bioAffinity Technologies, Inc.: Form 10-K for the period ended Dec 31, 2022

Business Overview

bioAffinity Technologies, Inc. (the “Company,” “we,” or “our”) develops noninvasive, early-stage diagnostics to detect and researches targeted therapies to detect and treat lung cancer and other diseases of the lung at the cellular level. Our Company also is conducting early-stage research focused on advancing therapeutic discoveries that could result in broad-spectrum cancer treatments. We develop proprietary noninvasive diagnostic tests and cancer therapeutics using technology that preferentially targets cancer cells and cell populations indicative of a diseased state.

The Company was formed as a Delaware corporation on March 26, 2014. On June 15, 2016, we formed OncoSelect® Therapeutics, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company. Research and optimization of our platform technologies are conducted in our laboratories at The University of Texas at San Antonio.

Our first 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 disease 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.

Through our wholly owned subsidiary, OncoSelect® Therapeutics, LLC, our research has led to discoveries and advancement of novel cancer therapeutics that specifically and selectively target cancer cells. We are focused on expanding our broad-spectrum platform technologies to continue developing tests that detect and therapies that target various types of cancer and potentially other diseases.

Information regarding the general development of bioAffinity’s business can be found in the “Business” section of our final IPO prospectus filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”) on September 2, 2022 (the “Final Prospectus”) (see https://www.sec.gov/Archives/edgar/data/1712762/000149315222024949/form424b4.htm).

Our First Diagnostic Test – CyPath® Lung

Overview of the CyPath® Lung Methodology

Lung cancer is the leading cause of cancer-related death worldwide, claiming nearly 1.8 million lives annually.1 Individuals at high risk for lung cancer are recommended for annual screening by low-dose computed tomography (“LDCT”). Apart from LDCT, there is currently no reliable noninvasive method that can detect lung cancer at an early stage. Our first diagnostic test, CyPath® Lung, is designed to be a cost-effective,2 noninvasive, early-stage lung cancer diagnostic. Using CyPath® Lung in conjunction with LDCT is predicted to improve the positive predictive value (the proportion of true positive results) by a factor of five.2 Improving the positive predictive value of LDCT with the use of CyPath® Lung can result in fewer patients unnecessarily subjected to invasive diagnostic procedures, earlier detection of lung cancer, and a reduction in healthcare costs.3

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CyPath® Lung uses flow cytometry technology to detect and analyze cell populations in a person’s sputum, or phlegm, to find characteristics indicative of lung cancer, including cancer and/or cancer-related cells that have shed from a lung tumor. The flow cytometer is a well-established instrument used in many commercial laboratories that records properties of labeled and unlabeled single cells. Sputum is an excellent sample for analysis because it is in direct contact with any malignancy in the lungs and can thus provide a snapshot of the tumor itself, its microenvironment, and its area of field cancerization. While studies have shown that expert cytological analysis of sputum can detect cancerous and pre-malignant cells,4 the process of looking at microscopy slides is an extremely laborious approach and demands years of expertise. CyPath® Lung uses flow cytometry and automated data analysis developed by artificial intelligence (AI) that allows for an entire sample of sputum to be examined for cost-effective, large-scale screening or diagnosis.

In particular, CyPath® Lung uses a synthetic porphyrin called meso-tetra (4-carboxyphenyl) porphine (“TCPP”), which is a naturally highly fluorescent porphyrin that has an unusually high affinity for cancer and cancer-associated cells.5 The uptake and retention of TCPP in cancerous tissue and its fluorescent properties make TCPP an excellent bio-label for cancer. As used in CyPath® Lung, the proportion of cells with high TCPP fluorescence intensity in a patient’s sputum sample is a significant predictor of lung cancer. bioAffinity holds multiple patents protecting its use of TCPP for the diagnosis, monitoring, and treatment of cancer. In addition, the Company has multiple domestic and foreign patent applications to protect the use of flow cytometry and its AI-developed automated analysis platform in the detection of lung cancer and other lung diseases using sputum as a sample.

We developed an algorithm using AI to distinguish samples from high-risk patients who had lung cancer from those who are cancer-free. Precision Pathology Services (“Precision Pathology”) developed CyPath® Lung for sale as a Laboratory Developed Test (an “LDT”) in accordance with the standards of the College of American Pathologists (“CAP”) and the regulations and guidance of the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) program, which is administered by the Centers for Medicare and Medicaid Services (“CMS”). In developing the test as an LDT, Precision Pathology developed and integrated software into the test protocol, which generated high-throughput and user-friendly, standardized analysis of flow cytometric sample data. Our test can analyze an average sputum sample containing about 20 million cells in less than 20 minutes. A physician’s report is generated within minutes after data acquisition. The test can be put into routine lab use without requiring expert evaluation of samples or being subject to operator bias. Our approach allows the entire sputum sample to be rapidly analyzed. The numerical analysis developed by AI captures complex interactions between lung cancer, the microenvironment, and areas of field cancerization that would be difficult if not impossible for individuals to predict or detect reliably by eye. For example, during test development, we discovered that viability staining density suggests a link with apoptosis, or cell death, that is linked to many cancers, including lung cancer. Our model also suggests that specific markers of immune cell populations may be informative as to the presence of cancer in the lung. These findings are the result of our AI approach to automated analysis.

To our knowledge, CyPath® Lung is the first cancer diagnostic that combines automated flow cytometric analysis to predict the presence of lung cancer from sputum samples.

Clinical Validation, Certification, and Classification of CyPath® Lung

A 19-month test validation clinical trial of CyPath® Lung6 collected sputum noninvasively from people at high risk for lung cancer, including patients with the disease (N=28) and those cancer-free (N=122). Patients collected their sputum sample over three days at home before bringing their sample to the clinical collection site. Samples were shipped overnight to the laboratory for analysis. Study participants in the high-risk cohort had a CT to confirm they did not have lung cancer. Those in the cancer cohort had imaging and a biopsy that confirmed lung cancer. After providing a sputum sample, participants were released from the study after a physician either confirmed the individual was cancer-free by examination of CT imaging or confirmed the presence of lung cancer by biopsy. Flow cytometry and patient data used in analysis to produce the results included (1) the proportion of cells with a high ratio of high TCPP fluorescence intensity over cell size; (2) the proportion of cells with an intermediate ratio of fluorescence intensity caused by the viability dye (FVS510) over cell size; (3) the proportion of cells that were CD206 negative but positive for one or more of the following markers: CD66b (granulocytes), CD3 (T cells), and CD19 (B cells); and (4) patient age.

