Asfiled with the Securities and Exchange Commission on November 27, 2024.

 

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)

 

3300Nacogdoches Road

Suite216

SanAntonio, Texas 78217

(210)698-5334

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

 

MariaZannes

ChiefExecutive Officer

3300Nacogdoches Road, Suite 216

SanAntonio, Texas 78217

(210)698-5334

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

 

Copiesto:

 

LeslieMarlow, Esq.

MelissaPalat Murawsky, Esq.

BlankRome LLP

1271Avenue of the Americas

NewYork, New York 10020

Tel:(212) 885-5000

 

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 registration statementfiled with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is notsoliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS

Subject to Completion, dated November 27, 2024

 

 

 

bioAffinityTechnologies, Inc.

 

2,724,230Shares of Common Stock

 

Thisprospectus relates to the resale from time to time of up to 2,724,230 shares of common stock, par value $0.007 per share (the “CommonStock”), of bioAffinity Technologies, Inc. by the Selling Stockholders identified in this prospectus (the “Selling Stockholders”),including their pledgees, assignees, donees, transferees or their respective successors-in-interest consisting of: (i) 2,662,782 sharesof Common Stock issuable upon the exercise of common warrants (the “Private Warrants”) to purchase up to 2,662,782 sharesof Common Stock (the “Private Warrant Shares”) purchased by institutional investors (the “Investors”) in a privateplacement transaction (the “October 2024 Private Placement”) pursuant to the terms of a securities purchase agreement datedas of October 18, 2024 (the “Purchase Agreement”) between us and the Investors; and (ii) 61,448 shares of Common Stock issuableupon the exercise of warrants (the “Placement Agent Warrants”) to purchase 61,448 shares of Common Stock (the “PlacementAgent Warrant Shares”) issued to designees of WallachBeth Capital LLC (“WallachBeth”) as partial compensation for WallachBethacting as placement agent in connection with the October 2024 Private Placement. The October 2024 Private Placement closed on October21, 2024. The Investors and the designees of WallachBeth are collectively referred to herein as the “Selling Stockholders.”The Private Warrants and the Placement Agent Warrants are collectively referred to herein as the “Common Warrants.” The PrivateWarrant Shares and the Placement Agent Warrant Shares are collectively referred to herein as the “Common Warrant Shares.”

 

Weare filing this registration statement on Form S-1, of which this prospectus forms a part, to fulfill our contractual obligations toprovide for the registration of the resale of the Private Warrant Shares by the Investors, as well as to provide for the registrationof the resale of the Placement Agent Warrant Shares by the designees of WallachBeth. See “Selling Stockholders” beginningon page 34 of this prospectus for more information about the Selling Stockholders. The registration of the shares of Common Stock towhich this prospectus relates does not require the Selling Stockholders to sell any of their shares of our Common Stock.

 

Weare not offering any shares of Common Stock under this prospectus and will not receive any proceeds from the sale or other dispositionof the shares of our Common Stock covered hereby. However, we will receive the proceeds from any exercise of the Common Warrants forcash. See “Use of Proceeds” beginning on page 31 of this prospectus.

 

TheSelling Stockholders identified in this prospectus, or their pledgees, assignees, donees, transferees or their respective successors-in-interest,from time to time may offer and sell through public or private transactions at prevailing market prices, at prices related to prevailingmarket prices or at privately negotiated prices, the shares held by them directly or through underwriters, agents or broker-dealers onterms to be determined at the time of sale, as described in more detail in this prospectus. See “Plan of Distribution” beginningon page 69 of this prospectus for more information about how the Selling Stockholders may sell their respective shares of Common Stock.The Selling Stockholders may be deemed “underwriters” within the meaning of Section 2(a)(11) of the Securities Act of 1933,as amended (the “Securities Act”).

 

Wehave agreed, pursuant to the terms of the Purchase Agreement to bear all of the expenses in connection with the registration of the CommonWarrant Shares pursuant to this prospectus. The Selling Stockholders will pay or assume all commissions, discounts, fees of underwriters,agents, selling brokers or dealer managers and similar expenses, if any, attributable to their respective sales of the shares of CommonStock.

 

OurCommon Stock is listed on the Nasdaq Capital Market under the symbol “BIAF”. Our Tradeable Warrants are listed on the NasdaqCapital Market under the symbol “BIAFW”. On November 25, 2024, the last reported sale price of (i) our Common Stockon Nasdaq was $1.20 per share, and (ii) our Tradeable Warrants on Nasdaq was $0.60 per Tradeable Warrant. There is no establishedpublic trading market for any of the Common Warrants and we do not expect a market to develop.

 

Investingin our securities involves risks. You should review carefully the risks and uncertainties described under the heading “RiskFactors” contained in this prospectus and under similar headings in the other documents that are incorporated by referenceinto this prospectus, as described beginning on page 6 of this prospectus.

 

Neitherthe Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passedupon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. The securities are not beingoffered in any jurisdiction where the offer is not permitted.

 

Thedate of this prospectus is                    , 2024

 

 

TABLEOF CONTENTS

 

ABOUT THIS PROSPECTUS	ii
PROSPECTUS SUMMARY	1
THE OFFERING	4
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	5
RISK FACTORS	6
THE OCTOBER OFFERINGS	30
USE OF PROCEEDS	31
DILUTION	32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	33
SELLING STOCKHOLDERS	34
MARKET INFORMATION FOR SECURITIES AND DIVIDEND POLICY	36
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS	37
BUSINESS	45
MANAGEMENT	57
EXECUTIVE AND DIRECTOR COMPENSATION	60
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	64
DESCRIPTION OF SECURITIES	66
PLAN OF DISTRIBUTION	69
EXPERTS	70
LEGAL MATTERS	70
WHERE YOU CAN FIND ADDITIONAL INFORMATION	70
INDEX TO FINANCIAL STATEMENTS	F-1

 

Theregistration statement containing this prospectus, including the exhibits to the registration statement, provides additional informationabout us and the Common Stock offered under this prospectus. The registration statement, including the exhibits, can be read on our websiteand the website of the Securities and Exchange Commission. See “Where You Can Find Additional Information.”

 

Informationcontained in, and that can be accessed through our web site, www.bioaffinity.com, shall not be deemed to be part of this prospectusor incorporated herein by reference and should not be relied upon by any prospective investors for the purposes of determining whetherto purchase the Common Stock offered hereunder.

 

Unlessthe context otherwise requires, the terms ““we,” “us,” “our,” “the Company,” “bioAffinity”and “our business” refer to bioAffinity Technologies, Inc. and “this offering” refers to the offering contemplatedin this prospectus.

 

 

ABOUTTHIS PROSPECTUS

 

Neitherwe nor the Selling Stockholders have authorized anyone to provide you with any information or to make any representations other thanthose contained in this prospectus, any post-effective amendment, or any applicable prospectus supplement prepared by or on behalf ofus or to which we have referred you. We and the Selling Stockholders take no responsibility for and can provide no assurance as to thereliability of any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby,but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is currentonly as of the date on the front cover of the prospectus. Our business, financial condition, results of operations and prospects mayhave changed since that date.

 

Thisprospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to theactual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of someof the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registrationstatement of which this prospectus is a part, and you may obtain copies of those documents as described below under the section entitled“Where You Can Find Additional Information.”

 

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 Common 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.

 

CompanyOverview

 

bioAffinityTechnologies, Inc. (the “Company,” “bioAffinity,” “we,” or “our”) develops noninvasivediagnostics to detect early-stage lung cancer and other diseases of the lung. We also are conducting early-stage research focused onadvancing therapeutic discoveries that could result in broad-spectrum cancer treatments. We have developed a proprietary noninvasivediagnostic test using technology that identifies cancer cells and cell populations indicative of a diseased state for analysis usingproprietary platforms developed using artificial intelligence (“AI”). Research and optimization of our platformtechnologies are conducted in laboratories at our wholly owned subsidiary, Precision Pathology Laboratory Services, LLC (“PPLS”)and 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 worldwide. Physicians order CyPath^® Lung to assist in their assessment ofpatients who are at high risk for lung cancer. The CyPath^® Lung test enables physicians to more confidently identify patientswho will likely benefit from timely intervention and more invasive follow-up procedures and those who are likely without lung cancerand should continue routine screening. CyPath^® Lung has the potential to increase overall diagnostic accuracy of lungcancer, which could lead to increased survival, fewer unnecessary invasive procedures, reduced patient anxiety, and lower medical costs.

 

Throughour wholly owned subsidiary, OncoSelect^® Therapeutics, LLC, our research has led to discoveries and advancement of novelcancer therapeutic approaches that specifically and selectively target cancer cells. We are focused on expanding our broad-spectrum platformtechnologies to develop tests that detect and therapies that target various types of cancer and potentially other diseases.

 

Throughour wholly owned subsidiary PPLS, we acquired the assets of Village Oaks Pathology Services, P.A., a Texas professional association d/b/aPrecision Pathology Services, including the clinical pathology laboratory it owned, and we now operate the laboratory. The laboratoryis accredited by the College of American Pathologists (“CAP”) and certified under the Clinical Laboratory ImprovementAmendments of 1988 (“CLIA”).

 

CorporateInformation

 

Wewere incorporated in the State of Delaware on March 26, 2014. Our principal executive office is located at 3300 Nacogdoches Road, Suite216, San Antonio, Texas 78217, 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 and a Smaller Reporting 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 certain specifiedexemptions from reporting and other regulatory requirements that are otherwise generally applicable to public companies. For example,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 until such time that we are no longer an EGC. We will continue to remain an EGC until the earliestof the following: (i) the last day of the fiscal year following the fifth anniversary of our initial public offering; (ii) the last dayof the fiscal year in which our total annual gross revenue is equal to or more than $1.235 billion; (iii) the date on which we have issuedmore than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large acceleratedfiler, as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

Weare also a “smaller reporting company” as defined in the Exchange Act and have elected to take advantage of certain of thescaled disclosures available to smaller reporting companies. To the extent that we continue to qualify as a “smaller reportingcompany” as such term is defined in Rule 12b-2 under the Exchange Act, after we cease to qualify as an EGC, certain of the exemptionsavailable to us as an EGC may continue to be available to us as a “smaller reporting company,” including exemption from compliancewith the auditor attestation requirements pursuant to the Sarbanes-Oxley Act of 2002 (“SOX”) and reduced disclosureabout our executive compensation arrangements. We will continue to be a “smaller reporting company” until we have $250 millionor more in public float (based on our Common Stock) measured as of the last business day of our most recently completed second fiscalquarter or, in the event we have no public float (based on our Common Stock) or a public float (based on our Common Stock) that is lessthan $700 million, annual revenues of $100 million or more during the most recently completed fiscal year.

 

 

Wemay 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. In addition, the JOBS Act provides that an EGC may take advantage of an extended transitionperiod for complying with new or revised accounting standards, delaying the adoption of these accounting standards until they would applyto private companies. We have elected to avail ourselves of the extended transition period for complying with new or revised financialaccounting standards. As a result of the accounting standards election, we will not be subject to the same implementation timing fornew or revised accounting standards as other public companies that are not EGCs which may make comparison of our financials to thoseof other public companies more difficult.

 

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 6 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:

 

RisksRelated to this Offering

 

	●	Resales of our Common Stock in the public market as a result of this offering may cause the market price of our Common Stock to fall.
	●	Investors who buy shares at different times will likely pay different prices.
	●	This offering may cause the trading price of our Common Stock to decrease.
	●	Our management will have broad discretion over the use of the net proceeds.

RisksRelated to Our Financial Position

 

	●	Our business plan relies upon our ability to obtain additional sources of capital and financing.
	●	We must raise additional capital to fund our operations in order to continue as a going concern.
	●	Our limited operating history makes it difficult to evaluate our current business and future prospects.
	●	We will require additional financing to implement our business plan.

 

RisksRelated to the Acquisition of Precision Pathology Laboratory Services(“PPLS”)

 

	●	The combined company may not experience the anticipated strategic benefits of the acquisition.
	●	We may not be able to enforce claims under the Asset Purchase Agreement.
	●	We are unable to estimate when we will begin to generate significant profit from revenue.
	●	Operating a clinical laboratory is a new business for us, and we have limited experience doing so.

 

RisksRelated to our Diagnostic Product

 

	●	Until we secure FDA clearance for our CyPath® Lung as an in vitro diagnostic, some physicians may not order a laboratory developed test.
	●	Delays or difficulties in the enrollment of patients could delay or prevent the regulatory approvals.
	●	Clinical trials are expensive, time-consuming, and may not be successful.

 

RisksRelated to Our Diagnostic Tests

 

	●	If our tests do not perform as expected, our operating results, reputation, and business will suffer.
	●	We may experience delays in development, introduction, or marketing of enhanced or new tests.
	●	If clinical testing does not yield successful results, we will be unable to commercialize that test or product candidate.
	●	Even if our tests or products receive marketing approval, they may fail to achieve market acceptance.
	●	We may not be successful in commercializing our diagnostic tests or therapeutic products.
	●	We are currently dependent upon PPLS to offer and perform CyPath® Lung.
	●	Market acceptance may depend upon our ability to convince physicians of benefits of our tests or products.
	●	We face substantial competition.
	●	Our success depends upon our ability to retain and attract key executives and qualified personnel.
	●	Our lack of operating experience may make it difficult to manage our growth.
	●	Failure to comply with obligations imposed by intellectual property licenses could result in loss of rights.
	●	We may need to obtain additional licenses of technology that may not be available to us.
	●	We will depend on third parties to manufacture and market our diagnostic tests and to design trial protocols.
	●	We are exposed to product liability and pre-clinical and clinical liability risks.
	●	Our failure to comply with privacy and security regulations could result in significant liability.
	●	Our ability to obtain adequate reimbursement from third-party payors may impact our revenues.
	●	Our employees, consultants, partners, and vendors may engage in misconduct or other improper activities.
	●	Failure to comply with healthcare fraud and abuse laws and regulations could result in penalties.
	●	We face intense competition in the biotechnology and pharmaceutical industries.
	●	The market for our proposed tests and products is competitive and rapidly changing.
	●	Healthcare cost containment initiatives and the growth of managed care may limit our returns.
	●	Our competitive position depends on protection of our intellectual property.
	●	Diagnostic tests and therapeutic products we develop could be subject to infringement claims.
	●	We may become involved in lawsuits to protect or enforce our intellectual property.
	●	If we are unable to protect our trade secrets, our business and competitive position could be harmed.
	●	Disruption of our internal information technology systems will adversely affect our business.
	●	Declining general economic or business conditions may have a negative impact on our business.
	●	Global climate change and related regulations could negatively affect our business.

 

 

RisksRelated to the Operation of a CAP/CLIA Laboratory

 

	●	The operations of PPLS depend in part upon Roby Joyce, MD, and his relationship with existing customers.
	●	PPLS may be unable to effectively maintain equipment.
	●	We will be adversely impacted if our sole laboratory facility becomes inoperable.
	●	PPLS relies on commercial courier delivery services to transport sputum samples for CyPath® Lung.
	●	Security breaches, loss of data, and other disruptions could compromise sensitive information.
	●	If PPLS uses hazardous chemicals in a manner that causes injury, PPLS could be liable for damages.
	●	If PPLS is unable to scale its operations to support demand for CyPath® Lung, its business could suffer.
	●	Delays of third-party billing and collection providers could have an adverse effect on PPLS.

