# bioAffinity Technologies, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [bioAffinity Technologies, Inc.](/companies/biaf.md) (CIK 1712762)
- Form: 10-Q
- Filed: 2024-11-14
- Accepted by EDGAR: Nov 14, 2024, 16:34 ET
- Period: 2024-09-30
- Accession: 0001493152-24-045954
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1712762/000149315224045954/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1712762/000149315224045954/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $2.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $7.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Research and development | 3 months, 2024-07-01 to 2024-09-30 | $274.5k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2024-01-01 to 2024-09-30 | $1.1m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $2.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $7.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$2.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$6.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $21.6k | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $67.4k | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $2.6k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $11.7k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$2.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$6.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.16 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.54 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.16 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.54 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 12,391,867 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 11,237,324 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$5.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $79.1k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $756.6k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $2.5m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $6.6m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $2.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $3.4m | us-gaap:Liabilities |
| Short-term borrowings | at 2024-09-30 | $260.0k | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-09-30 | $3.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 38,798 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, 2023, included in the Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 1, 2024 (the “2023 Form 10-K”). The MD&A is also intended to provide you with information that will assist you in understanding our consolidated financial statements, the changes in key items in those consolidated financial statements from year to year, and the primary factors that accounted for those changes. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause the Company’s financial results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the “Cautionary Note Regarding Forward-Looking Statements” section of this Quarterly Report and in the “Risk Factors” section of the 2023 Form 10-K.

Data as of and for the three and nine months ended September 30, 2024 and 2023, has been derived from our unaudited condensed consolidated financial statements appearing at the beginning of this Quarterly Report. Results for any interim period should not be construed as an inference of what our results would be for any full fiscal year or future period.

Our MD&A is organized as follows:

- *Company Overview –* Discussion of our business plan and strategy to provide context for the remainder of the MD&A.
- *Results of Operations –* Analysis of our financial results comparing the nine months and three months ended September 30, 2024, to the comparable period in 2023.
- *Liquidity and Capital Resources –* Analysis of changes in our cash flows and discussion of our financial condition and potential sources of liquidity.
- *Critical Accounting Estimates –* Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

### Company Overview

### Business

bioAffinity Technologies, Inc. (the “Company,” “bioAffinity Technologies,” “we,” or “our”) develops noninvasive diagnostics to detect early-stage lung cancer and other diseases of the lung. We also are conducting early-stage research focused on advancing therapeutic discoveries that could result in broad-spectrum cancer treatments. We have developed a proprietary noninvasive diagnostic test using technology that identifies cancer cells and cell populations indicative of a diseased state for analysis using proprietary platforms developed using AI. Research and optimization of our platform technologies are conducted in laboratories at our wholly owned subsidiary, Precision Pathology Laboratory Services, LLC (“PPLS”), and The University of Texas at San Antonio.

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

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

### Recent Developments

On August 5, 2024, the Company entered into warrant exercise agreements with three existing accredited investors to exercise certain outstanding warrants to purchase an aggregate of 1,041,667 of the Company’s shares of Common Stock (the “Existing Warrants”). The exercising holders received in a private placement new unregistered warrants (the “New Warrants”) to purchase up to an aggregate of 1,302,082 shares of Common Stock with an exercise price of $1.50 per share and are initially exercisable on the date that stockholder approval of the exercise of the New Warrants is obtained and will expire five years from the date of such approval. In connection with the exercise of the Existing Warrants, the Company agreed to reduce the exercise price of the Existing Warrants from $1.64 to $1.25 per share. The exercise of the Existing Warrants and the issuance of the New Warrants occurred on August 5, 2024. On the same day, the Company also entered into a securities purchase agreement (the “Purchase Agreement”) with an institutional investor (the “Purchaser”), pursuant to which the Company issued to the Purchaser, (1) in a registered direct offering, 360,000 shares of Common Stock, and (2) in a concurrent private placement, warrants (the “Private Warrants”) to purchase an aggregate of 450,000 shares of Common Stock (the “Private Warrant Shares”), with an exercise price of $1.50 (collectively, the “Offering”). In addition, the placement agent was granted warrants to purchase 49,862 shares of Common Stock, with an exercise price of $1.50.

