Lucid Diagnostics Inc.: Form 10-Q for the period ended Sep 30, 2024

The following discussion and analysis of our unaudited condensed consolidated financial condition and results of operations should be read together with our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”).

Unless the context otherwise requires, (i) “we”, “us”, and “our”, and the “Company”, “Lucid” and “Lucid Diagnostics” refer to Lucid Diagnostics Inc. and its subsidiaries LucidDx Labs Inc. (“LucidDx Labs”) and CapNostics, LLC (“CapNostics”), (ii) “FDA” refers to the Food and Drug Administration, (iii) “510(k)” refers to a premarket notification, submitted to the FDA by a manufacturer pursuant to § 510(k) of the Food, Drug and Cosmetic Act and 21 CFR § 807 subpart E, (iv) “CLIA” refers to the Clinical Laboratory Improvement Amendments of 1988 and associated regulations set forth in 42 CFR § 493, (v) “CE Mark” refers to a “Conformité Européenne” Mark, a mark indicating that a product such as a medical device conforms to the essential requirements of the relevant European directive, and (vi) “LDT” refers to a diagnostic test, defined by the FDA as “an IVD that is intended for clinical use and designed, manufactured and used within a single laboratory,” which is generally subject only to self-certification of analytical validity under the CMS CLIA program.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Form 10-Q”), including the following discussion and analysis of our unaudited condensed consolidated financial condition and results of operations, contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from those expressed or implied in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Item 1A of Part I of the Form 10-K under the heading “Risk Factors.”

Important factors that may affect our actual results include:

• our limited operating history;
• our financial performance, including our ability to generate revenue;
• our ability to obtain regulatory approval for the commercialization of our products;
• the risk that the FDA will cease to exercise enforcement discretion with respect to LDTs, like EsoGuard;
• the ability of our products to achieve market acceptance;
• our success in retaining or recruiting, or changes required in, our officers, key employees or directors;
• our potential ability to obtain additional financing when and if needed;
• our ability to protect our intellectual property;
• our ability to complete strategic acquisitions;
• our ability to manage growth and integrate acquired operations;
• the potential liquidity and trading of our securities;
• our regulatory and operational risks;
• cybersecurity risks;
• risks related to the COVID-19 pandemic and other health-related emergencies;
• risks related to our relationship with PAVmed; and
• our estimates regarding expenses, future revenue, capital requirements and needs for additional financing.

In addition, our forward-looking statements do not reflect the potential impact of any future financing, acquisitions, mergers, dispositions, joint ventures or investments we may make.

We may not actually achieve the results, plans and/or objectives disclosed in our forward-looking statements, and the intended or expected developments and/or other events disclosed in our forward-looking statements may not actually occur, and accordingly you should not place undue reliance on our forward-looking statements. You should read this Form 10-Q and the documents we have filed as exhibits to this Form 10-Q and the Form 10-K completely and with the understanding our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Overview

We are a commercial-stage, cancer prevention medical diagnostics technology company focused on the millions of patients who are at risk of developing esophageal precancer and cancer, specifically highly lethal esophageal adenocarcinoma (“EAC”).

We believe that our flagship product, the EsoGuard Esophageal DNA Test, performed on samples collected with the EsoCheck Esophageal Cell Collection Device, constitutes the first and only commercially available diagnostic test capable of serving as a widespread tool for the early detection of esophageal precancer, including Barrett’s Esophagus (“BE”), in at-risk patients. Early detection of esophageal precancer allows patients to undergo appropriate monitoring and treatment, as indicated by clinical practice guidelines, in an effort to prevent progression to esophageal cancer.

EsoGuard is a bisulfite-converted targeted next-generation sequencing (NGS) DNA assay performed on surface esophageal cells collected with EsoCheck. It quantifies methylation at 31 sites on two genes, Vimentin (VIM) and Cyclin A1 (CCNA1). The assay has been evaluated in multiple studies, demonstrating sensitivity of ~90% for detecting disease along the full esophageal precancer to cancer spectrum, with a negative predictive value (NPV) of ~99%. Sensitivity and NPV remain very high even for detecting early precancer, which is unprecedented for a molecular diagnostic test.

