# bioAffinity Technologies, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [bioAffinity Technologies, Inc.](/companies/biaf.md) (CIK 1712762)
- Form: 10-Q
- Filed: 2023-11-14
- Accepted by EDGAR: Nov 14, 2023, 15:11 ET
- Period: 2023-09-30
- Accession: 0001493152-23-040986
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1712762/000149315223040986/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1712762/000149315223040986/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $298.5k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $319.1k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $74.7k | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $76.0k | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $223.8k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $243.1k | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $330.4k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $1.0m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $2.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $4.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$2.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$5.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $8.8k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $11.8k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $2.3k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $18.7k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$2.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$5.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.26 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.65 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.26 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.65 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 8,696,554 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 8,551,154 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$4.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $36.3k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $4.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $6.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $10.2m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $2.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $3.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $7.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 45,141 characters.

This section presents management’s perspective on our financial condition and results of operations. The following discussion and analysis (the “MD&A”) is intended to highlight and supplement data and information presented elsewhere in this Quarterly Report, and should be read in conjunction with our interim unaudited condensed consolidated financial statements and notes elsewhere in this Quarterly Report and our audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2022, included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 31, 2023 (the “2022 Form 10-K”). The MD&A is also intended to provide you with information that will assist you in understanding our consolidated financial statements, the changes in key items in those consolidated financial statements from year to year, and the primary factors that accounted for those changes. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause the Company’s financial results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the “Cautionary Note Regarding Forward-Looking Statements” section of this Quarterly Report and in the “Risk Factors” section of the 2022 Form 10-K.

Data as of and for the nine months ended September 30, 2023 and 2022, has been derived from our unaudited condensed consolidated financial statements appearing at the beginning of this Quarterly Report. Results for any interim period should not be construed as an inference of what our results would be for any full fiscal year or future period.

Our MD&A is organized as follows:

- *Company Overview –* Discussion of our business plan and strategy to provide context for the remainder of the MD&A.
- *Results of Operations –* Analysis of our financial results comparing the nine months ended September 30, 2023, to the comparable period in 2022.
- *Liquidity and Capital Resources –* Analysis of changes in our cash flows and discussion of our financial condition and potential sources of liquidity.
- *Critical Accounting Estimates –* Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

### Company Overview

### Business

bioAffinity Technologies, Inc. (the “Company,” “bioAffinity Technologies,” “we,” or “our”) develops noninvasive diagnostics to detect early-stage lung cancer and other diseases of the lung. We also are conducting early-stage research focused on advancing therapeutic discoveries that could result in broad-spectrum cancer treatments. We develop proprietary noninvasive diagnostic tests 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 laboratories at our wholly owned subsidiary, Precision Pathology Laboratory Services, LLC (“PPLS”), and The University of Texas at San Antonio.

Our diagnostic test, CyPath® Lung, addresses the need for noninvasive detection of early-stage lung cancer. Lung cancer is the leading cause of cancer-related deaths. Physicians are able to order CyPath® Lung to assist in their assessment of patients who are at high risk for lung cancer. The CyPath® Lung test enables physicians to more confidently distinguish between patients who will likely benefit from timely intervention and more invasive follow-up procedures from patients who are likely without lung cancer and should continue annual screening. CyPath® Lung has the potential to increase overall diagnostic accuracy of lung cancer, which could lead to increased survival, fewer unnecessary invasive procedures, reduced patient anxiety, and lower medical costs.

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

Through our wholly owned subsidiary PPLS, we acquired the assets of Village Oaks Pathology Services, P.A., a Texas professional association d/b/a Precision Pathology Services, including the clinical pathology laboratory it owned, and we now operate the laboratory.

### Recent Developments

In September 2023, the Centers for Medicare and Medicaid (“CMS”) released a preliminary payment decision for a Current Procedural Terminology (“CPT”) code for use with CyPath® Lung that had been issued by the American Medical Association (“AMA”) in June, 2023. The CPT code became effective October 1, 2023, and is used for private payers and public health insurance programs. The CPT Proprietary Laboratory Analyses (“PLA”) code assigned to CyPath® Lung is 0406U with the descriptor “Oncology (lung), flow cytometry, sputum, 5 markers (meso-tetra \[4- carboxyphenyl\] porphyrin \[TCPP\], CD206, CD66b, CD3, CD19), algorithm reported as likelihood of lung cancer.” bioAffinity Technologies submitted comments during the 30-day comment period in support of the preliminary decision. In November 2023, CMS is expected to finalize the 2024 payment for CPT 0406U, which will be effective January 1, 2024. The recommended CMS payment amount will favorably impact PPLS’ established fee schedule for CyPath® Lung determining reimbursement by private insurance carriers.

On September 18, 2023, PPLS, our wholly owned subsidiary, consummated the acquisition (the “Acquisition”) of a clinical anatomic and clinical pathology laboratory and related services business in San Antonio, Texas (the “ Laboratory Assets”) pursuant to the terms of an Asset Purchase Agreement (the “Asset Purchase Agreement”) dated September 18, 2023 that we entered into with Village Oaks Pathology Services, P.A., a Texas professional association d/b/a Precision Pathology Services (“Village Oaks”) and Dr. Roby P. Joyce, M.D. PPLS is accredited by the College of American Pathologists (“CAP”) and certified under the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”). Founded in 2007 by Dr. Roby Joyce, the Medical Director and Laboratory Director of the clinical pathology laboratory prior to and after the Acquisition, Village Oaks has provided pathology services to physicians practicing in a variety of outpatient settings. Since September 2021, Village Oaks, under the trade name Precision Pathology Services, has offered CyPath® Lung for sale as a laboratory developed test (“LDT”) for the detection of early-stage lung cancer. In addition to CyPath® Lung, PPLS intends to continue to offer a range of laboratory services including respiratory testing for SARS-CoV-2 and influenza, anatomical pathology, morphological stains, histological services, DNA extractions, STI testing and women’s and men’s health testing.

