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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
 6 Months Ended 12 Months Ended
Jun. 30, 2024
Dec. 31, 2023
Accounting Policies [Abstract]    
Use of Estimates

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.

 

Use of Estimates

 

The preparation of 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 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

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.

 

 

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.

 

Principles of Consolidation

 

The Company’s 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 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.

 

 

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

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 $3,500,000, which consists of: (1) $2.5 million in cash paid at closing and (2) 564,972 shares of the Company’s Common Stock valued at $1 million. The assets purchased included a clinical pathology laboratory regulated by the Centers for Medicare and Medicaid Services (“CMS”) and accredited by the College of American Pathologists (“CAP”) and certified under the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”). The primary reason for the acquisition is control of the laboratory in which CyPath® Lung is ordered and processed.

 

The Company recognized goodwill of $1,404,000 arising from the acquisition. The acquisition is being accounted for as a business combination in accordance with ASC 805. The Company has determined the preliminary fair values of the accounts receivable, accounts payable, and accrued expenses that make up the majority of the net working capital assumed in the acquisition. These values are subject to change, within a year of the acquisition date of September 18, 2023, as the Company performs additional reviews of its assumptions utilized, and any future period adjustments would impact the consolidated statement of operations post-acquisition.

 

The following table summarizes the purchase price and preliminary purchase price allocations relating to the acquisition:

 

         
Cash   $ 2,500,000  
Common Stock     1,000,000  
Total purchase consideration   $ 3,500,000  
Assets        
Net working capital (including cash)   $ 912,000  
Property and equipment     326,000  
Other assets     8,000  
Customer relationships     700,000  
Trade names and trademarks     150,000  
Goodwill     1,404,000  
Total net assets   $ 3,500,000  

 

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 October 14, 2023, reported net working capital of $1,167,000 and goodwill of $1,149,000. The amounts have been updated to reflect the purchase price adjustments to accounts payable and accounts receivable that existed at the time of the acquisition. The Company incurred and expensed approximately $811,000 in acquisition costs.

 

For prior year comparative purposes, the pro-forma statement of operations as if combined on January 1, 2023, would result in net revenues of $3,631,208, net loss of $(3,765,983) and loss per share of $(0.44) for the six months ended June 30, 2023.

 

Business Combination

 

On September 18, 2023, the Company, in connection with the Asset Purchase Agreement it entered into with Village Oaks (the “Seller”) and Roby P. Joyce, MD, dated September 18, 2023, acquired substantially all the assets and assumed certain liabilities of Village Oaks in exchange for total consideration of $3,500,000, which consists of: (1) $2.5 million in cash paid at closing and (2) 564,972 shares of the Company’s common stock valued at $1 million. The assets purchased included a clinical pathology laboratory regulated by the Centers for Medicare and Medicaid Services (“CMS”) and accredited by the College of American Pathologists (“CAP”) and certified under the Clinical Laboratory Improvement Amendments (“CLIA”) of 1988. The primary reason for the acquisition is control of the laboratory in which CyPath® Lung is ordered and processed.

 

The Company recognized goodwill of $1,404,000 arising from the acquisition. The acquisition is being accounted for as a business combination in accordance with ASC 805. The Company has determined the preliminary fair values of the accounts receivables, accounts payable and accrued expenses that make up the majority of the net working capital assumed in the acquisition. These values are subject to change as the Company performs additional reviews of its assumptions utilized.

 

The following table summarizes the purchase price and preliminary purchase price allocations relating to the acquisition:

 

         
Cash   $ 2,500,000  
Common Stock     1,000,000  
Total purchase consideration   $ 3,500,000  
Assets        
Net working capital (including cash)   $ 912,000  
Property and equipment     326,000  
Other assets     8,000  
Customer relationships     700,000  
Trade names and trademarks     150,000  
Goodwill     1,404,000  
Total net assets   $ 3,500,000  

 

Goodwill represents the excess fair value after the allocation to the identifiable net assets. The calculated goodwill is not deductible for tax purposes.