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More than half of those in the cancer cohort had lung cancer in the earlier Stages I-II. The analysis, performed on an LSRII flow cytometer, resulted in 92% sensitivity and 87% specificity in the subgroup of these patients (N=132) who had no nodules or lung nodules smaller than 20 mm on their LDCT scan, while eight out of 10 (80%) of Stage I tumors were correctly identified. Sensitivity is the percentage of persons with the disease – in this case lung cancer – who are correctly identified by the test. Specificity is the percentage of persons without lung cancer who are correctly identified by the test. The cancer group included all lung cancer types, but mostly squamous cell carcinoma and adenocarcinoma lung cancer (in near equal numbers), showing that CyPath® Lung detects all types of lung cancer.

Following completion of the test validation trial, CyPath® Lung was evaluated independently by Precision Pathology, which developed the test for sale as an LDT in accordance with CAP/CLIA standards. An LDT is a type of in vitro diagnostic (“IVD”) test that is developed, validated, and performed within a single laboratory. CyPath® Lung has been validated and is being performed by Precision Pathology, a CAP-accredited, CLIA-certified clinical pathology laboratory in San Antonio, Texas, pursuant to a joint development agreement with the Company. In third quarter 2022, Precision was inspected by CAP in accordance with CAP/CLIA regulatory standards and regulations resulting in continued accreditation for the laboratory and the CyPath® Lung test as an LDT.

As part of CAP/CLIA certification, Precision Pathology evaluated the performance of CyPath® Lung employing its own laboratory technicians and a different flow cytometer, the Navios EX. Results of Precision Pathology’s certification were comparable to those from the test validation trial and demonstrated that CyPath® Lung remains robust to differences in sample handling, processing, and the type of flow cytometer.

bioAffinity Technologies intends to voluntarily seek FDA clearance of the CyPath® Lung as a Class II IVD medical device for the detection of lung cancer. The Company has designed its pivotal trial with guidance from its clinical research organization (“CRO”), Courante Oncology, and has prepared a pre-submission that will be submitted to the FDA for review and feedback. We anticipate a three-year diagnostic trial including an 18-month patient enrollment of approximately 1,800 patients, with participants followed for at least one year after enrollment to determine whether they have lung cancer. Similar to the test validation trial, the planned pivotal trial will analyze flow cytometry and patient data including (1) the proportion of cells with a high ratio of high TCPP fluorescence intensity over cell size; (2) the proportion of cells with an intermediate ratio of fluorescence intensity caused by the viability dye (FVS510) over cell size; (3) the proportion of cells that were CD206 negative but positive for one or more of the following markers: CD66b (granulocytes), CD3 (T cells), and CD19 (B cells); and (4) patient age. Patient enrollment is scheduled to begin in 2023 at up to 20 collection sites. Assuming the study is successful, we intend to submit a de novo classification request to the FDA within six months of study completion.

The Patient- and Physician-Friendly CyPath® Lung Process

CyPath® Lung is designed to be noninvasive and patient friendly. The diagnostic process uses sputum that is obtained noninvasively in the privacy of a patient’s home. Physicians order the test for their patients after lung cancer screening reveals a lung nodule considered to be indeterminate because of the nodule size and lack of suspicious characteristics. Lung nodules are considered indeterminate if their size is between 6-20 mm in diameter. Lung nodules of that size are associated with a lung cancer risk as low as 0.5% and up to 16%.7

For the CyPath® Lung test, patients are given a small sample collection kit during an office visit with their physician. (See Figure 1 below.) From the privacy of the patient’s home, the patient collects a sample of his or her sputum over three days using a hand-held assist device that comes in the collection kit called an acapella® Choice Blue made by Smiths Medical, which acts to break up mucus in the patient’s lung and facilitates the patient’s ability to cough up sputum from the lung into a collection cup that is also supplied with the kit. In addition to the kit’s step-by-step instructions, an instructional video and a live patient coach are available by calling 855-MYLUNGS to help patients with sample collection. With the patient’s permission, the patient coach will proactively call or text patients to offer assistance. After the three-day sample of sputum is collected in the collection cup, the patient puts the collection cup into the kit and uses a pre-addressed envelope provided in the kit to overnight the sample to the laboratory.

7 Gierada et al; https://pubmed.ncbi.nlm.nih.gov/25326638/.

At the laboratory, the sputum is processed by technicians into a single-cell suspension and labeled with TCPP, which preferentially binds to cancer cells and/or cancer-related cells. Cells are also stained with fluorescently labeled antibodies that identify hematopoietic and epithelial cells within the sputum sample. A viability dye is used to eliminate dead cells. The sputum sample is analyzed using flow cytometry, which allows an average sputum sample containing about 20 million cells to be profiled in less than 20 minutes. A laboratory technician skilled in general laboratory techniques can accomplish sample processing, labeling, and data collection.

Physicians receive test results within three days after the laboratory receives the patient’s sputum sample. CyPath® Lung testing helps identify patients who should undergo more aggressive follow-up procedures to confirm a suspected lung cancer. When CyPath® Lung sample analysis determines a patient is unlikely or very unlikely to have lung cancer, the result can serve to support a physician’s decision to monitor this patient by following a recommended LDCT screening routine.

Figure 1. Patient- and Physician-Friendly CyPath® Lung Process.

