Item 9A. Controls and Procedures
Item
9A. Controls and Procedures.
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 Annual Report, is collected, recorded, processed,
summarized, and reported within the time periods specified under the rules of the SEC. As
of December 31, 2023, the end of the period covered by this Annual Report, our Chief Executive Officer and Chief Financial Officer evaluated
the effectiveness of our “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). Rules 13a-15(e)and 15d-15(e)). The Chief Executive Officer and Chief Financial
Officer assessed the effectiveness of our internal controls over financial reporting as of December31, 2023. Based on their assessment,
they have concluded that, as of December 31, 2023, our internal controls over financial reporting is effective.
Internal
Control over Financial Reporting
Management’s
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined
in Rule 13a-15(f) of the Exchange Act. Our internal control system is designed to provide reasonable assurance regarding the preparation
and fair presentation of financial statements for external purposes in accordance with GAAP. All internal control systems, no matter
how well designed, have inherent limitations and can provide only reasonable assurance that the objectives of the internal control system
are met.
Our
management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures
and our internal control processes will prevent all errors or fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control
issues and instances of error or fraud, if any, within the Company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls
may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be
detected. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design
into the process safeguards to reduce, though not eliminate, this risk.
Under
the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted
an evaluation of the effectiveness of our internal control over financial reporting, based on criteria established by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”) in its 2013 Internal Control-Integrated Framework. Based on
our evaluation, we concluded that our internal control over financial reporting was effective as of December 31, 2023.
As
of December 31, 2023, we are a non-accelerated filer, our independent registered accounting firm is not required to issue an attestation
report on our internal control over financial reporting .
Changes
in Internal Control over Financial Reporting
The
Company introduced several internal controls (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) over financial reporting
during the 3 months ended December 31, 2023, covered by this Annual Report that could materially affect, or are reasonably likely to
materially affect, our financial reporting. The Company increased accounting personnel and implemented segregation of preparer and approver
duties for all material financial transactional procedures. Furthermore, the Company implemented several monitoring controls over financial
reporting including, but not limited to, monthly checklist, monthly account variance analysis, management financial reporting analysis
and dual segregated account reconciliations. All vendor payments have been transitioned from manual procedures to automated tool requiring
dual roles and responsibilities for recording, approving and releasing payments.
Item
9B. Other Information.
During
the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement”
or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item
9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
54
PART
III
Item
10. Directors, Executive Officers, and Corporate Governance.
The information required by this item of Form 10-K will be included under the caption “Directors, Executive
Officers, and Corporate Governance” in our proxy statement for our 2024 annual meeting of stockholders (the “2024 Proxy Statement”),
and is incorporated by reference herein.
Item
11. Executive Compensation.
The
information required by this item of Form 10-K will be included under the caption “Executive and Director Compensation” in
our 2024 Proxy Statement and is incorporated by reference herein.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The
information required by this item of Form 10-K will be included in our 2024 Proxy Statement and is incorporated by reference herein.
Item
13. Certain Relationships and Related Transactions, and Director Independence.
The
information required by this item of Form 10-K will be included under the captions “Certain Relationships and Related Party Transactions”
and “Board of Directors and Corporate Governance – Director Independence” in our 2024 Proxy Statement and is incorporated
by reference herein.
Item
14. Principal Accountant Fees and Services.
The
information required by this item of Form 10-K will be included in our 2024 Proxy Statement and is incorporated by reference herein.
55
PART
IV
Item
15. Exhibit and Financial Statement Schedules.
(a)
Financial Statements and Schedules.
See
“Index to Consolidated Financial Statements” beginning on page F-1 following the signature page as required by Part II, Item
8 of this Annual Report.
(b)
Exhibits.
Exhibit
Number
Description
1.1
Placement
Agency Agreement, dated March 6, 2024, by and among the Company and WallachBeth Capital LLC
(Incorporated by reference as Exhibit 1.1 to the Registrant’s Form 8-K filed with the
SEC on March 8, 2024)
3.1*
Certificate of Incorporation of the Registrant as filed with the Delaware Secretary of State on March 26, 2014
3.2
Amended
and Restated Bylaws of Registrant (Incorporated by reference as Exhibit 3.6 to the Registrant’s Form S-1/A (File No. 333-264463)
filed with the SEC on June 16, 2022)
3.3*
Certificate of Amendment to the Certificate of Incorporation of Registrant, as filed with the Delaware Secretary of State on May 31, 2016
3.4
Certificate
of Designation of Series A Convertible Preferred Stock of the Registrant filed with the Delaware Secretary of State on July 13, 2017
(Incorporated by reference as Exhibit 3.4 to the Registrant’s Form S-1/A (File No. 333-264463) filed with the SEC on May 25,
2022)
3.5*
Certificate of Amendment to the Certificate of Incorporation of Registrant, as filed with the Delaware Secretary of State on November 29, 2021
3.6
Certificate
of Amendment to the Certificate of Incorporation of Registrant, as filed with the Delaware Secretary of State on June 23, 2022 (Incorporated
by reference as Exhibit 3.2 to the Registrant’s Form S-1/A (File No. 333-264463) filed with the SEC on May 25, 2022)
3.7
Certificate
of Amendment to the Certificate of Incorporation of Registrant, as filed with the Delaware Secretary of State on June 6, 2023 (Incorporated
by reference as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-41463) filed with the SEC on June
7, 2023)
4.1
Form
of Registrant’s Common Stock Certificate (Incorporated by reference as Exhibit 4.1 to the Registrant’s Form S-1/A filed
with the SEC on June 16, 2022)
4.2
Common
Stock Purchase Warrant issued to San Antonio Economic Development Corporation dated March
17, 2017 (Incorporated by reference as Exhibit 4.2 to the Registrant’s Form S-1/A filed
with the SEC on May 25, 2022).
4.3
Form
of Common Stock Purchase Warrant issued to Holders of the Registrant’s Convertible Promissory Notes (Incorporated by reference
as Exhibit 4.3 to the Registrant’s Form S-1/A filed with the SEC on May 25, 2022)
4.4
Form
of Placement Agent’s Warrant issued to WallachBeth Capital, LLC (Incorporated by reference
as Exhibit 4.4 to the Registrant’s Form S-1/A filed with the SEC on August 5, 2022)
4.5
Form
of Representative’s Warrant issued to WallachBeth Capital, LLC, in connection with the Registrant’s Initial Public Offering
(Incorporated by reference as Exhibit 4.5 to the Registrant’s Form S-1/A filed with the SEC on July 28, 2022).
