Note
1. NATURE OF OPERATIONS, ORGANIZATION, AND BASIS OF PRESENTATION
Description
of Business
bioAffinity
Technologies, Inc., a Delaware corporation (the “Company,” “we,” or “our”), addresses the need for
noninvasive diagnosis of early-stage cancer and diseases of the lung. Our 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 and cancer therapeutics using technology that preferentially targets cancer cells and cell populations indicative
of a diseased state. Our first diagnostic test, CyPath® Lung, is a noninvasive test for early detection of lung cancer,
the leading cause of cancer-related deaths. Research and optimization of our proprietary platform for in vitro diagnostics and
technologies are conducted in our laboratories at The University of Texas at San Antonio. We are developing our platform technologies
so that in the future, they will be able to detect, monitor, and treat diseases of the lung and other cancers.
Organization
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.
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting
principles in the United States (“GAAP”) and pursuant to the rules and regulations of the SEC for interim financial reporting.
The condensed consolidated financial statements are unaudited, and in management’s opinion include all adjustments, including normal
recurring adjustments and accruals, necessary for a fair presentation of the results for the interim periods presented. Operating results
for the periods presented are not necessarily indicative of the results that may be expected for the fiscal year ended December 31, 2023,
or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited annual
consolidated financial statements and notes included in the Company’s Form 10-K filed with the SEC on March 31, 2023.
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 condensed 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 $38.2 million at March 31,
2023. The Company’s cash and cash equivalents at March 31, 2023, were approximately $9.8 million, representing 93% of total assets.
Based on the Company’s current expected level of operating expenditures, the Company believes its cash on hand at March 31, 2023,
is sufficient to fund the Company’s ongoing operations for a period of a least twelve (12) months subsequent to the issuance of
the accompanying unaudited condensed consolidated financial statements. Thereafter, 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.
COVID-19
The
rapid global spread of the COVID-19 virus since December 2019 has affected production and sales worldwide, disrupted supply chains across
a range of industries, and created significant economic volatility. The impact of COVID-19 on the Company’s operational and financial
performance will depend on numerous factors, including the spread, duration, and intensity of the pandemic (including resurgences), the
emergence of new viral variants, and the impact of the pandemic on the Company’s customers, employees, clinical trial sites, and
vendors.
As
the COVID-19 pandemic continues to evolve, the ultimate impact of the pandemic on the Company’s operations is highly uncertain
and subject to change and will depend on future developments, which cannot be accurately predicted, including the duration of the pandemic,
additional or modified government actions, and the actions taken to contain COVID-19 or address its impact, among others. Management
does not yet know the full extent of potential delays or impacts on the Company, clinical trials, research programs, healthcare systems,
or the global economy but continues to monitor the situation closely.
Note
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of condensed consolidated financial statements in conformity with U.S. 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; the useful lives
of fixed assets; and the fair value of the convertible notes payable.
Principles
of Consolidation
The
accompanying condensed consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiary,
OncoSelect® Therapeutics, LLC. All significant intercompany balances and transactions have been eliminated.
Advertising
expense
The
Company expenses all advertising costs as incurred. Advertising expense was approximately $6,000 and $3,000 for the three months ended
March 31, 2023 and 2022, respectively.
Loss
Per Share
Basic
earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number
of Common Shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to common
stockholders by the sum of the weighted-average number of Common Shares outstanding during the period and the weighted-average number
of dilutive Common Share equivalents outstanding during the period, using the treasury stock method. Dilutive Common Share 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 outstanding as of March
31, 2023 and 2022, as they would be anti-dilutive:
SCHEDULE OF POTENTIALLY DILUTIVE SECURITIES
| |
2023 | | |
2022 | |
| |
As of March 31, | |
| |
2023 | | |
2022 | |
Convertible preferred stock | |
| — | | |
| 756,558 | |
Shares underlying options outstanding | |
| 806,392 | | |
| 884,094 | |
Shares underlying warrants outstanding | |
| 4,649,952 | | |
| 2,057,740 | |
Shares underlying convertible notes | |
| — | | |
| 2,511,345 | |
Anti-dilutive securities | |
| 5,556,344 | | |
| 6,209,737 | |
Revenue
Recognition
Revenue
is generated exclusively from royalties for the Company’s first diagnostic test, CyPath® Lung, from sales by Precision
Pathology Services, a CAP-accredited, CLIA-certified clinical pathology laboratory and the Company’s licensee, that began a limited
market launch in the second quarter of 2022 to pulmonologists in the South Texas area, designed to refine future positioning and develop
strategic insight for the Company’s CyPath® Lung test. The services are completed upon release of a patient’s
test result to the ordering healthcare provider.