CyPath® Lung Research and Clinical Studies

The high affinity of TCPP for cancer and cancer-related cells and its fluorescent nature makes it an excellent bio-label for cancer. The CyPath® Lung technology is based on this concept and scientific work originating at Los Alamos National Laboratory in collaboration with St. Mary’s Hospital in Colorado. A blinded clinical trial8 (Patriquin, et. al, 2015) of an earlier version of CyPath® Lung used a microscope to directly identify cells labeled with TCPP in one-third or less of the sputum sample. For each trial participant, researchers manually scanned 12 microscope slides labeled with TCPP for the presence of red fluorescing cells (“RFCs”) displaying a spectral signature that indicated uptake of TCPP in the cell. In addition to measuring the spectral signature, the fluorescent intensity and cell size of RFCs were measured. The test data, including fluorescent intensity over cell size, was analyzed. The Patriquin trial was conducted over 24 months and resulted in 81% test accuracy, 77.9% sensitivity, and 65.7% specificity in the ability to correctly differentiate between samples from lung cancer patients and those at high risk who were cancer-free. The Patriquin trial required participants to provide a sputum sample and CT imaging of the lungs. Those in the cancer cohort underwent a biopsy to confirm lung cancer. High-risk patients displaying indeterminate nodules were followed for 18 months to confirm they were cancer-free. The Patriquin study concluded that optimizing the test to provide for analysis of the entire sputum sample would improve results.

8 Patriquin, et.al., Early detection of lung cancer with Meso-Tetra (4-Carboxyphenyl) Porphyrin-Labeled Sputum, J Thorac Oncol. 2015;10(9):1311-1318. doi: 10.1097/JTO.0000000000000627.

The Company continued development of its lung cancer diagnostic technology culminating in a flow cytometry-based CyPath® Lung test incorporating automated AI analysis that evaluates the entire sputum sample. A blinded diagnostic trial of the advanced test9 (Lemieux, et al, 2023) resulted in 92% sensitivity and 87% specificity in the subgroup of these patients (N=132) who had no nodules or lung nodules smaller than 20 mm on their LDCT scan, while eight out of 10 (80%) of Stage I tumors were correctly identified. The cancer group included all lung cancer types, but mostly squamous cell carcinoma and adenocarcinoma lung cancer (in near equal numbers), showing that CyPath® Lung detects all types of lung cancer.

All studies performed to date are summarized in the table below.

CyPath® Lung Studies and Clinical Trials

9 M.E. Lemieux, et al. Detection of Early-Stage Lung Cancer in Sputum using Automated Flow Cytometry and Machine Learning. Respir Res. 2023;24(1):23. doi: 10.1186/s12931-023-02327-3.

The Cancer Diagnostics Market and CyPath® Lung

The global cancer diagnostic market is projected to grow from an estimated $172.3 billion in 2022 to $293.5 billion in 2030, with a compound annual growth rate (“CAGR”) of 6.8%.14 The market worldwide for lung cancer diagnostic tests was estimated at $2.6 billion in 2022 and is projected to reach $4.7 billion by 2030, with a CAGR of 7.8% over 2022-2030.15 bioAffinity Technologies has the potential to play a significant role in the cancer diagnostic market because our platform is noninvasive, easy to use, cost-effective, and has a potential to lead to better patient outcomes. (See Analysis of the Potential Diagnostic, Patient And Economic Impact of CyPath® Lung When Used After LDCT Screening to Detect Lung Cancer, bioAffinity Technologies Internal Analysis with citations, 2022; attached as Appendix I of the Company’s Final Prospectus filed with the SEC on September 2, 2022, pursuant to Rule 424(b)(4) under the Securities Act) (see https://www.sec.gov/Archives/edgar/data/1712762/000149315222024949/form424b4.htm).

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CyPath® Lung is currently utilized as a diagnostic tool for detecting early-stage lung cancer. bioAffinity is conducting research for the expansion of its flow cytometric platform technology to detect and monitor lung diseases, such as Chronic Obstructive Pulmonary Disease (COPD) and asthma, and other cancers.

The Company licensed CyPath® Lung to Precision Pathology, which began marketing CyPath® Lung in Texas as an LDT in accordance with CAP/CLIA regulations pursuant to the terms of the joint development agreement between the Company and Precision Pathology. Limited funds were available to market CyPath® Lung until the Company completed its IPO in September 2022. CyPath® Lung is sold to physicians who order CyPath® Lung for patients at high risk for lung cancer after an LDCT confirms the presence of lung nodule(s).

As a front-end diagnostic tool used in conjunction with LDCT, the Company’s lung cancer test will help determine whether more expensive, specialized, and/or invasive tests are warranted. CyPath® Lung compares favorably to current standards of care for diagnosing lung cancer, including invasive biopsies, as seen in the table shown below.

Comparison of CyPath® Lung to Current Standards of Care

11 bioAffinity’s business model is to immediately address the need for a quick-to-market, noninvasive, cost-effective lung cancer diagnostic that will save lives and reduce medical costs. The Company is ready to capture a growing market. The U.S. Preventive Services Task Force recommended doubling the number of Americans at high risk for lung cancer who are recommended for annual screening from 9 million to an estimated 18 million. China has an estimated 300 million smokers.46 The European Union is estimated to have 34 million people at high risk for lung cancer. Following its entry into the U.S. market, the Company expects to pursue CE marking of CyPath® Lung for sale in the European Union and is pursuing collaboration with a strategic partner to develop the test for the China market.

bioAffinity conducted market research with pulmonologists, oncologists, cardiothoracic surgeons, radiologists, and internists engaged in the diagnosis and treatment of lung cancer to help assess these stakeholders’ reactions to the new diagnostic, CyPath® Lung. Research revealed a strong interest in CyPath® Lung, driven by the high level of unmet clinical need for noninvasive diagnostics. A survey conducted with 240 pulmonologists and internists, the primary audience for the test, showed that 96% would use CyPath® Lung if it were available today as an adjunct used for diagnosis after LDCT screening. Physicians see the value of a noninvasive diagnostic technology with the ability to confirm or rule out cancer and reduce the number of costly invasive procedures that result from LDCT’s low positive predictive rate.

