note or Notes with different denominations representing an equal aggregate outstanding Principal Amount, as reasonably requested by Holder, upon surrendering the same. No service charge will be made for such registration or exchange. In the event that Holder notifies the Company that this Note has been lost, stolen or destroyed, a replacement Note identical in all respects to the original Note (except for registration number and Principal Amount, if different than that shown on the original Note), shall be issued to the Holder, without requirement for any surety bond, provided that the Holder executes and delivers to the Company an agreement reasonably satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with this Note.

 

[Signature Page Follows]


 
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IN WITNESS WHEREOF , the Company has caused this Note to be duly executed on the day and in the year first above written.

 

 

  CO-DIAGNOSTICS, INC.
       
By: /s/ Reed Benson

 

 

Reed L Benson  
    Secretary, CFO and General Counsel  

 

 

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EXHIBIT 10.16

 

SHAREHOLDERS’ AGREEMENT

 

This Shareholders’ Agreement (hereinafter, the “ Agreement ”) is made and entered into this 27 th January of 2017. (the “ Effective Date ”)

 

BY AND BETWEEN

 

Synbiotics Limited , a company incorporated and registered under the Laws of India under the provisions of Companies Act, 1956, having its registered office at Sarabhai Campus, Gorwa Road, Vadodara – 390 023 (hereinafter referred to as “ Synbiotics ” which expression shall, unless repugnant to the context or meaning thereof, be deemed to include its successors, assigns and permitted nominees), of the One part

 

AND

 

Co-Diagnostics Inc., a company incorporated under the laws of USA, having its Registered Office at 585 W500S, Suite 210, Bountiful, UT 84010 (hereinafter referred to as “ Co-Dx ” which expression shall, unless it be repugnant to the context or meaning thereof be deemed to mean and include its successors, assigns and permitted nominees), of the other part

 

WHEREAS

 

A. Synbiotics is established in India as a wholly owned subsidiary of Ambalal Sarabhai Enterprises Limited with a special focus on fermentation technology and has technical expertise in the field of testing and manufacturing in India.

 

B. Co-Dx is established in USA with expertise in molecular diagnostics that has unique patented diagnostic testing technology for DNA testing on PCR technology.

 
 
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C Synbiotics and Co-Dx proposes to effectively utilize the core competence of both the companies and synergize their operations to further strengthen their presence in the related market ( IVD market in India is expected to be USD 9 billion) by forming a new Joint Venture Company (“ JVC ”). The purpose of this JVC is to set up a manufacturing location in India. This manufacturing location will manufacture the products for distribution and sale in India initially and, subject to mutual agreement of the parties, later for worldwide markets.

 

D Synbiotics and Co-Dx have agreed to record the agreement reached with regard to their respective shareholding in the JVC for the purpose of facilitating the development and operation of the JVC and providing a frame – work for the satisfactory relationship between them as the shareholders of the JVC.

NOW THEREFORE THIS AGREEMENT WITNESSETH THAT:

 

1. INTERPRETATION

 

In this Agreement (including the Recitals), the following words and expressions shall have the following meanings:

 

1.1 The “ Act ” shall mean the [Indian] Companies Act, 1956, and [Indian] Companies Act, 2013 as amended or restated from time to time.

 

1.2 “ Affiliates ” shall mean , with respect to a Party, any Person which is a direct or indirect holding company or subsidiary of such Party or which directly or indirectly (a) owns or controls such Party, (b) is owned or controlled by such Party, or (c) is under common ownership or control with such Party. For purposes of this Agreement, the terms “ control ” “ controlling ” or “ controlled ” shall mean the power to direct the management, operations, business and/or policies of such Party, and the terms “ holding company ” and “ subsidiary ” shall have the meanings ascribed to them under Section 4 of the Act.

 
 
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1.3 “ Articles ” mean the Articles of Association of the JVC to be adopted.

 

1.4 “ Billing Price ” shall mean CIF or FOB for sales outside India and shall mean the invoiced price to the distributors for sales within India.

 

1.5 “ Board ” means the Board of Directors of the JVC.

 

1.6 The “ Completion Date ” means the date on which both the Parties have brought in their equity in the JVC and the entry of the Parties’ names in the JVC’s register as the legal and beneficial owners of 50% and 50%, respectively, of the initial issued and paid‑up equity capital of the JVC, which shall be a date not later than March 31, 2017, unless the Parties jointly decide to postpone such Completion Date.

 

1.7 “ Deadlock ” shall mean any situation where at any time from the commencement of commercial operation of the JVC, a matter pertaining to the JVC:

 

a) has been considered at three consecutive Board meetings of the JVC and the Board is unable to pass the resolution (save where all the Directors vote against the resolution);

 

b) has been considered at a general meeting of the JVC including any adjourned meeting thereof and that general meeting is unable to arrive at a decision on the matter by reason of disagreement between Shareholders;

 
 
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c) is not resolved by reason of an absence of quorum in any three consecutive general or Board meetings (including the adjourned meetings).

 

1.8 “ Force Majeure ” shall have the meaning ascribed to it.

 

1.9 “ JVC ” means the Joint Venture Company floated by Synbiotics and Co-Dx.

 

1.10 “ Key-employee ” shall mean any or several or all of the following employees of the JVC: Chief Operating Officer, Chief Finance Officer and Chief Technical Officer.

 

1.11 “ Material Breach ” shall mean either of the following breaches, whether committed by Synbiotics or Co-Dx during the term of this Agreement:

 

(a) transfer or attempt to transfer its shares in contradiction with the provisions of this Agreement;

 

(b) any failure to vote or cause its Directors or officers to vote, in such a manner to implement the provisions of this Agreement or in a manner not in compliance with the provisions of this Agreement;

 

(c) failure to subscribe and pay for its shares in the JVC in accordance with the provisions of this Agreement;

 

(d) any breach of any obligation contained in Clause 15 hereof;

 

(e) commission of any act in contradiction with the restrain of competition provided in Clause 16 hereof.

 
 
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1.12 “ Party ” shall mean Synbiotics and Co-Dx when reference is to any one of them individually and when the reference is to more than one of them jointly the word will be “ Parties ”.

 

1.13 “ Person ” shall mean any individual, company, firm, association, trust, or any other organization or entity, including any governmental or political subdivision, ministry, department or agency thereof.

 

1.14 “ Products ” shall mean Reagents to be manufactured bythe JVC on transfer of technology for the products by Co-Dx to JVC subject to conditions and at no cost to the JVC, except for reagents for the Zika virus, Dengue and Chikungunya, which are subject to a negotiable royalty on Net Selling Price (NSP).

 

1.15 “ Shareholder ” shall mean any shareholder of the JVC from time to time and “Shareholders” means more than one shareholder of the JVC, it being understood that on the date of this Agreement, “Shareholder” or “Shareholders”, shall mean Synbiotics and Co-Dx, individually or collectively, as the case may be

 

1.16 “ Shareholders’ Agreement ” or “ Agreement ” shall mean this agreement.

 

1.17 Tag Along Sale shall mean sale as described under article 13.5

 

2. ESTABLISHMENT AND STRUCTURE OF JVC

 

2.1 Synbiotics and Co-Dx shall incorporate a Joint Venture Company (JVC) to be named “CoSara Diagnostics Ltd” which shall be registered under the said name or such other name as approved by the concerned Registrar of Companies and acceptable to both the Parties.

 
 
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2.2 The purpose of the JVC shall be to manufacture and sell the Products in accordance with the terms of this Agreement.

 

3. INVESTMENT, SHARE CAPITAL AND DEBTS

 

3.1 Immediately upon signing of this Agreement, the JVC shall be incorporated with initial authorized share capital of Rs. 8 Million (approximately US $ 120,000) divided into 80,000 equity shares of face value of Rs. 100 each. Both Parties shall invest Rs. 4 million to gain 50% of the share capital. This will be 50% to each Party in the JVC.

 

3.2 The JVC will occupy approx. 2500 sq. ft. of space from Synbioticsfor a period of 2 years with a compensation payable of Rs. 1.8 million per year (approx 28000 USD per year). The compensation will be increased by 10% every year. The space provided will be made available to the JVC throughout the term of this Shareholders Agreement. This will be NEW space created/built by the JVC within the premises of Synbiotics. In order to save costs -certain common areas of existing Synbiotics (specifically QC, Warehouse etc) shall be utilized by the JVC on actual cost basis.The ownership of such buildings and land is and shall always be of Synbiotics .

 

3.3 Synbiotics and Co-Dx shall hold the equity shares of JVC equally. Any further issue of equity shall be done by mutual agreement and in such manner that the shareholding of both Parties continue to remain equal.

 

3.4 The initial working capital requirement will be brought in by the JVC Shareholders and later from borrowing from the Banks and financial institutions.

