美國
證券交易委員會 及交易所
華盛頓特區，20549
表單
（馬克 一）
| 根據1934年證券交易法的第13或15(d)條款，季報。 | ||
| 截至季度結束的報告。 | ||
| 根據1934年證券交易法第13或15(d)條的過渡報告 | ||
| 在_______至_______的過渡期間。 |
佣金
文件编号：
(根據公司章程所述的註冊人的正確名稱)
| （州或其他管轄區 公司的成立或組織 |
(美國國稅局雇主 綜合所得稅納稅單位的雇主識別號碼） | |
| （總執行辦公室地址） | （郵政編碼） |
（申報人的電話號碼，包括區號）
(如有更改，請填寫更改前的名稱、地址和財政年度)
根據該法案第12(b)條紀錄的證券：
| 每個類別的標題 | 交易標誌 | 在哪個交易所上市的名字 | ||
| 你接受的訓練數據截止到2023年10月。 股票市場有限責任公司 | ||||
| 你接受的訓練數據截止到2023年10月。 |
請勾選是否登記人（1）在前12個月內已根據1934年證券交易法第13條或第15(d)條提交所有所需的報告（或在登記人被要求提交此類報告的較短期間內），並且（2）在過去90天內一直受到提交要求。
標示
勾選該項，表示申報人於過去12個月（或更短期間，申報人必須申報此類檔案的期間）內已按照法規S-t第405條（本章節第232.405條）要求遞交每一個互動式資料檔案。
請勾選以下選項，指明掛牌者是否為大型快速申報掛牌者、快速申報掛牌者、非快速申報掛牌者、較小型的報告公司或新興成長型公司。關於Exchange Act第1202條中「大型快速申報掛牌者」、「快速申報掛牌者」、「較小型報告公司」和「新興成長型公司」的定義，請參閱。
| 大型加速文件申報者 ☐ | 加速申報者 ☐ | |
| 較小的報告公司 | ||
| 新興成長型企業 |
如果
是一家新興增長公司，請以核對標記表示註冊人是否選擇不使用根據交易所法第13(a)條規定的任何新或修訂的財務會計標準的延長過渡期。
請勾選是否登記者為外殼公司（依照交易所法規120億2的定義）。是 ☐ 否
截至2024年11月12日，發行人普通股的流通股數為 .
在本10-Q表格季度報告（以下簡稱“本季度報告”）中，“bioAffinity,” “bioAffinity Technologies,” “我們,” “我們,” “我們的” 或 “該公司” 指的是Delaware州公司bioAffinity Technologies, Inc.及其全資子公司OncoSelect® Therapeutics, LLC, 一家Delaware有限責任公司，以及Precision Pathology Laboratory Services, LLC，一家德克薩斯州有限責任公司。
關於前瞻性陳述的注意事項
本季度報告中包含根據聯邦證券法律規定的前瞻性陳述。前瞻性陳述是具有預測性質，取決於或涉及未來事件或狀況，有時會通過“可能”、“可能”、“計劃”、“項目”、“預測”、“追求”、“相信”、“期望”、“估計”、“預期”、“意圖”、“目標”、“尋找”、“可能”、“可能將導致”、“展望”、“預算”、“目標”、“趨勢”或類似表達前瞻性質以及這些表達的否定版本來識別。本報告中的前瞻性信息通常位於“管理層對財務狀況和業務成果的討論和分析”標題下，但也可能在其他位置找到。本報告中的前瞻性陳述通常涉及對bioAffinity Technologies, Inc.未來業務計劃和目標的管理層合理估計未來結果或趨勢。雖然我們認為這些前瞻性陳述是合理的，但所有前瞻性陳述均受各種風險和不確定性的影響，我們的預測和期望可能是不正確的。可能影響我們對業務運作的預期的因素包括但不限於以下：
| ● | 我們預計的財務狀況和預估的現金消耗速度； | |
| ● | 關於我們有關開支、未來收入和資本需求的估計； | |
| ● | 我們臨床試驗的成功、成本和時間。 |
| ● | 我們 獲得資金以支持我們運營的能力，這對於完成我們的診斷測試 或治療產品候選者的進一步開發和商業化是必要的； | |
| ● | 我們 對第三方的依賴，包括我們臨床試驗的進行； | |
| ● | 我們 獲得必要的監管批准以市場和商業化我們的診斷測試或治療產品候選者的能力； | |
| ● | 我們 的前期臨床和臨床試驗結果表明我們當前的診斷測試或任何未來的診斷 測試或我們可能尋求開發的治療產品候選者存在不安全或無效的潛在風險； | |
| ● | 由我們或他人進行的市場研究結果； | |
| ● | 我們 獲得和維持知識產權（"IP"）保護的能力，包括我們目前的診斷測試或未來的診斷 測試和治療產品候選者； | |
| ● | 我們 保護我們的IP權益的能力，以及我們可能因訴訟而承擔的巨額成本，以執行或保護我們的IP權益； |
| ● | 第三方可能聲稱我們或我們的第三方許可方侵犯、盜用或以其他方式侵犯其知識產權，我們可能需要承擔重大成本並且需要花費大量時間來防禦此類主張； | |
| ● | 競爭療法、診斷測試和治療產品的成功，這些產品已經或將來會面世； | |
| ● | 我們擴大組織以應對潛在增長和為留住和吸引關鍵人才的能力； | |
| ● | 由於產品責任訴訟可能導致我們產生重大成本，這些訴訟可能會迫使我們限制我們的診斷測試和治療產品候選品的商業化； | |
| ● | 我們的診斷測試和正在開發中的診斷測試以及治療產品候選品在市場上的接受度、我們目前診斷測試、正在開發中的診斷測試和治療產品候選品的潛在市場規模和增長，以及我們可能尋求開發的任何未來診斷測試和治療產品候選品，以及我們服務這些市場的能力； | |
| ● | 我們商業化能力的成功發展，包括銷售和營銷能力； | |
| ● | 遵守政府規定，包括環境、健康和安全規定，以及相應的責任； | |
| ● | 健康流行對我們的業務、臨床試驗、研究計畫、醫療系統或整體全球經濟的影響； | |
| ● | 美國經濟和政治情況普遍不穩定，包括通脹壓力、利率期貨上升、經濟放緩或衰退，以及不斷升級的地緣政治緊張局勢； |
| 2 |
| ● | compliance with government regulations, including environmental, health, and safety regulations, and liabilities thereunder; | |
| ● | anticipated uses of net proceeds from our financings; | |
| ● | the increased expenses associated with being a public company; and | |
| ● | other factors discussed elsewhere in this Quarterly Report. |
Many of the foregoing risks and uncertainties, as well as risks and uncertainties that are currently unknown to us, are, and may be, exacerbated by factors such as the ongoing conflict between Ukraine and Russia, the war in the Middle East, escalating tensions between China and Taiwan, increasing economic uncertainty and inflationary pressures, and any consequent worsening of the global business and economic environment. New factors emerge from time to time, and it is not possible for us to predict all such factors. Should one or more of the risks or uncertainties described in this Quarterly Report or any other filing with the Securities and Exchange Commission (the “SEC”) occur or should the assumptions underlying the forward-looking statements we make herein and therein prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
You should read this Quarterly Report and the documents that we reference within it with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect.
Website and Social Media Disclosure
We use our websites (www.bioaffinitytech.com, ir.bioaffinitytech.com, www.cypathlung.com and www.precisionpath.us/) to share Company information. Information contained on or that can be accessed through our websites is not, however, incorporated by reference in this Quarterly Report. Investors should not consider any such information to be part of this Quarterly Report.
| 3 |
bioAffinity Technologies, Inc.
FORM 10-Q
TABLE OF CONTENTS
| 4 |
PART I
FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
bioAffinity Technologies, Inc.
Condensed Consolidated Balance Sheets
| September 30, 2024 | December 31, 2023 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts and other receivables, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Finance lease right-of-use asset, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Unearned revenue | ||||||||
| Operating lease liability, current portion | ||||||||
| Finance lease liability, current portion | ||||||||
| Notes payable, current portion | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Finance lease liability, net of current portion | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Notes payable, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 11) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, par value $ per share; shares authorized; shares issued or outstanding at September 30, 2024, and December 31, 2023 | ||||||||
| Common stock, par value $ per share; shares authorized; and issued and outstanding at September 30, 2024, and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
bioAffinity Technologies, Inc.