 

RisksRelated to Intellectual Property Rights

 

	●	Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
	●	Changes in patent law could impair our ability to protect our tests and product candidates.
	●	Our patent protection could be impacted by non-compliance with requirements of patent agencies.
	●	Patent terms may be inadequate to protect our diagnostic tests or therapeutic product candidates.
	●	Issued patents covering our product candidates could be found invalid or unenforceable if challenged.
	●	If we do not obtain patent term extension, our business may be harmed.
	●	We enjoy only limited geographical protection with respect to certain patents.
	●	If our trademarks and trade names are not adequately protected, we may not be able to build name recognition.

 

RisksRelated to Government Regulations

 

	●	Should the FDA disagree that CyPath® Lung is an LDT our commercialization strategy may be adversely affected.
	●	FDA failure to grant our request for de novo classification would adversely affect our business.
	●	Noncompliance with laws pertaining to LDTs or in vitro devices (“IVDs”) could adversely affect our business.
	●	The third-party licensors of our future therapeutic products, may be unable to obtain regulatory approval.
	●	We may fail to obtain regulatory approval in foreign jurisdictions.
	●	We may never obtain approval or commercialize such products outside of the U.S.
	●	The impact of healthcare spending and recent healthcare reform legislation is currently unknown.

 

RisksRelated to Ownership of Our Common Stock and Warrants

 

	●	We do not expect to pay dividends in the foreseeable future.
	●	The outstanding warrants may never have a market price that exceeds the exercise price and holders have no rights as stockholders until the warrants are exercised.
	●	The provisions of the warrants could limit a holder’s ability to choose a judicial forum for disputes.
	●	Our failure to file a registration statement to register the Common Stock issuable upon exercise of the Common Warrants that we issued in October 2024 or to timely hold a stockholders’ meeting to obtain stockholder approval may result in a breach of the Purchase Agreement.
	●	We may be unable to meet the continued listing requirements of The Nasdaq Capital Market.
	●	Our stock price has been volatile and thinly traded and may be volatile in the future.
	●	An investment in our Company may involve tax implications.
	●	Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
	●	Our Certificate of Incorporation permits “blank check” Preferred Stock.
	●	Certain provisions in our Charter and Amended and Restated (“A&R”) Bylaws could make a merger, tender offer, acquisition or proxy contest difficult and have anti-takeover effects.
	●	Our Charter designates a state or federal court located within Delaware as the exclusive forum for disputes.
	●	Certain provisions in our Charter and A&R Bylaws may discourage stockholder lawsuit.
	●	Our management collectively owns a substantial percentage of our Common Stock.
	●	Any inability to file our financial results accurately and timely could harm our reputation and stock price.

 

 

THEOFFERING

 

Thisprospectus relates to the resale or other disposition from time to time by the Selling Stockholders identified in this prospectus ofup to 2,724,230 shares of our Common Stock. None of the shares registered hereby are being offered for sale by us.

 

Shares of Common Stock offered by the Selling Stockholders		2,724,230 shares of Common Stock consisting of: (i) 2,662,782 shares issuable upon the exercise of the Private Warrants; and (ii) 61,448 shares of Common Stock issuable upon the exercise of the Placement Agent Warrants
Common stock to be outstanding after this offering(1)		18,308,865 shares of Common Stock, assuming the issuance of 2,724,230 shares of Common Stock issuable upon the exercise of the Common Warrants
Registration Rights		Underthe terms of the Purchase Agreement, we agreed to file this registration statement with respect to the registration of the resale bycertain of the Selling Stockholders of the Private Warrant Shares by the 45th calendar day following the date of the Purchase Agreement.In addition, we agreed that, upon the registration statement being declared effective under the Securities Act, we would use commerciallyreasonable efforts to maintain the effectiveness of the registration statement until the date that the Selling Stockholders no longerown any of the Private Warrants or Private Warrant Shares. See “Selling Stockholders” beginning on page 34 of this prospectusfor more information about the Selling Stockholders. The registration of the shares of Common Stock to which this prospectus relatesdoes not require the Selling Stockholders to sell any of their shares of our Common Stock.
Use of Proceeds		The Selling Stockholders will receive all of the proceeds of the sale of shares of Common Stock offered from time to time pursuant to this prospectus. Accordingly, we will not receive any proceeds from the sale of shares of Common Stock that may be sold from time to time pursuant to this prospectus; however, we will receive proceeds from any cash exercise of the Common Warrants. See “Use of Proceeds.” We intend to use the proceeds from the any cash exercise of the Common Warrants for working capital purposes.
Plan of Distribution		The Selling Stockholders named in this prospectus, or their pledgees, donees, transferees, distributees, beneficiaries or other successors-in-interest, may offer or sell the shares of Common Stock offered hereby from time to time through public or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices. The Selling Stockholders may also resell the shares of Common Stock to or through underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, concessions or commissions.
Risk Factors		See “Risk Factors” beginning on page 6 of this prospectus and in the documents incorporated by reference in this prospectus and the other information included in this prospectus for a discussion of factors you should carefully consider before investing in our securities.
Nasdaq Capital Market trading symbol		Our Common Stock is listed on the Nasdaq Capital Market under the symbol “BIAF.” Our tradeable warrants are listed on the Nasdaq Capital Market under the symbol “BIAFW.”

 

(1)The number of shares of Common Stock outstanding immediately after this Offering is based on 15,584,635 shares of Common Stock outstandingas of November 26, 2024, and excludes:

 

●

12,298,124 shares of Common Stock issuable upon the exercise of outstanding warrants with a weighted average exercise price equal to $2.95 per share;

 

●

337,810 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 $6.88 per share; and

 

●

1,480,208 shares of Common Stock that are reserved for equity awards that may be granted under our 2024 Equity Incentive Plan.

 

 

CAUTIONARYNOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certainstatements in this prospectus may contain “forward-looking statements” within the meaning of the federal securities laws.Our forward-looking statements include, but are not limited to, statements about us and our industry, as well as statements regardingour or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. Additionally, any statementsthat refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions,are forward-looking statements. We intend the forward-looking statements to be covered by the safe harbor provisions of the federal securitieslaws. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,”“continue,” “expects,” “anticipates,” “future,” “intends,” “plans,”“believes,” “estimates,” and similar expressions, as well as statements in future tense, may identify forward-lookingstatements, but the absence of these words does not mean that a statement is not forward-looking.

 

Forward-lookingstatements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performanceor results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’sgood faith belief as of that time with respect to future events, and are subject to significant risks and uncertainties that could causeactual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Importantfactors that could cause such differences include, but are not limited to:

 

	●	our projected financial position and estimated cash burn rate;
	●	our estimates regarding expenses, future revenues, and capital requirements;
	●	the success, cost, and timing of our clinical trials;
	●	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 diagnostic and therapeutic inventions or future diagnostic and therapeutic inventions to expand our product offerings;
	●	our ability to protect our intellectual property (“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 a 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 (“U.S.”), including inflationary pressures, increased interest rates, economic slowdown or recession, and escalating geopolitical tensions;

 

	●	our anticipated uses of net proceeds from our financings;
	●	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, the war in the MiddleEast, increasing economic uncertainty and inflationary pressures, and any consequent worsening of the global business and economic environment.New factors emerge from time to time, and it is not possible for us to predict all such factors. Should one or more of the risks or uncertaintiesdescribed in this prospectus or any other filing with the Securities and Exchange Commission (the “SEC”) occur, or shouldthe assumptions underlying the forward-looking statements we make herein and therein prove incorrect, our actual results and plans coulddiffer materially from those expressed in any forward-looking statements. We undertake no obligation to update publicly any forward-lookingstatements, whether as a result of new information, future events, or otherwise, except as required by law.

 

Youshould read this prospectus and the documents that we reference within it with the understanding that our actual future results, performance,and events and circumstances may be materially different from what we expect.

 

Websiteand Social Media Disclosure

 

Weuse our websites (www.bioaffinitytech.com and ir.bioaffinitytech.com) to share Company information. Information contained on or thatcan be accessed through our websites is not, however, incorporated by reference in this prospectus. Investors should not consider anysuch information to be part of this prospectus.

 

 

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 this Offering

 

Resalesof our Common Stock in the public market by our stockholders as a result of this offering may cause the market price of our Common Stockto fall.

 

Weare registering Common Stock issuable upon the exercise of the Common Warrants. Sales of substantial amounts of our Common Stock in thepublic market, or the perception that such sales might occur, could adversely affect the market price of our Common Stock. The issuanceof new shares of Common Stock could result in resales of our Common Stock by our current stockholders concerned about the potential ownershipdilution of their holdings. Furthermore, in the future, we may issue additional shares of Common Stock or other equity or debt securitiesexercisable or convertible into Common Stock. Any such issuance could result in substantial dilution to our existing stockholders andcould cause our stock price to decline.

 

Investorswho buy shares at different times will likely pay different prices.

 

Investorswho purchase shares in this offering at different times will likely pay different prices, and so may experience different levels of dilutionand different outcomes in their investment results.

 

Thisoffering may cause the trading price of our Common Stock to decrease.

 

Theprice per share of our Common Stock, together with the number of shares of Common Stock we propose to issue upon exercise of the CommonWarrants and ultimately will issue if this offering is completed, may result in an immediate decrease in the market price of our CommonStock. This decrease may continue after the completion of this offering. Sales of substantial amounts of our Common Stock in the publicmarket, or the perception that such sales might occur, could adversely affect the market price of our Common Stock.

 

Ourmanagement will have broad discretion over the use of the net proceeds from this offering, you may not agree with how we use the proceeds,and the proceeds may not be invested successfully.

 

Wehave not designated any portion of the net proceeds from the exercise of Common Warrants to be used for any particular purpose. Accordingly,our management will have broad discretion as to the use of the net proceeds and you will be relying on the judgment of our managementwith regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whetherthe proceeds are being used appropriately. It is possible that, pending their use, we may invest the net proceeds in a way that doesnot yield a favorable, or any, return for our company. Our management’s judgment may not result in positive returns on your investmentand you will not have the opportunity to evaluate the economic, financial or other information upon which our management bases its decisions.

 

RisksRelated to Our Financial Position

 

Ourbusiness plan relies upon our ability to obtain additional sources of capital and financing. If the amount of capital we are able toraise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, we may berequired to cease operations.

 

Duringthe nine months ended September 30, 2024 and September 30, 2023, we generated revenue of approximately $7.2 million and $0.3million, respectively, and for the years ended December 31, 2023 and December 31, 2022, we generated revenue of approximately $2.5million and $5,000, respectively. During the nine months ended September 30, 2024 and September 30, 2023, we generated $6.3 millionand $0.3 million, respectively, from laboratory patient services (of which approximately $330,000 and $24,000, respectively,related to our first diagnostic test, CyPath^® Lung), and approximately $0.8 million and $30,000, respectively,from histology laboratory tests, approximately $50,000 and $2,000, respectively, from medical director fees, and in connectionwith CyPath^® Lung tests purchased by the DOD in the approximate amount of $9,000 and $14,000, respectively,in connection with CyPath^® Lung tests purchased by the DOD for an observational study. During the year ended December31, 2023, we generated $2.2 million from laboratory patient services (of which approximately $37,000 related to our first diagnostictest, CyPath^® Lung), and approximately $273,000 from histology laboratory tests, approximately $19,000 from medical directorfees, and in connection with CyPath^® Lung tests purchased by the DOD in the approximate amount of $19,000 for an observationalstudy.

 

Tobecome and remain profitable, we must succeed in generating additional laboratory revenue and developing and commercializing our diagnostictests and therapeutic products that we expect will generate significant income in the planned timeframe. This will require us to be successfulin a range of challenging activities, including completing preclinical testing and clinical trials of our diagnostic and therapeutictechnologies, obtaining regulatory approval for our diagnostic and therapeutic technologies, manufacturing, marketing, and selling anydiagnostic tests and therapeutic products for which we may obtain regulatory approval, and establishing and managing our collaborationsat various phases of each diagnostic test and therapeutic product candidate’s development. We are in the preliminary phases ofthese activities. We may never succeed in these activities 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 a laboratory developed test (“LDT”) under the CAP/CLIA guidelines and regulations administered by the Centers for Medicare and Medicaid Services (“CMS”) and accredited by CAP;
	●	Obtain de novo classification from the Food and Drug Administration (the “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, diversify our diagnostic tests and therapeutic product offerings, or even continue ouroperations. A decline in the value of our Company could also cause our investors to lose all or part of their investment.

 

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

 

Asof September 30, 2024, we had an accumulated deficit of $50.7 million. As of September 30, 2024, our cash and cash equivalents were $0.8million, excluding the proceeds from the offerings consummated in October 2024. As of November 12, 2024, after the October 2024Offerings, we had cash and cash equivalents of $2.0 million, which we expect will not support our operations beyond March 2025. Despiteour recent financings, we will need to raise further capital through the sale of additional equity or debt securities or other debt instruments,strategic relationships or grants, or other arrangements to support our future operations. Our business plan includes expansion for ourcommercialization efforts which will require additional funding. If we are unable to improve our liquidity position, we may not be ableto continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate revenue and raisecapital from financing transactions. Without funding from the proceeds of a capital raise or strategic relationship or grant, managementanticipates that our cash resources are not sufficient to continue operations for the next twelve months. Our future is dependent uponour ability to obtain financing and upon future profitable operations from the development of new business opportunities. There can beno assurance that we will be successful in accomplishing these objectives. Without such additional capital, we may be required to curtailor cease operations and be required to realize our assets and discharge our liabilities other than in the normal course of business whichcould cause investors to suffer the loss of all or a substantial portion of their investment. WithumSmith+Brown, PC, our independentregistered public accounting firm for the fiscal year ended December 31, 2023, has included an explanatory paragraph in its opinion thataccompanies our audited consolidated financial statements as of and for the year ended December 31, 2023, indicating that our currentliquidity 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 Texas. There can be no assurance that we will be able to successfully expand our commercializationefforts or that we will obtain the necessary regulatory approvals that will allow us to expand our marketing efforts. We may not be ableto maintain certification of CyPath^® Lung as an LDT in accordance with CAP/CLIA guidance and regulations, or obtain approvalof our diagnostic tests in development by the CMS, the FDA, European Medicines Agency, 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 securities to decrease in value or become worthless.

 

Inaddition, while we anticipate generating continued revenue from PPLS, our CAP-accredited, CLIA-certified clinical pathology laboratory,we do not expect to immediately derive profit from revenue from PPLS’ services. Once we begin to generate such profit, there isno guarantee that it will be sufficient to realize the expected financial benefits of the acquisition and that revenue generated willcover necessary operating expenses. In addition, since we have limited experience operating a clinical laboratory, we may not accuratelyestimate the expenses we will incur. Ownership of a CAP/CLIA laboratory and related services business may not have the clinical valueand commercial potential which we envision. Any substantive failure of PPLS laboratory to meet our expectations could have a materialnegative effect on our results of operations. There can be no assurance that the anticipated benefits of PPLS will materialize or thatif they materialize will result in increased stockholder value or revenue stream to the combined company.

 

 

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 future financing mayimpose restrictions on our right to declare dividends or on the manner in which we conduct our business. Debt financing and preferredequity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions,such as incurring additional debt, making capital expenditures, declaring dividends, or making acquisitions or significant asset 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, and research programs, or grant licenseson terms that may not be favorable to us and/or that may reduce the value of our Common Stock.

 

RisksRelated to the Acquisition

 

Thecombined company may not experience the anticipated strategic benefits of the PPLS acquisition.

