As filed with the Securities andExchange Commission on September 20, 2023.

 

RegistrationNo. 333-

 

 

UNITEDSTATES

SECURITIESAND EXCHANGE COMMISSION

Washington,D.C. 20549

 

FORMS-1

REGISTRATIONSTATEMENT UNDER THE SECURITIES ACT OF 1933

 

bioAffinityTechnologies, Inc.

(Exactname of registrant as specified in its charter)

 

Delaware		8731		46-5211056
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

 

22211W Interstate 10

Suite1206

SanAntonio, Texas 78257

210-698-5334

(Address,including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

MariaZannes

ChiefExecutive Officer

22211W Interstate 10

Suite1206

SanAntonio, Texas 78257

210-698-5334

(Name,address, including zip code, and telephone number, including area code, of agent for service)

 

Copiesto:

 

Leslie Marlow, Esq. Hank Gracin, Esq. Patrick J. Egan, Esq. Blank Rome LLP 1271 Avenue of the Americas New York, New York 10020 Tel: (212) 885-5000

Ross David Carmel, Esq. Jeffrey P. Wofford, Esq. Carmel, Milazzo & Feil LLP 55 West 39th Street 4th Floor New York, New York 10018 (212) 658-0458

 

 

Approximatedate of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

 

Ifany of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under theSecurities Act of 1933 check the following box: ☒

 

Ifthis Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check thefollowing box and list the Securities Act registration statement number of the earlier effective registration statement for the sameoffering. ☐

 

Ifthis Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list theSecurities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Ifthis Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list theSecurities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Indicateby check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company,or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smallerreporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

	Large accelerated filer ☐	Accelerated filer ☐
	Non-accelerated filer ☒	Smaller reporting company ☒
		Emerging growth company ☒

 

Ifan emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complyingwith any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

 

 

TheRegistrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until theRegistrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effectivein accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such dateas the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

Theinformation in this prospectus is not complete and may be changed. These securities may not be sold until the registrationstatement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, andit is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subjectto Completion, dated September 20, 2023.

 

PRELIMINARYPROSPECTUS

 

 

3,086,419Units

EachUnit Consisting of

OneShare of Common Stock and

OneWarrant to Purchase One Share of Common Stock,

(andthe shares of Common Stock underlying suchWarrants)

 

 

bioAffinityTechnologies, Inc.

 

bioAffinityTechnologies, Inc., a Delaware corporation headquartered in Texas (the “Company”), develops noninvasive,diagnostics to detect cancer and lung disease at early stage, and is researching targeted therapies to treat cancer at the cellularlevel.

 

Thisis the public offering (the “Offering”) of up to 3,086,419 units (each, a “Unit,”collectively, the “Units”). Each Unit consists of one share of our common stock, $0.007 par value per share(the “Common Stock”) and one warrant to purchase one share of Common Stock at an at an assumed offeringprice of $1.62 per Unit, which was the closing price of the Common Stock on September 13, 2023. The Units have no stand-alone rightsand will not be certificated or issued as stand-alone securities. The shares of Common Stock and the Warrants underlying the Units areimmediately separable and will be issued separately in this Offering. Each Warrant offered as part of this Offering will have an exerciseprice of $[●] per share (equal to 120% of the public offering price of each Unit sold in this offering), is immediately exercisableon the date of issuance and will expire five years from the date of issuance. The actual public offering price per Unit (the “OfferingPrice”) will be determined between the underwriters and us at the time of pricing, considering our historical performanceand capital structure, prevailing market conditions, and overall assessment of our business.

 

Pursuantto the registration statement related to this prospectus, we are also registering the shares of Common Stock issuable upon exercise ofWarrants.

 

OurCommon Stock and our tradeable warrants issued in our initial public offering (the “Tradeable Warrants”)are listed on the Nasdaq Capital Market (“Nasdaq”) under the symbols “BIAF” and “BIAFW,”respectively. On September 13, 2023, the last reported sale price of our Common Stock was $1.62 per share and thelast reported sale price of our Tradeable Warrants was $0.21. The actual Offering Price will be determined between us and WallachBethCapital, LLC (“WallachBeth”) as the representative of the underwriters at the time of pricing, taking into considerationseveral factors as described in “Underwriting – Pricing of the Offer” and may be at a discount to the current marketprice. Therefore, the assumed public offering price used throughout this prospectus may not be indicative of the final offering price.

 

Weare an “emerging growth company” and a “smaller reporting company” under applicable federal securities laws andwill be subject to reduced public company reporting requirements.

 

Investingin our securities involves a high degree of risk. See the “Risk Factors” section beginning on page 14 of this prospectusfor a discussion of the factors that you should consider before investing in our Common Stock.

 

Neitherthe Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapprovedof these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

Per Unit

Total Assuming No Exercise of Over- Allotment Option

Total With Full Exercise of Over- Allotment Option

Public Offering Price

$

$

$

Underwriting discount(1)

$

$

$

Proceeds, before expenses, to us(2)

$

$

$

 

	(1)	We have agreed to issue, on the closing date of this Offering, a warrant to WallachBeth Capital, LLC, the representative of the underwriters (the “Representative”; such warrant, the “Representative’s Warrant”), to purchase an amount equal to two percent (2.0%) of the aggregate number of shares of Common Stock underlying the Units sold by us in this Offering. The Representative’s Warrant is exercisable for a period of five years, commencing on the date that is 180 days after the commencement date of sales of the Units in this Offering and expiring on the five year anniversary of the effective date of the registration statement of the Offering. Please read the section titled “Underwriting” for a description of all underwriting compensation payable by us in connection with this Offering.
	(2)	The amount of Offering proceeds to us presented in this table does not give effect to any exercise of the Warrant we will issue to the Representative, as described herein.

 

Wehave granted the underwriters a 45-day option from the date of this prospectus to purchase up to a total of an additional 462,962shares of Common Stock at $[●] per share (the Offering Price less $0.01), and/or 462,962 Warrants at $0.01per Warrant, or any combination of additional shares of Common Stock and Warrants representing, in the aggregate, up to 15% of thenumber of Units sold in this Offering (the “Over-Allotment Option”), in all cases less the underwriting discount.

 

Theunderwriters expect to deliver the Units to purchasers on or about [●], 2023 through the book-entry facilities of The DepositoryTrust Company.

 

WallachBethCapital, LLC

CraftCapital Management LLC

 

Thedate of this prospectus is September [●], 2023.

 

 

bioAffinityTechnologies, Inc.

 

TABLEOF CONTENTS

 

Market, Industry, and Other Data	1
Prospectus Summary	2
The Offering	10
Summary Financial Data	12
Cautionary Note Regarding Forward-Looking Statements	13
Risk Factors	14
Use of Proceeds	43
Dividend Policy	44
Capitalization	45
Dilution	46
Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Business	58
bioAffinity Technologies, Inc. Unaudited Pro Forma Combined Financial Statements	78
Management	83
Executive Compensation	89
Principal Stockholders	93
Certain Relationships and Related-Person Transactions	95
Description of Securities	98
Material U.S. Federal Income Tax Considerations to Non-U.S. Holders of Our Common Stock	104
Underwriting	107
Legal Matters	111
Experts	111
Where You Can Find Additional Information	111
Glossary of Selected Terms	112
Index to Financial Statements	F-1

 

 

MARKET,INDUSTRY, AND OTHER DATA

 

Aboutthis Prospectus

 

Youshould rely only on the information contained in this prospectus prepared by us or on our behalf or to which we have referred you. Wehave not, and the underwriters have not, authorized any other person to provide you with information different from that contained inthis prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. Neither we nor theunderwriter take responsibility for and can provide no assurance as to the reliability of, any other information that others may giveyou. We are not, and the underwriters are not, making an offer to sell the securities described herein in any jurisdiction wherean offer or sale is not permitted. The information in this prospectus, or any free writing prospectus, is accurate only as ofthe date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our Units. Our business, financialcondition, results of operations, and prospects may have changed since that date.

 

Thisprospectus contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond ourcontrol. Please read “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”

 

Unlessthe context otherwise requires, the information in this prospectus (other than in the historical financial statements) assumes that theunderwriters will not exercise their option to purchase additional shares of our common stock, $0.007 par value per share (the “CommonStock”) or additional warrants to purchase shares of Common Stock (the “Warrants”).

 

Forinvestors outside of the United States: We are not making an offer of any securities in any jurisdiction in which such offer isunlawful. Neither we nor any of the underwriters have done anything that would permit this Offering or possession or distributionof this prospectus or any free writing prospectus we may provide to you in connection with this Offering in any jurisdiction where actionfor that purpose is required, other than in the United States. Persons outside of the United States who come into possession of thisprospectus and any free writing prospectus must inform themselves about and observe any restrictions relating to this Offering and thedistribution of this prospectus outside of the United States. See “Underwriting—Selling Restrictions” on page 110.

 

Industryand Market Data

 

Thisprospectus includes estimates regarding market and industry data. Unless otherwise indicated, information concerning our industry andthe markets in which we operate, including our general expectations, market position, market opportunity, and market size, are basedon our management’s knowledge and experience in the markets in which we operate, together with currently available informationobtained from various third-party sources, including publicly available information, industry reports and publications, surveys, ourcustomers, trade and business organizations, and other contacts in the markets in which we operate. Although we believe these third-partysources are reliable as of their respective dates, neither we nor the underwriters have independently verified the accuracy or completenessof this information. Some data is also based on our good faith estimates. The industry in which we operate is subject to a high degreeof uncertainty and risk due to a variety of factors, including those described in the section entitled “Risk Factors.” Theseand other factors could cause results to differ materially from those expressed in these publications.

 

Trademarksand Trade Names

 

Weown or have rights to various trademarks, service marks, and trade names that we use in connection with the operation of our business.This prospectus may also contain trademarks, service marks, and trade names of third parties, which are the property of their respectiveowners. Our use or display of third parties’ trademarks, service marks, trade names, or products in this prospectus is not intendedto, and does not imply a relationship with or endorsement or sponsorship by us. Solely for convenience, the trademarks, service marks,and trade names referred to in this prospectus may appear without the ®, TM or SM symbols, but such references are not intended toindicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicablelicensor to these trademarks, service marks, and trade names.

 

 

PROSPECTUSSUMMARY

 

Thissummary provides an overview of information appearing elsewhere in this prospectus and highlights the key aspects of this Offering. Thissummary does not contain all of the information you should consider prior to investing in our Common Stock or Warrants. You shouldread this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussionand Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearingat the end of this prospectus, before making any investment decision. Our fiscal year ends on December 31. Unless the context otherwiserequires, references to “bioAffinity,” the “Company,” “we,” “us,” and “our”in this prospectus refer to bioAffinity Technologies, Inc. and our consolidated subsidiaries.

 

Overview

 

bioAffinityTechnologies, Inc. (the “Company,” “we,” or “our”) develops noninvasive diagnostics to detect early-stagelung cancer and other diseases of the lung. We are developing our platform technologies so that, in the future,they could result in broad-spectrum cancer treatments. We develop proprietary noninvasive diagnostic tests using technology thatpreferentially targets cancer cells and cell populations indicative of a diseased state.

 

We were formed as a Delaware corporation on March26, 2014. On June 15, 2016, we formed OncoSelect^® Therapeutics, LLC (“OncoSelect^®”),a Delaware limited liability company and our wholly owned subsidiary. On August 14, 2023, we formed Precision Pathology LaboratoryServices, LLC (“PPLS”), a Texas limited liability company and our wholly owned subsidiary. Research andoptimization of our platform technologies are conducted in our laboratories at The University of Texas at San Antonio.

 

Ourfirst diagnostic test, CyPath^® Lung, addresses the need for noninvasive detection of early-stage lung cancer. Lung canceris the leading cause of cancer-related deaths. Physicians will be able to order CyPath^® Lung to assist in theirassessment of patients who are at high risk for lung cancer. The CyPath^® Lung test enables physicians to more confidentlyidentify patients who will likely benefit from timely intervention and more invasive follow-up procedures and is another toolto help distinguish them 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 unnecessaryinvasive procedures, reduced patient anxiety, and lower medical costs.

 

Throughour wholly owned subsidiary, OncoSelect^®, our research has led to discoveries of novel potential cancer therapeuticsthat specifically and selectively target cancer cells that have been grown in petri dishes.

 

Recent Developments

 

On September 18, 2023, PPLS, our whollyowned subsidiary, consummated the acquisition (the “Acquisition”) of a clinical anatomic and clinicalpathology laboratory and related services business in San Antonio, Texas (the “ Laboratory Assets”)pursuant to the terms of an Asset Purchase Agreement (the “Asset Purchase Agreement”) dated September 18,2023 that it entered into with Village Oaks Pathology Services, P.A., a Texas professional association d/b/a Precision PathologyServices (“Village Oaks”) and Dr. Roby P. Joyce, M.D. As a result of the Acquisition, the clinicalpathology laboratory is owned by PPLS. Dr. Joyce was the Medical Director and Laboratory Director of the clinical pathologylaboratory prior to the Acquisition and he continues to serve as Medical Director and Laboratory Director after the Acquisition.PPLS is accredited by the College of American Pathologists (“CAP”) and certified under the ClinicalLaboratory Improvement Amendments of 1988 (“CLIA”). Founded in 2007 by Dr. Roby Joyce, Village Oaks hasprovided pathology services to physicians practicing in a variety of outpatient settings. Since September 2021, Village Oaks, underthe trade name Precision Pathology Services, has offered for sale CyPath^® Lung as a laboratory developed test(“LDT”) for the detection of early-stage lung cancer. In addition to CyPath^® Lung, PPLSintends to continue to offer a range of laboratory services including respiratory testing for SARS-CoV-2 and influenza, anatomicalpathology, morphological stains, histological services, DNA extractions, STI testing and women’s and men’s healthtesting.

 

Pursuant to the terms of the Asset PurchaseAgreement, PPLS acquired the Laboratory Assets, which included all of the assets owned by Village Oaks other than medical assets,which are assets Village Oaks used in connection with its management and operation of a clinical pathology laboratory, now owned byPPLS, and related services business and assumed certain liabilities and obligations. Pursuant to the terms of the Asset PurchaseAgreement Village Oaks received $3,500,000 in consideration for the assets to be purchased by PPLS, of which $1,000,000 was paid bythe issuance of 564,972 shares of our restricted Common Stock to a trust controlled by Dr. Joyce (the “JoyceTrust”), which share number was determined by dividing $1,000,000 by $1.77, the average of the trading dayclosing prices for the 30 days prior to September 15, 2023, rounded to the nearest whole share.

 

The Asset Purchase Agreement contains customaryrepresentations, warranties and covenants made by PPLS and Village Oaks and consummation of the transaction was subject to customaryclosing conditions, including, among other things, entry into the other ancillary agreements described below. Subject to certain customarylimitations, Village Oaks agreed to indemnify PPLS, its successors and assigns, and each of their affiliates, and PPLS’ officers,directors, employees and other authorized agents against certain losses related to, among other things, breaches of Village Oaks’representations, warranties, covenants and agreements as well as any excluded liabilities and excluded assets described therein. Subjectto certain customary limitations, PPLS also agreed to indemnify Village Oaks, its successors and assigns, and each of their affiliates,and Village Oaks’ officers, directors, employees and other authorized agents against certain losses related to, among other things,breaches of PPLS’ representations, warranties, covenants and agreements as well as any assumed liabilities.

 

Pursuant to the Asset Purchase Agreement,PPLS assumed all liabilities and obligations and obtained any and all rights, title and interest of Village Oaks in and to (i) allleases for equipment and personal property related to the Laboratory Assets (the “Assumed Leases”),pursuant to an Assumption Agreement by and between Village Oaks and PPLS (the “Assumption Agreement”) and,(ii) certain other contracts related to the Laboratory Assets, including the license to develop, manufacture, use, market and sellCyPath^® Lung (the “Assumed Contracts”) pursuant to the Assumption Agreement; (iii) allaccounts payable of Village Oaks as of September 18, 2023 that were incurred in the ordinary course of business consistent with pastcustom and practice; and (iv) the lease of the premises used in connection with operation of the CLIA-certified and CAP-accreditedclinical pathology laboratory, pursuant to an Assignment and Assumption of Lease by and between Village Oaks and PPLS (the“Assignment of Lease”), which Assignment of Lease was consented to by the landlord of the leased premises.The monthly rent is currently $10,143.83 per month and the term of the Lease is five years.

 

 

In connection with the Asset Purchase Agreement,PPLS entered into a Management Services Agreement with Village Oaks (the “Management Services Agreement”) pursuantto which PPLS will provide comprehensive management and administrative services to Village Oaks in connection with the operation of VillageOaks’ professional cytopathology, histopathology, clinical and anatomic pathology interpretation medical services practice. PPLSwill provide space, equipment, administrative, management and clinical personnel, billing and collection, and related management servicesto Village Oaks in exchange for a management fee of 70% of the net revenues received by Village Oaks from the provision of the medicalservices. The Management Services Agreement has an initial term of 20 years and provides that upon expiration of the initial term,it will be automatically extended for two additional successive terms of five years each, unless either party delivers written noticeof its intention not to extend the term of the agreement not less than 90 days prior to the expiration of the preceding term. TheManagement Services Agreement also provides that until the fifth anniversary of its effective date, Village Oaks will not, without theprior written approval of PPLS own, operate or have any financial interest in any other person or entity that operates an independentlaboratory or an enterprise within the United States that provides or promotes management or administrative services or any product orservices substantially similar to those provided by PPLS.

 

In connection with the Asset Purchase Agreement,PPLS entered into a Succession Agreement with Village Oaks and Dr. Joyce (the “Succession Agreement”), pursuantto which Dr. Joyce, as holder of 100% of the issued and outstanding stock of Village Oaks, and Village Oaks are restricted from disposingof their equity interests in Village Oaks, subject to certain exceptions, without the prior written consent of us and Village Oaks. TheSuccession Agreement further provides that the entire equity interest held by Dr. Joyce in Village Oaks will be automatically assignedand transferred to a successor who meets the Eligibility Requirements of a Designated Physician, as such terms are defined and describedin the Succession Agreement, in the event of, among other things, the death, disability, retirement, or a court’s determinationof incompetence of Dr. Joyce, as well as Dr. Joyce’s failure to satisfy the eligibility requirements of a Designated Physician,exclusion or disqualification from participation in the Medicare program, conviction of a felony or crime or moral turpitude, bankruptcyfiling, or material breach of the Succession Agreement. In the event of the automatic transfer of Dr. Joyce’s equity interests inVillage Oaks as provided in the Succession Agreement, such agreement provides that the board of directors of Village Oaks shall nominatea group of three candidates as the Designated Physician who satisfy the Eligibility Requirements. In the event the Company desires notto select any of such candidates, the Company shall select and appoint a successor Designated Physician from any other physicians thatsatisfy the Eligibility Requirements. Subject in all cases to the Management Services Agreement, Dr. Joyce shall not cause any voluntaryinterruption of the conduct of Village Oaks’ business and operations, and shall use commercially reasonable efforts to preserve(or assist us in preserving) all rights, privileges and franchises held by Village Oaks, including the maintenance of all contracts,copyrights, trademarks, licenses and registrations.

 

In connection with the Asset Purchase Agreement,PPLS entered into a Professional Services Agreement with Village Oaks (the “Professional Services Agreement”)pursuant to which Village Oaks will provide pathology interpretation services as requested on behalf of PPLS based on the professionalfees approved for the CPT code for the services provided under the Medicare Physician Fee Schedule in the locality where the test isperformed. The Professional Services Agreement has an initial term of 20 years and provides that upon expiration of the initial term,it will be automatically extended for successive terms of twelve months each, unless either party delivers written notice of its intentionnot to extend the term of the agreement not less than 30 days prior to the expiration of the preceding term.

 

In connection with the Asset PurchaseAgreement, we entered into an Executive Employment Agreement with Dr. Joyce (the “Joyce EmploymentAgreement”), for a term of three years, pursuant to which he serves as the Medical Director and Laboratory Director ofPPLS, at a base salary of $333,333.34 per year. Pursuant to the Joyce Employment Agreement, Dr. Joyce was also appointed to serve onour Board of Directors. Dr. Joyce will be eligible to participate in or receive benefits under our benefit plans generally madeavailable to executives of similar status and responsibilities and will be provided use of a company car. In the event the JoyceEmployment Agreement is terminated for any reason, including by Dr. Joyce upon 60 days’ notice, by us for cause or by reasonof Dr. Joyce’s death, Dr. Joyce (or his estate, as applicable) will receive his base salary for the remainder of thethree-year employment term. However, the Joyce Employment Agreement provides that if Dr. Joyce breaches any of the restrictivecovenants set forth in the Joyce Employment Agreement, including a covenant not to compete during his term of employment and acovenant not to knowingly disclose confidential information, such breach will be grounds for the immediate termination of Dr. Joyceand will result in the forfeiture of all compensation and benefits otherwise due to Dr. Joyce.

 

One of the Assumed Leases is Equipment UsageAttachment, dated effective as of August 9, 2019, by and between Gen-Probe Sales & Service, Inc., together with its subsidiariesand affiliates (“Hologic”) and Village Oaks, as amended by that certain Amendment No. 1 to Equipment UsageAttachment dated November 2, 2020, as further amended by that certain Amendment No. 2 to Equipment Usage Attachment dated November 2,2020, and as further amended by that certain Amendment No. 3 to Equipment Usage Attachment dated December 21, 2022 (the “HologicEquipment Lease”), pursuant to which PPLS leases reagent equipment from Hologic and is required to purchase a minimum numberof specified testing kits each year. The total monthly minimum purchase commitment PPLS is required to pay Hologic, inclusive of thelease of the reagent equipment, is $16,914 per month. The term of the Hologic Equipment Lease currently expires on December 20, 2027.

 

Another of the Assumed Leases is the MasterAgreement, dated as of January 29, 2015, by and between Leica Microsystems, Inc. (“Leica”) and Village Oaks,as amended by Amendment No. 1 to the Master Agreement, dated on or about April 4, 2018, as further amended by that certain AmendmentNo. 2 to Master Agreement, dated March 23, 2021 (the “Leica Equipment Lease”), pursuant to which PPLS leasesreagent equipment from Leica and is required to purchase a minimum number of specified testing kits. The total monthly minimum purchasecommitment PPLS is required to pay to Leica, inclusive of the lease of the reagent equipment, is $19,790 per month. The term of the LeicaEquipment Lease currently expires on March 23, 2026.

 

 

One of the Assumed Contracts is a StrategicRelationship License Agreement, dated December 1, 2022, by and between Pathology Watch, Inc. (“Pathology Watch”)and Village Oaks (the “License Agreement”). Pursuant to the License Agreement, Pathology Watch granted a licenseto its digital imaging cloud-based pathology platform to facilitate remote interpretation and billing of pathology specimens by qualifiedprofessionals to PPLS for a monthly fee of $25,000. In connection with the License Agreement, Pathology Watch also provides certain supportservices and marketing vendor services to PPLS for the monthly fee of $38,000, for a total monthly fee paid by PPLS to Precision Watchof $63,000. The License Agreement is for an initial term of twelve months, unless terminated by either party upon 90 days’ notice,and provides that upon expiration of the initial term (or any renewal term), it will be automatically extended for successive twelvemonth terms, unless either party notifies the other party of its intention not to renew the License Agreement not less than 90 days priorto the expiration of the current term.

 

Inconnection with the Asset Purchase Agreement, Dr. Joyce, on behalf of Village Oaks, executed a Bill of Sale (the “Bill ofSale”), pursuant to which all rights, title, and interest of Village Oaks in and to the permits listed on Exhibit A attachedthereto, inclusive of the CLIA-certificate and CAP-accreditation, notwithstanding the transfer of the CLIA certificate by operation oflaw to PPLS upon consummation of the Acquisition, were confirmed to have been transferred and assigned to PPLS.

 

Benefits of the Acquisition

 

Since 2007, VillageOaks, d/b/a Precision Pathology Services, has provided pathology services to physicians practicing in a variety of outpatientsettings. Since September 2021, Village Oaks has offered CyPath^® Lung as an LDT for the detection of early-stage lungcancer. The Acquisition of the Laboratory Assets supports and enhances our commercial strategy by integrating every aspect ofCyPath^® Lung, from manufacturing to sales and marketing, and to pathology services and reporting results back tophysicians. The Acquisition results in consolidating the royalties to bioAffinity from sale of CyPath^® Lung with therevenues derived by PPLS’ sale of the test. The Acquisition provides us with control over essential aspects of theCyPath^® Lung test and an opportunity to build scale and efficiency as we expand commercialization. In addition, weanticipate the Acquisition can support our pivotal trial by providing the equipment, experienced laboratory personnel andadministrative support including support for our planned United States (“U.S.”) Food and DrugAdministration (the “FDA”) clinical study. Ownership of the Laboratory Assets also provides the clinical servicesrequired for us to develop future LDTs that expand our flow cytometry platform, including development of current research into atest for Chronic Obstructive Pulmonary Disease (“COPD”). Village Oaks’ operation of a CLIA-certifiedand CAP-accredited clinical pathology laboratory has been established over the past 16 years of service. The founder of VillageOaks, Dr. Joyce, will continue as PPLS’ Medical Director and Laboratory Director, thus providing continuity in professional relationships andservices. PPLS intends to continue to offer a range of laboratory services in addition to CyPath^® Lung, includingrespiratory testing for SARS-CoV-2 and influenza, anatomical pathology, morphological stains, histological services, DNAextractions, STI testing and women’s and men’s health testing.