 
 
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3.5 Additional financial requirements of the JVC: The Shareholders expressly understand and acknowledge that the JVC may require funds from time to time in addition to its authorized share capital issued in accordance with Clause 3.1 above, in order to conduct its business. In the event the Board reasonably determines that the JVC requires such additional funds at any time, the Board shall procure such financial requirements in the following order of priority:

 

(a) from the revenue of the Business;

 

(b) through borrowings from Indian or international banks or financial institutions on commercially reasonable terms and on the basis of security provided by the JVC’s properties and assets without requiring any Shareholder’s guarantee; however if such financing is not available unless one or both Shareholders provide guarantee, such guarantees shall be given by both Shareholders in equal proportions and remunerated on reasonable terms in accordance with then applicable laws;

 

(c) through borrowings from the Shareholders in accordance with applicable laws at the time of the transaction and on reasonable terms;

 

(d) where the Board is of the view that financing under Clauses 3.5(b) and 3.5(c) is not available on commercially reasonable terms, the Board may, for reasons to be recorded in writing, require such financing from additional capital contributions of the Shareholders in such aggregate amounts as may be determined from time to time by the Board and made on a pro‑rata basis in such manner that the shareholding of both Parties continue to remain equal.

 

3.6 In the event of issuance of equity to a third party other than Synbiotics and Co-Dx, the equity will be issued in such a manner that the shareholding of Synbiotics and Co-Dx remains equal and such third party shall be bound by the terms of this Agreement.

 
 
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4. CONDITIONS PRECEDENT

 

This Agreement is conditional upon (a) Synbiotics and Co-Dx receiving necessary clearances and approvals from their respective Board of Directors, Shareholders (if necessary), (b) Synbiotics and Co-Dx obtaining approvals from the Government of India and / or statutory bodies as may be necessary for the establishment of the JVC and for allotment of shares to Synbiotics and Co-Dx wherever necessary, (c) Synbiotics and Co-Dx having agreed to the terms referred to in Clause 8 hereof. Parties will use their best endeavor to complete the formalities as expeditiously as possible before the Completion Date. In case either of the above are not achieved on the Completion Date, this Agreement shall terminate without creating any obligations on either Party save for the obligations contained in Clauses 15 and 20 hereof.

 

5. ARTICLES OF ASSOCIATION

 

5.1 To the extent legally permissible, all provisions of this Agreement shall be properly incorporated in the Articles of Association of the JVC.

 

5.2 It is expressly agreed and confirmed by the Parties that whether or not the Memorandum and Articles of Association of the JVC fully incorporate the provisions hereof or any of them, the Parties’ rights and obligations shall be governed by this Agreement which shall prevail in the event of any ambiguity or inconsistency between the two.

 
 
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6. TECHNOLOGY TRANSFER

 

The technology that will be licensed will include the clinical as well as regulatory expenses required for the JVC to obtain the manufacturing permission in India. The license shall be irrevocable and co-extensive with existence of JVC. Co-Dx shall not charge any fees for such a license. Once the technology has been licensed to the JVC all the manufacturing and manufacturing compliances and GMP responsibilities will be that of the JVC.

 

It is understood that the validation and regulatory expenses for products described in List – A of Annexure I have already been completed by Co-Dx, or will have been completed prior to the manufacture by the JVC, and available to the JVC at no additional cost and as per the terms of technology license. Provided, however, the sale of reagents for the Zika virus, dengue, and chikungunya are subject to a negotiable royalty on NSP. The products listed in List A will form the basis of initial sales as described in Annexure – II. It is understood that regulatory and validation costs for the project mentioned in List B of Annexure IIwill be undertaken by the JVC on a case by case basis.

 

7. SET UP EXPENSES

 

The set up expenses to be done for the JVC upto Completion Date shall be done using the good offices of Synbiotics and its affiliates and will not be charged to the JVC. Similarly cost related to the technology license shall be borne by Co-Dx.

 

8. MARKETING AND DISTRIBUTION

 

Marketing and Distribution of the Products shall be undertaken by JVC as per the business plan and market conditions. The business plan prepared on the basis of market survey undertaken by CoDX is annexed at Annexure 2 to this Agreement . Initial marketing and distribution shall be undertaken on the basis of the said plan.

 
 
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9. RECRUITMENT OF EMPLOYEES

 

9.1 JVC shall employ such number of personnel as may be required for the conduct of its business.

 

9.2 Only those persons whose appointment is unanimously approved by the Board of Directors of JVC shall be appointed as Key-employee/s. Their respective powers shall be delegated by the Board in accordance with Clause 10 hereof.

 

9.3 Synbiotics and its affiliates will provide services to the JVC that include besides the COO services - the responsibilities of Finance & Accounts, Secretarial and HR, Legal, Liaison etc. which will be charged at Rs. 400,000 (approx USD 6000) per month with full disclosure of the services offered.Such charges shall be increased by 10% every year. The other services will be charged at Rs. 75,000 (approx USD 1100) per month is arrived at on an assumption that services of 4 no of employees of Synbiotics would be utilized for JVC for approx 4 hours every working day. In case man power to be provided by Synbiotics to JVC is required to be increased, either in terms of number of employees or working hours, the charges to be paid to Synbiotics would be increased proportionately.

 

Co-Dx will be placing certain of its equipment specifically PCR machine in the JVC and the charge as and when negotiated will become payable to Co-Dx.

 
 
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10. BOARD OF DIRECTORS AND MANAGEMENT

 

10.1 (a) The Board of the JVC shall consist of four (4) directors to whom, Synbiotics shall be entitled to nominate/designate two (2) directors and Co-Dx shall be entitled to nominate / designate two (2) directors. In the event of increase in the number of Directors, Synbiotics and Co-Dx shall be entitled at any time to nominate equal number of directors. The Directors so appointed shall not be liable to retire by rotation nor be subject to any election.

 

(b) A vacancy on the Board of Directors shall be filled in as follows;

 

(i) In case of a director who was nominated / designated for appointment by Synbiotics vacating his office as a director, the Person to be appointed to fill the vacancy shall be one nominated / designated by Synbiotics.

 

(ii) In the case of director who was nominated / designated for appointment by Co-Dx vacating his office as a director, the Person to be appointed to fill the vacancy shall be one nominated / designated by Co-Dx.

 

(c) Synbiotics or, as the case may be Co-Dx shall be entitled to remove any of its appointees as directors by addressing a written communication in that behalf to the Board of Directors of the JVC and the Parties hereto and to appoint a replacement in such vacancy and the Board shall immediately take steps to implement such communication in that behalf. No Director shall be removed under any circumstances without the express prior written approval of the Party nominating him.

 
 
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(d) Synbiotics or, as the case may be Co-Dx shall be entitled to recommend the appointment of alternate director/s in the event that the director/s appointed or nominated / designated by Synbiotics or as the case may be Co-Dx is/are unable to attend the meetings of the Board of Directors. The Board of Directors shall accept such recommendation and appoint these alternate directors. An alternate director shall be entitled to receive notices of meetings or the directors and of any committee of the directors thereof and shall be entitled to attend and vote as a director.

 

10.2 (a) No meeting of the Board shall be held unless at least thirty (30) business days written notice has been given to each of the Directors, at their address in India or abroad, or by shorter written notice if all Directors entitled to vote accord their consent thereto in writing, and a quorum is present in accordance with Clause 10.2(c) hereof.

 

(b) In the meetings, only such agenda will be placed as is specified in the notice to the Directors and the agenda shall not be changed in any manner unless prior approval of at least one Director appointed by each Party hereto is obtained.

 

(c) The Parties agree that a valid quorum for the purposes of any meeting of the Board shall require the presence of at least one nominee of each Party. Provided that, if a valid quorum is not present at any meeting of the Board due to the absence of all the nominees of any one Party (“ Absent Party ”) the meeting shall stand adjourned by seven (7) business days. If at such adjourned meeting also a valid quorum is still not present due to the absence of all the nominee directors of the Absent Party, the meeting shall stand adjourned again by three (3) business days, and in absence of a quorum at such adjourned meeting due to the continued absence of the representative of the Absent Party, Clause 14 shall apply.

 
 
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(d) Subject to the provisions of the Act, a resolution shall be deemed to have been passed by circulation if the same was circulated in writing along with all the necessary papers, if any, to all the directors whether in India or abroad, and the same is signed by all the directors. If applicable laws do not permit the enforceability of this provision, then no resolution shall be passed by circulation.

 

(e) Board meetings may take place in person or through video conferencing or other audio visual means as permission under the Act.

 

10.3 The Chairman and Co- Chairman of the Board shall be appointed on a rotational basis for a period of two (2) years each. When the Chairman is nominated by Synbiotics, the Co-Chairman shall be nominated by Co-Dx and vice-a-versa. The first Chairman shall be nominated by Co-Dx and the Co-Chairman shall be nominated by Synbiotics. In case of absence of the Chairman appointed as above at any of the Board meetings, the Co-Chairman shall hold office of the Chairman at such meeting.

 

10.4 The Chairman at any Board or Shareholder’s meeting shall not have any additional vote or casting vote or second vote in any such Board or Shareholders meeting.

 

10.5 The meeting of the Board of Directors shall be held at least once in every three months and at least four such meetings shall be held in every year.