4.6
Form
of (Tradeable) Common Stock Purchase Warrant issued as part of the Units sold in the Registrant’s
Initial Public Offering (Incorporated by reference as Exhibit 4.1 to the Registrant’s
Form 8-K filed with the SEC on September 6, 2022)
4.7
Form
of Warrant Agent Agreement for the Warrants issued as part of the Units sold in the Registrant’s
Initial Public Offering (Incorporated by reference as Exhibit 4.3 to the Registrant’s
Form 8-K filed with the SEC on September 6, 2022)
4.8
Form
of (Non-tradeable) Common Stock Purchase Warrant issued as part of the Units sold in the
Registrant’s Initial Public Offering (Incorporated by reference as Exhibit 4.2 to the
Registrant’s Form 8-K filed with the SEC on September 6, 2022)
4.9
Form
of Amendment to Common Share Purchase Warrants with schedule of warrant holders and warrants
(Incorporated by reference as Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K (File No. 001-41463) filed with the SEC on September 20, 2023)
4.10
Form
of Amendment to Initial Public Offering Warrants with schedule of warrant holders and warrants (Incorporated by reference as Exhibit
4.2 to the Registrant’s Current Report on Form 8-K (File No. 001-41463) filed with the SEC on September 20, 2023)
56
4.11
Form
of Warrant to Purchase Common Stock (Incorporated by reference as Exhibit 4.1 to the Registrant’s Form 8-K filed with the SEC
on March 8, 2024)
4.12
Form
of Placement Agent Warrant (Incorporated by reference as Exhibit 4.2 to the Registrant’s
Form 8-K filed with the SEC on March 8, 2024)
4.13*
Description of Securities
10.1+
2014
Equity Incentive Plan of Registrant, as amended. (Incorporated by reference as Exhibit 10.1 to the Registrant’s Form S-1 filed
with the SEC on April 25, 2022)
10.2+
Executive
Chairman Employment Agreement dated January 1, 2020, by and between Registrant and Steven Girgenti, as amended. (Incorporated by
reference as Exhibit 10.2 to the Registrant’s Form S-1 filed with the SEC on April 25, 2022)
10.3+
Employment
Agreement dated February 1, 2015, by and between Registrant and Maria Zannes. (Incorporated by reference as Exhibit 10.3 to the Registrant’s
Form S-1 filed with the SEC on April 25, 2022)
10.4+
Employment
Agreement dated April 4, 2016, by and between Registrant and Vivienne Rebel, as amended. (Incorporated by reference as Exhibit 10.4
to the Registrant’s Form S-1 filed with the SEC on April 25, 2022)
10.5+
Employment
Agreement dated February 1, 2015, by and between Registrant and Timothy Zannes. (Incorporated by reference as Exhibit 10.5 to the
Registrant’s Form S-1 filed with the SEC on April 25, 2022)
10.6+
Consulting
Agreement dated May 25, 2017, by and between Registrant and Michael Edwards, as amended. (Incorporated by reference as Exhibit 10.6
to the Registrant’s Form S-1 filed with the SEC on May 25, 2022)
10.7
License
Agreement to Participate in the UTSA New Venture Incubator Program dated June 15, 2015, by and between Registrant and the University
of Texas at San Antonio. (Incorporated by reference as Exhibit 10.9 to the Registrant’s Form S-1 filed with the SEC on April
25, 2022)
10.8
Joint
Development Agreement dated October 1, 2018, by and between the Registrant and Village Oaks Pathology Services, P.A. d/b/a Precision
Pathology Services (Incorporated by reference as Exhibit 3.2 to the Registrant’s Form S-1/A filed with the SEC on July 27,
2022)
10.9
Agreement
dated October 17, 2020, by and between Registrant and GO2 Partners (Incorporated by reference as Exhibit 10.9 to the Registrant’s
Form S-1/A filed with the SEC on July 27, 2022)
10.10
Form
of Note Purchase Agreement used by the Registrant in its private offering of Convertible Promissory Notes issued between October
2021 and January 2022 (Incorporated by reference as Exhibit 10.10 to the Registrant’s Form S-1 filed with the SEC on May 25,
2022)
10.11+
Offer
Letter between bioAffinity Technologies, Inc. and Michael Dougherty dated April 11, 2023 (Incorporated by reference as Exhibit 10.1
to the Registrant’s Current Report on Form 8-K (File No. 001-41463) filed with the SEC on May 1, 2023)
10.12
bioAffinity
Technologies, Inc. Amended and Restated 2014 Equity Incentive Plan Incorporated by reference as Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K (File No. 001-41463) filed with the SEC on June 7, 2023)
10.13
Amendment,
effective as of August 1, 2023, to Employment Agreement, dated February 1, 2015, by and between bioAffinity Technologies, Inc. and
Maria Zannes (Incorporated by reference as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-41463)
filed with the SEC on July 28, 2023)
10.14
Asset
Purchase Agreement, effective September 18, 2023, by and among, Precision Pathology Laboratory
Services, LLC, Dr. Roby P. Joyce and Village Oaks Pathology Services, P.A. (Incorporated
by reference as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No.
001-41463) filed with the SEC on September 20, 2023)
10.15
Subscription
Agreement, dated September 18, 2023, by and between The Joyce Living Trust, dated March 19, 2013, and bioAffinity Technologies, Inc.
(Incorporated by reference as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-41463) filed with the
SEC on September 20, 2023)
10.16
Management
Services Agreement, effective as of September 18, 2023, by and between Precision Pathology
Laboratory Services, LLC and Village Oaks Pathology Services, P.A. (Incorporated by reference
as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-41463)
filed with the SEC on September 20, 2023)
10.17
Succession Agreement, effective September 18, 2023, by and among, Precision Pathology Laboratory Services, LLC, Dr. Roby P. Joyce and Village Oaks Pathology Services, P.A. (Incorporated by reference as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (File No. 001-41463) filed with the SEC on September 20, 2023)
10.18
Professional Services Agreement, effective as of September 18, 2023, by and between Precision Pathology Laboratory Services, LLC and Village Oaks Pathology Services, P.A. (Incorporated by reference as Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (File No. 001-41463) filed with the SEC on September 20, 2023)
57
10.19+
Executive
Employment Agreement, dated September 18, 2023, by and between the Registrant and Roby Joyce,
M.D. (Incorporated by reference as Exhibit 10.6 to the Registrant’s Current Report
on Form 8-K (File No. 001-41463) filed with the SEC on September 20, 2023)
10.20
Assignment
and Assumption of Lease Agreement, effective September 18, 2023, by and between Precision
Pathology Laboratory Services, LLC and Village Oaks Pathology Services, P.A. (Incorporated
by reference as Exhibit 10.7 to the Registrant’s Current Report on Form 8-K (File No.
001-41463) filed with the SEC on September 20, 2023)
10.21
Office
Lease, dated July 31, 2019, by and between Village Oaks Pathology Services, P.A. and 343
West Sunset, LLC (Incorporated by reference as Exhibit 10.8 to the Registrant’s Current
Report on Form 8-K (File No. 001-41463) filed with the SEC on September 20, 2023)
10.22
Assignment
and Assumption Agreement, effective September 18, 2023, by and between Precision Pathology
Laboratory Services, LLC and Village Oaks Pathology Services, P.A. (Incorporated by reference
as Exhibit 10.9 to the Registrant’s Current Report on Form 8-K (File No. 001-41463)
filed with the SEC on September 20, 2023)
10.23
Equipment
Usage Attachment, dated effective as of August 9, 2019, by and between Gen-Probe Sales &
Service, Inc., together with its subsidiaries and affiliates and Village Oaks Pathology Services,
P.A. d/b/a Precision Pathology, as amended by that certain Amendment No. 1 to Equipment Usage
Attachment dated November 2, 2020, as further amended by that certain Amendment No. 2 to
Equipment Usage Attachment dated November 2, 2020, and as further amended by that certain
Amendment No. 3 to Equipment Usage Attachment dated December 21, 2022 (Incorporated by reference
as Exhibit 10.10 to the Registrant’s Current Report on Form 8-K (File No. 001-41463)
filed with the SEC on September 20, 2023)
10.24
Master
Agreement, dated as of January 29, 2015, by and between Leica Microsystems, Inc. and Precision
Pathology, as amended by Amendment No. 1 to the Master Agreement, dated on or about April
4, 2018, as further amended by that certain Amendment No. 2 to Master Agreement, dated March
23, 2021 (Incorporated by reference as Exhibit 10.11 to the Registrant’s Current Report
on Form 8-K (File No. 001-41463) filed with the SEC on September 20, 2023)
10.25
Strategic
Relationship License Agreement, dated December 1, 2022, by and between Pathology Watch, Inc.