 

Amendment to Warrants

 

OnSeptember 17, 2023, Mr. Girgenti, the Cranye Girgenti Testamentary Trust, Gary Rubin, The Harvey Sandler Revocable Trust, a trust ofwhich Mr. Rubin is a co-trustee, Ms. Zannes and Dr. Joyce consented to an amendment of the terms of the outstanding warrants thatthey own. Such warrants include warrants (i) tradeable warrants (the “TradeableWarrants”)to purchase 98,198, 39,182, and 39,182 shares of Common Stock owned by Mr. Girgenti, The Harvey Sandler Revocable Trust, and Ms.Zannes, respectively); (ii)non-tradeable warrants (the “Non-TradeableWarrants”)to purchase 102,286, 40,813, and 40,813 shares of Common Stock owned by Mr. Girgenti, The Harvey Sandler Revocable Trust, and Ms.Zannes, respectively; and (iii) other outstanding warrants (the “Pre-IPOWarrants”)to purchase 469,063, 8,332, 571,373, 23,571, 17,137, and 14,285 shares of Common Stock owned by Mr. Girgenti, the Cranye GirgentiTestamentary Trust, Mr. Rubin, The Harvey Sandler Revocable Trust, Ms. Zannes and Dr. Joyce, respectively. The warrant amendment(the “WarrantAmendment”)provides that such warrants will not be exercisable until the date that we file a certificate of amendment to our certificate ofincorporation with the State of Delaware which increases the number of shares of our authorized Common Stock to allow for sufficientauthorized and unissued shares of Common Stock for the full exercise of all of the outstanding Pre-IPO Warrants, Tradeable Warrantsand Non-Tradeable Warrants of the Company and the issuance of all of the shares of Common Stock underlying suchwarrants.

 

Financial

 

To date, we have devoted a substantial portion ofour efforts and financial resources to the development of our first diagnostic test, CyPath^® Lung. Since our inceptionin 2014, we have funded our operations principally through public and private sales of our equity or debt securities. On September 6,2022, we completed our initial public offering of our securities pursuant to which we raised gross proceeds of $7.9 million. As of September18, 2023, investors participating in the initial public offering exercised a total of 725,576 Tradeable Warrants at a priceof $7.35 per share and 310,910 Non-Tradable Warrants at a price of $7.656 per share. Combined with our underwritten publicoffering, we received an aggregate of approximately $15.6 million as of September 28, 2022. We believe that our available cash togetherwith the proceeds of this Offering will be sufficient to fund our planned operations for at least 12 months following the date of thisprospectus.

 

In the second quarter of 2022, we started to recognizerevenue from sales of the CyPath^® Lung test by Village Oaks, a CAP-accredited and CLIA-certified clinical pathologylaboratory to which we had previously granted a license to develop CyPath^® Lung for commercialization and to manufacture,use, market and sell CyPath^® Lung as an LDT prior to the Acquisition, which license was assigned to and assumed by PPLS,our wholly owned subsidiary, in connection with the Acquisition. We have never been profitable, and as of June 30, 2023, wehad total working capital of $7.9 million and an accumulated deficit of approximately $39.9 million. As of June 30,2023, we had cash and cash equivalents of $8.3 million. We expect to continue to incur significant operating losses for theforeseeable future as we continue the development of our diagnostic tests and therapeutic products and advance our diagnostic tests throughclinical trials.

 

Weanticipate 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 collaborativearrangement 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.

 

OurFirst Diagnostic Test - CyPath^® Lung

 

Lungcancer remains the most commonly diagnosed cancer and the leading cause of cancer-related deaths worldwide. Globally, there were an estimated2.1 million lung cancer cases and 1.8 million lung cancer deaths in 2018, as reported by the World Health Organization in its 2018 CancerFact Sheet. According to the American Lung Association (the “ALA”), screening for individuals at high riskfor lung cancer has the potential to improve lung cancer survival rates by finding disease at an earlier stage when it is more likelyto be curable. A study published in the New England Journal of Medicine entitled “Survival of patients with stage I lungcancer detected on CT screening” dated October 26, 2006 reported that the survival rate of individuals with Stage I lung cancerwho underwent surgical resection within one month after diagnosis had a ten-year survival rate of 92%, as compared to the overall five-yearsurvival rate of 25%. Unfortunately, most lung cancer is detected in late stages. The results of a large national clinical trialthat was reported in the New England Journal of Medicine in an article dated August 4, 2011, entitled “Reduced Lung-CancerMortality with Low-Dose Computed Tomographic Screening” showed that screening for lung cancer using low-dose computed tomography(“LDCT”) resulted in a reduction of the mortality rate by 20% as compared to screening by x-ray if LDCT screeningis used by patients at high risk for lung cancer on an annual basis. Therefore LDCT scans are recommended for screening of an estimated14 million Americans who are at high risk for lung cancer. If half of these high-risk individuals were screened, over 12,000 lung cancerdeaths could be prevented, according to the ALA. However, the New England Journal of Medicine article also reported that LDCTwas shown to have a low positive predictive rate of less than 4%. This means that for every 100 people who receive a positive resultfrom LDCT screening and are suspected of having lung cancer, only four of those patients truly have the disease. A reliable, noninvasiveand cost-effective diagnostic test can increase diagnosis of early-stage lung cancer while lowering the number of unnecessary and invasiveprocedures for patients with a false positive result from LDCT screening. (False positive means a person who does not have lung cancerbut receives a positive result, in this case from LDCT screening.)

 

 

CyPath^® Lungis a test for early-stage lung cancer that is designed to meet the need for greater diagnostic certainty. Based on our internal analysis,its use in conjunction with LDCT is predicted to improve the positive predictive value (the probability that patients with a positiveLDCT scan truly have the disease) by a factor of five. Our analysis concludes that improving the positive predictive value of LDCT withthe use of CyPath^® Lung has the potential to subject fewer patients to the stresses of misdiagnosis or unnecessary diagnosticprocedures such as biopsies, while also reducing healthcare costs.

 

CyPath^®Lung uses flow cytometry technology to detect and analyze cell populations in a person’s sputum, or phlegm, to find characteristicsindicative of lung cancer, including cancer and/or cancer-related cells that have shed from a lung tumor. The flow cytometer is a well-establishedinstrument used in many commercial laboratories that records properties of labeled and unlabeled single cells. Sputum is an excellentsample for analysis because it is in direct contact with any malignancy in the lungs and can thus provide a snapshot of the tumor itself,its microenvironment, and its area of field cancerization. While studies have shown that expert cytological analysis of sputum can detectcancerous and pre-malignant cells, the level of scrutiny required for the analysis is not feasible in the laboratory routine, accordingto an October 22, 2009 article, “Premalignant and malignant cells in sputum from lung cancer patients,” published in CancerCytopathology. The process of looking at microscopy slides is an extremely laborious approach and demands years of expertise. CyPath^®Lung uses flow cytometry and automated data analysis developed by artificial intelligence (“AI”)that allows for an entire sample of sputum to be examined for cost-effective, large-scale screening or diagnosis.

 

Inparticular, CyPath^® Lung uses a synthetic porphyrin called meso-tetra (4-carboxyphenyl) porphyrin (“TCPP”).Porphyrins are biological pigments that, when exposed to ultraviolet light at certain wavelengths, can result in the cell fluorescinga red or purplish color that can be detected under a microscope or by flow cytometry, according to an article entitled “LaboratoryDiagnosis of Porphyria,” published in Diagnostics (Basel) on July 26, 2021. Porphyrins can be man-made, like TCPP, or theycan be naturally occurring, like heme that is responsible for the red color in red blood cells. Cancer cells are known to take up certainporphyrins in higher amounts than non-cancer cells, and the high affinity for cancer cells displayed by TCPP makes it an excellent bio-labelfor cancer, according to an article published in Progress in Clinical and Biological Research in 1984 entitled, “A comparativestudy of 28 porphyrins and their abilities to localize in mammary mouse carcinoma: uroporphyrin I superior to hematoporphyrin derivative.”As used in CyPath^® Lung, the proportion of cells with high TCPP fluorescence intensity in a patient’s sputum sampleis a significant predictor of lung cancer. We hold multiple patents protecting our use of TCPP for the diagnosis, monitoring, and treatmentof cancer. In addition, we have multiple domestic and foreign patent applications to protect the use of flow cytometry and our AI-developedautomated analysis platform in the detection of lung cancer and other lung diseases using sputum as a sample.

 

We developed an algorithm as part of a test validationtrial that used machine learning to distinguish samples from high-risk patients who had lung cancer from those who are cancer-free. VillageOaks developed CyPath^® Lung for sale as an LDT in accordance with the standards of the CAP and the regulationsand guidance of the CLIA program, which is administered by the Centers for Medicare and Medicaid Services (“CMS”).Our test can analyze an average sputum sample containing about 14 million cells in approximately 30 minutes using integrated softwarefor high-throughput, user-friendly standardized analysis of flow cytometric sample data. A physician’s report is generated withinminutes after data acquisition. The test can be put into routine lab use without requiring expert evaluation of samples or being subjectto operator bias. Our approach allows the entire sputum sample to be rapidly analyzed. The numerical analysis developed with machinelearning captures complex interactions between lung cancer, the microenvironment, and areas of field cancerization that would be difficultif not impossible for individuals to predict or detect reliably by eye. For example, during test development, we discovered that viabilitystaining density suggests a link with apoptosis, or cell death, that is linked to many cancers, including lung cancer. Our model alsosuggests that specific markers of immune cell populations may be informative as to the presence of cancer in the lung. These findingsare the result of our machine learning approach to automated analysis.

 

TheCyPath^® Lung diagnostic process uses sputum that is obtained noninvasively in the privacy of a patient’s home. Physicianscan order the test for patients they suspect have lung cancer or patients with a positive LDCT screening result. A patient collects hisor her sample using a hand-held, noninvasive assist device, ICU Medical’s acapella^® Choice Blue, that acts to breakup mucus in the lungs and help a person cough up sputum from the lung into a collection cup. The acapella^® Choice Bluehas been 510(k) cleared by the FDA as a positive expiratory pressure device to help mobilize lung secretions in people with certainlung conditions. The sputum sample is shipped overnight to a clinical pathology laboratory that is accredited by the CAP and certifiedunder the CLIA program, and processed with CyPath^® Lung that includes antibodies that distinguish different celltypes and the synthetic porphyrin TCPP that identifies cancer cells and/or cancer-associated cells. Proprietary automated analysis softwaredeveloped by bioAffinity Technologies analyzes sample data in minutes, resulting in a patient report provided to the physician who ordersthe test. CyPath^® Lung can be used by physicians to find early-stage lung cancer in their patients who have undergonelung cancer screening.

 

Weconducted a 150-patient test validation trial of people at high risk for lung cancer including patients with the disease (N=28) and thosecancer-free (N=122) that resulted in CyPath^® Lung’s overall 88% specificity, meaning the ability to correctly identifya person without cancer, and 82% sensitivity, meaning the ability to correctly identify cancer in a person with the disease. For thesubset of patients in this trial who had lung nodules smaller than 20 millimeters (“mm”) or no nodules at all,this trial resulted in 92% sensitivity and 87% specificity. In this subset of 132 individuals with small nodules, 119 patients were cancer-freeand 13 had confirmed lung cancer. The detection of small lung nodules in people who have early-stage cancer can increase lung cancersurvival.

 

Inthis 19-month test validation trial, participantsprovided a sputum sample and were released from the study after a physician either confirmed the individual was cancer-free by examinationof CT imaging or confirmed the presence of lung cancer by biopsy. Flow cytometry and patient data used in the analysis producedresults that included (1) the proportion of cells with a high ratio of high TCPP fluorescence intensity over cell size; (2)the proportion of cells with an intermediate ratio of fluorescence intensity caused by the viability dye (FVS510) over cell size; (3)the proportion of cells that were CD206 negative but positive for one or more of the following markers: CD66b (granulocytes), CD3 (Tcells), and CD19 (B cells); and (4) patient age.

 

TheCyPath^® technology is based on research originating at Los Alamos National Laboratory in collaboration with St. Mary’sHospital (Colorado) in which cancer samples were differentiated from non-cancer samples with 100% accuracy. This early research was conductedwith sputum from 12 uranium miners. Microscope slides were made of the sputum samples labeled with the active ingredient of CyPath^®,the synthetic and fluorescent porphyrin TCPP. The Los Alamos research study of 12 uranium miners included eight men with cancer and fourhealthy individuals. Researchers were blinded to the sample origin and looked for the presence of highly fluorescent cells indicatinguptake of TCPP and the presence of lung cancer. The length of the study and specific follow-up was not reported, but researchers didreport that one patient entering the study as a healthy subject was correctly diagnosed with cancer by the test.

 

 

Weconducted market research with pulmonologists, oncologists, cardiothoracic surgeons, radiologists, and internists engaged in the diagnosisand treatment of lung cancer to help assess these stakeholders’ reactions to the new diagnostic test. Research revealed a stronginterest in CyPath^® Lung, driven by the high level of unmet clinical need for noninvasive diagnostics. A survey conductedwith 240 pulmonologists and internists, the primary audience for the test, showed that 96% would use CyPath^® Lung if itwere available today as an adjunct to LDCT screening and diagnosis. Physicians responded favorably to a noninvasive diagnostic technologythat gives them more confidence in their decision to proceed with more aggressive follow-up procedures if the test comes back positive.If test results are negative, physicians could rule out lung cancer, thus reducing the number of costly invasive procedures that resultfrom the LDCT false-positive rate.

 

Physicians can orderthe CyPath^® Lung laboratory test for use by people at high risk for lung cancer who are recommended for annual screeningby LDCT. While LDCT is shown to lower the mortality rate of lung cancer by at least 20% as compared to x-ray screening, the LDCT screeningmethod has a low positive predictive value that can result in many people undergoing unnecessary invasive diagnostic procedures to confirmor rule out the presence of lung cancer. A physician who orders a CyPath^® Lung test can have greater confidence in determiningthe next steps in patient care. Noninvasive sample collection and the test’s three-day turnaround in providing patient resultsafter sample receipt make CyPath^® Lung well suited for both sophisticated and less developed markets. On June 6, 2023,the American Medical Association (“AMA”) approved a Current Procedural Terminology (“CPT”)Proprietary Laboratory Analysis (“PLA”) codespecifically for use with CyPath^® Lung, which code was publicly released on June 30, 2023. The new CPT code will be effectiveOctober 1, 2023. Prior to and in the interim until the new code is effective, CyPath^® Lung is reported with a non-specificCPT code, for which payment is determined by the payer on a case-by-case basis. Payment for the new PLA code was discussed on July 19,2023, by the Medicare Advisory Panel on Clinical Diagnostic Laboratory Tests. The CMS preliminary determination will be released in September2023 followed by a 30-day comment period. A 2024 payment determination, effective January 1, 2024 will be made byCMS in November 2023. There is an opportunity for reconsideration in next year’s payment cycle.

 

Wehave an agreement with GO2 Partners to produce patient collection kits and to provide warehousing and distribution services for sendingout the kits. Laboratory reagents, supplies and equipment are commercially available through multiple vendors. Sample processing, labeling,and data collection can be accomplished by a laboratory technician skilled in general laboratory techniques. Data analysis leading toa physician’s report is done by automated analysis software fully integrated into the test.

 

Toour knowledge, CyPath^® Lung is the first cancer diagnostic that combines automated flow cytometric analysis to predictthe presence of lung cancer from sputum samples.

 

OncoSelect^®Therapeutics Research

 

OncoSelect^®Therapeutics, LLC, a Delaware limited liability company and our wholly-owned subsidiary, is a preclinical-stage biopharmaceuticaldiscovery company with a focus on therapeutics that deliver cytotoxic (cell-killing) effects on a broad selection of human cancers fromdiverse tissues while having little or no effect on normal cells.

 

Unlikemany of our industry competitors, OncoSelect^® does not pursue therapies that depend on specific mutations, biomarkers,or other genetic or epigenetic abnormalities for their effect. We pursue research based on our own scientific discoveries demonstratingthat inhibition of the expression of two specific cell membrane proteins results in the selective killing of various cancer cell typesgrown in the laboratory with little or no effect on normal (non-cancerous) cells.

 

Ourscientific discoveries stemmed from research we conducted to better understand the mechanism by which TCPP, the synthetic porphyrin usedin CyPath^® Lung, selectively enters cancer cells. We have established several specific areas of therapeutic research thathave evolved from our TCPP experiments.

 

OncoSelect^®therapies offer the possibility of broad applications in cancer treatment. OncoSelect^® will use a licensing businessmodel for selective chemotherapeutic compounds to be developed by us.

 

IntellectualProperty Portfolio

 

Asof September 1, 2023, we and our subsidiary, OncoSelect^®, have a patent estate that includes 15 issued U.S.and foreign counterpart patents, including two U.S. patents and thirteen foreign counterpart patents in Australia, Canada, China, France,Germany, Hong Kong, Italy, Mexico, Spain, Sweden, and the United Kingdom. One U.S. patent and nine counterpart foreign patents directedat diagnostic applications expire in 2030. Therapeutic patents registered in Australia, China, Hong Kong, Mexico, and the United Statesexpire in 2037.

 

Withregard to our diagnostic test CyPath® Lung and other diagnostic candidates, we have one issued U.S. patent and nine foreign counterpartpatents in Canada, China, France, Germany, Hong Kong, Italy, Spain, Sweden, and the United Kingdom. With regard to our diagnostic patentapplications, one of two families is directed at diagnosing lung health using flow cytometry, and the other is directed at proprietarycompensation beads used to calibrate the flow cytometry instrument and used in CyPath® Lung data acquisition. Pending applicationsdirected at diagnosing lung health include one pending U.S. non-provisional patent application and eight foreign counterpart patent applicationsin Australia, Canada, China, European Patent Office, Hong Kong, Japan, Mexico, and Singapore filed in 2019, one International PatentApplication filed in 2022 and one International Patent Application filed in 2023. Also, a patent application directed at the compositionof compensation beads was filed as an International Patent Application in 2022.

 

Withregard to our therapeutic product candidates, we have one issued U.S. patent, four issued foreign patents, two pending U.S. applications,nine foreign applications pending in Canada, China, European Patent Office, Hong Kong, India, and Japan and one pending InternationalPatent Application filed in 2022. The therapeutic intellectual property is made up of two families directed at our therapeutic productcandidates, including one family directed at siRNA product candidates for the treatment of cancer, and another family directed at porphyrinconjugates for treating cancer.

 

 

IndustryOpportunity

 

Theglobal market for cancer diagnostic tests is expected to grow dramatically in coming years. According to a 2021 Global Cancer DiagnosticsMarket Research Report, cancer diagnostic tests, including devices, grew from $156.27 billion in 2020 to $170.21 billion in 2021, witha compound annual growth rate of 8.9%, and is projected to reach $239.23 billion in 2025. Lung cancer is the most common cancer globallyand its incidence continues to increase in some large nations including China, where lung cancer is the leading cause of cancer-relatedmorbidity and mortality, as reported in the Journal of Thoracic Oncology in October 2020 in an article entitled “Lung Cancerin People’s Republic of China.” According to a 2023 report “Lung Cancer Diagnostics: Global Strategic Business Report,”the global market for lung cancer diagnostic tests was estimated at $2.6 billion in 2022 and is projected to reach a value of $4.7 billionby 2030, with a compounded annual growth rate of 7.8% over 2022-2030. Clinical diagnostics play an important role in disease prevention,detection, and management. Our first test, CyPath^® Lung, focuses on the leading cause of cancer death among both men andwomen. Lung cancer accounted for approximately 18% of all cancer deaths worldwide in 2020, as reported by the World Health Organization.Lung cancer typically may not be symptomatic in its early stages when it is most treatable. An estimated 14 million patients at highrisk for lung cancer in the U.S. are recommended for annual screening. Initially, physicians would order CyPath^® Lungfor those high-risk patients as an adjunct to LDCT screening to aid in the decision whether to pursue more aggressive follow-upprocedures. A more accurate and reliable lung diagnostic pathway using LDCT and noninvasive methods could result in fewer patients beingsubjected to the stresses of unnecessary, invasive diagnostic procedures such as biopsies. CyPath^® Lung is well suitedfor use in both sophisticated and less-developed markets because sample collection is noninvasive and conducted at home, the sample canbe shipped overnight by commercial carriers and sample processing and automated analysis can be completed by laboratory technicians skilledin general laboratory techniques. Patient reports are provided to the ordering physician within three days of sample receipt at the laboratory.

 

CompetitiveStrengths

 

Weconduct an ongoing competitive analysis of companies in the lung cancer diagnostic sector of the clinical diagnostics market. In2022, we evaluated companies that reported an interest in diagnosing lung cancer, focusing on 67 companies and academic institutionswe identified as active in the early lung cancer diagnostic sector. A thorough evaluation of the early lung cancer diagnosticlandscape reveals multiple reasons why CyPath^® Lung is positioned to be a market leader. CyPath^® Lungperformance shown in our test validation trial resulted in 92% sensitivity and 87% specificity in high-risk patients who had lungnodules 20 mm or smaller. Eight out of 10 (80%) Stage I tumors were correctly identified, indicating that CyPath^®Lung can find lung cancer at its earliest stage. Overall, when diagnosing lung cancer in all stages, the clinical trial resulted inCyPath^® Lung specificity of 88% and sensitivity of 82%, similar to far more invasive procedures and surgery currentlyused to diagnose lung cancer. (See the “Comparison of CyPath^® Lung to Current Standards of Care” chart inthe “Business” section of this prospectus.) The test validation trial of 150 patients was conducted over 19 months.Participants provided a sputum sample and were released from the study after a physician either confirmed the individual wascancer-free by examination of CT imaging or confirmed the presence of lung cancer by biopsy. Test data used to produce resultsincluded: (1) the proportion of cells with a high ratio of high TCPP fluorescence intensity over cell size; (2) the proportion ofcells with an intermediate ratio of fluorescence intensity caused by the viability dye (FVS510) over cell size; (3) the proportionof cells that were CD206 negative but positive for one or more of the following markers: CD66b (granulocytes), CD3 (T cells), andCD19 (B cells); and (4) patient age.

 

Themajority of competitors’ tests either incorrectly classify a high proportion of people without cancer as having the disease (knownas false negatives) more than 50% of the time or misdiagnose people as cancer-free (known as false positives) more than 50% of the time.It is important to note that most competitors who have conducted clinical trials also have not designed their trials to evaluate thetest’s measure of accuracy – such as sensitivity and specificity – in the high-risk population for whom the test isintended A patient collects his or her sample at home, which is a particular benefit during a pandemic. Sample processing for CyPath^®Lung can be done by laboratory technicians, and reagents used by the test are widely available. Data acquisition and analysis andtest results are fully automated.

 

BusinessStrategies

 

Weare moving forward with commercialization of CyPath^® Lung in a systematic, four-phased business plan (“BusinessPlan”) for market entry into the U.S., the European Union (“EU”), and worldwide that are timedto maximize Company resources and minimize market risk. Phase 1 of our Business Plan has begun with a limited market launchof the Company’s CyPath^® Lung LDT in South Texas. This limited test market launch is designed to evaluate ourmarketing program and help us ensure each step in the care pathway – from the initial order by physicians to sputum collectionand processing, to generating and delivering the patient report – is efficient and effective. This limited test market approachallows us to refine future positioning and develop strategic insight for our CyPath® Lung test before expanding to a larger market.The next step in our marketing plan provides for and will be followed by expansion into the Southwest market area in 2024 followed bya staged nationwide expansion of sales and marketing. Phase 2 of our Business Plan anticipates entering the EU market with CyPath^®Lung as a CE-marked in vitro diagnostic (“IVD”) test with sales in the Netherlands, followed by a stagedEU expansion. Phase 3 of our Business Plan focuses on the marketing of an FDA-cleared CyPath^® Lung test, beginning witha pivotal clinical trial in the U.S.

 

InPhase 3, we plan to submit a request for de novo classification to the FDA to classify CyPath® Lung as a Class II IVD medicaldevice for the detection of lung cancer. In order to seek de novo classification and marketing authorization of CyPath^®Lung by the FDA, we must conduct a “pivotal clinical trial” to demonstrate the safety and efficacy of CyPath^®Lung. We are currently working with a contract research organization (“CRO”) to finalize the protocolfor the pivotal clinical trial and plan to submit a pre-submission package to the FDA in the fourth quarter of 2023 to obtain the FDA’sfeedback on the study design. A pivotal clinical trial is scheduled to begin in early 2024. Final design of the pivotal clinical trialhas not been determined at this time; however we estimate enrollment of approximately 1,800 participants at high risk for lung cancerand expect the trial to require three years. Assuming the study is successful, we intend to submit a de novo classificationrequest to the FDA within six months of study completion. If the de novo request is granted by the FDA, we expect such marketingauthorization to result in a larger market and greater market share for CyPath^® Lung. FDA marketing authorization alsocan lead to expanded claims and additional indications for use of CyPath^® Lung for the early detection of lung cancer.Phase 4 will accelerate the diagnostic’s market presence to expand into other global markets, including China, Southeast Asia,and Australia.