EsoCheck is an FDA 510(k) and CE Mark cleared noninvasive swallowable balloon capsule catheter device capable of sampling surface esophageal cells in a less than five-minute office procedure. It consists of a vitamin pill-sized rigid plastic capsule tethered to a thin silicone catheter from which a soft silicone balloon with textured ridges emerges to gently swab surface esophageal cells. When vacuum suction is applied, the balloon and sampled cells are pulled into the capsule, protecting them from contamination and dilution by cells outside of the targeted region during device withdrawal. We believe this proprietary Collect+Protect™ technology makes EsoCheck the only noninvasive esophageal cell collection device capable of such anatomically targeted and protected sampling.

EsoGuard and EsoCheck are based on patented technology licensed by Lucid from Case Western Reserve University (“CWRU”). EsoGuard and EsoCheck have been developed to provide an accurate, non-invasive, patient-friendly test for the early detection of EAC and BE, including dysplastic BE and related precursors to EAC in patients with gastroesophageal reflux disease (“GERD”), commonly known as chronic heartburn, acid reflux, or just reflux.

Recent Developments

Business

American Journal of Gastroenterology Publication

On November 7, 2024, the Company announced that its manuscript for its multi-center ESOGUARD BE-1 study has been accepted for publication in The American Journal of Gastroenterology, the official journal of the American College of Gastroenterology (ACG). This is the fourth publication presenting clinical validation data for the Company’s EsoGuard® Esophageal DNA Test, and the second to demonstrate its performance in an intended-use screening population. Consistent with previous studies, EsoGuard showed high sensitivity and negative predictive value in detecting esophageal precancer (Barrett’s Esophagus or BE). With the acceptance for publication, the Company believes we now have a complete clinical evidence package to submit our data to the MolDX program and formally seek Medicare coverage.

The prospective, multi-center study presented data from a cohort of patients who met ACG guideline criteria for esophageal precancer screening and underwent non-endoscopic EsoGuard testing followed by traditional upper endoscopy. EsoGuard sensitivity and negative predictive value for detecting BE were approximately 88% and 99%, respectively. Specificity and positive predictive value were approximately 81% and 30%, respectively. No serious adverse events were reported.

Intercompany Agreements with PAVmed

On August 6, 2024, PAVmed and the Company entered into a ninth amendment to the management services agreement between PAVmed and Lucid (“MSA”) to increase the monthly fee thereunder from $0.83 million per month to $1.05 million per month, effective as of July 1, 2024.

On March 22, 2024, PAVmed and the Company entered into an eighth amendment to the MSA to increase the monthly fee thereunder from $0.75 million per month to $0.83 million per month, effective as of January 1, 2024. The amendment also reset the maximum number of shares issuable under the agreement to 19.99% of the shares outstanding as of the date of the amendment.

On January 26, 2024, in accordance with the MSA and the payroll, benefits and expense reimbursement agreement between PAVmed and Lucid (“PBERA”), PAVmed elected to receive payment of approximately $4.7 million of fees and reimbursements accrued under the MSA and the PBERA through the issuance of 3,331,771 shares of Lucid’s common stock.

FDA Enforcement Discretion

In April 2024, FDA published the final rule under which FDA intends to phase out its general enforcement discretion approach for LDTs so that IVDs manufactured by a laboratory would generally fall under the same enforcement approach as other IVDs (the proposed rule was published in October 2023). In the final rule, FDA has expanded the categories of LDTs that will be eligible for continued enforcement discretion, which categories include LDTs first marketed prior to May 6, 2024 and LDTs approved by New York State’s Clinical Laboratory Evaluation Program (“NYS CLEP”). As EsoGuard was marketed prior to the cutoff date, and is also NYS CLEP-approved, EsoGuard will remain under continued enforcement discretion from FDA’s premarket review requirements and quality systems requirements (except for record-keeping). As such, there is no immediate impact from the final rule on Lucid’s regulatory strategy.

Appointment of Dennis Matheis to Board of Directors

On May 6, 2024, the board of directors of the Company appointed Dennis Matheis as a Class C director of the Company (and he was subsequently re-elected to the board, together with the incumbent Class C directors of the Company, at the Company’s annual shareholders meeting held on July 23, 2024). In connection with his joining the board, Mr. Matheis received a grant of an option to acquire 241,500 shares of the Company’s common stock pursuant to the Company’s Amended and Restated 2018 Long-Term Incentive Equity Plan in accordance with the Company’s existing compensation policy for non-employee directors.