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.
Reclassifications
Certain
prior year balances have been reclassified to conform to current year presentation. The Company reclassified patent expenses and annuity
costs of approximately $42,000 from research and development to selling, general and administrative for the three months ended March
31, 2022, respectively.
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 report will have a material impact on the Company’s
condensed consolidated financial statements.
Note
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets are summarized below:
SCHEDULE
OF PREPAID EXPENSES AND OTHER CURRENT ASSETS
| |
March 31, 2023 | | |
December 31, 2022 | |
| |
| | |
| |
Prepaid insurance | |
$ | 222,742 | | |
$ | 340,078 | |
Legal and professional | |
| 84,077 | | |
| 72,048 | |
Other | |
| 134,313 | | |
| 119,773 | |
Total prepaid expenses and other current assets | |
$ | 441,132 | | |
$ | 531,899 | |
Note
4. PROPERTY AND EQUIPMENT, NET
Property
and equipment are summarized below:
SCHEDULE
OF PROPERTY AND EQUIPMENT
| |
March 31, 2023 | | |
December 31, 2022 | |
| |
| | |
| |
Lab equipment | |
$ | 488,718 | | |
$ | 462,155 | |
Computers and software | |
| 27,214 | | |
| 21,463 | |
Property and equipment, gross | |
| 515,932 | | |
| 483,618 | |
Accumulated depreciation | |
| (290,865 | ) | |
| (269,180 | ) |
Total property and equipment, net | |
$ | 225,067 | | |
$ | 214,438 | |
Depreciation
expense was approximately $22,000 and $1,000 for the three months ended March 31, 2023 and 2022, respectively.
Note
5. ACCRUED EXPENSES
Accrued
expenses are summarized below:
SCHEDULE
OF ACCRUED EXPENSES
| |
March 31, 2023 | | |
December 31, 2022 | |
| |
| | |
| |
Compensation | |
$ | 281,085 | | |
$ | 340,680 | |
Legal and professional | |
| 131,819 | | |
| 144,440 | |
Clinical | |
| 58,262 | | |
| 50,922 | |
Other | |
| 10,170 | | |
| 5,852 | |
Total accrued expenses | |
$ | 481,336 | | |
$ | 541,894 | |
Note
6. LOAN PAYABLE
In
September 2022, the Company obtained short-term financing of approximately $0.5 million with ten monthly payments of approximately $42,000
and interest at a 4.3% fixed annual rate for director and officer insurance policies.
Note
7. 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
8. COMMITMENTS AND CONTINGENCIES
Operating
Leases
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 approximately $26,000 and $13,000 for each of the three months ended March 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
9. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
In
June 2022, the Company completed a 1-for-7 reverse stock split of its Common Stock. All share and per share amounts have been adjusted
on a retroactive basis in these condensed consolidated financial statements to reflect the effect of the reverse stock split. The Company
made a cash payment to stockholders for all fractional shares that it would otherwise be required to issue as a result of the stock split.
In addition, the stock split resulted in the par value of the Company’s Common Stock increasing to $0.007 per share.
Convertible
Preferred Stock
The
Company has authorized a total of 20,000,000 shares of preferred stock, $0.001 par value per share. Prior to the initial public offering
(“IPO”), the Company issued 5,296,044 shares of preferred stock, designated as Series A. In July 2017, the Company completed
a private placement of securities in which 1.3 million shares of Series A Preferred Stock were sold, resulting in net proceeds of $1.5
million. As part of the closing, the Company issued 4.0 million shares of Series A Preferred Stock in exchange for $2.6 million of the
Company’s convertible notes payable and related accrued interest.