Unaudited Condensed Consolidated Statements of Operations
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net Revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Direct costs and expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| Clinical development | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||
| Net loss before provision for income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share, basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average common shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 6 |
bioAffinity Technologies, Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
| For the Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional
Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | | ||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||||||
| Exercise of stock options | — | |||||||||||||||||||||||||||
| Exercise of stock warrants | — | |||||||||||||||||||||||||||
| Sale of Common Stock | — | |||||||||||||||||||||||||||
| Offering costs | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2024 (unaudited) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| For the Three Months Ended September 30, 2024 | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional
Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance at June 30, 2024 (unaudited) | $ | $ | $ | $ | ( | ) | $ | | ||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||||||
| Exercise of stock warrants | — | |||||||||||||||||||||||||||
| Sale of Common Stock | — | |||||||||||||||||||||||||||
| Offering costs | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2024 (unaudited) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| For the Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional
Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||||||
| Stock issued for acquisition | — | |||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2023 (unaudited) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| For the Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance at June 30, 2023 (unaudited) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||||||
| Stock issued for acquisition | — | |||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2023 (unaudited) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 7 |
bioAffinity Technologies, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(unaudited)
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts and other receivables | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Unearned revenue | ( | ) | ||||||
| Operating lease right-of-use asset | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Acquisition of subsidiary, net cash acquired | ( | ) | ||||||
| Net cash used in by investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds
from issuance of Common Stock from direct offering, net of underwriting discounts, commissions, and offering expenses of $ | ||||||||
| Proceeds from exercised stock options | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Payment on loans payable | ( | ) | ||||||
| Proceeds from loans payable | ||||||||
| Principal repayments on finance leases | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Interest expense paid in cash | $ | $ | ||||||
| Income taxes paid in cash | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 8 |
bioAffinity Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1. NATURE OF OPERATIONS, ORGANIZATION, AND BASIS OF PRESENTATION
Description of Business
bioAffinity Technologies, Inc., a Delaware corporation (the “Company,” or “bioAffinity Technologies”), addresses the need for noninvasive diagnosis of early-stage cancer and diseases of the lung. The Company also is conducting early-stage research focused on advancing therapeutic discoveries that could result in broad-spectrum cancer treatments. bioAffinity Technologies develops proprietary noninvasive diagnostic tests using technology that identifies cancer cells and cell populations indicative of a diseased state for analysis using proprietary platforms developed using artificial intelligence (“AI”). The Company’s first diagnostic test, CyPath® Lung, is a noninvasive test for early detection of lung cancer, the leading cause of cancer-related deaths. CyPath® Lung is offered for sale to physicians by the Company’s subsidiary, Precision Pathology Laboratory Services, LLC (“PPLS”). Research and optimization of the Company’s proprietary platform for in vitro diagnostics and technologies are conducted in laboratories at PPLS and The University of Texas at San Antonio. The Company is developing its platform technologies so that in the future they will be able to detect, monitor, and treat diseases of the lung and other cancers.
Organization
The Company was formed on March 26, 2014, as a Delaware corporation with its corporate offices located in San Antonio, Texas. On June 15, 2016, the Company formed a wholly owned subsidiary, OncoSelect® Therapeutics, LLC, as a Delaware limited liability company. On August 14, 2023, the Company formed a wholly owned subsidiary, Precision Pathology Laboratory Services, LLC (“PPLS”), as a Texas limited liability company, to acquire the assets of Village Oaks Pathology Services, P.A., a Texas professional association d/b/a Precision Pathology Services (“Village Oaks”), including the clinical pathology laboratory it owned.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the the SEC for interim financial reporting. The condensed consolidated financial statements are unaudited and in management’s opinion include all adjustments, including normal recurring adjustments and accruals, necessary for a fair presentation of the results for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2023, was derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by GAAP. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2024, or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 1, 2024 (the “2023 Form 10-K”).
Liquidity and Capital Resources
In accordance with Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern for at least one year after the date the condensed consolidated financial statements are issued.
The
Company has incurred significant losses and negative cash flows from operations since inception and expects to continue to incur
losses and negative cash flows for the foreseeable future. As a result, the Company had an accumulated deficit of approximately
$
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the valuation allowance on the Company’s deferred tax assets, stock-based compensation, valuation of goodwill and intangible assets related to the business combination, allowance for contractual adjustments and discounts related to service revenues, and the useful lives of fixed assets.
Principles of Consolidation
The Company’s condensed consolidated financial statements reflect its financial statements, those of its wholly owned subsidiaries, and certain variable interest entities where the Company is the primary beneficiary. The accompanying condensed consolidated financial statements include all the accounts of the Company, its wholly owned subsidiaries, OncoSelect® Therapeutics, LLC, and PPLS, and the variable interest entity, Village Oaks. All significant intercompany balances and transactions have been eliminated.
| 9 |
In determining whether the Company is the primary beneficiary of a variable interest entity, it applies a qualitative approach that determines whether it has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. The Company continuously assesses whether it is the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions may result in the Company consolidating or deconsolidating one or more of its collaborators or partners.
Business Combination
On
September 18, 2023, the Company, in connection with the Asset Purchase Agreement it entered into with Village Oaks and Roby P. Joyce,
M.D., dated September 18, 2023, acquired substantially all the assets and assumed certain liabilities of Village Oaks in exchange for
total consideration of $
The
Company recognized goodwill of $
The following table summarizes the purchase price and finalized purchase price allocations relating to the acquisition:
| Cash | $ | |||
| Common Stock | ||||
| Total purchase consideration | $ | |||
| Assets | ||||
| Net working capital (including cash) | $ | |||
| Property and equipment | ||||
| Other assets | ||||
| Customer relationships | ||||
| Trade names and trademarks | ||||
| Goodwill | ||||
| Total net assets | $ |
Goodwill represents the excess fair value after the allocation to the identifiable net assets. The calculated goodwill is not deductible for tax purposes.
The
preliminary purchase price allocations relating to the acquisition previously reported in the Quarterly Report on Form 10-Q filed November
14, 2023, reported net working capital of $
For
prior year comparative purposes, the pro-forma statement of operations as if combined on January 1, 2023, would result in net revenues
of $
Cash and Cash Equivalents
For the purpose of the statement of cash flows, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. Cash equivalents are stated at cost, which approximates market value, because of the short maturity of these instruments.
Concentration of Risk
The
Company has significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit
of $
Advertising Expense
The
Company expenses all advertising costs as incurred. Advertising expense was $
Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of the Company’s Common Stock outstanding during the period. Diluted loss per share is computed by dividing net loss attributable to common stockholders by the sum of the weighted-average number of shares of Common Stock outstanding during the period and the weighted-average number of dilutive Common Stock equivalents outstanding during the period, using the treasury stock method. Dilutive Common Stock equivalents are comprised of in-the-money stock options, convertible notes payable, unvested restricted stock, and warrants based on the average stock price for each period using the treasury stock method.
| 10 |
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| Shares underlying options outstanding | ||||||||
| Shares underlying warrants outstanding | ||||||||
| Shares underlying unvested restricted stock | ||||||||
Revenue Recognition
The Company recognizes as revenue the amount that reflects the consideration to which it expects to be entitled in exchange for goods sold or services rendered primarily upon completion of the testing process (when results are reported) or when services have been rendered.
Patient Service Fee Revenue
Net
revenues from patient service fees accounted for greater than
The process for estimating revenues and the ultimate collection of accounts receivable involves significant judgment and estimation. The Company follows a standard process, which considers historical denial and collection experience and other factors (including the period of time that the receivables have been outstanding), to estimate contractual allowances and implicit price concessions, recording adjustments in the current period as changes in estimates. Further adjustments to the allowances, based on actual receipts, may be recorded upon settlement.
| For
the nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Patient service fees1 | $ | $ | ||||||
| Histology service fees | ||||||||
| Medical director fees | ||||||||
| Department of Defense observational studies | ||||||||
| Other revenues2 | ||||||||
| Total net revenue | $ | $ | ||||||
| 1 | ||
| 2 |
Property and Equipment
In accordance with ASC 360-10, Accounting for the Impairment of Long-Lived Assets, the Company periodically reviews the carrying value of its long-lived assets, such as property, equipment, and definite-lived intangible assets, to test whether current events or circumstances indicate that such carrying value may not be recoverable. When evaluating assets for potential impairment, the Company compares the carrying value of the asset to its estimated undiscounted future cash flows. If an asset’s carrying value exceeds such estimated cash flows (undiscounted and with interest charges), the Company records an impairment charge for the difference. The Company did not record any impairment for the three and nine months ended September 30, 2024, or for the fiscal year ended December 31, 2023.
Property and equipment are carried at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the asset. Amortization of leasehold improvements is computed using the shorter of the lease term or estimated useful life of the asset. Additions and improvements are capitalized, while repairs and maintenance are expensed as incurred. Useful lives of each asset class are as follows:
| Asset Category | Useful Life | |
| Computer equipment | ||
| Computer software | ||
| Equipment | ||
| Furniture and fixtures | ||
| Vehicles | ||
| Leasehold improvements |
| 11 |
Intangible Assets
Intangible assets, net of accumulated amortization, and goodwill are summarized as follows as of September 30, 2024:
| Description | Date Acquired | Useful Life | Cost | Amortization | Net | |||||||||||
| Goodwill | $ | $ | $ | |||||||||||||
| Trade names and trademarks | ( | ) | ||||||||||||||
| Customer relationships | ( | ) | ||||||||||||||
| Total intangible assets, net | $ | $ | ( | ) | $ | |||||||||||
The
Company incurred amortization of intangible assets of $
Recent Accounting Pronouncements
The Company continues to monitor new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) and does not believe any accounting pronouncements issued through the date of this Quarterly Report will have a material impact on the Company’s condensed consolidated financial statements.