 

CorporateInformation

 

Wewere incorporated in the State of Delaware on March 26, 2014. Our principal executive office is located at 22211 West Interstate 10,Suite 1206, San Antonio, Texas 78257, and our telephone number at that address is (210) 698-5334. Our website address is https://www.bioaffinitytech.com/.Information contained on or that can be accessed through our website is not incorporated by reference into this prospectus. Investorsshould not consider any such information to be part of this prospectus.

 

 

Implicationsof Being an Emerging Growth Company

 

Wequalify as an “emerging growth company” (an “EGC”) as defined in the Jumpstart Our Business StartupsAct of 2012 (the “JOBS Act”). As an EGC, for up to five years, we may elect to take advantage of certainspecified exemptions from reporting and other regulatory requirements that are otherwise generally applicable to public companies. Forexample, these exemptions would allow us to:

 

	●	present two, rather than three, years of audited financial statements with correspondingly reduced disclosure in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section (the “MD&A”) of this prospectus;
	●	defer the auditor attestation requirement on the effectiveness of our system of internal control over financial reporting;
	●	make reduced disclosures about our executive compensation arrangements; and
	●	forego the adoption of new or revised financial accounting standards until they would be applicable to private companies.

 

Certainof these reduced reporting requirements and exemptions were already available to us due to the fact that we also qualify as a “smallerreporting company” under SEC rules. For instance, smaller reporting companies are not required to obtain an auditor attestationand report regarding internal control over financial reporting, to provide a compensation discussion and analysis, or to provide a pay-for-performancegraph or CEO pay ratio disclosure, and they may present two, rather than three, years of audited financial statements and related MD&Adisclosure.

 

Wemay take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of our initial publicoffering or until we are no longer an EGC, which would be the case if (i) our total annual gross revenues are $1.235 billion or more;(ii) we issue more than $1 billion in non-convertible debt during a consecutive three-year period; or (iii) we become a “largeaccelerated filer,” as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”).We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of certain reduced reportingobligations in this prospectus. Accordingly, the information contained herein may be different than the information you receive fromother public companies in which you hold stock. For more information, see “Risk Factors—General Risk Factors—Weare an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may makeour Common Stock less attractive to investors.”

 

Summaryof Risk Factors

 

Likeany emerging growth company, we face significant risk factors that may impede our plans for successful commercialization of our diagnosticand therapeutic products. These risks are discussed in detail under the “Risk Factors” discussion beginning on page 14 ofthis prospectus.

 

Thefollowing summarizes the principal factors that make an investment in our Company speculative or risky, all of which are more fully describedin the section below titled “Risk Factors.” This summary should be read in conjunction with the section below titled “RiskFactors” and should not be relied upon as an exhaustive summary of the material risks facing our business. The following factorscould result in harm to our business, reputation, revenue, financial results, and prospects, among other impacts:

 

	●	We may not experience the anticipated strategic benefits of the Acquisition;
	●	We may be unable to successfully integrate the clinical pathology laboratory business with ours;
	●	The future revenue to be generated from PPLS is uncertain;
	●	The market price of our common stock following the Acquisition may decline;
	●	Our stockholders will experience substantial dilution from the issuance of the Acquisition consideration;

 

	●	our limited operating history and history of net losses since our inception;
	●	our need to obtain substantial additional funding to complete the development and commercialization of our diagnostic tests and therapeutic product candidates;
	●	potential dilution to our stockholders, including purchasers of Common Stock in this Offering, resulting from the conversion of our preferred stock, par value $0.001 per share (our “Preferred Stock”) and convertible debt outstanding, and potential restrictions, due to raising additional capital;
	●	the impact of a material weakness identified in our internal control over financial reporting;
	●	the early stage of our development efforts;
	●	the unpredictability of future trial results;
	●	the difficulty in predicting the results, timing, and cost of our development of our diagnostic tests and therapeutic product candidates and the likelihood of obtaining regulatory approval;
	●	the risk of experiencing delays or difficulties in the enrollment and/or retention of patients in clinical trials;

 

 

	●	potential changes to interim, “top-line” or preliminary results from our clinical trials as more patient data becomes available and are subject to audit and verification procedures;
	●	the risk that the FDA may not agree with our LDT regulatory strategy or that Congress may enact legislation giving the FDA new authorities to regulate LDTs;
	●	the lengthy, time-consuming, and unpredictable nature of regulatory approval processes;
	●	the risk that our preclinical studies and clinical trials fail to demonstrate the safety and efficacy of our diagnostic tests or therapeutic product candidates;
	●	the risk that data from clinical trials conducted outside of the United States may not be accepted by regulatory authorities;
	●	the impact of ongoing regulatory obligations and continued regulatory review, even if we receive regulatory approval for any of our diagnostic tests or therapeutic product candidates;
	●	our lack of control over the supply, regulatory status, or regulatory approval of third-party drugs or biologics with which our diagnostic tests or therapeutic product candidates are used in combination;
	●	our lack of control over the conduct of investigator-initiated clinical trials or other clinical trials sponsored by organizations or agencies other than us;
	●	the risk that we fail to develop additional diagnostic tests or therapeutic product candidates;
	●	the risk that we are unable to penetrate multiple markets;
	●	the risk that our diagnostic tests and therapeutic product candidates may fail to achieve market acceptance, even if they receive marketing authorization;
	●	if we are unable to obtain and maintain sufficient intellectual property protection for our platform and our diagnostic tests or therapeutic product candidates, or if the scope of the intellectual property protection is not sufficiently broad, our competitive position may be adversely affected;
	●	the price of our stock may be volatile, and you could lose all or part of your investment. Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price;
	●	our success is highly dependent on our ability to attract and retain highly skilled executive officers and employees;
	●	we face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively; and
	●	our business is affected by the ongoing COVID-19 pandemic and may be significantly adversely affected as the pandemic continues or if other events out of our control disrupt our business or that of our third-party providers.

 

 

THEOFFERING

 

Issuer		bioAffinity Technologies, Inc.
Securities Offered		3,086,419 Units (based on an assumed public offering price of $1.62 per Unit, which is based on the closing price of the Common Stock on September 13, 2023), each Unit consisting of one share of our Common Stock and one Warrant.
Description of the Warrants		Each Warrant is exercisable for one share of Common Stock for an assumed price of $[●] per share (120% of the Offering Price of one Unit). Each Warrant will be exercisable immediately upon issuance and will expire five (5) years after the initial issuance date. For more information regarding the Warrants, you should carefully read the section titled “Description of Securities—Warrants” on page 99 of this prospectus.
Over-Allotment Option		We have granted the underwriters a 45-day Over-Allotment Option to purchase up to an additional 462,962 shares of Common Stock and /or 462,962 additional Warrants at a per share price equal to the Offering Price per Unit minus $0.01 and per Warrant price of $0.01, or any combination of additional shares of Common Stock and Warrants, in all cases less the underwriting discounts payable by us.
Shares of Common Stock Outstanding prior to the Offering(1)		9,350,297 shares as of September 20, 2023
Shares of Common Stock Outstanding after the Offering(1)(2)		12,436,716 shares
Use of Proceeds		We estimate that the net proceeds to us from the sale of our Units in this Offering will be approximately $4.0 million, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their Over-Allotment Option in shares of Common Stock in full, the net proceeds to us will be approximately $4.7 million.   We intend to use the net proceeds from this Offering for working capital and for general corporate purposes, which may include laboratory test and therapeutic product development, general and administrative matters, and capital expenditures. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement our business, although we have no present definitive commitments or agreements to enter into any acquisitions or investments.   We cannot specify with certainty all of the uses of the net proceeds that we will receive from this Offering. Accordingly, we will have broad discretion in the application of these proceeds and our investors will be relying on the judgment of our management regarding the application of the net proceeds of this Offering.
Representative’s Warrant		The registration statement of which this prospectus is a part also registers for sale the Representative’s Warrant, which gives the Representative the right to purchase up to 2.0% (subject to reduction) of the shares of Common Stock underlying the Units sold in this Offering, as a portion of the underwriting compensation in connection with this Offering. The Representative’s Warrant will be exercisable at any time, and from time to time, in whole or in part, commencing on a date that is 180 days after the commencement of sales of the Units in this Offering and expiring five years from the date of the registration statement in this Offering at an exercise price of $[●] (120% of the assumed offering price per Unit). We are registering the Representative’s Warrant and the shares of Common Stock underlying the Representative’s Warrant in the registration statement of which this prospectus is a part. See “Underwriting—Representative’s Warrant” on page 108 of this prospectus for a description of the Representative’s Warrant.

 

 

Lock-UpAgreements		We have agreed with the underwriters not to sell additional equity securities for a period of 180 days after the effective date of this Offering. Our directors and officers have agreed with the underwriters not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our Common Stock or securities convertible into Common Stock, subject to certain exceptions, for a period of 180 days after the date of this prospectus, which restriction may be waived in the discretion of the Representative. See “Underwriting—Lock-Up Agreements” on page 108 of this prospectus.
Risk Factors		You should read the “Risk Factors” section beginning on page 14 of this prospectus and the other information included herein for a discussion of factors to consider prior to deciding to invest in our Units.
Nasdaq Capital Market Listing		Our Common Stock is listed on the Nasdaq Capital Market under the symbol “BIAF and our Warrants issued in our initial public offering are listed on the Nasdaq Capital Market under the symbol “BIAFW.”
Transfer Agent and Warrant Agent		The transfer agent and registrar for our Common Stock and the Warrant Agent for our Warrants is VStock Transfer, LLC.

 

(1)

The number of shares of Common Stock outstanding immediately prior to and after this Offering is based on 9,350,297 shares of Common Stock outstanding as of September 20, 2023 and includes: (i) 133,414 unvested shares of restricted Common Stock, which are subject to forfeiture, but which are outstanding and have voting rights; and (ii) 564,972 shares of Common Stock issued to the Joyce Trust pursuant to the terms of the Asset Purchase Agreement on September 20, 2023.

(2)

The number of shares of Common Stock outstandingimmediately following this Offering is based on all of the shares listed in number (1) above and excludes:

 

	●	3,086,419 shares of Common Stock issuable upon the exercise of the Warrants underlying the Units sold in this Offering;
	●	462,962 shares of Common Stock issuable upon the exercise of the Over-Allotment Option;
	●	462,962 shares of Common Stock issuable upon the exercise of 462,962 Warrants issuable upon the exercise of the Over-Allotment Option;
	●	61,728 shares of Common Stock issuable upon the exercise of the Representative’s Warrant;
	●	806,392 shares of ‌Common Stock issuable upon the exercise of stock options issued under our 2014 Equity Incentive Plan to certain of our employees, directors, and consultants with a weighted average exercise price equal to $4.33;
	●	an aggregate of 4,305,812 shares of Common Stock issuable upon the exercise of outstanding Tradeable Warrants and Non-Tradeable Warrants, (which share number reflects an adjustment in the number of shares to be issued upon exercise of the Tradeable Warrants and Non-Tradeable Warrants that will be effected upon consummation of this Offering in accordance with the price protection provisions contained in the Tradeable Warrants and Non-Tradeable Warrants) all of which, upon consummation of the Acquisition, will have an exercise price that will be reduced to $3.0625 per share;
	●	2,900,904 shares of Common Stock issuable upon the exercise of outstanding warrants issued prior to consummation of our initial public offering, with a weighted average exercise price equal to $5.31 per share; and
	●	658,294 shares of our Common Stock that are reserved for equity awards that may be granted under our 2014 Equity Incentive Plan.

 

Exceptas otherwise indicated, all information in this prospectus assumes:

 

	●	An assumed initial Offering Price of $1.62 per Unit, which is the closing price of our Common Stock on the Nasdaq on September 13, 2023 set forth on the cover page of this prospectus;
	●	no exercise of the Warrants underlying the Units in this Offering;
	●	no exercise of any options under our 2014 Equity Incentive Plan;
	●	no exercise of any outstanding warrants; and
	●	no exercise of the Over-Allotment Option.

 

 

SUMMARYFINANCIAL DATA

 

We have derived the following summary of our consolidatedstatement of operations data for the years ended December 31, 2022 and 2021, and the consolidated balance sheet data as of December 31,2022 and 2021, from our audited consolidated financial statements appearing elsewhere in this prospectus. We have derived the followingsummary of our condensed consolidated statement of operations data for the six months ended June 30, 2023 and 2022, andthe balance sheet data as of June 30, 2023, from our unaudited interim condensed consolidated financial statements appearing elsewherein this prospectus. The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with ouraudited consolidated financial statements included in this prospectus and include, in our opinion, all adjustments, consisting only ofnormal recurring adjustments, necessary for the fair statement of the financial information in those statements. Our historical resultsare not necessarily indicative of the results that may be expected in the future.

 

Youshould read the following summary financial data together with our consolidated financial statements and the related notes appearingelsewhere in this prospectus and the MD&A section of this prospectus.

 

Thefollowing table summarizes our results of operations for the years ended December 31, 2022 and 2021 and the six months ended June30, 2023 and 2022.

 

		Year Ended								Six Months Ended
		December 31,								June 30,
		2022				2021				2023				2022
										(Unaudited)
Revenues		$	4,803			$	—			$	20,659				1,306
Cost of sales			467				—				1,322				146
Gross profit			4,336				—				19,337				1,160
Operating expenses
Research and development			1,142,777				1,007,476				704,741				528,267
Clinical development			145,546				130,475				54,888				80,744
Selling, general and administrative			2,727,071				1,068,871				2,596,027				803,311
Total operating expense			4,015,394				2,206,822				3,355,657				1,412,322
Loss from operations			(4,011,058	)			(2,206,822	)			(3,336,320	)			(1,411,162	)
Other income (expense), including tax			(4,143,055	)			(4,119,591	)			96,169				(144,592	)
Net (loss) income		$	(8,154,113	)		$	(6,326,413	)		$	(3,272,963	)		$	(1,560,072	)
Net (loss) income per common share:
Basic and Diluted		$	(1.81	)		$	(2.36	)		$	(0.38	)		$	(0.58	)
		$								$				$
Weighted average common shares outstanding:
Basic and Diluted			4,498,964				2,675,270				8,477,656				2,687,431

 

Thefollowing table summarizes our consolidated balance sheets at June 30, 2023 (amounts in thousands):

 

						As of
						June 30, 2023
						(Unaudited)
		Actual(1)				Pro Forma(1)				Pro Forma, As Adjusted(2)
Cash and cash equivalents		$	8,279,182				6,161,830			$	10,151,830
Working capital (deficit)		$	7,884,052				6,298,838			$	10,288,838
Total assets		$	8,873,499				12,064,004			$	16,054,004
Total liabilities		$	775,151				2,965,656			$	2,965,656
Accumulated deficit		$	(39,940,431	)			(40,111,473	)		$	(40,111,473	)
Total stockholders’ equity (deficit)		$	8,098,348				9,098,348			$	13,088,348

 

(1)

The actual and pro forma balance sheet data in the table above does not include unvested shares of restricted Common Stock (which was 133,414 as of September 20, 2023, and the pro forma balance sheet data gives effect to: (i) on July 1, 2023, the issuance of an aggregate of 71,715 restricted shares of Common Stock to our seven directors, as part of our director compensation policy; (ii) the issuance of an aggregate of 8,226 shares of Common Stock to a consultant pursuant to the terms of a consulting agreement between July 1, 2023 and September 1, 2023; (iii) the addition of 16,605 shares of restricted Common Stock that were issued but unvested prior to June 30, 2023 andwhich have subsequently vested; and (iv) the consummation of the Acquisition, including the issuance of 564,972 shares of restricted Common Stock to the Joyce Trust pursuant to the terms of the Asset Purchase Agreement, the payment of $2,500,000 cash consideration to Village Oaks, the assets acquired including cash and the liabilities assumed in Acquisition.

(2)

The pro forma, as adjusted balance sheet data in the table above reflects the items described in footnote (1) above and gives effect to the issuance and sale of Units in this Offering at an assumed Offering Price of $1.62 per Unit, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

CautionaryNote Regarding Forward-Looking Statements

 

	●	our projected financial position and estimated cash burn rate;
	●	our estimates regarding expenses, future revenues and capital requirements;
	●	our ability to obtain funding for our operations necessary to complete further development and commercialization of our diagnostic tests or therapeutic product candidates;
	●	our dependence on third parties in the conduct of our clinical trials;
	●	our ability to obtain the necessary regulatory approvals to market and commercialize our diagnostic tests or therapeutic product candidates;
	●	the potential that the results of our pre-clinical and clinical trials indicate our current diagnostic tests or any future diagnostic tests or therapeutic product candidates we may seek to develop are unsafe or ineffective;
	●	the results of market research conducted by us or others;
	●	our ability to obtain and maintain intellectual property protection for our current diagnostic tests or future diagnostic and therapeutic product candidates;
	●	our ability to protect our IP rights and the potential for us to incur substantial costs from lawsuits to enforce or protect our IP rights;
	●	the possibility that a third party may claim we or our third-party licensors have infringed, misappropriated, or otherwise violated their IP rights and that we may incur substantial costs and be required to devote substantial time defending against such claims;
	●	our reliance on third parties;
	●	the success of competing therapies, diagnostic tests, and therapeutic products that are or will become available;
	●	our ability to expand our organization to accommodate potential growth and to retain and attract key personnel;
	●	our potential to incur substantial costs resulting from product liability lawsuits against us and the potential for such lawsuits to cause us to limit the commercialization of our diagnostic tests and therapeutic product candidates;
	●	market acceptance of our diagnostic tests and therapeutic product candidates, the size and growth of the potential markets for our current diagnostic tests and therapeutic product candidates, and any future diagnostic tests and therapeutic product candidates we may seek to develop, and our ability to serve those markets;
	●	the successful development of our commercialization capabilities, including sales and marketing capabilities;
	●	compliance with government regulations, including environmental, health, and safety regulations and liabilities thereunder;
	●	the impact of any health epidemic, on our business, our clinical trials, our research programs, healthcare systems, or the global economy as a whole;
	●	general instability of economic and political conditions in the United States, including inflationary pressures, increased interest rates, economic slowdown or recession, and escalating geopolitical tensions;
	●	compliance with government regulations, including environmental, health, and safety regulations and liabilities thereunder;
	●	our anticipated uses of net proceeds from this offering;
	●	the increased expenses associated with being a public company; and
	●	other factors discussed elsewhere in this prospectus.

 

Manyof the foregoing risks and uncertainties, as well as risks and uncertainties that are currently unknown to us, are or may be exacerbatedby factors such as the ongoing conflict between Ukraine and Russia, escalating tensions between China and Taiwan, increasing economicuncertainty and inflationary pressures, and the emergence of new viral variants, and any consequent worsening of the global businessand economic environment. New factors emerge from time to time, and it is not possible for us to predict all such factors. Should oneor more of the risks or uncertainties described in this Annual Report or any other filing with the Securities and Exchange Commission(the “SEC”) occur, or should the assumptions underlying the forward-looking statements we make herein and thereinprove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. We undertakeno obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise,except as required by law.

 

Inaddition, statements such as “we believe” and similar statements reflect our beliefs and opinions on the relevant subject.These statements are based upon information available to us as of the date of this prospectus and, although we believe such informationforms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read toindicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statementsare inherently uncertain and investors are cautioned not to unduly rely upon these statements. Furthermore, if our forward-looking statementsprove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements,you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectivesand plans in any specified time frame, or at all. Except as required by applicable law, we do not plan to publicly update or revise anyforward-looking statements contained herein until after we distribute this prospectus, whether as a result of any new information, futureevents or otherwise.

 

Youshould not place undue reliance on our forward-looking statements. Although forward-looking statements reflect our good-faith beliefsat the time they are made, forward-looking statements involve known and unknown risks, uncertainties, and other factors, including thefactors described under “Risk Factors,” which may cause our actual results, performance or achievements to differ materiallyfrom anticipated future results, performance, or achievements expressed or implied by such forward-looking statements. We undertake noobligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changedcircumstances, or otherwise, unless required by law. These cautionary statements qualify all forward-looking statements attributableto us or persons acting on our behalf.

 

 

RISKFACTORS

 

Investingin our Company involves a high degree of risk. You should carefully consider the following information about these risks, together withthe other information appearing elsewhere in this Prospectus before deciding to invest in our Company. The occurrence of any of the followingrisks could have a material and adverse effect on our business, reputation, financial condition, results of operations, and future growthprospects, as well as our ability to accomplish our strategic objectives. As a result, the market value of our Common Stock could decline,and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currentlydeem immaterial may also impair our business operations and market value.

 

RisksRelated to the Acquisition

 

Thecombined company may not experience the anticipated strategic benefits of the Acquisition.

 

Whilewe anticipate benefits from the Acquisition, we may not be able to realize the expected benefits. We may not be able to integratethe two businesses successfully, and despite due diligence we could assume previously unidentified or contingent liabilities. Ownership of aCAP/CLIA laboratory and related services business may not have the clinical value and commercial potential which we envision. Anysubstantive failure of the Acquisition to meet our expectations could have a material negative effect on our results ofoperations. There can be no assurance thatthe anticipated benefits of the Acquisition will materialize or that if they materialize will result in increased stockholder valueor revenue stream to the combined company.

 

Wemay be unable to successfully integrate the PPLS business with our current management and structure.

 

Ourfailure to successfully complete the integration of PPLS could have an adverse effect on our prospects, businessactivities, cash flow, financial condition, results of operations and stock price. Integration challenges may include the following:

 

	●	assimilating and retaining former Village Oaks personnel who joined PPLS as part of the Acquisition;
	●	estimating the capital, personnel and equipment required for the operation of PPLS based on the historical experience of management with the businesses they are familiar with; and
	●	minimizing potential adverse effects on existing business relationships.

 

Wemay not be able to enforce claims with respect to the representations, warranties and indemnities that Village Oaks has provided to usunder the Asset Purchase Agreement.

 

Inconnection with the Acquisition, Village Oaks has given certain representations, warranties and indemnities. There can be no assurancewe will be able to enforce any claims against Village Oaks’ breaches of such representations, warranties or indemnities. VillageOaks’ liability with respect to breaches of such representations, warranties and indemnities under the Asset Purchase Agreementmay be limited or the amount and coverage of any insurance obtained with respect to representations and warranties may be limited. Evenif we ultimately succeed in recovering any amounts, we may temporarily be required to bear these losses ourselves.

 

Weare unable to precisely estimate when we will begin to generate significant profit from revenue, if ever, from PPLS’services, nor to estimate the amount of profit or revenue that will be generated or the expenses that will be incurred.

 

Wedo not expect to immediately derive profit from revenue from PPLS’ services. Once we begin to generate such profit,there is no guarantee that it will be sufficient to realize the expected financial benefits of the Acquisition. In addition, sincewe have limited experience operating a clinical laboratory, we may not accurately estimate the expenses we will incur.

 

 

Themarket price of our common stock following the Acquisition may decline as a result of such Acquisition.

 

Themarket price of our common stock may decline as a result of the Acquisition for a number of reasons including if:

 

	●	investors react negatively to the prospects of our business after the Acquisition;
	●	the effect that the Acquisition has on our business and prospectus is not consistent with the expectations of financial or industry analysists; or
	●	after the Acquisition, the Company does not achieve the perceived benefits of the Acquisition as rapidly or to the extent anticipated by financial or industry analysts.

Operatinga clinical laboratory is a new business for us and the members of our management team have limited experience operating a CAP-accredited,CLIA-certified laboratory, which may limit the ability of investors to make an informed investment decision.

 

Wehave never operated a clinical laboratory. To date, only our Chief Operating Officer, Xavier Reveles, has operated a CAP-accredited,CLIA-certified clinical laboratory and therefore it may be difficult for investors to analyze our ability to successfully operate aclinical laboratory. Our management team may not successfully or efficiently manage our transition to operating a CAP-accredited andCLIA-certified laboratory subject to significant regulatory oversight and reporting obligations. However, to ease the transition,Dr. Joyce, the Medical Director and Laboratory Director of Village Oaks prior to the Acquisition, continues to serve as the MedicalDirector and Laboratory Director of PPLS. These new obligations and constituents will require significant attention from our seniormanagement and could divert their attention away from the day-to-day management of our business, which could adversely affect ourbusiness, financial condition, and operating results.

 

Ourstockholders will experience substantial dilution from the issuance of the consideration paid in connection with the Acquisition andmay not realize a benefit from the Acquisition commensurate with the ownership dilution they will experience in connection with the Acquisition.

 

Ourstockholders will experience substantial dilution from the issuance of the consideration paid in connection with the Acquisition. Ifafter the Acquisition we are unable to realize the full strategic and financial benefits currently anticipated from the Acquisition,our securityholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit,or only receiving part of the commensurate benefit to the extent the post-acquisition company is able to realize only part of the strategicand financial benefits currently anticipated from the Acquisition.

 

Theunaudited pro forma financial information included in this prospectus is for illustrative purposes and the combined company’s actualfinancial position or results of operations after the anticipated Acquisition may differ materially.