 

Consolidated unaudited pro-forma operating results as if the business combination began on January 1, 2022 are net revenues of $7.9 million and $6.9 million, net loss of ($8.6 million) and ($8.6 million), and loss per share of ($0.99) and ($1.91) for years ended 2023 and 2022, respectively.

 

The preliminary purchase price allocations relating to the acquisition previously reported in the 10-Q filed, October 14, 2023, reported Net Working Capital of $1,167,000 and Goodwill of $1,149,000. The amounts have been updated to reflect the purchase price adjustments to accounts payable and accounts receivable that existed at the time of the acquisition. The company incurred approximately $811,000 in acquisition costs.

 
Cash and Cash Equivalents

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.

 

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

Concentration of Risk

 

The Company has significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of $250,000. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flow.

 

Concentration of Risk

 

The Company has significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of $250,000. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows.

 
Advertising Expense

Advertising Expense

 

The Company expenses all advertising costs as incurred. Advertising expense was $131,125 and $27,741 for the six months ended June 30, 2024 and 2023, respectively, and $119,205 and $21,692 for the three months ended June 30, 2024 and 2023, respectively.

 

Advertising Expense

 

The Company expenses all advertising costs as incurred. Advertising expenses were approximately $89,000 and $39,000 for the years ended December 31, 2023, and 2022, respectively.

 

 
Loss Per Share

Loss Per Share

 

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, and warrants based on the average stock price for each period using the treasury stock method.

 

 

The following potentially dilutive securities have been excluded from the computations of weighted average shares of Common Stock outstanding as of June 30, 2024 and 2023, as they would be anti-dilutive:

 

    2024     2023  
    As of June 30,  
    2024     2023  
Shares underlying options outstanding     337,810       806,392  
Shares underlying warrants outstanding     8,838,669       4,649,952  
 Anti-dilutive securities     9,176,479       5,456,344  

 

Loss Per Share

 

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, par value $0.007 per share 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, and warrants based on the average stock price for each period using the treasury stock method.

 

The following potentially dilutive securities have been excluded from the computations of weighted average shares of Common Stock outstanding as of December 31, 2023 and 2022, as they would be anti-dilutive:

 

    2023     2022  
    As of December 31,  
    2023     2022  
Shares underlying options outstanding     683,695       806,392  
Shares underlying warrants outstanding     4,649,952       4,649,952  
Anti-dilutive securities     5,333,647       5,456,344  

 
Revenue Recognition

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 85% of the Company’s consolidated net revenues for the six months ended June 30, 2024, and are primarily comprised of a high volume of relatively low-dollar transactions. The laboratory, which provides clinical testing services and other services, satisfies its performance obligation and recognizes revenues primarily upon completion of the testing process (when results are reported) or when services have been rendered. The Company estimates the amount of consideration it expects to be entitled to receive from payer customer groups in exchange for providing services using the portfolio approach. These estimates include the impact of contractual allowances (including payer denials) and patient price concessions. The portfolios determined using the portfolio approach consist of the following groups of payer customers: healthcare insurers, government payers (Medicare and Medicaid programs), client payers and self-pay. Contracts do not contain significant financing components based on the typical period of time between performance of services and collection of consideration.

 

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.

 

    2024     2023  
   

For the six months ended

June 30,

  
    2024     2023  
Patient service fees1   $ 4,209,955     $ —  
Histology service fees     530,053       —  
Medical director fees     33,193       —  
Department of Defense observational studies     6,923       —  
Other revenues2     23,919       20,659  
Total net revenue   $ 4,804,043     $ 20,659  

 

 

  1 Patient services fees include direct billing for CyPath® Lung diagnostic test of approximately $199,000.

 

  2 Other revenues include pre-acquisition CyPath® Lung royalty income and laboratory services.

 

Revenue Recognition

 

Post-acquisition of PPLS, 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. The revenue is recognized on the date of service (meeting the performance requirement of ASC 606). Pre-acquisition, bioAffinity’s revenue was generated in three ways pre-acquisition: (1) royalties from the Company’s diagnostic test, CyPath® Lung, (2) clinical flow cytometry services provided to Village Oaks related to the Company’s 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.