Recent Developments - continued

Business - continued

NASDAQ Notice

On June 21, 2024, the Company received a notice from the Listing Qualifications Department of Nasdaq stating that, for the prior 30 consecutive business days (through June 20, 2024), the closing bid price of the Company’s common stock had been below the minimum of $1 per share required for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). The notification letter stated that the Company would be afforded 180 calendar days (until December 18, 2024) to regain compliance, and that the Company could be eligible for additional time. The Company intends to consider all available options to regain compliance with the Nasdaq listing standards.

Authorized Shares Increase

On July 23, 2024, the Company filed an amendment to its Certificate of Incorporation to effectuate an increase in its authorized shares from 200,000,000 to 300,000,000. Such increase was approved at the annual meeting of the Company’s stockholders held the same day.

Lucid IP Matters

On October 15, 2024, the Company announced that it received a Notice of Allowance from the United States Patent and Trademark Office (USPTO) for a patent application covering its proprietary method of using methylation of the cyclin-A1 (CCNA1) gene to help detect esophageal precancer and cancer, a key component of its EsoGuard® Esophageal DNA Test.

EsoGuard utilizes next-generation sequencing (NGS) to assess DNA methylation at 31 sites on two genes, vimentin (VIM) and cyclin-A1 (CCNA1). Such methylation has been shown to be strongly associated with conditions along the spectrum from early esophageal precancer (non-dysplastic Barrett’s Esophagus or BE), to late precancer (dysplastic BE), to cancer (esophageal adenocarcinoma). Although VIM methylation had been previously associated with gastrointestinal neoplasias, the association of CCNA1 methylation with esophageal neoplasia is novel and appears to be more specific.

Financing

March 2023 Senior Convertible Note Refinancing

On November 8, 2024, the Company gave notice to the holder of the March 2023 Senior Convertible Note that it was exercising its right pursuant to such note to redeem the same for the redemption price specified in such note (the “Optional Redemption Price”). Pursuant to the terms of the March 2023 Senior Convertible Note, the Company has not less than ten business days, and not more than twenty business days, from the date of the notice (the “Optional Redemption Notice Period”) to pay the Optional Redemption Price.

To finance the payment of the Optional Redemption Price, the Company has entered into a securities purchase agreement with certain accredited investors (the “2024 Note Investors”). Under the agreement, subject to customary closing conditions, the Company has agreed to issue, and each 2024 Note Investor has agreed to purchase, 12.0% senior secured convertible notes due 2029 (collectively, the “November 2024 Senior Convertible Notes”). As of the date hereof, the aggregate commitments of the 2024 Note Investors exceed the Optional Redemption Price.

The Company expects to complete the issuance of the November 2024 Senior Convertible Notes and the redemption of the March 2023 Senior Convertible Note on or prior to the end of the Optional Redemption Notice Period, although there can be no assurance that such issuance and redemption will be completed during such period, if at all.

Series B and Series B-1 Preferred Stock Offerings

On March 13, 2024, we entered into subscription agreements (each, a “Series B Subscription Agreement”) and exchange agreements (each, a “Series B Exchange Agreement”) with certain accredited investors (collectively, the “Series B Investors”), which agreements provided for (i) the sale to the Series B Investors of 12,495 shares of our newly designated Series B Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”), at a purchase price of $1,000 per share, and (ii) the exchange by the Series B Investors of 13,625 shares of our Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”), and 10,670 shares of our Series A-1 Convertible Preferred Stock, par value $0.001 per share (the “Series A-1 Preferred Stock”), held by them for 31,790 shares of Series B Preferred Stock (collectively, the “Series B Offering and Exchange”). Prior to the execution of the Series B Subscription Agreements and the Series B Exchange Agreements, we entered into subscription agreements with certain of the Series B Investors providing for the sale to such investors of 5,670 shares of Series A-1 Preferred Stock, at a purchase price of $1,000 per share, which shares the investors immediately agreed to exchange for shares of Series B Preferred Stock pursuant to the Series B Exchange Agreements (and are included in the 10,670 shares of Series A-1 Preferred Stock set forth above). Each share of the Series B Preferred Stock has a stated value of $1,000 and a conversion price of $1.2444. The terms of the Series B Preferred Stock also include a one times preference on liquidation and a right to receive dividends equal to 20% of the number of shares of our common stock into which such Series B Preferred Stock is convertible, payable on the one-year and two-year anniversary of the issuance date. The holders of the Series B Preferred Stock also will be entitled to dividends equal, on an as-if-converted to shares of common stock basis, to and in the same form as dividends actually paid on shares of the common stock when, as, and if such dividends are paid on shares of the common stock. The Series B Preferred Stock is a voting security. The aggregate gross proceeds of these transactions were $18.16 million (inclusive of $5.67 million of aggregate gross proceeds from the sale of the Series A-1 Preferred Stock that was immediately exchanged for Series B Preferred Stock in the transactions).