CyPath® Lung Business Development Plan

We believe in the viability of the Company’s Business Plan based on the circumstances surrounding our business that are known to us as of the date of this report. However, the timing, strategies, and stages of our Business Plan may evolve in light of new circumstances that cannot be predicted with certainty at this time. Our Business Plan envisions four phases of expanding market entry into the U.S., the EU, and worldwide that are timed to maximize Company resources and minimize market risk. Phase 1 of our Business Plan begins with a controlled market launch of the Company’s LDT CyPath® Lung in Texas followed by expansion into the Southwest market area. Limited marketing was undertaken prior to the IPO that provided funds necessary to begin our controlled market launch. In February 2023, the Company announced that the marketing and advertising firms of Havas Health & You and Trinity Life Sciences had been engaged to build the CyPath® Lung brand and position it for success in the cancer diagnostics sector. Havas Health & You, the world’s largest global health network, is creating the branding and broader marketing strategy to align with the need for a patient-friendly diagnostic that gives physicians another tool to assess the potential or presence of lung cancer in their high-risk patients. Trinity Life Sciences is providing advisory services, insights, and analytics to bioAffinity Technologies’ marketing strategy for CyPath® Lung. The Company expects to begin a staged nationwide expansion of sales and marketing following the successful completion of its controlled launch in 2023. Phase 2 of our Business Plan anticipates entering the EU market with CyPath® Lung as a CE-marked IVD test with sales in the Netherlands, followed by a staged EU expansion. Phase 3 of our Business Plan focuses on the marketing of an FDA-cleared CyPath® Lung test, beginning with a pivotal clinical trial in the U.S. Phase 4 of our Business Plan accelerates the market presence of CyPath® Lung in countries in Asia, Eastern Europe, and Australia after obtaining FDA marketing authorization in 2026.

At each phase of commercialization, bioAffinity Technologies will develop messaging and marketing programs, including key convention attendance, digital marketing, social media presence, and advertising, to create an “inbound” lead generation mechanism that delivers our message to our target audience. In addition, bioAffinity will collaborate with key opinion leaders (“KOLs”) to expand our third-party reference and speaking pool of experts. The Company will provide support and collateral materials, including posters, presentations, videos, and peer-reviewed papers, to our KOLs who will present data and their experience with CyPath® Lung at key meetings. This content can be shared across platforms, including websites and sales tools, and will be used as references to support our product claims as well as sales and marketing efforts to physicians, reference laboratories, and patients. We will also work with lung cancer advocacy groups throughout all phases to support the message that routine screening can diagnose cancer at an early stage and save lives.

The Competition for CyPath® Lung

In 2022, we evaluated 67 companies advancing tests for the early detection of lung cancer that provided at least a scientific foundation for their tests. These competitors are investigating lung cancer screening and diagnostic methods that use various types of collected samples (blood, breath, nasal epithelial cells, saliva, sputum, and urine) or imaging systems. Of those 67 companies, we found that only 11 had conducted clinical studies in a manner and with results that could lead to further analysis. The majority of these 11 tests are in research and development, with only four tests on the market and one available to a limited number of medical centers. Although CyPath® Lung was never tested directly against any of these five tests, comparison of the published performance numbers suggests CyPath® Lung might outperform them all. (See Summary of Comparative Performance Analysis of Tests on the Market, bioAffinity Technologies Internal Analysis, 2022; attached as Appendix II of the Company’s Final Prospectus (see https://www.sec.gov/Archives/edgar/data/1712762/000149315222024949/form424b4.htm)).

From the 67 companies we evaluated, we found only seven tests, including CyPath® Lung, that represent a balanced test for early lung cancer detection and that have advanced to the point that there is sufficient data for evaluation. Of our six competitors with well-balanced tests (two sell the same test; one in the U.S. and one in China), four companies (20/20 GeneSystems48,49; Nuclexi50; Savicell51; Visongate52) conducted their studies on a population that does not match the high-risk population for which the test is intended. Their clinical data, therefore, is suspect as it applies to the population of patients who actually will use the test. The two remaining balanced tests are not on the market.

We believe there are many reasons why CyPath® Lung is a superior test when compared to its competitors. First, lung sputum is an excellent medium for early lung cancer detection because sputum is in close contact with the tumor and pre-cancerous areas that shed cancer and pre-cancerous cells directly into the sputum, can be obtained noninvasively, and can be transported easily. Moreover, sputum contains immune cell populations in reaction to the presence of a tumor. Second, bioAffinity’s proprietary technology is straightforward. bioAffinity’s CyPath® Lung platform technology is not a molecular test and does not collect genetic material that requires immediate processing. CyPath® Lung uses well-established flow cytometry techniques to investigate cells contained in the sputum for characteristics that indicate whether cancer is present. Sample processing is straightforward, and laboratory technicians can be easily trained. Reagents used by the test are widely available. Data acquisition and analysis is fully automated, allowing for efficient test results. Third, CyPath® Lung has shown high specificity and sensitivity that is similar to far more invasive and more expensive procedures currently used to detect lung cancer. Fourth, CyPath® Lung is cost effective. Existing CPT cost codes that have a reimbursable track record have been identified for use with CyPath. Fifth and as important as any of our test’s benefits, CyPath® Lung is patient friendly, providing at-home sample collection that is noninvasive and offers particular benefit during a public healthcare crisis like the coronavirus pandemic.

For a discussion of our competitors and competitive analysis, please see the “Business – The Competition for CyPath® Lung” section of our Final Prospectus (see https://www.sec.gov/Archives/edgar/data/1712762/000149315222024949/form424b4.htm).

Research and Development Activities

The Company is continuing its research and development activities pertaining to diagnostics that include multiple studies we believe will support FDA final approval of CyPath® Lung, which we will seek after the pivotal trial is complete. Our scientists also have begun preliminary studies toward the development of CyPath® Lung for detection of Chronic Obstructive Pulmonary Disease (COPD) and the assay’s use with bronchoalveolar lavage fluid (BAL). With regard to therapeutic research, the Company continues its experiments focused on establishing proof-of-concept for our discovery that the silencing or knockdown of two genes that each encode a cell surface receptor results in cancer death without much harm to healthy cells with the intent of advancing toward animal studies.

