bioAffinity Technologies, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. This section presents management’s perspective on our financial condition and results of operations. The following discussion and analysis (the “MD&A”) is intended to highlight and supplement data and information presented elsewhere in this Annual Report on Form 10-K. The MD&A is also intended to provide you with information that will assist you in understanding our consolidated financial statements, the changes in key items in those consolidated financial statements from year to year, and the primary factors that accounted for those changes. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause the Company’s financial results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the “Cautionary Note Regarding Forward-Looking Statements” section of this Quarterly Report and in the “Risk Factors” in our Annual Report on Form10-K. 16 Our MD&A is organized as follows: ● Company Overview – Discussion of our Business Plan and strategy to provide context for the remainder of the MD&A. ● Results of Operations – Analysis of our financial results comparing the year ended December 31, 2022, to the year ended December 31, 2021. ● Liquidity and Capital Resources – Analysis of changes in our cash flows, and discussion of our financial condition and potential sources of liquidity. ● Critical Accounting Policies and Use of Estimates – Accounting policies that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts. Company Overview Business bioAffinity Technologies, Inc. (the “Company,” “we,” or “our”) develops noninvasive, early-stage diagnostics to detect and researches targeted therapies to detect and treat lung cancer and other diseases of the lung at the cellular level. Our Company also is conducting early-stage research focused on advancing therapeutic discoveries that could result in broad-spectrum cancer treatments. We develop proprietary noninvasive diagnostic tests and cancer therapeutics using technology that preferentially targets cancer cells and cell populations indicative of a diseased state. Research and optimization of our platform technologies are conducted in our laboratories at The University of Texas at San Antonio. Our first diagnostic test, CyPath ® Lung, addresses the need for noninvasive detection of early-stage lung cancer. Lung cancer is the leading cause of cancer-related deaths. Physicians are able to order CyPath ® Lung to assist in their assessment of patients who are at high risk for lung cancer. The CyPath ® Lung test enables physicians to more confidently distinguish between patients who will likely benefit from timely intervention and more invasive follow-up procedures from patients who are likely without lung cancer and should continue annual screening. CyPath ® Lung has the potential to increase overall diagnostic accuracy of lung cancer, which could lead to increased survival, fewer unnecessary invasive procedures, reduced patient anxiety, and lower medical costs. Through our wholly owned subsidiary, OncoSelect ® Therapeutics, LLC, our research has led to discoveries and advancement of novel cancer therapeutics that specifically and selectively target cancer cells. We are focused on expanding our broad-spectrum platform technologies to continue developing tests that detect and therapies that target various types of cancer and potentially other diseases. Recent Developments ● In the third quarter of 2022, the Company completed our initial public offering (IPO), with net proceeds of $6.0 million after deducting underwriting discounts, commissions and offering expenses. In connection with our IPO, the Company converted almost $11 million in debt and related accrued interest into shares of Common Stock. ● In the third quarter of 2022, the Company raised additional proceeds of $7.8 million from the sale of warrants and the exercise of options. ● In the second quarter of 2022, we recognized royalty revenue on sales of our CyPath ® Lung test to physicians by Precision Pathology Services (“Precision Pathology”), a CAP-accredited, CLIA-certified clinical pathology laboratory and our licensee in San Antonio, Texas. 