 

Whilewe anticipate benefits from the acquisition of PPLS, we may not be able to realize the expected benefits. Ownership of a CAP/CLIA laboratoryand related services business may not have the clinical value and commercial potential which we envision. Any substantive failure ofthe acquisition to meet our expectations could have a material negative effect on our results of operations. There can be no assurancethat the 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 not be able to enforce claims with respect to the representations, warranties, and indemnities that Village Oaks has provided tous under 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 noguarantee that it will be sufficient to realize the expected financial benefits of the acquisition. In addition, since we have limitedexperience operating a clinical laboratory, we may not accurately estimate the expenses we will incur.

 

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 a clinicallaboratory. Our management team may not successfully or efficiently manage our transition to operating a CAP-accredited and CLIA-certifiedlaboratory subject to significant regulatory oversight and reporting obligations. However, to ease the transition, Roby Joyce, MD, theMedical Director and Laboratory Director of Village Oaks prior to the acquisition, continues to serve as the Medical Director and LaboratoryDirector of PPLS. These new obligations and constituents will require significant attention from our senior management and could diverttheir attention away from the day-to-day management of our business, which could adversely affect our business, financial condition,and operating results.

 

RisksRelated to our Diagnostic Product

 

Untilwe secure FDA clearance for our CyPath^® Lung as a Class II in vitro diagnostic, we may encounter physicians who will notorder an LDT.

 

Inorder to market our CyPath^® Lung as an IVD medical device, we must receive de novo classification from the FDAas 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 obtain such classification.Until such time as we receive de novo classification, which we may never receive, our marketing efforts are limited to the marketingand sale of CyPath^® Lung as an LDT. Without clearance of CyPath^® Lung by the FDA, some physicians may notorder the test.

 

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 U.S., such as the European MedicinesAgency.

 

 

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. There is noguarantee that the accuracy and reproducibility that our CAP/CLIA clinical pathology laboratory has demonstrated to date will continueas its test volume increases. 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 operating results,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 newtests could 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, we will be unableto 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.

 

Weare currently dependent upon our pathology laboratory PPLS to offer and perform CyPath^® Lung.

 

PPLSis currently the only commercial laboratory offering CyPath^® Lung and, therefore, we are dependent upon our subsidiaryPPLS for the generation of our revenue. PPLS performs testing when ordered by physicians for their patients. PPLS also generates revenuerelated to the use of CyPath^® Lung tests for a DOD observational study titled “Detection of Abnormal RespiratoryCell Populations in Lung Cancer Screening Patients Using the CyPath^® Lung Assay,” and when performed for DOD researchand development on using bronchoalveolar lavage fluid as a biological sample to assess cardiopulmonary function and exercise performancein 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.

 

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. Mergersand 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.

 

Weare highly dependent on the principal members of our management, scientific, and clinical teams, including Maria Zannes, JD, our Presidentand Chief Executive Officer, Xavier Reveles, MS, CG(ASCP)^cm, our Chief Operating Officer, as well as Roby Joyce, MD, 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 of our 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 limited numberof individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of,and commercialize diagnostic tests or therapeutic products. Competition to hire from this limited pool is intense, and we may be unableto hire, train, retain, or motivate key personnel on acceptable terms given the competition among numerous biotechnology companies forsimilar 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 selling diagnostic tests and pharmaceutical products. Any growth will require us to expand ourmanagement and our operational and financial systems and controls. If we are unable to do so, our business and financial condition wouldbe 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.

 

Wemay in the future require licenses to third-party technology and materials. We had previously been granted a license from Village Oaksto use its intellectual property, pursuant to a joint development and project agreement, to develop CyPath^® Lung for commercialization.In connection with the acquisition of PPLS, Village Oaks assigned its rights pursuant to such joint development and project agreementto PPLS, as well as the intellectual property that is the subject of our license under such agreement. Such licenses may not be availablein the future or may not be available on commercially reasonable terms, or at all, which could have a material adverse effect on ourbusiness and financial condition. We may rely on third parties from whom we license proprietary technology to file and prosecute patentapplications and maintain patents and otherwise protect the intellectual property we license from them. We may have limited control overthese activities or any other intellectual property that may be related to our in-licensed intellectual property. For example, we cannotbe certain that such activities by these licensors will be conducted in compliance with applicable laws and regulations or will resultin valid and enforceable patents and other intellectual property rights. We may have limited control over the manner in which our licensorsinitiate an infringement proceeding against a third-party infringer of the intellectual property rights or defend certain of the intellectualproperty that may be licensed to us. It is possible that the licensors’ infringement proceeding or defense activities may be lessvigorous than if we conduct them ourselves. Even if we acquire the right to control the prosecution, maintenance, and enforcement ofthe licensed and sublicensed intellectual property relating to our diagnostic tests or therapeutic product candidates, we may requirethe cooperation of 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 orour licensor fail to maintain such patents, or if we or our licensor lose rights to those patents or patent applications, the rightswe have licensed may be reduced or eliminated, and our right to develop and commercialize any of our diagnostic tests or therapeuticproduct candidates that are the subject of such licensed rights could be adversely affected. In addition to the foregoing, the risksassociated with patent rights that we license from third parties will also apply to patent rights we may own in the future. Further,if we fail to comply with our diligence, development and commercialization timelines, milestone payments, royalties, insurance, and otherobligations under our license agreements, we may lose our patent rights with respect to such agreement, which would affect our patentrights worldwide.

 

Ourinability to secure any future license agreements necessary for development of our products would reduce or eliminate our rights underthese agreements and may result in our having to negotiate new or reinstated agreements with less favorable terms or cause us to loseour rights under these agreements, including our rights to important intellectual property or technology. Any of the foregoing couldprevent us from commercializing our other diagnostic tests or therapeutic product candidates, which could have a material adverse effecton 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 our kits, reagents and supplies and help in marketing our diagnostic tests and to designtrial protocols, arrange for and monitor the clinical 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 aspectsof our 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.

 

Whilewe have obtained product liability insurance covering 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 obtainor maintain adequate product liability insurance, when needed, on acceptable terms, if at all, or such insurance may not provide adequatecoverage against our potential liabilities. Furthermore, potential partners with whom we intend to have collaborative or strategic agreementsor our future licensees may not be willing to indemnify us against these types of liabilities and may not themselves be sufficientlyinsured or have sufficient liquidity to satisfy any product liability claims. Claims or losses in excess of any product liability insurancecoverage that we may obtain could have 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 (“HIPAA”),as amended 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 against us bygovernment 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 activities of variousgovernment agencies and in the number of private privacy-related lawsuits filed against companies. Concerns about our practices withregard to the collection, use, retention, disclosure, or security of personal information or other privacy-related matters, even if unfoundedand even if we are in compliance with applicable laws, could damage our reputation and harm our business.

 

 

Ifwe are unable to obtain adequate reimbursement from third-party payors or governmental agencies for CyPath^® Lung or otherdiagnostic tests or therapeutic products under development or if new restrictive legislation is adopted, market acceptance of our testsor products may be limited, and we may not achieve expected revenues.

 

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

 

Ourability to commercialize our tests or products will depend in part on the extent to which appropriate reimbursement levels for the costof our tests or products are obtained by governmental authorities, private health insurers, and other organizations such as HMOs. Governmentalagencies and third-party payors are increasingly challenging the prices charged for medical tests, drugs, and services. Also, the trendtoward managed healthcare in the U.S. and the concurrent growth of organizations such as HMOs, which could control or significantly influencethe purchase of healthcare services, diagnostics, and drugs, as well as legislative proposals to reform healthcare or reduce governmentinsurance 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 payors,and 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 (1) comply with the regulations of the FDAor foreign health authorities; (2) provide true, complete, and accurate information to the FDA or foreign health authorities; (3) complywith manufacturing standards we have established; (4) comply with healthcare fraud and abuse laws in the U.S. and similar foreign fraudulentmisconduct laws; or (5) 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 payors,and 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 Act andregulations. 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 programs in othercountries or jurisdictions, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits, additional reportingrequirements, and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliancewith these laws, and the delay, reduction, termination, or restructuring of our operations. Further, defending against any such actionscan be costly and time consuming and may require significant financial and personnel resources. Therefore, even if we are successfulin defending against any such actions that may be brought against us, our business may be impaired. If any of the physicians or otherproviders or entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subjectto significant criminal, civil, or administrative sanctions, including exclusions from government-funded healthcare programs and 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 companies focusingon diagnostic tests and pharmaceutical products, which are rapidly evolving. Our competitors include major multinational diagnostic andpharmaceutical companies, specialized biotechnology firms, and universities and other research institutions. Many of these competitorshave greater financial and other resources, larger research and development staffs, and more effective marketing and manufacturing organizationsthan we do. In addition, academic and government institutions are increasingly likely to enter into exclusive licensing agreements withcommercial enterprises, including our competitors, to market commercial tests or products based on technology developed at such institutions.Our competitors may succeed in developing or licensing technologies, tests, and products that are more effective or less costly thanours or succeed in obtaining CAP/CLIA validation or FDA or other regulatory approvals for diagnostic test and therapeutic product candidatesbefore we do. Acquisitions of, or investments in, competing diagnostic, pharmaceutical, or biotechnology companies by large corporationscould 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 costeffective, and governmental or third-party reimbursement might not be available or sufficient. If adequate governmental or third-partycoverage is not available, we may not be able to maintain price levels sufficient to realize an appropriate return on our investmentin research and development for new tests and products. In addition, legislation and regulations affecting the pricing of diagnostictests, pharmaceuticals, or healthcare services may change in ways adverse to us before or after any of our proposed tests and productsare 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 require all of our employees,consultants, and corporate partners with access to proprietary information to enter into confidentiality agreements, these agreementsmay not 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 andintegrity of such confidential information. We have also outsourced elements of our operations to third parties, and as a result we managea number of 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 cyberattacks 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,it could 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.

 

Declininggeneral economic or business conditions may have a negative impact on our business.

 

Continuingconcerns over U.S. healthcare reform legislation and energy costs, geopolitical issues, the availability and cost of credit and governmentstimulus programs in the U.S. and other countries have contributed to increased volatility and diminished expectations for the globaleconomy. These factors, combined with low business and consumer confidence, could precipitate an economic slowdown and recession. Additionally,political changes in the U.S. and elsewhere in the world have created a level of uncertainty in the markets. If the economic climatedeteriorates, our business, as well as the financial condition of our suppliers and our third-party payors, could be adversely affected,resulting in a negative impact on our business, financial condition, and results of operations.

 

 

Further,due to increasing inflation, operating costs for many businesses have increased and in the future could impact demand or pricing manufacturingof our drug candidates or services providers. Inflation rates, particularly in the U.S., have increased recently to levels not seen inyears, and increased inflation may result in increases in our operating costs (including employee wages), reduced liquidity, and limitson our ability to access credit or otherwise raise capital. In addition, the Federal Reserve has raised, and may again raise, interestrates in response to concerns about inflation, which coupled with reduced government spending and volatility in financial markets mayhave the effect of further increasing economic uncertainty and heightening these risks.

 

Actualevents involving reduced or limited liquidity, defaults, non-performance, or other adverse developments that affect financial institutionsor other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any eventsof these kinds, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, SiliconValley Bank was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit InsuranceCorporation as receiver. Although we did not have any cash or cash equivalent balances on deposit with Silicon Valley Bank, uncertaintyand liquidity concerns in the broader financial services industry remain, and the failure of Silicon Valley Bank and its potential near-and long-term effects on the biotechnology industry and its participants, such as our vendors, suppliers, and investors, may also adverselyaffect our operations and stock price.

 

Inaddition, the global macroeconomic environment could be negatively affected by, among other things, a resurgence of COVID-19 or otherpandemics or epidemics, instability in global economic markets, increased U.S. trade tariffs and trade disputes with other countries,instability in the global credit markets, supply chain weaknesses, instability in the geopolitical environment as a result of the withdrawalof the United Kingdom from the European Union, the Russian invasion of Ukraine, the war in the Middle East and other political tensions,and foreign governmental debt concerns. Such challenges have caused, and may continue to cause, uncertainty and instability in localeconomies and in global financial markets.

 

Weare actively monitoring the effects these disruptions and increasing inflation could have on our operations. These conditions make itextremely difficult for us to accurately forecast and plan future business activities.

 

Globalclimate change and related regulations could negatively affect our business.

 

Theeffects of climate change, such as extreme weather conditions, create financial risks to our business. For example, the demand for ourproducts may be affected by unseasonable weather conditions. The effects of climate change could also disrupt our operations by impactingthe availability and cost of materials needed for manufacturing and could increase insurance and other operating costs. We could alsoface indirect financial risks passed through the supply chain and disruptions that could result in increased prices for our productsand the resources needed to produce them.

 

RisksRelated to the Operation of a CAP/CLIA Laboratory

 

Theoperations of PPLS will depend in part upon Roby Joyce, MD, and his relationship with existing customers and our ability to establishrelationships 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 Roby Joyce, MD. While Dr. Joyce is the Medical Director and Laboratory Director of PPLS and a memberof our Board of Directors, we cannot assure you that we will be able to retain his services. Although we have entered into a three-yearemployment agreement with him, there can be no assurance that the agreement will not be terminated prior to its expiration. We do nothave an insurance policy on the life of Dr. Joyce, and we do not have “key person” life insurance policies for any of ourother officers or advisors. The loss of the technical knowledge and management and industry expertise of Dr. Joyce or any of our keypersonnel could result in delays in services, loss of customers and sales, and diversion of management resources, which could adverselyaffect our operating results.

 

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

 

Timely,effective service is essential to maintaining the reputation and high use rates of our CAP/CLIA laboratory, 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 more equipment malfunctionsthan anticipated or if it is unable to promptly obtain the service necessary to keep its equipment functioning effectively, or whereits business or data is compromised on account of equipment malfunctions or a cybersecurity-related attack, PPLS’s ability to provideservices 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.

 

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 services or perform our diagnostic assaysfor some period of time. The inability to of PPLS to perform its services for customers if PPLS’ facility is inoperable for evena short period of time may result in the loss of customers or harm to its reputation or relationships with its customers, and it maybe unable to regain those customers or repair its reputation in the future. Furthermore, PPLS’ facilities and the equipment ituses to perform its services could be costly and time-consuming to 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 statelicensure and CLIA certification, under the scope of which its current assays and its planned future assays could be performed. Evenif PPLS finds a facility with such qualifications to perform its assays, it may not be available to PPLS on commercially reasonable terms.

 

Todate, substantially all of our revenue has been derived from the operations of the laboratory. The inability of PPLS to perform its servicesfor its customers if PPLS’ facility is inoperable would significantly impact our ability to generate revenue.

 

 

PPLSrelies on commercial courier delivery services to transport sputum samples for processing the CyPath^® Lung test in a timelyand 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 U.S. for analysis at the laboratory facility located in San Antonio, Texas. Disruptions in delivery service, whether due tobad weather, natural disaster, terrorist acts or threats, or for other reasons could adversely affect specimen integrity and its abilityto process samples in a timely manner and to service its customers, and ultimately its reputation and its business. In addition, if PPLSis unable to continue to obtain expedited delivery services on commercially reasonable terms, its operating results may be adverselyaffected.

