BioAffinity Technologies, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; unaudited. BioAffinity develops noninvasive diagnostic tests and cancer therapeutics. Its first diagnostic, CyPath Lung, was in a limited San Antonio market launch through a licensed clinical laboratory. The company reported only $2,457 of revenue for the first nine months of 2022.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1,150 | $0 | $2,457 | $0 |
| Gross profit | $1,005 | $0 | $2,165 | $0 |
| Operating expenses | $977,161 | $526,293 | $2,389,481 | $1,547,070 |
| Net loss | $4,919,458 | $1,513,794 | $6,479,530 | $749,525 |
| Net loss per share, basic and diluted | $1.17 | $0.57 | $2.03 | $0.28 |
| Cash used in operations | Not presented for quarter | Not presented for quarter | $2,770,209 | $1,396,538 |
Balance sheet and liquidity at September 30: Cash and cash equivalents were $13.50 million; current assets were $14.05 million and current liabilities $1.46 million, giving working capital of approximately $12.59 million. Total assets were $14.06 million, total liabilities $1.46 million, and accumulated deficit $34.99 million. The balance sheet showed $325,000 of convertible notes payable and a $490,117 loan payable. The company reported no PPP loan remaining.
Margins: Revenue and gross profit were immaterial relative to operating costs; the filing does not report a meaningful margin percentage.
Material changes and financing
- Q3 net loss increased to $4.9 million from $1.5 million a year earlier. For the nine-month period, net loss rose to $6.5 million from $0.75 million.
- Nine-month operating expenses increased 54%, led by general and administrative costs, which rose 120% to $1.30 million. Management attributed increases to public-company and IPO-related professional costs and additional personnel; clinical development expense also increased.
- Other expense materially affected reported losses. Q3 included $3.05 million of loss from fair-value adjustments on convertible notes and $889,091 of interest expense. Nine-month results included $1.87 million of fair-value loss and $2.44 million of interest expense, including approximately $2.0 million from amortization of debt discounts and issuance costs.
- Operating cash use increased to $2.77 million for the first nine months. Financing provided $14.91 million, including approximately $6.0 million of net IPO proceeds and $7.71 million from warrant exercises. Ending cash increased from $1.36 million at December 31, 2021 to $13.50 million.
- The September IPO raised approximately $7.8 million gross and $6.0 million net. In connection with the IPO, preferred shares converted to common stock and approximately $10.6 million of convertible notes, bridge notes, and related accrued interest converted into common shares. The company reported 8,369,750 common shares outstanding at September 30.
Outlook, risks, and unusual items
- Management expects continued substantial operating losses and negative operating cash flows while it develops products and advances clinical trials. It believes September 30 cash can fund operations for at least 12 months after issuance of the financial statements, but expects to seek additional capital thereafter. Financing may not be available on acceptable terms; absent funding, the company may curtail or delay development or cease operations.
- The CyPath Lung pivotal trial is expected to require about 1,800 participants and is designed to confirm test sensitivity and specificity, particularly for high-risk patients with indeterminate lung nodules. The filing provides no specific trial completion timetable or quantified revenue guidance.
- CyPath Lung revenue comes from royalties on tests sold by licensee Precision Pathology Services. The limited market launch is intended to test marketing and care-delivery processes before broader expansion. Revenue growth depends on physician adoption, test volume, patient adherence, reimbursement, payer mix, and payment patterns.
- In October 2022, the company repaid $275,000 in notes, bridge notes, and related accrued interest that had not converted at the IPO. It also reported a short-term $490,117 loan obtained in September to finance director and officer insurance, repayable in ten monthly installments.
- Management reported no material pending legal proceedings. It concluded internal control over financial reporting was ineffective as of September 30, citing limited resources and staffing; it relies on management oversight and outside legal and accounting professionals.
- Key stated risks include clinical and regulatory outcomes, ability to obtain financing, reliance on third parties, market acceptance, intellectual-property protection, competition, and uncertainty from COVID-19 and broader economic and geopolitical conditions.
Important facts for investors to verify
- Whether cash burn and operating assumptions support the stated 12-month runway, and the timing and terms of any additional financing.
- Clinical-trial enrollment, execution, and regulatory plans for the approximately 1,800-participant CyPath Lung pivotal study.
- CyPath Lung market adoption, test volumes, royalty economics, reimbursement, and the licensee’s role in commercialization.
- Potential dilution: the filing lists 4,624,952 shares underlying outstanding warrants and 806,392 shares underlying options at September 30, in addition to common shares outstanding.
- Progress addressing ineffective internal controls and the effects of fair-value and debt-discount accounting on reported losses.