and Precision Pathology Services (Incorporated by reference as Exhibit 10.12 to the Registrant’s
Current Report on Form 8-K (File No. 001-41463) filed with the SEC on September 20, 2023)
10.26
Bill
of Sale signed by Village Oaks Pathology Services, P.A., effective as of September 18, 2023
(Incorporated by reference as Exhibit 10.13 to the Registrant’s Current Report on Form
8-K (File No. 001-41463) filed with the SEC on September 20, 2023)
10.27
Jamie
Platt Offer Letter (Incorporated by reference as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-41463)
filed with the SEC on December 5, 2023)
10.28
bioAffinity
Technologies, Inc. Management Incentive Bonus Plan (Incorporated by reference as Exhibit 10.1 to the Registrant’s Current Report
on Form 8-K (File No. 001-41463) filed with the SEC on January 31, 2024)
10.29
Amendment
to Michael Dougherty Offer Letter (Incorporated by reference as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K
(File No. 001-41463) filed with the SEC on January 31, 2024)
10.30
Form
of Securities Purchase Agreement, dated as of March 6, 2024, by and among the Company and the investors parties thereto (Incorporated
by reference as Exhibit 10.1 to the Registrant’s Form 8-K filed with the SEC on March 8, 2024)
10.31
Form
of Support Agreement with schedule of signatories (Incorporated by reference as Exhibit 10.2 to the Registrant’s Form 8-K filed
with the SEC on March 8, 2024)
14.1
Code
of Business Conduct of the Registrant (Incorporated by reference as Exhibit 14.1 to the Registrant’s Form S-1 filed with the
SEC on May 25, 2022)
19.1*
Insider Trading Policy of the Registrant
21.1*
List of Subsidiaries of the Registrant
23.1*
Consent of WithumSmith+Brown, PC, independent registered public accounting firm
31.1*
Certification
of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002
31.2*
Certification
of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32.1*
Certification
of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2*
Certification
of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002
97.1*
Clawback Policy
101.INS
Inline
XBRL Instance Document
101.SCH
Inline
XBRL Taxonomy Extension Schema Document
101.CAL
Inline
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline
XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover
Page Interactive Data File (embedded within the Inline XBRL document)
*
Filed
herewith.
+
Indicates
management contract or compensatory plan.
58
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 1 st day of April, 2024.
bioAffinity
Technologies, Inc.
By:
/s/
Maria Zannes
Maria
Zannes
Chief
Executive Officer, President, and Director
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/
Maria Zannes
President,
Chief Executive Officer, and Director
(Principal
Executive Officer)
April
1, 2024
Maria
Zannes
/s/
Michael Dougherty
Chief
Financial Officer
April
1, 2024
Michael
Dougherty
(Principal
Financial and Accounting Officer)
/s/
Steven Girgenti
Executive
Chairman and Director
April
1, 2024
Steven
Girgenti
/s/
Robert Anderson
Director
April
1, 2024
Robert
Anderson
/s/
Stuart Diamond
Director
April
1, 2024
Stuart
Diamond
/s/
Peter S. Knight
Director
April
1, 2024
Peter
S. Knight
/s/
Gary Rubin
Director
April
1, 2024
Gary
Rubin
/s/
Roby Joyce, M.D.
Director
April
1, 2024
Roby
Joyce
/s/
Jamie Platt
Director
April
1, 2024
Jamie
Platt
59
bioAffinity
Technologies, Inc.
Index
to the Consolidated Financial Statements
Report
of Independent Registered Public Accounting Firm (PCAOB ID NO. 100)
F-2
Consolidated
Balance Sheets as of December 31, 2023 and 2022
F-3
Consolidated
Statements of Operations for the years ended December 31, 2023 and 2022
F-4
Consolidated
Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity for the years ended December 31, 2023 and 2022
F-5
Consolidated
Statements of Cash Flows for the years ended December 31, 2023 and 2022
F-6
Notes to Consolidated Financial Statements
F-7
F- 1
Report
of Independent Registered Public Accounting Firm
To
the Stockholders and Board of Directors of bioAffinity Technologies, Inc.:
Opinion
on the Consolidated Financial Statements
We
have audited the accompanying consolidated balance sheets of bioAffinity Technologies, Inc. (the “Company”) as of December
31, 2023 and 2022, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows, for each
of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Company as of December 31, 2023 and 2022 and the consolidated results of its operations and its cash flows
for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United
States of America.
Going
Concern
The
accompanying consolidated financial statements have been prepared assuming that the entity will continue as a going concern. As discussed
in Note 1 to the consolidated financial statements, the entity has incurred recurring losses from operations and expects to continue
to incur operating losses that raise substantial doubt about its ability to continue as a going concern. Management’s plans in
regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to
obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/ WithumSmith+Brown,
PC
We
have served as the Company’s auditor since 2021.
New
York, New York
April 1, 2024
PCAOB
ID Number 100
F- 2
bioAffinity
Technologies, Inc.
Consolidated
Balance Sheets
2023
2022
December
31,
2023
2022
ASSETS
Current assets:
Cash and
cash equivalents
$ 2,821,570
$ 11,413,759
Accounts and other receivables,
net
811,674
10,489
Inventory
18,484
5,540
Prepaid
expenses and other current assets
321,017
531,899
Total current assets
3,972,745
11,961,687
Non-current assets:
Property and equipment,
net
458,633
214,438
Operating lease right-of-use
asset, net
370,312
—
Finance lease right-of-use
asset, net
1,165,844
—
Goodwill
1,404,486
—
Intangible assets, net
833,472
—
Other
assets
16,060
6,000
Total assets
$ 8,221,552
$ 12,182,125
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$ 604,789
$ 345,042
Accrued expenses
1,149,811
541,894
Unearned revenue
33,058
—
Operating lease liability,
current portion
94,708
—
Finance lease liability,
current portion
365,463
—
Loan
payable
—
251,746
Total current liabilities
2,247,829
1,138,682
Non-current liabilities
Operating lease liability,
net of current portion
283,001
—
Finance
lease liability, net of current portion
835,467
—
Total liabilities
3,366,297
1,138,682
Commitments and contingencies (See Note
10)
-
-
Stockholders’ equity:
Preferred stock, no
shares issued or outstanding at December 31, 2023 and 2022, respectively
—
—
Common stock, par value
$ 0.007 per share; 25,000,000 and 14,285,714 shares authorized; 9,394,610 and 8,381,324 shares issued and outstanding as of December
31, 2023 and 2022, respectively
65,762
58,669
Additional paid-in capital
49,393,972
47,652,242
Accumulated
deficit
( 44,604,479 )
( 36,667,468 )
Total
stockholders’ equity
4,855,255
11,043,443
Total liabilities and
stockholders’ equity
$ 8,221,552
$ 12,182,125
The
accompanying notes are an integral part of these consolidated financial statements.
F- 3
bioAffinity
Technologies, Inc.
Consolidated
Statements of Operations
For
the Years Ended December 31, 2023 and 2022
2023
2022
Net
Revenue
$ 2,532,499
$ 4,803
Operating expenses:
Direct costs and expenses
1,740,884
467
Research and development
1,467,936
1,378,624
Clinical development
256,661
145,546
Selling, general and
administrative
6,790,654
2,481,042
Depreciation
and amortization
249,592
10,182
Total
operating expenses
10,505,727
4,015,861
Loss
from operations
( 7,973,228 )
( 4,011,058 )
Other income (expense):
Interest income
122,131
46,708
Interest expense
( 37,125 )
( 2,532,640 )
Other Income
3,325
—
Other Expense
( 31,121 )
—
Gain on extinguishment
of debt
—
212,258
Fair
value adjustments on convertible notes payable
—
( 1,866,922 )
Loss
before income taxes
( 7,916,018 )
( 8,151,654 )
Income tax expense
( 20,993 )
( 2,459 )
Net
loss
$ ( 7,937,011 )
$ ( 8,154,113 )
Net loss per common share, basic and diluted
$ ( 0.91 )
$ ( 1.81 )
Weighted average common shares outstanding
8,747,509
4,498,964
The
accompanying notes are an integral part of these consolidated financial statements.
F- 4
bioAffinity
Technologies, Inc.