Pursuant to the terms of the Asset Purchase Agreement, PPLS acquired the Laboratory Assets, which included all of the assets owned by Village Oaks other than medical assets, including the CLIA certification and CAP accreditation, which are assets Village Oaks used in connection with its management and operation of a clinical pathology laboratory, now owned by PPLS, and related services business and assumed certain liabilities and obligations. Pursuant to the terms of the Asset Purchase Agreement, Village Oaks received $3,500,000 in consideration for the assets to be purchased by PPLS, of which $1,000,000 was paid by the issuance of 564,972 shares of our restricted Common Stock to a trust controlled by Dr. Joyce (the “Joyce Trust”), which share number was determined by dividing $1,000,000 by $1.77, the average of the trading day closing prices for the 30 days prior to September 15, 2023, rounded to the nearest whole share.

Pursuant to the Asset Purchase Agreement, PPLS assumed all liabilities and obligations and obtained any and all rights, title and interest of Village Oaks in and to (i) all leases for equipment and personal property related to the Laboratory Assets (the “Assumed Leases”), pursuant to an Assumption Agreement by and between Village Oaks and PPLS (the “Assumption Agreement”); (ii) certain other contracts related to the Laboratory Assets, including the license to develop, manufacture, use, market, and sell CyPath® Lung (the “Assumed Contracts”) pursuant to the Assumption Agreement; (iii) all accounts payable of Village Oaks as of September 18, 2023, that were incurred in the ordinary course of business consistent with past custom and practice; and (iv) the lease of the premises used in connection with operation of the CLIA-certified and CAP-accredited clinical pathology laboratory, pursuant to an Assignment and Assumption of Lease by and between Village Oaks and PPLS (the “Assignment of Lease”).

In connection with the Asset Purchase Agreement, PPLS entered into various other agreements, including a Management Services Agreement with Village Oaks (the “Management Services Agreement”), a Succession Agreement with Village Oaks and Dr. Joyce (the “Succession Agreement”) and a Professional Services Agreement with Village Oaks (the “Professional Services Agreement”) pursuant to which PPLS will provide comprehensive management and administrative services to Village Oaks in connection with the operation of Village Oaks’ professional cytopathology, histopathology, and clinical and anatomic pathology interpretation medical services practice. PPLS will provide space, equipment, administrative, management and clinical personnel, billing and collection, and related management services to Village Oaks in exchange for a management fee of 70% of the net revenues received by Village Oaks from the provision of the medical services

The Succession Agreement provides that Dr. Joyce, as holder of 100% of the issued and outstanding stock of Village Oaks, and Village Oaks are restricted from disposing of their equity interests in Village Oaks, subject to certain exceptions, without the prior written consent of us and Village Oaks.

Pursuant to a Professional Services Agreement, Village Oaks provides pathology interpretation services as requested on behalf of PPLS based on the professional fees approved for the CPT code for the services provided under the Medicare Physician Fee Schedule in the locality where the test is performed.

In connection with the Asset Purchase Agreement, we entered into an Executive Employment Agreement with Dr. Joyce (the “Joyce Employment Agreement”), for a term of three years, pursuant to which he serves as the Medical Director and Laboratory Director of PPLS, at a base salary of $333,333 per year. Pursuant to the Joyce Employment Agreement, Dr. Joyce was also appointed to serve on our Board of Directors

### Financial

To date, we have devoted a substantial portion of our efforts and financial resources to the development of our diagnostic test, CyPath® Lung. As a result, since our inception in 2014, we have funded our operations principally through private sales of our equity or debt securities. As of September 30, 2023, we had cash and cash equivalents of $4.5 million.

Prior to the Acquisition, Village Oaks, under the trade name Precision Pathology Services, had licensed and developed CyPath® Lung as an LDT for sale to physicians. The license agreement provided that revenues from the sale would be split evenly between the Company and Village Oaks. In the second quarter of 2022, prior to the Acquisition, we started to recognize revenue as part of a limited beta market testing program of the CyPath® Lung test. We have never been profitable, and as of September 30, 2023, we had total working capital of $4.0 million and an accumulated deficit of approximately $42.2 million. We expect to continue to incur significant operating losses for the foreseeable future as we continue the development of our diagnostic tests and advance our diagnostic tests through clinical trials; however, we do expect revenue to increase due to the Acquisition. We intend to license our therapeutic products for clinical development should animal and pre-clinical studies prove successful.

We anticipate raising additional cash needed through the private or public sales of equity or debt securities, collaborative arrangements, or a combination thereof to continue to fund our operations and develop our products. There is no assurance that any such collaborative arrangement will be entered into or that financing will be available to us when needed in order to allow us to continue our operations or, if available, on terms acceptable to us. If we do not raise sufficient funds in a timely manner, we may be forced to curtail operations, delay our clinical trials, cease operations altogether, or file for bankruptcy.