The Company adopted FASB issued Accounting Standards Update (ASU) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures on December 31, 2023. The Company used the five steps to ASC 280 to evaluate what, if any, segment reporting would be beneficial for shareholders. These five steps included: 1) evaluate operating segments for aggregation, 2) perform quantitative threshold tests, 3) evaluate remaining operating segments for aggregation, 4) ensure that 75% of revenue is reported, and 5) consider practical limit. Based on the analysis above against those five steps, management concludes that segment reporting is required for two segment operations: 1) diagnostic R&D and 2) laboratory services.
Segment Information
The Company is organized in two operating segments, Diagnostic Research and Development (“R&D”) and Laboratory Services, whereby its chief operating decision maker (“CODM”) assesses the performance of and allocates resources. The CODM is the Chief Executive Officer. Diagnostic R&D includes research and development and clinical development on diagnostic tests. Any revenues assigned to Diagnostic R&D are proceeds received from observational studies. Laboratory services include all the operations from Village Oaks and PPLS in addition to sales and marketing costs of CyPath® Lung from bioAffinity Technologies.
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net revenue: | ||||||||||||||||
| Diagnostic R&D | $ | $ | $ | $ | ||||||||||||
| Laboratory services 1 | ||||||||||||||||
| Total net revenue | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Diagnostic R&D | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Laboratory services | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| General corporate activities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Non-operating income (expense), net | ( | ) | ( | ) | ||||||||||||
| Net loss before income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 1 |
| 12 |
Research and Development
Research and development costs are charged to expense as incurred. The Company’s research and development expenses consist primarily of expenditures for laboratory operations, preclinical studies, compensation, and consulting costs.
Accrued Research and Development Costs
The Company records accrued liabilities for estimated costs of research and development activities conducted by service providers, which include preclinical studies. The Company records the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and includes these costs in accrued expenses in the accompanying condensed consolidated balance sheets and within research and development expense in the accompanying condensed consolidated statements of operations.
The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with service providers. The Company makes significant judgments and estimates in determining the accrued expenses balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities. The Company has not experienced any material differences between accrued costs and actual costs incurred since its inception.
Regulatory Matters
Regulations imposed by federal, state, and local authorities in the United States (“U.S.”) are a significant factor in providing medical care. In the U.S., drugs, biological products, and medical devices are regulated by the Federal Food, Drug, and Cosmetic Act (“FDCA”), which is administered by the Food and Drug Administration (“FDA”) and the CMS. The Company has not yet obtained marketing authorization from the FDA but is able to market its CyPath® Lung test as a laboratory developed test (“LDT”) sold by Precision Pathology Laboratory Services, a CAP-accredited, CLIA-certified clinical pathology laboratory and wholly owned subsidiary.
Note 3. ACCOUNTS AND OTHER RECEIVABLES, NET
The following is a summary of accounts receivables and other receivables:
| September 30, 2024 | December 31, 2023 | |||||||
| Patient service fees | $ | $ | ||||||
| Histology service fees | ||||||||
| Medical director fees | ||||||||
| Other receivables1 | ||||||||
| Total accounts and other receivables, net | $ | $ | ||||||
Note 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets are summarized below:
| September 30, 2024 | December 31, 2023 | |||||||
| Prepaid insurance | $ | $ | ||||||
| Legal and professional | ||||||||
| Other | ||||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||
| 13 |
Note 5. PROPERTY AND EQUIPMENT, NET
Property and equipment are summarized below:
| September 30, 2024 | December 31, 2023 | |||||||
| Lab equipment | $ | $ | ||||||
| Computers and software | ||||||||
| Leasehold improvements | ||||||||
| Vehicles | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense was $
Note 6. ACCRUED EXPENSES
Accrued expenses are summarized below:
| September 30, 2024 | December 31, 2023 | |||||||
| Compensation | $ | $ | ||||||
| Legal and professional | ||||||||
| Clinical | ||||||||
| Other | ||||||||
| Total accrued expenses | $ | $ | ||||||
Note 7. UNEARNED REVENUE
The
Company engaged in an observational study of CyPath® Lung with the U.S. Department of Defense (“DOD”). A total
of 70 CyPath® Lung units were ordered and shipped. However, in compliance with FASB ASC 606, the performance obligation
was complete for only 40 units as of September 30, 2024. The performance obligation is deemed complete after samples have been collected,
processed, analyzed, and results communicated to patients. The unearned revenue balance amounted to $
Note 8. FAIR VALUE MEASUREMENTS
The Company analyzes all financial instruments with features of both liabilities and equity under the FASB accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts and other receivables, prepaid and other current assets, accounts payable, accrued expenses, and loan payable, are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
Note 9. LEASES
The
Company has one operating lease for its real estate and office space for the CAP/CLIA laboratory, as well as multiple finance leases
for lab equipment in Texas that were acquired through the September 18, 2023, acquisition. Additionally, the Company entered into
another operating lease on September 1, 2024 with regard to office space. The Company has operating leases consisting of office
space with remaining lease terms ranging from
The
lease agreements generally do not provide an implicit borrowing rate. Therefore, the Company used a benchmark approach as of the date
of inception of the leases to derive an appropriate incremental borrowing rate to discount remaining lease payments. The Company benchmarked
itself against other companies of similar credit ratings and comparable quality and derived imputed interest rates ranging from
Leases with an initial term of 12 months or less are not recorded on the balance sheet. There are no material residual guarantees associated with any of the Company’s leases, and there are no significant restrictions or covenants included in the Company’s lease agreements. Certain leases include variable payments related to common area maintenance and property taxes, which are billed by the landlord, as is customary with these types of charges for office space. The Company has not entered into any lease arrangements with related parties, and the Company is not the sublessor in any arrangement.
The Company’s existing leases contain escalation clauses and renewal options. The Company has evaluated several factors in assessing whether there is reasonable certainty that the Company will exercise a contractual renewal option. For leases with renewal options that are reasonably certain to be exercised, the Company included the renewal term in the total lease term used in calculating the right-of-use asset and lease liability.
| 14 |
The components of lease expense, which are included in selling, general and administrative expense and depreciation and amortization for the three and nine months ended September 30, 2024 and 2023, are as follows:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Amortization of right-of-use asset - finance lease | $ | $ | $ | $ | ||||||||||||
| Interest on lease liabilities - finance lease | ||||||||||||||||
| Operating lease cost | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
| Operating cash flows from finance leases | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Operating cash flows from operating leases | ( | ) | ( | ) | ||||||||||||
Supplemental balance sheet information relating to leases was as follows as of September 30, 2024, and December 31, 2023:
| Operating leases: | September 30, 2024 | December 31, 2023 | ||||||
| Operating lease right-of-use asset | $ | $ | ||||||
| Operating lease liability, current | $ | $ | ||||||
| Operating lease liability, long-term | $ | $ | ||||||
| Finance leases: | September 30, 2024 | December 31, 2023 | ||||||
| Finance lease right-of-use asset, gross | $ | $ | ||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Finance lease right-of-use asset, net | $ | $ | ||||||
| Finance lease liability, current portion | $ | $ | ||||||
| Finance lease liability, long-term | ||||||||
| Total finance lease liabilities | $ | $ | ||||||
| Weighted-average remaining lease term: | September 30, 2024 | December 31, 2023 | ||||||
| Operating leases (in years) | ||||||||
| Finance leases (in years) | ||||||||
| Weighted-average discount rate: | September 30, 2024 | December 31, 2023 | ||||||
| Operating leases | % | % | ||||||
| Finance leases | % | % | ||||||
Future minimum lease payments under non-cancellable lease as of September 30, 2024, are as follows:
| Operating Leases | Finance Leases | |||||||
| Remaining for 2024 | $ | $ | ||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 and thereafter | ||||||||
| Total undiscounted cash flows | ||||||||
| Less discounting | ( | ) | ( | ) | ||||
| Present value of lease liabilities | $ | $ | ||||||
| 15 |
Note 10. NOTES PAYABLE
Toyota Corolla - 2024
On
March 18, 2024, the Company entered into a Finance Agreement to purchase a 2024 Toyota Corolla for $
Directors and Officers Insurance Policy – 2024
In
September 2024, the Company obtained short-term financing of approximately $
Note 11. COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of business. To date, the Company has no material pending legal proceedings.
Note 12. COMMON STOCK
Common Stock
The Company has authorized a total of shares of Common Stock, $ par value per share. On June 4, 2024, the Company received stockholder approval to increase the number of authorized shares of Common Stock from shares to shares, and on June 5, 2024, the Company filed an amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the increase. The Company has issued shares of Common Stock, of which are unvested restricted stock awards as of September 30, 2024, and shares of Common Stock, of which are unvested restricted stock awards as of December 31, 2023.