Intellectual Property Portfolio

As of March 31, 2023, the Company and its subsidiary OncoSelect have a patent estate that includes 14 issued U.S. and foreign counterpart patents, including two U.S. patents and twelve foreign counterpart patents in Australia, Canada, China, France, Germany, Hong Kong, Italy, Mexico, Spain, Sweden, and the United Kingdom. One U.S. patent and nine counterpart foreign patents directed at diagnostic applications expire in 2030. Therapeutic patents registered in Australia, China Mexico and the U.S. expire in 2037.

With regard to our diagnostic test CyPath® Lung and other diagnostic candidates, we have one issued U.S. patent and nine foreign counterpart patents in Canada, China, France, Germany, Hong Kong, Italy, Spain, Sweden, and the United Kingdom. With regard to our diagnostic patent applications, one family is directed at diagnosing lung health using flow cytometry, and the other family is directed at proprietary compensation beads used to calibrate the flow cytometry instrument and used in CyPath® Lung data acquisition. Pending applications directed at diagnosing lung health include one pending U.S. non-provisional patent application and eight foreign counterpart patent applications in Australia, Canada, China, European Patent Office, Hong Kong, Japan, Mexico, and Singapore filed in 2019, one Patent Cooperation Treaty (PCT) International Application directed to the composition of compensation beads and one PCT International Application directed to diagnosing lung health using flow cytometry were filed in 2022.

With regard to our therapeutic product candidates, we have one issued U.S. patent, two pending U.S. patent applications, three issued foreign patents, ten foreign applications pending in Canada, China, European Patent Office, Hong Kong, India, and Japan and one pending PCT International Application,. The therapeutic intellectual property is made up of four families directed at our therapeutic product candidates, including two families directed at siRNA product candidates, one family directed at soluble CD320 used in the treatment of cancer, and one family directed at porphyrin conjugates for treating cancer.

Government Regulation

For a discussion of the extensive government regulation that the Company and our IVD medical device, CyPath® Lung, are subject to, please see the “Business – Government Regulation” section of our Final Prospectus (see https://www.sec.gov/Archives/edgar/data/1712762/000149315222024949/form424b4.htm).

Our Employees

The Company places significant emphasis on the recruitment, development, and retention of its employees who include award-winning scientists dedicated to advancing scientific discovery from bench to bedside. Of the Company’s 14 employees, all of whom are employed full-time by the Company, one holds an MD and seven hold PhDs in biology or medicinal chemistry. Approximately nine employees are engaged in research and development and approximately five in sales or general administration.

Our Executive Vice President and Chief Medical and Science Officer, Vivienne Rebel, holds an MD and PhD. Business development is led by our Vice President of Operations, Xavier Reveles, who has 25 years of experience as a clinical geneticist skilled in the creation and management of CLIA clinical laboratories, coding, and CPT reimbursement valuations. Mr. Reveles is board certified by the American Society of Clinical Pathology as a clinical specialist in cytogenetics who has successfully launched multiple diagnostics and commercial laboratories. The innovative and collaborative culture at bioAffinity is in part responsible for the high degree of retention and professional advancement. Of those employees hired prior to 2022, most have been with the Company for more than five years of its nine-year history. Outside partnerships and collaborations that advance business and scientific research are encouraged, allowing the Company to multiply workforce efforts without expending significant capital.

As a smaller reporting company, we are not required to provide disclosure pursuant to this Item 1A. However, in addition to other information set forth in this Annual Report, you should carefully consider the “Risk Factors” discussed in our Final Prospectus filed with the SEC on September 2, 2022, pursuant to Rule 424(b)(4) under the Securities Act (see https://www.sec.gov/Archives/edgar/data/1712762/000149315222024949/form424b4.htm) and elsewhere in this Annual Report 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 Annual 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.

In June 2015, we were accepted into the “New Venture Incubator Program,” which was established by The University of Texas at San Antonio (“UTSA”) to foster research by assisting technology-based businesses and entrepreneurs. Pursuant to the terms of a license agreement, UTSA grants us a license for the temporary use of approximately 1,250 square feet of laboratory and office space in room SRL 1.424 inside the Science Research Laboratories on UTSA’s campus. In exchange, we pay a licensing fee of $3,081 per month. The license agreement has a one-year term that we can extend by requesting a term extension from UTSA. Since 2016, UTSA has granted each of our annual requests for a license extension.

We rent additional corporate office space from Venture Point (formerly known as WorkHub Elite Business Center) pursuant to a membership agreement that is renewable on a monthly basis. Currently, we rent several office suites for a monthly fee of approximately $ 5, 000 per month. We do not own any real property.

Management believes that the combination of our rented and licensed office and laboratory spaces are adequate to meet our current needs and expected level of operations.

We are not currently a party to any current or pending material legal proceedings. From time to time, however, the Company may be involved in various disputes and litigation matters that arise in the ordinary course of business. The Company may face claims brought by third parties, or, from time to time, the Company may make claims or take legal actions to assert our rights. Regardless of the outcome, any such claims or legal proceedings could adversely impact our business, reputation, operating results, and financial condition because of defense and settlement costs, diversion of resources, and other factors. Results of actual and potential litigation are inherently uncertain, and there can be no assurances that favorable outcomes will be obtained.

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 Annual Report on 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” in our Annual Report on Form10-K.

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 year ended December 31, 2022, to the year ended December 31, 2021.
• Liquidity and Capital Resources – Analysis of changes in our cash flows, and discussion of our financial condition and potential sources of liquidity.
• Critical Accounting Policies and Use of Estimates – Accounting policies 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,” “we,” or “our”) develops noninvasive, early-stage diagnostics to detect and researches targeted therapies to detect and treat lung cancer and other diseases of the lung at the cellular level. Our Company also is conducting early-stage research focused on advancing therapeutic discoveries that could result in broad-spectrum cancer treatments. We develop proprietary noninvasive diagnostic tests and cancer therapeutics using technology that preferentially targets cancer cells and cell populations indicative of a diseased state. Research and optimization of our platform technologies are conducted in our laboratories at The University of Texas at San Antonio.