On August 23, 2024, bioAffinity Technologies announced J. Michael Edwards, who oversaw the Company’s Initial Public Offering (“IPO”) as the Company’s Chief Financial Officer (“CFO”), would replace Michael Dougherty who resigned his position to move to the Pacific Northwest where he accepted a CFO position in the energy industry. Mr. Edwards has more than three decades of experience in financial management and business strategy. Previously, he was CFO of CytoBioscience Inc., which develops and manufactures instruments for disease analysis and treatment, and OncoVista Innovative Therapies, Inc., a biopharmaceutical company that develops targeted anticancer therapies by utilizing tumor-associated biomarkers. Earlier in his career, Mr. Edwards held finance positions at BioNumerik Pharmaceuticals, Inc. and Ilex Oncology, Inc. He is a certified public accountant who began his career at PricewaterhouseCoopers LLP. Edwards earned his MBA from The University of Texas McCombs School of Business in Austin.

On September 18, 2024, the Company announced publication in a peer-reviewed journal of an economic study concluding that adding CyPath® Lung to the standard of care for Medicare patients with a positive lung cancer screening could have saved an average of $2,773 per patient for total cost savings of $379 million in 2022. The study found that adding CyPath® Lung to the standard of care for private-payer patients could save an average of $6,460 per patient and estimated total healthcare savings of $895 million if all individuals screened in 2022 were covered by private insurance. The peer-reviewed study, published in the Journal of Health Economics and Outcomes Research, attributes the savings to a reduction in follow-up diagnostic assessments, expensive follow-up procedures and procedure-related complications. Michael J. Morris, M.D., Brooke Army Medical Center (BAMC) pulmonology and critical care physician and Assistant Dean of Research at San Antonio Uniformed Services Health Education Consortium, and Sheila A. Habib, M.D., Director of the Pulmonary Lung Nodule Clinic and the Lung Cancer Screening Program at the South Texas Veterans Health Care Systems’ Audie L. Murphy Memorial Veterans Hospital and Assistant Professor at the University of Texas Health Science Center at San Antonio, were first and second authors on the study. Economists John E. Schneider, Ph.D., and Maggie L. Do Valle, Master of Public Health, of Avalon Health Economics also contributed to the study.

On October 21, 2024, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with institutional investors (the “Purchasers”), pursuant to which the Company agreed to issue to the Purchasers, (i) in a registered direct offering, 2,048,294 shares (the “Shares”) of Common Stock, and (ii) in a concurrent private placement, common warrants to purchase an aggregate of 2,662,782 shares of Common Stock, with an exercise price of $1.50.

On October 30, 2024, the Company announced that the Japan Patent Office had issued a Certificate of Grant of Patent to bioAffinity Technologies for the method of predicting the likelihood of lung cancer used by the CyPath® Lung diagnostic test for early-stage lung cancer. The Japanese patent, titled “System and Method for Determining the State of Health of the Lungs,” is an important addition to bioAffinity Technologies’ patent portfolio, which includes 17 awarded U.S. and foreign patents and 30 pending patent applications related to its diagnostic platform and cancer treatment therapeutics. The Japanese patent is the first awarded for the CyPath® Lung flow cytometry test as a stand-alone assay for the detection of lung cancer.

