BioAffinity Technologies, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. The unaudited results include the acquired laboratory only from September 19, 2023. The company develops lung-disease diagnostics, including CyPath Lung, and cancer therapeutics; it also operates a clinical pathology laboratory through PPLS.
Financial results and position
| Metric | Three months ended Sept. 30 | Nine months ended Sept. 30 |
|---|---|---|
| Revenue | $298,484 (2022: $1,150) | $319,143 (2022: $2,457) |
| Gross profit | $223,780 (2022: $1,004) | $243,118 (2022: $2,165) |
| Gross margin | 75.0% | 76.2% |
| Operating expenses | $2,518,284 (2022: $977,160) | $5,873,941 (2022: $2,389,482) |
| Net loss | $2,290,884 (2022: $4,919,458) | $5,563,847 (2022: $6,479,530) |
| Basic and diluted loss per share | $(0.26) (2022: $(1.17)) | $(0.65) (2022: $(2.03)) |
The company reported no positive operating income. Revenue and gross profit increased principally because the acquired laboratory contributed patient, histology, and medical-director fees for the final 12 days of the quarter. The year-over-year reduction in net loss mainly reflects the absence of 2022 convertible-note fair-value losses and substantially lower interest expense, not a reduction in operating expenses.
- Cash and liquidity: Cash and equivalents were $4.51 million at September 30, down from $11.41 million at December 31, 2022. Current assets were $6.01 million and current liabilities $1.96 million, yielding working capital of approximately $4.05 million.
- Cash flow: The cash-flow statement reports $4.42 million used in operations and $2.22 million used in investing for the first nine months, including $2.19 million net cash paid for the acquisition. Financing used $260,179; ending cash was $4.51 million.
- Debt and leases: No loan payable remained at September 30, and convertible notes had been converted in the prior-year IPO. The acquired business added $1.29 million in finance lease liabilities and $398,260 in operating lease liabilities. Total liabilities were $3.20 million.
- Equity: Stockholders’ equity was $6.99 million, versus $11.04 million at year-end 2022. Shares outstanding were 9,216,883 at quarter-end and 9,502,243 as of November 8, 2023.
Material changes and developments
- On September 18, 2023, PPLS acquired substantially all assets of Village Oaks Pathology Services, including its CAP-accredited, CLIA-certified laboratory, for stated consideration of $3.5 million: $2.5 million cash and $1 million in company shares. The company recorded approximately $1.15 million goodwill. The preliminary purchase-price allocation may change.
- The acquisition added substantial ongoing laboratory operations and associated leases, personnel, costs, and integration demands. Village Oaks reported approximately $6.9 million revenue and a $461,000 net loss in 2022, and $3.6 million revenue and a $493,000 net loss in the first half of 2023.
- Operating expenses rose 146% for the first nine months, led by higher selling, general and administrative costs, including acquisition-related professional fees, employee compensation, stock compensation, marketing, public-company costs, and insurance.
- CMS released a preliminary payment decision for CyPath Lung’s CPT PLA code 0406U. The code became effective October 1, 2023; the filing anticipated a final 2024 payment decision in November 2023, effective January 1, 2024.
Outlook, risks, and unusual matters
- Going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern for at least 12 months after issuance. It expects to need additional equity or debt financing, strategic arrangements, grants, or other funding. Without additional capital, management anticipated cash resources would support operations only through May 2024; the company may curtail development, delay trials, cease operations, or seek bankruptcy protection.
- Management projections: The company projected $2.1–$2.3 million of PPLS net revenue for 2023, based partly on historical growth, and $456,000 of CyPath Lung gross revenue over the next 12 months. The CyPath forecast assumes increased physician adoption, sales staffing, market expansion into Houston and Dallas, and favorable reimbursement effects. These are forward-looking estimates, not results or assurances.
- Key business risks: The company has a history of losses, limited commercial revenue, and reliance on future financing. Risks include laboratory integration and profitability, reimbursement and market acceptance, clinical and regulatory outcomes, competition, IP protection, and the ability to recruit and retain staff. Management also cautions that laboratory operating experience is limited.
- Financial reporting controls: Management concluded internal control over financial reporting was ineffective as of September 30, citing limited personnel and resources. It reported steps to improve segregation of duties and accounting review, but said direct management oversight and outside professionals remain important mitigants.
- The filing reports no material pending legal proceedings. It also identifies no subsequent event requiring adjustment or disclosure.
Important facts for investors to verify
- Whether additional capital is secured, on what terms, and whether it extends liquidity beyond the disclosed May 2024 estimate.
- Actual post-acquisition laboratory revenue, margins, cash generation, and integration costs compared with management’s projections.
- Final CMS reimbursement for CPT 0406U and resulting payer coverage, realized prices, and CyPath Lung adoption.
- Progress in remedying ineffective financial reporting controls and whether further material weaknesses are identified.
- The cash-flow figures differ slightly within the filing: the financial statements report operating cash use of $4.42 million and investing cash use of $2.22 million, while the MD&A summary gives approximately $4.43 million and $2.22 million. Investors should reconcile these amounts to the filed statements.