 

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 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^® Lunglaboratory test results. PPLS also stores sensitive intellectual property and other proprietary business information, including thatof its customers, payors, and collaboration partners. PPLS manages and maintains its applications and data utilizing a combination ofon-site systems, managed data center systems, and cloud-based data center systems. These applications and data encompass a wide varietyof business-critical information, including research and development information, commercial information, and business and financialinformation. PPLS is highly dependent on 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 HIPAA and PPLS employs measuresto protect sensitive information from unauthorized access or disclosure, its information technology and infrastructure, and that of itsthird-party billing and collections provider, may be vulnerable to attacks by hackers or viruses or breached due to employee error, 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,including sensitive patient data. In addition, these breaches and other inappropriate access can be difficult to detect, and any delayin identifying them 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,modification of, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacyof personal information, such as HIPAA, and regulatory penalties. Unauthorized access, 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, providecustomer assistance services, conduct research and development activities, develop and commercialize tests, collect, process and preparecompany financial information, provide information about tests, educate patients and clinicians about services, and manage the administrativeaspects of its business, any of which could damage its reputation and adversely affect our business. Any such breach could also resultin the compromise of PPLS’ trade secrets and other proprietary information, which could adversely affect our competitive position.

 

Inaddition, the interpretation and application of health-related, privacy, and data protection laws in the U.S., 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 reputation. Complying with these various laws could cause us to incur substantial costs orrequire 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 risk of accidental contaminationor injury to employees or third parties from the use, storage, handling, or disposal of these materials. In the event of contaminationor injury, PPLS could be held liable for any resulting damages, and any liability could exceed its resources or any applicable insurancecoverage it may have. Additionally, PPLS is subject to, on an ongoing basis, federal, state and local laws and regulations governingthe use, storage, handling, and disposal of these materials and specified waste products. The cost of compliance with these laws andregulations may become significant and could have a material adverse effect on its, and therefore our, financial condition, results ofoperations and cash flows. In the event of an accident or if PPLS otherwise fails to comply with applicable regulations, it could loseits permits or approvals or be held liable for damages or penalized with fines.

 

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 accurately and on a timely basisand on its reputation for such timeliness and accuracy. Failure to implement necessary procedures or to hire the necessary personnelcould impact its ability to meet market demand. There can be no assurance that it will be able to perform tests on a timely basis ata level consistent with demand, that its efforts to scale its commercial operations will not negatively affect the quality of test results,or that 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, marketing,and 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 to be 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 (“CPT”) codes, to bill for its diagnostic assays.These codes can change over time. When codes change, there is a risk of an error being made in the claim adjudication process. Theseerrors can occur with claims submission, third-party transmission, or in the processing of the claim by the payor. Claim adjudicationerrors may result in a delay in payment processing or a reduction in the amount of the payment received. Coding changes, therefore, mayhave an adverse effect on PPLS’ revenues. There can be no assurance that payors will recognize these codes in a timely manner orthat the process of transitioning to such a code and updating their billing systems will not result in errors, delays in payments, anda 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 reporting systems. Failureor delays in effecting these changes in external billing and internal systems and processes could negatively affect its 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 U.S. or 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 U.S. for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns;
	●	countries other than the U.S. 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 U.S. could increasethe uncertainties and costs, and may diminish our ability to protect our inventions, obtain, maintain, and enforce our intellectual propertyrights and, more generally, could affect the value of our intellectual property or narrow the scope of our owned and licensed patents.Patent reform legislation in the U.S. and other countries, including the Leahy-Smith America Invents Act (the “Leahy-Smith Act”),signed into law on September 16, 2011, could increase those uncertainties and costs surrounding the prosecution of our patent applicationsand the enforcement or defense of our issued patents. The Leahy-Smith Act includes 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-effectiveavenues for competitors to challenge the validity of patents. These include allowing third-party submission of prior art to the USPTOduring patent prosecution and additional procedures to attack the validity of a patent by USPTO-administered post-grant proceedings,including post-grant review, inter partes review, and derivation proceedings. Further, because of a lower evidentiary standardin these USPTO post-grant proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim,a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though thesame evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third partymay attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by thethird party as a defendant in a district court action. Thus, the Leahy-Smith Act and its implementation could increase the uncertaintiesand costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which couldhave 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 thatthe other statutory requirements are met, the first inventor to file a patent application will be titled to the patent on an inventionregardless of whether a third party was the first to invent the claimed invention. A third party that files a patent application in theUSPTO after March 2013, but before we file an application covering the same invention, could therefore be awarded a patent covering aninvention of ours even if we had made the invention before it was made by such third party. This will require us to be cognizant goingforward of the time from invention to filing of a patent application, but circumstances could prevent us from promptly filing patentapplications on our inventions. Since patent applications in the U.S. and most other countries are confidential for a period of timeafter filing or until issuance, we cannot be certain that we or our licensors were the first to either (1) file any patent applicationrelated to our diagnostic tests and therapeutic product candidates and other proprietary technologies we may develop or (2) invent anyof the inventions 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, Congress or theUSPTO 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 tobe paid 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 U.S., provided all maintenancefees 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 U.S., defendant counterclaims alleging invalidity and/orunenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability ofa patent. Third parties may also raise similar claims before administrative bodies in the U.S. or abroad, even outside the context oflitigation. Such mechanisms include re-examination, inter partes review, post grant review, and equivalent proceedings in foreignjurisdictions (i.e., opposition proceedings). Such proceedings could result in revocation or amendment to our patents in such a way thatthey no longer cover our diagnostic tests or therapeutic product candidates. The outcome following legal assertions of invalidity andunenforceability 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 U.S., a patent that covers an FDA-approved drug or biologic may be eligible for a term extension designed to restore the period ofthe 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 our U.S. patentsmay be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-WaxmanAct”), which permits a patent term extension of up to five years for a patent covering an approved diagnostic test or therapeuticproduct as compensation for effective patent term lost during diagnostic test or therapeutic product development and the FDA regulatoryreview process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of diagnostictest or therapeutic product approval, and only claims covering such approved diagnostic test or drug product, a method for using it,or a method for manufacturing it may be extended. In Europe, our diagnostic test or therapeutic product candidates may be eligible forterm extensions based on similar legislation. In either jurisdiction, however, we may not receive an extension if we fail to apply withinapplicable deadlines, fail to apply prior to expiration of relevant patents, or otherwise fail to satisfy applicable requirements. Evenif we are granted such an extension, the duration of such extension may be less than our request. If we are unable to obtain a patentterm extension, or if the term of any such extension is less than our request, the period during which we can enforce our patent rightsfor that product will be in effect shortened, and our competitors may obtain approval to market competing diagnostic tests or productssooner. The resulting reduction of years of revenue from applicable diagnostic tests or products could 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 it is in the U.S. The requirements for patentability may differ in certain countries, particularly developingcountries, and the breadth of patent claims allowed can be inconsistent. In addition, the laws of some foreign countries do not protectintellectual property rights to the same extent as federal and state laws in the U.S. In-licensing patents covering our diagnostic testsand therapeutic product candidates in all countries throughout the world may similarly be prohibitively expensive, if such opportunitiesare available at all. And in-licensing or filing, prosecuting, and defending patents even in only those jurisdictions in which we developor commercialize our diagnostic tests and therapeutic product candidates may be prohibitively expensive or impractical. Competitors mayuse our and our licensors’ technologies in jurisdictions where we have not obtained patent protection or licensed patents to developtheir own diagnostic tests and therapeutic products and further may export otherwise infringing products to territories where we andour licensors have patent protection, but where enforcement is not as strong as that in the U.S. or Europe. These diagnostic tests andproducts may compete with our diagnostic tests and therapeutic product candidates, and our or our licensors’ patents or other intellectualproperty 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 U.S. andEurope, 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 couldmake it difficult for us to prevent competitors in some jurisdictions from marketing competing tests and products in violation of ourproprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, are likelyto result in substantial costs and divert our efforts and attention from other aspects of our business, and additionally could put atrisk our or 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.In addition, 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 interest,and 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 U.S. must be approved by the FDA, regardless of whetherwe have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, includingan evaluation of potential for confusion with other product names. If the FDA, or an equivalent administrative body in a foreign jurisdiction,objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effortto identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of thirdparties and be acceptable to the FDA. Furthermore, in many countries, owning and maintaining a trademark registration may not providean adequate defense against a subsequent infringement claim asserted by the owner of a senior trademark. At times, competitors or otherthird parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possiblyleading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of otherregistered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. If we asserttrademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the partyagainst 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 being offered as an LDT by PPLS. Should the FDA disagree that CyPath^® Lung is an LDT, or if theFDA’s regulatory approach to LDTs should change in the future, our commercialization strategy may be adversely affected, whichwould negatively affect our 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 FDCA, but it has generally exercised enforcement discretion with regard toLDTs. This means that even though the FDA believes it can impose regulatory requirements on LDTs, such as requirements to obtain premarketapproval, 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 LDTs that the agency believed were not eligible for enforcement discretionbecause of how they were developed, validated, performed, or marketed and consequent risks to the public.

 

OnMay 6, 2024, the FDA issued a finalrule regulating LDTs by amending regulations to explicitly provide that LDTs fall under the FDCA and phasing out its generalenforcement discretion approach for most LDTs. The rule makes it clear that the FDA will provide greater oversight of LDTs througha phaseout of its general enforcement discretion approach for LDTs over the course of four years, as well as targeted enforcement discretionpolicies for certain categories of IVDs manufactured by laboratories. The final rule grandfathers LDTs such as CyPath® Lungthat were first marketed prior to the date of the rule’s issuance from premarket review and Quality System (QS) requirements (exceptas those pertaining to records) provided they are not modified or are modified in certain limited ways. Pursuant to the phaseout policyfor LDTs not grandfathered by the rule, following a four-year period, IVDs offered as LDTs generally will be expected to meet applicablerequirements, including compliance with medical device reporting requirements and correction and removal reporting requirements by May2025; compliance with registration, listing and labeling requirements by May 2026; compliance with quality system requirements (otherthan those in stage 1) by May 2027; and compliance with premarket review requirements for high-risk IVDs offered as LDTs, unless premarketsubmission has been received. Any future rulemaking, guidance, or other oversight of LDTs and clinical laboratories that developand perform them, if and when finalized, may affect the sales of our products and how customers use our products, and may require usto 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 bills werereintroduced in the U.S. Congress: the Verifying Accurate, Leading-edge IVCT Development Act of 2020 (the “VALID Act”), whichwould have expressly granted the FDA authority to regulate LDTs under a risk-based framework; and the Verified Innovative Testing inAmerican Laboratories Act of 2020 (the “VITAL Act”), which would have assigned LDTs to regulation solely under CLIA and wouldhave directed CMS to update its CLIA regulations. Neither of these bills were 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 thesebills on our business.

 

 

Enactmentof legislation directing FDA to regulate LDTs or promulgation of new regulations for LDT oversight by FDA could materially and adverselyaffect our business, financial condition, and results of operations. If FDA premarket review, classification, or approval is requiredfor CyPath^® Lung before we obtain de novo classification, our phased strategy for market entry would be adverselyaffected. Our laboratory licensee, PPLS, could be forced to stop offering CyPath^® Lung as an LDT while we work to obtainde novo classification. Our business, results of operations, and financial condition would be negatively affected unless and untilsuch review were 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 vitro diagnostic,there can be no assurance that the trial will have favorable results or that it will generate the results necessary to obtain such 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 U.S. market, unless exempted by regulation, be authorized by the FDA pursuant toeither the premarket notification pathway, known as 510(k) clearance, the de novo classification pathway, or the premarket approval(“PMA”) pathway. We plan to seek de novo classification for the CyPath^® Lung test in the second quarterof 2026. The FDA may not agree that CyPath^® Lung meets the criteria for de novo classification, in which case wewould be required to submit a PMA to obtain marketing authorization, which would require manufacturing information and a pre-approvalinspection of the manufacturing facilities and could require review by an FDA advisory panel comprised of experts outside the FDA. Anydelay by or failure of the FDA to grant our de novo request or PMA could adversely affect our consolidated revenues, results ofoperations and financial condition.

 

Additionally,obtaining FDA marketing authorization, approval, or de novo classification for diagnostics can be expensive, time consuming anduncertain, and for higher-risk devices can take several years and require detailed and comprehensive scientific and clinical data. Inaddition, medical devices are subject to ongoing FDA obligations and continued regulatory oversight and review. Ongoing compliance withFDA regulations increases the cost of conducting our business and subjects us to heightened regulation by the FDA and penalties for failureto comply with these requirements.

 

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

 

Theclinical laboratory testing sector is highly regulated in the U.S. PPLS, our laboratory, is accredited by CAP and holds a CLIA certificateof accreditation. Any failure by our laboratory licensee to comply with CLIA/CAP requirements could result in adverse findings on inspectionthat, if not timely 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 to obtain state licenses or permits, where required, could interfere with our strategy for a national rolloutof CyPath^® Lung.

 

ICUMedical is providing the Acapella^® Choice Blue device to assist patients in expelling sputum out of the lungs into a collectioncup noninvasively. This device is 510(k) cleared as a positive expiratory pressure device to help mobilize lung secretions in peoplewith certain lung conditions. The device does not have a cleared indication for use as a specimen collection device. Promotion of thedevice by us or our partners for use of the device for specimen collection could cause the FDA to consider the device to be adulteratedor misbranded in violation of the FDCA and to require a 510(k) clearance for a specimen collection indication as a condition of distributingthe device. Any disruption to our ability to distribute the Acapella^® Choice Blue could interfere with our ability tocollect adequate patient samples necessary for CyPath^® Lung.

 

CyPath^®Lung also relies on a proprietary algorithm to develop and validate software integrated into the test procedure that generatesthe quantitative and qualitative diagnostic results that are included in the laboratory report. Certain types of standalone diagnosticssoftware are subject to FDA regulation as a medical device (specifically, software as a medical device or “SaMD”).Some types of SaMD are subject to premarket authorization requirements. If the FDA were to conclude that we are required to obtain premarketauthorization for the software, our ability to offer CyPath^® Lung as an LDT could be delayed or prevented, which wouldadversely 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 theU.S., we are not permitted to market our therapeutic product candidates until we receive regulatory approval from the FDA. The processof obtaining regulatory approval is expensive, often takes many years following research and development and thereafter the commencementof clinical trials, and can vary substantially based upon the type, complexity, and novelty of the product candidates involved, as wellas 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 U.S. or any other country. Our business depends upon licensingour therapeutic products to third-party pharmaceutical companies that would obtain these regulatory approvals. The FDA can 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 U.S., to market and sell our diagnostic tests and therapeutic products in the EU, many Asian countries,and other jurisdictions, we must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements, bothfrom a clinical and manufacturing perspective. Approval by the FDA does not ensure approval by regulatory or payor authorities in othercountries or jurisdictions, and approval by one regulatory or payor authority outside the U.S. does not ensure approval by regulatoryauthorities in other countries or jurisdictions or by the FDA. However, a failure or delay in obtaining regulatory approval in one jurisdictionmay have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing authorizationof a diagnostic test or therapeutic product candidate, comparable regulatory authorities in foreign jurisdictions must also approve themanufacturing, marketing, and promotion of the diagnostic test or therapeutic product candidate in those countries. Approval proceduresvary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in theU.S., including additional preclinical studies or clinical trials as clinical trials conducted in one jurisdiction may not be acceptedby regulatory authorities in other jurisdictions. In many jurisdictions outside the U.S., a diagnostic test or therapeutic product candidatemust be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend tocharge for our diagnostic tests or therapeutic products is also subject to approval. A diagnostic test or therapeutic product candidatethat has been approved for sale in a particular country may not receive reimbursement approval in that country. We may not be able toobtain approvals from regulatory authorities or payor authorities outside the U.S. on a 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 U.S, have requirements for approval of diagnostic tests or therapeutic productcandidates 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 U.S., we must establish and comply with numerous and varyingregulatory requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country may not be acceptedby regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtainedin any other country. Approval procedures vary among countries and can involve additional diagnostic and therapeutic product testingand validation and additional administrative review periods. Seeking foreign regulatory approvals could result in significant delays,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 tests ortherapeutic products in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain, andsubject to unanticipated delays. In addition, our failure to obtain regulatory approval in any country may delay or have negative effectson the process for regulatory approval in other countries. We do not have any diagnostic test or therapeutic product candidate approvedfor sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in internationalmarkets. If we fail to comply with regulatory requirements in international markets or fail to obtain and maintain required approvals,our ability to realize the full market potential of our diagnostic tests or therapeutic products will be harmed.