Consolidated
Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity
For
the Years Ended December 31, 2023 and 2022
Shares
Amount
Shares
Amount
Capital
Deficit
(Deficit)
Convertible
Additional
Stockholders’
Preferred
Stock
Common
Stock
Paid-in
Accumulated
Equity
Shares
Amount
Shares
Amount
Capital
Deficit
(Deficit)
Balance at December 31, 2021
756,558
$ 4,044,318
2,677,140
$ 18,740
$ 12,703,896
$ ( 28,513,355 )
$ ( 15,790,719 )
Stock-based compensation
—
—
29,728
208
248,384
—
248,592
Fair value of warrants issued
—
—
—
—
462,344
—
462,344
Beneficial conversion feature for bridge notes
—
—
—
—
( 185 )
—
( 185 )
Debt discount for warrants issued
—
—
—
—
352,250
—
352,250
Common stock issued upon initial public offering,
net of underwriters’ commission and offering costs of $ 1.8 million
—
—
1,282,600
8,978
6,018,436
—
6,027,414
Common stock issued on conversion of convertible
preferred stock
( 756,558 )
$ ( 4,044,318 )
756,558
5,296
4,039,022
—
4,044,318
Common stock issued on conversion of notes
payable
—
—
2,533,964
17,738
16,047,594
—
16,065,332
Exercise of warrants
—
—
1,036,486
7,255
7,706,055
—
7,713,310
Exercise of stock options
—
—
64,848
454
74,446
—
74,900
Net loss
—
—
—
—
—
( 8,154,113 )
( 8,154,113 )
Balance at December 31, 2022
—
—
8,381,324
58,669
47,652,242
( 36,667,468 )
11,043,443
Stock-based compensation
—
—
448,314
3,138
745,685
—
748,823
Stock issued in connection with the acquisition
—
—
564,972
3,955
996,045
—
1,000,000
Net loss
—
—
—
—
—
( 7,937,011 )
( 7,937,011 )
Balance at December 31, 2023
—
—
9,394,610
$ 65,762
$ 49,393,972
$ ( 44,604,479 )
$ 4,855,255
The
accompanying notes are an integral part of these consolidated financial statements.
F- 5
bioAffinity
Technologies, Inc.
Consolidated
Statements of Cash Flows
For
the Years Ended December 31, 2023 and 2022
2023
2022
Cash flows from operating
activities
Net loss
$ ( 7,937,011 )
$ ( 8,154,113 )
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization
249,592
10,182
Accretion of debt issuance
costs
—
2,055,627
Fair value adjustments
on convertible notes payable
—
1,866,922 )
Stock-based compensation
expense
748,823
248,592
Fair value of warrants
issued
—
—
Gain on extinguishment
of debt
—
( 212,258 )
Changes in operating assets and liabilities:
Accounts and other receivables
311,366
( 8,959
Inventory
( 12,944 )
( 5,540
Prepaid expenses and
other assets
214,402
( 492,753 )
Accounts payable
( 14,501 )
114,635
Accrued expenses
362,012
66,335
Unearned revenue
33,058
—
Accrued interest
—
440,485
Operating
lease right-of-use asset
7,397
—
Net
cash used in operating activities
( 6,037,806 )
( 4,070,845 )
Cash flows from investing
activities
Purchase of property
and equipment
( 22,902 )
( 219,987 )
Acquisition,
net of cash acquired
( 2,186,497 )
—
Net
cash used in investing activities
( 2,209,399 )
( 219,987
Cash flows from financing
activities
Proceeds from loan payable
( 251,746 )
555,148
Payment on loans payable
—
( 269,983 )
Proceeds from issuance
of convertible notes payable
—
724,000
Repayment of convertible
loan payable
—
( 425,000 )
Proceeds from issuance
of common stock from the initial public offering, net of underwriting discounts, commissions and offering expenses of approximately
$ 1.8 million
—
6,027,414
Exercise of warrants
—
7,713,310
Exercise of stock options
—
74,900
Return of capital from
stock split
—
( 185 )
Payment of debt issuance
costs
—
( 55,651 )
Principle
repayments on finance leases
( 93,238 )
—
Net
cash provided (used) by financing activities
( 344,984 )
14,343,953
Net increase (decrease)
in cash and cash equivalents
( 8,592,189 )
10,053,121
Cash and cash equivalents
at beginning of year
11,413,759
1,360,638
Cash
and cash equivalents at end of year
$ 2,821,570
$ 11,413,759
Supplemental disclosures
of cash flow information:
Income taxes paid in
cash
$ 20,993
$ 30,637
Interest paid
37,125
2,459
Noncash investing activities:
Stock issuance in connection
with the acquisition
$ 1,000,000
$ —
Noncash financing activities:
Conversion of convertible
preferred stock into common stock
$ —
$ 4,044,318
Conversion of convertible
notes payable into common stock
—
16,065,332
Fair value of warrants
issued to placement agents
—
352,250
Beneficial conversion
feature for bridge notes
—
462,344
The
accompanying notes are an integral part of these consolidated financial statements.
F- 6
bioAffinity
Technologies, Inc.
Notes
to Consolidated Financial Statements
For
the Years Ended December 31, 2023 and 2022
Note
1. BASIS OF PRESENTATION, ORGANIZATION AND NATURE OF OPERATIONS
Description
of Business
bioAffinity
Technologies, Inc., a Delaware corporation (the “Company,” or “bioAffinity Technologies”), addresses the need
for noninvasive diagnosis of early-stage cancer and diseases of the lung. The Company also is conducting early-stage research focused
on advancing therapeutic discoveries that could result in broad-spectrum cancer treatments. bioAffinity Technologies develops proprietary
noninvasive diagnostic tests using technology that preferentially targets cancer cells and cell populations indicative of a diseased
state. The Company’s first diagnostic test, CyPath ® Lung, is a noninvasive test for early detection of lung cancer,
the leading cause of cancer-related deaths. CyPath ® Lung is offered for sale to physicians by the Company’s subsidiary,
Precision Pathology Laboratory Services, LLC (“PPLS”). Research and optimization of the Company’s proprietary platform
for in vitro diagnostics and technologies are conducted in laboratories at The University of Texas at San Antonio and PPLS. The Company
is developing its platform technologies so that in the future they will be able to detect, monitor, and treat diseases of the lung and
other cancers.
Organization
and Initial Public Offering
The
Company was formed on March 26, 2014, as a Delaware corporation with its corporate offices located in San Antonio, Texas. On June 15,
2016, the Company formed a wholly owned subsidiary, OncoSelect ® Therapeutics, LLC, as a Delaware limited liability company.
On August 14, 2023, the Company formed a wholly owned subsidiary, PPLS, as a Texas limited liability company, to acquire the assets of
Village Oaks Pathology Services, P.A., a Texas professional association d/b/a Precision Pathology Services, including the clinical pathology
laboratory it owned.
Basis
of Presentation
The
consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).
Going Concern
In
accordance with Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements – Going Concern
(Subtopic 205-40), the Company has evaluated whether there are conditions and events that raise substantial doubt about the Company’s
ability to continue as a going concern for at least one year after the date the consolidated financial statements are issued.
The
Company has incurred significant losses and negative cash flows from operations since inception and expects to continue to incur losses
and negative cash flows for the foreseeable future. As a result, the Company had an accumulated deficit of $ 44.6 million at December
31, 2023. The Company’s cash and cash equivalents at December 31, 2023, were approximately $ 2.8 million, representing 34 % of total
assets. Based on the Company’s current expected level of operating expenditures and the cash and cash equivalents on hand at December
31, 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 consolidated financial statements. Therefore, the
Company may 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 its future operations. If such funding is not available or not available on
terms acceptable to the Company, the Company’s current development plan may be curtailed. On March 8, 2024, the Company issued
to certain investors, pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) (1) 1,600,000 shares of the
Company’s common stock (the “Shares”), par value $ 0.007 per share (“Common Stock”) in a registered direct
offering, and (2) warrants to purchase an aggregate of 1,600,000 shares of Common Stock (the “Common Warrants”) with an exercise
price of $ 1.64 , in a concurrent private placement. The direct offering resulted in net proceeds of $ 2.05 million. Furthermore, an alternative
source of funding to the sale of additional equity or debt securities is the exercising of outstanding warrants. No adjustments have
been made to the presented consolidated financial statements as a result of this uncertainty.