Our first 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.

Through our wholly owned subsidiary, OncoSelect® Therapeutics, LLC, our research has led to discoveries and advancement of novel cancer therapeutics that specifically and selectively target cancer cells. We are focused on expanding our broad-spectrum platform technologies to continue developing tests that detect and therapies that target various types of cancer and potentially other diseases.

Recent Developments

• In the third quarter of 2022, the Company completed our initial public offering (IPO), with net proceeds of $6.0 million after deducting underwriting discounts, commissions and offering expenses. In connection with our IPO, the Company converted almost $11 million in debt and related accrued interest into shares of Common Stock.
• In the third quarter of 2022, the Company raised additional proceeds of $7.8 million from the sale of warrants and the exercise of options.
• In the second quarter of 2022, we recognized royalty revenue on sales of our CyPath® Lung test to physicians by Precision Pathology Services (“Precision Pathology”), a CAP-accredited, CLIA-certified clinical pathology laboratory and our licensee in San Antonio, Texas.

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• We have determined we will need to enroll an estimated 1,800 participants in our pivotal clinical trial that is 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 lung nodules between 6mm and 30 mm in size which often present a challenge in diagnosis.
• In the third quarter of 2022, the Company was awarded therapeutic patents in The People’s Republic of China, Mexico, and Australia directed at compounds comprised of porphyrins conjugated to chemotherapeutic agents that can provide selective treatment for cancer.
• In the third quarter of 2022, Precision was inspected by the College of American Pathologists (CAP) including inspection of the CyPath® Lung test in accordance with CAP/CLIA regulatory standards and regulations. The inspection resulted in continued accreditation for the laboratory and the CyPath® Lung test as a Laboratory Developed Test (LDT).
• In the first quarter of 2023, the Company announced publication of “Detection of early-stage lung cancer in sputum using automated flow cytometry and machine learning” detailing results of the Company’s validation clinical trial for its non-invasive diagnostic CyPath® Lung in Respiratory Research, which showed CyPath® Lung had 92% sensitivity and 87% specificity in high-risk patients who had nodules smaller than 20 millimeters or no nodules in the lung, with an area under the ROC curve of 94%. Overall, the test resulted in specificity of 88% and sensitivity of 82%. More than half of those in the cancer cohort had early Stage I or II lung cancer. CyPath® Lung detected multiple forms of cancer including adenocarcinoma, squamous cell carcinoma, and small cell lung cancer.
• In the first quarter of 2023, the Company announced publication in the peer-reviewed journal JoVE of “Porphyrin-modified beads for use as compensation controls in flow cytometry” that describes the beads engineered by the Company for use with its CyPath® Lung test.
• In the first quarter of 2023, the Company announced that the U.S. Patent and Trademark Office (USPTO) issued a Notice of Allowance for a therapeutic patent application directed at compounds comprised of porphyrins conjugated to chemotherapeutic agents that can provide selective treatment for cancer.

Development of Our Diagnostic Tests

Our first diagnostic test, CyPath® Lung, is a noninvasive test to detect early-stage lung cancer in people at high risk for the disease. Our current five-year Business Plan for the commercial development of CyPath® Lung contemplates the following major initiatives:

• Initial market launch of CyPath® Lung as an LDT in Texas, expanding sales to the Southwest U.S. to be followed by an expanding sale of the test to U.S. physicians;
• Launch CyPath® Lung as a CE-marked in vitro diagnostic (IVD) test in the EU;
• Initiate and complete a pivotal clinical trial proving the efficacy of CyPath® Lung;
• Submit to the U.S. Food and Drug Administration (FDA) for clearance for the Company to directly sell CyPath® Lung as an FDA-cleared test to U.S. physicians for detection of early-stage lung cancer in people at high risk for the disease; and
• Expand the EU market and sale of CyPath® Lung in Asia, Eastern Europe, and Australia.

Notwithstanding that initial and interim data appear promising, the outcomes of our future clinical trials are uncertain, and future clinical trials may ultimately be unsuccessful.

Financial

To date, we have devoted a substantial portion of our efforts and financial resources to the development of our first diagnostic test, CyPath® Lung. As a result, since our inception in 2014, we have funded our operations principally through private sales of our equity or debt securities. From October 2021 through August 2022, the Company raised $2.7 million through the sale of Bridge Notes. In July 2022, all but six of the Bridge Notes with an aggregate principal amount of $325,000 were further amended to have a maturity date of October 31, 2022. As consideration for the maturity date extension, each noteholder received a warrant to purchase that number of shares of Common Stock equal to the quotient obtained by dividing the principal amount of such holder’s note by 10.5 at an exercise price equal to $5.25 per share of Common Stock, representing 50% warrant coverage on the principal amount of the note. In connection with the sale of our convertible Bridge Notes, our Placement Agent was paid commissions of nine percent (9.0%) and was issued the Placement Agent’s Warrant to purchase 54,464 shares of Common Stock. The Placement Agent’s Warrants have substantially the same terms as the warrants issued to our noteholders and an exercise price of $7.35 per share.

In September 2022, we completed our IPO, with net proceeds of $6.0 million after underwriting discounts, commissions, and offering expenses, and received proceeds of approximately $7.8 million from the exercise of warrants and options. As of December 31, 2022, we had cash and cash equivalents of $11.5 million. We believe that our available cash will be sufficient to fund our planned operations for at least 12 months following the issuance date of this Annual Report.

In the second quarter of 2022, we started to recognize revenue from sales of the CyPath® Lung test by our licensee, Precision Pathology. We have never been profitable, and as of December 31, 2022, we had working capital of $10.8 million and an accumulated deficit of approximately $36.7 million. We expect to continue to incur significant operating losses for the foreseeable future as we continue the development of our diagnostic tests and therapeutic products and advance our diagnostic tests through clinical trials. 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.

Results of Operations

Year Ended December 31, 2022, Compared to the Year Ended December 31, 2021

Our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future. Net loss for the year ended December 31, 2022, was approximately $8.2 million, compared to a net loss of approximately $6.3 million for the year ended December 31, 2021, resulting from the operational activities described below.