 

10.6 There shall be a Chief Operating Officer (COO) of JVC to be jointly selected by both the Parties and he/she shall work under the overall supervision, direction, control and as the case may be delegation, of the Board of Directors of the JVC. The appointment of COO shall be on such terms as approved by the Board. If either of the two Parties is not satisfied with the performance or conduct of the COO the chairman / Vice–Chairman of the party concerned will recommend by a confidential note the termination of his/her services to the Chairman/Vice – Chairman of the other Party and the Chairman / Vice–Chairman of both Parties shall, within next 30 days try to come to a mutually accepted decision failing which the party seeking removal of COO shall intimate the Board of Directors of its desire to remove the COO and the Board shall accept the recommendations and terminate the services of the COO forthwith.

 
 
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The COO shall be vested with adequate responsibilities and authority to enable him/her to conduct the day to day management and operation of the JVC effectively.

 

10.7 Nothing contained in 10.6 shall apply to the employees of Synbiotics whose services are made available to JVC as per clause 9.3 hereinabove.

 

10.8 The Management of the JVC during the initial period will be done with Mr. Anurag Mehta who is an employee of Synbiotics but will also perform the role of Chief Operating Officer (COO) of the JVC and will be subject to the Management articles described hereunder.

 

11. POWERS OF THE BOARD AND STRATEGIC MATTERS

 

11.1 The Board shall exercise final authority with respect to the business of and conduct of its affairs by the JVC, and the management, operations and policies of the JVC. All decisions, actions and resolutions of the Board not involving a Strategic Matter (as defined below) shall be adopted by the majority vote of a simple majority of the members of the Board present at the meeting.

 

11.2 No decision, action or resolution of the Board shall be passed for any of the following matters (herein referred to as “ Strategic Matters ”) except with the unanimous consent of all Directors nominated / designated by both Synbiotics and Co-Dx:

 

a) To approve and recommend to the Shareholders any matter requiring a special resolution to be taken by the Shareholders;

 
 
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b) To increase or reduce number of directors of the JVC;

 

c) Approval and/or variation of the terms of or termination of any agreement, contract or arrangement, which relate to an amount in excess of Rs. 1 million (Rupees One Million), to which the JVC is a Party;

 

d) approval and/or any variation of the corporate policy concerning signatories to the JVC’s bank accounts;

 

e) To appoint auditors and fix their remuneration, remove an auditor and appoint in his place another auditor;

 

f) To declare dividends including interim dividends;

 

g) Capital expenditure (not covered by an annual expenditure budget approved by the Board in accordance with the procedure herein laid down);

 

h) Disposal of tangible or intangible assets of the JVC not covered by the annual budget approved by the Board in accordance with the procedure herein laid down;

 

i) Any liquidation or merger or amalgamation or reconstruction of the JVC in any manner or any arrangement with its creditors;

 

j) Undertaking of any commercial activity unrelated to the activity envisaged in Clause 2.2 herein;

 

k) To approve the annual budget of the JVC and plan for long term business strategies;

 
 
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l) To change the registered office of the JVC;

 

m) Granting or obtaining of any technology or know-how rights by the JVC;

 

n) Increase / decrease in transfer pricing of the products purchased by the JVC from any Party;

 

o) Approval of any aggregate indebtedness or borrowing of the JVC, including creation of any contingent liability (including, by way of example, any guaranty or indemnity), otherwise than in the normal course of business;

 

p) Giving loans, advances, guarantees or providing any security to any entity or approval of any lien, pledge or charge on any assets of the JVC otherwise than in the normal course of business;

 

q) Making inter corporate investments;

 

r) Sale of whole or part of the business or undertaking of the JVC, except in such circumstance that control of JVC is sold to a third party as per Article __13.5_ hereof ( Tag Along Sale) ;

 

s) Substantial expansion or diversification of the JVC or cessation of any material business operation of the JVC;

 

t) Amalgamation, re-construction and/or winding up of the JVC;

 

u) The application for registration of any intellectual property rights in any country on behalf of the JVC, or the execution of any agreement with a third party related to intellectual property rights, whether registered or not, and including but not limited to know-how, patents and trade marks;

 

v) Increase / Decrease in share capital;

 
 
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w) Appointment, terms of appointment and delegation of powers to any of the Key-employees and generally, granting or termination of a power of attorney in favour of any Director, officer or employee of the JVC or any third Person or any variation of the terms thereof;

 

x) Commencement of a lawsuit or other proceedings in relation to the JVC or its business or assets or the settlement of any lawsuit or proceeding in an amount in excess of Rs. 1 million (Rupees One Million).

 

12. TRANSFER OF SHARES

 

12.1 Otherwise than in accordance with the following provisions of this Clause Synbiotics or Co-Dx shall not:

 

12.1.1 Sell or transfer any of its shares except in case of Tag Along Sale ; or

 

12.1.2 Enter into any agreement or arrangement in respect of the votes attached to its shares; or

 

12.1.3 Pledge the shares to any entity other than banks or financial institutions before informing the same to other party and such pledge shall contain an express provision that the rights of pledge, transfer or sale shall be subject to share transfer provisions contained in this Agreement.

 

12.1.4 Agree, whether or not subject to any conditions precedent or subsequent to do any of the foregoing.

 

12.2 Synbiotics, or Co-Dx shall not be entitled to sell / transfer or otherwise dispose of any of the shares held by it in the JVC except in accordance with the provisions of this Clause. Any transfer or disposal of shares in the JVC in violation of this Clause 12 shall be null and void, shall not be binding upon the JVC and the Board shall refuse to register the transfer of such shares.

 
 
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12.2.1 If at any time after three years from the Completion Date (hereinafter referred to as “ Lock-In Period ”), which is in consonance with the time for return on investment as estimated by the Parties in the initial business-plan but may be reduced with prior written approval of both Parties in case the return on investment happens to be faster than foreseen, and save as in cases of transfer of shares in pursuance to termination of this Agreement, resolution of a deadlock situation in accordance with the terms of this Agreement, or in case of Tag Along Sale , Co-Dx or as the case may be Synbiotics (hereinafter and for the purpose of this Clause called “ the Offeror ”) desire to transfer all, and not less than all, of its shares held by it in the JVC to any Person, it shall offer such shares in writing in the first instance to the other Party (hereinafter and for the purpose of this Clause called “ the Offeree ”) at the price expected to be received from a bona fide third party purchaser. The Offeree shall have a right of first refusal, whereby it shall be entitled to purchase, either directly or through any of its Affiliates, all and not less than all of, the shares offered or reject such offer within a period of sixty (60) days from the date of receipt of the offer. If the Offeree does not convey its acceptance in writing to the Offeror within sixty (60) days as aforesaid, the offer shall be deemed to have been rejected by the Offeree.

 

12.2.2 Only if such offer is rejected or is deemed to have been rejected by the Offeree,shall the Offeror be entitled to sell all of its shares in the JVC to any other Person/s, provided that (i) the offer price shall not be lower than the price at which the shares were offered to the Offeree as aforesaid, nor shall the terms of sale be better than the terms offered to the Offeree as aforesaid, (ii) such purchasing third party shall be obliged to execute a deed of adherence, agreeing to be bound by the provisions of this Agreement and to assume such of the rights and obligations of the Offeror hereunder as they relate to such purchasing third party as the holder of the shares being so transferred, and (iii) any such purchasing third party purchasing the Offeror’s shares is bound to purchase the other Party’s shares at the same price and under the same terms, if the other Party is so willing. Such sale in favor of any third party shall be completed within a period of ninety (90) days from the date of actual or deemed rejection by the Offeree, failing which the entire process will have to be repeated.

 
 
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12.2.3 No Shareholder shall be entitled to sell, transfer or otherwise enter or attempt to enter into any of the transactions referred to in Clause 12.1 above during the Lock-In Period, except in case of Tag Along Sale, in cases of transfer of shares in pursuance to termination of this Agreement.

 

12.2.4 Notwithstanding the above, each of the Shareholders shall be entitled to transfer at any time all and not less than all, of the Shares for the time being held by it to any of its Affiliate or to the other Party to this Agreement (Synbiotics or Co-Dx as the case may be) or any of its Affiliates, and the right of first refusal as aforesaid shall not apply in case of such a transfer.

 

12.2.5 The procedure above shall not apply in case where both Parties to this Agreement sell their respective shares together and at the same time.

 

13. VOTING

 

13.1 In order to protect the mutual interest of both Synbiotics and Co-Dx, to secure and ensure to the extent possible stability of the JVC and for the proper and effective implementation of this Shareholders’ Agreement, both the Parties agree and undertake to each other the following:

 
 
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13.2 Each of the Parties hereto agree to exercise its voting rights in the JVC and to take such steps as for the time being lie within its power to ensure that the JVC observes and performs the provisions of this Agreement and is managed in the manner provided herein.