 

To determine revenue recognition for the arrangements that the Company determines are within the scope of ASC 606, Revenue from Contracts with Customers, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

 

    2023     2022  
    As of December 31,  
    2023     2022  
Patient service fees1   $ 2,199,558     $ —  
Histology service fees     272,660       —  
Medical director fees     19,324       —  
Department of Defense observational studies     19,442       —  
Other revenues2     21,515       4,803  
Total net revenue   $ 2,532,499     $ 4,803  

 

1 Patient services fees includes direct billing for CyPath® Lung diagnostic test.
2 Other revenues include pre-acquisition CyPath® Lung royalty income and laboratory services.

 
Property and Equipment, Net

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 six months ended June 30, 2024, or 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   3-5 years
Computer software   3 years
Equipment   3-5 years
Furniture and fixtures   5-7 years
Vehicles   5 years
Leasehold improvements   Lesser of lease term or useful life

 

 

Property and Equipment, Net

 

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 years end December 31, 2023, or 2022.

 

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   3-5 years
Computer software   3 years
Equipment   3-5 years
Furniture and fixtures   5-7 years
Vehicles   5 years
Leasehold improvements   Lesser of lease term or useful life

 

 
Intangible Assets

Intangible Assets

 

Intangible assets, net of accumulated amortization, and goodwill are summarized as follows as of June 30, 2024:

 

Description   Date Acquired   Useful Life   Cost     Amortization     Net  
Goodwill   9/18/2023       $ 1,404,486     $ —     $ 1,404,486  
Trade names and trademarks   9/18/2023   18 years     150,000       (6,527 )     143,473  
Customer relationships   9/18/2023   14 years     700,000       (39,167 )     660,833  
Total intangible assets, net           $ 2,254,486     $ (45,694 )   $ 2,298,792  

 

The Company incurred amortization of intangible assets of $29,167 and $0 for the six months ended June 30, 2024 and 2023, respectively, and $14,538 and $0 for the three months ended June 30, 2024 and 2023, respectively.

 

Intangible Assets

 

Intangible assets, net of accumulated amortization, are summarized as follows as of December 31, 2023:

 

Description   Date Acquired   Useful Life   Cost     Amortization     Net  
Goodwill   9/18/2023       $ 1,404,486     $ —     $ 1,404,486  
Trade names and trademarks   9/18/2023   18 years     150,000       (2,361 )     147,639  
Customer relationships   9/18/2023   14 years     700,000       (14,167 )     685,833  
Total Intangible Assets           $ 2,254,486     $ (16,528 )   $ 2,237,958  

 

For the year ended December 31, 2023, amortization of intangible assets totaled $16,528 compared to $0 in the prior year comparative periods.

 
Recent Accounting Pronouncements

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.

 

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 Annual Report will have a material impact on the Company’s consolidated financial statements.

 

The Company adopted FASB issued Accounting Standards Update (ASU) No. 2016-13, accounting considerations of Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”) on September 18, 2023, with the business combination of Village Oaks and PPLS. The Company has patient service fees that are billed to commercial insurance companies, governmental payors, and patients. Under the CECL model, the Company estimates potential credit losses from the patient service fees billed using historical data.

 

The Company adopted FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) on January 1, 2022, with the business combination of Village Oaks and PPLS. The Company has one operating lease for its real estate and office space and multiple finance leases for lab equipment in Texas that was acquired through the September 18, 2023, Acquisition.

 
Segment Information

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.