Note
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates include the valuation allowance on the Company’s deferred tax assets, stock-based compensation, valuation
of goodwill and intangible assets related to the business combination, allowance for contractual adjustments and discounts related to
service revenues, and the useful lives of fixed assets.
Principles
of Consolidation
The
Company’s consolidated financial statements reflect its financial statements, those of its wholly owned subsidiaries and certain
variable interest entities where the Company is the primary beneficiary. The accompanying consolidated financial statements include all
the accounts of the Company, its wholly owned subsidiaries, OncoSelect ® Therapeutics, LLC and PPLS, and the variable interest
entity, Village Oaks. All significant intercompany balances and transactions have been eliminated.
F- 7
In
determining whether the Company is the primary beneficiary of a variable interest entity, it applies a qualitative approach that determines
whether it has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses
of, or the right to receive benefits from, the entity that could potentially be significant to that entity. The Company continuously
assesses whether it is the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions
may result in the Company consolidating or deconsolidating one or more of its collaborators or partners.
Business
Combination
On
September 18, 2023, the Company, in connection with the Asset Purchase Agreement it entered into with Village Oaks (the “Seller”)
and Roby P. Joyce, M.D., dated September 18, 2023, acquired substantially all the assets and assumed certain liabilities of Village Oaks
in exchange for total consideration of $ 3,500,000 ,
which consists of: (1) $ 2.5
million in cash paid at closing and (2) 564,972
shares of the Company’s common stock valued
at $ 1
million . The assets purchased included
a clinical pathology laboratory regulated by the Centers for Medicare and Medicaid Services (“CMS”) and accredited by the
College of American Pathologists (“CAP”) and certified under the Clinical Laboratory Improvement Amendments (“CLIA”)
of 1988. The primary reason for the acquisition is control of the laboratory in which CyPath® Lung is ordered and processed.
The
Company recognized goodwill of $ 1,404,000 arising from the acquisition. The acquisition is being accounted for as a business combination
in accordance with ASC 805. The Company has determined the preliminary fair values of the accounts receivables, accounts payable and
accrued expenses that make up the majority of the net working capital assumed in the acquisition. These values are subject to change
as the Company performs additional reviews of its assumptions utilized.
The
following table summarizes the purchase price and preliminary purchase price allocations relating to the acquisition:
SCHEDULE OF PURCHASE PRICE AND PRELIMINARY PURCHASE PRICE ALLOCATIONS
Cash
$ 2,500,000
Common Stock
1,000,000
Total
purchase consideration
$ 3,500,000
Assets
Net working capital (including
cash)
$ 912,000
Property and equipment
326,000
Other assets
8,000
Customer relationships
700,000
Trade names and trademarks
150,000
Goodwill
1,404,000
Total
net assets
$ 3,500,000
Goodwill
represents the excess fair value after the allocation to the identifiable net assets. The calculated goodwill is not deductible for tax
purposes.
Consolidated unaudited pro-forma operating results as if the business combination began on January 1, 2022 are net revenues of $ 7.9 million
and $ 6.9 million, net loss of ($ 8.6 million) and ($ 8.6 million), and loss per share of ($ 0.99 ) and ($ 1.91 ) for years ended 2023 and 2022,
respectively.
The
preliminary purchase price allocations relating to the acquisition previously reported in the 10-Q filed, October 14, 2023, reported
Net Working Capital of $ 1,167,000 and Goodwill of $ 1,149,000 . The amounts have been updated to reflect the purchase price adjustments
to accounts payable and accounts receivable that existed at the time of the acquisition. The company incurred approximately $ 811,000 in acquisition costs.
Cash
and Cash Equivalents
For
the purpose of the statement of cash flows, the Company considers all highly liquid investments with original maturities of three months
or less at the time of purchase to be cash equivalents. Cash equivalents are stated at cost, which approximates market value, because
of the short maturity of these instruments.
Concentration
of Risk
The
Company has significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit
of $ 250,000 . Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial
condition, results of operations, and cash flows.
Advertising
Expense
The
Company expenses all advertising costs as incurred. Advertising expenses were approximately $ 89,000 and $ 39,000 for the years ended December
31, 2023, and 2022, respectively.
F- 8
Loss
Per Share
Basic
loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of the Company’s
Common Stock, par value $0.007 per share outstanding during the period. Diluted loss per share is computed by dividing net loss attributable
to common stockholders by the sum of the weighted-average number of shares of Common Stock outstanding during the period and the weighted-average
number of dilutive Common Stock equivalents outstanding during the period, using the treasury stock method. Dilutive Common Stock equivalents
are comprised of in-the-money stock options, convertible notes payable, and warrants based on the average stock price for each period
using the treasury stock method.
The
following potentially dilutive securities have been excluded from the computations of weighted average shares of Common Stock outstanding
as of December 31, 2023 and 2022, as they would be anti-dilutive:
SCHEDULE OF POTENTIALLY DILUTIVE SECURITIES
2023
2022
As
of December 31,
2023
2022
Shares underlying options outstanding
683,695
806,392
Shares underlying warrants outstanding
4,649,952
4,649,952
Anti-dilutive
securities
5,333,647
5,456,344
Revenue
Recognition
Post-acquisition
of PPLS, additional revenue streams have been consolidated starting September 19, 2023. PPLS generates three sources of revenue: (1)
patient service fees, (2) histology service fees, and (3) medical director fees. The revenue is recognized on the date of service (meeting
the performance requirement of ASC 606). Pre-acquisition, bioAffinity’s revenue was generated in three ways pre-acquisition: (1)
royalties from the Company’s diagnostic test, CyPath ® Lung, (2) clinical flow cytometry services provided to Village
Oaks related to the Company’s CyPath ® Lung test, and (3) CyPath ® Lung tests purchased by the U.S.
Department of Defense (“DOD”) for an observational study, “Detection of Abnormal Respiratory Cell Populations in Lung
Cancer Screening Patients Using the CyPath ® Lung Assay (NCT05870592),” and research and development on using bronchoalveolar
lavage fluid as a biological sample to assess cardiopulmonary function and exercise performance in military personnel post COVID-19 infection.
The royalty income from CyPath ® Lung and clinical flow cytometry services income, beginning September 19, 2023, are related-party
income and, therefore, eliminated from consolidated net revenues.
To
determine revenue recognition for the arrangements that the Company determines are within the scope of ASC 606, Revenue from Contracts
with Customers , the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance
obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in
the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
SCHEDULE OF REVENUE RECOGNITION
2023
2022
As
of December 31,
2023
2022
Patient service
fees 1
$ 2,199,558
$ —
Histology service fees
272,660
—
Medical director fees
19,324
—
Department of Defense observational studies
19,442
—
Other revenues 2
21,515
4,803
Total
net revenue
$ 2,532,499
$ 4,803
1 Patient services
fees includes direct billing for CyPath® Lung diagnostic test.
2 Other revenues
include pre-acquisition CyPath® Lung royalty income and laboratory services.
Reclassifications
Certain
prior year balances have been reclassified to conform to current year presentation. The Company reclassified legal fees and annuity costs
relating to patents of approximately $ 236,000 from research and development to selling, general and administrative for the year ended
December 31, 2022, respectively, as these expenses are not deemed research and development.
Property
and Equipment, Net
In
accordance with ASC 360-10, Accounting for the Impairment of Long-Lived Assets , the Company periodically reviews the carrying
value of its long-lived assets, such as property, equipment, and definite lived intangible assets, to test whether current events or
circumstances indicate that such carrying value may not be recoverable. When evaluating assets for potential impairment, the Company
compares the carrying value of the asset to its estimated undiscounted future cash flows. If an asset’s carrying value exceeds
such estimated cash flows (undiscounted and with interest charges), the Company records an impairment charge for the difference. The
Company did not record any impairment for the years end December 31, 2023, or 2022.