 

13.3 At all times during the term of this Agreement, each of the Parties hereto ensure and cause their representatives to be elected as Directors on the Board and also ensure and cause such Directors to approve at Board’ meetings resolutions which are in consonance with and compliance of the terms of this Shareholders’ Agreement and to refrain from voting on resolutions which are not in consonance with and compliance of the terms of this Shareholder’s Agreement. The forgoing notwithstanding, Directors shall be free to vote on any matters of business in their sole discretion including, but not limited to (1) capital budgeting; (2) approval of annual operating budgets; (3) approval of capital calls; and (4) expansion of business lines and products as long as such matters do not form part of Strategic Matters listed in Clause 11.2.

 

13.4 Synbiotics, or as the case may be Co-Dx, shall attend (either in person or through proxy given to a duly authorized representative or proxy) the general meeting and any adjournment thereof and shall exercise their entire voting rights (including of a show of hands or poll) to approve resolutions, which are in consonance with and compliance of the terms of this Shareholders’ Agreement, and to refrain from voting or approving such resolutions which are not in consonance with and compliance of the terms of this Shareholder’s Agreement. The forgoing notwithstanding, Directors shall be free to vote on any matters of business in their sole discretion including, but not limited to (1) capital budgeting; (2) approval of annual operating budgets; (3) approval of capital calls; and (4) expansion of business lines and products as long as such matters do not form part of Strategic Matters listed in Clause 11.2.

 
 
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13.5 Tag Along Sale

 

If at any time within a period of four years after the Completion Date, Co-Dx shall receive an offer to purchase Co-Dx, including the business and operations of the JVC, and Co-Dx desires to accept such an offer, Synbiotics agrees to vote in favour of accepting such offer as long as Synbiotics shall receive an amount equal to or greater than the capital invested by Synbiotics plus an average annual return on investment, rate of return being greater than 50% or 1 million USD whichever is higher.Valuation of the JVC for purposes of calculating Synbiotic’s share of the purchase price shall be determined by a fairness opinion rendered by an internationally recognized investment bank or one selected jointly by Co-Dx and Synbiotics, , who shall act as an independent valuer and not as an arbitrator and whose decision in that regard shall be final, binding and conclusive on the Parties. Co-Dx agrees to pay for the fairness opinion.

 

13.6 Both Parties agree and undertake to each other to do all acts, deeds, matters and things and execute all such further documents as may be necessary or desirable in order to give effect to all intents and purpose of this Shareholder’s Agreement at all general meetings and Board Meetings of the JVC.

 

13.7 In the event of equal votes being cast on any resolution in any meeting of the Board of Directors, General Meeting or Extra ordinary General Meeting, and at such meeting reconvened seven (7) calendar days later, the Parties shall continue the business in the same manner as before the vote until the parties jointly agree to move forward in accord.

 

14. DEADLOCK In the case of deadlocked voting by the Directors the parties agree to continue the business in the same manner as before the deadlocked vote until the parties jointly agree to move forward in accord.

 
 
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15. CONFIDENTIALITY AND INDUSTRIAL PROPERTY RIGHTS

 

15. 1 Confidentiality

 

(a) All information of all types relating to the Products, whether written or oral or in any other form, whether on tangible or intangible support, including without limitation information pertaining to the formulations, business strategy, manufacturers, plant drawings and/or the manufacturing know-how (collectively, “ Confidential Information ”), disclosed by either Party or by any of its Affiliates (the “ Disclosing Party ”) to the other Party or to any of its Affiliates, directors, officers, employees or agents (either of them, individually or collectively, the “ Recipient ”) shall be kept strictly secret and confidential, shall not be duplicated and shall not be disclosed to any Person except to the extent that any such disclosure is necessary in connection with the performance of this Agreement. The Recipient further agrees that it shall not use, nor permit its Affiliates to use, any Confidential Information for any purpose whatsoever except in the manner expressly provided or contemplated in this Agreement. The Recipient shall take adequate security and precautionary measures to effect compliance with this Clause by its directors, officers, employees, agents and Affiliates who are given access to Confidential Information. The procedures for the handling and safeguarding of Confidential Information within the JVC shall be determined from time to time by the Board.

 

(b) Any information provided by the Disclosing Party shall not be deemed to be Confidential Information to the extent that:

 

(i) such information becomes generally available in the public domain other than as a result of unauthorized disclosure by the Recipient, its Affiliates or by Persons to whom such Recipient has made the information available;

 
 
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(ii) such information has been released without restriction by the Disclosing Party or any of its Affiliates to another Person; or

 

(iii) such information can be shown by written documentation to have been received by the Recipient on a non‑confidential basis, prior to receipt from the other Party or any of its Affiliates, from a third Person lawfully possessing and lawfully entitled to disclose such information, provided that the Recipient shall promptly return any document or other tangible source of information which was disclosed to it.

 

(c) In the event that the Recipient or any of its Affiliates, directors, officers, employees or agents are requested or required (by court or administrative order, or by deposition, interrogatories, requests from information or documents in legal proceedings) to disclose any Confidential Information, the Recipient will provide the Disclosing Party with prompt written notice of any such request or requirement so that such Disclosing Party may seek a protective order or other appropriate remedy to prohibit or limit such disclosure. If, in the absence of a protective order, the Recipient or any of its Affiliates, directors, officers, employees or agents are nonetheless, in the written opinion of legal counsel, legally compelled to disclose Confidential Information, such Recipient or such Affiliate, director, officer, employee or agent may, without liability hereunder, disclose such portion of the Confidential Information which counsel advises is legally required to be disclosed. The Recipient, or such Affiliate, director, officer, employee or agent shall advise the Disclosing Party of the Confidential Information disclosed and the Person to whom it is disclosed, and upon request of the Disclosing Party, shall provide the Disclosing Party with a copy of the legal opinion regarding the disclosure of such Confidential Information.

 

(d) Unless prior waived in writing, the Disclosing Party shall in all circumstances retain the exclusive ownership of the Confidential Information disclosed to the other Party or its Affiliates.

 
 
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15.2 Industrial Property Rights

 

15.2.1 Ownership of Industrial Property Rights

 

(i) It is agreed that industrial property rights vested in the JVC by either of the Party or its Affiliates (hereinafter the “ Transferor ”), for the conduct of the JVC’s business in accordance with this Agreement (hereinafter the “ Industrial Property Rights ”), whether registered or not, shall continue to remain the property of such Transferor, notwithstanding the use thereof by and on behalf of the JVC during the course of the business of the JVC, and neither the JVC nor the other Party or its Affiliates shall claim any Industrial Property Rights or challenge the Transferor’s exclusive ownership of such Industrial Property Rights.

 

(ii) Any Improvement of the Industrial Property Rights, whether registered or not, will be deemed to be retrospectively the exclusive Industrial Property of the Transferor. For the purpose of this Clause, “ Improvement ” shall mean any alteration, up-gradation and enhancement to the Industrial Property Rights which may be made either by the JVC or the Transferor, to the extent such alteration, up-gradation and enhancement does not embody a method, process, data or formula fundamentally different and/or detachable and autonomous from that developed originally by the Transferor.

 

(iii) Any new process, know-how, formula, data, etc, which may be developed by the JVC and is not an Improvement of any Industrial Property Right prior vested in the JVC by any of the Parties or its Affiliates (hereinafter, the “ New Industrial Property Rights ”), shall remain the exclusive Industrial Property of the JVC and neither of the Parties or their respective Affiliates shall claim any Industrial Property Rights or challenge the JVC’s exclusive ownership of such New Industrial Property Rights. The JVC may license such rights to either of the Parties or their Affiliates, subject to such terms and conditions to be discussed in good faith between them.

 
 
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15.2.2 Infringement or unlawful use

 

In the event of any infringement or unlawful use by any Person, on the territory of the Republic of India, of any Industrial Property Right owned by the Transferor, the provisions therein shall fully apply:

 

The JVC and/or the other Party as the case may be, shall promptly inform the Transferor if it becomes aware of any infringement, misappropriation or misuse (actual or suspected) of any Industrial Property Right by any Person.

 

Upon any such infringement, misappropriation or misuse coming to its notice, such Transferor shall determine whether any action to prevent such infringement is necessary or advisable, and if the JVC has suffered a damage distinct from the damage suffered by the Transferor, then the JVC shall be entitled to participate to such action, at the JVC’s sole cost and expense and subject to decision taken by the Board in conformity with Clause 11.2 hereof.

 

The Transferor shall be entitled to all the compensations and damages related to the infringement or unauthorized use of its Industrial Property Rights that may be recovered from such action and the JVC shall be entitled to all the compensations and damages related to its own damage as judicially settled.

 
 
26
 
 

 

In any case, the Parties undertake to fully cooperate, and cause the JVC to cooperate, in any procedure or measure to be taken in order to protect the other Party’s rights and interests.