As a result of 100% of the then-outstanding shares of Series A Preferred Stock and Series A-1 Preferred Stock being exchanged for shares of Series B Preferred Stock in the Series B Offering and Exchange, no shares of Series A Preferred Stock or Series A-1 Preferred Stock remain outstanding.

On May 6, 2024, the Company issued approximately 11,634 shares of newly designated Series B-1 Convertible Preferred Stock (the “Series B-1 Preferred Stock”). The terms of the Series B-1 Preferred Stock are substantially identical to the terms of the Series B Preferred Stock, except that the Series B-1 Preferred Stock has a conversion price of $0.7228. The aggregate gross proceeds from the sale of shares in such offering were $11.6 million.

The aggregate gross proceeds from the issuances of the Series B Preferred Stock and Series B-1 Preferred Stock were approximately $29.8 million.

Results of Operations

Overview

Revenue

The Company recognized revenue resulting from the delivery of patient EsoGuard test results when the Company considered the collection of such consideration to be probable to the extent that it is unconstrained.

Cost of revenue

Cost of revenues recognized from the delivery of patient EsoGuard test results includes costs related to EsoCheck device usage, shipment of test collection kits, royalties and the cost of services to process tests and provide results to physicians. We incur expenses for tests in the period in which the activities occur, therefore, gross margin as a percentage of revenue may vary from quarter to quarter due to costs being incurred in one period that relate to revenues recognized in a later period.

We expect that the gross margin for our services will continue to fluctuate and be affected by EsoGuard test volume, our operating efficiencies, patient compliance rates, payer mix, the levels of reimbursement, and payment patterns of payers and patients.

Sales and marketing expenses

Sales and marketing expenses consist primarily of salaries and related costs for employees engaged in sales, sales support and marketing activities, as well as the portion of the MSA Fee (as defined in Note 5, Related Party Transactions, to our accompanying unaudited condensed consolidated financial statements) allocated to sales and marketing expenses, which are principally costs related to PAVmed employees who are performing services for the Company. We anticipate our sales and marketing expenses will increase in the future, to the extent we expand our commercial sales and marketing operations as resources permit and insurance reimbursement coverage for our EsoGuard test expands.

General and administrative expenses

General and administrative expenses consist primarily of professional fees for accounting, tax, audit and legal services (including those fees incurred as a result of our being a public company), consulting fees, expenses associated with obtaining and maintaining patents within our intellectual property portfolio, and certain employee costs, along with the portion of the MSA Fee allocated to general and administrative expenses.

We anticipate our general and administrative expenses will increase in the future to the extent our business operations grow. Furthermore, we anticipate continued expenses related to being a public company, including fees and expenses for audit, legal, regulatory, tax-related services, insurance premiums and investor relations costs associated with maintaining compliance as a public company.

Research and development expenses

Research and development expenses are recognized in the period they are incurred and consist principally of internal and external expenses incurred for the development of our technologies and conducting clinical trials, including:

• costs associated with regulatory filings;
• patent license fees;
• cost of laboratory supplies and acquiring, developing, and manufacturing preclinical prototypes; and
• the portion of the MSA Fee allocated to research and development.

We plan to incur research and development expenses for the foreseeable future as we continue the development of our existing products as well as new innovations. Our research and development activities, including our clinical trials, are focused principally on facilitating insurer reimbursement, encouraging physician adoption and developing product improvements or extending the utility of the lead products in our pipeline, including EsoCheck and EsoGuard.

Other Income and Expense, net

Other income and expense, net, consists principally of changes in fair value of our convertible note and losses on extinguishment of debt upon repayment of such convertible note.

Presentation of Dollar Amounts

All dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented as dollars in millions, except for share and per share amounts.

Results of Operations - continued

The three months ended September 30, 2024 as compared to the three months ended September 30, 2023

Revenue

In the three months ended September 30, 2024, revenue was $1.2 million as compared to $0.8 million for the corresponding period in the prior year. The $0.4 million increase principally relates to the increase in volume of our EsoGuard Esophageal DNA Tests performed in our CLIA laboratory for the period and the consideration received for the performance of the EsoGuard Esophageal DNA Tests.