### Forecast

With the acquired revenue stream from PPLS, the Company’s projected revenue over the next 12 months will significantly change. For the year ended December 31, 2022, Village Oaks generated net revenue of approximately $6.9 million and net loss of approximately $461,000 and for the six months ended June 30, 2023, Village Oaks generated revenue of approximately $3.6 million and net loss of approximately $493,000. The Company has consolidated in its net revenue $283,000 of net revenues generated by PPLS for the provision of laboratory services for the period from September 19, 2023, through September 30, 2023 (September 18, 2023, being the date of the Acquisition). The laboratory revenue is projected to contribute between $2.1 million and $2.3 million of net revenues for 2023. These projections are based on historical average annual growth rates of 10% net revenues.

In addition to the forecasted PPLS revenue, CyPath® Lung adoption is expected to contribute $456,000 gross revenues the next 12 months. The data points supporting these projections are: (1) learnings from the current beta market test of commercialization, (2) developed branding and marketing collateral, (3) increased onboarding of sales representatives, (4) additional publications of scientific data supporting the product, and (5) the CMS approval of payment for the AMA-approved CPT code specific for CyPath® Lung and the increase in the test price based on the expected CMS payment decision and its resulting impact on the PPLS established fee schedule for private insurance carriers. The table below provides the results of our beta market test program (2q2022-3q2023) on which we base our 12-month forecast (4q2023-3q2024) that is also provided.

| ADOPTION METRICS | 2q2022-3q2023 Beta Test Results | 4q2023-3q2024 Forecast |
| --- | ---: | ---: |
| HCPs - enrolled | 20 | 82 |
| HCPs - ordered | 15 | 61 |
| CyPath® Lung Tests ordered | 44 | 284 |
| Sales Representatives | 2 | 5 |
| Avg. HCP per Sales Rep | 7.5 | 12.3 |
| Avg. Test per Sales Rep | 22.0 | 56.8 |
| **PENETRATION METRICS** |  |  |
| HCP in addressable market | 1320 | 6261 |
| Target segment of HCPs | 244 | 782 |
| Penetration % of target segment - enrolled | 7.8% | 10.5% |
| Penetration % of target segment - ordered | 6.1% | 7.8% |
| **REVENUE** |  |  |
| Gross revenue | $19,910 | $456,000 |

Notes:

(1) HCP enrolled = the number of healthcare physicians (“HCP” comprising of pulmonologist, internists, family, and general practice physicians) who have enrolled as clients of PPLS with the purpose of ordering CyPath® Lung and, in *Forecast*, the addition number of HCPs forecasted to enroll.

(2) HCP ordered = the number of healthcare physicians who have ordered one or more CyPath® Lung tests and, in *Forecast*, the additional number of HCPs who we forecast will order the test

(3) CyPath® Lung Tests Ordered = number of CyPath® Lung tests ordered that result in revenue, and, in *Forecast*, the additional number of tests we forecast to be ordered and result in revenue

(4) Sales Representatives = number of dedicated sales representatives employed by the Company. Beta Test Results reflect one sales representative in Austin/San Antonio area (2q2022 – present) and one sales representative in the Rio Grande Valley area, Texas (2q2023). Forecasted results reflect recent hire of our National Sales Director (3q23) and assume one additional sales representative in Houston (hire 4q23) and one additional sales representative in Dallas (hire 2q24)

(5) Avg. HCP per Sales Rep = average number of HCPs who are ordering CyPath® Lung per sales representative assigned to the market area

(6) Avg. Test per Sales Rep = average number of tests ordered that result in revenue per sales representative assigned to the market area.

(7) HCP in addressable market = the Beta Test Market is comprised of the total number of HCPs in the Austin, San Antonio, and the Rio Grande Valley greater areas of Texas who have ordered procedures to diagnose pulmonary nodules.. The *Forecast* includes expansion of the addressable market to Houston and Dallas, Texas. Market data used to define the addressable market is based on a third-party commissioned report.

(8) Target segment of HCPs = HCPs (largely pulmonologists) in the addressable markets who on an annual basis have ordered more than 50 procedures for patients who required further diagnosis of pulmonary nodules. Market data used to define the target segment of HCPs is based on a third-party commissioned report.

(9) Penetration % of target segment – enrolled = the percentage of HCPs in the target segment who enrolled as clients of PPLS with the purpose of ordering CyPath® Lung. The *Forecast* calculates the percentage based on the number of HCPs in the target segment forecasted to be enrolled during the period indicated. The target segment is based on market data provided by a third-party commissioned report.

(10) Penetration % of target segment – ordered = the percentage of HCPs in the target segment who ordered one or more CyPath® Lung tests. The Forecast includes HCPs forecasted to order the test as a percentage of the total target segment.

### Results of Operations

### Three Months Ended September 30, 2023, Compared to Three Months Ended September 30, 2022

Net loss for the three months ended September 30, 2023, was approximately $2.3 million, compared to a net loss of approximately $4.9 million for the three months ended September 30, 2022.

### Revenue

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. Pre-acquisition, bioAffinity Technologies’ revenue was generated in three ways for the nine months and three months, respectively, ended September 30, 2023: (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. See net revenue summarized in the table below.