 

16. RESTRAIN ON COMPETITION

 

During the term of this Agreement, Synbiotics and Co-Dx undertake that neither Synbiotics and / or Co-Dx nor any of their respective Affiliates will, directly and/or indirectly, with respect to any good or product identical or similar to or competing with the Products, including but not limited to any good or product containing the same set of active ingredients as those contained in the Products manufactured by the JVC, and generally, any good or product manufactured by the JVC during the term of this Agreement:

 

-    manufacture, or attempt to manufacture, in India, such goods or products,

 

-    sell, or attempt to sell, in India, such goods or products without prior approval from the JVC

 

Both Synbiotics and Co-Dx will ensure that other activities undertaken by either of them promote rather than impede the development of JVC. If the marketing of a good or a product by any Affiliate of either Synbiotics or Co-Dx is likely to compete directly with goods or products marketed by the JVC, the Parties shall endeavor to find suitable solution / devises to minimize the negative effect on the JVC, if any.

 
 
27
 
 

 

17. TERM / TERMINATION

 

17.1 Mutual termination. This Agreement shall automatically terminate if (a) the Parties agree to terminate the Agreement in writing; (b) the JVC is dissolved, liquidated or wound up under applicable law; (c) any Shareholder acquires the entire issued equity capital of the JVC; or, (d) upon the Deadlock not being resolved and both Parties deciding to terminate this Shareholders’ Agreement and proceeding for winding up of the JVC by making a joint application to that effect or dispose of the JVC to an outsider.

 

17.2 Either Party hereto shall be entitled to terminate this Agreement forthwith upon the happening of any of the following events;

 

17.2.1 Upon the other committing any Material Breach of the terms and conditions and stipulations hereof to the extent that proper fulfillment of the Agreement is jeopardized to such degree that the other Party can no longer be expected to adhere to this Agreement, and failure of the defaulting Party, continues for not less than 60 days, after receipt by it of a written notice from the other Party requiring it do so;

 

17.2.2 Upon the other Party going into liquidation, voluntary or otherwise;

 

17.3 No waiver of antecedent breach and no grant of time and indulgence shall prejudice any subsequent right to terminate this Agreement.

 

17.4 Effects of termination.

 

17.4.1 On the termination of this Agreement, for whatever reason thereof, the Parties hereto shall refrain from any acts, indications, publicity or advertisements which may mislead any third party into the belief that the Parties hereto still maintain business relationships with each other with reference to the JVC and neither Party hereto shall commit any act detrimental to the business or reputation of the other or the JVC.

 
 
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17.4.2 In case of termination, for whatever reason thereof, and if the parties shall agree that the business is to be continued by the non-breaching party, any guarantee, if any, given by the outgoing Party shall be substituted by a guarantee to be furnished by the remaining Party and such remaining Party shall be responsible for finding fresh acceptable guarantor and for relieving the outgoing Party.

 

17.4.3 In case of termination, for whatever reason thereof, any loan, if any, granted by the outgoing Party to the JVC, shall be immediately reimbursed to such outgoing Party, unless the remaining Party agrees otherwise.

 

17.4.4 The JVC shall within fifteen (15) days from the date of termination of this Agreement, for whatever reason thereof, immediately and effectively cease to use any elements of the outgoing Party’s name and/or trademark, and/or generally any intellectual property right owned by such outgoing Party.

 

18. PROFIT SHARING

 

18.1 The Parties shall share the annual profits after tax of the JVC and shall distribute any dividends of the J VC in the following ratios:

 

Profit Level

 

Co-Dx 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%

 
 
29
 
 

 

The aforesaid ratio is illustrated as under (for a profit level of $ 4,000,000 :

 

Profit Level

 

Co-Dx Share

 

Synbiotics Share

$1,000,000

 

$500,000

 

$500,000

$1,000,000-$2,000,000

 

$600,000

 

$400,000

$2,000,000-$3,000,000

 

$700,000

 

$300,000

$3,000,000-4,000,000

 

$800,000

 

$200,000

Total

 

$2,600,000

 

$1,400,000

 

The aforesaid Profit Sharing ratio shall apply for a period of 15 years from the Completion Date. Thereafter the Profit Sharing ratio shall become 50:50 unless otherwise agreed in writing by the Parties with mutual consent.

 

19. MISCELLANEOUS PROVISIONS

 

19.1 Assignment: The rights and obligations under this Agreement are personal and shall not be assignable to any third party without the prior written consent of the other Party.

 

19.2 Entire Agreement: This Agreement, sets forth the entire agreement and understanding between the Parties as to the subject matter hereof.

 

19.3 Non – Waiver : No failure on the part of either Party hereto to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right preclude any other or future exercise thereof or the exercise thereof or the exercise of any other right. The remedies herein are cumulative and not exclusive of any remedies provided by law.

 
 
30
 
 

 

19.4 NOTICES

 

All notices, reports and communications permitted or required by this Agreement shall be in writing and shall be deemed to have been given on the date of delivery or transmission if personally (with confirmation or receipt) or by e-mail, facsimile, certified or registered mail, return receipt requested, postage prepaid, addressed to the other party. Unless otherwise expressly indicated herein, the addresses of the Parties for the purpose of giving notice are as follows;

 

To Co-Dx :

 

To the attention of: Dwight H. Egan

585 W500S, Suite 210, Bountiful, UT 84010

Tel : +1 (801) 683 8994

Fax : +

Email:d.egan@codiagnostics.com

 

With a copy to :

 

Reed L Benson, esq.

4049 S. Highland Drive

Salt Lake City, Utah 84124

reedb0607@gmail.com

 

To Synbiotics :

 

To the attention of: Mr. Mohal Sarabhai

Asence House, Gorwa Road Vadodara 390 023, INDIA

Tel : + 91 265 2283178, 2283179

Fax : + 91 265 2280183

Email: msarabhai@asence.com

 

19.5 Severability: Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or enforceability without invalidating the remaining provisions hereof of affecting the validity or enforceability of such provisions in any other jurisdiction.

 

19.6 Specific Performance: The Parties hereto shall be entitled to specific performance of the terms of this Agreement including the obligations contained in the Clauses 10, 11 and 13 as to the exercise of voting rights.

 
 
31
 
 

 

19.7 Force Majeure. No Party shall be liable for non‑performance or delay in performance of any obligation stipulated in this Agreement if such non‑performance or delay is caused by Force Majeure. Any Party affected shall give prompt notice together with any notice or information it has received regarding the Force Majeure event to the other Parties advising of the occurrence and effects of the event of Force Majeure and shall use all reasonable efforts to minimize any adverse consequences resulting from the event of Force Majeure. The use of reasonable efforts to minimize adverse consequences shall not require the settlement of strikes, lockouts or other labor difficulties by a Party on terms contrary to its wishes. For the purposes of this Clause, " Force Majeure " shall mean any order, regulation or written directive of any governmental authority which has jurisdiction over the activities of any Party; any insurrection, riot, war, (whether declared or not), civil war, revolution, acts of piracy, acts of sabotage; boycotts, strikes and lock‑outs of all kinds, go‑slows, occupation of factories and premises, and work stoppages which occur in the facilities of the Party seeking relief; any explosions, fires, floods, earthquakes, or other natural disasters; or any other cause beyond the reasonable control of the affected Party.

 

19.8 Relationship: Nothing in this Agreement shall constitute or be deemed to constitute either Party as the legal representative or agent of the other, nor shall either Party have the right or authority to assume, create or incur any liability or any obligation of any kind, expressed or implied, in the name of or on behalf of the other Party.

 

19.9 Headings: Article, Clause and Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any purpose.

 
 
32
 
 

 

19.10 Counterparts: This Agreement shall be executed in counterparts, each of which when executed and delivered shall be an original and all of which when taken together shall constitute one and the same instrument.

 

19.11 Amendment: Except as otherwise provided expressly herein no modification, amendment or supplement to this Agreement shall be effective for any purpose unless in writing and signed by all the Parties hereto.

 

20. GOVERNING LAW

 

This Agreement shall be governed by and construed in accordance with the laws of India

 

21. ARBITRATION:

 

All disputes arising between the Parties as to the construction meaning or effect of any terms or conditions of this Agreement or matter arising or connected or incidental to this Agreement or termination thereof shall be settled by referring the same to Arbitration only. The Arbitration shall be referred to the Singapore International Arbitration Center (“ SIAC ”) and conducted in Singapore in accordance with the Rules of the SIAC, unless decided otherwise by both the Parties before submission of the request for arbitration. The language of Arbitration shall be English.

 

The Parties shall agree on a sole arbitrator and if they fail to do so within 30 days of the dispute or the difference then each of the Parties, as long as they are two, shall each nominate an arbitrator and the two arbitrators so nominated shall choose the third arbitrator who shall serve as the Chairman of the arbitral panel. In case the Parties are more than two, the arbitrators shall be nominated in accordance with the Rules of the SIAC. The Parties shall continue to fulfill their obligations under this Agreement pending the final resolution of the dispute and the Parties shall not have the right to suspend their obligations under this Agreement by virtue of any dispute being referred to Arbitration.