In
accordance with the Certificate of Designation of the Series A Preferred Stock, all of the shares of Series A Preferred Stock that were
issued and outstanding at the time of the IPO closing were automatically converted into 745,558 fully paid and nonassessable shares of
Common Stock at a 1-for-7 conversion rate (as adjusted for the 1-for-7 reverse stock split). The shares of Series A Preferred Stock that
were so converted ceased to be part of the Company’s authorized stock and will never again be issued by the Company. As of March
31, 2023, and December 31, 2022, no Preferred Stock was outstanding.
Common
Stock
The
Company has authorized a total of 14,285,714 shares of Common Stock, $0.007 par value per share. In November 2021, the Company received
stockholder approval to increase the number of authorized shares from 7,142,857 shares to 14,285,714 shares. The Company has issued 8,463,052
shares of Common Stock as of March 31, 2023, and 8,381,324 shares of Common Stock as of December 31, 2022.
Note
10. STOCK-BASED COMPENSATION
The
Company grants options under its 2014 Equity Incentive Plan (the “Plan”). Under the Plan, the Company is authorized to grant
options for up to 1.1 million shares of Common Stock. The Company has reserved 1.0 million shares to be used under the Plan. Options
may be granted to employees, the Company’s board of directors, and external consultants who provide services to the Company. Options
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 September 2026.
The
Company has recorded stock-based compensation expense (credit) related to the issuance of stock option awards in the following line items
in the accompanying condensed consolidated statement of operations:
SUMMARY
OF STOCK-BASED COMPENSATION EXPENSE RECOGNIZED FOR STOCK OPTION AWARDS
| |
2023 | | |
2022 | |
| |
Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Research and development | |
$ | 11,268 | | |
$ | 4,643 | |
General and administrative | |
| 146,345 | | |
| 101,404 | |
Total stock-based compensation
expense | |
$ | 157,613 | | |
$ | 106,047 | |
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 | | |
| | | |
| | |
Granted | |
| — | | |
| — | | |
| | | |
| | |
Exercised | |
| — | | |
| — | | |
| | | |
| | |
Forfeited | |
| — | | |
| — | | |
| | | |
| | |
Outstanding at March 31, 2023 | |
| 806,392 | | |
$ | 4.33 | | |
| 3.8 | | |
$ | 271,298 | |
| |
| | | |
| | | |
| | | |
| | |
Vested and exercisable at March 31, 2023 | |
| 803,218 | | |
$ | 4.31 | | |
| 3.7 | | |
$ | 271,298 | |
As
of March 31, 2023, there was no unrecognized compensation cost related to non-vested stock options. During the three months ended March
31, 2023 and 2022, no options were exercised. During the three months ended March 31, 2023, no options were issued by the Company to
purchase shares of Common Stock. During the three months ended March 31, 2022, the Company issued options to purchase 7,142 shares of
Common Stock. 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 three months ended March 31, 2023, the Company issued restricted stock units (RSUs) for 64,016 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 one year,
subject to the employees and non-employees providing continuous service through the vesting date. During the three months ended March
31, 2023, approximately 82,000 shares vested from RSUs previously issued.
During
the three months ended March 31, 2022, the Company issued RSUs for 14,999 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 three months ended March 31, 2022, approximately 16,000 shares vested
from RSUs previously issued.
The
following table summarizes weighted-average assumptions using the Black-Scholes option-pricing model used on the date of the grants issued
during the three months ended March 31, 2022:
SCHEDULE
OF FAIR VALUE ASSUMPTIONS
| |
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 | % |
Note
11. 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 condensed consolidated balance sheet at fair value, and changes
in fair value during the periods presented in the condensed consolidated statement of operations, which is revalued at each balance sheet
date subsequent to the initial issuance of the stock warrant.
As
of March 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 $6.39 and expire at various dates through September 2027. During
the three months ended March 31, 2023 and 2022, no warrants were exercised into an equivalent number of Common Shares.
Note
12. SUBSEQUENT EVENTS
The
Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed consolidated
financial statements were available to be issued. Based upon this review, the Company did not identify any subsequent events that would
have required adjustment or disclosure in the condensed consolidated financial statements.