 

 

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

 

Ourrevenue prospects could be affected by changes in healthcare spending and policy in the U.S. and abroad. We operate in a highly regulatedindustry, and new laws, regulations, judicial decisions, or new interpretations of existing laws, regulations, or decisions related tohealthcare availability, the method of delivery, or payment for healthcare tests, products, and services could negatively impact ourbusiness, 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 to contain or reduce costs of healthcareand/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 because a return onyour investment will occur only if our stock price appreciates.

 

Ourwarrants may never have a market price that exceeds the exercise price.

 

EachTradeable Warrant and Non-Tradeable Warrant that we issued in our initial public offering has an exercise price of $3.0625. All ofour other outstanding warrants, including those issued in connection with our March 2024 financings, August 2024 financingand the October 2024 Private Placement, have exercise prices ranging from $1.50 to $7.35. In the event our Common Stock pricedoes not exceed the exercise price of the warrants during the period when they are exercisable, the warrants may not have any value.

 

Holdersof warrants have no rights as stockholders other than as set forth in the warrants until such holders exercise their warrants and acquireour 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 other than as set forth in the warrants. Upon exercise of the warrants, the holders will be titledto exercise the rights of a stockholder only as to matters for which the record date occurs after the date they were entered in the registerof 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 isan inconvenient venue for such proceeding. With respect to any complaint asserting a cause of action arising under the Securities Actor the rules and regulations promulgated thereunder, we note, however, that there is uncertainty as to whether a court would enforcethis provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any dutyor liability created by the Securities Act or the rules and regulations thereunder. Section 27 of the Exchange Act creates exclusivefederal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulationsthereunder. As a result, the exclusive forum provision in the warrant certificates expressly does not apply to suits brought to enforceany duty or liability created 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.

 

 

Ourfailure to file a registration statement to register the shares of Common Stock issuable upon exercise of the Private Warrants that weissued in October 2024, or to timely hold a stockholders’ meeting to obtain stockholder approval of the issuance of shares of PrivateWarrant Shares, will result in a breach of the terms of the Purchase Agreement.

 

Pursuantto the terms of the Purchase Agreement, we are obligated to file a registration statement to register the shares of Common Stock issuableupon exercise of the Private Warrants within 45 days of the Purchase Agreement and to use commercially reasonable efforts to keep theregistration statement effective at all times while the purchasers own any Private Warrants or shares of Common Stock issuable upon exerciseof the Private Warrants. We are also obligated to hold a stockholders’ meeting 90 days after the closing date and, if approvalis not obtained at the stockholders’ meeting, every six months thereafter seeking approval of the exercise of the Private Warrantsuntil the earlier of the date stockholder approval is obtained or the Private Warrants are no longer outstanding.

 

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.

 

Theshares of our Common Stock are listed for trading on The Nasdaq Capital Market under the symbol “BIAF” and our TradeableWarrants are listed under the symbol “BIAFW.” If we fail to satisfy the continued listing requirements of The Nasdaq CapitalMarket, 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 impair yourability 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 restore ourcompliance with The Nasdaq Capital Market’s listing requirements, but we can provide no assurance that any such action taken byus would allow our Common Stock to become listed again, stabilize the market price, 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, it is a covered security. Although the states are preempted from regulating the sale of covered securities, the federalstatute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity,then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were to be delisted from TheNasdaq Capital Market, our Common Stock would cease to be recognized as a covered security and we would be subject to regulation in eachstate 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 inour Common 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. The stock market in general has been, and the marketprice of our Common Stock or Tradeable Warrants in particular, will likely be subject to fluctuation, whether due to, or irrespectiveof, our operating results and financial condition. The market price of our Common Stock or Tradeable Warrants may fluctuate as a resultof 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 TradeableWarrants and result in substantial losses being incurred by our investors. In the past, following periods of market volatility, publiccompany shareholders have often instituted securities class action litigation. If we were involved in securities litigation, it couldimpose a 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 likely to be too small toattract the interest of many brokerage firms and analysts. We cannot give investors any assurance that an active public trading marketfor our Common Stock will develop or be sustained. The market price of our Common Stock could be subject to wide fluctuations in responseto quarterly variations in our revenues and operating expenses, announcements of new products or services by us, significant sales ofour Common Stock, including “short” sales, the operating and stock price performance of other companies that investors maydeem 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 carryforwards 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” (generallydefined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability touse its pre-change net operating loss carryforwards and other pre-change tax attributes (such as research tax credits) to offset itspost-change income may be limited. We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership,including the completion of any offering taken together with other transactions we may consummate in the succeeding three-year period.As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards to offset U.S. federaltaxable income may be subject to limitations, which potentially could result in increased future tax 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 the Company, 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 (“A&R Bylaws”)may discourage, delay or prevent a merger, acquisition, or other change in control, that stockholders may consider favorable, includingtransactions in which you might otherwise receive a premium for your shares. These provisions also could limit the price that investorsmight be willing to pay in the future for shares of our Common Stock, thereby depressing the market price of our Common Stock. In addition,because our Board is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attemptsby our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of ourBoard. 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 combining with usfor a period of three years after the date of the transaction in which the person acquired 15% or more of our outstanding voting stock,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 in your best interests. These provisions may also prevent changes inour management 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, delay,or 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 ofthe Company, prevent changes in our Board or management, and make certain transactions more challenging that stockholders might otherwisebelieve to 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, stockholders, or employees to us or our stockholders, or (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 district courtsof the U.S. will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the SecuritiesAct. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliancewith 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 agentsto 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 maydiscourage stockholders from bringing a lawsuit against our directors and officers for breaches of their fiduciary duties. They may alsoreduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefitus and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs ofsettlement and damage awards against directors and officers as required by these indemnification provisions.

 

Ourmanagement collectively owns a substantial percentage 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, as of November 26, 2024, our officers and directors own or exercise control of approximately 35.12% of the voting power ofour 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 SOX requiresus to evaluate and report on our internal controls over financial reporting and, depending on our future growth, may require our independentregistered public accounting firm to annually attest to our evaluation, as well as issue its own opinion on our internal controls overfinancial reporting. The process of implementing and maintaining proper internal controls and complying with Section 404 is expensiveand time consuming. We cannot be certain that the measures we will undertake will ensure that we will maintain adequate controls overour financial processes and reporting in the future. Furthermore, if we are able to rapidly grow our business, the internal controlsthat we will need may become more complex, and significantly more resources will be required to ensure our internal controls remain effective.Failure to implement required controls or difficulties encountered in their implementation could harm our operating results or causeus to fail to meet our reporting obligations. If we or our auditors discover a material weakness in our internal controls, the disclosureof that fact, even if the weakness is quickly remedied, could diminish investors’ confidence in our financial statements and harmour stock price. In addition, non-compliance with Section 404 could subject us to a variety of administrative sanctions, including thesuspension of trading, ineligibility for future listing on one of the Nasdaq Stock Markets or national securities exchanges, and theinability of registered broker-dealers to make a market in our Common Stock, which may reduce our stock price.

 

 

THEOCTOBER OFFERINGS

 

RegisteredDirect Offering and Concurrent Private Placement

 

OnOctober 18, 2024, we entered into the Purchase Agreement with the Investors, pursuant to which we issued to the Investors, (i) in a registereddirect offering, 2,048,294 shares (the “Shares”) of Common Stock, and (ii) in a concurrent private placement, the PrivateWarrants to purchase an aggregate of 2,662,782 Private Warrant Shares, with an exercise price of $1.50. Such registered direct offeringand concurrent private placement are collectively referred to as the “October Offerings.”

 

TheOctober Offerings closed on October 21, 2024 and we received aggregate gross proceeds from the October Offerings of approximately $2,662,782,excluding any proceeds that may be received upon the exercise of the Private Warrants and before deducting placement agent fees and otheroffering expenses payable by us. The Shares were offered by us pursuant to a shelf registration statement on Form S-3 (File No. 333-275608),which was declared effective by the Securities and Exchange Commission (the “Commission”) on November 27, 2023. The PrivateWarrants and the Private Warrant Shares were not registered under the Securities Act and were instead offered pursuant to the exemptionprovided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated thereunder. The Private Warrants will be exercisablecommencing on the effective date of stockholder approval, as may be required by the applicable rules and regulations of The Nasdaq StockMarket LLC (“Nasdaq”), for the exercise of the Private Warrants and issuance of the Private Warrant Shares issuable uponexercise of the Private Warrants (the “Stockholder Approval”) and will expire on the fifth anniversary of the date of StockholderApproval (the “Stockholder Approval Date”).

 

Pursuantto the terms of the Purchase Agreement, until 45 days following the closing date of the October Offerings (the “Closing Date”),we agreed not to issue (or enter into any agreement to issue) any shares of Common Stock or Common Stock Equivalents (as defined in thePurchase Agreement), subject to certain exceptions. We have further agreed not to enter into an agreement involving any Variable RateTransaction (as defined in the Purchase Agreement) until twelve (12) months following the Closing Date, provided however, that the prohibitionon “at the market offerings” and equity lines of credit shall expire on the six-month anniversary of the Closing Date. Inaddition, each of our officers and directors have entered into lock-up agreements with us pursuant to which each of them has agreed notto, for a period of 60 days from the Closing Date, offer, sell, transfer or otherwise dispose of our securities, subject to certain exceptions.

 

WallachBethacted as the exclusive placement agent on a “reasonable best efforts” basis, in connection with the October Offerings pursuantto that certain placement agency agreement, dated October 18, 2024 (the “Placement Agency Agreement”), by and between usand WallachBeth. Pursuant to the Placement Agency Agreement, WallachBeth received a cash fee of 8.0% of the aggregate gross proceedspaid to us for the securities sold in the October Offerings and reimbursement of certain out-of-pocket expenses up to a maximum of $75,000.As additional compensation to WallachBeth, in connection with the October Offerings, we issued to the designees of WallachBeth, PlacementAgent Warrants to purchase an aggregate of 61,448 shares of Common Stock, which is equal to approximately 3.0% of the number of Sharesissued in the registered direct offering, at an exercise price per share equal to $1.50, which is equal to the exercise price of thePrivate Warrants. The Placement Agent Warrants have substantially the same terms as the Private Warrants, except that they are immediatelyexercisable and expire on the five-year anniversary of the date of issuance. In addition, pursuant to the terms of the Placement AgencyAgreement: (a) WallachBeth has the right of first refusal for a period of six (6) months after the Closing Date (October 21, 2024) toparticipate in each and every future public and private equity and debt offerings of ours, or any successor to or any subsidiary of oursin any U.S. stock exchange during such six (6) month period, and (b) if we, within twelve (12) months after the Closing Date, effecta sale of any securities with a party brought “over-the-wall” by WallachBeth in connection with the October Offerings, wewill pay to WallachBeth the same cash discount and will issue to WallachBeth placement agent warrants exercisable for such number ofshares equal to 3.0% of the securities issued in such offering upon the completion of such transaction.

 

Pursuantto the Purchase Agreement, we agreed to file a resale registration statement on Form S-1 (the “Resale Registration Statement”)to register the resale of the Private Warrant Shares as soon as practicable (and in any event within 45 calendar days following the dateof the Purchase Agreement), and to use commercially reasonable efforts to have the Resale Registration Statement declared effective bythe Commission and to keep such registration statement effective at all times until the Investors no longer owns any Private Warrantsor Private Warrant Shares. We are filing this Resale Registration Statement to fulfil our obligation to register the Private WarrantShares and to also register the Placement Agent Warrant Shares.

 

Termsof the Private Warrants

 

ThePrivate Warrants will be exercisable commencing on the Stockholder Approval Date and will expire on the fifth anniversary of the StockholderApproval Date. We have agreed to hold a special meeting of stockholders at the earliest practicable date after the Closing Date, butin no event later than ninety (90) days after the Closing Date for the purpose of obtaining Stockholder Approval, if required to effectthe purpose thereof, with the recommendation of our Board of Directors (the “Board”) that such proposal be approved. We furtheragreed to solicit proxies from our stockholders in connection therewith in the same manner as all other management proposals in suchproxy statement and that all management-appointed proxyholders would vote their proxies in favor of such proposal. We agreed to use ourreasonable best efforts to obtain such Stockholder Approval, and to request that our officers and directors, cast their proxies in favorof such proposal. If we do not obtain Stockholder Approval at the first meeting, we will call a meeting every six (6) months thereafterto seek Stockholder Approval until the earlier of the date Stockholder Approval is obtained or the Private Warrants are no longer outstanding.

 

Ifat any time after the later of (i) the six-month anniversary of the Closing Date, and (ii) the Stockholder Approval Date, a registrationstatement registering the issuance of the Private Warrant Shares under the Securities Act is not effective or available, the holder may,in its sole discretion, elect to exercise the Private Warrants through a cashless exercise, in which case the holder would receive uponsuch exercise the net number of shares of Common Stock determined according to the formula set forth in the Private Warrants.

 

Theexercise price of the Private Warrants, and the number of Private Warrant Shares, is subject to adjustment in the event of any stockdividend or split, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Private Warrants.In addition, the Private Warrants provide that we may also at any time during the term of the Private Warrants, subject to the priorwritten consent of the holder, voluntarily reduce the then current exercise price to any amount and for any period of time, subject tothe rules and regulations of Nasdaq.

 

Aholder will not have the right to exercise any portion of the Private Warrants if the holder (together with its affiliates) would beneficiallyown in excess of 4.99% (or, upon election of the holder, 9.99%) of the number of shares of Common Stock outstanding immediately aftergiving effect to the exercise, as such percentage ownership is determined in accordance with the terms of such warrants. However, anyholder may increase or decrease such percentage, provided that any increase will not be effective until the 61st day after such election.

 

Inthe event of a Fundamental Transaction (as such term is defined in the Private Warrants), then the successor entity will succeed to,and be substituted for us, and may exercise every right and power that we may exercise and will assume all of our obligations under thePrivate Warrants with the same effect as if such successor entity had been named in the warrant itself. If holders of Common Stock aregiven a choice as to the securities, cash or property to be received in a Fundamental Transaction, then the holder shall be given thesame choice as to the consideration it receives upon any exercise of the Private Warrants following such Fundamental Transaction. Inaddition, the successor entity, at the request of holders of Private Warrants, will be obligated to purchase any unexercised portionof the Private Warrants in accordance with the terms thereof. Notwithstanding the foregoing, in the event of a Fundamental Transaction,the holders of the Private Warrants have the right to require us or a successor entity to redeem the Private Warrants for cash in theamount of the Black Scholes Value (as defined in the Private Warrants) of the unexercised portion of the Private Warrants concurrentlywith or within 30 days following the consummation of a Fundamental Transaction. However, in the event of a Fundamental Transaction whichis not in our control, including a Fundamental Transaction not approved by our board of directors, the holders of the Private Warrantswill only be entitled to receive from us or our successor entity the same type or form of consideration (and in the same proportion),at the Black Scholes Value of the unexercised portion of the Private Warrant that is being offered and paid to the holders of CommonStock in connection with the Fundamental Transaction, whether that consideration is in the form of cash, stock or any combination ofcash and stock, or whether the holders of Common Stock are given the choice to receive alternative forms of consideration in connectionwith the Fundamental Transaction.