On November 1, 2024, William Bauta, Ph.D., was named Chief Science Officer for bioAffinity Technologies. Dr. Bauta joined bioAffinity Technologies in 2016 as Senior Vice President of Research and Development and has been responsible for multiple Company inventions for which patents have been awarded or patent applications pending that support bioAffinity Technologies’ diagnostic and therapeutic advancements, including CyPath® Lung. Before coming to bioAffinity Technologies, Dr. Bauta was Associate Director of science at Genzyme Corporation and held a similar position at Ilex Products, Inc., where he was responsible for the discovery, development and FDA approval of multiple therapeutics. In addition to bioAffinity Technologies patents on which he is a named inventor, he holds several additional healthcare-related patents and has published in more than a dozen scientific journals, including the journal Science. Dr. Bauta received his Ph.D. from the University of Chicago where he received fellowships from the National Science Foundation and the American Chemical Society. His post-doctoral studies were at the University of Texas at Austin under a National Institutes of Health fellowship. Dr. Bauta succeeds Vivienne I. Rebel, M.D., Ph.D. who retired from her position on October 31, 2024 as Executive Vice President and Chief Science and Medical Officer for bioAffinity Technologies. Dr. Rebel is a stem cell biologist whose academic research focused on understanding the molecular events that regulate blood-forming stem cells in bone marrow and prohibit them from developing into cancer. She joined the Company in 2016 and led the research and development of the Company’s first commercial product, CyPath® Lung, for the early detection of lung cancer.

### Financial

To date, we have devoted a substantial portion of our efforts and financial resources to the development of our diagnostic test, CyPath® Lung. As a result, since our inception in 2014, we have funded our operations principally through private sales of our equity and our initial public offering. As of September 30, 2024, we had cash and cash equivalents of $0.8 million. As of November 12, 2024, after the October 2024 Offerings, we had cash and cash equivalents of $2.0 million, which we expect will not support our operations beyond March 2025.

Prior to acquisition of the clinical pathology laboratory by PPLS, Village Oaks, under the trade name Precision Pathology Services, had licensed and developed CyPath® Lung as a laboratory developed test (“LDT”) for sale to physicians. The license agreement provided that revenues from the sale would be split evenly between us and Village Oaks. In the second quarter of 2022, prior to the acquisition, we started to recognize revenue as part of a limited beta market testing program of the CyPath® Lung test. We have never been profitable, and as of September 30, 2024, we had total working capital of approximately $58,000 and an accumulated deficit of approximately $50.7 million. We expect to continue to incur significant operating losses for the foreseeable future as we continue the development of our diagnostic tests and advance our diagnostic tests through clinical trials; however, we expect revenue to increase due to the acquisition of the clinical pathology laboratory (the “Acquisition”). We intend to license our therapeutic products for clinical development should animal and pre-clinical studies prove successful.

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

### Results of Operations

### Three Months Ended September 30, 2024, Compared to Three Months Ended September 30, 2023

Net loss for the three months ended September 30, 2024, was approximately $2.0 million, compared to a net loss of approximately $2.3 million for the three months ended September 30, 2023.

### Revenue

Since acquisition of the clinical pathology laboratory on September 19, 2023, additional revenue streams have been consolidated. PPLS generates three sources of revenue: (1) patient service fees, (2) histology service fees, and (3) medical director fees. Pre-acquisition, bioAffinity Technologies’ revenue was generated in three ways: (1) royalties from our diagnostic test, CyPath® Lung, (2) clinical flow cytometry services provided to Village Oaks related to our CyPath® Lung test, and (3) CyPath® Lung tests purchased by the U.S. Department of Defense (“DOD”) for an observational study, “Detection of Abnormal Respiratory Cell Populations in Lung Cancer Screening Patients Using the CyPath® Lung Assay (NCT05870592),” and research and development on using bronchoalveolar lavage fluid as a biological sample to assess cardiopulmonary function and exercise performance in military personnel post-COVID-19 infection. The royalty income from CyPath® Lung and clinical flow cytometry services income, beginning September 19, 2023, are related party income and, therefore, eliminated from consolidated net revenues. See net revenue summarized in the table below.

|  | For the three months ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Patient service fees1 | $2,049,851 | $248,654 |
| Histology service fees | 281,861 | 31,854 |
| Medical director fees | 16,943 | 2,393 |
| Department of Defense observational studies | 1,731 | 14,250 |
| Other revenues2 | — | 1,333 |
| Total net revenue | $2,350,386 | $298,484 |