The Company granted options and restricted stock awards under its 2014 Equity Incentive Plan (the “2014 Plan”). Under the 2014 Plan, the Company is authorized to grant options or restricted stock for up to shares of Common Stock. On June 6, 2023, the Company received stockholder approval to increase the number of authorized shares from to . Options or restricted stock awards may be granted to employees, the Company’s board of directors, and external consultants who provide services to the Company. Options and restricted stock awards granted under the 2014 Plan have vesting schedules with terms of one to three years and become fully exercisable based on specific terms imposed at the date of grant. The 2014 Plan expired according to the respective 10-year term of the 2014 Plan in March 2024. A new 2024 Incentive Compensation Plan (the “2024 Plan”) was approved at the Annual Meeting of Shareholders on June 4, 2024.
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Number
of options | Weighted-average
exercise price | Weighted-average
remaining contractual term (in years) | Aggregate
intrinsic value | |||||||||||||
| Outstanding at December 31, 2023 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited | ( | ) | ||||||||||||||
| Outstanding at September 30, 2024 | $ | |||||||||||||||
| Vested and exercisable at September 30, 2024 | $ | |||||||||||||||
| 16 |
As of September 30, 2024, there was unrecognized compensation cost related to non-vested stock options.
During the nine months ended September 30, 2024, options were exercised at an exercise price of $, of which options were from a cashless exercise, and options were forfeited due to a cashless exercise.
| Number
of restricted stock awards (RSA) | Weighted-average
grant price | FMV
on grant date | Vested
number of RSA | Unvested
number of RSA | ||||||||||||||||
| Balance at December 31, 2023 | $ | $ | ||||||||||||||||||
| Granted | ||||||||||||||||||||
| Forfeited | ( | ) | ( | ) | ||||||||||||||||
| Balance at September 30, 2024 | $ | $ | ||||||||||||||||||
During the three months ended September 30, 2024, the Company issued restricted stock awards (“RSAs”) for shares of Common Stock to employees, non-employees, and the board of directors. The shares vest in equal monthly installments over terms of immediately and up to , subject to the employees and non-employees providing continuous service through the vesting date. During the three months ended September 30, 2024, shares vested from RSAs granted prior to January 1, 2024, and shares vested from RSAs granted during the nine months ended September 30, 2024.
Note 14. WARRANTS
The
Company’s outstanding Common Stock warrants are equity classified. As of September 30, 2024, and December 31, 2023, the
Company had
On
March 8, 2024, the Company issued to certain investors (i) in a registered direct offering, shares of the Company’s
Common Stock and (ii) in a concurrent private placement, warrants to purchase an aggregate of
On
August 5, 2024, the Company entered into warrant exercise agreements with three existing accredited investors to exercise certain outstanding
warrants to purchase an aggregate of
On
August 5, 2024, the Company also entered into a securities purchase agreement (the “Purchase Agreement”) with an institutional
investor (the “Purchaser”), pursuant to which the Company issued to the Purchaser, (1) in a registered direct offering,
shares of Common Stock, and (2) in a concurrent private placement, warrants (the “Private Warrants”) to purchase an aggregate
of
In
addition, designees of the placement agent for the Offering were granted warrants to purchase an aggregate of up to
The following table summarizes the calculated aggregate fair values for the warrant derivative liability using the Black-Scholes method based on the following assumptions for the Offering:
| Exercise price per share of warrant | $ | |||
| Fair market closing price per share of Common Stock | $ | |||
| Volatility | % | |||
| Expected term (years) | ||||
| Risk-free interest rate | % | |||
| Dividend yield | % |
The fair value of the New Warrants and the Prive Warrant
Shares using the assumptions above was $
As
of September 30, 2024, and prior to the Offering, there were tradeable warrants to purchase up to an aggregate of
| Number of warrants issued | Weighted-average exercise price | Number of warrants exercised | Number of warrants outstanding | |||||||||||||
| Pre-IPO convertible notes | $ | |||||||||||||||
| IPO tradeable | ( | ) | ||||||||||||||
| IPO non-tradeable | ( | ) | ||||||||||||||
| Direct offering March 8, 2024 | ( | ) | ||||||||||||||
| Placement agent direct offering March 8, 2024 | ||||||||||||||||
| Inducement/direct offering August 5, 2024 | ||||||||||||||||
| Placement agent direct offering August 5, 2024 | ||||||||||||||||
| Balance at September 30, 2024 | $ | ( | ) | |||||||||||||
| 17 |
Note 15. SUBSEQUENT EVENTS
On October 9, 2024, the Company announced that CyPath® Lung, its noninvasive test to detect early-stage lung cancer, will be added to the U.S. Federal Supply Schedule, a procurement system that provides the Veterans Health Administration (the “VHA”) and the Military Health System streamlined access to state-of-the-art healthcare products and services. The VHA, part of the U.S. Department of Veterans Affairs (“VA”), serves 9.1 million Veterans each year and is the largest integrated health care system in the country, providing care at 1,380 health care facilities, including 170 medical centers and 1,193 outpatient sites. Approximately 8,000 Veterans are diagnosed and treated for lung cancer annually, according to the VA. Veterans are at higher risk for lung cancer due to older age, smoking and environmental exposure during and after military service. The VA promotes annual lung cancer screening for high-risk individuals, which could result in a revenue stream from sales of CyPath® Lung through the Federal Supply Schedule.
On
October 21, 2024, we issued (i) in a registered direct offering, shares (the “Shares”) of our Common Stock, par
value $ per share (the “Common Stock”), and (ii) in a concurrent private placement, common warrants (the “Common
Warrants”) to purchase an aggregate of
Pursuant to the Purchase Agreement, we agreed to file a resale registration statement on Form S-1 (the “Resale Registration Statement”) to register the resale of the Common Warrant Shares as soon as practicable (and in any event within 45 calendar days following the date of the Purchase Agreement), and to use commercially reasonable efforts to have the Resale Registration Statement declared effective by the Commission and to keep such registration statement effective at all times until the Purchasers no longer owns any Common Warrants or Common Warrant Shares. The Company intends to register the Common Warrant Shares and the Placement Agent Warrant Shares on the Resale Registration Statement.
On October 30, 2024, the Company announced that the Japan Patent Office had issued a Certificate of Grant of Patent to bioAffinity Technologies for the method of predicting the likelihood of lung cancer used by the CyPath® Lung diagnostic test for early-stage lung cancer. The Japanese patent, titled “System and Method for Determining the State of Health of the Lungs,” is an important addition to bioAffinity Technologies’ patent portfolio, which includes 17 awarded U.S. and foreign patents and 30 pending patent applications related to its diagnostic platform and cancer treatment therapeutics. The Japanese patent is the first awarded for the CyPath® Lung flow cytometry test as a stand-alone assay for the detection of lung cancer.
| 18 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This section presents management’s perspective on our financial condition and results of operations. The following discussion and analysis (the “MD&A”) is intended to highlight and supplement data and information presented elsewhere in this Quarterly Report and should be read in conjunction with our interim unaudited condensed consolidated financial statements and notes elsewhere in this Quarterly Report and our audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2023, included in the Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 1, 2024 (the “2023 Form 10-K”). The MD&A is also intended to provide you with information that will assist you in understanding our consolidated financial statements, the changes in key items in those consolidated financial statements from year to year, and the primary factors that accounted for those changes. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause the Company’s financial results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the “Cautionary Note Regarding Forward-Looking Statements” section of this Quarterly Report and in the “Risk Factors” section of the 2023 Form 10-K.
Data as of and for the three and nine months ended September 30, 2024 and 2023, has been derived from our unaudited condensed consolidated financial statements appearing at the beginning of this Quarterly Report. Results for any interim period should not be construed as an inference of what our results would be for any full fiscal year or future period.
Our MD&A is organized as follows:
| ● | Company Overview – Discussion of our business plan and strategy to provide context for the remainder of the MD&A. | |
| ● | Results of Operations – Analysis of our financial results comparing the nine months and three months ended September 30, 2024, to the comparable period in 2023. | |
| ● | Liquidity and Capital Resources – Analysis of changes in our cash flows and discussion of our financial condition and potential sources of liquidity. | |
| ● | Critical Accounting Estimates – Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts. |
Company Overview
Business
bioAffinity Technologies, Inc. (the “Company,” “bioAffinity Technologies,” “we,” or “our”) develops noninvasive diagnostics to detect early-stage lung cancer and other diseases of the lung. We also are conducting early-stage research focused on advancing therapeutic discoveries that could result in broad-spectrum cancer treatments. We have developed a proprietary noninvasive diagnostic test using technology that identifies cancer cells and cell populations indicative of a diseased state for analysis using proprietary platforms developed using AI. Research and optimization of our platform technologies are conducted in laboratories at our wholly owned subsidiary, Precision Pathology Laboratory Services, LLC (“PPLS”), and The University of Texas at San Antonio.
Our diagnostic test, CyPath® Lung, addresses the need for noninvasive detection of early-stage lung cancer. Lung cancer is the leading cause of cancer-related deaths. Physicians are able to order CyPath® Lung to assist in their assessment of patients who are at high risk for lung cancer. The CyPath® Lung test enables physicians to more confidently distinguish between patients who will likely benefit from timely intervention and more invasive follow-up procedures from patients who are likely without lung cancer and should continue annual screening. CyPath® Lung has the potential to increase overall diagnostic accuracy of lung cancer, which could lead to increased survival, fewer unnecessary invasive procedures, reduced patient anxiety, and lower medical costs.
| 19 |
Through our wholly owned subsidiary PPLS, we acquired the assets of Village Oaks Pathology Services, P.A., a Texas professional association d/b/a Precision Pathology Services, including the clinical pathology laboratory it owned, and we now operate the laboratory.