In the first quarter of 2023, we engaged the marketing and advertising firms of Havas Health & You and Trinity Life Sciences to build the CyPath® Lung brand and position it for success in the cancer diagnostics sector. Havas Health & You, a large global health network, has created the branding 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 used the insights and analytics it gathered from healthcare practitioners to focus the short-term objectives of our marketing strategy for CyPath® Lung. The limited test market launch in South Texas is designed to evaluate our marketing program and help us ensure each step in the care pathway – from the initial order by physicians to sputum collection and processing, to generating and delivering the patient report – is efficient and effective. 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.

| Parent (bioAffinity Technologies): | For three months ended September 30 , 2023 Net Revenue | Related Party1 | Consolidated | 2022 Net Revenue | Related Party1 | Consolidated |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| CyPath® Lung royalty income1 | $5,412 | $(487) | $4,925 | $1,150 | - | $1,150 |
| Laboratory services1 | 7,423 | (1,265) | 6,158 | - | - | - |
| Dept. of Defense study | 4,500 | - | 4,500 | - | - | - |
| **Subsidiaries ((PPLS) and Controlling Interest Entity2:** |  |  |  |  |  |  |
| Patient fees | 248,654 | - | 248,654 | - | - | - |
| Histology fees | 31,854 | - | 31,854 | - | - | - |
| Medical director fees | 2,392 | - | 2,393 | - | - | - |
| Total net revenue | $300,236 | $(1,752) | $298,484 | $1,150 | - | $$1,150 |

*1 As of September 18, 2023 (date of the Acquisition), royalty and laboratory services income agreements are considered related parties and eliminated upon consolidation.*

*2 The three months ended revenue for PPLS and its controlling interest entity, Village Oaks, only recognizes partial period of September 19 through September 30, 2023.*

### Cost of Sales

Historically, cost of sales is comprised primarily of costs related to inventory production and usage and shipment of collection kits to patients and healthcare providers for CyPath® Lung. Starting September 19, 2023, cost of sales also consists of consumable lab supplies, reagents, and direct labor from the patient and histology lab services.

### Operating Expenses

| Operating expenses | Three Months Ended September 30,(1) 2023 | 2022 | Change in 2023 Versus 2022 $% |  |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $330,400 | $319,800 | $10,600 | 3% |
| Clinical development | 106,400 | 60,900 | 45,500 | 75% |
| Selling, general and administrative | 2,023,900 | 595,700 | 1,428,200 | 240% |
| Depreciation and amortization | 57,600 | 800 | 56,800 | 7100% |
| Total operating expenses | $2,518,300 | $977,200 | $1,541,100 | 158% |

(1) Represents operating expenses from our unaudited condensed consolidated financial statements for the three-month period ended September 30, 2023 and 2022, respectively.

Operating expenses totaled approximately $2.5 million and $1.0 million during the three months ended September 30, 2023 and 2022, respectively. The increase in operating expenses is the result of the following factors.

### Research and Development Expenses

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

Research and development expenses totaled approximately $330,400 and $319,800 for the three months ended September 30, 2023, and 2022, respectively. The increase of approximately $10,600, or 3%, for the three months ended September 30, 2023, compared to the same period in 2022, was primarily due to an increase in compensation costs and benefits as we added research personnel, as well as a related increase in costs for lab supplies and reagents. Additionally, equipment costs, including depreciation and maintenance costs, increased as we purchased capital equipment to support research and development efforts.

### Clinical Development

Clinical development expenses totaled approximately $106,400 and $60,900 for the nine months ended September 30, 2023 and 2022, respectively. The increase of approximately $45,500, or 75%, for the nine months ended September 30, 2023, compared to the same period in 2022, was primarily attributable to an increase in professional fees, including consulting fees, related to evaluating the clinical strategy in the prior year for our pivotal clinical trial designed to confirm the sensitivity and specificity of CyPath® Lung in detecting lung cancer in persons at high risk for the disease, including patients who display indeterminate pulmonary nodules between 6mm and 30mm in size which often present a challenge in diagnosis.

### Selling, General and Administrative

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

Selling, general and administrative expenses totaled approximately $2.0 million and $0.6 million for the three months ended September 30, 2023 and 2022, respectively. The increase of approximately $1.4 million, or 240%, for the three months ended September 30, 2023, compared to the same period in 2022, was primarily attributable to accounting, legal and professional fee costs associated with the acquisition of PPLS ($595,000), the accounting, legal and professional fee costs associated with the SEC filing of a registration statement on Form S-1 ($197,000), increase in stock-based compensation ($186,000), increase in employee compensation ($238,000), increase in branding and marketing collateral ($117,000), as well as an increase related to board compensation, public company expense, and other operational expenses. Patent costs increased in the current year as we maintain and expand our patent portfolio to protect our diagnostic and therapeutic platforms. Additionally, compensation increased due to additional personnel and support services to support the launch of sales of our diagnostic test, CyPath® Lung.

### Other Income (Expense)

Other income (expense), net totaled approximately $6,000 and $3.9 million for the three-month period ended September 30, 2023 and 2022, respectively.

#### Interest Income (Expense), net

Interest income (expense), net was approximately $18,400 for the three months ended September 30, 2023, compared to $889,100 for the three months ended September 30, 2022.

#### Gain (loss) on change in fair value of convertible notes

There was a loss of approximately $3.1 million on the change in fair value of convertible notes during the three months ended September 30, 2022, compared to no loss during the three months ended September 30, 2023. 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. All convertible and bridge notes were converted as a result of our initial public offering (the “IPO”) in the prior year, resulting in no additional changes in fair value related to the convertible and bridge notes.

### Nine Months Ended September 30, 2023, Compared to Nine Months Ended September 30, 2022

Net loss for the nine months ended September 30, 2023, was approximately $5.6 million, compared to a net loss of approximately $6.5 million for the nine months ended September 30, 2022.