17 ● We have determined we will need to enroll an estimated 1,800 participants in our pivotal clinical trial that is designed to confirm the sensitivity and specificity of CyPath ® Lung in detecting lung cancer in persons at high risk for the disease, including patients who display indeterminate lung nodules between 6mm and 30 mm in size which often present a challenge in diagnosis. ● In the third quarter of 2022, the Company was awarded therapeutic patents in The People’s Republic of China, Mexico, and Australia directed at compounds comprised of porphyrins conjugated to chemotherapeutic agents that can provide selective treatment for cancer. ● In the third quarter of 2022, Precision was inspected by the College of American Pathologists (CAP) including inspection of the CyPath ® Lung test in accordance with CAP/CLIA regulatory standards and regulations. The inspection resulted in continued accreditation for the laboratory and the CyPath ® Lung test as a Laboratory Developed Test (LDT). ● In the first quarter of 2023, the Company announced publication of “Detection of early-stage lung cancer in sputum using automated flow cytometry and machine learning” detailing results of the Company’s validation clinical trial for its non-invasive diagnostic CyPath® Lung in Respiratory Research, which showed CyPath ® Lung had 92% sensitivity and 87% specificity in high-risk patients who had nodules smaller than 20 millimeters or no nodules in the lung, with an area under the ROC curve of 94%. Overall, the test resulted in specificity of 88% and sensitivity of 82%. More than half of those in the cancer cohort had early Stage I or II lung cancer. CyPath® Lung detected multiple forms of cancer including adenocarcinoma, squamous cell carcinoma, and small cell lung cancer. ● In the first quarter of 2023, the Company announced publication in the peer-reviewed journal JoVE of “Porphyrin-modified beads for use as compensation controls in flow cytometry” that describes the beads engineered by the Company for use with its CyPath® Lung test. ● In the first quarter of 2023, the Company announced that the U.S. Patent and Trademark Office (USPTO) issued a Notice of Allowance for a therapeutic patent application directed at compounds comprised of porphyrins conjugated to chemotherapeutic agents that can provide selective treatment for cancer. Development of Our Diagnostic Tests Our first diagnostic test, CyPath ® Lung, is a noninvasive test to detect early-stage lung cancer in people at high risk for the disease. Our current five-year Business Plan for the commercial development of CyPath ® Lung contemplates the following major initiatives: ● Initial market launch of CyPath ® Lung as an LDT in Texas, expanding sales to the Southwest U.S. to be followed by an expanding sale of the test to U.S. physicians; ● Launch CyPath ® Lung as a CE-marked in vitro diagnostic (IVD) test in the EU; ● Initiate and complete a pivotal clinical trial proving the efficacy of CyPath ® Lung; ● Submit to the U.S. Food and Drug Administration (FDA) for clearance for the Company to directly sell CyPath ® Lung as an FDA-cleared test to U.S. physicians for detection of early-stage lung cancer in people at high risk for the disease; and ● Expand the EU market and sale of CyPath ® Lung in Asia, Eastern Europe, and Australia. Notwithstanding that initial and interim data appear promising, the outcomes of our future clinical trials are uncertain, and future clinical trials may ultimately be unsuccessful. Financial To date, we have devoted a substantial portion of our efforts and financial resources to the development of our first diagnostic test, CyPath ® Lung. As a result, since our inception in 2014, we have funded our operations principally through private sales of our equity or debt securities. From October 2021 through August 2022, the Company raised $2.7 million through the sale of Bridge Notes. In July 2022, all but six of the Bridge Notes with an aggregate principal amount of $325,000 were further amended to have a maturity date of October 31, 2022. As consideration for the maturity date extension, each noteholder received a warrant to purchase that number of shares of Common Stock equal to the quotient obtained by dividing the principal amount of such holder’s note by 10.5 at an exercise price equal to $5.25 per share of Common Stock, representing 50% warrant coverage on the principal amount of the note. In connection with the sale of our convertible Bridge Notes, our Placement Agent was paid commissions of nine percent (9.0%) and was issued the Placement Agent’s Warrant to purchase 54,464 shares of Common Stock. The Placement Agent’s Warrants have substantially the same terms as the warrants issued to our noteholders and an exercise price of $7.35 per share. 