Property
and equipment are carried at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the
estimated useful life of the asset. Amortization of leasehold improvements is computed using the shorter of the lease term or estimated
useful life of the asset. Additions and improvements are capitalized, while repairs and maintenance are expensed as incurred. Useful
lives of each asset class are as follows:
SCHEDULE OF PROPERTY AND EQUIPMENT USEFUL LIFE
Asset
Category
Useful
Life
Computer
equipment
3 - 5
years
Computer
software
3
years
Equipment
3 - 5
years
Furniture
and fixtures
5 - 7
years
Vehicles
5
years
Leasehold
improvements
Lesser
of lease term or useful life
F- 9
Intangible
Assets
Intangible
assets, net of accumulated amortization, are summarized as follows as of December 31, 2023:
SCHEDULE OF INTANGIBLE ASSETS ADJUSTMENTS
Description
Date Acquired
Useful
Life
Cost
Amortization
Net
Goodwill
9/18/2023
$ 1,404,486
$ —
$ 1,404,486
Trade names and trademarks
9/18/2023
18 years
150,000
( 2,361 )
147,639
Customer relationships
9/18/2023
14 years
700,000
( 14,167 )
685,833
Total Intangible Assets
$ 2,254,486
$ ( 16,528 )
$ 2,237,958
For
the year ended December 31, 2023, amortization of intangible assets totaled $ 16,528 compared to $ 0 in the prior year comparative periods.
Recent
Accounting Pronouncements
The
Company continues to monitor new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) and
does not believe any accounting pronouncements issued through the date of this Annual Report will have a material impact on the Company’s
consolidated financial statements.
The
Company adopted FASB issued Accounting Standards Update (ASU) No. 2016-13, accounting considerations of Financial Instruments –
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”) on September 18, 2023, with the
business combination of Village Oaks and PPLS. The Company has patient service fees that are billed to commercial insurance companies,
governmental payors, and patients. Under the CECL model, the Company estimates potential credit losses from the patient service fees
billed using historical data.
The
Company adopted FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) on January 1, 2022, with the business combination
of Village Oaks and PPLS. The Company has one operating lease for its real estate and office space and multiple finance leases for lab
equipment in Texas that was acquired through the September 18, 2023, Acquisition.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation
allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities
during the period in which the related temporary difference becomes deductible. The Company includes interest and penalties related to
uncertain tax positions as part of income tax expense, if any. No such interest or penalties were recognized during the years ended December
31, 2023 and 2022, and the Company had no accruals for interest and penalties at December 31, 2023 or 2022.
F- 10
Segment
Information
The
Company is organized in two operating segments, Diagnostic Research and Development (R&D) and Laboratory Services, whereby its chief
operating decision maker (“CODM”) assesses the performance of and allocates resources. The CODM is the Chief Executive Officer.
Diagnostic R&D includes research and development and clinical development on diagnostic tests. Any revenues assigned to Diagnostic
R&D are proceeds received from observational studies. Laboratory services include all the operations from Village Oaks and PPLS in
addition to sales and marketing costs of CyPath® Lung from bioAffinity.
SCHEDULE OF SEGMENT INFORMATION
2023
2022
As
of December 31,
2023
2022
Net revenues:
Diagnostic
R&D
$ 19,442
$ —
Laboratory
services
2,513,057
4,803
Total
net revenues
2,532,499
4,803
Operating expenses:
Diagnostic R&D
( 1,724,597 )
( 1,524,170 )
Laboratory services
( 3,769,783 )
( 95,041 )
General
corporate activities
( 5,011,347 )
( 2,396,650 )
Total
operating loss
( 7,973,228 )
( 4,011,058 )
Non-operating
income (expense), net
57,210
( 4,140,596 )
Net loss before income taxes
( 7,916,018 )
( 8,151,654 )
Income
tax expense
( 20,993 )
( 2,459 )
Net Loss
$ ( 7,937,011 )
$ ( 8,154,113 )
Research
and Development
Research
and development costs are charged to expense as incurred. The Company’s research and development expenses consist primarily of
expenditures for lab operations, preclinical studies, compensation, and consulting costs.
The
Company incurred research and development expenses of $ 1.5 million and $ 1.4 million for the years ended December 31, 2023 and 2022, respectively.
Accrued
Research and Development Costs
The
Company records accrued liabilities for estimated costs of research and development activities conducted by service providers, which
include preclinical studies. The Company records the estimated costs of research and development activities based upon the estimated
amount of services provided but not yet invoiced and includes these costs in accrued expenses in the accompanying balance sheets and
within research and development expense in the accompanying consolidated statements of operations.
The
Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established
with service providers. The Company makes significant judgments and estimates in determining the accrued expenses balance in each reporting
period. As actual costs become known, the Company adjusts its accrued liabilities. The Company has not experienced any material differences
between accrued costs and actual costs incurred since its inception.
Regulatory
Matters
Regulations
imposed by federal, state, and local authorities in the U.S. are a significant factor in providing medical care. In the U.S., drugs,
biological products, and medical devices are regulated by FDCA, which is administered by the FDA and the Centers for Medicare and Medicaid
Services. The Company has not yet obtained marketing authorization from the FDA but is able to market its CyPath® Lung test as a
laboratory developed test sold by Precision Pathology Laboratory Services, a CAP-accredited, CLIA-certified clinical pathology laboratory
and wholly owned subsidiary.
F- 11
Note
3. ACCOUNTS AND OTHER RECEIVABLES, NET
Accounts
and other receivables at December 31, 2023 and 2022, are summarized below:
SCHEDULE OF ACCOUNTS RECEIVABLE
2023
2022
December
31,
2023
2022
Patient service fees
$ 657,717
$ —
Histology service fees
121,301
—
Medical director fees
3,103
—
Other receivables
29,553
10,489
Total
accounts and other receivables, net
$ 811,674
$ 10,489
Note
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets at December 31, 2023 and 2022, are summarized below:
SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS
2023
2022
December
31,
2023
2022
Prepaid insurance
$ 171,855
$ 340,078
Legal and professional
24,476
72,048
Other
124,686
119,773
Total prepaid expenses
and other current assets
$ 321,017
$ 531,899
Note
5. PROPERTY AND EQUIPMENT, NET
Property
and equipment at December 31, 2023 and 2022, are summarized below:
SCHEDULE OF PROPERTY AND EQUIPMENT
2023
2022
December
31,
2023
2022
Lab equipment
$ 647,214
$ 462,155
Computers and software
68,682
21,463
Leasehold improvements
9,941
—
Vehicles
105,919
—
Property and equipment, gross
831,756
483,618
Less: accumulated
depreciation and amortization
( 373,123 )
( 269,180 )
Total
property and equipment, net
$ 458,633
$ 214,438
Total
Property and equipment depreciation expense was $ 233,064 and $ 10,182 for the years ended December 31, 2023, and 2022,
respectively.
Note
6. ACCRUED EXPENSES
Accrued
expenses at December 31, 2023 and 2022, are summarized below:
SCHEDULE OF ACCRUED EXPENSES
2023
2022
December
31,
2023
2022
Compensation
$ 857,037
$ 340,680
Legal and professional
257,926
144,440
Clinical
15,350
50,922
Other
19,498
5,852
Total
accrued expenses
$ 1,149,811
$ 541,894
Note
7. UNEARNED REVENUE
The
Company engaged in an observational study of CyPath ® Lung with the DOD. A total of 70 CyPath ® Lung units
were ordered and shipped. However, in compliance with FASB ASC 606, the performance obligation was complete for only 25 units as of December
31, 2023. The performance obligation is deemed complete after samples have been collected and processed and results analyzed. The unearned
revenue balance amounted to $ 33,058 and $ 0 as of December 31, 2023, and 2022, respectively.
F- 12
Note
8. FAIR VALUE MEASUREMENTS
The
Company analyzes all financial instruments with features of both liabilities and equity under the FASB accounting standard for such instruments.
Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant
to the fair value measurement.
The
estimated fair value of certain financial instruments, including cash and cash equivalents, accounts and other receivables, prepaid and
other current assets, accounts payable, accrued expenses, and loan payable, are carried at historical cost basis, which approximates
their fair values because of the short-term nature of these instruments.