 

Theunaudited pro forma financial information in this prospectus is presented for illustrative purposes only and is not necessarily indicativeof what the combined company’s actual financial position or results of operations would have been had the Acquisition been completedon the dates indicated. The unaudited pro forma financial information reflects adjustments, which are based upon estimates, to allocatethe purchase price to tangible and identifiable intangible assets acquired and liabilities assumed, based on their estimated acquisition-datefair values. The purchase price allocation reflected in this document is preliminary, and a final determination of the fair value ofassets acquired and liabilities assumed will be based on the actual net tangible and intangible assets and liabilities of Village Oaksthat existed as of the date on which the Acquisition was consummated. Accordingly, the final purchase accounting adjustments may differmaterially from the pro forma information reflected in this prospectus. For more information, please see the section entitled “bioAffinityTechnologies, Inc. Unaudited Pro Forma Combined Financial Statements.”

 

 

RisksRelated to Our Financial Position

 

Our Business Plan relies upon our ability toobtain additional sources of capital and financing. If the amount of capital we are able to raise from financing activities, togetherwith our revenues from operations, is not sufficient to satisfy our capital needs, we may be required to cease operations.

 

Prior to 2022, we had not generated any revenue.During the year ended December 31, 2022, we generated approximately $5,000 and during the six months ended June 30, 2023 we generatedapproximately $8,000 in revenue from royalties from sales of our first diagnostic test, CyPath^® Lung by Village Oaks,a CAP-accredited, CLIA-certified clinical pathology laboratory to which we had previously granted a license to develop CyPath^®Lung for commercialization and to manufacture, use, market and sell CyPath^® Lung as an LDT prior to the Acquisition,which license was assigned to and assumed by PPLS in connection with the Acquisition, that began a limited market launch in the secondquarter of 2022 to pulmonologists in South Texas. During the six months ended June 30, 2023, we also generated revenue from clinicalflow cytometry services provided to Village Oaks related to CyPath^® Lung in the approximate amount of $3,000 and in connectionwith CyPath^® Lung tests purchased by the U.S. Department of Defense in the approximate amount of $10,000 for an observationalstudy.

 

Tobecome and remain profitable, we must succeed in developing and commercializing our diagnostic tests and therapeutic products that weexpect will generate significant income in the planned timeframe. This will require us to be successful in a range of challenging activities,including completing preclinical testing and clinical trials of our diagnostic and therapeutic technologies, obtaining regulatory approvalfor our diagnostic and therapeutic technologies, manufacturing, marketing and selling any diagnostic tests and therapeutic products forwhich we may obtain regulatory approval, and establishing and managing our collaborations at various phases of each diagnostic test andtherapeutic product candidate’s development. We are in the preliminary phases of these activities. We may never succeed in theseactivities and, even if we do, may never generate sufficient income to achieve profitability.

 

Tobecome profitable, we must develop our diagnostic tests and therapeutic products, which will depend in large part on our ability to:

 

	●	Develop, enhance and protect our diagnostic tests and therapeutic products;
	●	Raise sufficient funding to support our diagnostic tests and therapeutic product development program(s);
	●	Complete pre-clinical testing;
	●	Work with our partners to expand commercialization of our first diagnostic test, CyPath® Lung, as an LDT under the CAP/CLIA guidelines and regulations administered by CMS and CAP;
	●	Obtain de novo classification from FDA for our CyPath® Lung as a Class II in vitro diagnostic
	●	Work with our partners to develop and commercialize our first diagnostic test, CyPath® Lung, as a CE -marked test in accordance with the In Vitro Diagnostic Device Regulation (the “IVDR”) of the EU;
	●	Synthesize, test, and attract licensing partners for drug conjugates, siRNAs, and other therapeutics (and methods for their use) developed by us;
	●	Develop and conduct human clinical studies to support the regulatory approval and marketing of our diagnostic test(s) and therapeutic product(s);
	●	Develop and manufacture the test(s) and product(s) to FDA standards, appropriate EU standards, and appropriate standards required for the commercialization of our tests and products in countries in which we seek to sell our diagnostic test(s) and therapeutic product(s);
	●	Obtain the necessary regulatory approvals to market our diagnostic test(s) and therapeutic product(s);
	●	Secure the necessary personnel and infrastructure to support the development, commercialization, and marketing of our diagnostic test(s) and therapeutic product(s); and
	●	Develop strategic relationships to support development, manufacturing, and marketing of our diagnostic test(s) and therapeutic product(s).

 

Evenif we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure tobecome and remain profitable would depress the value of our Company and could impair our ability to raise capital, expand our business,maintain the research and development efforts that will be initially funded by the proceeds of this Offering, diversify our diagnostictests and therapeutic product offerings, or even continue our operations. A decline in the value of our Company could also cause youto lose all or part of your investment.

 

Wemust raise additional capital to fund our operations in order to continue as a going concern.

 

As of December 31, 2022, we had an accumulated deficitof $36.7 million. As of June 30, 2023, we had an accumulated deficit of $39.9 million. Although we believe we will havesufficient cash on hand to fund our ongoing operations for a period of a least 12 months subsequent to the issuance of the unauditedcondensed consolidated financial statements for the six months ended June 30, 2023, we need to raise further capital throughthe sale of additional equity or debt securities or other debt instruments, strategic relationships or grants, or other arrangementsto support our future operations. Our Business Plan includes expansion for our commercialization efforts which will require additionalfunding. If we are unable to improve our liquidity position we may not be able to continue as a going concern. Our ability to continueas a going concern is dependent upon our ability to generate revenue and raise capital from financing transactions. Without funding fromthe proceeds of this Offering, management anticipates that our cash resources are sufficient to continue operations through May 2024.Our future is dependent upon its ability to obtain financing and upon future profitable operations from the development of its new businessopportunities. There can be no assurance that we will be successful in accomplishing these objectives. Without such additional capital,we may be required to curtail or cease operations and be required to realize our assets and discharge our liabilities other than in thenormal course of business which could cause investors to suffer the loss of all or a substantial portion of their investment. WithumSmith+Brown,PC, our independent registered public accounting firm for the fiscal year ended December 31, 2022, has included an explanatory paragraphin its opinion that accompanies our audited consolidated financial statements as of and for the year ended December 31, 2022,indicating that our current liquidity position raises substantial doubt about our ability to continue as a going concern.

 

 

Wehave a limited operating history, which makes it difficult to evaluate our current business and future prospects.

 

Weare a company with limited operating history, and our operations are subject to all of the risks inherent in establishing a new businessenterprise. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications, and delaysfrequently encountered in connection with the formation of a new business, the development of new technologies or those subject to clinicaltesting, and the competitive and regulatory environment in which we will operate. To date, we have generated revenue from a limited marketlaunch of CyPath^® Lung in the South Texas area which began in the second quarter of 2022. There can be no assurance thatwe will be able to successfully expand our commercialization efforts or that we will obtain the necessary regulatory approvals that willallow us to expand our marketing efforts. We may not be able to maintain certification of CyPath^® Lung as an LDT in accordancewith CAP/CLIA guidance and regulations, or obtain approval of our diagnostic tests in development by the CMS, the FDA, European MedicinesAgency, or Chinese National Medical Products Administration. Even if we do so and are also able to commercialize our diagnostic tests,we may never generate revenue sufficient to become profitable. Our failure to generate revenue and profit would likely cause our securitiesto decrease in value or become worthless.

 

Wewill require additional financing to implement our Business Plan, which may not be available on favorable terms or at all, and we mayhave to accept financing terms that would place restrictions on us.

 

Webelieve that we must raise additional funds to be able to continue our business operations. We may not be able to obtain equity or debtfinancing on acceptable terms or at all to implement our growth strategy. As a result, adequate capital may not be available to financeour current development plan, take advantage of business opportunities, or respond to competitive pressures. If we are unable to raiseadditional funds, we may be forced to curtail or even abandon our Business Plan and focus on fewer commercial opportunities that mayresult in more limited growth than forecast.

 

Untilsuch time, if ever, as we can generate substantial income from sale of our diagnostic test(s) and therapeutic product candidates, weexpect to finance our cash needs through a combination of equity offerings, debt financings, and license and collaboration agreements.To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of existingstockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect therights of the holders of our Common Stock (the “Common Stockholders”). In addition, the terms of any futurefinancings may impose restrictions on our right to declare dividends or on the manner in which we conduct our business. Debt financingand preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to takespecific actions, such as incurring additional debt, making capital expenditures, declaring dividends, or making acquisitions or significantasset sales.

 

Ifwe raise additional funds through collaborations, strategic alliances or marketing, or distribution or licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs; or grant licenseson terms that may not be favorable to us and/or that may reduce the value of our Common Stock.

 

Risks Related to our Diagnostic Product

 

Untilwe secure FDA clearance for our CyPath^® Lung as a Class II in vitro diagnostic, our marketing efforts are limited.

 

Inorder to market our CyPath^® Lung as an IVD medical device, we must receive de novo classificationfrom the FDA as a Class II in vitro diagnostic. We intend to launch a pivotal trial later this year in an effort to attain such classification;however, there can be no assurance that the trial will have favorable results or that it will generate the results necessary to obtainsuch classification. Until such time as we receive de novo classification,which we may never receive, our marketing efforts are limited to the marketing and sale of CyPath^® Lung as an LDT withinthose states and territories of the United States where PPLS is licensed or otherwise permitted under applicable law to offer, sell andmarket CyPath^® Lung.

 

Ifwe experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvalscould be delayed or prevented.

 

Wemay not be able to initiate or continue clinical trials if we are unable to locate and enroll a sufficient number of eligible patientsto participate in these trials as required by the FDA or similar regulatory authorities outside the United States, such as the EuropeanMedicines Agency.

 

Patientenrollment is affected by many other factors, including:

 

	●	the severity of the disease under investigation;
	●	the patient eligibility criteria for the study in question;
	●	the efforts to facilitate timely enrollment in clinical trials;
	●	our payments for conducting clinical trials;
	●	the patient referral practices of physicians;
	●	the ability to monitor patients adequately during the trial period; and
	●	the proximity and availability of clinical trial sites for prospective patients.

 

Weare unable to forecast with precision our ability to enroll patients. Our inability to enroll a sufficient number of patients for ourclinical trials would result in significant delays and could require us to abandon one or more clinical trials altogether. Enrollmentdelays in our clinical trials may result in increased development costs, which would cause the value of our Company to decline and limitour ability to obtain additional financing.

 

 

Clinicaltrials are expensive, time-consuming, and may not be successful.

 

Clinicaltrials are expensive, time-consuming, and may not be successful. They involve the evaluation of diagnostic tests and testing of potentialtherapeutic agents and effective treatments in humans to determine the safety and efficacy of the diagnostic tests and therapeutic productsnecessary for an approved diagnostic and therapeutic technology. Many tests and products in human clinical trials fail to demonstratethe desired safety and efficacy characteristics. Even if our tests and products progress successfully through initial or subsequent humantesting, they may fail in later phases of development. We may engage others to conduct our clinical trials, including clinical researchorganizations and government-sponsored agencies. These trials may not start or be completed as we forecast or may not achieve desiredresults.

 

Wemay experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receivemarketing authorization or commercialize our diagnostic and therapeutic technologies, including:

 

	●	regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
	●	we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
	●	clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product and test development programs;
	●	the number of patients required for clinical trials may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials at a higher rate than we anticipate;
	●	our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
	●	we may have to suspend or terminate clinical trials for various reasons, including a finding that the participants are being exposed to unacceptable health risks;
	●	regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
	●	the cost of clinical trials may be greater than we anticipate; or
	●	regulators may revise the requirements for approving our diagnostic or therapeutic technologies, or such requirements may not be as we anticipate.

 

Ifwe are required to conduct additional clinical trials or other testing beyond those that we currently contemplate, if we are unable tosuccessfully complete clinical trials or other testing, if the results of these trials or tests are not positive or are only modestlypositive, or if there are safety concerns, we may:

 

	●	be delayed in obtaining marketing approval;
	●	not obtain marketing approval at all, which would seriously impair our viability;
	●	obtain marketing approval in some countries and not in others;
	●	obtain approval for indications or patient populations that are not as broad as we intend or desire;
	●	obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;
	●	be subject to additional post-marketing testing requirements; or
	●	have the diagnostic test or therapeutic product removed from the market after obtaining marketing approval.

 

Ourproduct and test development costs will increase if we experience delays in clinical testing or marketing approvals. We do not know whetherany of our preclinical studies or clinical trials will begin as planned, will need to be restructured, or will be completed on scheduleor at all. Significant preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive rightto commercialize our diagnostic technology or allow our competitors to bring diagnostic tests and therapeutic products to market beforewe do, potentially impairing our ability to successfully commercialize our diagnostic and therapeutic technologies and harming our businessand results of operations.

 

 

RisksRelated to Our Diagnostic Tests

 

Ifour tests do not perform as expected, our operating results, reputation and business will suffer.

 

Oursuccess depends on the market’s confidence that PPLS can provide reliable, high-quality clinical testing services. Thereis no guarantee that the accuracy and reproducibility that the CAP/CLIA clinical pathology laboratory, now owned by PPLS, has demonstrated to date will continue as its test volumeincreases. We believe that PPLS’ customers are likely to be particularly sensitive to test limitations and errors,including inaccurate test results. As a result, if PPLS does not perform its diagnostic services as expected, our operatingresults, reputation and business will suffer. We may be subject to legal claims arising from such limitations, errors or inaccuracies.

 

Wemay experience difficulties that delay or prevent our development, introduction or marketing of enhanced or new tests.

 

Oursuccess may also depend on our ability to effectively introduce enhanced or new tests. The development of enhanced or new tests is complex,costly and uncertain. Furthermore, enhancing or developing new tests requires us to anticipate patients’, clinicians’ andpayors’ needs and emerging technology trends accurately. We may experience research and development, regulatory, marketing andother difficulties that could delay or prevent our introduction of enhanced or new tests. The research and development process in diagnosticsgenerally takes a significant amount of time from the research and design stage to commercialization. This process is conducted in variousstages, and each stage presents the risk that we will not achieve our goals. We may have to abandon a test in which we have investedsubstantial resources. In order to successfully commercialize tests that we may develop in the future, we may need to conduct lengthy,expensive clinical trials and develop dedicated sales and marketing operations or enter into collaborative agreements to achieve marketawareness and demand. Any delay in the research and development, approval, production, marketing or distribution of enhanced or new testscould adversely affect our competitive position, branding and results of operations.

Wecannot be certain that:

 

●

any tests that we may enhance or develop will prove to be effective in clinical trials;

 

●

we will be able to obtain, in a timely manner or at all, regulatory approvals, if needed;

 

●

any tests that we may enhance or develop will be ordered and used by healthcare providers;

 

●

any tests that we may enhance or develop can be provided at acceptable cost and with appropriate quality; or

 

●

any of our tests can be successfully marketed.

 

Thesefactors and other factors beyond our control could delay the launch of enhanced or new tests.

 

Ifclinical testing of a particular diagnostic test or therapeutic product candidate does not yield successful results, then we willbe unable to commercialize that test or product candidate.

 

Wemust demonstrate the product safety and efficacy of our candidates for diagnostic tests and therapeutic products in humans through extensiveclinical testing. Our research and development programs are at an early stage of development. We may experience numerous unforeseen eventsduring, or as a result of, the testing process that could delay or prevent commercialization of any test or product, including the following:

 

	●	the results of pre-clinical studies may be inconclusive, or they may not be indicative of results that will be obtained in human clinical trials;
	●	safety and efficacy results attained in early human clinical trials may not be indicative of results that are obtained in later clinical trials;

 

 

	●	after reviewing test results, we may abandon projects that we might previously have believed to be promising;
	●	we or our regulators may suspend or terminate clinical trials because the participating subjects or patients are being exposed to unacceptable health risks; and
	●	our test or product candidates may not have the desired effects or may include undesirable side effects or other characteristics that preclude regulatory approval or limit their commercial use if approved.

 

Evenif our diagnostic tests or therapeutic products receive marketing approval, they may fail to achieve the degree of market acceptanceby physicians, patients, third-party payors and others in the medical community necessary for commercial success.

 

Evenif our products receive marketing approval, if needed, they may nonetheless fail to gain sufficient market acceptance by physicians,patients, third-party payors, and others in the medical community. If we do not generate significant product revenues, we may not becomeprofitable. The degree of market acceptance of our products and tests, if approved for commercial sale, will depend on a number of factors,including:

 

	●	their efficacy, safety, and other potential advantages compared to alternative tests or products;
	●	our ability to offer them for sale at competitive prices;
	●	their convenience and ease of administration compared to alternative diagnostics or treatments;
	●	the willingness of the target patient population to try new diagnostic tests and of physicians to order these tests;
	●	the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
	●	the strength of marketing and distribution support;
	●	the availability of governmental agencies and third-party medical insurance and adequate reimbursement for our diagnostic tests or therapeutic products;
	●	any restrictions on the use of our diagnostic tests or therapeutic products together with other diagnostic methods or therapeutic treatments;
	●	any restrictions on the use of our diagnostic tests or therapeutic products together with other medications;
	●	inability of certain types of patients to produce adequate samples for analysis in the use of our diagnostic tests;
	●	inability of certain types of patients to use our diagnostic tests or take our therapeutic products; and
	●	the prevalence and severity of side effects from our therapeutic products.

 

Ifwe are unable to address and overcome these and similar concerns, our business and results of operations could be substantially harmed.

 

Ifwe are unable to establish effective sales, marketing, and distribution capabilities or enter into agreements with third parties withsuch capabilities, we may not be successful in commercializing our diagnostic tests or therapeutic products if and when they are approved.

 

Wedo not have a sales or marketing infrastructure and have limited experience in the sale, marketing, or distribution of our diagnostictests and therapeutic products. To achieve commercial success for any diagnostic test or therapeutic product for which we obtain marketingapproval, we will need to successfully establish and maintain relationships directly and with third parties to perform sales and marketingfunctions.

 

Factorsthat may inhibit our efforts to commercialize our diagnostic tests or therapeutic products on our own include:

 

	●	our inability to recruit, train, and retain adequate numbers of effective sales, technical support, and marketing personnel;
	●	the inability of sales personnel to obtain access to or educate physicians on the benefits of our diagnostic tests or therapeutic products;
	●	the lack of complementary diagnostic tests or therapeutic products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive diagnostic tests or therapeutic product lines;
	●	unforeseen costs and expenses associated with creating an independent sales, technical support, and marketing organization; and
	●	the inability to obtain sufficient coverage and reimbursement from third-party payors and governmental agencies.

 

Ifwe do not establish sales, marketing, and distribution capabilities successfully, either on our own or in collaboration with third parties,we will not be successful in commercializing our diagnostic tests or therapeutic products.

 

We are currently dependent upon one pathologylaboratory to offer and perform CyPath^® Lung.

 

We previously granted Village Oaksa license pursuant to a joint development and project agreement to develop CyPath^® Lung for commercialization and to manufacture,use, market and sell CyPath^® Lung as an LDT within those states and territories of the United States where Village Oaksis licensed or otherwise permitted under applicable law to offer, sell and market CyPath^® Lung, pursuant to which we received50% of the gross revenue received by Village Oaks from the sale and processing of the CyPath^® Lung test. Inconnection with the Acquisition, PPLS acquired the license to CyPath^® Lung. Upon consolidating PPLS, our wholly ownedsubsidiary, the royalty revenue in connection with the performing of CyPath^® Lung will be eliminated as an intercompanytransaction. PPLS is currently the only licensee of CyPath^® Lung and, therefore, we are dependent upon theefforts of PPLS, a CAP/CLIA clinical laboratory that performs CyPath^® Lung, for the generation of our revenue.Revenue from CyPath Lung is generated through performance of testing by PPLS. PPLS performs testing when ordered by physicians fortheir patients. PPLS also generates revenue when performed in the context of an observational study conducted by the Department ofDefense (the “DOD”) titled “Detection of Abnormal Respiratory Cell Populations in Lung Cancer Screening PatientsUsing the CyPath^® Lung Assay,” and when performed for research and development on using bronchoalveolar lavagefluid as a biological sample to assess cardiopulmonary function and exercise performance in military personnel post COVID-19 infection.

 

 

Ifwe are unable to convince physicians of the benefits of our proposed diagnostic tests or therapeutic products, we may incur delays oradditional expense in our attempt to establish market acceptance.

 

Broaduse of our proposed diagnostic tests and products may require pathology laboratories and physicians to be informed regarding our proposeddiagnostic tests and products and their intended benefits. Inability to carry out this physician education process may adversely affectmarket acceptance of our proposed diagnostic tests or therapeutic products. We may be unable to timely educate physicians regarding ourproposed diagnostic tests or therapeutic products in sufficient numbers to achieve our marketing plans or to achieve acceptance of ourdiagnostic tests or therapeutic products. Any delay in physician education may materially delay or reduce demand for our diagnostic testsor therapeutic products. In addition, we may expend significant funds toward physician education before any acceptance or demand forour proposed diagnostic tests or therapeutic products is created, if at all.

 

Weface substantial competition, which may result in others discovering, developing, or commercializing competing diagnostic tests or therapeuticproducts before or more successfully than we do.

 

Thedevelopment and commercialization of new diagnostic and therapeutic technologies is highly competitive. We will always face competitionwith respect to any diagnostic and therapeutic technology that we may seek to develop or commercialize in the future from major diagnosticand pharmaceutical companies, LDT laboratories, smaller diagnostic and pharmaceutical companies, and biotechnology companies worldwide.In 2022, we evaluated 67 companies advancing tests for the early detection of lung cancer that provided at least a scientific foundationfor their tests. These competitors are investigating lung cancer screening and diagnostic methods that use various types of collectedsamples (blood, breath, nasal epithelial cells, saliva, sputum, and urine) or imaging systems. Potential competitors also include academicinstitutions, government agencies, and other public and private research organizations that conduct research, seek patent protection,and establish collaborative arrangements for research, development, manufacturing, and commercialization.

 

Asubstantial number of the companies against which we are competing or we may compete against in the future may have, significantly greaterfinancial resources, established presence in the market, and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals, and marketing approved diagnostic tests or therapeutic products.Mergers and acquisitions in the diagnostic, pharmaceutical, and biotechnology industries may result in even more resources being concentratedamong a smaller number of our competitors.

 

Smallerand other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with largeand established companies. These third parties compete with us in recruiting and retaining qualified scientific, sales, marketing, andmanagement personnel, establishing clinical trial sites and patient registration for clinical trials, and acquiring technologies complementaryto or necessary for – our programs.

 

Ourcommercial opportunity could be reduced or eliminated if our competitors develop and commercialize diagnostic tests or therapeutic productsthat are more accurate, more convenient, or less expensive than any diagnostic tests or therapeutic products that we may develop. Ourcompetitors also may obtain FDA or other regulatory approval for their diagnostic tests or therapeutic products more rapidly than wemay obtain approval for ours, which could result in our competitors establishing a stronger market position. In addition, our abilityto compete may be affected in many cases by insurers or other third-party payors.

 

Wemay be unable to compete in our target marketplaces, which could impair our ability to generate revenues, thus causing a material adverseimpact on our results of operations.

 

Oursuccess depends upon our ability to retain key executives and to attract, retain, and motivate qualified personnel, and the loss of thesepersons could adversely affect our operations and results.

 

We are highly dependent on the principal membersof our management, scientific, and clinical teams, including Maria Zannes, J.D., our President and Chief Executive Officer, VivienneRebel, M.D., Ph.D., our Chief Science and Medical Officer and Executive Vice President, Xavier Reveles, MS, CG(ASCP)^cm,our Chief Operating Officer, and Michael Dougherty, CPA, MBA, our Chief Financial Officer, as well as Roby Joyce, M.D., the MedicalDirector and Laboratory Director of PPLS and the principal of Village Oaks.

 

Theloss of the services of any of our executive officers or other members of our management team could impede the achievement ofour research, development, and commercialization objectives and seriously harm our ability to successfully implement our business strategy.Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limitednumber of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approvalof, and commercialize diagnostic tests or therapeutic products. Competition to hire from this limited pool is intense, and we may beunable to hire, train, retain, or motivate key personnel on acceptable terms given the competition among numerous biotechnology companiesfor similar expertise. We also face competition from universities and research institutions for qualified scientific and clinical personnel.In addition, we rely and expect to continue to rely to a significant degree on consultants and advisors, including scientific and clinicaladvisors, to assist us in formulating our research and development and commercialization strategies. Our consultants and advisors maybe engaged by other entities and may have commitments under consulting or advisory contracts that may limit their availability to us.If we are unable to continue to attract and retain high-quality personnel, our ability to pursue our growth strategy will be limited.

 

Ourlack of operating experience may make it difficult to manage our growth which could lead to our inability to implement our Business Plan.

 

Wehave limited experience in marketing and the selling of diagnostic tests and pharmaceutical products. Any growth will require us to expandour management and our operational and financial systems and controls. If we are unable to do so, our business and financial conditionwould be materially harmed. If rapid growth occurs, it may strain our operational, managerial, and financial resources.

