| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Note
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use
of Estimates The
preparation of condensed 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 condensed
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 condensed 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 condensed consolidated financial
statements include all the accounts of the Company, its wholly owned subsidiaries, OncoSelect ® 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 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 2.5 564,972 1 ® The
Company recognized goodwill of $ 1,404,000 The
following table summarizes the purchase price and finalized purchase price allocations relating to the acquisition: SCHEDULE
OF PURCHASE PRICE AND FINALIZED 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. The
preliminary purchase price allocations relating to the acquisition previously reported in the Quarterly Report on Form 10-Q filed November
14, 2023, reported net working capital of $ 1,167,000 1,149,000 811,000 For
prior year comparative purposes, the pro-forma statement of operations as if combined on January 1, 2023, would result in net revenues
of $ 5,639,186 6,244,179 0.73 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 Advertising
Expense The
Company expenses all advertising costs as incurred. Advertising expense was $ 232,396 42,947 101,271 15,206 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 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, unvested restricted stock, 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 September 30, 2024 and 2023, as they would be anti-dilutive: SCHEDULE
OF POTENTIALLY DILUTIVE SECURITIES
2024 2023
As
of September 30,
2024 2023
Shares
underlying options outstanding 337,810 683,695
Shares
underlying warrants outstanding 9,573,898 4,649,952
Shares underlying unvested restricted stock 415,282 133,414
Anti-dilutive
securities 10,326,990 5,467,061 Revenue
Recognition The
Company recognizes as revenue the amount that reflects the consideration to which it expects to be entitled in exchange for goods sold
or services rendered primarily upon completion of the testing process (when results are reported) or when services have been rendered. Patient
Service Fee Revenue Net
revenues from patient service fees accounted for greater than 85 The
process for estimating revenues and the ultimate collection of accounts receivable involves significant judgment and estimation. The
Company follows a standard process, which considers historical denial and collection experience and other factors (including the period
of time that the receivables have been outstanding), to estimate contractual allowances and implicit price concessions, recording adjustments
in the current period as changes in estimates. Further adjustments to the allowances, based on actual receipts, may be recorded upon
settlement. SCHEDULE
OF REVENUE RECOGNITION
2024 2023
For
the nine months ended
2024 2023
Patient
service fees 1 $ 6,259,806 $ 248,654
Histology
service fees 811,914 31,854
Medical
director fees 50,136 2,393
Department
of Defense observational studies 8,654 14,250
Other
revenues 2 23,919 21,992
Total
net revenue $ 7,154,429 $ 319,143
1 Patient
services fees include direct billing for CyPath ® 332,000 for the nine months ended September
30, 2024 and 2023
2 Other
revenues include pre-acquisition CyPath ® Property
and Equipment In
accordance with ASC 360-10, Accounting for the Impairment of Long-Lived Assets 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
Computer
software 3
Equipment 3 5
Furniture
and fixtures 5 7
Vehicles 5
Leasehold
improvements Lesser
of lease term or useful life Intangible
Assets Intangible
assets, net of accumulated amortization, and goodwill are summarized as follows as of September 30, 2024: 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 18 150,000 (8,611 ) 141,389
Customer
relationships 9/18/2023 14 700,000 (51,667 ) 648,333
Total
intangible assets, net $ 2,254,486 $ (60,278 ) $ 2,194,208 The
Company incurred amortization of intangible assets of $ 43,750 1,943 14,583 1,943 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 Quarterly Report will have a material impact on the Company’s
condensed consolidated financial statements. The
Company adopted FASB issued Accounting Standards Update (ASU) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable
Segment Disclosures 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 ® SCHEDULE
OF SEGMENT INFORMATION
2024 2023 2024 2023
Three
months ended September 30, Nine
months ended September 30,
2024 2023 2024 2023
Net
revenue:
Diagnostic
R&D $ 1,731 $ 14,250 $ 8,654 $ 14,250
Laboratory
services 1 2,348,655 284,234 7,145,775 304,893
Total
net revenue 2,350,386 298,484 7,154,429 319,143
Operating
expenses:
Diagnostic
R&D (368,202 ) (436,799 ) (1,264,696 ) (1,196,428 )
Laboratory
services (2,150,825 ) (307,172 ) (7,423,109 ) (308,493 )
General
corporate activities (1,805,223 ) (1,849,017 ) (4,473,516 ) (4,445,045 )
Total
operating loss (1,973,864 ) (2,294,504 ) (6,006,892 ) (5,630,823 )
Non-operating
income (expense), net (24,417 ) 5,914 (54,392 ) 85,676
Net
loss before income tax expense (1,998,281 ) (2,288,590 ) (6,061,284 ) (5,545,147 )
Income
tax expense (2,559 ) (2,294 ) (11,650 ) (18,700 )
Net
loss $ (2,000,840 ) $ (2,290,884 ) $ (6,072,934 ) $ (5,563,847 )
1 The
majority of the increase versus the prior year is from the acquisition of the clinical pathology laboratory on September
18, 2023. 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 laboratory operations, preclinical studies, compensation, and consulting costs. 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 condensed consolidated
balance sheets and within research and development expense in the accompanying condensed 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 United States (“U.S.”) are a significant factor in providing medical
care. In the U.S., drugs, biological products, and medical devices are regulated by the Federal Food, Drug, and Cosmetic Act (“FDCA”),
which is administered by the Food and Drug Administration (“FDA”) and the CMS. The Company has not yet obtained marketing
authorization from the FDA but is able to market its CyPath ® | 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 ® 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, MD, 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
Company recognized goodwill of $ 1,404,000 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 6.9 8.6 8.6 0.99 1.91 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 1,149,000 811,000 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 Advertising
Expense The
Company expenses all advertising costs as incurred. Advertising expenses were approximately $ 89,000 39,000 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 ® ® ® ® ® To
determine revenue recognition for the arrangements that the Company determines are within the scope of ASC 606, Revenue from Contracts
with Customers 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 Property
and Equipment, Net In
accordance with ASC 360-10, Accounting for the Impairment of Long-Lived Assets 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
Computer
software 3
Equipment 3 5
Furniture
and fixtures 5 7
Vehicles 5
Leasehold
improvements Lesser
of lease term or useful life 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 18 150,000 (2,361 ) 147,639
Customer relationships 9/18/2023 14 700,000 (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 0 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. 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 1.4 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. |