Note
9. LEASES
The
Company has one operating lease for its real estate and office space and multiple finance leases for lab equipment in Texas that was
acquired through the September 18, 2023, Acquisition. The operating lease has a remaining lease term of 3.58 years as of December 31,
2023. The Company has finance leases consisting of office and lab equipment with remaining lease terms ranging from approximately 2.25
to 4.0 years as of December 31, 2023, for which the Company has determined that it will use the equipment for a major part of its remaining
economic life.
The
lease agreements generally do not provide an implicit borrowing rate. Therefore, the Company used a benchmark approach as of December
31, 2023, to derive an appropriate incremental borrowing rate to discount remaining lease payments. The Company benchmarked itself against
other companies of similar credit ratings and comparable quality and derived imputed interest rates ranging from 7.97 % to 8.13 % for the
lease term lengths.
Leases
with an initial term of 12 months or less are not recorded on the balance sheet. There are no material residual guarantees associated
with any of the Company’s leases, and there are no significant restrictions or covenants included in the Company’s lease
agreements. Certain leases include variable payments related to common area maintenance and property taxes, which are billed by the landlord,
as is customary with these types of charges for office space. The Company has not entered into any lease arrangements with related parties,
and the Company is not the sublessor in any arrangement.
The
Company’s existing leases contain escalation clauses and renewal options. The Company has evaluated several factors in assessing
whether there is reasonable certainty that the Company will exercise a contractual renewal option. For leases with renewal options that
are reasonably certain to be exercised, the Company included the renewal term in the total lease term used in calculating the right-of-use
asset and lease liability. Prior to adoption of ASU 2016-02 effective January 1, 2022, the Company accounted for operating lease transactions
by recording lease expense on a straight-line basis over the expected term of the lease.
The
components of lease expense, which are included in selling, general and administrative expense and depreciation and amortization for
the year ended December 31, 2023, and 2022 are as follows:
SCHEDULE OF COMPONENTS OF LEASE EXPENSE
Components
of lease expense:
2023
2022
Amortization of right-of-use assets
- finance lease
$ 128,324
$ —
Interest on lease liabilities - finance lease
33,838
—
Operating lease cost
39,887
—
Total lease cost
$ 202,049
$ —
SCHEDULE OF BALANCE SHEET INFORMATION RELATING TO LEASES
Operating
leases:
2023
2022
Operating
lease right-of-use, assets
$ 370,312
$ —
Operating lease liability, current
94,708
—
Operating lease liability,
non-current
283,001
—
Total operating lease
liabilities
$ 377,709
$ —
Financing
leases:
2023
2022
Financing lease right-of-use assets,
gross
$ 1,294,168
$ —
Accumulated amortization
( 128,324 )
Finance lease right-of-use
assets, net
$ 1,165,844
$ —
Financing lease liability, current
365,463
—
Financing lease liability,
non-current
835,467
—
Financing lease liability,
long-term
$ 1,200,930
$ —
Weighted-average
remaining lease term:
2023
2022
Operating leases (in years)
3.58
—
Finance leases (in years)
3.25
—
Weighted-average
discount rate:
2023
2022
Operating leases
8.07 %
—
Finance leases
8.01 %
—
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENT UNDER NON-CANCELLABLE
Operating
Leases
Finance
Leases
2024
$ 121,726
$ 448,505
2025
121,726
448,505
2026
121,726
270,395
2027 and thereafter
71,007
202,970
Total undiscounted cash flows
436,185
1,370,375
Less discounting
( 58,476 )
( 169,445 )
Present value of lease
liabilities
$ 377,709
$ 1,200,930
F- 13
Note
10. COMMITMENTS AND CONTINGENCIES
Operating
Leases
In
addition to the operating lease listed in Note 9, the Company leases its corporate offices under a month-to-month agreement and leases
its laboratory and additional office space under an operating lease that is renewable annually by written notice by the Company and will
require renewal in February 2024. Rent expense for office and lab space amounted to $ 112,124 and $ 65,043 for the years ended December
31, 2023, and 2022, respectively.
Legal
Matters
From
time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of business. To date,
the Company has no material pending legal proceedings.
Note
11. COMMON STOCK
The
Company has authorized a total of 25,000,000 shares of Common Stock, $ 0.007 par value per share. On June 6, 2023, the Company received
stockholder approval to increase the number of authorized shares from 14,285,715 shares to 25,000,000 shares. The Company has issued
9,505,255 shares of Common Stock of which 110,645 are unvested restricted stock shares as of December 31, 2023, and 8,381,324 shares
of Common Stock as of December 31, 2022.
Note
12. STOCK-BASED COMPENSATION
The
Company grants options and restricted stock awards under its 2014 Equity Incentive Plan (the “Plan”). Under the Plan, the
Company is authorized to grant options or restricted stock for up to 2,000,000 shares of Common Stock. On June 6, 2023, the Company received
stockholder approval to increase the number of authorized shares from 1,142,857 to 2,000,000 . Options or restricted stock awards may
be granted to employees, the Company’s Board of Directors, and external consultants who provide services to the Company. Options
and restricted stock awards granted under the Plan have vesting schedules with terms of one to three years and become fully exercisable
based on specific terms imposed at the date of grant. The Plan will terminate according to the respective terms of the Plan in March
2024.
The
Company has recorded stock-based compensation expense related to the issuance of restricted stock awards in the following line items
in the accompanying consolidated statement of operations:
SUMMARY OF STOCK-BASED COMPENSATION EXPENSE RECOGNIZED FOR STOCK OPTION AWARDS
2023
2022
Research and development
$ 37,131
$ 7,832
Selling, general
and administrative
711,692
240,760
Total
stock-based compensation expense
$ 748,823
$ 248,592
The
following table summarizes stock option activity under the Plan:
SUMMARY OF OPTION ACTIVITY
Number of
options
Weighted-
average
exercise price
Weighted-
average
remaining
contractual
term (in years)
Aggregate
intrinsic value
Outstanding at December 31,
2022
806,392
$ 4.33
4.0
164,255
Granted
—
—
—
—
Exercised
—
—
—
—
Forfeited
( 122,697 )
5.86
—
—
Outstanding at December
31, 2023
683,695
$ 3.99
2.9
$ 158,332
Vested and exercisable
at December 31, 2023
682,306
$ 3.98
2.9
$ 158,010
As
of December 31, 2023, there was $ 322 unrecognized compensation cost related to non-vested stock options.
During
the year ended December 31, 2023, no options were issued or exercised. During the year ended December 31, 2022, the Company issued options
to purchase 7,142 shares of Common Stock to employees. The per share weighted-average fair value of the options granted during 2022 was
estimated at $ 2.84 on the date of grant. During the year ended December 31, 2022, 64,848 options were exercised into an equivalent number
of common shares. The company received proceeds of approximately $ 75,000 from the exercise of the options.
F- 14
The
following table summarizes weighted-average assumptions using the Black-Scholes option-pricing model used on the date of the grants issued
during the years ended December 31, 2023, and 2022, respectively:
SCHEDULE OF FAIR VALUE ASSUMPTIONS
2023
2022
Fair value of Common Stock
$ —
$ 4.62
Volatility
— %
63.9 %
Expected term (years)
—
6.0
Risk-free interest rate
— %
2.20 %
Dividend yield
— %
0 %
Black-Scholes
requires the use of subjective assumptions which determine the fair value of stock-based awards. These assumptions include:
Fair
value of Common Stock —The fair value of stock option and restricted share grants are determined based on the closing price
of our stock on the date of grant.
Expected
term —The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for
option grants is determined using the simplified method. The simplified method deems the term to be the average of the time-to-vesting
and the contractual life of the stock-based awards.
Expected
volatility — Since the Company does not have sufficient trading history for its Common Stock, the expected volatility is estimated
based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the
stock-based awards. The comparable companies were chosen based on their similar size, stage in the life cycle, or area of specialty.
The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own
stock price becomes available.