Recent Developments
On August 5, 2024, the Company entered into warrant exercise agreements with three existing accredited investors to exercise certain outstanding warrants to purchase an aggregate of 1,041,667 of the Company’s shares of Common Stock (the “Existing Warrants”). The exercising holders received in a private placement new unregistered warrants (the “New Warrants”) to purchase up to an aggregate of 1,302,082 shares of Common Stock with an exercise price of $1.50 per share and are initially exercisable on the date that stockholder approval of the exercise of the New Warrants is obtained and will expire five years from the date of such approval. In connection with the exercise of the Existing Warrants, the Company agreed to reduce the exercise price of the Existing Warrants from $1.64 to $1.25 per share. The exercise of the Existing Warrants and the issuance of the New Warrants occurred on August 5, 2024. On the same day, the Company also entered into a securities purchase agreement (the “Purchase Agreement”) with an institutional investor (the “Purchaser”), pursuant to which the Company issued to the Purchaser, (1) in a registered direct offering, 360,000 shares of Common Stock, and (2) in a concurrent private placement, warrants (the “Private Warrants”) to purchase an aggregate of 450,000 shares of Common Stock (the “Private Warrant Shares”), with an exercise price of $1.50 (collectively, the “Offering”). In addition, the placement agent was granted warrants to purchase 49,862 shares of Common Stock, with an exercise price of $1.50.
On August 23, 2024, bioAffinity Technologies announced J. Michael Edwards, who oversaw the Company’s Initial Public Offering (“IPO”) as the Company’s Chief Financial Officer (“CFO”), would replace Michael Dougherty who resigned his position to move to the Pacific Northwest where he accepted a CFO position in the energy industry. Mr. Edwards has more than three decades of experience in financial management and business strategy. Previously, he was CFO of CytoBioscience Inc., which develops and manufactures instruments for disease analysis and treatment, and OncoVista Innovative Therapies, Inc., a biopharmaceutical company that develops targeted anticancer therapies by utilizing tumor-associated biomarkers. Earlier in his career, Mr. Edwards held finance positions at BioNumerik Pharmaceuticals, Inc. and Ilex Oncology, Inc. He is a certified public accountant who began his career at PricewaterhouseCoopers LLP. Edwards earned his MBA from The University of Texas McCombs School of Business in Austin.
On September 18, 2024, the Company announced publication in a peer-reviewed journal of an economic study concluding that adding CyPath® Lung to the standard of care for Medicare patients with a positive lung cancer screening could have saved an average of $2,773 per patient for total cost savings of $379 million in 2022. The study found that adding CyPath® Lung to the standard of care for private-payer patients could save an average of $6,460 per patient and estimated total healthcare savings of $895 million if all individuals screened in 2022 were covered by private insurance. The peer-reviewed study, published in the Journal of Health Economics and Outcomes Research, attributes the savings to a reduction in follow-up diagnostic assessments, expensive follow-up procedures and procedure-related complications. Michael J. Morris, M.D., Brooke Army Medical Center (BAMC) pulmonology and critical care physician and Assistant Dean of Research at San Antonio Uniformed Services Health Education Consortium, and Sheila A. Habib, M.D., Director of the Pulmonary Lung Nodule Clinic and the Lung Cancer Screening Program at the South Texas Veterans Health Care Systems’ Audie L. Murphy Memorial Veterans Hospital and Assistant Professor at the University of Texas Health Science Center at San Antonio, were first and second authors on the study. Economists John E. Schneider, Ph.D., and Maggie L. Do Valle, Master of Public Health, of Avalon Health Economics also contributed to the study.
On October 21, 2024, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with institutional investors (the “Purchasers”), pursuant to which the Company agreed to issue to the Purchasers, (i) in a registered direct offering, 2,048,294 shares (the “Shares”) of Common Stock, and (ii) in a concurrent private placement, common warrants to purchase an aggregate of 2,662,782 shares of Common Stock, with an exercise price of $1.50.
On October 30, 2024, the Company announced that the Japan Patent Office had issued a Certificate of Grant of Patent to bioAffinity Technologies for the method of predicting the likelihood of lung cancer used by the CyPath® Lung diagnostic test for early-stage lung cancer. The Japanese patent, titled “System and Method for Determining the State of Health of the Lungs,” is an important addition to bioAffinity Technologies’ patent portfolio, which includes 17 awarded U.S. and foreign patents and 30 pending patent applications related to its diagnostic platform and cancer treatment therapeutics. The Japanese patent is the first awarded for the CyPath® Lung flow cytometry test as a stand-alone assay for the detection of lung cancer.
On November 1, 2024, William Bauta, Ph.D., was named Chief Science Officer for bioAffinity Technologies. Dr. Bauta joined bioAffinity Technologies in 2016 as Senior Vice President of Research and Development and has been responsible for multiple Company inventions for which patents have been awarded or patent applications pending that support bioAffinity Technologies’ diagnostic and therapeutic advancements, including CyPath® Lung. Before coming to bioAffinity Technologies, Dr. Bauta was Associate Director of science at Genzyme Corporation and held a similar position at Ilex Products, Inc., where he was responsible for the discovery, development and FDA approval of multiple therapeutics. In addition to bioAffinity Technologies patents on which he is a named inventor, he holds several additional healthcare-related patents and has published in more than a dozen scientific journals, including the journal Science. Dr. Bauta received his Ph.D. from the University of Chicago where he received fellowships from the National Science Foundation and the American Chemical Society. His post-doctoral studies were at the University of Texas at Austin under a National Institutes of Health fellowship. Dr. Bauta succeeds Vivienne I. Rebel, M.D., Ph.D. who retired from her position on October 31, 2024 as Executive Vice President and Chief Science and Medical Officer for bioAffinity Technologies. Dr. Rebel is a stem cell biologist whose academic research focused on understanding the molecular events that regulate blood-forming stem cells in bone marrow and prohibit them from developing into cancer. She joined the Company in 2016 and led the research and development of the Company’s first commercial product, CyPath® Lung, for the early detection of lung cancer.
Financial
To date, we have devoted a substantial portion of our efforts and financial resources to the development of our diagnostic test, CyPath® Lung. As a result, since our inception in 2014, we have funded our operations principally through private sales of our equity and our initial public offering. As of September 30, 2024, we had cash and cash equivalents of $0.8 million. As of November 12, 2024, after the October 2024 Offerings, we had cash and cash equivalents of $2.0 million, which we expect will not support our operations beyond March 2025.
Prior to acquisition of the clinical pathology laboratory by PPLS, Village Oaks, under the trade name Precision Pathology Services, had licensed and developed CyPath® Lung as a laboratory developed test (“LDT”) for sale to physicians. The license agreement provided that revenues from the sale would be split evenly between us and Village Oaks. In the second quarter of 2022, prior to the acquisition, we started to recognize revenue as part of a limited beta market testing program of the CyPath® Lung test. We have never been profitable, and as of September 30, 2024, we had total working capital of approximately $58,000 and an accumulated deficit of approximately $50.7 million. We expect to continue to incur significant operating losses for the foreseeable future as we continue the development of our diagnostic tests and advance our diagnostic tests through clinical trials; however, we expect revenue to increase due to the acquisition of the clinical pathology laboratory (the “Acquisition”). We intend to license our therapeutic products for clinical development should animal and pre-clinical studies prove successful.
We anticipate raising additional cash needed through the private or public sales of equity or debt securities, collaborative arrangements, or a combination thereof to continue to fund our operations and develop our products. There is no assurance that any such collaborative arrangement will be entered into or that financing will be available to us when needed in order to allow us to continue our operations or, if available, on terms acceptable to us. If we do not raise sufficient funds in a timely manner, we may be forced to curtail operations, delay our clinical trials, cease operations altogether, or file for bankruptcy.
| 20 |
Results of Operations
Three Months Ended September 30, 2024, Compared to Three Months Ended September 30, 2023
Net loss for the three months ended September 30, 2024, was approximately $2.0 million, compared to a net loss of approximately $2.3 million for the three months ended September 30, 2023.
Revenue
Since acquisition of the clinical pathology laboratory on September 19, 2023, additional revenue streams have been consolidated. PPLS generates three sources of revenue: (1) patient service fees, (2) histology service fees, and (3) medical director fees. Pre-acquisition, bioAffinity Technologies’ revenue was generated in three ways: (1) royalties from our diagnostic test, CyPath® Lung, (2) clinical flow cytometry services provided to Village Oaks related to our CyPath® Lung test, and (3) CyPath® Lung tests purchased by the U.S. Department of Defense (“DOD”) for an observational study, “Detection of Abnormal Respiratory Cell Populations in Lung Cancer Screening Patients Using the CyPath® Lung Assay (NCT05870592),” and research and development on using bronchoalveolar lavage fluid as a biological sample to assess cardiopulmonary function and exercise performance in military personnel post-COVID-19 infection. The royalty income from CyPath® Lung and clinical flow cytometry services income, beginning September 19, 2023, are related party income and, therefore, eliminated from consolidated net revenues. See net revenue summarized in the table below.