1 Patient services fees include direct billing for CyPath® Lung diagnostic test.

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

### Operating Expenses

| Operating expenses: | Three Months Ended September 30, 2024 | 2023 | Change in 2024 Versus 2023 $% |  |
| --- | ---: | ---: | ---: | ---: |
| Direct costs and expenses | $1,440,158 | $74,704 | $1,365,454 | 1,828% |
| Research and development | 274,497 | 330,376 | (55,879) | (17)% |
| Clinical development | 93,705 | ‌106,422 | (12,717) | (12)% |
| Selling, general and administrative | 2,364,592 | 2,023,917 | 340,675 | 17% |
| Depreciation and amortization | 151,298 | 57,569 | 93,729 | 163% |
| Total operating expenses | $4,324,250 | $2,592,988 | $1,731,262 | 67% |

Operating expenses totaled approximately $4.3 million and $2.6 million during the three months ended September 30, 2024 and 2023, respectively. The increase in operating expenses is the result of the following factors:

### Direct costs and expenses

Our direct costs and expenses are primarily direct labor for pathology services, laboratory supplies and reagents, laboratory equipment, and allocated shared facilities. Direct costs and expenses totaled $1.4 million and $74,704 during the three months ended September 30, 2024 and 2023, respectively. The increase of approximately $1.4 million for 2024 compared to 2023 was primarily attributable to the laboratory operations of the newly acquired clinical pathology laboratory in September 2023.

### Research and Development Expenses

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

Research and development expenses totaled $274,497 and $330,376 for the three months ended September 30, 2024 and 2023, respectively. The decrease of approximately $56,000, or 17%, for the three months ended September 30, 2024, compared to the same period in 2023 was primarily due to the acquisition of PPLS in September 2023 due to acquiring new personnel and related costs for the laboratory supplies and reagents in 2023. Additionally, equipment costs increased in 2023 as we purchased capital equipment to support research and development efforts.

### Clinical Development

Clinical development expenses totaled $93,705 and $106,422 for the three months ended September 30, 2024 and 2023, respectively. The decrease of approximately $12,000, or 12%, for the three months ended September 30, 2024, compared to the same period in 2023 was primarily attributable to an increase in professional fees in 2023, including consulting fees, related to evaluating the clinical strategy for our pivotal clinical trial designed to confirm the sensitivity and specificity of CyPath® Lung in detecting lung cancer in persons at high risk for the disease, including patients who display indeterminate pulmonary nodules between 6mm and 30mm in size which often present a challenge in diagnosis.

### Selling, General and Administrative

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

Selling, general and administrative expenses totaled approximately $2.4 million and $2.0 million for the three months ended September 30, 2024 and 2023, respectively. The increase of approximately $0.4 million, or 17%, for the three months ended September 30, 2024, compared to the same period in 2023 was primarily attributable to acquired general and administrative costs from PPLS and an increase in employee compensation related to administrative and sales due to additional personnel and support services to support the launch of sales of our diagnostic test, CyPath® Lung.

### Depreciation and Amortization

Depreciation and amortization expenses totaled $151,298 and $57,569 for the three months ended September 30, 2024 and 2023, respectively. The increase of approximately $93,729, or 163%, for the three months ended September 30, 2024, compared to the same period in 2023 was primarily attributable to depreciation on the assets from the acquisition of PPLS in September 2023.

### Other Income (Expense)

Other income (expense), net totaled ($24,417) and $5,914 for the three months ended September 30, 2024 and 2023, respectively. The decrease in the other income of $30,331 is mostly attributable to a reduction in interest income of $24,965 which is due to a lower cash balance in a money market savings account and an increase in interest expense of $12,846 related to equipment finance leases from the acquired PPLS laboratory as compared to the same period last year.

### Nine Months Ended September 30, 2024, Compared to Nine Months Ended September 30, 2023

Net loss for the nine months ended September 30, 2024, was approximately $6.1 million, compared to a net loss of approximately $5.6 million for the nine months ended September 30, 2023.