Revenue

Our revenue is generated exclusively from royalties for our first diagnostic test, CyPath® Lung, from sales by Precision Pathology, a CAP-accredited, CLIA-certified clinical pathology laboratory and our licensee. Although Precision Pathology placed CyPath® Lung on its list of tests offered to physicians in second quarter 2022, there was limited marketing of the product until our IPO in September provided funds to assemble a marketing team of experts focused on demonstrating the clinical value of CyPath® Lung in the marketplace. The limited test market launch in the San Antonio area is designed to evaluate our marketing program and help us ensure each step in the care pathway is efficient and effective, from the initial order by physicians to patient sputum collection and processing, to generating and delivering the patient report. This limited test market approach allows us to refine future positioning and develop strategic insight for our CyPath® Lung test before expanding to a larger market. We had revenue of approximately $5,000 during the year ended December 31, 2022, from the sale of CyPath® Lung as an LDT, compared to no revenue in 2021.

We expect our revenue to continue to grow for CyPath® Lung as we add physicians prescribing our diagnostic test and expand our outreach to other geographic areas. Our revenues are affected by the test volume of our products, patient adherence rates, payer mix, the levels of reimbursement, and payment patterns of payers and patients.

Cost of Sales

Cost of sales is comprised primarily of costs related to inventory production and usage and shipment of collection kits to patients and healthcare providers. The increase in cost of sales for the year ended December 31, 2022, is primarily due to the launch of sales in the second quarter of 2022, compared to no sales in the prior year.

Operating Expenses

(amounts in thousands)

(amounts in thousands)

Operating expenses totaled $4.0 million and $2.2 million during 2022 and 2021, respectively. The increase in operating expenses is the result of the following factors.

Research and Development

Our research and development expenses consist primarily of expenditures for lab operations, preclinical studies, compensation, and consulting costs.

Research and development expenses totaled $1.1 million and $1.0 million during 2022 and 2021, respectively. The increase of approximately $135,000, or 13%, for 2022 compared to 2021 was primarily attributable to an increase in compensation costs and benefits as we added research personnel, partially offset by a decrease in the prior year due to several employees who were furloughed for several months and later returned to their positions with the Company. Additionally, costs related to lab supplies and reagents increased as employees returned to facilities after restrictions eased for COVID-19. These increases were partially offset by a decrease in stock compensation expense related to stock option and restricted share grants to employees and consultants in 2022 compared to 2021.

Clinical Development

Clinical development expenses totaled approximately $146,000 and $130,000 during 2022 and 2021, respectively. The increase of approximately $16,000, or 12%, for 2022, compared to 2021 was primarily attributable to an increase in professional fees, including consulting fees, and increases in clinical study activities related to site costs compared to 2021 as operations were still being affected by the global pandemic.

Selling, General and Administrative

Our selling, general and administrative expenses consist primarily of expenditures related to compensation, legal, accounting, tax and other professional services, and general operating costs.

Selling, general and administrative expenses totaled approximately $2.7 million and $1.1 million during 2022 and 2021, respectively. The increase of $1.7 million, or 155%, for 2022 compared to 2021 was primarily attributable to increases related to consulting, legal, and professional fees incurred in 2022 compared to 2021 as we prepared for our IPO and comply with the reporting requirements of a public company. Patent costs increased in the current year as we maintain and expand our patent portfolio to protect our diagnostic and therapeutic platforms. Additionally, the increase was due to an increase in stock-based compensation, as well as an increase in compensation and benefits as we increased personnel and support services to support the launch of sales of our diagnostic test, CyPath® Lung.

Other Income (Expense)

(amounts in thousands)

(amounts in thousands)

Other income (expense) totaled approximately ($4.1) million and ($4.1) million for 2021 and 2020, respectively.

Interest income (expense)

We had net interest expense of approximately $2.5 million and $1.0 million for the years ended December 31, 2022 and 2021, respectively. The increase was due to additional convertible notes outstanding during the same period in the prior year. Additionally, in 2022 the Company recorded interest expense of approximately $2.1 million for the amortization of debt discount related to the issuance of Bridge Notes.

Gain on Extinguishment of Debt

In March 2021, the Company received a second draw $0.2 million Paycheck Protection Program Loan (the “PPP Loan”) and received forgiveness from the Small Business Administration (SBA) in April 2022, recording a gain of $212,000 on the extinguishment of the PPP Loan. In April 2020, the Company received an initial $0.2 million PPP Loan and received forgiveness from the SBA in June 2021, recording a gain of $239,000 on the extinguishment of the PPP Loan.

Fair value of warrants

In 2021, in connection with the issuance of the Bridge Notes, the Company amended the terms of certain convertible notes. As an inducement to amending the notes, the Company issued Common Stock warrants with the same terms and conditions as the warrants issued to the Bridge Note holders. The estimated fair value of the warrants was $4.1 million and immediately expensed within the accompanying consolidated statement of operations.

(Loss) gain on change in fair value of convertible notes

The loss on the change in fair value of convertible notes totaled approximately $1.9 million during 2022 compared to a gain of $0.7 million during 2021, respectively. The change in the fair value of convertible notes resulted primarily from changes in the calculation of the fair value of our stock, the reduction in the expected term, and other assumptions during the reported periods. Refer to our notes to audited financial statements for further discussion on our convertible notes.

Liquidity and Capital Resources

To date, we have funded our operations primarily through our IPO, exercise of warrants and options, and the sale of our equity and debt securities, resulting in gross proceeds of approximately $34.3 million.

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 tests or therapeutic products to generate revenue. We have an accumulated deficit of approximately $36.7 million as of December 31, 2022. We anticipate that we will continue to incur additional losses for the foreseeable future. Cash and cash equivalents were approximately $11.4 million as of December 31, 2022. Based on our current level of expected operating expenditures, we expect to be able to fund our operations for at least twelve (12) months following the date of this Annual Report.