 

 

Ifwe fail to comply with our obligations imposed by any intellectual property licenses with third parties that we may need in the future,we could lose rights that are important to our business.

 

We may in the future require licenses to third-partytechnology and materials. We had previously been granted a license from Village Oaks to use its intellectual property,pursuant to a joint development and project agreement, to develop CyPath^® Lung for commercialization. In connectionwith the Acquisition, Village Oaks assigned its rights pursuant to such joint development and project agreement to PPLS, as well as theintellectual property that is the subject of our license under such agreement. Such licenses may not be available in the future ormay not be available on commercially reasonable terms, or at all, which could have a material adverse effect on our business and financialcondition. We may rely on third parties from whom we license proprietary technology to file and prosecute patent applications and maintainpatents and otherwise protect the intellectual property we license from them. We may have limited control over these activities or anyother intellectual property that may be related to our in-licensed intellectual property. For example, we cannot be certain that suchactivities by these licensors will be conducted in compliance with applicable laws and regulations or will result in valid and enforceablepatents and other intellectual property rights. We may have limited control over the manner in which our licensors initiate an infringementproceeding against a third-party infringer of the intellectual property rights or defend certain of the intellectual property that maybe licensed to us. It is possible that the licensors’ infringement proceeding or defense activities may be less vigorous than ifwe conduct them ourselves. Even if we acquire the right to control the prosecution, maintenance, and enforcement of the licensed andsublicensed intellectual property relating to our diagnostic tests or therapeutic product candidates, we may require the cooperationof our licensors and any upstream licensor, which may not be forthcoming. Therefore, we cannot be certain that the prosecution, maintenance,and enforcement of these patent rights will be in a manner consistent with the best interests of our business. If we or our licensorfail to maintain such patents, or if we or our licensor lose rights to those patents or patent applications, the rights we have licensedmay be reduced or eliminated and our right to develop and commercialize any of our diagnostic tests or therapeutic product candidatesthat are the subject of such licensed rights could be adversely affected. In addition to the foregoing, the risks associated with patentrights that we license from third parties will also apply to patent rights we may own in the future. Further, if we fail to comply withour diligence, development and commercialization timelines, milestone payments, royalties, insurance, and other obligations under ourlicense agreements, we may lose our patent rights with respect to such agreement, which would affect our patent rights worldwide.

 

Terminationof our current or any future license agreements would reduce or eliminate our rights under these agreements and may result in our havingto negotiate new or reinstated agreements with less favorable terms or cause us to lose our rights under these agreements, includingour rights to important intellectual property or technology. Any of the foregoing could prevent us from commercializing our other diagnostictests or therapeutic product candidates, which could have a material adverse effect on our operating results and overall financial condition.

 

Inaddition, intellectual property rights that we in-license in the future may be sublicenses under intellectual property owned by thirdparties, in some cases through multiple tiers. The actions of our licensors may therefore affect our rights to use our sublicensed intellectualproperty, even if we are in compliance with all of the obligations under our license agreements. Should our licensors or any of the upstreamlicensors fail to comply with their obligations under the agreements pursuant to which they obtain the rights that are sublicensed tous, or should such agreements be terminated or amended, our ability to develop and commercialize our diagnostic tests or therapeuticproduct candidates may be materially harmed.

 

Inthe future, we may need to obtain additional licenses of third-party technology that may not be available to us or are available onlyon commercially unreasonable terms, which may cause us to operate our business in a more costly or otherwise adverse manner that wasnot anticipated.

 

Wecurrently own intellectual property directed to our diagnostic tests, therapeutic product candidates and other proprietary technologies.Other pharmaceutical companies and academic institutions may also have filed or are planning to file patent applications potentiallyrelevant to our business. From time to time, in order to avoid infringing these third-party patents, we may be required to license technologyfrom additional third parties to further develop or commercialize our diagnostic tests or therapeutic product candidates. Should we berequired to obtain licenses to any third-party technology, including any such patents required to manufacture, use, or sell our productcandidates, such licenses may not be available to us on commercially reasonable terms, or at all. The inability to obtain any third-partylicense required to develop or commercialize any of our product candidates could cause us to abandon any related efforts, which couldseriously harm our business and operations. The licensing or acquisition of third-party intellectual property rights is a competitivearea, and several more established companies may pursue strategies to license or acquire third-party intellectual property rights wemay consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capitalresources, and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitormay be unwilling to assign or license rights to us. Even if we are able to obtain a license under such intellectual property rights,any such license may be non-exclusive, which may allow our competitors access to the same technologies licensed to us.

 

Moreover,some of our owned and in-licensed patents or patent applications or future patents may be co-owned with third parties. If we are unableto obtain an exclusive license to any such third-party co-owners’ interest in such patents or patent applications, such co-ownersmay be able to license their rights to other third parties, including our competitors, and our competitors could market competing diagnostictests or therapeutic products and technology. In addition, we may need the cooperation of any such co-owners of our patents in orderto enforce such patents against third parties, and such cooperation may not be provided to us. Furthermore, our owned and in-licensedpatents may be subject to a reservation of rights by one or more third parties. Any of the foregoing could have a material adverse effecton our competitive position, business, financial conditions, results of operations and prospects.

 

Wewill depend on third parties to manufacture and market our diagnostic tests and to design trial protocols, arrange for and monitor theclinical trials, and collect and analyze data.

 

Wedo not have, and do not now intend to develop, facilities for the manufacture of the contents of our collection kits needed for clinicalor commercial production. In addition, we are not a party to any long-term agreement with any of our suppliers such as the reagents usedin processing sputum samples, and accordingly, we have the products used in our diagnostic tests manufactured on a purchase-order basisfrom primary suppliers. We have entered into relationships with manufacturers on a contract basis but will need to expand those relationships.We expect to depend on such collaborators to supply us with reagents and other materials manufactured in compliance with standards imposedby the CMS, FDA, and foreign regulators.

 

Moreover,as we develop our diagnostic tests or therapeutic products eligible for clinical trials, we intend to contract with independent partiesto design the trial protocols, arrange for and monitor the clinical trials, and collect and analyze the data. In addition, certain clinicaltrials for our products may be conducted by government-sponsored agencies and will be dependent on governmental participation and funding.Our dependence on independent parties and clinical sites involves risks including reduced control over the timing and other aspects ofour clinical trials.

 

 

Weare exposed to product liability and pre-clinical and clinical liability risks which could place a substantial financial burden uponus, should we be sued.

 

Ourbusiness exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing, and marketingof diagnostic tests and therapeutic products. Such claims may be asserted against us. In addition, using diagnostic tests and therapeuticproducts that may be developed with potential collaborators in our clinical trials and the subsequent sale of these tests and productsby bioAffinity or our potential collaborators may cause us to bear a portion of or all product liability risks. A successful liabilityclaim, or series of claims, brought against us could have a material adverse effect on our business, financial condition, and resultsof operations.

 

While we have obtained product liability insurancecovering CyPath^® Lung as a commercialized LDT to be sold by a CAP-accredited, CLIA-certified clinical pathology laboratory(previously Village Oaks and currently PPLS), in the future we may not be able to obtain or maintain adequate product liabilityinsurance, when needed, on acceptable terms, if at all, or such insurance may not provide adequate coverage against our potential liabilities.Furthermore, potential partners with whom we intend to have collaborative or strategic agreements or our future licensees may not bewilling to indemnify us against these types of liabilities and may not themselves be sufficiently insured or have sufficient liquidityto satisfy any product liability claims. Claims or losses in excess of any product liability insurance coverage that we may obtain couldhave a material adverse effect on our business, financial condition, and results of operations.

 

Inaddition, we may be unable to obtain or to maintain clinical trial liability insurance on acceptable terms, if at all. Any inabilityto obtain and/or maintain insurance coverage on acceptable terms could prevent or limit the commercialization of any tests or productswe develop.

 

Ourcollection, use and disclosure of personal information, including health and employee information, is subject to U.S. state and federalprivacy and security regulations, and our failure to comply with those regulations or to adequately secure the information we hold couldresult in significant liability or reputational harm.

 

Theprivacy and security of personal information stored, maintained, received or transmitted, including electronically, is a major issuein the U.S. and abroad. Numerous federal and state laws and regulations, including state privacy, data security and breach notificationlaws, federal and state consumer protection and employment laws, the Health Insurance Portability and Accountability Act of 1996, asamended by the Health Information Technology for Economic and Clinical Health Act of 2009, and the Genetic Information NondiscriminationAct of 2008, govern the collection, dissemination, use and confidentiality of personal information, including genetic, biometric andhealth information. These laws and regulations are increasing in complexity and number, may change frequently and sometimes conflict.Penalties for violations of these laws vary but can be severe.

 

Whilewe strive to comply with all applicable privacy and security laws and regulations, including our own posted privacy policies, these lawsand regulations continue to evolve, and any failure or perceived failure to comply may result in proceedings or actions againstus by government entities or others or could cause us to lose customers, which could have a material adverse effect on our business.Recently, there has been an increase in public awareness of privacy issues in the wake of revelations about the data-collection activitiesof various government agencies and in the number of private privacy-related lawsuits filed against companies. Concerns about our practiceswith regard to the collection, use, retention, disclosure, or security of personal information or other privacy-related matters, evenif unfounded and even if we are in compliance with applicable laws, could damage our reputation and harm our business.

 

Ifusers of our proposed diagnostic tests or therapeutic products are unable to obtain adequate reimbursement from third-party payors orgovernmental agencies or if new restrictive legislation is adopted, market acceptance of our proposed tests or products may be limited,and we may not achieve revenues.

 

Thecontinuing efforts of government and insurance companies, health maintenance organizations (“HMOs”) and otherpayors of healthcare costs to contain or reduce costs may affect our future revenues and profitability, as well as the future revenuesand profitability of our potential customers, suppliers, and collaborative partners and the availability of capital. For example, incertain international markets, pricing or profitability of diagnostic tests and therapeutic products is subject to government control.In the U.S., given recent federal and state government initiatives directed at lowering the total cost of healthcare, the U.S. Congressand state legislatures will likely continue to focus on healthcare reform, the cost of medical devices, tests, and prescription pharmaceuticals,and Medicare and Medicaid reforms. While we cannot predict whether any such legislative or regulatory proposals will be adopted, theannouncement or adoption of such proposals could materially harm our business, financial condition, and results of operations.

 

Ourability to commercialize our proposed tests or products will depend in part on the extent to which appropriate reimbursement levels forthe cost of our tests or products are obtained by governmental authorities, private health insurers, and other organizations such asHMOs. Governmental agencies and third-party payors are increasingly challenging the prices charged for medical tests, drugs, and services.Also, the trend toward managed healthcare in the U.S. and the concurrent growth of organizations such as HMOs, which could control orsignificantly influence the purchase of healthcare services, diagnostics, and drugs, as well as legislative proposals to reform healthcareor reduce government insurance programs, may all result in lower prices for or rejection of our tests or products.

 

Ouremployees, independent contractors, consultants, commercial partners, and vendors may engage in misconduct or other improper activities,including noncompliance with regulatory standards and requirements.

 

Ourbusiness operations and current and future relationships with investigators, healthcare professionals, consultants, third-party payorsand customers will be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, healthinformation privacy and security laws, and other healthcare laws and regulations. If we are unable to comply, or have not fully complied,with such laws, we could face substantial penalties. We are exposed to the risk of employee fraud or other illegal activity by our employees,independent contractors, consultants, commercial partners, vendors and agents acting on behalf of us or our affiliates. Misconduct bythese parties could include intentional, reckless and/or negligent conduct that fails to: comply with the regulations of the FDA or foreignhealth authorities; provide true, complete and accurate information to the FDA or foreign health authorities; comply with manufacturingstandards we have established; comply with healthcare fraud and abuse laws in the U.S. and similar foreign fraudulent misconduct laws;or report financial information or data accurately or to disclose unauthorized activities to us.

 

 

Ourbusiness operations and current and future relationships with investigators, healthcare professionals, consultants, third-party payorsand customers are subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, transparency laws and otherhealthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

 

Healthcareproviders and others play a primary role in the recommendation ordering and prescription of any diagnostic tests or therapeutic productsfor which we obtain marketing approval. Our operations and current and future arrangements with investigators, healthcare professionals,customers, and third-party payors are subject to various U.S. federal and state healthcare laws and regulations, including, without limitation, U.S. federal Anti-Kickback Statute, the U.S. federal civil and criminal false claims laws, and the Physician Payments Sunshine Actand regulations. These laws may impact, among other things, our current business operations, including our clinical research activities,and proposed sales, marketing, and education programs and constrain the business of financial arrangements and relationships with healthcareproviders and other parties through which we may market, sell, and distribute our diagnostic tests or therapeutic products for whichwe obtain marketing approval. In addition, we may be subject to additional healthcare, statutory, and regulatory requirements and enforcementby foreign regulatory authorities in jurisdictions in which we conduct our business.

 

Ensuringthat our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulationswill involve substantial costs. It is possible that governmental authorities will conclude that our business practices, including certainarrangements with physicians who receive stock, warrants or stock options as compensation for services provided to us, do not complywith current or future statutes, regulations, agency guidance, or case law involving applicable fraud and abuse or other healthcare lawsand regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws andregulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties,damages, fines, exclusion from U.S. government-funded healthcare programs, such as Medicare and Medicaid, or similar programsin other countries or jurisdictions, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits, additionalreporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegationsof non-compliance with these laws, and the delay, reduction, termination or restructuring of our operations. Further, defending againstany such actions can be costly and time-consuming and may require significant financial and personnel resources. Therefore, even if weare successful in defending against any such actions that may be brought against us, our business may be impaired. If any of the physiciansor other providers or entities with whom we expect to do business are found not to be in compliance with applicable laws, theymay be subject to significant criminal, civil or administrative sanctions, including exclusions from government-funded healthcare programsand imprisonment. If any of the above occur, it could adversely affect our ability to operate our business and our results of operations.

 

Weface intense competition in the biotechnology and pharmaceutical industries.

 

Thebiotechnology and pharmaceutical industries are intensely competitive. We face direct competition from U.S. and foreign companiesfocusing on diagnostic tests and pharmaceutical products, which are rapidly evolving. Our competitors include major multinationaldiagnostic and pharmaceutical companies, specialized biotechnology firms, and universities and other research institutions. Many ofthese competitors have greater financial and other resources, larger research and development staffs, and more effective marketingand manufacturing organizations than we do. In addition, academic and government institutions are increasingly likely to enter intoexclusive licensing agreements with commercial enterprises, including our competitors, to market commercial tests or products basedon technology developed at such institutions. Our competitors may succeed in developing or licensing technologies, tests, andproducts that are more effective or less costly than ours or succeed in obtaining CAP/CLIA validation or FDA or other regulatoryapprovals for diagnostic test and therapeutic product candidates before we do. Acquisitions of, or investments in, competingdiagnostic, pharmaceutical, or biotechnology companies by large corporations could increase such competitors’ financial,marketing, manufacturing, and other resources.

 

Themarket for our proposed tests and products is competitive and rapidly changing, and new diagnostic technologies which may be developedby others could impair our ability to maintain and grow our business and remain competitive.

 

Thediagnostic, pharmaceutical, and biotechnology industries are subject to rapid and substantial technological change. Developments by othersmay render our proposed tests or products noncompetitive or obsolete, or we may be unable to keep pace with technological developmentsor other market factors. Technological competition from diagnostic, pharmaceutical and biotechnology companies, universities, governmentalentities, and others diversifying into the field is intense and is expected to increase.

 

Asa company engaged in the development of diagnostic technology with limited revenue generated to date, our resources are limited, andwe may experience technical challenges inherent in such technologies. Competitors have developed or are in the process of developingtechnologies that are, or in the future may be, the basis for competition. Some of these technologies may have an entirely differentapproach or means of accomplishing similar diagnostic efficacy compared to our proposed tests or products. Our competitors may developdiagnostic technologies that are more effective or less costly than our proposed tests or products and therefore present a serious competitivethreat.

 

Thepotential widespread acceptance of diagnostic tests or therapies that are alternatives to ours may limit market acceptance of our proposedtests or products, even if commercialized. Many of our targeted diseases and conditions can also be detected by other tests or treatedby other medications. These tests and treatments may be widely accepted in medical communities and have a longer history of use. Theestablished use of these competitive technologies may limit the potential for our technologies, formulations, tests, and products toreceive widespread acceptance if commercialized.

 

Healthcarecost containment initiatives and the growth of managed care may limit our returns.

 

Ourability to commercialize our diagnostic tests and therapeutic products successfully may be affected by the ongoing efforts of governmentaland third-party payors to contain the cost of healthcare. These entities are challenging prices of healthcare products and services,denying or limiting coverage and reimbursement amounts for new diagnostic tests and therapeutic products, CAP/CLIA-validated LDTs andFDA-approved diagnostic tests and therapeutic products considered experimental or investigational or which are used for disease indicationswithout FDA marketing authorization. Even if we succeed in bringing any tests or products to the market, they may not be considered cost-effective,and governmental or third-party reimbursement might not be available or sufficient. If adequate governmental or third-party coverageis not available, we may not be able to maintain price levels sufficient to realize an appropriate return on our investment in researchand development for new tests and products. In addition, legislation and regulations affecting the pricing of diagnostic tests, pharmaceuticals,or healthcare services may change in ways adverse to us before or after any of our proposed tests and products are approved for marketing.

 

 

Ourcompetitive position depends on protection of our intellectual property.

 

Developmentand protection of our intellectual property are critical to our business. If we do not adequately protect our intellectual property,or if competitors develop technologies incorporating the same or similar technologies that already are in the public domain, those competitorsmay be able to develop similar technologies to our own. Our success depends in part on our ability to obtain patent protection for ourdiagnostic tests, therapeutic products, or processes in the U.S. and other countries, protect trade secrets, and prevent others frominfringing on our proprietary rights.

 

Sincepatent applications in the U.S. are maintained in secrecy for at least portions of their pendency periods (published on U.S. patent issuanceor, if earlier, 18 months from earliest filing date for most applications) and since other publication of discoveries in the scientificor patent literature often lags behind actual discoveries, we cannot be certain that we are or will be the first to make the inventionsto be covered by our patent applications. The patent position of biopharmaceutical and biotechnology firms generally is highly uncertainand involves complex legal and factual questions. The U.S. Patent and Trademark Office has not established a consistent policy regardingthe breadth of claims that it will allow in biotechnology patents.

 

Thepatent applications we file, including applications that will follow the filing of provisional patents, may not issue as patents or theclaims of any issued patents may not afford meaningful protection for our technologies, tests, or products. In addition, patents issuedto us or to any future licensors may be challenged and subsequently narrowed, invalidated, or circumvented. Patent litigation is widespreadin the biotechnology industry and could harm our business. Litigation might be necessary to protect our patent position or to determinethe scope and validity of third-party proprietary rights, and we may not have the required resources to pursue such litigation or toprotect our patent rights.

 

Althoughwe have executed assignment of invention agreements with current scientific and technical employees and in the future will require ourscientific and technical employees and consultants to enter into broad assignment of invention agreements, and all of our employees,consultants, and corporate partners with access to proprietary information enter into confidentiality agreements, these agreements maynot be honored.

 

Diagnostictests and therapeutic products we develop could be subject to infringement claims asserted by others.

 

Wecannot assure that diagnostic tests and therapeutic products based on our patents or intellectual property that we license from otherswill not be challenged by a third-party claiming infringement of its proprietary rights. If we are not able to successfully defend patentsthat may be issued to us, that we may acquire, or that we may license in the future, we may have to pay substantial damages or licensingfees, possibly including treble damages, for past infringement.

 

Wemay become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming,and ultimately unsuccessful.

 

Competitorsmay infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we intend to file infringementclaims, which can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke these parties to assertcounterclaims against us alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a courtmay decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly, or refuseto stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. Anadverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly,which could adversely affect us.

 

Ifwe are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

 

Inaddition to seeking patents for some of our technology, we also intend to rely on trade secrets, including unpatented know-how, technology,and other proprietary information, to maintain our competitive position. We have executed and will continue to seek to protect thesetrade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such asour employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors, and other thirdparties. We also have executed and will continue to seek to enter into confidentiality and invention or patent assignment agreementswith our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietaryinformation, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Our trade secrets mayalso be obtained by third parties by other means, such as breaches of our physical or computer security systems.

 

Enforcinga claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcomeis unpredictable. In addition, some courts inside and outside the U.S. are less willing or unwilling to protect trade secrets. If anyof our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them,or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets wereto be disclosed to or independently developed by a competitor, our competitive position would be harmed.

 

Ourinternal information technology systems, or those of our third-party clinical research organizations or other contractors or consultants,may fail or suffer security breaches, loss or leakage of data, and other disruptions, which could result in a material disruption ofour diagnostic tests’ or therapeutic product candidates’ development programs, compromise sensitive information related toour business or prevent us from accessing critical information, potentially exposing us to liability or otherwise adversely affectingour business.

 

Weare increasingly dependent upon information technology systems, infrastructure and data to operate our business. In the ordinary courseof business, we collect, store and transmit confidential information (including but not limited to intellectual property, proprietarybusiness information and personal information). It is critical that we do so in a secure manner to maintain the confidentiality and integrityof such confidential information. We have also outsourced elements of our operations to third parties, and as a result we manage a numberof third-party contractors who have access to our confidential information.

 

 

Despitethe implementation of security measures, given their size and complexity and the increasing amounts of confidential information thatthey maintain, our internal information technology systems and those of our third-party clinical research organizations and other contractorsand consultants are potentially vulnerable to breakdown or other damage or interruption from service interruptions, system malfunction,natural disasters, terrorism, war and telecommunication and electrical failures, as well as security breaches from inadvertent or intentionalactions by our employees, contractors, consultants, business partners, and/or other third parties, or from cyber-attacks by maliciousthird parties (including the deployment of harmful malware, ransomware, extortion, account takeover attacks, degradation of service attacks,denial-of-service attacks, “phishing,” or social engineering and other means to affect service reliability and threaten theconfidentiality, integrity and availability of information), which may compromise our system infrastructure or lead to data leakage.We have technology security initiatives and disaster recovery plans in place to mitigate our risk to these vulnerabilities, but thesemeasures may not be adequately designed or implemented to ensure that our operations are not disrupted or that data security breachesdo not occur. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications,or inappropriate disclosure of confidential or proprietary information, we could incur liability and reputational damage.

 

Hackersand data thieves are increasingly sophisticated and operate large-scale and complex automated attacks which may remain undetected untilafter they occur. We cannot assure you that our data protection efforts and our investment in information technology will prevent significantbreakdowns, data leakages, breaches in our systems or other cyber incidents that could have a material adverse effect upon our reputation,business, operations or financial condition. For example, if such an event were to occur and cause interruptions in our operations, itcould result in a material disruption of our programs and the development of our diagnostic tests and therapeutic product candidatescould be delayed. In addition, the loss of clinical trial data for our diagnostic tests and therapeutic product candidates could resultin delays in our marketing approval efforts and significantly increase our costs to recover or reproduce the data. Furthermore, significantdisruptions of our internal information technology systems or security breaches could result in the loss, misappropriation, and/or unauthorizedaccess, use, or disclosure of, or the prevention of access to, confidential information (including trade secrets or other intellectualproperty, proprietary business information, and personal information), which could result in financial, legal, business, and reputationalharm to us. Like all businesses we may be increasingly subject to ransomware or other malware that could significantly disrupt our businessoperations, or disable or interfere with necessary access to essential data or processes. Numerous recent attacks of this nature havealso involved exfiltration and disclosure of sensitive or confidential personal or proprietary information, or intellectual property,when victim companies have not paid the cyber criminals substantial ransom payments. For example, any such event that leads to unauthorizedaccess, use, disclosure, unavailability, or compromised integrity of personal or other sensitive or essential information, includingpersonal information regarding our clinical trial subjects or employees, could harm our reputation directly, compel us to comply withfederal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, increase the costswe incur to protect against such information security breaches, such as increased investment in technology, render key personnel unableto perform duties or communicate throughout the organization and otherwise subject us to fines and other liability under laws and regulationsthat protect the privacy and security of personal information, which could result in significant legal and financial exposure and reputationaldamages that could potentially have an adverse effect on our business.

 

Thecosts of mitigating cybersecurity risks are significant and are likely to increase in the future. These costs include, but are not limitedto, retaining the services of cybersecurity providers; compliance costs arising out of existing and future cybersecurity, data protectionand privacy laws and regulations; and costs related to maintaining redundant networks, data backups and other damage-mitigation measures.We also cannot be certain that our existing insurance coverage will continue to be available on acceptable terms or in amounts sufficientto cover the potentially significant losses that may result from a security incident or breach or that the insurer will not deny coverageof any future claim.

 

RisksRelated to the Operation of a CAP/CLIA Laboratory

 

Theoperations of PPLS will depend in part upon Dr. Roby Joyce and his relationship with existing customers and our abilityto establish relationships with these customers.