### Revenue

Post-acquisition, additional revenue streams have been consolidated starting September 19, 2023. PPLS generates three sources of revenue: (1) patient service fees, (2) histology service fees, and (3) medical director fees. Pre-acquisition, bioAffinity Technologies’ revenue was generated in three ways: (1) royalties from our diagnostic test, CyPath® Lung, (2) clinical flow cytometry services provided to Village Oaks related to our CyPath® Lung test, and (3) CyPath® Lung tests purchased by the DOD for an observational study, “Detection of Abnormal Respiratory Cell Populations in Lung Cancer Screening Patients Using the CyPath® Lung Assay (NCT05870592),” and research and development on using bronchoalveolar lavage fluid as a biological sample to assess cardiopulmonary function and exercise performance in military personnel post-COVID-19 infection. The royalty income from CyPath® Lung and clinical flow cytometry services income, beginning September 19, 2023, are related party income and, therefore, eliminated from consolidated net revenues. See net revenue summarized in the table below.

|  | For the nine months ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Patient service fees1 | $6,259,806 | $248,654 |
| Histology service fees | 811,914 | 31,854 |
| Medical director fees | 50,136 | 2,393 |
| Department of Defense observational studies | 8,654 | 14,250 |
| Other revenues2 | 23,919 | 21,992 |
| Total net revenue | $7,154,429 | $319,143 |

1 Patient services fees include direct billing for CyPath® Lung diagnostic test.

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

### Operating Expenses

| Operating expenses: | Nine Months Ended September 30, 2024 | 2023 | Change in 2024 Versus 2023 $% |  |
| --- | ---: | ---: | ---: | ---: |
| Direct costs and expenses | $4,421,309 | $76,025 | $4,345,284 | 5,716% |
| Research and development | 1,070,569 | 1,035,118 | 35,451 | 3% |
| Clinical development | 194,127 | 161,310 | 32,817 | 20% |
| Selling, general and administrative | 7,023,311 | 4,576,708 | 2,446,603 | 53% |
| Depreciation and amortization | 452,005 | 100,805 | 351,200 | 348% |
| Total operating expenses | $13,161,321 | $5,949,966 | $7,211,355 | 121% |

Operating expenses totaled approximately $13.5 million and $6.0 million during the nine months ended September 30, 2024 and 2023, respectively. The increase in operating expenses is the result of the following factors:

### Direct costs and expenses

Our direct costs and expenses are primarily direct labor for pathology services, laboratory supplies and reagents, laboratory equipment, and allocated shared facilities. Direct costs and expenses totaled $4,421,309 and $76,025 during the nine months ended September 30, 2024 and 2023, respectively. The increase of approximately $4.3 million for 2024 compared to 2023 was primarily attributable an entire quarter of laboratory operations for PPLS compared to a partial quarter in 2023 from the acquisition of PPLS in September 2023.

### Research and Development Expenses

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

Research and development expenses totaled $1.1 million and $1.0 million for the nine months ended September 30, 2024 and 2023, respectively. The increase of approximately $35,000, or 3%, for the nine months ended September 30, 2024, compared to the same period in 2023 was primarily due to an increase in compensation costs and benefits as we added research personnel, as well as a related increase in costs for laboratory supplies and reagents.

### Clinical Development

Clinical development expenses totaled $194,127 and $161,310 for the nine months ended September 30, 2024 and 2023, respectively. The increase of approximately $32,000, or 20%, for the nine months ended September 30, 2024, compared to the same period in 2023 was primarily attributable to an increase in compensation costs and benefits as we added clinical development personnel.

### Selling, General and Administrative

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

Selling, general and administrative expenses totaled approximately $7.0 million and $4.6 million for the nine months ended September 30, 2024 and 2023, respectively. The increase of approximately $2.4 million, or 53%, for the nine months ended September 30, 2024, compared to the same period in 2023 was primarily attributable to acquired general and administrative costs from PPLS and an increase in employee compensation related to administrative and sales due to additional personnel and support services to support the launch of sales of our diagnostic test, CyPath® Lung.