For the three months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Patient service fees1 | $ | 2,049,851 | $ | 248,654 | ||||
| Histology service fees | 281,861 | 31,854 | ||||||
| Medical director fees | 16,943 | 2,393 | ||||||
| Department of Defense observational studies | 1,731 | 14,250 | ||||||
| Other revenues2 | — | 1,333 | ||||||
| Total net revenue | $ | 2,350,386 | $ | 298,484 | ||||
1 Patient services fees include direct billing for CyPath® Lung diagnostic test.
2 Other revenues include pre-acquisition CyPath® Lung royalty income and laboratory services.
Operating Expenses
| Three Months Ended | Change in 2024 | |||||||||||||||
| September 30, | Versus 2023 | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Direct costs and expenses | $ | 1,440,158 | $ | 74,704 | $ | 1,365,454 | 1,828 | % | ||||||||
| Research and development | 274,497 | 330,376 | (55,879 | ) | (17 | )% | ||||||||||
| Clinical development | 93,705 | 106,422 | (12,717 | ) | (12 | )% | ||||||||||
| Selling, general and administrative | 2,364,592 | 2,023,917 | 340,675 | 17 | % | |||||||||||
| Depreciation and amortization | 151,298 | 57,569 | 93,729 | 163 | % | |||||||||||
| Total operating expenses | $ | 4,324,250 | $ | 2,592,988 | $ | 1,731,262 | 67 | % | ||||||||
Operating expenses totaled approximately $4.3 million and $2.6 million during the three months ended September 30, 2024 and 2023, respectively. The increase in operating expenses is the result of the following factors:
Direct costs and expenses
Our direct costs and expenses are primarily direct labor for pathology services, laboratory supplies and reagents, laboratory equipment, and allocated shared facilities. Direct costs and expenses totaled $1.4 million and $74,704 during the three months ended September 30, 2024 and 2023, respectively. The increase of approximately $1.4 million for 2024 compared to 2023 was primarily attributable to the laboratory operations of the newly acquired clinical pathology laboratory in September 2023.
| 21 |
Research and Development Expenses
Our research and development expenses consist primarily of expenditures for lab operations, preclinical studies, compensation, and consulting costs.
Research and development expenses totaled $274,497 and $330,376 for the three months ended September 30, 2024 and 2023, respectively. The decrease of approximately $56,000, or 17%, for the three months ended September 30, 2024, compared to the same period in 2023 was primarily due to the acquisition of PPLS in September 2023 due to acquiring new personnel and related costs for the laboratory supplies and reagents in 2023. Additionally, equipment costs increased in 2023 as we purchased capital equipment to support research and development efforts.
Clinical Development
Clinical development expenses totaled $93,705 and $106,422 for the three months ended September 30, 2024 and 2023, respectively. The decrease of approximately $12,000, or 12%, for the three months ended September 30, 2024, compared to the same period in 2023 was primarily attributable to an increase in professional fees in 2023, including consulting fees, related to evaluating the clinical strategy for our pivotal clinical trial designed to confirm the sensitivity and specificity of CyPath® Lung in detecting lung cancer in persons at high risk for the disease, including patients who display indeterminate pulmonary nodules between 6mm and 30mm in size which often present a challenge in diagnosis.
Selling, General and Administrative
Our selling, general and administrative expenses consist primarily of expenditures related to employee compensation, selling and marketing costs, legal, accounting and tax, and other professional services, and general operating expenses.
Selling, general and administrative expenses totaled approximately $2.4 million and $2.0 million for the three months ended September 30, 2024 and 2023, respectively. The increase of approximately $0.4 million, or 17%, for the three months ended September 30, 2024, compared to the same period in 2023 was primarily attributable to acquired general and administrative costs from PPLS and an increase in employee compensation related to administrative and sales due to additional personnel and support services to support the launch of sales of our diagnostic test, CyPath® Lung.
Depreciation and Amortization
Depreciation and amortization expenses totaled $151,298 and $57,569 for the three months ended September 30, 2024 and 2023, respectively. The increase of approximately $93,729, or 163%, for the three months ended September 30, 2024, compared to the same period in 2023 was primarily attributable to depreciation on the assets from the acquisition of PPLS in September 2023.
Other Income (Expense)
Other income (expense), net totaled ($24,417) and $5,914 for the three months ended September 30, 2024 and 2023, respectively. The decrease in the other income of $30,331 is mostly attributable to a reduction in interest income of $24,965 which is due to a lower cash balance in a money market savings account and an increase in interest expense of $12,846 related to equipment finance leases from the acquired PPLS laboratory as compared to the same period last year.
Nine Months Ended September 30, 2024, Compared to Nine Months Ended September 30, 2023
Net loss for the nine months ended September 30, 2024, was approximately $6.1 million, compared to a net loss of approximately $5.6 million for the nine months ended September 30, 2023.
Revenue
Post-acquisition, additional revenue streams have been consolidated starting September 19, 2023. PPLS generates three sources of revenue: (1) patient service fees, (2) histology service fees, and (3) medical director fees. Pre-acquisition, bioAffinity Technologies’ revenue was generated in three ways: (1) royalties from our diagnostic test, CyPath® Lung, (2) clinical flow cytometry services provided to Village Oaks related to our CyPath® Lung test, and (3) CyPath® Lung tests purchased by the DOD for an observational study, “Detection of Abnormal Respiratory Cell Populations in Lung Cancer Screening Patients Using the CyPath® Lung Assay (NCT05870592),” and research and development on using bronchoalveolar lavage fluid as a biological sample to assess cardiopulmonary function and exercise performance in military personnel post-COVID-19 infection. The royalty income from CyPath® Lung and clinical flow cytometry services income, beginning September 19, 2023, are related party income and, therefore, eliminated from consolidated net revenues. See net revenue summarized in the table below.
For the nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Patient service fees1 | $ | 6,259,806 | $ | 248,654 | ||||
| Histology service fees | 811,914 | 31,854 | ||||||
| Medical director fees | 50,136 | 2,393 | ||||||
| Department of Defense observational studies | 8,654 | 14,250 | ||||||
| Other revenues2 | 23,919 | 21,992 | ||||||
| Total net revenue | $ | 7,154,429 | $ | 319,143 | ||||
1 Patient services fees include direct billing for CyPath® Lung diagnostic test.
2 Other revenues include pre-acquisition CyPath® Lung royalty income and laboratory services.
| 22 |
Operating Expenses
| Nine Months Ended | Change in 2024 | |||||||||||||||
| September 30, | Versus 2023 | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Direct costs and expenses | $ | 4,421,309 | $ | 76,025 | $ | 4,345,284 | 5,716 | % | ||||||||
| Research and development | 1,070,569 | 1,035,118 | 35,451 | 3 | % | |||||||||||
| Clinical development | 194,127 | 161,310 | 32,817 | 20 | % | |||||||||||
| Selling, general and administrative | 7,023,311 | 4,576,708 | 2,446,603 | 53 | % | |||||||||||
| Depreciation and amortization | 452,005 | 100,805 | 351,200 | 348 | % | |||||||||||
| Total operating expenses | $ | 13,161,321 | $ | 5,949,966 | $ | 7,211,355 | 121 | % | ||||||||
Operating expenses totaled approximately $13.5 million and $6.0 million during the nine months ended September 30, 2024 and 2023, respectively. The increase in operating expenses is the result of the following factors:
Direct costs and expenses
Our direct costs and expenses are primarily direct labor for pathology services, laboratory supplies and reagents, laboratory equipment, and allocated shared facilities. Direct costs and expenses totaled $4,421,309 and $76,025 during the nine months ended September 30, 2024 and 2023, respectively. The increase of approximately $4.3 million for 2024 compared to 2023 was primarily attributable an entire quarter of laboratory operations for PPLS compared to a partial quarter in 2023 from the acquisition of PPLS in September 2023.
Research and Development Expenses
Our research and development expenses consist primarily of expenditures for laboratory operations, preclinical and clinical studies, compensation, and consulting costs.
Research and development expenses totaled $1.1 million and $1.0 million for the nine months ended September 30, 2024 and 2023, respectively. The increase of approximately $35,000, or 3%, for the nine months ended September 30, 2024, compared to the same period in 2023 was primarily due to an increase in compensation costs and benefits as we added research personnel, as well as a related increase in costs for laboratory supplies and reagents.
Clinical Development
Clinical development expenses totaled $194,127 and $161,310 for the nine months ended September 30, 2024 and 2023, respectively. The increase of approximately $32,000, or 20%, for the nine months ended September 30, 2024, compared to the same period in 2023 was primarily attributable to an increase in compensation costs and benefits as we added clinical development personnel.
Selling, General and Administrative
Our selling, general and administrative expenses consist primarily of expenditures related to employee compensation, selling and marketing costs, legal, accounting and tax, and other professional services, and general operating expenses.