 
 
33
 
 

 

The parties in dispute expressly understand and agree that the arbitral award shall be the sole, exclusive, final and binding remedy between them regarding any and all disputes presented to the arbitral tribunal. Each Party hereby expressly waives any and all rights that such Party may have with respect to a judicial review of the award in the courts of any country. Application shall be made to any court having jurisdiction over the party in dispute (or its assets) against whom the award is rendered for a judicial acceptance of the award and an order of enforcement. Each Party acknowledges and agrees that this agreement and any award pursuant hereto shall be governed by the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

 

SIGNED AND DELIVERED

BY Synbiotics Limited though its Authority Signatory:

 

Mohal Sarabhai

 

Managing Director

SIGNED AND DELIVERED
BY Co-Diagnostics Inc.though its Authority Signatory / Constituted Attorney:

 

Witness:

 

1.

 

2.

 
 
34
 
 

 

ANNEXURE – I

 

Molecular Diagnostic Tests

 

List of Products - A

 

1

Tuberculosis

2

Drug Resistance Tuberculosis

3

Hepatitis B

4

Hepatitis C

5

Malaria

6

Dengue

7

HIV

 
 
35
 
 

 

List of Products – B

 

1

Zika

2

Chikungunya

 

 

36

 

EXHIBIT 10.17

 

AMENDED EXCLUSIVE LICENSE AGREEMENT

 

This Amendment to Exclusive License Agreement is made and entered into effective January 1, 2017 by and between Co-Diagnostics, Inc. (“Licensee”) and Brent Satterfield (“Licensor”) to that certain license agreement (“License Agreement”) dated April 18, 2014 between Licensee and DNA Logix, Inc. , which as been assigned to Licensor.

 

WHEREAS, the parties desire to amend the License Agreement to provide for retirement of accrued royalties payable and to modify certain other terms and conditions of the License Agreement.

 

NOW THEREFORE, in consideration of the promises and covenants contained herein the parties agree as follows:

 

 

1. Paragraph 4.2 shall be deleted.

 

 

 

 

2. Paragraphs 5.1-5.4 shall be amended in their entirely as follows:

 

 

 

 

 

“The Parties agree that as of January 1, 2017 a total amount equal to $700,000 shall be due and payable to Licensor for accrued royalties, including an amount equal to $107,500 as consideration of execution of this Amendment. All such accrued royalties shall be paid by Licensor in monthly payments of $10,000 commencing January 15, 2017 and continuing each month on the same date of the month until paid in full. In addition, in the event Licensor is successful in completing a major financing of at least $10 million, Licensee agrees to make a one-time payment of $100,000 credited to the accrued royalties.”

 

 

 

 

3.

Paragraph 5.5 shall be amended in its entirety to read as follows:

 

 

 

 

 

Termination of Royalty Payments . Licensee’s obligation to pay royalties for use of the Licensed Technology under this Agreement shall terminate upon the Effective Date of this Agreement subject to payments due under Paragraph 2 hereof.

 

Mandatory Change in Control Payment . In addition, in the event Licensee enters into a transaction in which there is a Change of Control, Licensee shall pay to Licensor a one-time payment of $5,000,000. A Change in Control shall be defined as any transaction in which an acquisition by any person, or group of persons acting in concert, of shares of capital stock of the Company enables such person or persons to cast 50% or more of the votes entitled to be voted at any meeting to elect director or in the event that all or substantially all of the assets of the Company are sold to a third party.” Provided, however, a public financing , in which stock is sold to the general public shall not be considered a change of Control subject to this paragraph.

 

There shall be two events in which the mandatory Change in Control payment need not be paid: (1) In the event the Company is publically traded and Licensor sells portions of his Company stock and realizes net proceeds in excess of $5 million; and (2) In the event, the Company receives a buy-out offer that is consummated and Licensor’s share of the proceeds based on his share ownership of the Company exceeds $20 million.

 
 
1
 
 

 

 

4.

Paragraph 11.3 shall be amended by adding the following subsection D:

 

 

 

 

 

“D. In the event the Licensee has not generated gross income from the sale of products that are based upon the Licensed Technology on or before December 31, 2021.”

 

This Amended Exclusive License Agreement is effective the day and year first above written.

 

 

CO-DIAGNOSTICS, INC.

 

 

/s/ Dwight Egan

 

/s/ Brent Satterfield

 

By

Dwight H. Egan, CEO

 

Brent Satterfield

 

 

March 1, 2017

 

March 1, 2017

 

 

 

2

 

EXHIBIT 10.18

 

STOCK PURCHASE AGREEMENT

 

This Stock Purchase Agreement (“Agreement”) is made and entered into this _____ day of September, 2016, by and between Ted Murphy with an address located at 64 Industrial road, Richmond Hill, Ontario L4C 2Y1 (“Seller”) and Co-Diagnostics, Inc., a Utah corporation, with an address located at 4049 S. Highland Drive, Salt Lake City, Utah 84124.

 

WHEREAS, Seller is the owner of 19,800,000 (3,600,000 shares before anticipated stock dividend) shares (the “Shares”) of common stock of Watermark Group, Inc., a Nevada corporation (the “Company”); and,

 

WHEREAS, Buyer desires to purchase from Seller and Seller desires to sell to Buyer the Shares upon the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained and upon the terms and conditions hereinafter set forth, the parties hereto, intending to be legally bound, agree .

 

 

1. Purchase and Sale; Purchase Price . Upon the terms and conditions herein contained, on the Closing Date (as defined herein), Seller agrees to sell to Buyer and Buyer agrees to purchase the Shares from Seller for an aggregate purchase price of $55,000 (the “Purchase Price”).

 

 

 

 

2. Closing. The Closing shall occur on the earlier of the delivery of the Shares or October 3, 2016. On or prior to October 3, 2016, Buyer shall transmit the Purchase Price to Seller by wire transfer and upon receipt of the Purchase Price Seller shall deliver the Shares by certificate or transfer to Buyer’s book entry account at the Company’s Transfer Agent.

 

 

3. Representations and Warranties of Seller. Seller hereby represents and warrants to Buyer:

 

 

a. That the Seller is the sole beneficial owner of the Shares.

 

 

 

 

b. That the Shares have been duly authorized, validly issued and are fully paid and non-assessable.

 

 

 

 

c. That the Seller shall transfer title, in and to the Shares free and clear of all liens, security interests, pledges, encumbrances, charges, restrictions, demands and claims, of any kind and nature whatsoever, whether direct or indirect or contingent.

 

 

 

 

d. That no agent, broker, person or firm acting on behalf of Seller is, or will be, entitled to any commission or brokers’ fees from any party in connection with any of the transactions contemplated by this Agreement.

 

 

 

 

e. That this Agreement has been duly authorized, executed and delivered by or on behalf of Seller and, assuming due authorization, execution and delivery by the Seller, constitute the valid and legally binding agreements of Seller, enforceable against Seller in accordance with its terms and that the transfer of Shares contemplated herein does not violate any restrictions on transfer by the Company or any law or regulation.

 

 

 

 

f. That the Company has no debt and owes no operational expenses to any party, related or unrelated as of the date of this Agreement. In addition, Watermark has no convertible instruments (including without limitation, warrants, options, convertible debt, etc.) outstanding as of the date of this Agreement.

 

 

 

 

g. That there are 25,000,000 shares issued and outstanding in the Company, including all warrants, options, and convertible instruments.

 

 
1
 
 

 

 

4. Representations and Warranties and Acknowledgements of Buyer. Buyer represents and warrants that:

  

 

a. That this Agreement has been duly authorized, executed, and delivered by or on behalf of the Buyer and, assuming due authorization, execution and delivery by Seller, constitutes the valid and legally binding agreement of the Buyer, enforceable against the Buyer in accordance with its terms.

 

 

 

 

b. That the Buyer has all requisite authority to enter into and perform its obligations under this Agreement.

 

 

 

 

c. That the Buyer acknowledges that the Company is a publically traded company on the OTC Pink Sheets under the symbol WNSS, that the Company has limited operations and that there is a limited market for the trading of the Company’s stock.

 

 

 

 

d. Buyer has been given the opportunity to ask questions of, and receive answers from, the Company to obtain such additional information, to the extent the Company possesses such information or can acquire it without unreasonable effort or expense, necessary to verify the accuracy of the same as the Buyer reasonably desires in order to evaluate the investment. Buyer understands the Agreement and Buyer has had the opportunity to discuss any questions regarding the Agreement with its counsel or other advisor.

 

 

 

 

e. Notwithstanding the foregoing, the only information upon which the Buyer has relied is that set forth in the Agreement and in the Company’s filings with the Securities and Exchange Commission (the “SEC”) and the associated risk factors. Buyer does not desire to receive any further information.

 

 

 

 

f. Buyer is aware that the purchase of the Shares is a speculative investment involving a high degree of risk, that there is no guarantee that Buyer will realize any gain from this investment, and that Buyer could lose the total amount of this investment. Buyer understands that no federal or state agency has made any finding or determination regarding the fairness of the Shares for investment, or any recommendation or endorsement of the Shares.