### Depreciation and Amortization

Depreciation and amortization expenses totaled $452,005 and $100,805 for the nine months ended September 30, 2024 and 2023, respectively. The increase of approximately $351,000, or 348%, for the nine months ended September 30, 2024, compared to the same period in 2023 was primarily attributable to depreciation on the assets from the acquisition of PPLS in September 2023.

### Other Income (Expense)

Other income (expense), net totaled ($54,392) and $85,676 for the nine-month period ended September 30, 2024 and 2023, respectively. The decrease in other income of approximately $140,000 is mostly attributable to a reduction in interest income of $96,430 which is due to a lower cash balance in a money market savings account and an increase in interest expense of $55,629 related to equipment finance leases from the acquired PPLS laboratory as compared to the same period last year.

### Liquidity, Capital Resources, and Going Concern

To date, we have funded our operations primarily through our IPO, subsequent registered direct offering, exercise of warrants, and the sale of our securities, resulting in gross proceeds of approximately $38.5 million. We have evaluated whether there are conditions and events that raise substantial doubt about our ability to continue as a going concern for at least one year after the date the condensed consolidated financial statements are issued.

We have incurred losses since our inception in 2014 as a result of significant expenditures for operations and research and development and, prior to April 2022, the lack of any approved diagnostic test or therapeutic products to generate revenue. For the nine months ended September 30, 2024 and 2023, we had net losses of $6.1 million and $5.6 million, respectively, and we expect to incur substantial additional losses in future periods. We have an accumulated deficit of approximately $50.7 million as of September 30, 2024. Despite our recent financing in October 2024, pursuant to which we raised gross proceeds of approximately $2.3 million, we believe our current cash and anticipated revenue from operations will not be sufficient to support our operations beyond March 2025. Based on our current expected level of operating expenditures, current expected levels of revenue, and the cash and cash equivalents on hand at September 30, 2024, of $0.8 million, management concludes that there is substantial doubt about our ability to continue as a going concern for a period of at least twelve (12) months subsequent to the issuance of the accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report. We need to raise further capital through the sale of additional equity or debt securities or other debt instruments, strategic relationships or grants, or through exercised outstanding warrants to support our future operations unless our revenue increases significantly. Our business plan includes expansion for our commercialization efforts which will require additional funding. If we are unable to improve our liquidity position, we may not be able to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate revenue and raise capital from financing transactions. There can be no assurance that we will be successful in accomplishing these objectives.

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

### Summary Statements of Cash Flows

The following information reflects cash flows for the periods presented:

|  | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Cash and cash equivalents at beginning of period | $2,821,570 | $11,413,759 |
| Net cash used in operating activities | (5,587,634) | (4,421,503) |
| Net cash used in investing activities | (79,082) | (2,222,841) |
| Net cash provided by (used in) financing activities | 3,601,726 | (260,179) |
| Cash and cash equivalents at end of period | $756,580 | $4,509,236 |

#### Net Cash Used in Operating Activities

Net cash used in operating activities was approximately $5.6 million and $4.4 million for the nine months ended September 30, 2024 and 2023, respectively. The increase of approximately $1.1 million in cash used by operations during the nine months ended September 30, 2024, compared to the same period in 2023 was primarily attributable to an increase of approximately $852,000 in our loss from operations and an increase in patient accounts receivables of approximately $587,000 due to a change in external professional medical billing providers effective March 1, 2024. The transition period from the previous to the new medical billing provider has caused a temporary delay in billing and deposits, as anticipated.

#### Net Cash Used in Investing Activities

We used approximately $80,000 for the nine months ended September 30, 2024, in investing activities related primarily to the purchase of computer and laboratory equipment, compared to approximately $2.2 million used in investing activities for the nine months ended September 30, 2023. We used approximately $2.2 million of cash in the prior year related primarily to the Acquisition of the clinical pathology laboratory, which occurred on September 18, 2023.