In the fourth quarter of 2021 and the first quarter of 2022, the Company issued a total of $2.4 million in Bridge Notes. In August 2022, the Company issued an additional $0.3 million in Bridge Notes to related parties. The Bridge Notes were convertible into the Company’s Common Stock at the time of an IPO or at the noteholder’s option at $4.20 per share, adjusted to reflect any stock split, stock dividend, or other similar change in the Common Stock. The convertible Bridge Notes bore interest at six percent (6%) and, with one exception, were amended to have a maturity date of August 31, 2022. The maturity date of one convertible bridge note with a principal amount of $100,000 was not extended and was repaid in full.

In July 2022, all but six of the Bridge Notes with an aggregate principal amount of $325,000 were further amended to have a maturity date of October 31, 2022. As consideration for the maturity date extension, each noteholder received a warrant to purchase that number of shares of Common Stock equal to the quotient obtained by dividing the principal amount of such holder’s note by 10.5 at an exercise price equal to $5.25 per share of Common Stock, representing 50% warrant coverage on the principal amount of the note. In connection with the sale of our convertible Bridge Notes, our Placement Agent was paid commissions of nine percent (9.0%) and was issued the Placement Agent’s Warrant to purchase 54,464 shares of Common Stock. The Placement Agent’s Warrants have substantially the same terms as the warrants issued to our noteholders and an exercise price of $7.35 per share. In the fourth quarter of 2022, the Company repaid $325,000 for those notes that were not converted at the time of the Company’s IPO.

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 or 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.

Cash Flows

The following information reflects cash flows for the years presented:

(amounts in thousands)

Net Cash Used in Operating Activities

Net cash used in operating activities was approximately $4.1 million and $2.0 million for the years ended December 31, 2022 and 2021, respectively. The increase of approximately $2.1 million in cash used by operations during the year ended December 31, 2022, compared to 2021, was primarily attributable to an increase of $1.8 million in our loss from operations as compared to the prior year as described above. These increases were partially offset by adjustments for the amortization of debt discount related to the issuance of Bridge Notes and non-cash charges related to stock-based compensation.

Net Cash Used in Investing Activities

The Company used approximately $0.2 million in investing activities in 2022, compared to no cash used for the year ended December 31, 2021. The increase in cash used in investing activities in 2022, compared to 2021, is attributable to the purchase of lab equipment in the fourth quarter of 2022.

Net Cash Provided by Financing Activities

During the year ended December 31, 2022, net cash provided by financing activities was $14.3 million primarily due to net proceeds of approximately $6.0 million from issuance of Common Stock in our IPO, as well as proceeds of approximately $7.8 million from the exercise of warrants and options. Additionally, the increase is due to the issuance of $0.7 million of our Bridge Notes during the year, partially offset by debt issuance costs and the repayment of $425,000 of notes not converted as part of the IPO.

During the year ended December 31, 2021, net cash provided by financing activities was $3.3 million consisting of $3.3 million from the issuance of convertible notes, as well as receiving a second draw on our PPP Loan of $212,000 in March 2021, partially offset by the payment of approximately $180,000 in debt issuance costs. In April 2022, the Company submitted an application for forgiveness for the second draw on our PPP Loan and received notice of forgiveness from the SBA.

Critical Accounting Policies and Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) in the United States 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.

Share-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. As such, as 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.

Fair Value of Convertible Notes Payable

We adopted FASB ASU No. 2016-01 “Financial Instruments—Overall (Subtopic 825-10).” In applying ASC 825, it is necessary to determine whether to bifurcate the Beneficial Conversion Feature from the convertible note. Under ASC 825, provided the fixed conversion price stipulated in the convertible note is greater than the fair market value at the date of issuance (“out of the money”), the beneficial conversion feature guidance is not applicable, and the convertible notes are eligible to be valued at fair value and any adjustments recorded in the statement of operations.

The Company elected to account for the convertible notes payable at fair value with any changes in fair value being recognized in the consolidated statements of operations until the convertible notes are settled. The fair value of the convertible notes is determined with the assistance of a third-party valuation firm. Given the conversion terms that exist, there were two scenarios considered: i) conversion into a preferred share class, or ii) conversion into the common share class. Given the issuance dates, a negotiation discount was calibrated and applied such that the probability weighting of the issued notes is equal to par value as of the respective issuance dates. The probabilities of each conversion scenario were discussed and assigned based on the expectations regarding the future of the Company.

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.

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 in conducting research and development activities one year from the date our 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.

Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined by Item 10 of Regulation S-K and are not required to provide the information otherwise required under this item.

Emerging Growth Company (EGC) Status

As an EGC under the JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for EGCs include presentation of only two years of audited financial statements in a registration statement for an IPO, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board, and less extensive disclosure about our executive compensation arrangements.

In addition, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an EGC to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We may remain classified as an EGC until the end of the fiscal year following the fifth anniversary of the IPO, although if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of June 30 of any year before that time, or if we have annual gross revenues of $1.07 billion or more in any fiscal year, we would cease to be an EGC as of December 31 of the applicable year. We would also cease to be an EGC if we issue more than $1.0 billion of non-convertible debt over a three-year period.

We are a smaller reporting company as defined by Item 10 of Regulation S-K and are not required to provide the information otherwise required under this Item 7A.

Evaluation of Disclosure Controls and Procedures

As of December 31, 2022, the end of the period covered by this Annual 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”). Rules 13a-15(e)and 15d-15(e)). Based on that evaluation, management has concluded that due to limited resources and limited number of employees, its internal control over financial reporting was ineffective as of December 31, 2022, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. To mitigate the limited resources and employees, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals. As we grow, we expect to increase the number of employees, which we believe will enable us to implement adequate segregation of duties within the internal control framework.

Internal Control over Financial Reporting

Management’s Annual Report on Internal Control over Financial Reporting

This annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition period established by rules of the SEC for newly public companies.

Attestation Report of the Registered Public Accounting Firm

This annual report does not include an attestation report of the Company’s registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.

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 year ended December 31, 2022, covered by this Annual Report that could materially affect, or are reasonably likely to materially affect, our financial reporting.