 

Exceptas otherwise provided in the Private Warrants or by virtue of such holder’s ownership of shares of Common Stock, the holder ofa Private Warrant will not have the rights or privileges of a holder of Common Stock, including any voting rights, until the holder exercisessuch warrant.

 

SupportAgreements

 

Certainof our stockholders holding in excess of 16% of our outstanding shares of Common Stock have entered into a Support Agreement, pursuantto which such stockholders have agreed, at every meeting of the holders of our Common Stock that our stockholders are requested to voteupon a proposal to approve the exercise in full of the Private Warrants and the issuance of the Private Warrant Shares upon exerciseof the Private Warrants (the “Warrant Exercise Proposal”), to vote all of the shares of Common Stock that they own in favorthe Warrant Exercise Proposal as well as any proposal to approve an adjournment of any such meeting of our stockholders for purposesof obtaining further votes in favor of the Warrant Exercise Proposal that are at any time or from time to time presented for considerationto our stockholders.

 

 

USEOF PROCEEDS

 

TheSelling Stockholders will receive all of the proceeds of the sale of shares of Common Stock offered from time to time pursuant to thisprospectus. Accordingly, we will not receive any proceeds from the sale of shares of Common Stock that may be sold from time to timepursuant to this prospectus; however, we will receive proceeds from the cash exercise of the Common Warrants. We currently intend touse these net proceeds for general corporate purposes, which may include operating expenses, research and development, including clinicaland pre-clinical testing of our product candidates, working capital, future acquisitions and general capital expenditures. We have notdetermined the amount of net proceeds to be used specifically for any of such purposes.

 

Theexpected use of net proceeds from the cash exercise of the Common Warrants represents our intentions based upon our current plans andbusiness conditions, which could change in the future as our plans and business conditions evolve and change. The amounts and timingof our actual expenditures, specifically with respect to working capital, may vary significantly depending on numerous factors. As aresult, our management will retain broad discretion over the allocation of the net proceeds from this offering. We have no current agreements,commitments or understandings for any material acquisitions or licenses of any products, businesses or technologies that are definitiveor probable to close.

 

Wewill bear the out-of-pocket costs, expenses and fees incurred in connection with the registration of shares of our Common Stock to besold by the Selling Stockholders pursuant to this prospectus. Other than registration expenses, the Selling Stockholders will bear anyunderwriting discounts, commissions, placement agent fees or other similar expenses payable with respect to sales of shares of our CommonStock.

 

 

DILUTION

 

Ifyou purchase Common Stock in this offering, your interest will be diluted immediately to the extent of the difference between the exerciseprice of the Common Warrants and the pro forma as adjusted net tangible book value per share of our Common Stock immediately followingthis offering. Net tangible book value per share is determined by dividing our total tangible assets less total liabilities by the numberof outstanding shares of our Common Stock. As of September 30, 2024, we had a net tangible book value of approximately $0.9 million or$0.07 per share of Common Stock based upon 13,424,648 shares of Common Stock outstanding as of that date.

 

Ourpro forma net tangible book value as of September 30, 2024 was approximately $3.2 million or $0.21 per share of Common Stock. Pro formanet tangible book value represents net tangible book value adjusted to take into account the issuance, subsequent to September 30, 2024,of: (i) an aggregate of 115,199 shares of restricted Common Stock and Common Stock issued subsequent to September 30, 2024 and the cancellationof 3,510 shares of restricted Common Stock upon termination of certain employees; (ii) an aggregate of 4 shares of Common Stock uponthe exercise of outstanding warrants and our receipt of approximate $12.25 in proceeds upon such exercise and (iii) 2,048,294 sharesof Common Stock in a registered direct offering and our receipt of $2.3 million in net proceeds.

 

Aftergiving effect to our issuance of 2,724,230 shares of Common Stock upon the assumed exercise of the Common Warrants at an exercise priceof $1.50 per share and our receipt of net cash proceeds of approximately $4.1 million, our pro forma as adjusted net tangible book valueas of September 30, 2024 would have been $7.3 million, or $0.40 per share. This represents an immediate increase in net tangible bookvalue of $0.19 per share to existing stockholders and an immediate dilution in net tangible book value of $1.10 per share to investorspurchasing from the Selling Stockholders.

 

Thefollowing table illustrates the per share dilution to investors purchasing shares in an offering using this prospectus:

 

Exercise price of Common Warrants						$	1.50
Net tangible book value per share as of September 30, 2024		$	0.07
Pro forma net tangible book value per share		$	0.21
Increase in pro forma net tangible book value per share attributable to this offering		$	0.19
Pro forma as adjusted net tangible book value per share after this offering						$	0.40
Dilution in net tangible book value per share to investors purchasing from Selling Stockholders						$	1.10

 

Theinformation above is based on 13,424,648 shares of Common Stock outstanding as of September 30, 2024, and excludes, as of that date:

 

	●	9,573,898 shares of Common Stock issuable upon the exercise of outstanding warrants with a weighted average exercise price equal to $3.37 per share;
	●	337,810 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 $6.88 per share; and
	●	1,594,027 shares of our Common Stock that are reserved for equity awards that may be granted under our 2024 Equity Incentive Plan.

 

 

SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

Thefollowing table sets forth information regarding the beneficial ownership of shares of the Company’s Common Stock as of November26, 2024, by (1) each person known to the Company to beneficially own more than 5% of any class of the Company’s outstandingvoting securities, (2) each director, (3) each of our named executive officers, and (4) all of the Company’s current executiveofficers and directors as a group.

 

Beneficialownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a securityif he, she or it possesses sole or shared voting or investment power over that security, including options and warrants that are currentlyexercisable or will become exercisable within 60 days. In computing the number of shares beneficially owned by a person or entity andthe percentage ownership of that person or entity in the table below, all shares subject to options and warrants were deemed outstandingif such securities are currently exercisable or will vest or become exercisable within 60 days of November 26, 2024. These shareswere not deemed outstanding, however, for the purpose of computing the percentage ownership of any other person or entity.

 

Thepercentage of beneficial ownership of the Company’s Common Stock is based on 15,584,635 shares of Common Stock outstanding as ofNovember 26, 2024.

 

Unlessotherwise indicated, the Company believes that each person named in the table below has sole voting and investment power with respectto all shares of Common Stock beneficially owned by such person.

 

Name and Address(1)		Number of Shares of Common Stock				Percent of Class
Directors and Executive Officers:
Maria Zannes(2)			403,312				2.56	%
Michael Dougherty(3)			18,578				*
Steven Girgenti(4)			1,791,266				10.99	%
Robert Anderson(5)			223,215				1.43	%
Stuart Diamond(6)			126,228				*
Jamie Platt(7)			54,748				*
Peter Knight(8)			186,022				1.19	%
Gary Rubin(9)			2,431,387				14.93	%
Roby Joyce(10)			669,744				4.29	%
All Directors and Current Executive Officers as a Group (11 Individuals)(11)			6,100,995				35.12	%
Five Percent Holders:
The Harvey Sandler Revocable Trust(12)			2,235,514				13.77	%

 

*	Ownership of less than 1%.
(1)	Unless otherwise indicated, the address for each person is c/o bioAffinity Technologies, Inc., 3300 Nacogdoches Road, Suite 216, San Antonio, Texas 78217.
(2)	Includes (i) 243,322 shares of Common Stock owned by Ms. Zannes, including 28,498 shares of unvested restricted stock as to which Ms. Zannes has the right to vote, but not to dispose; (ii) 56,422 shares of Common Stock issuable upon exercise of options that are currently exercisable; and (iii) an aggregate of 103,568 shares of Common Stock issuable upon exercise of warrants that are currently exercisable.
(3)	Includes 18,578 shares issued to Mr. Dougherty as restricted stock, which were vested upon his resignation as our Chief Financial Officer effective as of September 16, 2024, at which time 65,625 shares of unvested restricted stock were forfeited.
(4)	Includes (i) 1,065,149 shares of Common Stock owned by Mr. Girgenti, including 105,585 shares of unvested restricted stock as to which the beneficial owner has the right to vote; (ii) 39,281 shares of Common Stock issuable upon exercise of options held by Mr. Girgenti that are currently exercisable; (iii) an aggregate of 669,549 shares of Common Stock issuable upon exercise of warrants owned by Mr. Girgenti that are currently exercisable; (iv) 8,955 shares of Common Stock owned directly by the Cranye Girgenti Testamentary Trust; and (v) 8,332 shares of Common Stock issuable upon exercise of warrants owned by the Cranye Testamentary Trust that are currently exercisable. Mr. Girgenti serves as the trustee of the Cranye Girgenti Testamentary Trust. As the trustee, Mr. Girgenti has sole voting and dispositive power over the shares beneficially owned by the Cranye Girgenti Testamentary Trust.
(5)	Includes (i) 163,936 shares of Common Stock owned by Mr. Anderson, including 22,523 shares of unvested restricted stock as to which Mr. Anderson has the right to vote , but not to dispose; (ii) 39,281 shares of Common Stock issuable upon exercise of options that are currently exercisable; and (iv) 19,998 shares of Common Stock issuable upon exercise of warrants that are currently exercisable.
(6)	Includes (i) 99,088 shares of Common Stock owned by Mr. Diamond, including 22,523 shares of unvested restricted stock as to which Mr. Diamond has the right to vote, but not to dispose; (ii) 7,142 shares of Common Stock issuable upon exercise of options that are currently exercisable; and (iii) 19,998 shares of Common Stock issuable upon exercise of warrants that are currently exercisable.
(7)	Includes 54,748 shares of Common Stock issued to Dr. Platt as restricted stock, including 22,523 shares of unvested restricted stock as to which the Dr. Platt has the right to vote, but not to dispose.
(8)	Includes (i) 117,455 shares of Common Stock owned by Mr. Knight, including 22,523 shares of unvested restricted stock as to which Mr. Knight has the right to vote, but not to dispose; (ii) 28,568 shares of Common Stock issuable upon exercise of options that are currently exercisable; and (iii) 39,999 shares of Common Stock issuable upon exercise of warrants that are currently exercisable.
(9)	Includes (i) 146,597 shares of Common Stock owned by Mr. Rubin, including 22,523 shares of unvested restricted stock as to which Mr. Rubin has the right to vote, but not to dispose; (ii) 32,139 shares of Common Stock issuable upon exercise of options held by Mr. Rubin that are currently exercisable; (iii) 17,137 shares of Common Stock issuable upon exercise of warrants held by Mr. Rubin that are currently exercisable; (iv) 1,584,144 shares of Common Stock owned by the Harvey Sandler Revocable Trust; and (v) an aggregate of 651,370 shares of Common Stock issuable upon exercise of warrants owned by the Harvey Sandler Revocable Trust that are currently exercisable. As described in footnote 12, Mr. Rubin serves as co-trustee of the Harvey Sandler Revocable Trust. As a co-trustee, Mr. Rubin has the sole power to vote and dispose of the shares beneficially owned by the Harvey Sandler Revocable Trust.
(10)	Includes (i) 66,615 shares of Common Stock owned by Dr. Joyce, including 22,523 shares of unvested restricted stock as to which Dr. Joyce has the right to vote, but not to dispose; (ii) 583,130 shares of Common Stock owned by the Joyce Living Trust; and (iii) an aggregate of 19,999 shares of Common Stock issuable upon exercise of warrants held by the Joyce Living Trust that are currently exercisable. Dr. Joyce is co-trustee of the Joyce Living Trust, together with his wife, Joyce M. Joyce, each of whom may act unilaterally with regard to voting and disposition power over the shares held by the Joyce Living Trust. The Joyce Living Trust has an address at 1092 Madeline Street, New Braunfels, Texas 78132.
(11)	Includes: (i) 222,827 shares of Common Stock issuable upon the exercise of stock options that are currently exercisable; and (ii) 1,564,610 shares of Common Stock issuable upon the exercise of warrants that are currently exercisable.
(12)	Includes: (i) 1,584,144 shares of Common Stock owned by the Harvey Sandler Revocable Trust; and (ii) an aggregate of 651,370 shares of Common Stock issuable upon exercise of warrants held by the Harvey Sandler Revocable Trust that are currently exercisable. Mr. Rubin serves as co-trustee of the Harvey Sandler Revocable Trust, together with Andrew Sandler, each of whom may act unilaterally with regard to voting and disposition power over the shares held by the Harvey Sandler Revocable Trust. The Harvey Sandler Revocable Trust has an address at 2080 NW Boca Raton Blvd., Ste. 2, Boca Raton, FL 33431.

 

 

SELLINGSTOCKHOLDERS

 

Theshares of Common Stock being offered by the Selling Stockholders are those issuable to the Investors and the designees of WallachBethupon exercise of the Common Warrants. For additional information regarding the issuances of the Common Warrants, see “The OctoberOfferings” above. We are registering the shares of Common Stock in order to permit the Selling Stockholders to offer the sharesof Common Stock for resale from time to time.

 

Exceptfor the ownership of the Common Warrants, shares of Common Stock and warrants purchased in our initial public offering, and the sharesof Common Stock and/or warrants issued in registered direct offerings and/or private placement offerings subsequent to our initial publicoffering, the Investors have not had any material relationship with us within the past three years. WallachBeth served as: (i) the placementagent in connection with our sale of convertible bridge notes in 2021 and 2022, (ii) the underwriter for our initial public offeringthat closed on September 6, 2022; (iii) the placement agent for our March 2024 financings; (iv) financial advisor and placement agentfor our August 2024 financings, and (v) as placement agent for the October 2024 Private Placement and registered direct offering, pursuantto which WallachBeth received cash compensation and warrants. See the section entitled “The October Offerings” for more informationabout the compensation received in connection with the October 2024 Private Placement and concurrent registered direct offering. Exceptas described above, WallachBeth and its designees have not had any material relationship with us within the past three years.

 

Thetable below lists the Selling Stockholders and provides information regarding each Selling Stockholder’s beneficial ownership ofshares of our Common Stock. The second column lists the number of shares of Common Stock beneficially owned by each Selling Stockholder,based on its beneficial ownership of securities purchased in the October 2024 Private Placement as well as all prior public and privateofferings of our securities, as of the date indicated in the footnote for each Selling Stockholder, assuming exercise of the Common Warrantsheld by the Selling Stockholders on that date without regard to any limitations on exercises. The third column lists the maximum numberof shares of Common Stock being offered by this prospectus by the Selling Stockholders, also without regard to any limitations on exercises.

 

Thisprospectus generally covers the resale of the maximum number of shares of Common Stock issuable upon exercise of the Common Warrants,determined as if the outstanding Common Warrants were exercised in full as of the trading day immediately preceding the date this registrationstatement was initially filed with the SEC, each as of the trading day immediately preceding the applicable date of determination andall subject to adjustment as provided in the registration right agreement, without regard to any limitations on the exercise of the CommonWarrants. The fourth and fifth columns assume the sale of all of the shares offered by the Selling Stockholders pursuant to this prospectus.

 

Underthe terms of the Common Warrants, the Selling Stockholders may not exercise the Common Warrants to the extent such exercise would causesuch Selling Stockholder, together with its affiliates and attribution parties, to beneficially own a number of shares of Common Stockthat would exceed 4.99%, of our then outstanding Common Stock following such exercise, excluding for purposes of such determination sharesof Common Stock issuable upon exercise of such warrants which have not been exercised. The number of shares in the second and third columnsdo not reflect this limitation, but the number of shares in the fourth and fifth columns do reflect this limitation. The Selling Stockholdersmay sell all, some or none of their shares in this offering. See “Plan of Distribution.”