#### Net Cash Provided by (Used In) Financing Activities

Cash provided in financing activities was approximately $3.6 million compared to cash used in financing activities of approximately $260,000 for the nine months ended September 30, 2024 and 2023, respectively. The change in proceeds from prior year was primarily related to net proceeds from the equity transactions in the current year for $3.6 million.

### Contractual Obligations and Commitments

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

### Critical Accounting Estimates

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

#### Patient Fee Revenues

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

#### Patient Fee Receivables and Considerations for Credit Losses

We follow accounting considerations of CECL - *Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.* With PPLS’ acquisition of the clinical pathology laboratory and control of Village Oaks, our board-certified pathologists provide anatomic and clinical pathology services for patients and other customers. Our other customer types include contract research organizations (“CROs”), hospitals, and independent laboratories. We enter into contracts with our customers for these services. The majority of our revenues stem from fees for services provided to patients, and thus in those arrangements the patient is the customer, although the services may be requested by a physician on the patient’s behalf. Furthermore, in addition to its contracts with patients, we separately contract with third-party payers (insurance companies and governmental payers), who are typically responsible for all or the majority of the fees agreed upon for such services provided to patients. Historically, material amounts of gross charges are not collected due to various agreements with insurance companies, capped pricing levels for government payers, and uncollectible balances from individual payers. To estimate these allowances of credit losses, we assess the portfolio risk segments and historical data on collection rates. These estimated allowances offset patient revenues and accounts receivables.

#### Discount Rate for Finance Leased Equipment

We follow ASC 842, *Leases*, under which a lessee is required to recognize most leases on its balance sheet. We have elected to apply a third-party valuation increment borrowing rate (“IBR”) as the discount rate by class of underlying assets when the rate is not implicit in the lease.

#### Stock-Based Compensation

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

#### Accounting for Income Taxes

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

### Going Concern

Our evaluation of our ability to continue as a going concern requires us to evaluate our future sources and uses of cash sufficient to fund our currently expected operations and research and development activities one year from the date our consolidated financial statements are issued. We evaluate the probability associated with each source and use of cash resources in making our going concern determination. The research and development of our diagnostic tests and therapeutic products are inherently subject to uncertainty.

### Off-Balance Sheet Arrangements

We do not engage in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, as a part of our ongoing business. Accordingly, we did not have any off-balance sheet arrangements during any of the periods presented.

### Emerging Growth Company Status

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

## 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, 2,910 characters.

### Evaluation of Disclosure Controls and Procedures

The Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report, is collected, recorded, processed, summarized, and reported within the time periods specified under the rules of the SEC. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. We have adopted and maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is collected, recorded, processed, summarized, and reported within the time periods specified in the rules of the SEC. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As of September 30, 2024, the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Exchange Act. The Chief Executive Officer and Chief Financial Officer assessed the effectiveness of our disclosure controls and procedures as of September 30, 2024. Based on their assessment, they have concluded that, as of September 30, 2024, our disclosure controls and procedures are effective.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal controls (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) over financial reporting during the three months ended September 30, 2024, the period covered by this Quarterly Report, that could materially affect, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 11,069 characters.

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

### Risks Related to Our Financial Position

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

During the nine months ended September 30, 2024, and September 30, 2023, we generated revenue of approximately $7.2 million and $319,143, respectively. During the nine months ended September 30, 2024, we generated $6.3 million from laboratory patient services (of which approximately $332,000 related to our first diagnostic test, CyPath® Lung), approximately $812,000 from histology laboratory tests, approximately $50,000 from medical director fees, and approximately $9,000 in connection with CyPath® Lung tests purchased by the DOD for an observational study. During the year ended December 31, 2023, we generated $2.2 million from laboratory patient services (of which approximately $37,000 related to our first diagnostic test, CyPath® Lung), approximately $273,000 from histology laboratory tests, approximately $19,000 from medical director fees, and approximately $19,000 in connection with CyPath® Lung tests purchased by the DOD for an observational study.