### Revenue

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. Pre-acquisition, bioAffinity Technologies’ revenue was generated in three ways for the nine months and three months, respectively, ended September 30, 2023: (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 DOD for an observational study, “Detection of Abnormal Respiratory Cell Populations in Lung Cancer Screening Patients Using the CyPath® Lung Assay (NCT05870592),” and research and development on using bronchoalveolar lavage fluid as a biological sample to assess cardiopulmonary function and exercise performance in military personnel post COVID-19 infection. The royalty income from CyPath® Lung and clinical flow cytometry services income, beginning September 19, 2023, are related party income, and therefore, eliminated from consolidated net revenues. See net revenue summarized in the table below.

In the first quarter of 2023, we engaged the marketing and advertising firms of Havas Health & You and Trinity Life Sciences to build the CyPath® Lung brand and position it for success in the cancer diagnostics sector. Havas Health & You, a large global health network, has created the branding 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 used the insights and analytics it gathered from healthcare practitioners to focus the short-term objectives of our marketing strategy for CyPath® Lung. The limited test market launch in South Texas is designed to evaluate our marketing program and help us ensure each step in the care pathway – from the initial order by physicians to sputum collection and processing, to generating and delivering the patient report – is efficient and effective. 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.

| Parent (bioAffinity Technologies): | For the nine months ended September 30, 2023 Net Revenue | Related Party1 | Consolidated | 2022 Net Revenue | Related Party1 | Consolidated |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| CyPath® Lung royalty income1 | $13,164 | $(487) | $12,677 | $2,457 | - | $2,457 |
| Laboratory services1 | 10,500 | (1,265) | 9,315 | - | - | - |
| Dept. of Defense study | 14,250 | - | 14,250 | - | - | - |
| **Subsidiaries (VOPS/PPLS)2:** |  |  |  |  |  |  |
| Patient fees | 248,654 | - | 248,654 | - | - | - |
| Histology fees | 31,854 | - | 31,854 | - | - | - |
| Medical director fees | 2,393 | - | 2,393 | - | - | - |
| Total net revenue | $320,895 | $(1,752) | $319,143 | $2,457 | - | $$2,457 |

*1 As of September 18, 2023 (date of the Acquisition), royalty and laboratory services income agreements are considered related parties and eliminated upon consolidation.*

*2 The three months ended revenue for PPLS and its controlling interest entity, Village Oaks, only recognizes partial period of September 19 through September 30, 2023.*

### Cost of Sales

Historically, cost of sales is comprised primarily of costs related to inventory production and usage and shipment of collection kits to patients and healthcare providers for CyPath® Lung. Starting September 19, 2023, cost of sales also consists of consumable lab supplies, reagents and direct labor from the patient and histology lab services.

### Operating Expenses

*(unaudited)*

| Operating expenses | Nine Months Ended September 30,(1) 2023 | 2022 | Change in 2023 Versus 2022 $% |  |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $1,035,100 | $949,400 | $85,700 | 9% |
| Clinical development | 161,300 | 141,700 | 19,600 | 14% |
| Selling, general and administrative | 4,576,700 | 1,295,600 | 3,281,100 | 253% |
| Depreciation and amortization | 100,800 | 2,800 | 98,00 | 3500% |
| Total operating expenses | $5,873,900 | $2,389,500 | $3,484,400 | 146% |

(1) Represents operating expenses from our unaudited condensed consolidated financial statements for the six-month period ended September 30, 2023 and 2022, respectively.

Operating expenses totaled approximately $5.9 million and $2.4 million during the nine months ended September 30, 2023 and 2022, respectively. The increase in operating expenses is the result of the following factors.

### Research and Development Expenses

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

Research and development expenses totaled approximately $1.0 million and $0.9 million for the nine months ended September 30, 2023, and 2022, respectively. The increase of approximately $85,700, or 9%, for the nine months ended September 30, 2023, compared to the same period in 2022, was primarily due to an increase in compensation costs and benefits due to additional research personnel, as well as a related increase in costs for lab supplies and reagents. Additionally, equipment costs, including depreciation and maintenance costs, increased as we purchased capital equipment to support research and development efforts.

### Clinical Development

Clinical development expenses totaled approximately $161,300 and $141,700 for the nine months ended September 30, 2023, and 2022, respectively. The increase of approximately $19,600, or 14%, for the nine months ended September 30, 2023, compared to the same period in 2022, was primarily attributable to a decrease in professional fees, including consulting fees, related to evaluating the clinical strategy in the prior year for our pivotal clinical trial designed to confirm the sensitivity and specificity of CyPath® Lung in detecting lung cancer in persons at high risk for the disease, including patients who display indeterminate lung nodules between 6mm and 30mm in size which often present a challenge in diagnosis.

### Selling, General and Administrative

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

Selling, general and administrative expenses totaled approximately $4.6 million and $1.3 million for the nine months ended September 30, 2023 and 2022, respectively. The increase of approximately $3.3 million, or 253%, for the nine months ended September 30, 2023, compared to the same period in 2022, was primarily attributable to accounting, legal, and professional fee costs associated with the acquisition of PPLS ($811,000), the accounting, legal, and professional fee costs associated with the SEC filing of a registration statement on Form S-1 ($197,000), increase in stock-based compensation ($313,000), increase in employee compensation ($628,000), increase in branding and marketing collateral ($391,000), increase in directors and officers (“D&O”) insurance ($290,000), increase in public company-related expenses ($294,000) as well as an increase related to board compensation ($147,000), and other operational expenses. Additionally, compensation increased due to additional personnel and support services to support the launch of sales of our diagnostic test, CyPath® Lung.

### Other Income (Expense)

Other income (expense), net totaled approximately $85,700 and $4.1 million for the nine-month period ended September 30, 2023 and 2022, respectively.