 

Name of Selling Stockholders		Number of   Shares of Common Stock Beneficially Owned Prior to Offering(1)				Maximum Number of Shares of Common Stock to be Sold in this Offering(1)				Number of Shares of Common Stock Beneficially Owned After Offering				Percentage of Shares Beneficially Owned after Offering(2)
Funds managed by Empery Asset Management, LP(3)			1,608,537				650,000				958,537				4.99	%
Bigger Capital Fund, LP(4)			1,193,424				438,196				755,228				4.0	%
District 2 Capital Fund LP(5)			926,207				438,195				488,012				2.6	%
L1 Capital Global Opportunities Master Fund(6)			2,217,205				876,391				926,189				4.99	%
Richard K. Crumly(7)			870,027				260,000				610,027				3.3	%
Douglas Bantum(8)			73,319				23,656				49,663				*
Michael Wallach(8)			45,207				13,826				31,381				*
Kenneth Bantum(8)			15,713				5,070				10,643				*
Gene McNeil(8)			15,713				5,070				10,643				*
David Beth(8)			45,207				13,826				31,381				*

 

*Ownership of less than 1%.

 

(1)

The Common Warrants, as well as all other warrants beneficially owned by the Investor Selling Stockholders prior to the October 2024 Private Placement, are subject to a beneficial ownership limitation of 4.99%, which in each case restricts the Investor Selling Stockholders from exercising that portion of the warrants that would result in the Investor Selling Stockholders and its affiliates owning, after exercise, a number of shares of Common Stock in excess of the beneficial ownership limitation. The number of shares set forth in the second and third columns in the above table does not reflect the application of this limitation.

(2)

Calculated based on 18,308,865 shares of Common Stock outstanding, which includes 15,584,635 shares of Common Stock outstanding on November 26, 2024 together with the 2,724,230 shares of Common Stock issuable upon exercise of the Common Warrants.

 

 

(3)	The shares listed in the third column consist of Common Warrants to purchase an aggregate of 650,000 shares of Common Stock consisting of (i) 332,684 shares of Common Stock issuable upon exercise of Common Warrants held by Empery Asset Master, LTD; (ii) 110,322 shares of Common Stock issuable upon exercise of Common Warrants held by Empery Tax Efficient, LP.; and (iii) 206,994 shares of Common Stock issuable upon exercise of Common Warrants held by Empery Tax Efficient III, LP. The shares listed in the second column include the aforementioned 650,000 shares of Common Stock issuable upon exercise of the Common Warrants, as well as: (i) an aggregate of 508,537 shares of Common Stock, consisting of (a) 260,875 shares of Common Stock held by Empery Asset Master, LTD; (b) 85,850 shares of Common Stock held by Empery Tax Efficient, LP.; (c) 161,812 shares of Common Stock held by Empery Tax Efficient III, LP; and (ii) an aggregate of 450,000 shares of Common Stock issuable upon exercise of warrants purchased in our August 2024 financings, consisting of (a) 261,814 shares of Common Stock issuable upon exercise of warrants held by Empery Asset Master, LTD; (b) 69,540 shares of Common Stock issuable upon exercise of warrants held by Empery Tax Efficient, LP.; (c) 118,646 shares of Common Stock issuable upon exercise of warrants held by Empery Tax Efficient III, LP. The number of shares beneficially owned after the offering in the fourth column includes: (i) 508,537 shares of Common Stock and (ii) 426,350 shares of Common Stock issuable upon exercise of warrants, and such number does not include 23,560 shares of Common Stock issuable upon exercise of warrants due to the 4.99% beneficial ownership limitation in such warrants. The securities beneficially owned by each of Empery Asset Master LTD, Empery Tax Efficient, LP, and Empery Tax Efficient III, LP in the table above are calculated as of November 11, 2024. Empery Asset Management, LP, the authorized agent of Empery Asset Master Ltd (“EAM”), Empery Tax Efficient, LP (“ETE”), and Empery Tax Efficient III, LP (“ETE III”), has discretionary authority to vote and dispose of the shares held by EAM, ETE and ETE III and may be deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management, LP, may also be deemed to have investment discretion and voting power over the shares held by EAM, ETE and ETE III. EAM, ETE, ETE III, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares. None of Empery Asset Management, LP, EAM, ETE or ETE III are licensed broker dealers or are affiliates of a licensed broker dealer. Each of EAM, ETE and ETE III certify that they bought the Common Warrants in the ordinary course of business, and at the time of the purchase of the Common Warrants, they had no agreements or understandings, directly or indirectly, with any person to distribute the shares of Common Stock issuable upon exercise of the Common Warrants. The business address of Empery Asset Management, LP is 1 Rockefeller Plaza, Suite 1205, New York, New York 10020.
(4)	The shares listed in the third column consist of 438,196 shares of Common Stock issuable upon exercise of the Common Warrants. The shares listed in the second column include the aforementioned 438,196 shares of Common Stock issuable upon exercise of the Common Warrants, as well as: (i) 337,074 shares of Common Stock; (ii) 302,083 shares of Common Stock issuable upon exercise of warrants purchased in our August 2024 financings; and (iii) 116,071 shares of Common Stock issuable upon exercise of warrants purchased in our initial public offering. The securities beneficially owned by Bigger Capital Fund, LP in the table above are calculated as of November 11, 2024. Michael Bigger is the managing member of Bigger Capital Fund, LP and has voting control and investment discretion over securities beneficially owned directly by Bigger Capital Fund, LP and has voting control and investment discretion over securities helpfully owned directly by Bigger Capital Fund, LP. In such role, Mr. Bigger may be deemed to beneficially own the securities owned by Bigger Capital Fund, LP. We have been advised that none of Mr. Bigger or Bigger Capital Fund, LP is a member of the Financial Industry Regulatory Authority, or FINRA, or an independent broker-dealer, an affiliate or associated person of a FINRA member, or an affiliate of a broker-dealer. The foregoing should not be construed in and of itself as an admission by Mr. Bigger or Bigger Capital Fund, LP as to beneficial ownership of the securities beneficially owned directly by Bigger Capital Fund, LP. The business address of Bigger Capital Fund, LP is 11700 W Charleston Blvd. 170-659, Las Vegas, NV 89135.
(5)	The shares listed in the third column consist of 438,195 shares of Common Stock issuable upon exercise of the Common Warrants. The shares listed in the second column include the aforementioned 438,195 shares of Common Stock issuable upon exercise of the Common Warrants, as well as: (i) 38,608 shares of Common Stock; (ii) 333,333 shares of Common Stock issuable upon exercise of warrants purchased in our August 2024 financings; and (iii) 116,071 shares of Common Stock issuable upon exercise of warrants purchased in our initial public offering. The securities beneficially owned by District 2 Capital Fund LP in the table above are calculated as of November 8, 2024. Michael Bigger is the managing member of District 2 Capital Fund LP and has voting control and investment discretion over securities beneficially owned directly by District 2 Capital Fund LP. In such roles, Mr. Bigger may be deemed to beneficially own the securities owned by District 2 Capital Fund LP. We have been advised that none of Mr. Bigger or District 2 Capital Fund LP is a member of the Financial Industry Regulatory Authority, or FINRA, or an independent broker-dealer, an affiliate or associated person of a FINRA member, or an affiliate of a broker-dealer. The foregoing should not be construed in and of itself as an admission by Mr. Bigger as to beneficial ownership of the securities beneficially owned directly by District 2 Capital Fund LP. The business address of District 2 Capital Fund LP is 14 Wall Street, 2nd Floor, Huntington NY 11743.
(6)	The shares listed in the second and third columns consist of 876,391 shares of Common Stock issuable upon exercise of Common Warrants. The shares listed in the second column include the aforementioned 876,391 shares of Common Stock issuable upon exercise of the Common Warrants, as well as: (i) 674,147 shares of Common Stock and (ii) 666,667 shares of Common Stock issuable upon exercise of warrants issued in our August 2024 financings. The number of shares beneficially owned after the offering in the fourth column includes: (i) 674,147 shares of Common Stock and (ii) 252,042 shares of Common Stock issuable upon exercise of warrants, and such number does not include 414,625 shares of Common Stock issuable upon exercise of warrants due to the 4.99% beneficial ownership limitation in such warrants. The securities beneficially owned by L1 Capital Global Opportunities Master Fund in the table above are calculated as of November 8, 2024. David Feldman and Joel Arber are each a director of L1 Capital Global Opportunities Master Fund and have voting control and investment discretion over the securities held by L1 Capital Global Opportunities Master Fund. As such Mr. Feldman and Mr. Arber may be deemed to beneficially own such shares of Common Stock. To the extent Mr. Feldman and Mr. Arber is deemed to beneficially own these securities, they disclaim beneficial ownership over the securities except to the extent of any pecuniary interest therein. L1 Capital Global Opportunities Master Fund’s principal business address is 161A Shedden Road, 1 Artillery Court, PO Box 10085, Grand Cayman KY1-1001, Cayman Islands.
(7)	The shares listed in the third column consist of 260,000 shares of Common Stock issuable upon exercise of the Common Warrants. The shares listed in the second column include the aforementioned 260,000 shares of Common Stock issuable upon exercise of the Common Warrants, as well as: (i) 200,000 shares of Common Stock purchased in connection with the October 2024 Private Placement; (ii) 410,027 shares of Common Stock beneficially owned by Mr. Crumly prior to the October 2024 Private Placement. The securities beneficially owned by Mr. Crumly in the table above are calculated as of November 13, 2024. Mr. Crumly’s address is P.O. Box 1381, Austin, Texas 78767.
(8)	Each of these Selling Stockholders is a designee of, and is affiliated with, WallachBeth. WallachBeth is a registered broker dealer and has a registered address of c/o WallachBeth Capital, LLC, 1001 Yamato Road, Suite 404, Boca Raton, Florida 33431. The number of shares beneficially owned prior to this offering include shares of Common Stock issuable upon exercise of warrants received as compensation in connection with our sale of convertible bridge notes in 2021 and 2022, our initial public offering, a private placement offering that closed on March 8, 2024, financings that closed in August 2024, and the October 2024 Private Placement. The number of shares listed in the third column, which are the shares to be sold in this offering, consist of the shares of Common Stock issuable upon exercise of the Placement Agent Warrants. WallachBeth and its designees acquired the Placement Agent Warrants in the ordinary course of business and, at the time the Placement Agent Warrants were acquired, WallachBeth nor its designees, had any agreement or understanding, directly or indirectly, with any person to distribute such securities.

 

 

MARKETINFORMATION FOR SECURITIES AND DIVIDEND POLICY

 

OurCommon Stock is currently listed on the Nasdaq Capital Market under the symbol “BIAF.” Our Tradeable Warrants are currentlylisted on the Nasdaq Capital Market under the symbol “BIAWF.” The last reported sale price of our Common Stock and TradeableWarrants on Nasdaq on November 25, 2024 was $1.20 per share of Common Stock and $0.60 per Tradeable Warrant.

 

Holdersof Record

 

Asof November 25, 2024, we had approximately 82 holders of record of our Common Stock.

 

Dividends

 

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.

 

IssuerPurchases of Equity Securities

 

None.

 

 

MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

 

Youshould read the following discussion and analysis of our financial condition and results of operations together with our financial statementsand related notes appearing at the end of this prospectus. Some of the information contained in this discussion and analysis is set forthat the end of this prospectus, including information with respect to our plans and strategy for our business and related financing, includesforward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in thesection entitled “Risk Factors,” our actual results could differ materially from the results described in or implied by theforward-looking statements contained in the following discussion and analysis. You should carefully read the section entitled “RiskFactors” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Cautionary Note Regarding Forward-Looking Statements” and “Market,Industry and Other Data.”

 

Thissection presents management’s perspective on our financial condition and results of operations. The following discussion and analysis(the “MD&A”) is intended to highlight and supplement data and information presented elsewhere in this prospectus. TheMD&A is also intended to provide you with information that will assist you in understanding our consolidated financial statements,the changes in key items in those consolidated financial statements from year to year, and the primary factors that accounted for thosechanges. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which maynot be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statementsthat involve risks, uncertainties, and assumptions that could cause the Company’s financial results to differ materially from management’sexpectations. Factors that could cause such differences are discussed in the “Cautionary Note Regarding Forward-Looking Statements”section of this prospectus and in the “Risk Factors” in this prospectus.

 

OurMD&A is organized as follows:

 

	●	Company Overview – Discussion of our business plan and strategy to provide context for the remainder of the MD&A.
	●	Results of Operations – Analysis of our financial results comparing the three and nine months ended September 30, 2024, to the comparable period in 2023.
	●	Results of Operations – Analysis of our financial results comparing the year ended December 31, 2023, to the year ended December 31, 2022.
	●	Liquidity and Capital Resources – Analysis of changes in our cash flows and discussion of our financial condition and potential sources of liquidity for the nine months ended September 30, 2024, to the comparable period in 2023.
	●	Liquidity and Capital Resources – Analysis of changes in our cash flows and discussion of our financial condition and potential sources of liquidity the year ended December 31, 2023, to the year ended December 31, 2022.
	●	Critical Accounting Estimates – Accounting estimates are those estimates made in accordance with generally accepted accounting principles (“GAAP”) that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

 

CompanyOverview

 

Business

 

Wedevelop noninvasive diagnostics to detect early-stage lung cancer and other diseases of the lung. We also are conducting early-stageresearch focused on advancing therapeutic discoveries that could result in broad-spectrum cancer treatments. We have developed a proprietarynoninvasive diagnostic test using technology that identifies cancer cells and cell populations indicative of a diseased state for analysisusing proprietary platforms developed using AI. Research and optimization of our platform technologies are conducted in laboratoriesat our wholly owned subsidiary, Precision Pathology Laboratory Services, LLC (“PPLS”), and The University of Texas at SanAntonio.

 

Ourdiagnostic test, CyPath^® Lung, addresses the need for noninvasive detection of early-stage lung cancer. Lung cancer isthe leading cause of cancer-related deaths. Physicians are able to order CyPath^® Lung to assist in their assessment ofpatients who are at high risk for lung cancer. The CyPath^® Lung test enables physicians to more confidently distinguishbetween patients who will likely benefit from timely intervention and more invasive follow-up procedures from patients who are likelywithout lung cancer and should continue annual screening. CyPath^® Lung has the potential to increase overall diagnosticaccuracy of lung cancer, which could lead to increased survival, fewer unnecessary invasive procedures, reduced patient anxiety, andlower medical costs.

 

Throughour wholly owned subsidiary, OncoSelect^® Therapeutics, LLC, our research has led to discoveries and advancement of novelcancer therapeutic approaches that specifically and selectively target cancer cells. We are focused on expanding our broad-spectrum platformtechnologies to develop tests that detect and therapies that target various types of cancer and potentially other diseases.

 

Throughour wholly owned subsidiary PPLS, we acquired the assets of Village Oaks Pathology Services, P.A., a Texas professional association d/b/aPrecision Pathology Services, including the clinical pathology laboratory it owned, and we now operate the laboratory.

 

RecentDevelopments

 

OnOctober 18, 2024, we entered into the Purchase Agreement. See “The October Offerings” for more information regarding theregistered direct offering and the October 2024 Private Placement.

 

Financial

 

Todate, we have devoted a substantial portion of our efforts and financial resources to the development of our diagnostic test, CyPath^®Lung. As a result, since our inception in 2014, we have funded our operations principally through private sales of our equity ordebt securities. As of September 30, 2024, we had cash and cash equivalents of $0.8 million. As of November 12, 2024, after the October 2024 Offerings, we had cash and cash equivalents of $2.0 million, which we expect will not support our operations beyond March 2025.