 

PPLS’future success will depend in significant part upon the continued relationships with existing customers, many of whom have developedprofessional relationships with Dr. Roby Joyce. While Dr. Joyce will be the Medical Director and Laboratory Director of PPLS and amember of the bioAffinity board of directors, we cannot assure you that we will be able to retain his services. Although we haveentered into a three-year employment agreement with him, there can be no assurance that the agreement will not be terminated priorto its expiration. We do not have an insurance policy on the life of Dr. Joyce, and we do not have “key person” lifeinsurance policies for any of our other officers or advisors. The loss of the technical knowledge and management and industryexpertise of Dr. Joyce or any of our key personnel could result in delays in services, loss of customers and sales and diversion ofmanagement resources, which could adversely affect our operating results.

 

 

PPLSmay be unable to effectively maintain PPLS’ equipment or generate revenue when its equipment is not operational.

 

Timely,effective service is essential to maintaining the reputation and high use rates of the CAP/CLIA laboratory now owned by PPLS. Although it has agreementswith a third-party equipment service providers pursuant to which such service providers maintain and repair its equipment, the agreementdoes not compensate it for loss of revenue when its systems are not fully operational and its business interruption insurance may notprovide sufficient coverage for the loss of revenue. Also, third-party equipment service providers may not be able to perform repairsor supply needed parts in a timely manner, which could result in a loss of revenue. Therefore, if PPLS experiences moreequipment malfunctions than anticipated or if it is unable to promptly obtain the service necessary to keep its equipment functioningeffectively, or where its business or data is compromised on account of equipment malfunctions or a cybersecurity-related attack, PPLS’sability to provide services and to fulfill its contractual arrangements would be adversely affected and our revenue could decline.

 

Ifour sole laboratory facility becomes damaged or inoperable, loses its accreditation or is required to vacate the facility, PPLS’ ability to sell its products or provide diagnostic assays and pursue its research and development efforts may be jeopardized.

 

Ouronly CLIA-certified, CAP-accredited, and state-licensed laboratory was recently acquired from Village Oaks by our wholly owned subsidiary,PPLS. PPLS’ facilities and equipment could be harmed or rendered inoperable by natural or man-made disasters,including fire, earthquake, flooding and power outages, which may render it difficult or impossible for it to provide pathology servicesor perform our diagnostic assays for some period of time. The inability to of PPLS to perform its services for its customersif PPLS’ facility is inoperable for even a short period of time, may result in the loss of customers or harm toits reputation or relationships with its customers, and it may be unable to regain those customers or repair its reputation in the future.Furthermore, PPLS’ facilities and the equipment it uses to perform its services could be costly and time-consumingto repair or replace.

 

Further,if PPLS’ current or future CLIA-certified, CAP-accredited, and state-licensed laboratory becomes inoperable or unqualified in anyway it may not be able to license or transfer its technology to another facility with the necessary qualifications, including state licensureand CLIA certification, under the scope of which its current assays and its planned future assays could be performed. Even if PPLS findsa facility with such qualifications to perform its assays, it may not be available to PPLS on commercially reasonable terms.

 

PPLSrelies on commercial courier delivery services to transport sputum samples for processing the CyPath^®Lung test in a timely and cost-efficient manner and if these delivery services are disrupted, its business will be harmed.

 

PPLS’business depends on its ability to quickly and reliably deliver test results to its customers. Sputum samples are received overnightwithin the United States for analysis at the laboratory facility located in San Antonio, Texas. Disruptions in delivery service,whether due to bad weather, natural disaster, terrorist acts or threats or for other reasons could adversely affect specimenintegrity and its ability to process samples in a timely manner and to service its customers, and ultimately its reputation and itsbusiness. In addition, if PPLS is unable to continue to obtain expedited delivery services on commercially reasonable terms, itsoperating results may be adversely affected.

 

Securitybreaches, loss of data and other disruptions could compromise sensitive information related to PPLS’ business or prevent it fromaccessing critical information and expose it to liability, which could adversely affect its, and our, business and reputation.

 

Inthe ordinary course of its business, PPLS collects and stores sensitive data, including legally-protected health information, creditcard information and personally identifiable information, such as data collected in connection with the CyPath^® Lung laboratorytest results. PPLS also stores sensitive intellectual property and other proprietary business information, including that of its customers,payors and collaboration partners. PPLS manages and maintains its applications and data utilizing a combination of on-site systems, manageddata center systems and cloud-based data center systems. These applications and data encompass a wide variety of business-critical information,including research and development information, commercial information and business and financial information. PPLS is highly dependenton information technology networks and systems, including the Internet, to securely process, transmit and store this critical information.Although its policies and practices adhere to the requirements of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”)and PPLS employs measures to protect sensitive information from unauthorized access or disclosure, its information technology and infrastructure,and that of its third-party billing and collections provider, may be vulnerable to attacks by hackers or viruses or breached due to employeeerror, malfeasance or other disruptions.

 

 

Asecurity breach or privacy violation that leads to disclosure or modification of or prevents access to patient information, includingpersonally identifiable information or protected health information, could harm PPLS’ reputation, compel PPLS to comply with statebreach notification laws, subject PPLS to mandatory corrective action, require PPLS to verify the correctness of database contents andotherwise subject PPLS to liability under laws that protect personal data, resulting in increased costs or loss of revenue. If PPLS isunable to prevent such security breaches or privacy violations or implement satisfactory remedial measures, its operations could be disrupted,and it may suffer loss of reputation, financial loss and other regulatory penalties because of lost or misappropriated information, includingsensitive patient data. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifyingthem may lead to increased harm of the type described above.

 

Anysuch breach or interruption could compromise PPLS’ networks, and the information stored there could be inaccessible or could beaccessed by unauthorized parties, publicly disclosed, lost or stolen. Any such interruption in access, improper access, disclosure, modificationof, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personalinformation, such as HIPAA, and regulatory penalties. Unauthorizedaccess, loss or dissemination could also disrupt PPLS’ operations, including its ability to perform tests, provide test results,bill payors or patients, process claims and appeals, provide customer assistance services, conduct research and development activities,develop and commercialize tests, collect, process and prepare company financial information, provide information about tests, educatepatients and clinicians about services and manage the administrative aspects of its business, any of which could damage its, and our,reputation and adversely affect our business. Any such breach could also result in the compromise of PPLS’ trade secrets and otherproprietary information, which could adversely affect our competitive position.

 

Inaddition, the interpretation and application of health-related, privacy and data protection laws in the United States, Europe and elsewhereare often uncertain, contradictory and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistentwith PPLS’ practices. If so, this could result in government-imposed fines or orders requiring that it change its practices, whichcould adversely affect our business and its, and our, reputation. Complying with these various laws could cause us to incur substantialcosts or require PPLS to change its business practices and compliance procedures in a manner adverse to our business.

 

IfPPLS uses hazardous chemicals in a manner that causes injury, PPLS could be liable for damages.

 

PPLS’ activities currently require the controlled use of potentially harmful chemicals. PPLS cannot eliminate the riskof accidental contamination or injury to employees or third parties from the use, storage, handling or disposal of these materials.In the event of contamination or injury, PPLS could be held liable for any resulting damages, and any liability could exceed itsresources or any applicable insurance coverage it may have. Additionally, PPLS is subject to, on an ongoing basis, federal, stateand local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products.The cost of compliance with these laws and regulations may become significant and could have a material adverse effect on its, andtherefore our, financial condition, results of operations and cash flows. In the event of an accident or if PPLS otherwise fails tocomply with applicable regulations, it could lose its permits or approvals or be held liable for damages or penalized withfines.

 

IfPPLS are unable to successfully scale its operations to support demand for CyPath^® Lung, its business could suffer.

 

Astest volume of CyPath^® Lung grows, PPLS will need to continue to ramp up its testing capacity, implement increases inscale and related processing, customer service, billing and systems process improvements, and expand its internal quality assurance programand technology platform to support testing on a larger scale. PPLS will also need additional equipment and certified laboratory personnelto process higher volumes of our tests. We cannot assure you that any increases in scale, related improvements and quality assurancewill be successfully implemented by PPLS or that equipment and appropriate personnel will be available. As additional tests are developed,PPLS may need to bring new equipment on-line, implement new systems, technology, controls and procedures and hire personnel with differentqualifications.

 

Thevalue of CyPath^® Lung depends, in large part, on PPLS’ ability to perform the tests on a timely basis and at high-quality,and on its reputation for such timeliness and quality. Failure to implement necessary procedures or to hire the necessary personnel couldimpact its ability to meet market demand. There can be no assurance that it will be able to perform tests on a timely basis at a levelconsistent with demand, that its efforts to scale its commercial operations will not negatively affect the quality of test results orthat it will be successful in responding to the growing complexity of testing operations.

 

Inaddition, PPLS’ growth may place a significant strain on its management, operating and financial systems and its sales, marketingand administrative resources. As a result of its growth, PPLS’ operating costs may escalate even faster than planned, and someof its internal systems may need to be enhanced or replaced. If we cannot effectively manage PPLS’ expanding operations and itscosts, we may not be able to grow effectively or we may grow at a slower pace, and our business could be adversely affected.

 

 

Billingfor PPLS’ services is complex, and PPLS must dedicate substantial time and resources to the billing process tobe paid.

 

Billingfor clinical laboratory services is complex, time-consuming and expensive. Depending on the billing arrangement and applicable law, PPLSbills various payors, including Medicare, insurance companies and patients, all of which have different billing requirements. It generallybills third-party payors for its diagnostic assays and pursues reimbursement on a case-by-case basis where pricing contracts or Medicarereimbursement is not in place. To the extent laws or contracts require it to bill patient co-payments or co-insurance, PPLS must alsocomply with these requirements. PPLS may also face increased risk in its collection efforts, including potential write-offs of doubtfulaccounts and long collection cycles, which could adversely affect its business, results of operations and financial condition.

 

Severalfactors make the billing process complex, including:

 

	●	the reimbursement rates of payors;
	●	compliance with complex federal and state regulations related to billing Medicare;
	●	risk of government audits related to billing Medicare;
	●	disputes among payors as to which party is responsible for payment;
	●	differences in coverage and in information and billing requirements among payors, including the need for prior authorization and/or advanced notification;
	●	the effect of patient co-payments or co-insurance;
	●	changes to billing codes and/or coverage policies that apply to PPLS’ assays;
	●	incorrect or missing billing information; and
	●	the resources required to manage the billing and claims appeals process.

 

PPLSuses standard industry billing codes, known as Current Procedural Terminology, or CPT, codes, to bill for its diagnostic assays. Thesecodes can change over time. When codes change, there is a risk of an error being made in the claim adjudication process. These errorscan occur with claims submission, third-party transmission or in the processing of the claim by the payor. Claim adjudication errorsmay result in a delay in payment processing or a reduction in the amount of the payment received. Coding changes, therefore, may havean adverse effect on PPLS’ revenues. There can be no assurance that payors will recognize these codes in a timely manner or thatthe process of transitioning to such a code and updating their billing systems will not result in errors, delays in paymentsand a related increase in accounts receivable balances.

 

AsPPLS introduces new assays, PPLS will need to add new codes to its billing process as well as its financial reportingsystems. Failure or delays in effecting these changes in external billing and internal systems and processes could negatively affectits collection rates, revenue, and cost of collecting.

 

Additionally,PPLS’ billing activities require its third-party billing provider to implement compliance procedures and oversight, train and monitorits employees, challenge coverage and payment denials, assist patients in appealing claims, and require PPLS to undertake audits to evaluatecompliance with applicable laws and regulations as well as internal compliance policies and procedures. Payors also conduct externalaudits to evaluate payments, which add further complexity to the billing process. If the payor makes an overpayment determination, thereis a risk that PPLS may be required to return some portion of prior payments it has received. These billing complexities and the relateduncertainty in obtaining payment for its assays could negatively affect its revenue and cash flow, its ability to achieve profitability,and the consistency and comparability of its, and therefore our, results of operations.

 

PPLSrelies on a third-party billing provider and an in-house billing function to transmit claims to payors, and any delay in transmittingclaims could have an adverse effect on its revenue.

 

WhilePPLS manages the overall processing of claims, it relies on a third-party billing provider to transmit the actual claims to payors basedon the specific payor billing format. Claims processing could be delayed if its third-party provider makes changes to its invoicing system.Additionally, coding for diagnostic assays may change, and such changes may cause short-term billing errors that may take significanttime to resolve. If claims are not submitted to payors on a timely basis or are erroneously submitted, or if PPLS is required to switchto a different provider to handle claim submissions, it may experience delays in its ability to process these claims and receipt of paymentsfrom payors, or possibly denial of claims for lack of timely submission, which would have an adverse effect on its, and therefore our,revenue and business.

 

 

RisksRelated to Intellectual Property Rights

 

Intellectualproperty rights do not necessarily address all potential threats to our competitive advantage.

 

Thedegree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitationsand may not adequately protect our business or permit us to maintain our competitive advantage. For example:

 

	●	others may be able to make diagnostic tests and therapeutic product candidates that are the same as or similar to ours but that are not covered by the claims of the patents that we own or have exclusively licensed;
	●	we or our licensors or future collaborators might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed;
	●	we or our licensors or future collaborators might not have been the first to file patent applications covering certain of our inventions;
	●	others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;
	●	it is possible that noncompliance with the U.S. Patent and Trademark Office (“USPTO”) and foreign governmental patent agencies requirement for a number of procedural, documentary, fee payment and other provisions during the patent process can result in abandonment or lapse of a patent or patent application, and partial or complete loss of patent rights in the relevant jurisdiction;
	●	it is possible that our pending patent applications will not lead to issued patents;
	●	issued patents that we own or have exclusively licensed may be revoked, modified, or held invalid or unenforceable, as a result of legal challenges by our competitors;
	●	our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive tests and products for sale in our major commercial markets;
	●	we may not develop additional proprietary technologies that are patentable;
	●	we cannot predict the scope of protection of any patent issuing based on our patent applications, including whether the patent applications that we own or in-license will result in issued patents with claims that are directed to our diagnostic tests and product candidates or uses thereof in the United States or in other foreign countries;
	●	there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns;
	●	countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing diagnostic tests and product candidates;
	●	the claims of any patent issuing based on our patent applications may not provide protection against competitors or any competitive advantages, or may be challenged by third parties; and
	●	if enforced, a court may not hold that our patents are valid, enforceable, and infringed.

 

 

Changesin patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our abilityto protect our diagnostic tests and therapeutic product candidates.

 

Asis the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents.Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is therefore costly,time-consuming and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the UnitedStates could increase the uncertainties and costs, and may diminish our ability to protect our inventions, obtain, maintain, and enforceour intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of ourowned and licensed patents. Patent reform legislation in the United States and other countries, including the Leahy-Smith America InventsAct (the “Leahy-Smith Act”), signed into law on September 16, 2011, could increase those uncertainties andcosts surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. The Leahy-Smith Actincludes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted,redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. Theseinclude allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validityof a patent by USPTO-administered post-grant proceedings, including post-grant review, inter partes review, and derivationproceedings. Further, because of a lower evidentiary standard in these USPTO post-grant proceedings compared to the evidentiary standardin U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceedingsufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if firstpresented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claimsthat would not have been invalidated if first challenged by the third party as a defendant in a district court action. Thus, the Leahy-SmithAct and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and theenforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition,results of operations and prospects.

 

AfterMarch 2013, under the Leahy-Smith Act, the U.S. transitioned to a first inventor to file system in which, assuming that the otherstatutory requirements are met, the first inventor to file a patent application will be entitled to the patent on an invention regardlessof whether a third party was the first to invent the claimed invention. A third party that files a patent application in the USPTO afterMarch 2013, but before we file an application covering the same invention, could therefore be awarded a patent covering an inventionof ours even if we had made the invention before it was made by such third party. This will require us to be cognizant going forwardof the time from invention to filing of a patent application, but circumstances could prevent us from promptly filing patent applicationson our inventions. Since patent applications in the U.S. and most other countries are confidential for a period of time afterfiling or until issuance, we cannot be certain that we or our licensors were the first to either (i) file any patent application relatedto our diagnostic tests and therapeutic product candidates and other proprietary technologies we may develop or (ii) invent any of theinventions claimed in our or our licensor’s patents or patent applications. Even where we have a valid and enforceable patent,we may not be able to exclude others from practicing the claimed invention where the other party can show that they used the inventionin commerce before our filing date. Thus the Leahy-Smith Act and its implementation could increase the uncertainties and costs surroundingthe prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverseeffect on our business, financial condition, results of operations and prospects.

 

Inaddition, the patent positions of companies in the development and commercialization of biologics and pharmaceuticals are particularlyuncertain. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protectionavailable in certain circumstances or weakening the rights of patent owners in certain situations. Depending on future actions by theU.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patentscould change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patentsthat we might obtain in the future. For example, in the 2013 case Assoc. for Molecular Pathology v. Myriad Genetics, Inc., theU.S. Supreme Court held that certain claims to DNA molecules are not patentable. While we do not believe that any of the patents ownedor licensed by us will be found invalid based on this decision, we cannot predict how future decisions by the courts, the U.S. Congressor the USPTO may impact the value of our patents.

 

Obtainingand maintaining patent protection depends on compliance with various procedural, document submissions, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

 

Periodicmaintenance fees, renewal fees, annuities fees and various other governmental fees on patents and/or patent applications are due to bepaid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent and/or patent application. The USPTOand various foreign governmental patent agencies also require compliance with a number of procedural, documentary, fee payment and othersimilar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a latefee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonmentor lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-complianceevents that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respondto official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents.If we fail to maintain the patents and patent applications covering our diagnostic tests or therapeutic product candidates, our competitiveposition would be adversely affected.

 

Patentterms may be inadequate to protect our competitive position on our diagnostic tests or therapeutic product candidates for an adequateamount of time.

 

Theterm of any individual patent depends on applicable law in the country where the patent is granted. In the United States, provided allmaintenance fees are timely paid, a patent generally has a term of 20 years from its application filing date or earliest claimed non-provisionalfiling date. Extensions may be available under certain circumstances, but the life of a patent and, correspondingly, the protection itaffords is limited. Even if we or our licensors obtain patents covering our diagnostic tests and therapeutic product candidates, whenthe terms of all patents covering a diagnostic test or therapeutic product expire, our business may become subject to competition fromcompetitive medications, including generic medications. Given the amount of time required for the development, testing and regulatoryreview and approval of new diagnostic test or therapeutic product candidates, patents protecting such candidates may expire before orshortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficientrights to exclude others from commercializing diagnostic tests and therapeutic products similar or identical to ours.

 

 

Issuedpatents covering our product candidates could be found invalid or unenforceable if challenged in court or the USPTO.

 

Ifwe or a licensee initiate legal proceedings against a third party to enforce a patent covering one of our diagnostic tests or therapeuticproduct candidates, the defendant could counterclaim that the patent covering our diagnostic tests or therapeutic product candidate,as applicable, is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidityand/or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceabilityof a patent. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside thecontext of litigation. Such mechanisms include re-examination, inter partes review, post grant review, and equivalent proceedingsin foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in revocation or amendment to our patents in sucha way that they no longer cover our diagnostic tests or therapeutic product candidates. The outcome following legal assertions of invalidityand unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidatingprior art, of which we, our patent counsel and the patent examiner were unaware during prosecution. If a defendant were to prevail ona legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on ourdiagnostic tests or therapeutic product candidates. Such a loss of patent protection could have a material adverse impact on our business.

 

Ifwe do not obtain patent term extension in the United States under the Hatch-Waxman Act and in foreign countries under similar legislation,thereby potentially extending the term of marketing exclusivity for our diagnostic tests or therapeutic product candidates, our businessmay be harmed.

 

Inthe United States, a patent that covers an FDA-approved drug or biologic may be eligible for a term extension designed to restore theperiod of the patent term that is lost during the premarket regulatory review process conducted by the FDA. Depending upon the timing,duration and conditions of FDA marketing authorization of our diagnostic tests or therapeutic product candidates, one or more of ourU.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984(the “Hatch-Waxman Act”), which permits a patent term extension of up to five years for a patent covering anapproved diagnostic test or therapeutic product as compensation for effective patent term lost during diagnostic test or therapeuticproduct development and the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyonda total of 14 years from the date of diagnostic test or therapeutic product approval, and only claims covering such approved diagnostictest or drug product, a method for using it or a method for manufacturing it may be extended. In Europe, our diagnostic test or therapeuticproduct candidates may be eligible for term extensions based on similar legislation. In either jurisdiction, however, we may not receivean extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise failto satisfy applicable requirements. Even if we are granted such an extension, the duration of such extension may be less than our request.If we are unable to obtain a patent term extension, or if the term of any such extension is less than our request, the period duringwhich we can enforce our patent rights for that product will be in effect shortened and our competitors may obtain approval to marketcompeting diagnostic tests or products sooner. The resulting reduction of years of revenue from applicable diagnostic tests or productscould be substantial.

 

Weenjoy only limited geographical protection with respect to certain patents and we may not be able to protect our intellectual propertyrights throughout the world.

 

Filing,prosecuting and defending patents covering our diagnostic tests and therapeutic product candidates in all countries throughout the worldwould be prohibitively expensive, and even in countries where we have sought protection for our intellectual property, such protectioncan be less extensive than those in the United States. The requirements for patentability may differ in certain countries, particularlydeveloping countries, and the breadth of patent claims allowed can be inconsistent. In addition, the laws of some foreign countries donot protect intellectual property rights to the same extent as federal and state laws in the United States. In-licensing patents coveringour diagnostic tests and therapeutic product candidates in all countries throughout the world may similarly be prohibitively expensive,if such opportunities are available at all. And in-licensing or filing, prosecuting, and defending patents even in only those jurisdictionsin which we develop or commercialize our diagnostic tests and therapeutic product candidates may be prohibitively expensive or impractical.Competitors may use our and our licensors’ technologies in jurisdictions where we have not obtained patent protection or licensedpatents to develop their own diagnostic tests and therapeutic products and further may export otherwise infringing products to territorieswhere we and our licensors have patent protection, but where enforcement is not as strong as that in the United States or Europe. Thesediagnostic tests and products may compete with our diagnostic tests and therapeutic product candidates, and our or our licensors’patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

 

Thelaws of some jurisdictions do not protect intellectual property rights to the same extent as the laws or regulations in the United Statesand Europe, and many companies have encountered significant difficulties in protecting and defending proprietary rights in such jurisdictions.Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents,trade secrets or other forms of intellectual property, particularly those relating to biotechnology tests and products, which could makeit difficult for us to prevent competitors in some jurisdictions from marketing competing tests and products in violation of our proprietaryrights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, are likely to resultin substantial costs and divert our efforts and attention from other aspects of our business, and additionally could put at risk ouror our licensors’ patents of being invalidated or interpreted narrowly, could increase the risk of our or our licensors’patent applications not issuing, or could provoke third parties to assert claims against us. We may not prevail in any lawsuits thatwe initiate, while damages or other remedies may be awarded to the adverse party, which may be commercially significant. If we prevail,damages or other remedies awarded to us, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectualproperty rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that wedevelop or license. Furthermore, while we intend to protect our intellectual property rights in our expected significant markets, wecannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our diagnostictests and product candidates. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate,which may have an adverse effect on our ability to successfully commercialize our diagnostic tests and product candidates in all of ourexpected significant foreign markets. If we or our licensors encounter difficulties in protecting, or are otherwise precluded from effectivelyprotecting, the intellectual property rights important for our business in such jurisdictions, the value of these rights may be diminished,and we may face additional competition in those jurisdictions.

 

Insome jurisdictions including European countries, compulsory licensing laws compel patent owners to grant licenses to third parties. Inaddition, some countries limit the enforceability of patents against government agencies or government contractors. In these countries,the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors areforced to grant a license to third parties under patents relevant to our business, or if we or our licensors are prevented from enforcingpatent rights against third parties, our competitive position may be substantially impaired in such jurisdictions.

 

 

Ifour trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interestand our business may be adversely affected.

 

Ourcurrent or future trademarks or trade names may be challenged, infringed, circumvented, declared generic or descriptive or determinedto be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names or may be forced to stopusing these names, which we need for name recognition by potential partners or customers in our markets of interest. During trademarkregistration proceedings, we may receive rejections of our applications by the USPTO or in other foreign jurisdictions.

 

Althoughwe would be given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTOand in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applicationsand to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarksmay not survive such proceedings. If we are unable to establish name recognition based on our trademarks and trade names, we may notbe able to compete effectively and our business may be adversely affected. We may license our trademarks and tradenames to third parties,such as distributors. Although these license agreements may provide guidelines for how our trademarks and tradenames may be used, a breachof these agreements or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in or diminish the goodwillassociated with our trademarks and trade names.

 

Moreover,any name we have proposed to use with our therapeutic product candidate in the United States must be approved by the FDA, regardlessof whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed productnames, including an evaluation of potential for confusion with other product names. If the FDA (or an equivalent administrative bodyin a foreign jurisdiction) objects to any of our proposed proprietary product names, we may be required to expend significant additionalresources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existingrights of third parties and be acceptable to the FDA. Furthermore, in many countries, owning and maintaining a trademark registrationmay not provide an adequate defense against a subsequent infringement claim asserted by the owner of a senior trademark. At times, competitorsor other third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity andpossibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by ownersof other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names.If we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or thatthe party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimatelybe forced to cease use of such trademarks.