#### Interest Income (Expense), net

Interest income (expense), net was approximately $98,200 for the nine months ended September 30, 2023, compared to $2.4 million for the nine months ended September 30, 2022.

#### Gain (loss) on change in fair value of convertible notes

There was a loss of approximately $1.9 million on the change in fair value of convertible notes during the nine months ended September 30, 2022, compared to no loss during the nine months ended September 30, 2023. 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. All convertible and bridge notes were converted as a result of our IPO in the prior year, resulting in no additional changes in fair value related to the convertible and bridge notes.

### Liquidity, Capital Resources, and Going Concern

To date, we have funded our operations primarily through our IPO, exercise of warrants, and the sale of our equity and debt securities, resulting in gross proceeds of approximately $34.3 million. The Company has evaluated whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern for at least one year after the date the condensed consolidated financial statements are issued.

We have incurred losses since our inception in 2014 as a result of significant expenditures for operations and research and development and, prior to April 2022, the lack of any approved diagnostic test or therapeutic products to generate revenue. For the nine months ended September 30, 2023 and 2022, we had net losses of $5.6 million and $6.5 million, respectively, and we expect to incur substantial additional losses in future periods. We have an accumulated deficit of approximately $42.2 million as of September 30, 2023. Based on the Company’s current expected level of operating expenditures and the cash and cash equivalents on hand at September 30, 2023, management concludes that there is substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve (12) months subsequent to the issuance of the accompanying unaudited condensed consolidated financial statements. Cash and cash equivalents were approximately $4.5 million as of September 30, 2023. We need to raise further capital through the sale of additional equity or debt securities or other debt instruments, strategic relationships or grants, or other arrangements to support our future operations. Our business plan includes expansion for our commercialization efforts which will require additional funding. If we are unable to improve our liquidity position, we may not be able to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate revenue and raise capital from financing transactions. There can be no assurance that we will be successful in accomplishing these objectives.

We continue to seek sources of financing to fund our continued operations and research and development programs. To raise additional capital, we may sell additional equity or debt securities, or enter into collaborative, strategic, and/or licensing transactions. There can be no assurance that we will be able to complete any financing transaction in a timely manner or on acceptable terms or otherwise enter into a collaborative or strategic transaction. If we are not able to raise additional cash, we may be forced to delay, curtail, or cease development of our diagnostic tests or therapeutic products, or cease operations altogether.

### Summary Statements of Cash Flows

The following information reflects cash flows for the periods presented:

*(amounts in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Cash and cash equivalents at beginning of period | $11,414 | $1,360 |
| Net cash used in operating activities | (4,431) | (2,770) |
| Net cash used in investing activities | (2,216) | — |
| Net cash provided by (used in) financing activities | (258) | 14,908 |
| Cash and cash equivalents at end of period | $4,509 | $13,498 |

#### Net Cash Used in Operating Activities

Net cash used in operating activities was approximately $4.4 million and $2.8 million for the nine months ended September 30, 2023 and 2022, respectively. The increase of approximately $1.4 million in cash used by operations during the nine months ended September 30, 2023, compared to the same period in 2022, was primarily attributable to an increase of $916,000 in our loss from operations as compared to the prior year as described above.

#### Net Cash Used in Investing Activities

The Company used approximately $2.2 million for the nine months ended September 30, 2023, in investing activities related primarily related to the Acquisition on September 18, 2023 and to a lesser extent to the purchase of computer and lab equipment, compared to no cash used in investing activities for the nine months ended September 30, 2022.

#### Net Cash Used by Financing Activities

Cash used in financing activities was approximately $258,000 compared to cash proceeds in financing activities of approximately $14.9 million for the nine months ended September 30, 2023 and 2022, respectively. The change in proceeds from prior year was primarily related to net proceeds from the IPO and exercise of warrants totaling $13.8 million in September 2022.

### Contractual Obligations and Commitments

We enter into contracts in the normal course of business with third-party contract organizations for clinical trials and other services and products used for research and development and operating purposes. These contracts generally provide for termination following a certain period after notice, and therefore we believe that any non-cancelable obligations under these agreements are not material.

### Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make significant judgments and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these significant judgments and estimates on historical experience and other assumptions it believes to be reasonable based upon information presently available. Actual results could differ from those estimates under different assumptions, judgments, or conditions.

#### Patient Fee Revenues

We follow ASC 606, *Revenue from Contracts with Customers*, which requires revenue recognition in the period in which the service was performed. To be able to report timely net revenues for the period, estimates are used for a portion of uncollected balances. These estimates relate to 3rd party historical contractual discounts and adjustments (e.g. insurance providers) and patient historical uncollectible amounts. There can be a significant delay from the time a patient has been serviced to the invoicing of that service and then the net proceeds collected. Historical data is used to determine estimates for those “in service” revenues that have not been billed or collected at the reporting period.

#### Stock-Based Compensation

We follow ASC 718, *Compensation – Stock Compensation*, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, directors, and non-employees based on estimated fair values. We have used the Black-Scholes option pricing model to estimate grant date fair value for all option grants. The assumptions we use in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. Since we use different assumptions based on a change in factors, our stock-based compensation expense could be materially different in the future.

#### Accounting for Income Taxes

We are governed by U.S. income tax laws, which are administered by the Internal Revenue Service (“IRS”). We follow ASC 740, *Accounting for Income Taxes*, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which the related temporary difference becomes deductible.

### Emerging Growth Company Status

We are both an “emerging growth company” and a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are therefore subject to reduced public company reporting requirements.