Selling, general and administrative expenses totaled approximately $7.0 million and $4.6 million for the nine months ended September 30, 2024 and 2023, respectively. The increase of approximately $2.4 million, or 53%, for the nine months ended September 30, 2024, compared to the same period in 2023 was primarily attributable to acquired general and administrative costs from PPLS and an increase in employee compensation related to administrative and sales due to additional personnel and support services to support the launch of sales of our diagnostic test, CyPath® Lung.
Depreciation and Amortization
Depreciation and amortization expenses totaled $452,005 and $100,805 for the nine months ended September 30, 2024 and 2023, respectively. The increase of approximately $351,000, or 348%, for the nine months ended September 30, 2024, compared to the same period in 2023 was primarily attributable to depreciation on the assets from the acquisition of PPLS in September 2023.
Other Income (Expense)
Other income (expense), net totaled ($54,392) and $85,676 for the nine-month period ended September 30, 2024 and 2023, respectively. The decrease in other income of approximately $140,000 is mostly attributable to a reduction in interest income of $96,430 which is due to a lower cash balance in a money market savings account and an increase in interest expense of $55,629 related to equipment finance leases from the acquired PPLS laboratory as compared to the same period last year.
| 23 |
Liquidity, Capital Resources, and Going Concern
To date, we have funded our operations primarily through our IPO, subsequent registered direct offering, exercise of warrants, and the sale of our securities, resulting in gross proceeds of approximately $38.5 million. We have evaluated whether there are conditions and events that raise substantial doubt about our ability to continue as a going concern for at least one year after the date the condensed consolidated financial statements are issued.
We have incurred losses since our inception in 2014 as a result of significant expenditures for operations and research and development and, prior to April 2022, the lack of any approved diagnostic test or therapeutic products to generate revenue. For the nine months ended September 30, 2024 and 2023, we had net losses of $6.1 million and $5.6 million, respectively, and we expect to incur substantial additional losses in future periods. We have an accumulated deficit of approximately $50.7 million as of September 30, 2024. Despite our recent financing in October 2024, pursuant to which we raised gross proceeds of approximately $2.3 million, we believe our current cash and anticipated revenue from operations will not be sufficient to support our operations beyond March 2025. Based on our current expected level of operating expenditures, current expected levels of revenue, and the cash and cash equivalents on hand at September 30, 2024, of $0.8 million, management concludes that there is substantial doubt about our ability to continue as a going concern for a period of at least twelve (12) months subsequent to the issuance of the accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report. We need to raise further capital through the sale of additional equity or debt securities or other debt instruments, strategic relationships or grants, or through exercised outstanding warrants to support our future operations unless our revenue increases significantly. Our business plan includes expansion for our commercialization efforts which will require additional funding. If we are unable to improve our liquidity position, we may not be able to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate revenue and raise capital from financing transactions. There can be no assurance that we will be successful in accomplishing these objectives.
We continue to seek sources of financing to fund our continued operations and research and development programs. To raise additional capital, we may sell additional equity or debt securities, or enter into collaborative, strategic, and/or licensing transactions. There can be no assurance that we will be able to complete any financing transaction in a timely manner or on acceptable terms or otherwise enter into a collaborative or strategic transaction. If we are not able to raise additional cash, we may be forced to delay, curtail, or cease development of our diagnostic tests or therapeutic products, or cease operations altogether.
Summary Statements of Cash Flows
The following information reflects cash flows for the periods presented:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash and cash equivalents at beginning of period | $ | 2,821,570 | $ | 11,413,759 | ||||
| Net cash used in operating activities | (5,587,634 | ) | (4,421,503 | ) | ||||
| Net cash used in investing activities | (79,082 | ) | (2,222,841 | ) | ||||
| Net cash provided by (used in) financing activities | 3,601,726 | (260,179 | ) | |||||
| Cash and cash equivalents at end of period | $ | 756,580 | $ | 4,509,236 | ||||
Net Cash Used in Operating Activities
Net cash used in operating activities was approximately $5.6 million and $4.4 million for the nine months ended September 30, 2024 and 2023, respectively. The increase of approximately $1.1 million in cash used by operations during the nine months ended September 30, 2024, compared to the same period in 2023 was primarily attributable to an increase of approximately $852,000 in our loss from operations and an increase in patient accounts receivables of approximately $587,000 due to a change in external professional medical billing providers effective March 1, 2024. The transition period from the previous to the new medical billing provider has caused a temporary delay in billing and deposits, as anticipated.
| 24 |
Net Cash Used in Investing Activities
We used approximately $80,000 for the nine months ended September 30, 2024, in investing activities related primarily to the purchase of computer and laboratory equipment, compared to approximately $2.2 million used in investing activities for the nine months ended September 30, 2023. We used approximately $2.2 million of cash in the prior year related primarily to the Acquisition of the clinical pathology laboratory, which occurred on September 18, 2023.
Net Cash Provided by (Used In) Financing Activities
Cash provided in financing activities was approximately $3.6 million compared to cash used in financing activities of approximately $260,000 for the nine months ended September 30, 2024 and 2023, respectively. The change in proceeds from prior year was primarily related to net proceeds from the equity transactions in the current year for $3.6 million.
Contractual Obligations and Commitments
We enter into contracts in the normal course of business with third-party contract organizations for clinical trials and other services and products used for research and development and operating purposes. These contracts generally provide for termination following a certain period after notice, and therefore we believe that any non-cancelable obligations under these agreements are not material.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make significant judgments and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these significant judgments and estimates on historical experience and other assumptions it believes to be reasonable based upon information presently available. Actual results could differ from those estimates under different assumptions, judgments, or conditions.
Patient Fee Revenues
We follow ASC 606, Revenue from Contracts with Customers, which requires revenue recognition in the period in which the service was performed. To be able to report timely net revenues for the period, estimates are used for a portion of uncollected balances. These estimates relate to third-party historical contractual discounts and adjustments (e.g., insurance providers) and patient historical uncollectible amounts. There can be a significant delay from the time a patient has been serviced to the invoicing of that service and collection of net proceeds. Historical data is used to determine estimates for those “in service” revenues that have not been billed or collected at the reporting period.
Patient Fee Receivables and Considerations for Credit Losses
We follow accounting considerations of CECL - Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. With PPLS’ acquisition of the clinical pathology laboratory and control of Village Oaks, our board-certified pathologists provide anatomic and clinical pathology services for patients and other customers. Our other customer types include contract research organizations (“CROs”), hospitals, and independent laboratories. We enter into contracts with our customers for these services. The majority of our revenues stem from fees for services provided to patients, and thus in those arrangements the patient is the customer, although the services may be requested by a physician on the patient’s behalf. Furthermore, in addition to its contracts with patients, we separately contract with third-party payers (insurance companies and governmental payers), who are typically responsible for all or the majority of the fees agreed upon for such services provided to patients. Historically, material amounts of gross charges are not collected due to various agreements with insurance companies, capped pricing levels for government payers, and uncollectible balances from individual payers. To estimate these allowances of credit losses, we assess the portfolio risk segments and historical data on collection rates. These estimated allowances offset patient revenues and accounts receivables.
Discount Rate for Finance Leased Equipment
We follow ASC 842, Leases, under which a lessee is required to recognize most leases on its balance sheet. We have elected to apply a third-party valuation increment borrowing rate (“IBR”) as the discount rate by class of underlying assets when the rate is not implicit in the lease.
Stock-Based Compensation
We follow ASC 718, Compensation – Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, directors, and non-employees based on estimated fair values. We have used the Black-Scholes option pricing model to estimate grant date fair value for all option grants. The assumptions we use in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. Since we use different assumptions based on a change in factors, our stock-based compensation expense could be materially different in the future.
Accounting for Income Taxes
We are governed by U.S. income tax laws, which are administered by the Internal Revenue Service (“IRS”). We follow ASC 740, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. 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 and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which the related temporary difference becomes deductible.
| 25 |
Going Concern
Our evaluation of our ability to continue as a going concern requires us to evaluate our future sources and uses of cash sufficient to fund our currently expected operations and research and development activities one year from the date our consolidated financial statements are issued. We evaluate the probability associated with each source and use of cash resources in making our going concern determination. The research and development of our diagnostic tests and therapeutic products are inherently subject to uncertainty.
Off-Balance Sheet Arrangements
We do not engage in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, as a part of our ongoing business. Accordingly, we did not have any off-balance sheet arrangements during any of the periods presented.
Emerging Growth Company Status
We are both an “emerging growth company” and a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are therefore subject to reduced public company reporting requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, pursuant to Item 305(e) of Regulation S-K promulgated under the Securities Act, we are not required to provide the information required by this Item 3.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
The Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report, is collected, recorded, processed, summarized, and reported within the time periods specified under the rules of the SEC. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. We have adopted and maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is collected, recorded, processed, summarized, and reported within the time periods specified in the rules of the SEC. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As of September 30, 2024, the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Exchange Act. The Chief Executive Officer and Chief Financial Officer assessed the effectiveness of our disclosure controls and procedures as of September 30, 2024. Based on their assessment, they have concluded that, as of September 30, 2024, our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) over financial reporting during the three months ended September 30, 2024, the period covered by this Quarterly Report, that could materially affect, or are reasonably likely to materially affect, our internal control over financial reporting.
| 26 |
PART II
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we are involved in various disputes and litigation matters that arise in the ordinary course of business. To date, we have had no material pending legal proceedings, and we are not engaged in any legal proceedings that are expected, individually or in the aggregate, to have a material adverse impact on our financial position or results of operations.