 

RisksRelated to Government Regulations

 

CyPath^® Lung is currently beingoffered as an LDT by PPLS. Should the FDA disagree that CyPath^® Lung is an LDT, or if the FDA’s regulatoryapproach to LDTs should change in the future, our commercialization strategy may be adversely affected, which would negatively affectour results of operations and financial condition.

 

TheFDA considers an LDT to be a test that is developed, validated, and performed within a single laboratory. The FDA has historically assertedits authority to regulate LDTs as medical devices under the Federal Food, Drug, and Cosmetic Act (the “FDCA”),but it has generally exercised enforcement discretion with regard to LDTs. This means that even though the FDA believes it can imposeregulatory requirements on LDTs, such as requirements to obtain premarket approval, de novo classification, or clearance of LDTs,it has generally chosen not to enforce those requirements. The FDA has, on occasion, sent warning letters to laboratories offering LDTsthat the agency believed were not eligible for enforcement discretion because of how they were developed, validated, performed or marketedand consequent risks to the public.

 

FDAhas indicated that it may seek to increase its regulation of LDTs through rulemaking. The Spring 2023 Agenda of Regulatory and DeregulatoryActions, published semi-annually by the Office of Management and Budget (OMB), indicates that FDA plans to issue a Notice of ProposedRulemaking in the Federal Register in August 2023 “to make explicit that laboratory developed tests (LDTs) are devices under theFederal Food, Drug, and Cosmetic Act,” although it is unclear whether this will occur. Any future rulemaking, guidance, or otheroversight of LDTs and clinical laboratories that develop and perform them, if and when finalized, may affect the sales of our productsand how customers use our products, and may require us to change our business model in order to maintain compliance with these laws.

 

Therehave been numerous legislative proposals to clarify the FDA’s regulatory authority over medical devices. In 2021, two billswere reintroduced: the Verifying Accurate, Leading-edge IVCT Development Act of 2020 (the “VALID Act”),which would have expressly granted the FDA authority to regulate LDTs under a risk-based framework; and the VerifiedInnovative Testing in American Laboratories Act of 2020 (the “VITAL Act”), which would have assignedLDTs to regulation solely under CLIA and would have directed CMS to update its CLIA regulations. Neither of these billswere enacted. The VALID Act was reintroduced in March 2023. We cannot predict if either of these bills will be enacted in their current(or any other) form and cannot quantify the effect of these bills on our business. In the meantime, the regulation by the FDA of LDTsremains uncertain.

 

Enactment of legislation directing FDA to regulateLDTs or promulgation of new regulations for LDT oversight by FDA could materially and adversely affect our business, financial conditionand results of operations. If FDA premarket review, classification or approval is required for CyPath^® Lung beforewe obtain de novo classification, our phased strategy for market entry would be adversely affected. Our laboratory licensee,PPLS, could be forced to stop offering CyPath^® Lung as an LDT while we work to obtain de novoclassification. Our business, results of operations and financial condition would be negatively affected unless and until such reviewwere completed and our request for de novo classification were granted.

 

Althoughwe do intend to conduct clinical trials in order to receive de novo classification from the FDA as a Class II in vitrodiagnostic, there can be no assurance that the trial will have favorable results or that it will generate the results necessary to obtainsuch clearance.

 

Delayby or failure of the FDA to grant our request for de novo classification, or failure on our part to comply with applicable requirements,would adversely affect our business, results of operations and financial condition.

 

TheFDCA requires that medical devices introduced to the United States market, unless exempted by regulation, be authorized by the FDA pursuantto either the premarket notification pathway, known as 510(k) clearance, the de novo classification pathway, or the PremarketApproval (“PMA”) pathway. We plan to seek de novo classification for the CyPath^® Lungtest in the second quarter of 2026. The FDA may not agree that agree that CyPath^® Lung meets the criteria for de novoclassification, in which case we would be required to submit a PMA to obtain marketing authorization, which would require manufacturinginformation and a pre-approval inspection of the manufacturing facilities and could require review by an FDA advisory panel comprisedof experts outside the FDA. Any delay by or failure of the FDA to grant our de novo request or PMA could adversely affect ourconsolidated revenues, results of operations and financial condition.

 

Additionally,obtaining FDA marketing authorization, approval or de novo classification for diagnostics can be expensive, time-consumingand uncertain, and for higher-risk devices can take several years and requires detailed and comprehensive scientific and clinicaldata. In addition, medical devices are subject to ongoing FDA obligations and continued regulatory oversight and review. Ongoing compliancewith FDA regulations increases the cost of conducting our business and subjects us to heightened regulation by the FDA and penaltiesfor failure to comply with these requirements.

 

 

Failureby us or our laboratory licensee to comply with applicable laws pertaining to LDTs or IVDs could adversely affect our business, resultsof operations and financial condition.

 

The clinical laboratory testing sector is highlyregulated in the United States. Our laboratory licensee, PPLS, is accredited by CAP and holds a CLIA certificate of accreditation.Any failure by our laboratory licensee to comply with CLIA/CAP requirements could result in adverse findings on inspection that, if nottimely corrected, could result in loss of accreditation and the inability to perform laboratory testing.

 

Additionally,certain states, including California, Maryland, Nevada, Pennsylvania, and Rhode Island, require laboratories testing specimens from theirjurisdictions to hold an out-of-state laboratory license or permit. New York is exempt from, and imposes requirements in addition to,CLIA, including a requirement for test-specific permits of LDTs before they can be used to test specimens from patients in New York.The failure of our laboratory licensee to obtain state licenses or permits, where required, could interfere with our strategy for a nationalrollout of CyPath^® Lung.

 

ICUMedical is providing the acapella^®Choice Blue device to assist patients in expelling sputum out of the lungs into a collection cup noninvasively. This device is 510(k)cleared as a positive expiratory pressure device to help mobilize lung secretions in people with certain lung conditions. The devicedoes not have a cleared indication for use as a specimen collection device. Promotion of the device by us or our partners for use ofthe device for specimen collection could cause the FDA to consider the device to be adulterated or misbranded in violation of the FDCA,and to require a 510(k) clearance for a specimen collection indication as a condition of distributing the device. Any disruption to ourability to distribute the acapella^® Choice Blue could interfere with our ability to collect adequate patient samples necessaryfor CyPath^® Lung.

 

CyPath^® Lung also relies on a proprietaryalgorithm, which is currently licensed to PPLS and used by PPLS to develop and validate software integrated intothe test procedure that generates the quantitative and qualitative diagnostic results that are included in their laboratory report. Certaintypes of standalone diagnostics software are subject to FDA regulation as a medical device (specifically, software as a medical deviceor “SaMD”). Some types of SaMD are subject to premarket authorization requirements. If the FDA were to concludethat we or our laboratory licensee is required to obtain premarket authorization for the software, our ability to offer CyPath^®Lung as an LDT could be delayed or prevented, which would adversely affect our business.

 

Thethird-party licensors of our future therapeutic products, when ready, may be unable to obtain regulatory approval. The denial or delayof any such approval would delay commercialization of our future therapeutic products and have a material adverse effect on our potentialto generate revenue, our business and our results of operations.

 

Weplan to license our therapeutic candidates to third parties for development including clinical testing, manufacturing, labeling, packaging,approval, promotion, advertising, storage, recordkeeping, marketing, distribution, post-approval monitoring and reporting, and exportand import. These activities that are to be undertaken by third-party licensees of our future therapeutic products are subject to extensiveregulation by the FDA, and by foreign health authorities in other countries. These regulations differ from country to country. In theUnited States, we are not permitted to market our therapeutic product candidates until we receive regulatory approval from the FDA. Theprocess of obtaining regulatory approval is expensive, often takes many years following research and development, and thereafter thecommencement of clinical trials and can vary substantially based upon the type, complexity and novelty of the product candidates involved,as well as the target indications and patient population. Despite the time and expense invested in clinical development of product candidates,regulatory approval is never guaranteed. For our licensors to gain approval to market our product candidates, they must provide clinicaldata that adequately demonstrate the safety and efficacy of the product for the intended indication. We or any third party has not yetobtained regulatory approval to market any of our product candidates in the United States or any other country. Our business dependsupon licensing our therapeutic products to third-party pharmaceutical companies that would obtain these regulatory approvals. The FDAcan delay, limit or deny approval of these product candidates for many reasons, including:

 

	●	the inability of our licensors to satisfactorily demonstrate that the product candidates have acceptable safety and efficacy profiles for the requested indication;
	●	the FDA’s disagreement with the trial designs of our licensors or the interpretation of data from preclinical studies or clinical trials;
	●	the population studied in the clinical trial may not be sufficiently broad or representative to assess safety in the full population for which we seek approval;
	●	the licensors’ inability to demonstrate that clinical or other benefits of our product candidates outweigh any safety or other perceived risks;
	●	the FDA’s determination that additional preclinical or clinical trials are required;
	●	the FDA’s non-approval of the formulation, labeling or specifications of our product candidates;
	●	the FDA’s failure to accept the manufacturing processes, drug product characteristics or facilities of third-party manufacturers with which we or the third-party licensors contract; or
	●	the potential for approval policies or regulations of the FDA to significantly change in a manner rendering clinical data related to any therapeutic product candidate insufficient for approval.

 

Evenif clinical testing approval of any regulatory filing for our product candidates eventually is completed, the FDA may grant approvalcontingent on the performance of costly additional post-approval clinical trials. The FDA may also approve our product candidates fora more limited indication or a narrower patient population than the third party originally requested, and the FDA may not approve thelabeling that we believe is necessary or desirable for the successful commercialization of our product candidates. If the FDA requiresthe licensors to narrow the indications to smaller patient subsets, the market opportunities for our product candidates, if approved,and the ability to generate revenues and royalties may be materially limited. To the extent the licensors seeks regulatory approval inforeign countries, they may face challenges similar to those described above with regulatory authorities in applicable jurisdictions.

 

 

Obtainingand maintaining regulatory approval of our diagnostic tests or therapeutic product candidates in one jurisdiction does not mean thatwe will be successful in obtaining regulatory approval of our product candidates in other jurisdictions. Failure to obtain regulatoryapproval in foreign jurisdictions would prevent our product candidates from being marketed abroad.

 

Inaddition to regulations in the United States, to market and sell our diagnostic tests and therapeutic products in the EU, many Asiancountries and other jurisdictions, we must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements,both from a clinical and manufacturing perspective. Approval by the FDA does not ensure approval by regulatory or payor authorities inother countries or jurisdictions, and approval by one regulatory or payor authority outside the United States does not ensure approvalby regulatory authorities in other countries or jurisdictions or by the FDA. However, a failure or delay in obtaining regulatory approvalin one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketingauthorization of a diagnostic test or therapeutic product candidate, comparable regulatory authorities in foreign jurisdictions mustalso approve the manufacturing, marketing and promotion of the diagnostic test or therapeutic product candidate in those countries. Approvalprocedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than,those in the United States, including additional preclinical studies or clinical trials as clinical trials conducted in one jurisdictionmay not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a diagnostic testor therapeutic product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In somecases, the price that we intend to charge for our diagnostic tests or therapeutic products is also subject to approval. A diagnostictest or therapeutic product candidate that has been approved for sale in a particular country may not receive reimbursement approvalin that country. We may not be able to obtain approvals from regulatory authorities or payor authorities outside the United States ona timely basis, if at all.

 

Wemay also submit marketing applications in other countries, such as countries in Europe or Asia. We may not be able to file for regulatoryapprovals and may not receive necessary approvals to commercialize our diagnostic tests or therapeutic products in any jurisdiction.Regulatory authorities in jurisdictions outside of the United States have requirements for approval of diagnostic tests or therapeuticproduct candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatory approvals and compliancewith foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent theintroduction of our diagnostic tests or therapeutic products in certain countries. We do not have any diagnostic tests or therapeuticproduct candidates approved for sale in any foreign jurisdiction, including international markets, and we do not have experience in obtainingregulatory approval in international markets. If we are unable to obtain approval of any of our diagnostic tests or therapeutic productcandidates by regulatory or payor authorities in the EU, Asia or elsewhere, or if we fail to comply with the regulatory requirementsin foreign jurisdictions, the commercial prospects of that diagnostic test or therapeutic product candidate may be significantly diminished,and our target market will be reduced and our ability to realize the full market potential of our diagnostic tests or therapeutic productcandidates will be harmed.

 

Evenif we obtain FDA approval of any of our diagnostic tests or therapeutic product candidates, we may never obtain approval or commercializesuch products outside of the United States, which would limit our ability to realize their full market potential.

 

Inorder to market any diagnostic test or therapeutic product outside of the United States, we must establish and comply with numerous andvarying regulatory requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country may not beaccepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approvalwill be obtained in any other country. Approval procedures vary among countries and can involve additional diagnostic and therapeuticproduct testing and validation and additional administrative review periods. Seeking foreign regulatory approvals could result in significantdelays, difficulties and costs for us and may require additional preclinical studies or clinical trials, which would be costly and time-consuming.Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our diagnostic testsor therapeutic products in those countries. Satisfying these and other regulatory requirements is costly, time-consuming, uncertainand subject to unanticipated delays. In addition, our failure to obtain regulatory approval in any country may delay or have negativeeffects on the process for regulatory approval in other countries. We do not have any diagnostic test or therapeutic product candidateapproved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approvalin international markets. If we fail to comply with regulatory requirements in international markets or fail to obtain and maintain requiredapprovals, our ability to realize the full market potential of our diagnostic tests or therapeutic products will be harmed.

 

Theimpact of recent healthcare reform legislation and other changes in the healthcare industry and in healthcare spending onus is currently unknown, and may adversely affect our business model.

 

Ourrevenue prospects could be affected by changes in healthcare spending and policy in the United States and abroad. We operate in a highlyregulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions,related to healthcare availability, the method of delivery or payment for healthcare tests, products and services could negatively impactour business, operations and financial condition.

 

Therehave been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed atbroadening the availability of healthcare and containing or lowering the cost of healthcare, including proposals aimed at lowering prescriptiondrug prices and increasing competition for prescription drugs, as well as additional regulation on pharmaceutical transparency and reportingrequirements, any of which could negatively impact our future profitability and increase our compliance burden. We cannot predict theinitiatives that may be adopted in the future, including future challenges or significant revisions to the Affordable Care Act. The continuingefforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reducecosts of healthcare and/or impose price controls may adversely affect:

 

	●	the demand for our diagnostic tests or therapeutic product candidates, if we or our licensors obtain regulatory approval;
	●	the ability to set a price that we believe is fair for our diagnostic tests and therapeutic products;
	●	the ability to obtain coverage and reimbursement approval for a diagnostic test and therapeutic product;
	●	our ability to generate revenue and achieve or maintain profitability;
	●	the level of taxes that we are required to pay; and
	●	the availability of capital.

 

Anyreduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors,which may adversely affect our future profitability.

 

 

RisksRelated to Ownership of Our Common Stock and Warrants

 

Wedo not expect to pay dividends in the foreseeable future. Any return on investment may be limited to the value of our Common Stock.

 

Wedo not anticipate paying cash dividends on our Common Stock in the foreseeable future. The payment of dividends on our Common Stock willdepend on earnings, financial condition, and other business and economic factors affecting it at such time as our Board of Directors(our “Board”) may consider relevant. If we do not pay dividends, our Common Stock may be less valuable becausea return on your investment will occur only if our stock price appreciates.

 

TheWarrants may not have any value.

 

EachWarrant will have an exercise price equal to $[●]. The Warrants will be exercisable, in whole or in part, commencing on thedate that is 180 days from the commencement of the sales of the Units and will expire on the fifth anniversary of the effective dateof the registration statement related to the Offering. In theevent our Common Stock price does not exceed the exercise price of the Warrants during the period when the Warrants are exercisable,the Warrants may not have any value.

 

Holdersof Warrants have no rights as stockholders until such holders exercise their Warrants and acquire our shares of Common Stock.

 

Untilholders of our Warrants acquire shares of Common Stock upon exercise thereof, such holders will have no rights with respect to the sharesof Common Stock underlying the Warrants. Upon exercise of the Warrants, the holders will be entitled to exercise the rights of a stockholderonly as to matters for which the record date occurs after the date they were entered in the register of members of the Company as a stockholder.

 

TheWarrant certificates governing our Warrants designate the state and federal courts of the State of New York sitting in the City of NewYork, Borough of Manhattan, as the exclusive forum for actions and proceedings with respect to all matters arising out of the Warrants,which could limit a Warrant holder’s ability to choose the judicial forum for disputes arising out of the Warrants.

 

Thewarrant certificates governing our Warrants provide that all legal proceedings concerning the interpretations, enforcement and defenseof the transactions contemplated by the warrant certificate (whether brought against a party to the warrant certificate or their respectiveaffiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state andfederal courts sitting in the City of New York. The warrant certificates further provide that we and the Warrant holders irrevocablysubmit to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudicationof any dispute under the warrant certificate or in connection with it or with any transaction contemplated by it or discussed in it.Furthermore, we and the Warrant holders irrevocably waive, and agree not to assert in any suit, action or proceeding, any claim thatwe or they are not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is aninconvenient venue for such proceeding. With respect to any complaint asserting a cause of action arising under the Securities Act orthe rules and regulations promulgated thereunder, we note, however, that there is uncertainty as to whether a court would enforce thisprovision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liabilitycreated by the Securities Act or the rules and regulations thereunder. Section 27 of the Exchange Act creates exclusive federal jurisdictionover all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result,the exclusive forum provision in the warrant certificates expressly does not apply to suits brought to enforce any duty or liabilitycreated by the Exchange Act.

 

Anyperson or entity purchasing or otherwise acquiring or holding or owning (or continuing to hold or own) any interest in any of our Warrantsshall be deemed to have notice of and consented to the foregoing provisions. Although we believe this exclusive forum provision benefitsus by providing increased consistency in the application of the governing law in the types of lawsuits to which it applies, the exclusiveforum provision may limit a Warrant holder’s ability to bring a claim in a judicial forum of its choosing for disputes with usor any of our directors, officers, other employees, stockholders, or others which may discourage lawsuits with respect to such claims.Our Warrant holders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunderas a result of this exclusive forum provision. Further, in the event a court finds the exclusive forum provision contained in our Warrantcertificates to be unenforceable or inapplicable in an action, we may incur additional costs associated with resolving such action inother jurisdictions, which could harm our results of operations.

 

Wewill have broad discretion in the use of the net proceeds of this Offering and may not use them effectively or in ways that increasethe value of our share price.

 

Whilewe believe that our use of the net proceeds that we will receive from this Offering will be accomplished, we cannot assure you that circumstanceswill not result in a change of such use. As a result, we will have discretion in the application of the net proceeds, includingworking capital and other general corporate purposes, and you and other stockholders may disagree with how we spend or invest these proceeds.The failure by our management to apply these funds effectively could adversely affect our business and financial condition. Pending theiruse, we may invest the net proceeds from our Offering in a manner that does not produce income or that loses value. These investmentsmay not yield a favorable return to our investors.

 

Futuresales of substantial amounts of shares of our Common Stock by existing shareholders could adversely affect the trading price of our CommonStock and Warrants.

 

Ifour existing shareholders sell substantial amounts of shares of our Common Stock following the Offering, the market price of our CommonStock and Warrants could fall. In addition, exercise of currently outstanding warrants or options could impact the market price of ourCommon Stock. Such sales by our existing shareholders might make it more difficult for us to issue new equity or equity-related securitiesin the future at a time and place we deem appropriate. The shares of Common Stock and the Warrants offered in this Offering will be eligiblefor immediate resale in the public market without restrictions. All remaining shares of Common Stock, which are currently held by ourexisting shareholders, may be sold in the public market in the future subject to the lock-up agreements and the restrictions containedin Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). If any existing shareholderssell a substantial amount of shares, the prevailing market price for our Common Stock could be adversely affected.

 

 

Ifyou invest in securities in this Offering, you will incur immediate and substantial dilution in the book value of your Common Stock.

 

TheOffering Price per share of our Common Stock that is part of a Unit will be substantially higher than the net tangible book value pershare of our Common Stock immediately after this Offering. Investors purchasing Units in this Offering will pay a price per Unit thatsubstantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing Unitsin this Offering will incur immediate dilution of $0.72 per share of our Common Stock, based on the assumed Offering Priceof $1.62 per Unit.

 

Thisdilution is due to our investors who purchased shares of our Common Stock prior to this Offering having paid substantially less whenthey purchased their shares than the price offered to the public in this Offering and the exercise of stock options granted to our employees.To the extent that our convertible notes, bridge notes, or Preferred Stock shares are converted into Common Stock or outstanding warrantsor stock options are exercised, we issue restricted stock to our employees under our equity incentive plan, or if we otherwise issueadditional shares of our Common Stock in each case at per share prices below the price to the public in this Offering, there will befurther dilution to new investors. As a result of the dilution to investors purchasing Units in this Offering, investors may receivesignificantly less than the purchase price paid in this Offering, if anything, in the event of our liquidation. For a further descriptionof the dilution that you will experience immediately after this Offering, see “Dilution.”

 

Thefinancial and operational projections that we may make from time to time are subject to inherent risks.

 

Theprojections that we provide herein or our management may provide from time to time (including, but not limited to, those relating topotential peak sales amounts, clinical and regulatory timelines, production and supply matters, commercial launch dates, and other financialor operational matters) reflect numerous assumptions made by management, including assumptions with respect to our specific as well asgeneral business, regulatory, economic, market, and financial conditions and other matters, all of which are difficult to predict andmany of which are beyond our control. Accordingly, there is a risk that the assumptions made in preparing the projections, or the projectionsthemselves, will prove inaccurate. There may be differences between actual and projected results, and actual results may be materiallydifferent from those contained in the projections.

 

Ourfailure to meet the continued listing requirements of The Nasdaq Capital Market could result in a de-listing of our common stock.

 

Ourshares of our Common Stock are listed for trading on The Nasdaq Capital Market under the symbol “BIAF and our Tradeable Warrantsare listed under the symbol “BIAFW.” If we fail to satisfy the continued listing requirements of The Nasdaq Capital Market,such as the corporate governance requirements, the stockholder’s equity requirement or the minimum closing bid price requirement,The Nasdaq Capital Market may take steps to de-list our common stock or warrants. Such a de-listing or even notification of failure tocomply with such requirements would likely have a negative effect on the price of our common stock and warrants and would impairyour ability to sell or purchase our common stock when you wish to do so. In the event of a de-listing, we would take actions to restoreour compliance with The Nasdaq Capital Market’s listing requirements, but we can provide no assurance that any such action takenby us would allow our common stock become listed again, stabilize the market price or improve the liquidity of our common stock, preventour common stock from dropping below The Nasdaq Capital Market, minimum bid price requirement or prevent future non-compliance with TheNasdaq Capital Market’s listing requirements.

 

TheNational Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating thesale of certain securities, which are referred to as “covered securities.” Because our common stock is listed on The NasdaqCapital Market, our common stock is a covered security. Although the states are preempted from regulating the sale of coveredsecurities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a findingof fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we wereto be delisted from The Nasdaq Capital Market, our common stock would cease to be recognized as a covered security andwe would be subject to regulation in each state in which we offer our securities.

 

Ourstock price has fluctuated in the past, has recently been volatile and may be volatile in the future, and as a result, investors in ourcommon stock could incur substantial losses.

 

Investorsshould consider an investment in our common stock risky and invest only if they can withstand a significant loss and wide fluctuationsin the market value of their investment. Investors who purchase our common stock may not be able to sell their shares at or above thepurchase price. Our stock price has been volatile and may be volatile in the future. In addition, the ongoing COVID-19 pandemic has causedbroad stock market and industry fluctuations. The stock market in general has been, and the market price of our Common Stock or Warrantsin particular, will likely be subject to fluctuation, whether due to, or irrespective of, our operating results and financial condition.The market price of our Common Stock or Warrants may fluctuate as a result of a number of factors, some of which are beyond our control,including, but not limited to:

 

	●	actual or anticipated variations in our and our competitors’ results of operations and financial condition;
	●	market acceptance of our diagnostic tests and therapeutic products;
	●	the mix of products that we sell and related services that we provide;
	●	changes in earnings estimates or recommendations by securities analysts, if our Common Stock is covered by analysts;
	●	development of technological innovations or new competitive diagnostic tests or therapeutic products by others;
	●	announcements of technological innovations or new diagnostic tests or therapeutic products by us;
	●	our failure to achieve a publicly announced milestone;
	●	delays between our expenditures to develop and market new or enhanced diagnostic tests or therapeutic products and the generation of sales from those diagnostic tests and therapeutic products;
	●	developments concerning intellectual property rights, including our involvement in litigation;

 

 

	●	regulatory developments and the decisions of regulatory authorities as to the approval or rejection of new or modified diagnostic tests or therapeutic products;
	●	changes in the amounts that we spend to develop, acquire, or license new diagnostic tests or therapeutic products, technologies, or businesses;
	●	changes in our expenditures to promote our diagnostic tests or therapeutic products;
	●	our sale or proposed sale, or the sale by our significant shareholders, of our Common Stock or other securities in the future;
	●	changes in key personnel;
	●	success or failure of our research and development projects or those of our competitors;
	●	the trading volume of our Common Stock; and
	●	general economic and market conditions and other factors, including factors unrelated to our operating performance.