18 In September 2022, we completed our IPO, with net proceeds of $6.0 million after underwriting discounts, commissions, and offering expenses, and received proceeds of approximately $7.8 million from the exercise of warrants and options. As of December 31, 2022, we had cash and cash equivalents of $11.5 million. We believe that our available cash will be sufficient to fund our planned operations for at least 12 months following the issuance date of this Annual Report. In the second quarter of 2022, we started to recognize revenue from sales of the CyPath ® Lung test by our licensee, Precision Pathology. We have never been profitable, and as of December 31, 2022, we had working capital of $10.8 million and an accumulated deficit of approximately $36.7 million. We expect to continue to incur significant operating losses for the foreseeable future as we continue the development of our diagnostic tests and therapeutic products and advance our diagnostic tests through clinical trials. We intend to license our therapeutic products for clinical development should animal and pre-clinical studies prove successful. We anticipate raising additional cash needed through the private or public sales of equity or debt securities, collaborative arrangements, or a combination thereof, to continue to fund our operations and develop our products. There is no assurance that any such collaborative arrangement will be entered into or that financing will be available to us when needed in order to allow us to continue our operations, or if available, on terms acceptable to us. If we do not raise sufficient funds in a timely manner, we may be forced to curtail operations, delay our clinical trials, cease operations altogether, or file for bankruptcy. Results of Operations Year Ended December 31, 2022, Compared to the Year Ended December 31, 2021 Our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future. Net loss for the year ended December 31, 2022, was approximately $8.2 million, compared to a net loss of approximately $6.3 million for the year ended December 31, 2021, resulting from the operational activities described below. Revenue Our revenue is generated exclusively from royalties for our first diagnostic test, CyPath ® Lung, from sales by Precision Pathology, a CAP-accredited, CLIA-certified clinical pathology laboratory and our licensee. Although Precision Pathology placed CyPath ® Lung on its list of tests offered to physicians in second quarter 2022, there was limited marketing of the product until our IPO in September provided funds to assemble a marketing team of experts focused on demonstrating the clinical value of CyPath ® Lung in the marketplace. The limited test market launch in the San Antonio area is designed to evaluate our marketing program and help us ensure each step in the care pathway is efficient and effective, from the initial order by physicians to patient sputum collection and processing, to generating and delivering the patient report. This limited test market approach allows us to refine future positioning and develop strategic insight for our CyPath ® Lung test before expanding to a larger market. We had revenue of approximately $5,000 during the year ended December 31, 2022, from the sale of CyPath ® Lung as an LDT, compared to no revenue in 2021. We expect our revenue to continue to grow for CyPath ® Lung as we add physicians prescribing our diagnostic test and expand our outreach to other geographic areas. Our revenues are affected by the test volume of our products, patient adherence rates, payer mix, the levels of reimbursement, and payment patterns of payers and patients. 19 Cost of Sales Cost of sales is comprised primarily of costs related to inventory production and usage and shipment of collection kits to patients and healthcare providers. The increase in cost of sales for the year ended December 31, 2022, is primarily due to the launch of sales in the second quarter of 2022, compared to no sales in the prior year. Operating Expenses Year Ended Change in 2022 December 31, Versus 2021 2022 2021 $ % (amounts in thousands) (amounts in thousands) Operating expenses: Research and development $ 1,143 $ 1,008 $ 135 13 % Clinical development ‌146 ‌130 ‌16 12 % Selling, general and administrative ‌2,727 ‌‌1,069 1,658 155 % Total operating expense $ 4,016 $ 2,207 $ 1,809 82 % Operating expenses totaled $4.0 million and $2.2 million during 2022 and 2021, respectively. The increase in operating expenses is the result of the following factors. Research and Development Our research and development expenses consist primarily of expenditures for lab operations, preclinical studies, compensation, and consulting costs. Research and development expenses totaled $1.1 million and $1.0 million during 2022 and 2021, respectively. The increase of approximately $135,000, or 13%, for 2022 compared to 2021 was primarily attributable to an increase in compensation costs and benefits as we added research personnel, partially offset by a decrease in the prior year due to several employees who were furloughed for several months and later returned to their positions with the Company. Additionally, costs related to lab supplies and reagents increased as employees returned to facilities after restrictions eased for COVID-19. These increases were partially offset by a decrease in stock compensation expense related to stock option and restricted share grants to employees and consultants in 2022 compared to 2021. Clinical Development Clinical development expenses totaled approximately $146,000 and $130,000 during 2022 and 2021, respectively. The increase of approximately $16,000, or 12%, for 2022, compared to 2021 was primarily attributable to an increase in professional fees, including consulting fees, and increases in clinical study activities related to site costs compared to 2021 as operations were still being affected by the global pandemic. Selling, General and Administrative Our selling, general and administrative expenses consist primarily of expenditures related to compensation, legal, accounting, tax and other professional services, and general operating costs. Selling, general and administrative expenses totaled approximately $2.7 million and $1.1 million during 2022 and 2021, respectively. The increase of $1.7 million, or 155%, for 2022 compared to 2021 was primarily attributable to increases related to consulting, legal, and professional fees incurred in 2022 compared to 2021 as we prepared for our IPO and comply with the reporting requirements of a public company. Patent costs increased in the current year as we maintain and expand our patent portfolio to protect our diagnostic and therapeutic platforms. Additionally, the increase was due to an increase in stock-based compensation, as well as an increase in compensation and benefits as we increased personnel and support services to support the launch of sales of our diagnostic test, CyPath ® Lung. 20 Other Income (Expense) Year Ended Change in 2022 December 31, Versus 2021 2022 2021 $ % (amounts in thousands) (amounts in thousands) Interest income (expense), net $ (2,486 ) $ (1,002 ) $ (1,484 ) 148 % Gain on extinguishment of debt 212 239 (27 ) -11 % Fair value of warrants — (4,080 ) 4,080 -100 % Loss on change in fair value of convertible notes (1,867 ) 725 (2,592 ) -358 % Total other income (expense) $ (4,141 ) $ (4,118 ) $ (23 ) 1 % Other income (expense) totaled approximately ($4.1) million and ($4.1) million for 2021 and 2020, respectively. Interest income (expense) We had net interest expense of approximately $2.5 million and $1.0 million for the years ended December 31, 2022 and 2021, respectively. The increase was due to additional convertible notes outstanding during the same period in the prior year. Additionally, in 2022 the Company recorded interest expense of approximately $2.1 million for the amortization of debt discount related to the issuance of Bridge Notes. Gain on Extinguishment of Debt In March 2021, the Company received a second draw $0.2 million Paycheck Protection Program Loan (the “PPP Loan”) and received forgiveness from the Small Business Administration (SBA) in April 2022, recording a gain of $212,000 on the extinguishment of the PPP Loan. In April 2020, the Company received an initial $0.2 million PPP Loan and received forgiveness from the SBA in June 2021, recording a gain of $239,000 on the extinguishment of the PPP Loan. Fair value of warrants In 2021, in connection with the issuance of the Bridge Notes, the Company amended the terms of certain convertible notes. As an inducement to amending the notes, the Company issued Common Stock warrants with the same terms and conditions as the warrants issued to the Bridge Note holders. The estimated fair value of the warrants was $4.1 million and immediately expensed within the accompanying consolidated statement of operations. (Loss) gain on change in fair value of convertible notes The loss on the change in fair value of convertible notes totaled approximately $1.9 million during 2022 compared to a gain of $0.7 million during 2021, respectively. The change in the fair value of convertible notes resulted primarily from changes in the calculation of the fair value of our stock, the reduction in the expected term, and other assumptions during the reported periods. Refer to our notes to audited financial statements for further discussion on our convertible notes. Liquidity and Capital Resources To date, we have funded our operations primarily through our IPO, exercise of warrants and options, and the sale of our equity and debt securities, resulting in gross proceeds of approximately $34.3 million. We have incurred losses since our inception in 2014 as a result of significant expenditures for operations and research and development and, prior to April 2022, the lack of any approved diagnostic tests or therapeutic products to generate revenue. We have an accumulated deficit of approximately $36.7 million as of December 31, 2022. We anticipate that we will continue to incur additional losses for the foreseeable future. Cash and cash equivalents were approximately $11.4 million as of December 31, 2022. Based on our current level of expected operating expenditures, we expect to be able to fund our operations for at least twelve (12) months following the date of this Annual Report. 