Risk-free
interest rate —The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for
periods corresponding with the expected term of a stock-based award.
Expected
dividend —The Company has never paid dividends on its Common Stock and has no plans to pay dividends on its Common Stock. Therefore,
the Company used an expected dividend yield of zero.
Restricted
Stock Awards
The
following table summarizes restricted stock award activity under the Plan:
SUMMARY
OF RESTRICTED STOCK AWARD
Number of
restricted
stock awards
(RSA)
Weighted-
average
grant price
FMV on
grant date
Vested
number
of RSA
Unvested
number
of RSA
Balance at December 31, 2022
114,920
$ 3.56
$ 409,437
96,041
18,879
Granted
431,028
1.89
813,717
339,263
91,765
Forfeited
( 4,979 )
2.76
( 13,754 )
( 4,979 )
—
Balance at December 31, 2023
540,969
$ 2.24
$ 1,209,400
430,325
110,644
During
the year ended December 31, 2023, the Company issued restricted stock awards (RSAs) for 431,028 shares of Common Stock to employees,
non-employees, and the Board of Directors. The shares vest in equal monthly installments over terms of between immediately up to three
years , subject to the employees and non-employees providing continuous service through the vesting date. During the year ended December
31, 2023, 59,051 shares vested from RSAs granted prior to January 1, 2023, and 339,263 shares vested from RSAs granted during the year
ended December 31, 2023.
During
the year ended December 31, 2022, the Company issued RSAs for 77,195 shares of Common Stock to employees and non-employees. The shares
vest in equal monthly installments over terms of between immediately up to one year , subject to the employees and non-employees providing
continuous service through the vesting date. During the year ended December 31, 2022, 29,728 shares vested from RSAs previously issued.
Note
13. WARRANTS
We
account for Common Stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant
agreement. Warrants are accounted for as derivative liabilities if the warrants allow for cash settlement or provide for modification
of the warrant exercise price in the event subsequent sales of Common Stock by the Company are at a lower price per share than the then-current
warrant exercise price. We classify derivative warrant liabilities on the balance sheet at fair value, and changes in fair value during
the periods presented in the consolidated statement of operations, which is revalued at each consolidated balance sheet date subsequent
to the initial issuance of the stock warrant.
As
of December 31, 2023, and December 31, 2022, the Company had 4,649,952 warrants outstanding to purchase one share of the Company’s
Common Stock for each warrant at a weighted average exercise price of $ 5.03 and various expiration dates through September 2027. During
year end December 31, 2023, no warrants were exercised into an equivalent number of Common Shares as compared to 1,036,486 warrants being
exercised during the year ended December 31, 2022.
F- 15
On
September 17, 2023, the Company entered into a warrant amendment with certain holders of (1) tradeable warrants (the “Tradeable
Warrants”) who have the right to purchase 73,568 shares of Common Stock; (2) non-tradeable warrants (the “Non-Tradeable Warrants”)
who have the right to purchase 73,568 shares of Common Stock and (3) other outstanding warrants (the “Pre-IPO Warrants”)
who have the right to purchase 1,109,475 shares of Common Stock. The warrant amendment provides that such warrants will not be exercisable
until the date that the Company files a certificate of amendment to its certificate of incorporation with the State of Delaware which
increases the number of shares of its authorized Common Stock to allow for sufficient authorized and unissued shares of Common Stock
for the full exercise of all of the outstanding Pre-IPO Warrants, Tradeable Warrants, and Non-Tradeable Warrants of the Company and the
issuance of all of the shares of Common Stock underlying such warrants.
Note
14. INCOME TAXES
Deferred
tax assets and valuation allowance
The
Company had, subject to limitation, approximately $ 30 million of net operating loss carryforwards at December 31, 2023, of which approximately
$ 0.67 million will begin expiring in 2034. The remaining balance of approximately $ 24 million will carry forward indefinitely. A 100 %
valuation allowance has been provided for the deferred tax benefits resulting from the net operating loss carryover due to a lack of
earnings history. In addressing the realizability of deferred tax assets, management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which those temporary differences are deductible. The valuation allowance
increased by approximately $ 3.0 million and $ 0.8 million for the years ended December 31, 2023, and 2022, respectively. Significant components
of deferred tax assets are as follows:
SCHEDULE
OF DEFERRED TAX ASSETS AND LIABILITIES
2023
2022
December
31,
2023
2022
Deferred tax assets:
Net operating
loss carryover
$ 6,479,696
$ 3,871,192
Stock compensation
325,320
477,055
Capitalized R&E
costs
525,463
260,560
Other
204,013
5,708
Operating lease liabilities
79,319
—
Tax
credits
582,206
443,867
Total deferred tax assets
8,196,018
5,058,382
Deferred tax liability:
Right-of-use asset tax
liability
$ ( 77,766 )
$ —
Depreciation
and amortization
( 59,248 )
( 7,337 )
Total deferred tax liability
( 137,014
( 7,337 )
Less:
valuation allowance
( 8,059,004 )
( 5,051,045 )
Total
property and equipment, net
$ 0
$ 0
The
reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2023
and 2022, was as follows:
SCHEDULE
OF RECONCILIATION OF STATUTORY FEDERAL INCOME TAX RATE
2023
2022
December
31,
2023
2022
Tax at federal statutory rate
- 21.00 %
- 21.00 %
Permanent differences
0.03 %
10.40 %
Research and development credits
0.83 %
2.20 %
Deferred balance true-up
16.07 %
0.00 %
Change in valuation
allowance
- 37.87 %
10.10 %
Effective
income tax rate
0.00 %
0.00 %
Unrecognized
tax benefits
As
of December 31, 2023, and 2022, the Company has unrecognized tax benefits related to tax credits of $ 249,517 and $ 190,229 , respectively.
None of the unrecognized tax benefits as of December 31, 2023, if recognized, would impact the effective tax rate due to the valuation
allowance, and no interest or penalties have been recognized. A reconciliation of the beginning and ending balance of unrecognized tax
benefits is as follows:
SCHEDULE
OF UNRECOGNIZED TAX BENEFITS
2023
2022
December
31,
2023
2022
Beginning balance
$ 190,229
$ 49,646
Additions based on tax positions related
to the prior year
30,897
110,681
Additions based on tax positions related
to the current year
28,391
29,902
Ending balance
$ 249,517
$ 190,229
Note
15. SUBSEQUENT EVENTS
On
March 8, 2024, the Company issued to certain investors, (i) in a registered direct offering, 1,600,000 shares of the Company’s
common stock and (ii) in a concurrent private placement, warrants to purchase an aggregate of 1,600,000 shares of Common Stock, with
an exercise price of $ 1.64 (collectively, the “Transaction”), which Transaction constitutes a Dilutive Issuance under the
terms of the Warrants.
Section
3(b) of the Warrants provides that in the event of a Dilutive Issuance, the Exercise Price of the Warrants shall be reduced and only
reduced to equal the effective price per share of the Dilutive Issuance (the “Base Share Price”) and the number of Warrant
Shares issuable thereunder shall be increased such that the aggregate Exercise Price payable pursuant to the Warrant, after taking into
account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment, provided that the
Base Share Price shall not be less than $3.0625 (50% of the public offering price of the Units sold in the Company’s initial public
offering) (subject to adjustment for reverse and forward stock splits, recapitalizations and similar transactions).
The
effect of the Transaction is such that the Exercise Price of the Warrants shall be reduced to $ 3.0625 per share. The new number of Warrant
Shares is calculated by dividing (x) the number of Warrant Shares underlying the Warrant immediately prior to the Transaction multiplied
by the Exercise Price in effect immediately prior to the Transaction, by (y) $ 3.0625 . The calculations will be made to the nearest cent
or the nearest 1/100th of a share.
As
of March 8, 2024 and prior to the Transaction, there were Tradeable Warrants to purchase up to an aggregate of 1,601,258 shares of common
stock outstanding and Non-Tradeable Warrants to purchase an aggregate of up to 2,704,554 shares of common stock outstanding.
F- 16