ITEM 1A. RISK FACTORS.
In addition to other information set forth in this Quarterly Report, you should carefully consider the “Risk Factors” discussed in the 2023 Form 10-K, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in this Quarterly Report. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial might materially adversely affect our actual business, financial condition, and operating results. The following information updates and should be read in conjunction with the information disclosed in Part I, Item 1A, “Risk Factors,” contained in our 2023 Form 10-K. Except as disclosed below, there have been no material changes from the risk factors disclosed in our 2023 Form 10-K.
Risks Related to Our Financial Position
Our business plan relies upon our ability to obtain additional sources of capital and financing. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, we may be required to cease operations.
During the nine months ended September 30, 2024, and September 30, 2023, we generated revenue of approximately $7.2 million and $319,143, respectively. During the nine months ended September 30, 2024, we generated $6.3 million from laboratory patient services (of which approximately $332,000 related to our first diagnostic test, CyPath® Lung), approximately $812,000 from histology laboratory tests, approximately $50,000 from medical director fees, and approximately $9,000 in connection with CyPath® Lung tests purchased by the DOD for an observational study. During the year ended December 31, 2023, we generated $2.2 million from laboratory patient services (of which approximately $37,000 related to our first diagnostic test, CyPath® Lung), approximately $273,000 from histology laboratory tests, approximately $19,000 from medical director fees, and approximately $19,000 in connection with CyPath® Lung tests purchased by the DOD for an observational study.
To become and remain profitable, we must succeed in generating additional laboratory revenue and developing and commercializing our diagnostic tests and therapeutic products that we expect will generate significant income in the planned timeframe. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our diagnostic and therapeutic technologies, obtaining regulatory approval for our diagnostic and therapeutic technologies, manufacturing, marketing, and selling any diagnostic tests and therapeutic products for which we may obtain regulatory approval, and establishing and managing our collaborations at various phases of each diagnostic test and therapeutic product candidate’s development. We are in the preliminary phases of these activities. We may never succeed in these activities and, even if we do, may never generate sufficient income to achieve profitability.
To become profitable, we must develop our diagnostic tests and therapeutic products, which will depend in large part on our ability to:
| ● | Develop, enhance, and protect our diagnostic tests and therapeutic products; | |
| ● | Raise sufficient funding to support our diagnostic tests and therapeutic product development program(s); | |
| ● | Complete pre-clinical testing; |
| 27 |
| ● | Work with our partners to expand commercialization of our first diagnostic test, CyPath® Lung, as an LDT under the CAP/CLIA guidelines and regulations administered by CMS and CAP; | |
| ● | Obtain de novo classification from FDA for our CyPath® Lung as a Class II in vitro diagnostic; | |
| ● | Work with our partners to develop and commercialize our first diagnostic test, CyPath® Lung, as a CE-marked test in accordance with the In Vitro Diagnostic Device Regulation (the “IVDR”) of the European Union (“EU); | |
| ● | Synthesize, test, and attract licensing partners for drug conjugates, siRNAs, and other therapeutics (and methods for their use) developed by the Company; | |
| ● | Develop and conduct human clinical studies to support the regulatory approval and marketing of our diagnostic test(s) and therapeutic product(s); | |
| ● | Develop and manufacture the test(s) and product(s) to FDA standards, appropriate EU standards, and appropriate standards required for the commercialization of our tests and products in countries in which we seek to sell our diagnostic test(s) and therapeutic product(s); | |
| ● | Obtain the necessary regulatory approvals to market our diagnostic test(s) and therapeutic product(s); | |
| ● | Secure the necessary personnel and infrastructure to support the development, commercialization, and marketing of our diagnostic test(s) and therapeutic product(s); and | |
| ● | Develop strategic relationships to support development, manufacturing, and marketing of our diagnostic test(s) and therapeutic product(s). |
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our Company and could impair our ability to raise capital, expand our business, maintain the research and development efforts, diversify our diagnostic tests and therapeutic product offerings, or even continue our operations. A decline in the value of our Company could also cause our investors to lose all or part of their investment.
We must raise additional capital to fund our operations in order to continue as a going concern.
As of September 30, 2024, we had an accumulated deficit of $50.7 million. As of November 12, 2024, our cash and cash equivalents were $2.0 million. Despite our recent financings, we will need to raise further capital through the sale of additional equity or debt securities or other debt instruments, strategic relationships or grants, or other arrangements to support our future operations. Our business plan includes expansion for our commercialization efforts which will require additional funding. If we are unable to improve our liquidity position, we may not be able to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate revenue and raise capital from financing transactions. Without funding from the proceeds of a capital raise or strategic relationship or grant, management anticipates that our cash resources are sufficient to continue operations through March 2025. Our future is dependent upon our ability to obtain financing and upon future profitable operations from the development of new business opportunities. There can be no assurance that we will be successful in accomplishing these objectives. Without such additional capital, we may be required to curtail or cease operations and be required to realize our assets and discharge our liabilities other than in the normal course of business which could cause investors to suffer the loss of all or a substantial portion of their investment. WithumSmith+Brown, PC, our independent registered public accounting firm for the fiscal year ended December 31, 2023, has included an explanatory paragraph in its opinion that accompanies our audited consolidated financial statements as of and for the year ended December 31, 2023, indicating that our current liquidity position raises substantial doubt about our ability to continue as a going concern.
We are unable to precisely estimate when we will begin to generate significant profit from revenue, if ever, from PPLS’ services, the amount of profit or revenue that will be generated, or the expenses that will be incurred.
We do not expect to immediately derive profit from revenue from PPLS’ services. Since its acquisition in September 2023, we have generated $9.6 million in revenue from PPLS. Once we begin to generate such profit, there is no guarantee that it will be sufficient to realize the expected financial benefits of the acquisition. In addition, since we have limited experience operating a clinical laboratory, we may not accurately estimate the expenses we will incur.
| 28 |
Our failure to file a registration statement to register the shares of Common Stock issuable upon exercise of the warrants issued in October 2024, or to timely hold a stockholders meeting to obtain stockholder approval of the issuance of shares of Common Stock upon the exercise of the warrants issued in October 2024, will result in a breach of the terms of certain agreements.
Pursuant to the terms of certain agreements that we entered into with certain purchasers in October 2024, we are obligated to file a registration statement to register the shares of Common Stock issuable upon exercise of the warrants issued to such purchasers within 45 days of the date of such agreement and to use commercially reasonable efforts to keep the registration statement effective at all times while the purchasers own any warrants or shares of Common Stock issuable upon exercise of the warrants. We are also obligated to hold a stockholders’ meeting 90 days after the closing date and, if approval is not obtained at the shareholders meeting, every six months thereafter seeking approval of the exercise of the warrants issued to the purchasers. Additionally, we are obligated to use commercially reasonable efforts to keep the registration statements that we filed to register the shares of Common Stock issuable upon exercise of warrants that we issued in March 2024 and August 2024 effective at all times for so long as the purchasers of such warrants own any such warrants or shares of Common Stock issuable upon exercise thereof. The failure to take any of these actions will constitute a default under the operative agreement.
Our management collectively owns a substantial percentage of our Common Stock.
Based on the provisions for determining beneficial ownership in accordance with Rule 13d-3 and Item 403 of Regulation S-K under the Exchange Act, our officers and directors own or exercise control of approximately 46.13% of the voting power of our outstanding Common Stock. As a result, investors may be prevented from affecting matters involving our Company, including:
| ● | the composition of our Board and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers; | |
| ● | any determinations with respect to mergers or other business combinations; | |
| ● | our acquisition or disposition of assets; and | |
| ● | our corporate financing activities. |
Furthermore, this concentration of voting power could have the effect of delaying, deterring, or preventing a change of control or other business combination that might otherwise be beneficial to our stockholders. This significant concentration of share ownership may also adversely affect the trading price for our Common Stock because investors may perceive disadvantages in owning stock in a company that is controlled by a small number of stockholders.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Unregistered Sales of Equity Securities
We did not sell any equity securities during the quarter ended September 30, 2024, in transactions that were not registered under the Securities Act other than as previously disclosed in our filings with the SEC.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
During
the three months ended September 30, 2024, no director or officer of the Company
| 29 |
ITEM 6. EXHIBITS.
* Filed herewith.
† Indicates management contract or compensatory plan.
| 30 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BIOAFFINITY TECHNOLOGIES, INC. | ||
| (Registrant) | ||
| By: | /s/ Maria Zannes | |
| Maria Zannes | ||
| Chief Executive Officer, President, Founder, and Director | ||
| Date: | November 14, 2024 | |
| By: | /s/ J. Michael Edwards | |
J. Michael Edwards Vice President and Chief Financial Officer | ||
| Date: | November 14, 2024 | |
| 31 |