21 In the fourth quarter of 2021 and the first quarter of 2022, the Company issued a total of $2.4 million in Bridge Notes. In August 2022, the Company issued an additional $0.3 million in Bridge Notes to related parties. The Bridge Notes were convertible into the Company’s Common Stock at the time of an IPO or at the noteholder’s option at $4.20 per share, adjusted to reflect any stock split, stock dividend, or other similar change in the Common Stock. The convertible Bridge Notes bore interest at six percent (6%) and, with one exception, were amended to have a maturity date of August 31, 2022. The maturity date of one convertible bridge note with a principal amount of $100,000 was not extended and was repaid in full. In July 2022, all but six of the Bridge Notes with an aggregate principal amount of $325,000 were further amended to have a maturity date of October 31, 2022. As consideration for the maturity date extension, each noteholder received a warrant to purchase that number of shares of Common Stock equal to the quotient obtained by dividing the principal amount of such holder’s note by 10.5 at an exercise price equal to $5.25 per share of Common Stock, representing 50% warrant coverage on the principal amount of the note. In connection with the sale of our convertible Bridge Notes, our Placement Agent was paid commissions of nine percent (9.0%) and was issued the Placement Agent’s Warrant to purchase 54,464 shares of Common Stock. The Placement Agent’s Warrants have substantially the same terms as the warrants issued to our noteholders and an exercise price of $7.35 per share. In the fourth quarter of 2022, the Company repaid $325,000 for those notes that were not converted at the time of the Company’s IPO. We continue to seek sources of financing to fund our continued operations and research and development programs. To raise additional capital, we may sell additional equity or debt securities, or enter into collaborative, strategic, and/or licensing transactions. There can be no assurance that we will be able to complete any financing transaction in a timely manner or on acceptable terms or otherwise or enter into a collaborative or strategic transaction. If we are not able to raise additional cash, we may be forced to delay, curtail, or cease development of our diagnostic tests or therapeutic products, or cease operations altogether. Cash Flows The following information reflects cash flows for the years presented: Year Ended December 31, 2022 2021 (amounts in thousands) Cash and cash equivalents at beginning of year $ 1,361 $ 83 Net cash used in operating activities (4,071 ) (2,049 ) Net cash used in investing activities (220 ) — Net cash provided by financing activities 14,344 3,327 Cash and cash equivalents at end of year $ 11,414 $ 1,361 Net Cash Used in Operating Activities Net cash used in operating activities was approximately $4.1 million and $2.0 million for the years ended December 31, 2022 and 2021, respectively. The increase of approximately $2.1 million in cash used by operations during the year ended December 31, 2022, compared to 2021, was primarily attributable to an increase of $1.8 million in our loss from operations as compared to the prior year as described above. These increases were partially offset by adjustments for the amortization of debt discount related to the issuance of Bridge Notes and non-cash charges related to stock-based compensation. 22 Net Cash Used in Investing Activities The Company used approximately $0.2 million in investing activities in 2022, compared to no cash used for the year ended December 31, 2021. The increase in cash used in investing activities in 2022, compared to 2021, is attributable to the purchase of lab equipment in the fourth quarter of 2022. Net Cash Provided by Financing Activities During the year ended December 31, 2022, net cash provided by financing activities was $14.3 million primarily due to net proceeds of approximately $6.0 million from issuance of Common Stock in our IPO, as well as proceeds of approximately $7.8 million from the exercise of warrants and options. Additionally, the increase is due to the issuance of $0.7 million of our Bridge Notes during the year, partially offset by debt issuance costs and the repayment of $425,000 of notes not converted as part of the IPO. During the year ended December 31, 2021, net cash provided by financing activities was $3.3 million consisting of $3.3 million from the issuance of convertible notes, as well as receiving a second draw on our PPP Loan of $212,000 in March 2021, partially offset by the payment of approximately $180,000 in debt issuance costs. In April 2022, the Company submitted an application for forgiveness for the second draw on our PPP Loan and received notice of forgiveness from the SBA. Critical Accounting Policies and Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) in