 

 

Priorto the acquisition, Village Oaks, under the trade name Precision Pathology Services, had licensed and developed CyPath^®Lung as an LDT for sale to physicians. The license agreement provided that revenues from the sale would be split evenly between the Companyand Village Oaks. In the second quarter of 2022, prior to the acquisition, we started to recognize revenue as part of a limited betamarket testing program of the CyPath^® Lung test. We have never been profitable, and as of September 30, 2024, we had totalworking capital of approximately $60,000 and an accumulated deficit of approximately $50.7 million. We expect to continueto incur significant operating losses for the foreseeable future as we continue the development of our diagnostic tests and advance ourdiagnostic tests through clinical trials; however, we do expect revenue to increase due to the acquisition. We intend to license ourtherapeutic products for clinical development should animal and pre-clinical studies prove successful.

 

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 operationsor, 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.

 

Resultsof Operations

 

ThreeMonths Ended September 30, 2024, Compared to Three Months Ended September 30, 2023

 

Netloss for the three months ended September 30, 2024, was approximately $2.0 million, compared to a net loss of approximately $2.3 millionfor the three months ended September 30, 2023.

 

Revenue

 

Sinceacquisition of the clinical pathology laboratory on September 19, 2023, additional revenue streams have been consolidated. PPLS generatesthree sources of revenue: (1) patient service fees, (2) histology service fees, and (3) medical director fees. Pre-acquisition, bioAffinityTechnologies’ revenue was generated in three ways: (1) royalties from our diagnostic test, CyPath^® Lung, (2) clinicalflow cytometry services provided to Village Oaks related to our CyPath^® Lung test, and (3) CyPath^® Lungtests purchased by the U.S. Department of Defense (“DOD”) for an observational study, “Detection of Abnormal RespiratoryCell Populations in Lung Cancer Screening Patients Using the CyPath^® Lung Assay (NCT05870592),” and research anddevelopment on using bronchoalveolar lavage fluid as a biological sample to assess cardiopulmonary function and exercise performancein military personnel post-COVID-19 infection. The royalty income from CyPath^® Lung and clinical flow cytometry servicesincome, beginning September 19, 2023, are related party income and, therefore, eliminated from consolidated net revenues. See net revenuesummarized in the table below.

 

		For the three months ended September 30,
		2024				2023
Patient service fees1		$	2,049,851			$	248,654
Histology service fees			281,861				31,854
Medical director fees			16,943				2,393
Department of Defense observational studies			1,731				14,250
Other revenues2			—				1,333
Total net revenue		$	2,350,386			$	298,484

 

¹Patient services fees include direct billing for CyPath^® Lung diagnostic test.

²Other revenues include pre-acquisition CyPath^® Lung royalty income and laboratory services.

 

OperatingExpenses

 

		Three Months Ended								Change in 2024
		September 30,								Versus 2023
		2024				2023				$				%
Operating expenses:
Direct costs and expenses		$	1,440,158			$	74,704			$	1,365,454				1,828	%
Research and development			274,497				330,376				(55,879	)			(17	)%
Clinical development			93,705				‌106,422				(12,717	)			(12	)%
Selling, general and administrative			2,364,592				2,023,917				340,675				17	%
Depreciation and amortization			151,298				57,569				93,729				163	%
Total operating expenses		$	4,324,250			$	2,592,988			$	1,731,262				67	%

 

 

Operatingexpenses totaled approximately $4.3 million and $2.6 million during the three months ended September 30, 2024 and 2023, respectively.The increase in operating expenses is the result of the following factors:

 

Directcosts and expenses

 

Ourdirect costs and expenses are primarily direct labor for pathology services, laboratory supplies and reagents, laboratory equipment,and allocated shared facilities. Direct costs and expenses totaled $1.4 million and $74,704 during the three months ended September 30,2024 and 2023, respectively. The increase of approximately $1.4 million for 2024 compared to 2023 was primarily attributable to the laboratoryoperations of the newly acquired clinical pathology laboratory in September 2023.

 

Researchand Development Expenses

 

Ourresearch and development expenses consist primarily of expenditures for lab operations, preclinical studies, compensation, and consultingcosts.

 

Researchand development expenses totaled $274,497 and $330,376 for the three months ended September 30, 2024 and 2023, respectively. The decreaseof approximately $56,000, or 17%, for the three months ended September 30, 2024, compared to the same period in 2023 was primarily dueto the acquisition of PPLS in September 2023 due to acquiring new personnel and related costs for the laboratory supplies and reagentsin 2023. Additionally, equipment costs increased in 2023 as we purchased capital equipment to support research and development efforts.

 

ClinicalDevelopment

 

Clinicaldevelopment expenses totaled $93,705 and $106,422 for the three months ended September 30, 2024 and 2023, respectively. The decreaseof approximately $12,000, or 12%, for the three months ended September 30, 2024, compared to the same period in 2023 was primarily attributableto an increase in professional fees in 2023, including consulting fees, related to evaluating the clinical strategy for our pivotal clinicaltrial designed to confirm the sensitivity and specificity of CyPath^® Lung in detecting lung cancer in persons at highrisk for the disease, including patients who display indeterminate pulmonary nodules between 6mm and 30mm in size which often presenta challenge in diagnosis.

 

Selling,General and Administrative

 

Ourselling, general and administrative expenses consist primarily of expenditures related to employee compensation, selling and marketingcosts, legal, accounting and tax, and other professional services, and general operating expenses.

 

Selling,general and administrative expenses totaled approximately $2.4 million and $2.0 million for the three months ended September 30, 2024and 2023, respectively. The increase of approximately $0.4 million, or 17%, for the three months ended September 30, 2024, compared tothe same period in 2023 was primarily attributable to acquired general and administrative costs from PPLS and an increase in employeecompensation related to administrative and sales due to additional personnel and support services to support the launch of sales of ourdiagnostic test, CyPath^® Lung.

 

Depreciationand Amortization

 

Depreciationand amortization expenses totaled $151,298 and $57,569 for the three months ended September 30, 2024 and 2023, respectively. The increaseof approximately $93,729, or 163%, for the three months ended September 30, 2024, compared to the same period in 2023 was primarily attributableto depreciation on the assets from the acquisition of PPLS in September 2023.

 

OtherIncome (Expense)

 

Otherincome (expense), net totaled ($24,417) and $5,914 for the three months ended September 30, 2024 and 2023, respectively. The decreasein the other income of $30,331 is mostly attributable to a reduction in interest income of $24,965 which is due to a lower cash balancein a money market savings account and an increase in interest expense of $12,846 related to equipment finance leases from the acquiredPPLS laboratory as compared to the same period last year.

 

NineMonths Ended September 30, 2024, Compared to Nine Months Ended September 30, 2023

 

Netloss for the nine months ended September 30, 2024, was approximately $6.1 million, compared to a net loss of approximately $5.6 millionfor the nine months ended September 30, 2023.

 

Revenue

 

Post-acquisition,additional revenue streams have been consolidated starting September 19, 2023. PPLS generates three sources of revenue: (1) patient servicefees, (2) histology service fees, and (3) medical director fees. Pre-acquisition, bioAffinity Technologies’ revenue was generatedin three ways: (1) royalties from our diagnostic test, CyPath^® Lung, (2) clinical flow cytometry services provided toVillage Oaks related to our CyPath^® Lung test, and (3) CyPath^® Lung tests purchased by the DOD for an observationalstudy, “Detection of Abnormal Respiratory Cell Populations in Lung Cancer Screening Patients Using the CyPath^® LungAssay (NCT05870592),” and research and development on using bronchoalveolar lavage fluid as a biological sample to assess cardiopulmonaryfunction and exercise performance in military personnel post-COVID-19 infection. The royalty income from CyPath^® Lungand clinical flow cytometry services income, beginning September 19, 2023, are related party income and, therefore, eliminated from consolidatednet revenues. See net revenue summarized in the table below.

 

 

		For the nine months ended September 30,
		2024				2023
Patient service fees1		$	6,259,806			$	248,654
Histology service fees			811,914				31,854
Medical director fees			50,136				2,393
Department of Defense observational studies			8,654				14,250
Other revenues2			23,919				21,992
Total net revenue		$	7,154,429			$	319,143

 

¹Patient services fees include direct billing for CyPath^® Lung diagnostic test.

²Other revenues include pre-acquisition CyPath^® Lung royalty income and laboratory services.

 

OperatingExpenses

 

		Nine Months Ended								Change in 2024
		September 30,								Versus 2023
		2024				2023				$				%
Operating expenses:
Direct costs and expenses		$	4,421,309			$	76,025			$	4,345,284				5,716	%
Research and development			1,070,569				1,035,118				35,451				3	%
Clinical development			194,127				161,310				32,817				20	%
Selling, general and administrative			7,023,311				4,576,708				2,446,603				53	%
Depreciation and amortization			452,005				100,805				351,200				348	%
Total operating expenses		$	13,161,321			$	5,949,966			$	7,211,355				121	%

 

Operatingexpenses totaled approximately $13.5 million and $6.0 million during the nine months ended September 30, 2024 and 2023, respectively.The increase in operating expenses is the result of the following factors:

 

Directcosts and expenses

 

Ourdirect costs and expenses are primarily direct labor for pathology services, laboratory supplies and reagents, laboratory equipment,and allocated shared facilities. Direct costs and expenses totaled $4,421,309 and $76,025 during the nine months ended September 30,2024 and 2023, respectively. The increase of approximately $4.3 million for 2024 compared to 2023 was primarily attributable an entirequarter of laboratory operations for PPLS compared to a partial quarter in 2023 from the acquisition of PPLS in September 2023.

 

Researchand Development Expenses

 

Ourresearch and development expenses consist primarily of expenditures for laboratory operations, preclinical and clinical studies, compensation,and consulting costs.

 

Researchand development expenses totaled $1.1 million and $1.0 million for the nine months ended September 30, 2024 and 2023, respectively. Theincrease of approximately $35,000, or 3%, for the nine months ended September 30, 2024, compared to the same period in 2023 was primarilydue to an increase in compensation costs and benefits as we added research personnel, as well as a related increase in costs for laboratorysupplies and reagents.

 

ClinicalDevelopment

 

Clinicaldevelopment expenses totaled $194,127 and $161,310 for the nine months ended September 30, 2024 and 2023, respectively. The increaseof approximately $32,000, or 20%, for the nine months ended September 30, 2024, compared to the same period in 2023 was primarily attributableto an increase in compensation costs and benefits as we added clinical development personnel.

 

 

Selling,General and Administrative

 

Ourselling, general and administrative expenses consist primarily of expenditures related to employee compensation, selling and marketingcosts, legal, accounting and tax, and other professional services, and general operating expenses.

 

Selling,general and administrative expenses totaled approximately $7.0 million and $4.6 million for the nine months ended September 30, 2024and 2023, respectively. The increase of approximately $2.4 million, or 53%, for the nine months ended September 30, 2024, compared tothe same period in 2023 was primarily attributable to acquired general and administrative costs from PPLS and an increase in employeecompensation related to administrative and sales due to additional personnel and support services to support the launch of sales of ourdiagnostic test, CyPath^® Lung.

 

Depreciationand Amortization

 

Depreciationand amortization expenses totaled $452,005 and $100,805 for the nine months ended September 30, 2024 and 2023, respectively. The increaseof approximately $351,000, or 348%, for the nine months ended September 30, 2024, compared to the same period in 2023 was primarily attributableto depreciation on the assets from the acquisition of PPLS in September 2023.

 

OtherIncome (Expense)

 

Otherincome (expense), net totaled ($54,392) and $85,676 for the nine-month period ended September 30, 2024 and 2023, respectively. The decreasein other income of approximately $140,000 is mostly attributable to a reduction in interest income of $96,430 which is due to a lowercash balance in a money market savings account and an increase in interest expense of $55,629 related to equipment finance leases fromthe acquired PPLS laboratory as compared to the same period last year.

 

YearEnded December 31, 2023, Compared to the Year Ended December 31, 2022

 

Ourresults of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future. Netloss for the year ended December 31, 2023, was approximately $7.9 million, compared to a net loss of approximately $8.2 million for theyear ended December 31, 2022, resulting from the operational activities described below.

 

Revenue

 

Post-acquisition,additional revenue streams have been consolidated starting September 19, 2023. PPLS generates three sources of revenue: (1) patient servicefees, (2) histology service fees, and (3) medical director fees. Pre-acquisition, bioAffinity Technologies’ revenue was generatedin three ways for pre-acquisition: (1) royalties from the Company’s diagnostic test, CyPath^® Lung, (2) clinicalflow cytometry services provided to Village Oaks related to the Company’s CyPath^® Lung test, and (3) CyPath^®Lung tests purchased by the U.S. Department of Defense (“DOD”) for an observational study, “Detection of AbnormalRespiratory Cell Populations in Lung Cancer Screening Patients Using the CyPath^® Lung Assay (NCT05870592),” andresearch and development on using bronchoalveolar lavage fluid as a biological sample to assess cardiopulmonary function and exerciseperformance in military personnel post-COVID-19 infection. The royalty income from CyPath^® Lung and clinical flow cytometryservices income, beginning September 19, 2023, are related party income, and therefore, eliminated from consolidated net revenues. Seenet revenue summarized in the table below.

 

		For year ended December 31,
		2023				2022
Patient service fees1		$	2,199,558			$	—
Histology service fees			272,660				—
Medical director fees			19,324				—
Department of Defense observational studies			19,442				—
Other revenues2			21,515				4,803
Total net revenue		$	2,532,499			$	4,803

 

1Patient services fees includes direct billing for CyPath® Lung diagnostic test.

2Other revenues include pre-acquisition CyPath® Lung royalty income and laboratory services.

 

OperatingExpenses

 

		Year Ended								Change in 2023
		December 31,								Versus 2022
		2023				2022				$				%
Operating expenses:
Direct costs and expenses		$	1,740,884			$	467			$	1,740,417				372,680	%
Research and development			1,467,936				1,378,624				89,312				6	%
Clinical development			256,661				‌145,546				111,115				76	%
Selling, general and administrative			6,790,654				2,481,042				4,314,612				174	%
Depreciation and amortization			249,592				‌10,185				239,410				2,351	%
Total operating expenses		$	10,505,727			$	4,015,861			$	6,494,866				162	%

 

Operatingexpenses totaled $10.5 million and $4.0 million during 2023 and 2022, respectively. The increase in operating expenses is the resultof the following factors:

 

 

Directcosts and expenses

 

Ourdirect costs and expenses are primarily direct labor for pathology services, laboratory supplies and reagents, laboratory equipment andallocated shared facilities. Direct costs and expenses totaled $1.7 million and $467 during 2023 and 2022, respectively. The increaseof approximately $1.7 million for 2023 compared to 2022 was primarily attributable to the laboratory operations of the newly acquiredPPLS.

 

Researchand Development

 

Ourresearch and development expenses consist primarily of expenditures for lab operations, preclinical studies, compensation, and consultingcosts. Research and development expenses totaled $1.5 million and $1.4 million during 2023 and 2022, respectively. The increase of approximately$89,000, or 6%, for 2023 compared to 2022 was primarily attributable to an increase in compensation costs and benefits as we added researchpersonnel.

 

ClinicalDevelopment

 

Clinicaldevelopment expenses totaled approximately $257,000 and $146,000 during 2023 and 2022, respectively. The increase of approximately $111,000,or 76%, for 2023 compared to 2022 was primarily attributable