 

 

 

 

g. Buyer is purchasing the Shares for Buyer’s own account with the intention of holding the Shares with no present intention of dividing or allowing others to participate in this investment or of reselling or otherwise participating, directly or indirectly, in a distribution of the Shares, and shall not make any sale, transfer, or pledge thereof without registration under the Act and any applicable securities laws of any state or unless an exemption from registration is available under those laws. Buyer understands that the statutory basis on which the Shares are being sold to Buyer would not be available if Buyer’s present intention were to hold the Shares for a fixed period or until the occurrence of a certain event.

 

 

 

 

h. Buyer represents that it has adequate means of providing for its current needs and has no need for liquidity in this investment in the Shares. Buyer has no reason to anticipate any material change in its personal financial condition for the foreseeable future. Buyer is financially able to bear the economic risk of this investment, including the ability to hold the Shares indefinitely, or to afford a complete loss of its investment in the shares.

 

 
2
 
 

 

 

i. Buyer represents that Buyer’s overall commitment to investments which are not readily marketable is not disproportionate to Buyer’s net worth, and Buyer’s investment in the Shares will not cause such overall commitment to become excessive.

 

 

 

 

j. Buyer will not pledge, transfer or assign this Agreement. Buyer represents that the funds provided for this purchase of Shares are funds as to which Buyer has the sole right of management. Buyer is purchasing the Shares with the funds of Buyer and not with the funds of any other person, firm, or entity and is acquiring the Shares for Buyer’s account. No entity or person other than Buyer has any beneficial interest in the Shares being purchased hereunder.

 

 

5. Post Closing Covenants . After the Closing, at the request of either party, the other party shall execute, acknowledge and deliver, without further consideration, all such further assignments, conveyances, endorsements, deeds, powers of attorney, consents and other documents and take such other action as may be reasonably requested to consummate the transactions contemplated by this Agreement.

 

 

 

 

6. Miscellaneous .

 

 

a. Binding Effect. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors and permitted assigns. Except as otherwise set forth herein, this Agreement may not be assigned by any party hereto without the prior written consent of the other party hereto. Except as otherwise set forth herein, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement.

 

 

 

 

b. Notices. All notices, requests, demands and other communications which are required to be or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person, or upon receipt after dispatch by certified or registered first class mail, postage prepaid, return receipt requested, to the party to whom the same is so given or made to the addresses initially provided above(or such others as shall be provided in writing hereinafter), or by electronic means.

 

 

 

 

c. Entire Agreement. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof.

 

 

 

 

d. Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not be deemed to be a part of this Agreement or to affect the meaning or interpretation of the Agreement.

 

 

 

 

e. Counterparts. This Agreement may be executed in any number of counterparts, each of which, when executed, shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

 

 
3
 
 

 

 

f. Governing Law. This Agreement shall be construed as to both validity and performance and enforced in accordance with and governed by the laws of the State of Nevada, without giving effect to the conflicts of law principles thereof. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of Nevada or in the federal courts located in the State of Nevada. Both parties and the individuals executing this Agreement agree to submit to the jurisdiction of such courts and waive trial by jury. In the event that any provision of the Agreement or any related agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Agreement.

 

 

 

 

g. Severability. If any term or provision of this Agreement shall to any extent be invalid or unenforceable, the remainder of this Agreement shall not be affected thereby, and each term and provision of the Agreement shall be valid and enforced to the fullest extent permitted by law.

 

 

 

 

h. Amendments. This Agreement may not be modified or changed except by an instrument or instruments in writing executed by the parties hereto.
  

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

 

 

BUYER:

    SELLER:  

 

 

 

 

 

 

Co-Diagnostics, Inc.

 

 

Ted Murphy

 

 

 

 

 

 

 

By:

/s/ Dwight Egan   /s/ Ted Murphy  

 

Dwight H. Egan, its President

     

 

 

4

 

 

 

EXHIBIT 10.19

 

THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THIS NOTE IN THE EVENT OF A PARTIAL REDEMPTION OR REPAYMENT. AS A RESULT, FOLLOWING ANY REDEMPTION OR REPAYMENT OF ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT SET FORTH BELOW.

 

NON-INTEREST BEARING NOTE DUE 2020

 

 

 

 

Original Principal Amount: $445,000

Issuance Date: March 20, 2017

 

Salt Lake City, Utah

  

FOR VALUE RECEIVED , Co-Diagnostics, Inc., a Utah corporation ( “Maker”) promises to pay to or upon the order of Zika Diagnostics, Inc , f/k/a/ Watermark Group, Inc. a Nevada corporation, or its registered assigns or successors-in-interest (the “ Holder ”) the principal sum of Four Hundred Forty Five Thousand Dollars ($445,000.00) , on the Final Maturity Date, in accordance with the terms hereof. This Note is non-interest bearing during the term hereof. Notwithstanding anything contained herein, this Note shall bear interest on the outstanding Principal Amount from and after the occurrence and during the continuance of an Event of Default, at the rate (the “ Default Rate ”) equal to the lower of twelve percent (12%) per annum or the highest rate permitted by applicable law. Unless otherwise agreed or required by applicable law in the event of default, payments will be applied first to any unpaid collection costs, then to unpaid interest and fees and any remaining amount to unpaid principal.

 

All payments of principal of and interest on this Note shall be made in lawful money of the United States of America by immediately available funds to as the Holder may from time to time designate by written notice in accordance with the provisions of this Note. This Note may be prepaid in whole or in part as specifically provided herein. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day (as defined below), the same shall instead be due on the next succeeding day which is a Business Day and such extension shall be taken into account in determining the amount of interest accrued on this Note.

 

The following terms and conditions shall apply to this Note:

 

 
- 1 -
 
 

  

1. Definitions.

 

(a) For purposes hereof the following terms shall have the meanings ascribed to them below:

 

“Bankruptcy Event” means any of the following events: (a) any one or more of the Makers commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Maker; (b) there is commenced against any of the Makers any such case or proceeding that is not dismissed within 60 days after commencement; (c) any of the Makers is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) any of the Makers suffers any appointment of any trustee, custodian or the like for it or any substantial part of his or her property that is not discharged or stayed within 60 days; (e) any of the Makers makes a general assignment for the benefit of creditors; (f) any of the Makers fails to pay, states that he is unable to pay, or is unable to pay, its debts (excluding those reasonably disputed in good faith by the Maker generally as they become due; or (g) any of the Makers, by any act or failure to act, expressly indicates his consent to, approval of or acquiescence in any of the foregoing or takes any other action for the purpose of effecting any of the foregoing.

 

“Cash” or “cash” means at any time such coin or currency of the United States of America as shall at such time be legal tender for the payment of public and private debts.

 

“Event of Default” shall have the meaning provided in Section 4(a).

 

“Final Maturity Date” means December 31, 2020.

 

“Force Majeure Event” means an event or circumstance that prevents the Makers from performing their obligations under this Note or that prevents an act or event required hereunder from happening or occurring (including, without limitation, an act of God, war, insurrection, riot, nuclear disaster, labor strike or threat of violence, labor and material shortage, fire, explosion, flood, river freeze-up, breakdown or damage to mines, plant, equipment, or facilities (including a forced outage or an extension of a scheduled outage of equipment or facilities to make repairs to avoid breakdowns thereof or damage thereto), interruption to or slowdown in transportation, railcar shortage, barge shortage, embargo, order, or act of civil or military authority, law, regulation, or administrative ruling, or total or partial interruption of the Makers’ businesses which are due to any enforcement action or other administrative or judicial action arising from an environmental law or regulation), but in any case which is not within the reasonable control of, or the result of the negligence of, the Makers, and which by the exercise of due diligence, the Makers are unable to overcome or avoid or cause to be avoided or are unable in good faith to obtain a substitute acceptable to the Holder therefor.

 

“Principal Amount” means at any time the sum of (i) the outstanding principal amount of this Note at such time, (ii) all accrued but unpaid Default Interest hereunder to such time, and (iii) any default payments owing at such time to the Holder but not theretofore paid or added to the Principal Amount.

 

 
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Section 2. Payments of Principal and Interest.

 

(a) Principal . The Maker shall pay all Principal due and payable on the Final Maturity Date.

 

(b) Prepayment . The Maker shall be entitled to prepay all or any portion of the outstanding Principal Amount of this Note at any time and in any amount. Any prepayments shall be applied to any remaining portion to the outstanding principal amount.

 

Section3. Defaults and Remedies.

 

(a) Events of Default. An “Event of Default” is: (i) a failure to pay any Principal Amount of this Note when due at the Final Maturity Date, (ii) if Maker or any affiliate of Maker is subject to any Bankruptcy Event; or (iii) any material provisions hereof shall at any time and for any reason be declared by a court of competent jurisdiction to be null and void, or the Maker or any affiliate of the Maker shall repudiate or deny any portion of its liabilities or obligations thereunder.