 

    2024     2023     2024     2023  
    Three months ended June 30,     Six months ended June 30,  
    2024     2023     2024     2023  
Net revenue:                                
Diagnostic R&D   $ 4,038     $ —     $ 6,923     $ —  
Laboratory services 1     2,393,614       19,738       4,797,120       20,659  
Total net revenue     2,397,652       19,738       4,804,043       20,659  
                                 
Operating expenses:                                
Diagnostic R&D     (453,895 )     (370,384 )     (896,494 )     (759,629 )
Laboratory services     (2,535,285 )     (1,235 )     (5,272,284 )     (1,322 )
General corporate activities     (1,496,270 )     (1,426,469 )     (2,668,293 )     (2,596,028 )
Total operating loss     (2,087,798 )     (1,778,350 )     (4,033,028 )     (3,336,320 )
                                 
Non-operating income (expense), net     (17,062 )     42,764       (29,975 )     79,763  
Net loss before income tax expense     (2,104,860 )     (1,735,586 )     (4,063,003 )     (3,256,557 )
Income tax expense     (5,419 )     (4,587 )     (9,091 )     (16,406 )
Net loss   $ (2,110,279 )   $ (1,740,173 )   $ (4,072,094 )   $ (3,272,963 )

 

1 The majority of the increase versus the prior year is from the acquisition of Precision Pathology Laboratories Services, LLC on September 18, 2023.

 

 

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.

 

    2023     2022  
    As of December 31,  
    2023     2022  
Net revenues:                
Diagnostic R&D   $ 19,442     $ —  
Laboratory services     2,513,057       4,803  
Total net revenues     2,532,499       4,803  
                 
Operating expenses:                
Diagnostic R&D     (1,724,597 )     (1,524,170 )
Laboratory services     (3,769,783 )     (95,041 )
General corporate activities     (5,011,347 )     (2,396,650 )
Total operating loss     (7,973,228 )     (4,011,058 )
                 
Non-operating income (expense), net     57,210       (4,140,596 )
Net loss before income taxes     (7,916,018 )     (8,151,654 )
Income tax expense     (20,993 )     (2,459 )
Net Loss   $ (7,937,011 )   $ (8,154,113 )

 
Research and Development

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 lab operations, preclinical studies, compensation, and consulting costs.

 

The Company incurred research and development expenses of $796,072 and $704,741 for the six months ended June 30, 2024 and 2023, respectively, and $402,433 and $335,125 for the three months ended June 30, 2024 and 2023, respectively.

 

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 lab operations, preclinical studies, compensation, and consulting costs.

 

The Company incurred research and development expenses of $1.5 million and $1.4 million for the years ended December 31, 2023 and 2022, respectively.

 
Accrued Research and Development 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.

 

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 balance sheets and within research and development expense in the accompanying 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

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 (“LTD”) sold by Precision Pathology Laboratory Services, a CAP-accredited, CLIA-certified clinical pathology laboratory and wholly owned subsidiary.

Regulatory Matters

 

Regulations imposed by federal, state, and local authorities in the U.S. are a significant factor in providing medical care. In the U.S., drugs, biological products, and medical devices are regulated by FDCA, which is administered by the FDA and the Centers for Medicare and Medicaid Services. 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 sold by Precision Pathology Laboratory Services, a CAP-accredited, CLIA-certified clinical pathology laboratory and wholly owned subsidiary.

 

 
Reclassifications  

Reclassifications

 

Certain prior year balances have been reclassified to conform to current year presentation. The Company reclassified legal fees and annuity costs relating to patents of approximately $236,000 from research and development to selling, general and administrative for the year ended December 31, 2022, respectively, as these expenses are not deemed research and development.

 
Income Taxes  

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. 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. The Company includes interest and penalties related to uncertain tax positions as part of income tax expense, if any. No such interest or penalties were recognized during the years ended December 31, 2023 and 2022, and the Company had no accruals for interest and penalties at December 31, 2023 or 2022.