 

Thesefactors and any corresponding price fluctuations may materially and adversely affect the market price of our Common Stock or Warrantsand result in substantial losses being incurred by our investors. In the past, following periods of market volatility, public companyshareholders have often instituted securities class action litigation. If we were involved in securities litigation, it could imposea substantial cost upon us and divert the resources and attention of our management from our business.

 

OurCommon Stock has often been thinly traded, so investors may be unable to sell at or near ask prices or at all if investors need to sellshares to raise money or otherwise desire to liquidate their shares.

 

Todate, there have been many days on which limited trading of our common stock took place. We cannot predict the extent to which investors’interests will lead to an active trading market for our common stock or whether the market price of our common stock will be volatile.If an active trading market does not develop, investors may have difficulty selling our common stock. We are likelyto be too small to attract the interest of many brokerage firms and analysts. We cannot give investors any assurance that an active publictrading market for our common stock will develop or be sustained. The market price of our common stock could be subject to wide fluctuationsin response to quarterly variations in our revenues and operating expenses, announcements of new products or services by us, significantsales of our common stock, including “short” sales, the operating and stock price performance of other companies that investorsmay deem comparable to us, and news reports relating to trends in our markets or general economic conditions.

 

Aninvestment in our Company may involve tax implications, and you are encouraged to consult your own advisors as neither we nor any relatedparty is offering any tax assurances or guidance regarding our Company or your investment.

 

Theformation of our Company, as well as an investment in our Company generally, involves complex federal, state, and local income tax considerations.Neither the Internal Revenue Service nor any state or local taxing authority has reviewed the transactions described herein and may takedifferent positions than the ones contemplated by management. You are strongly urged to consult your own tax and other advisors priorto investing, as neither we nor any of our officers, directors, or related parties can offer tax or similar advice, nor are any suchpersons making any representations and warranties regarding such matters.

 

Ourability to use our net operating loss carry-forwards and certain other tax attributes may be limited.

 

UnderSection 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an“ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period),the corporation’s ability to use its pre-change net operating loss carry-forwards and other pre-change tax attributes (such asresearch tax credits) to offset its post-change income may be limited. We may experience ownership changes in the future as a resultof subsequent shifts in our stock ownership, including the completion of our offering taken together with other transactions we may consummatein the succeeding three-year period. As a result, if we earn net taxable income, our ability to use our pre-change net operating losscarry-forwards to offset U.S. federal taxable income may be subject to limitations, which potentially could result in increased futuretax liability.

 

OurCertificate of Incorporation permits “blank check” Preferred Stock, which can be designated by our Board without stockholderapproval.

 

Weare authorized to issue 20,000,000 shares of Preferred Stock. The shares of our Preferred Stock may be issued from time to time in oneor more series, each of which shall have a distinctive designation or title as is determined by our Board prior to the issuance of anyshares thereof. The Preferred Stock may have such voting powers, full, enhanced or limited, or no voting powers, and such preferencesand relative, participating, optional, or other special rights and such qualifications, limitations, or restrictions thereof as adoptedby the Board, which may include enhanced dividend rights, rights of redemption, sinking funds to pay dividends, liquidation and otherrights that would be different than, and preferential to, the rights of the Common Stockholders. Because our Board is able to designatethe powers and preferences of the Preferred Stock without the vote of a majority of our stockholders, Common Stockholders will have nocontrol over what designations and preferences our Preferred Stock will have. If Preferred Stock is designated and issued, then dependingupon the designation and preferences, the holders of the Preferred Stock may exercise voting control. As a result, our stockholders wouldhave no control over the operations of our Company.

 

 

Provisionsin our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders,more difficult and may prevent attempts by our stockholders to replace or remove our current management.

 

Provisionsin our certificate of incorporation, as amended (our “Charter”) and amended and restated bylaws (our “A&RBylaws”) may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders mayconsider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions also couldlimit the price that investors might be willing to pay in the future for shares of our Common Stock, thereby depressing the market priceof our Common Stock. In addition, because our Board is responsible for appointing the members of our management team, these provisionsmay frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult forstockholders to replace members of our Board. Among other things, these provisions:

 

	●	allow the authorized number of our directors to be changed only by resolution of our Board;
	●	establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our Board;
	●	require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;
	●	prohibit our stockholders from calling a special meeting of our stockholders; and
	●	authorize our Board to issue Preferred Stock without stockholder approval, which could be used to institute a stockholder rights plan, or so-called “poison pill,” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our Board.

 

Moreover,because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law (the“DGCL”), which prohibits a person who owns 15% or more of our outstanding voting stock from merging or combiningwith us for a period of three years after the date of the transaction in which the person acquired 15% or more of our outstanding votingstock, unless the merger or combination is approved in a prescribed manner. These provisions could discourage potential acquisition proposalsand could delay or prevent a change in control transaction. They could also have the effect of discouraging others from making tenderoffers for our Common Stock, including transactions that may be your best interests. These provisions may also prevent changes in ourmanagement or limit the price that investors are willing to pay for our stock.

 

Certainprovisions in our Charter and A&R Bylaws could make a merger, tender offer, or proxy contest difficult, thereby depressing the tradingprice of our Common Stock.

 

OurCharter and A&R Bylaws contain provisions that could depress the trading price of our Common Stock by acting to discourage, delayor prevent a change of control of our Company or changes in our management that the stockholders of our Company may deem advantageous.These provisions include the following:

 

	●	permit the Board to establish the number of directors and fill any vacancies and newly-created directorships;
	●	authorize the issuance of “blank check” preferred stock that our Board could use to implement a stockholder rights plan;
	●	prohibit stockholders from calling special meetings of stockholders;
	●	prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;
	●	provide that the Board is expressly authorized to adopt, amend, alter or repeal our bylaws;
	●	restrict the forum for certain litigation against us to Delaware; and
	●	establish advance notice requirements for nominations for election to our Board or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.

 

Anyprovision in our Charter or A&R Bylaws that has the effect of delaying or deterring a change in control could limit the opportunityfor our stockholders to receive a premium for their shares of our Common Stock and could also affect the price that some investors arewilling to pay for our Common Stock.

 

Certainprovisions of the DGCL may have anti-takeover effects that could delay, defer, or discourage another party from acquiring control ofus, prevent changes in our Board or management, and make certain transactions more challenging that stockholders might otherwise believeto be in their best interests.

 

Weare subject to the provisions of Section 203 of the DGCL, which generally prohibits us from engaging in a “business combination,”meaning a merger, asset sale, or other transaction resulting in a stockholder’s financial benefit, with an “interested stockholder”for a three-year period following the time that such stockholder becomes an interested stockholder, unless the business combination isapproved in a manner prescribed by Section 203. Section 203 defines an “interested stockholder” as a person who, togetherwith affiliates and associates, owns, or within three years did own, 15% or more of a corporation’s outstanding voting stock. Theseprovisions may have the effect of delaying, deferring, or preventing changes in control of our Company and of averting changes in ourBoard or management. They are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and, asa consequence, they might also inhibit temporary fluctuations in the market price of our Common Stock that often result from actual orrumored hostile takeover attempts. These provisions could make it more difficult to accomplish transactions that stockholders might otherwisedeem to be in their best interests.

 

OurCharter designates a state or federal court located within the state of Delaware as the exclusive forum for substantially all disputesbetween us and our stockholders, which could limit our stockholders’ ability to choose the judicial forum for disputes with usor our directors, officers or employees.

 

OurCharter provides that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law,the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breachof a fiduciary duty owed by any of our directors, officers, stockholder or employees to us or our stockholders, (3) any action assertinga claim arising pursuant to any provision of the DGCL, our Charter or our A&R Bylaws or as to which the DGCL confers jurisdictionon the Court of Chancery of the State of Delaware, shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancerydoes not have jurisdiction, the federal district court for the District of Delaware) in all cases subject to the court having jurisdictionover indispensable parties named as defendants. These exclusive-forum provisions do not apply to claims under the Securities Act.

 

 

Section27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by theExchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforceany duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Section22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liabilitycreated by the Securities Act or the rules and regulations thereunder. However, our Charter and our A&R Bylaws contain a federalforum provision which provides that unless we consent in writing to the selection of an alternative forum, the federal districtcourts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arisingunder the Securities Act. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investorscannot waive compliance with the federal securities laws and the rules and regulations thereunder.

 

Anyperson or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consentedto this provision. This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of itschoosing for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors,officers, and other employees. If a court were to find the exclusive forum provision in our Charter to be inapplicable or unenforceablein an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could harm our resultsof operations.

 

Certainlimitation-of-liability and indemnification provisions in our Charter and A&R Bylaws may discourage stockholders from bringing alawsuit against our directors and officers for breaches of their fiduciary duties, may reduce the likelihood of derivative litigationagainst our directors and officers, even though an action, if successful, might benefit the Company and other stockholders, and may adverselyimpact stockholders’ investments to the extent that the Company pays the costs of settlement and damage awards against directorsand officers as required by these indemnification provisions.

 

OurCharter contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by the DGCL.Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciaryduties as directors, except liability for:

 

	●	any breach of the director’s duty of loyalty to us or our stockholders;
	●	any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
	●	unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; or
	●	any transaction from which the director derived an improper personal benefit.

 

OurCharter and our A&R Bylaws require us to indemnify our directors and officers, and allow us to indemnify other employees and agents,to the fullest extent permitted by the DGCL. Subject to certain limitations and limited exceptions, our Charter and A&R Bylaws alsorequire us to advance expenses incurred by our directors and officers for the defense of any action for which indemnification is requiredor permitted.

 

Whilewe believe that including the limitation-of-liability and indemnification provisions in our Charter, A&R Bylaws, and indemnificationagreements is necessary to attract and retain qualified persons such as directors, officers and key employees, those provisions may discouragestockholders from bringing a lawsuit against our directors and officers for breaches of their fiduciary duties. They may also reducethe likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us andother stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlementand damage awards against directors and officers as required by these indemnification provisions.

 

Ourmanagement collectively owns a substantial majority of our Common Stock.

 

Basedon the provisions for determining beneficial ownership in accordance with Rule 13d-3 and Item 403 of Regulation S-K under the ExchangeAct, immediately after this Offering, our officers and directors will own or exercise control of approximately 32% of the votingpower of our outstanding Common Stock. As a result, investors may be prevented from affecting matters involving our Company, including:

 

	●	the composition of our Board and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers;
	●	any determinations with respect to mergers or other business combinations;
	●	our acquisition or disposition of assets; and
	●	our corporate financing activities.

 

Furthermore,this concentration of voting power could have the effect of delaying, deterring, or preventing a change of control or other businesscombination that might otherwise be beneficial to our stockholders. This significant concentration of share ownership may also adverselyaffect the trading price for our Common Stock because investors may perceive disadvantages in owning stock in a company that is controlledby a small number of stockholders.

 

Ifsecurities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock priceand trading volume could decline.

 

Thetrading market for our Common Stock will depend in part on the research and reports that securities or industry analysts publish aboutus or our business. Securities and industry analysts do not currently, and may never, publish research on our Company. If no or onlyvery few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our CommonStock would be negatively affected. If one or more of the analysts who cover us downgrade our Common Stock or publish inaccurate or unfavorableresearch about our business, our Common Stock price would likely decline. If one or more of these analysts cease coverage of us or failto publish reports on us regularly, demand for our Common Stock could decrease, which might cause our Common Stock price and tradingvolume to decline.

 

 

Ifwe fail to establish and maintain an effective system of internal control or disclosure controls and procedures are not effective, wemay not be able to report our financial results accurately and timely or to prevent fraud. Any inability to report and file our financialresults accurately and timely could harm our reputation and adversely impact the trading price of our Common Stock.

 

Effectiveinternal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. Section 404 of the Sarbanes-OxleyAct of 2002 (the “Sarbanes-Oxley Act”) requires us to evaluate and report on our internal controls over financialreporting and, depending on our future growth, may require our independent registered public accounting firm to annually attest to ourevaluation, as well as issue its own opinion on our internal controls over financial reporting. The process of implementing and maintainingproper internal controls and complying with Section 404 is expensive and time consuming. We cannot be certain that the measures we willundertake will ensure that we will maintain adequate controls over our financial processes and reporting in the future. Furthermore,if we are able to rapidly grow our business, the internal controls that we will need may become more complex, and significantly moreresources will be required to ensure our internal controls remain effective. Failure to implement required controls or difficulties encounteredin their implementation could harm our operating results or cause us to fail to meet our reporting obligations. If we or our auditorsdiscover a material weakness in our internal controls, the disclosure of that fact, even if the weakness is quickly remedied, could diminishinvestors’ confidence in our financial statements and harm our stock price. In addition, non-compliance with Section 404 couldsubject us to a variety of administrative sanctions, including the suspension of trading, ineligibility for future listing on one ofthe Nasdaq Stock Markets or national securities exchanges, and the inability of registered broker-dealers to make a market in our CommonStock, which may reduce our stock price.

 

GeneralRisks

 

Weare an “emerging growth company” and a “smaller reporting company,” and the reduced disclosure requirements applicableto emerging growth companies and smaller reporting companies may make our Units less attractive to investors.

 

Weare an “emerging growth company” as defined in the JOBS Act, and we intend to take advantage of some of the exemptions fromreporting requirements that are applicable to other public companies that are not emerging growth companies, including:

 

	●	being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced MD&A disclosure;
	●	not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
	●	not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board or a supplement to the auditor’s report providing additional information about the audit and the financial statements;
	●	reduced disclosure obligations regarding executive compensation; and
	●	not being required to hold a non-binding advisory vote on executive compensation or obtain stockholder approval of any golden parachute payments not previously approved.

 

Inaddition, as an “emerging growth company” the JOBS Act allows us to delay adoption of new or revised accounting pronouncementsapplicable to public companies until such pronouncements are made applicable to private companies, unless we later irrevocably electnot to avail ourselves of this exemption. We have elected to use this extended transition period under the JOBS Act. As a result, ourfinancial statements may not be comparable to the financial statements of issuers who are required to comply with the effective datesfor new or revised accounting standards that are applicable to public companies, which may make comparison of our financials to thoseof other public companies more difficult. We will remain an emerging growth company until the earlier of: (i) the last day of the fiscalyear (1) following the fifth anniversary of the completion of this Offering, (2) in which we have total annual gross revenue of at least$1.235 billion, or (3) in which we are deemed to be a large accelerated filer, which means the market value of our Common Stock thatis held by non-affiliates exceeds $700 million as of the prior June 30^th; and (ii) the date on which we have issued more than$1.0 billion in non-convertible debt during the prior three-year period.

 

Weare also a “smaller reporting company” meaning that the market value of our stock held by non-affiliates plus theproposed aggregate amount of gross proceeds to us as a result of this Offering is less than $700 million and our annual revenue was lessthan $100 million during the most recently completed fiscal year. Smaller reporting companies may take advantage of certain reduced disclosureobligations, including, among other things, providing only two years of audited financial statements in our Annual Report on Form 10-K,and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements withother public companies difficult or impossible. We will remain a smaller reporting company until the last day of the fiscal year in which(i) the market value of our common shares held by non-affiliates exceeds $250 million as of the end of that year’s second fiscalquarter, or (ii) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our common sharesheld by non-affiliates exceeds $700 million as of the end of that year’s second fiscal quarter.

 

Investorsmay find our find our Common Stock less attractive to the extent we will rely on these exemptions. If some investors find our CommonStock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.

 

Wehave incurred significant increased costs as a result of operating as a public company, and our management is required to devote substantialtime to compliance initiatives.

 

Asa public company, we have incurred and will continue to incur legal, accounting and other expenses that we did not incur as aprivate company. We are subject to the reporting requirements of the Exchange Act and are required to comply with the applicablerequirements of the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act. The listing requirements of the Nasdaq Stock Market, and the rules of the SEC require that we satisfy certain corporategovernance requirements. Our management and other personnel are required to devote a substantial amount of time to ensure that wecomply with all of these requirements. Moreover, the reporting requirements, rules and regulations have increased our legal andfinancial compliance costs and will make some activities more time-consuming and costly. Any changes we make to comply with theseobligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all. Thesereporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being apublic company, could also make it more difficult for us to attract and retain qualified persons to serve on our board of directorsor board committees or to serve as executive officers, or to obtain certain types of insurance, including directors’ andofficers’ insurance, on acceptable terms.

 

 

Asa public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in suchinternal controls. Beginning with the second annual report on Form 10-K that we will be required to file with the SEC, Section 404 requiresan annual management assessment of the effectiveness of our internal control over financial reporting. The rules governing the standardsthat must be met for management to assess our internal control over financial reporting are complex and require significant documentation,testing, and possible remediation.

 

As of June 30, 2023,our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our “disclosure controls and procedures”(as defined in the Exchange Act) Rules 13a-15(e) and 15d-15(e)). Based on that evaluation, management has concluded that due tolimited resources and limited number of employees, its internal control over financial reporting was ineffective as of June 30,2023, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements inaccordance with generally accepted accounting principles in the U.S. (“GAAP”). To mitigate thelimited resources and employees, we rely heavily on direct management oversight of transactions, along with the use of legal and accountingprofessionals. As we grow, we expect to increase the number of employees, which we believe will enable us to implement adequate segregationof duties within the internal control framework.

 

Inthe future, if we identify any additional material weaknesses in our internal control over financial reporting, if we are unable to complywith the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to assert that our internal controlover financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports and themarket price of our common stock could decline, and we could also become subject to investigations by the stock exchange on which ourcommon stock is listed, the SEC or other regulatory authorities, which could require additional financial and management resources. Inaddition, as a public company we will be required to file accurate and timely quarterly and annual reports with the SEC under the ExchangeAct. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of ourshares from Nasdaq or other adverse consequences that would materially harm our business and reputation.

 

Forso long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from variousreporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to,not being required to comply with the auditor attestation requirements of Section 404. We will remain an emerging growth company untilthe earlier of (1) the last day of the fiscal year (i) following the fifth anniversary of the completion of our initial public offering,(ii) in which we have total annual gross revenue of at least $1.235 billion, or (iii) in which we are deemed to be a large acceleratedfiler, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30^th,and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

 

Ourdisclosure controls and procedures may not prevent or detect all errors or acts of fraud.

 

Wedesigned our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit underthe Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periodsspecified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures,no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systemare met.

 

Theseinherent limitations include the realities that judgments in decision-making can be faulty, and breakdowns can occur because ofsimple error or mistake. For example, our directors or executive officers could inadvertently fail to disclose a new relationship orarrangement causing us to fail to make any related party transaction disclosures. Additionally, controls can be circumvented by the individualacts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of theinherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

 

Futurechanges in financial accounting standards or practices may cause adverse and unexpected revenue fluctuations and adversely affect ourreported results of operations.

 

Futurechanges in financial accounting standards may cause adverse, unexpected revenue fluctuations and affect our reported financial positionor results of operations. Financial accounting standards in the United States are constantly under review and new pronouncements andvarying interpretations of pronouncements have occurred with frequency in the past and are expected to occur again in the future. Asa result, we may be required to make changes in our accounting policies. Those changes could affect our financial condition and resultsof operations or the way in which such financial condition and results of operations are reported. We intend to invest resources to complywith evolving standards, and this investment may result in increased general and administrative expenses and a diversion of managementtime and attention from business activities to compliance activities. See the “MD&A—Recent Accounting Pronouncements”section of this prospectus.

 

Claimsfor indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against usand may reduce the amount of money available to us.

 

OurCharter and A&R Bylaws provide that we will indemnify our directors and officers, in each case, to the fullest extent permitted byDelaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for any breachof fiduciary duties as directors, except liability for:

 

	●	any breach of the director’s duty of loyalty to the corporation or its stockholders;
	●	any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
	●	unlawful payments of dividends or unlawful stock repurchases or redemptions; or
	●	any transaction from which the director derived an improper personal benefit.

 

Suchlimitation of liability does not apply to liabilities arising under federal securities laws and does not affect the availability of equitableremedies such as injunctive relief or rescission.

 

OurA&R Bylaws provide that we are required to indemnify our directors and officers to the fullest extent permitted by Delaware law andmay indemnify our other employees and agents. Our A&R Bylaws also provide that, on satisfaction of certain conditions, we will advanceexpenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insuranceon behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardlessof whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law. We believe that these Charterand A&R Bylaws provisions are necessary to attract and retain qualified persons as directors and officers.

 

Whilewe maintain directors’ and officers’ liability insurance, such insurance may not be adequate to cover all liabilities thatwe may incur, which may reduce our available funds to satisfy third-party claims and may adversely impact our cash position.

 

 

USEOF PROCEEDS

 

Weestimate that the net proceeds to us from the sale of Units in this Offering will be approximately $4.0 million, after deductingthe underwriting discounts and commissions and estimated offering expenses payable by us. This assumes an Offering Price of $1.62per Unit. If the underwriters exercise their option to purchase additional shares of our Common Stock in full, the net proceeds tous will be approximately $4.7 million.

 

We intend to use the net proceeds from this Offeringfor working capital and for general corporate purposes, which may include product and test development, general and administrative matters,and capital expenditures. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutionsor businesses that complement our business, although we have no present definitive commitments or agreements to enter into any acquisitionsor investments. We expect the proceeds from this Offering together with anticipated sales of our diagnostic LDT tests should be sufficientfor us to complete the de novo pivotal clinical trial and, if results are positive, to submit and obtain FDA marketing authorizationof CyPath^® Lung for sale.

 

Wecannot specify with certainty all of the uses of the net proceeds that we will receive from this Offering. Accordingly, we will havebroad discretion in the application of these proceeds and our investors will be relying on the judgment of our management regarding theapplication of the net proceeds of this Offering.

 

Each$0.25 increase or decrease in the assumed Offering Price of $1.62 per Unit would increase or decrease the net proceedsto us from this Offering by approximately $700,000, assuming that the number of Units offered by us, as set forth on thecover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and the estimated offeringexpenses payable by us. We may also increase or decrease the number of Units we are offering. Each 250,000 Unit increase or decreasein the number of Units offered by us would increase or decrease the net proceeds to us from this Offering by approximately $150,000,assuming that the assumed Offering Price of $1.62 per Unit remains the same and after deducting underwriting discounts andcommissions and the estimated offering expenses payable by us.

 

 

DIVIDENDPOLICY

 

Wehave never declared or paid any cash dividends on our capital stock. We intend to retain all available funds and future earnings, ifany, to fund the development and expansion of our business, and we do not anticipate declaring or paying any cash dividends in the foreseeablefuture. Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our Board andwill depend on then-existing conditions, including our financial condition, results of operations, contractual restrictions, capitalrequirements, business prospects, and other factors our Board may deem relevant.

 

 

CAPITALIZATION

 

Thefollowing table sets forth our cash and cash equivalents and capitalization as of June 30, 2023:

 

	●	on an actual basis, based on 8,555,365 shares of Common Stock issued and outstanding at June 30, 2023, as reflected in our June 30, 2023 unaudited financial statements, which does not include 125,815 shares of unvested restricted Common Stock as of such date;
	●	on a pro forma basis to give effect to: (i) on July 1, 2023, the issuance of an aggregate of 71,715 restricted shares of Common Stock to our seven directors, as part of our director compensation policy;  (ii) the issuance of an aggregate of 8,226 shares of Common Stock to a consultant pursuant to the terms of a consulting agreement between July 1, 2023 and September 1, 2023; (iii) the addition of 16,605 shares of restricted Common Stock that were issued but unvested prior to June 30, 2023 andwhich have subsequently vested; and (iv) the consummation of the Acquisition including the issuance of 564,972 shares of restricted Common Stock to the Joyce Trust pursuant to the terms of the Asset Purchase Agreement, the payment of $2,500,000 cash consideration to Village Oaks, the assets acquired including cash and the liabilities assumed in Acquisition; and
	●	on a pro forma, as adjusted basis to give effect to the pro forma adjustments and the issuance and sale of 3,086,419 Units in this Offering at an assumed Offering Price of $1.62 per Unit, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

  

Theinformation set forth in the table below is illustrative only and our capitalization following the completion of this Offering will beadjusted based on the actual Offering Price, the number of Units sold in this Offering, and other terms of this Offering determined atpricing. You should read the following table in conjunction with our consolidated financial statements and related notes appearing atthe end of this prospectus as well as the MD&A and “Description of Securities” sections of this prospectus.

 

		As of June 30, 2023
		Actual				Pro Forma				Pro Forma, As Adjusted
Cash and cash equivalents		$	8,279,182			$	6,161,830			$	10,151,830
Stockholders’ equity:
Preferred stock, par value $0.001 per share; 20,000,000 shares authorized; no shares issued and outstanding at June 30, 2023, no shares issued and outstanding pro forma, and no shares issued and outstanding pro forma, as adjusted
Common stock, par value $0.007 per share; 25,000,000 shares authorized; 8,555,365 issued and outstanding at June 30, 2023, 9,216,883 shares issued and outstanding pro forma, and 12,303,302 shares issued and outstanding pro forma, as adjusted			59,887				64,518				86,123
Additional paid-in capital			47,978,892				49,145,303