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

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

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

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

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

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

As of September 30, 2024, we had an accumulated deficit of $50.7 million. As of November 12, 2024, our cash and cash equivalents were $2.0 million. Despite our recent financings, we will need to raise further capital through the sale of additional equity or debt securities or other debt instruments, strategic relationships or grants, or other arrangements to support our future operations. Our business plan includes expansion for our commercialization efforts which will require additional funding. If we are unable to improve our liquidity position, we may not be able to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate revenue and raise capital from financing transactions. Without funding from the proceeds of a capital raise or strategic relationship or grant, management anticipates that our cash resources are sufficient to continue operations through March 2025. Our future is dependent upon our ability to obtain financing and upon future profitable operations from the development of new business opportunities. There can be no assurance that we will be successful in accomplishing these objectives. Without such additional capital, we may be required to curtail or cease operations and be required to realize our assets and discharge our liabilities other than in the normal course of business which could cause investors to suffer the loss of all or a substantial portion of their investment. WithumSmith+Brown, PC, our independent registered public accounting firm for the fiscal year ended December 31, 2023, has included an explanatory paragraph in its opinion that accompanies our audited consolidated financial statements as of and for the year ended December 31, 2023, indicating that our current liquidity position raises substantial doubt about our ability to continue as a going concern.

***We are unable to precisely estimate when we will begin to generate significant profit from revenue, if ever, from PPLS’ services, the amount of profit or revenue that will be generated, or the expenses that will be incurred.***

We do not expect to immediately derive profit from revenue from PPLS’ services. Since its acquisition in September 2023, we have generated $9.6 million in revenue from PPLS. Once we begin to generate such profit, there is no guarantee that it will be sufficient to realize the expected financial benefits of the acquisition. In addition, since we have limited experience operating a clinical laboratory, we may not accurately estimate the expenses we will incur.

***Our failure to file a registration statement to register the shares of Common Stock issuable upon exercise of the warrants issued in October 2024, or to timely hold a stockholders meeting to obtain stockholder approval of the issuance of shares of Common Stock upon the exercise of the warrants issued in October 2024, will result in a breach of the terms of certain agreements.***

Pursuant to the terms of certain agreements that we entered into with certain purchasers in October 2024, we are obligated to file a registration statement to register the shares of Common Stock issuable upon exercise of the warrants issued to such purchasers within 45 days of the date of such agreement and to use commercially reasonable efforts to keep the registration statement effective at all times while the purchasers own any warrants or shares of Common Stock issuable upon exercise of the warrants. We are also obligated to hold a stockholders’ meeting 90 days after the closing date and, if approval is not obtained at the shareholders meeting, every six months thereafter seeking approval of the exercise of the warrants issued to the purchasers. Additionally, we are obligated to use commercially reasonable efforts to keep the registration statements that we filed to register the shares of Common Stock issuable upon exercise of warrants that we issued in March 2024 and August 2024 effective at all times for so long as the purchasers of such warrants own any such warrants or shares of Common Stock issuable upon exercise thereof. The failure to take any of these actions will constitute a default under the operative agreement.

### Our management collectively owns a substantial percentage of our Common Stock.

Based on the provisions for determining beneficial ownership in accordance with Rule 13d-3 and Item 403 of Regulation S-K under the Exchange Act, our officers and directors own or exercise control of approximately 46.13% of the voting power of our outstanding Common Stock. As a result, investors may be prevented from affecting matters involving our Company, including:

- the composition of our Board and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers;
- any determinations with respect to mergers or other business combinations;
- our acquisition or disposition of assets; and
- our corporate financing activities.

Furthermore, this concentration of voting power could have the effect of delaying, deterring, or preventing a change of control or other business combination that might otherwise be beneficial to our stockholders. This significant concentration of share ownership may also adversely affect the trading price for our Common Stock because investors may perceive disadvantages in owning stock in a company that is controlled by a small number of stockholders.

Filed Nov 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-045954. Last ingested by Listed: Nov 6, 2026, 18:30 ET. No prices; not investment advice.