## Market risk

As filed, 183 characters.

As a smaller reporting company, pursuant to Item 305(e) of Regulation S-K promulgated under the Securities Act, we are not required to provide the information required by this Item 3.

## Controls and procedures

As filed, 2,429 characters.

### Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our “disclosure controls and procedures” (as defined in the Exchange Act) Rules 13a-15(e)and 15d-15(e)). Rule 13a-15(e) under the Exchange Act defines “disclosure controls and procedures” as controls and other procedures of a company that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to a company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, management has concluded that due to limited resources and the limited number of employees, its internal control over financial reporting was ineffective as of September 30, 2023, 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.

### Changes in Internal Control over Financial Reporting

As previously disclosed, on May 1, 2023, Michael Dougherty, Chief Financial Officer, joined the Company. Further segregation of duty over financial transactions and reconciliations have been put in place as of September 30, 2023. In addition, a new Senior Accountant was hired in July 2023 to increase the resources required to implement preparer and reviewer financial controls. A risk control approach has begun to evaluate all material risk, mitigating controls and identify any gaps related to financial reporting. In addition, the Company will rely on direct management oversight of transactions, along with the use of legal and accounting professionals. There have been no other changes to our internal control over financial reporting.

## Risk factors

As filed, 13,848 characters.

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 Quarterly Report, you should carefully consider the “Risk Factors” discussed in the 2022 Form 10-K filed with the SEC on March 31, 2023, pursuant to Rule 424(b)(4) under the Securities Act, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in this Quarterly Report. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial might materially adversely affect our actual business, financial condition, and operating results. The following information updates, and should be read in conjunction with, the information disclosed in Part I, Item 1A, “Risk Factors,” contained in our 2022 Form 10-K filed with the SEC on March 31, 2023. Except as disclosed below, there have been no material changes from the risk factors disclosed in our 2022 Form 10-K filed with the SEC on March 31, 2023.

### Risks Related to the Acquisition

***The combined company may not experience the anticipated strategic benefits of the Acquisition.***

While we anticipate benefits from the Acquisition, we may not be able to realize the expected benefits. We may not be able to integrate the two businesses successfully, and despite due diligence we could assume previously unidentified or contingent liabilities. Ownership of a CAP/CLIA laboratory and related services business may not have the clinical value and commercial potential which we envision. Any substantive failure of the Acquisition to meet our expectations could have a material negative effect on our results of operations. There can be no assurance that the anticipated benefits of the Acquisition will materialize or that if they materialize will result in increased stockholder value or revenue stream to the combined company.

***We may be unable to successfully integrate the PPLS business with our current management and structure.***

Our failure to successfully complete the integration of PPLS could have an adverse effect on our prospects, business activities, cash flow, financial condition, results of operations, and stock price. Integration challenges may include the following:

- assimilating and retaining former Village Oaks personnel who joined PPLS as part of the Acquisition;
- estimating the capital, personnel, and equipment required for the operation of PPLS based on the historical experience of management with the businesses they are familiar with; and
- minimizing potential adverse effects on existing business relationships.

***We may not be able to enforce claims with respect to the representations, warranties, and indemnities that Village Oaks has provided to us under the Asset Purchase Agreement.***

In connection with the Acquisition, Village Oaks has given certain representations, warranties, and indemnities. There can be no assurance we will be able to enforce any claims against Village Oaks’ breaches of such representations, warranties, or indemnities. Village Oaks’ liability with respect to breaches of such representations, warranties, and indemnities under the Asset Purchase Agreement may be limited, or the amount and coverage of any insurance obtained with respect to representations and warranties may be limited. Even if we ultimately succeed in recovering any amounts, we may temporarily be required to bear these losses ourselves.

***We are unable to precisely estimate when we will begin to generate significant profit from revenue, if ever, from PPLS’ services, nor to estimate the amount of profit or revenue that will be generated or the expenses that will be incurred.***

We do not expect to immediately derive profit from revenue from PPLS’ services. Once we begin to generate such profit, there is no guarantee that it will be sufficient to realize the expected financial benefits of the Acquisition. In addition, since we have limited experience operating a clinical laboratory, we may not accurately estimate the expenses we will incur.

***The market price of our common stock following the Acquisition may decline as a result of such Acquisition.***

The market price of our common stock may decline as a result of the Acquisition for a number of reasons including if:

- investors react negatively to the prospects of our business after the Acquisition;
- the effect that the Acquisition has on our business and prospectus is not consistent with the expectations of financial or industry analysts; or
- after the Acquisition, the Company does not achieve the perceived benefits of the Acquisition as rapidly or to the extent anticipated by financial or industry analysts.

***Operating a clinical laboratory is a new business for us, and the members of our management team have limited experience operating a CAP-accredited, CLIA-certified laboratory, which may limit the ability of investors to make an informed investment decision.***

We have never operated a clinical laboratory. To date, only our Chief Operating Officer, Xavier Reveles, has operated a CAP-accredited, CLIA-certified clinical laboratory, and therefore it may be difficult for investors to analyze our ability to successfully operate a clinical laboratory. Our management team may not successfully or efficiently manage our transition to operating a CAP-accredited and CLIA-certified laboratory subject to significant regulatory oversight and reporting obligations. However, to ease the transition, Dr. Joyce, the Medical Director and Laboratory Director of Village Oaks prior to the Acquisition, continues to serve as the Medical Director and Laboratory Director of PPLS and continues to be an integral part of our management team. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, and operating results.

