UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For
the quarterly period ended | ||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the transition period from ______ to ______. |
COMMISSION
FILE NUMBER:
(Exact name of registrant as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The Stock Market LLC | ||||
| The
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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to the filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller
reporting company | ||
| Emerging
growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Sec 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares of the issuer’s common stock outstanding as of November 12, 2024, was .
Throughout this Quarterly Report on Form 10-Q (this “Quarterly Report”), the terms “bioAffinity,” “bioAffinity Technologies,” “we,” “us,” “our” or “the Company” refer to bioAffinity Technologies, Inc., a Delaware corporation, and its wholly owned subsidiaries, OncoSelect® Therapeutics, LLC, a Delaware limited liability company, and Precision Pathology Laboratory Services, LLC, a Texas limited liability company.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are predictive in nature, depend on or refer to future events or conditions, and are sometimes identified by words such as “may,” “could,” “plan,” “project,” “predict,” “pursue,” “believe,” “expect,” “estimate,” “anticipate,” “intend,” “target,” “seek,” “potentially,” “will likely result,” “outlook,” “budget,” “objective,” “trend,” or similar expressions of a forward-looking nature and the negative versions of such expressions. The forward-looking information contained in this report is generally located under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” but may be found in other locations as well. The forward-looking statements in this report generally relate to the plans and objectives for future operations of bioAffinity Technologies, Inc. and are based on our management’s reasonable estimates of future results or trends. Although we believe these forward-looking statements are reasonable, all forward-looking statements are subject to various risks and uncertainties, and our projections and expectations may be incorrect. The factors that may affect our expectations regarding our operations include, among others, the following:
| ● | our projected financial position and estimated cash burn rate; | |
| ● | our estimates regarding expenses, future revenues, and capital requirements; | |
| ● | the success, cost, and timing of our clinical trials; |
| ● | our ability to obtain funding for our operations necessary to complete further development and commercialization of our diagnostic tests or therapeutic product candidates; | |
| ● | our dependence on third parties, including the conduct of our clinical trials; | |
| ● | our ability to obtain the necessary regulatory approvals to market and commercialize our diagnostic tests or therapeutic product candidates; | |
| ● | the potential that the results of our pre-clinical and clinical trials indicate our current diagnostic tests or any future diagnostic tests or therapeutic product candidates we may seek to develop are unsafe or ineffective; | |
| ● | the results of market research conducted by us or others; | |
| ● | our ability to obtain and maintain intellectual property (“IP”) protection for our current diagnostic test or future diagnostic tests and therapeutic product candidates; | |
| ● | our ability to protect our IP rights and the potential for us to incur substantial costs from lawsuits to enforce or protect our IP rights; |
| ● | the possibility that a third party may claim we or our third-party licensors have infringed, misappropriated, or otherwise violated their IP rights and that we may incur substantial costs and be required to devote substantial time defending against such claims; | |
| ● | the success of competing therapies, diagnostic tests, and therapeutic products that are or will become available; | |
| ● | our ability to expand our organization to accommodate potential growth and to retain and attract key personnel; | |
| ● | our potential to incur substantial costs resulting from product liability lawsuits against us and the potential for such lawsuits to cause us to limit the commercialization of our diagnostic tests and therapeutic product candidates; | |
| ● | market acceptance of our diagnostic test and diagnostic tests in development and therapeutic product candidates, the size and growth of the potential markets for our current diagnostic test, diagnostic tests in development, and therapeutic product candidates, and any future diagnostic tests and therapeutic product candidates we may seek to develop, and our ability to serve those markets; | |
| ● | the successful development of our commercialization capabilities, including sales and marketing capabilities; | |
| ● | compliance with government regulations, including environmental, health, and safety regulations, and liabilities thereunder; | |
| ● | the impact of a health epidemic on our business, our clinical trials, our research programs, healthcare systems, or the global economy as a whole; | |
| ● | general instability of economic and political conditions in the United States, including inflationary pressures, increased interest rates, economic slowdown or recession, and escalating geopolitical tensions; |
| 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.
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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 | $ | $ | $ | $ | ||||||||||||