the United States requires management to make significant judgments and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these significant judgments and estimates on historical experience and other assumptions it believes to be reasonable based upon information presently available. Actual results could differ from those estimates under different assumptions, judgments, or conditions. Share-Based Compensation We follow ASC 718, Compensation – Stock Compensation , which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, directors, and non-employees based on estimated fair values. We have used the Black-Scholes option pricing model to estimate grant date fair value for all option grants. The assumptions we use in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As such, as we use different assumptions based on a change in factors, our stock-based compensation expense could be materially different in the future. Accounting for Income Taxes We are governed by U.S. income tax laws, which are administered by the Internal Revenue Service (IRS). We follow ASC 740, Accounting for Income Taxes , which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which the related temporary difference becomes deductible. Fair Value of Convertible Notes Payable We adopted FASB ASU No. 2016-01 “ Financial Instruments—Overall (Subtopic 825-10) .” In applying ASC 825, it is necessary to determine whether to bifurcate the Beneficial Conversion Feature from the convertible note. Under ASC 825, provided the fixed conversion price stipulated in the convertible note is greater than the fair market value at the date of issuance (“out of the money”), the beneficial conversion feature guidance is not applicable, and the convertible notes are eligible to be valued at fair value and any adjustments recorded in the statement of operations. 23 The Company elected to account for the convertible notes payable at fair value with any changes in fair value being recognized in the consolidated statements of operations until the convertible notes are settled. The fair value of the convertible notes is determined with the assistance of a third-party valuation firm. Given the conversion terms that exist, there were two scenarios considered: i) conversion into a preferred share class, or ii) conversion into the common share class. Given the issuance dates, a negotiation discount was calibrated and applied such that the probability weighting of the issued notes is equal to par value as of the respective issuance dates. The probabilities of each conversion scenario were discussed and assigned based on the expectations regarding the future of the Company. Off-Balance Sheet Arrangements We do not engage in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, as a part of our ongoing business. Accordingly, we did not have any off-balance sheet arrangements during any of the periods presented. Going Concern Our evaluation of our ability to continue as a going concern requires us to evaluate our future sources and uses of cash sufficient to fund our currently expected operations in conducting research and development activities one year from the date our financial statements are issued. We evaluate the probability associated with each source and use of cash resources in making our going concern determination. The research and development of our diagnostic tests and therapeutic products are inherently subject to uncertainty. Quantitative and Qualitative Disclosures About Market Risk We are a smaller reporting company as defined by Item 10 of Regulation S-K and are not required to provide the information otherwise required under this item. Emerging Growth Company (EGC) Status As an EGC under the JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for EGCs include presentation of only two years of audited financial statements in a registration statement for an IPO, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board, and less extensive disclosure about our executive compensation arrangements. 24 In addition, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an EGC to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We may remain classified as an EGC until the end of the fiscal year following the fifth anniversary of the IPO, although if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of June 30 of any year before that time, or if we have annual gross revenues of $1.07 billion or more in any fiscal year, we would cease to be an EGC as of December 31 of the applicable year. We would also cease to be an EGC if we issue more than $1.0 billion of non-convertible debt over a three-year period. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company as defined by Item 10 of Regulation S-K and are not required to provide the information otherwise required under this Item 7A.