 

(b) Remedies. If an Event of Default occurs and is continuing, the Holder may declare all of the then outstanding Principal Amount of this Note to be due and payable immediately in cash and this Note shall become automatically due and payable without further action or notice, and the Holder may exercise all other rights and remedies available at law or in equity. In any event the Maker shall pay interest on such amount in cash at the Default Rate to the Holder if such amount is not paid within one Business Day after such acceleration. The remedies under this Note shall be cumulative.

 

Section 5. Certain Covenants; General.

 

(a) Savings Clause. In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby. In no event shall the amount of interest paid hereunder exceed the maximum rate of interest on the unpaid principal balance hereof allowable by applicable law. If any sum is collected in excess of the applicable maximum rate, the excess collected shall be applied to reduce the principal debt. If the interest actually collected hereunder is still in excess of the applicable maximum rate, the interest rate shall be reduced so as not to exceed the maximum allowable under law.

 

(b) Amendment. Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Makers and Holder.

 

(c) Assignment, Etc. The Holder may assign or transfer this Note, without the consent of the Maker. The Holder shall notify the Maker of any such assignment or transfer promptly. This Note shall be binding upon the Maker and its successors and shall inure to the benefit of the Holder and its successors and permitted assigns.

 

(d) No Waiver. No failure on the part of the Holder to exercise, and no delay in exercising any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Holder of any right, remedy or power hereunder preclude any other or future exercise of any other right, remedy or power. Each and every right, remedy or power hereby granted to the Holder or allowed it by law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by the Holder from time to time.

 

 
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(e) Governing Law; Jurisdiction.

 

(i) Governing Law . THIS NOTE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF UTAH WITHOUT REGARD TO ANY CONFLICTS OF LAWS PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION.

 

(ii) Jurisdiction . The Maker (i) hereby irrevocably submits to the exclusive jurisdiction of the Third District Court, State of Utah, in Salt Lake City, Utah for the purposes of any suit, action or proceeding arising out of or relating to this Note or the transactions contemplated hereby, and (ii) hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. The Maker consents to process being served in any such suit, action or proceeding by mailing a copy thereof to the Maker at the address on the records of the Holder then in effect and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law. The Maker hereby agrees that if the Holder is the prevailing party in any suit, action or proceeding arising out of or relating to this Note, the Holder shall be entitled to reimbursement for legal fees from the Maker.

 

(iii) NO JURY TRIAL. The Maker knowingly and voluntarily waives any and all rights it may have to a trial by jury with respect to any litigation based on, or arising out of, under, or in connection with, this Note.

 

[Signature Page Follows]

 

 
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IN WITNESS WHEREOF , the Maker has caused this Note to be duly executed on the day and in the year first above written.

 

  CO-DIAGNOSTICS, INC.
       
By: /s/ Dwight Egan

 

 

Dwight H. Egan  
    President  

 

 

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EXHIBIT 10.20

 

MUTUAL RESCISSION AGREEMENT

 

THIS MUTUAL RESCISSION AGREEMENT (“Agreement”) is entered into on the dates set forth below but effective as of September 22, 2016 (the “Effective Date”), by and between Co-Diagnostics, Inc., a Utah corporation (the “Company”), and Robert Salna and Ted Murphy, individuals with an address located at 64 Industrial Road, Richmond Hill, Ontario L4C 2Y1, Canada, and comprising all members of the Board of Watermark Group, Inc. n/k/a Zika Diagnostics, Inc. (“Murphy”) and Watermark Group, Inc. n/k/a Zika Diagnostics, Inc., a Nevada corporation (“Watermark”);

 

WITNESSETH:

 

WHEREAS, on September 22, 2016, the parties entered into a Stock Purchase Agreement, attached hereto as Exhibit A (the “SPA”), whereby Murphy effectively sold 19,800,000 shares (the “Shares”) of common stock of Watermark to the Company;

 

WHEREAS, effective October 13, 2016, the Company and Watermark entered into an Exclusive License Agreement (“ELA”) granting a license to Watermark to sell certain proprietary molecular diagnostic tests;

 

WHEREAS, pursuant to the SPA, Murphy represented and warranted, inter alia , that Watermark had no debt and owed no operational expenses to any party, related or unrelated as of the date of SPA, and further represented and warranted that Watermark had no convertible instruments (including without limitation, warrants, options, convertible debt, etc.);

 

WHEREAS , the Company, relying on Murphy’s representations entered into the SPA and purchased the Shares for $55,000 and entered into the ELA;

 

WHEREAS , during the month of January 2017, the Company became aware that a Promissory Note dated November 1, 2011, amended and modified on December 11, 2014, July 7, 2015 and December 11, 2015, owned by P&G Holdings LLC (the “Note”) was allegedly still outstanding as of the Effective Date;

 

NOW, THEREFORE , in consideration of the foregoing recitals and the covenants herein, the parties hereto agree to rescind the SPA and the ELA in their entirety, effective as of inception of such agreement, and further agree as follows:

 

1. Rescission of the SPA.

 

The SPA is hereby explicitly rescinded in its entirety effective as of the Effective Date and is declared and shall be considered void ab initio , as are any other agreements, whether oral or written, between the parties concerning the subject matter herein prior to the date of complete execution of this Agreement.

 

2. Return of Funds.

 

In view of the current belief of the Company that Murphy was similarly deceived regarding representations concerning the status of Watermark, the Company does not demand refund of the $55,000 purchase price for the Shares, but the parties agree to offset the $55,000 against amounts the Company agrees to refund to Watermark as set forth hereinafter.

 

 
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3. Return of Shares .

 

The Company agrees to return the Shares of Watermark to Murphy, after cancelling 16,200,000 shares issued to the Company as part of an alleged stock dividend making Murphy the controlling shareholder of Watermark.

 

4. Licensing Agreement .

 

The parties acknowledge that pursuant to the ELA between the Company and Watermark dated October 13, 2016, this Agreement constitutes a change of control of Watermark pursuant 12.3 D. of the ELA, and the ELA shall be terminated effective immediately. Further, the parties hereto agree to waive all notice requirements and cure periods associated with the termination of the ELA as set forth therein.

 

Further, in partial consideration for this Agreement, to recognize the fact that certain funds were advanced to the Company as advanced royalties pursuant to the ELA, and to place the parties as close as possible to their respective positions prior to the transaction referenced herein, Company agrees to enter into a promissory note payable to Watermark in the amount of $445,000 representing the advanced royalties paid, less the Company’s purchase price of the 19.8 million shares of Watermark. A copy of the note is attached hereto as Exhibit B.

 

5. Name Change . Watermark agrees to make all necessary filings with the State of Nevada to changes its name back to Watermark Group, Inc.

 

6. Amendments.

 

This Agreement may not be modified or amended except by a written document signed by the parties.

 

7. Parties.

 

This Agreement is for the benefit of, and binds, the parties, their successors and permitted assigns. Neither party shall have any further rights or duties thereunder.

 

8. Severability.

 

The provisions of this Agreement will be deemed severable, and if any part of any provision is held illegal, void or invalid under applicable law, such provision will be changed to the extent reasonably necessary to make the provision, as so changed, legal, valid and binding. If any provision of this Agreement is held illegal, void or invalid in its entirety, the remaining provisions of this Agreement will not in any way be affected or impaired but will remain binding in accordance with their terms.

 

9. Governing Law .

 

This Agreement shall be construed as to both validity and performance and enforced in accordance with the laws of the State of New York, without giving effect to the conflicts of law principles thereof. Any action brought by either party against the other concerning the Agreement or SPA shall be brought only in the federal courts located in the State of New York, New York County.

 

 
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10. Counterparts.

 

This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. This Agreement may be executed by facsimile or by email of PDF or digital image format files of the executed signature page hereto.

 

11. Further Assurances.

 

Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to rescind the SPA, and to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

The parties have executed this Agreement on the dates indicated below to be effective as of the Effective Date.

 

  CO-DIAGNOSTICS, INC.:
       
Date: March __, 2017 By: /s/ Dwight Egan

 

Name:

Dwight Egan  
  Title: President  
       

 

TED MURPHY:  

 

 

 

 

 

Date: March __, 2017

By:

/s/ Ted Murphy

 

 

 

Individually, and on behalf of Watermark

 

 

 

 

 

 

Agree and Acknowledge:

 

 

 

 

 

ROBERT SALNA:

 

 

 

 

 

Date: March __, 2017

By:

/s/ Robert Salna

 

 

 

Individually, and on behalf of Watermark

 

  

 

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EXHIBIT 23.1

 

 

 

 

Certified Public Accountants (a professional corporation)
50 West Broadway, Suite 600 Salt Lake City, UT 84101 (801) 532-7800 Fax (801) 328-4461

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the use in this Registration Statement to Form S-1 of Co- Diagnostics, Inc. of our report dated March 30, 2017, relating to our audit of the December 31, 2016 and 2015 consolidated financial statements, appearing in the Prospectus, which is part of this Registration Statement.

 

We also consent to the reference to our firm under the caption "Experts" in such Prospectus.

 

 

 

 

Haynie & Company

Salt Lake City, Utah

April 28, 2017