***Our stockholders will experience substantial dilution from the issuance of the consideration paid in connection with the Acquisition and may not realize a benefit from the Acquisition commensurate with the ownership dilution they will experience in connection with the Acquisition.***

Our stockholders will experience substantial dilution from the issuance of the consideration paid in connection with the Acquisition. If after the Acquisition we are unable to realize the full strategic and financial benefits currently anticipated from the Acquisition, our securityholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the post-acquisition company is able to realize only part of the strategic and financial benefits currently anticipated from the Acquisition.

### Risks Related to Our Financial Position

***Our business plan relies upon our ability to obtain additional sources of capital and financing. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, we may be required to cease operations.***

Prior to 2022, we had not generated any revenue. During the year ended December 31, 2022, we generated approximately $5,000, and during the nine months ended September 30, 2023, we generated approximately $283,000 in revenue from laboratory services for the period from September 19, 2023, through September 30, 2023. During the nine months ended September 30, 2023 we generated $13,000 from royalties from sales of our first diagnostic test, CyPath® Lung, by Village Oaks, a CAP-accredited, CLIA-certified clinical pathology laboratory to which we had previously granted a license to develop CyPath® Lung for commercialization and to use, market, and sell CyPath® Lung as an LDT prior to the Acquisition, which license was assigned to and assumed by PPLS in connection with the Acquisition, that began a limited market launch in the second quarter of 2022 to pulmonologists in South Texas. During the nine months ended September 30, 2023, we also generated revenue from clinical flow cytometry services provided to Village Oaks related to CyPath® Lung in the approximate amount of $9,000 and in connection with CyPath® Lung tests purchased by the DOD in the approximate amount of $14,000 for an observational study.

To become and remain profitable, we must succeed in generating additional laboratory revenue and developing and commercializing our diagnostic tests and therapeutic products that we expect will generate significant income in the planned timeframe. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our diagnostic and therapeutic technologies, obtaining regulatory approval for our diagnostic and therapeutic technologies, manufacturing, marketing, and selling any diagnostic tests and therapeutic products for which we may obtain regulatory approval, and establishing and managing our collaborations at various phases of each diagnostic test and therapeutic product candidate’s development. We are in the preliminary phases of these activities. We may never succeed in these activities and, even if we do, may never generate sufficient income to achieve profitability.

To become profitable, we must develop our diagnostic tests and therapeutic products, which will depend in large part on our ability to:

- Develop, enhance and protect our diagnostic tests and therapeutic products;
- Raise sufficient funding to support our diagnostic tests and therapeutic product development program(s);
- Complete pre-clinical testing;

26

- Work with our partners to expand commercialization of our first diagnostic test, CyPath® Lung, as an LDT under the CAP/CLIA guidelines and regulations administered by CMS and CAP;
- Obtain *de novo* classification from FDA for our CyPath® Lung as a Class II in vitro diagnostic
- Work with our partners to develop and commercialize our first diagnostic test, CyPath® Lung, as a CE-marked test in accordance with the In Vitro Diagnostic Device Regulation (the “IVDR”) of the EU;
- Synthesize, test, and attract licensing partners for drug conjugates, siRNAs, and other therapeutics (and methods for their use) developed by us;
- Develop and conduct human clinical studies to support the regulatory approval and marketing of our diagnostic test(s) and therapeutic product(s);
- Develop and manufacture the test(s) and product(s) to FDA standards, appropriate EU standards, and appropriate standards required for the commercialization of our tests and products in countries in which we seek to sell our diagnostic test(s) and therapeutic product(s);
- Obtain the necessary regulatory approvals to market our diagnostic test(s) and therapeutic product(s);
- Secure the necessary personnel and infrastructure to support the development, commercialization, and marketing of our diagnostic test(s) and therapeutic product(s); and
- Develop strategic relationships to support development, manufacturing, and marketing of our diagnostic test(s) and therapeutic product(s).

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our Company and could impair our ability to raise capital, expand our business, maintain the research and development efforts, diversify our diagnostic tests and therapeutic product offerings, or even continue our operations. A decline in the value of our Company could also cause you to lose all or part of your investment.

***We must raise additional capital to fund our operations in order to continue as a going concern.***

As of December 31, 2022, we had an accumulated deficit of $36.7 million. As of September 30, 2023, we had an accumulated deficit of $42.2 million. We need to raise further capital through the sale of additional equity or debt securities or other debt instruments, strategic relationships or grants, or other arrangements to support our future operations. Our business plan includes expansion for our commercialization efforts which will require additional funding. If we are unable to improve our liquidity position, we may not be able to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate revenue and raise capital from financing transactions. Without funding from the proceeds of a capital raise or strategic relationship or grant, management anticipates that our cash resources are sufficient to continue operations through May 2024. Our future is dependent upon its ability to obtain financing and upon future profitable operations from the development of its new business opportunities. There can be no assurance that we will be successful in accomplishing these objectives. Without such additional capital, we may be required to curtail or cease operations and be required to realize our assets and discharge our liabilities other than in the normal course of business which could cause investors to suffer the loss of all or a substantial portion of their investment. WithumSmith+Brown, PC, our independent registered public accounting firm for the fiscal year ended December 31, 2022, has included an explanatory paragraph in its opinion that accompanies our audited consolidated financial statements as of and for the year ended December 31, 2022, indicating that our current liquidity position raises substantial doubt about our ability to continue as a going concern.

Filed Nov 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-040986. Last ingested by Listed: Nov 6, 2026, 18:30 ET. No prices; not investment advice.