Cost of revenue

In the three months ended September 30, 2024, the cost of revenue was approximately $1.7 million as compared to $1.6 million for the corresponding period in the prior year. The net increase of $0.1 million was principally related to:

• approximately $0.2 million decrease in manufacturing costs associated with the EsoCheck devices and EsoGuard Esophageal DNA Tests;
• approximately $0.2 million increase in third party professional and IT related expenses; and
• approximately $0.1 million increase in compensation and stock-based compensation costs.

Sales and marketing expenses

In the three months ended September 30, 2024, sales and marketing costs were approximately $4.1 million as compared to $3.8 million for the corresponding period in the prior year. The net increase of $0.3 million was principally related to:

• approximately $0.3 million increase in compensation and stock-based compensation costs.

General and administrative expenses

In the three months ended September 30, 2024, general and administrative costs were approximately $5.4 million as compared to $4.3 million for the corresponding period in the prior year. The net increase of $1.1 million was principally related to:

• approximately $0.6 million increase related to the amended MSA with PAVmed due to the growth and expansion of our business and the services incurred through PAVmed;
• approximately $0.4 million increase in compensation related costs; and
• approximately $0.1 million increase in third-party professional services related to investor relations and other third-party professional services.

Research and development expenses

In the three months ended September 30, 2024, research and development costs were approximately $1.7 million, compared to $1.6 million for the corresponding period in the prior year. The net increase of $0.1 million was principally related to:

• approximately $0.1 million increase in development costs, particularly in clinical trial activities and outside professional and consulting fees.

Amortization of Acquired Intangible Assets

The amortization of acquired intangible assets was approximately $0.1 million in the three months ended September 30, 2024, as compared to $0.5 million for the corresponding period in the prior year. The decrease of $0.4 million in the current period was due to certain acquired intangible assets being fully amortized in February 2024.

Other Income and Expense

Change in fair value of convertible debt

In the three months ended September 30, 2024, the change in the fair value of our convertible note was approximately $0.3 million of expense, related to the March 2023 Senior Convertible Note (as defined in Note 10, Debt, to our accompanying unaudited condensed consolidated financial statements). The March 2023 Senior Convertible Note was initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value as of each reporting period date. The Company initially recognized a $0.8 million fair value non-cash expense on the issue date.

Results of Operations - continued

The three months ended September 30, 2024 as compared to three months ended September 30, 2023 - continued

Loss on Debt Extinguishment

In the three months ended September 30, 2024, a debt extinguishment loss in the aggregate of approximately $0.4 million was recognized in connection with our March 2023 Senior Convertible Note as discussed below.

• In the three months ended September 30, 2024, approximately $1.1 million of principal repayments along with approximately $0.2 million of interest expense thereon, were settled through the issuance of 2,116,717 shares of common stock of the Company, with such shares having a fair value of approximately $1.8 million (with such fair value measured as the quoted closing price of the common stock of the Company on the respective conversion date). The conversions resulted in a debt extinguishment loss of $0.4 million in the three months ended September 30, 2024. The Company incurred less than $0.1 million of debt extinguishment losses in the three months ended September 30, 2023.

See Note 10*, Debt*, to our accompanying unaudited condensed consolidated financial statements, for additional information with respect to the March 2023 Senior Convertible Note.

The nine months ended September 30, 2024 as compared to nine months ended September 30, 2023

Revenue

In the nine months ended September 30, 2024, revenue was $3.1 million as compared to $1.4 million for the corresponding period in the prior year. The $1.7 million increase principally relates to the revenue for our EsoGuard Esophageal DNA Test performed in our CLIA laboratory for the period and the consideration received for the performance of the EsoGuard Esophageal DNA Test.

Cost of revenue

In the nine months ended September 30, 2024, the cost of revenue was approximately $5.0 million as compared to $4.5 million for the corresponding period in the prior year. The $0.5 million increase was principally related to:

• approximately $0.3 million decrease in manufacturing costs associated with the EsoCheck devices and EsoGuard Esophageal DNA Tests;
• approximately $0.3 million increase in compensation related costs, including stock-based compensation;
• approximately $0.3 million increase in third party professional fees and IT services; and
• approximately $0.2 million increase in the CLIA laboratory supplies required to perform the EsoGuard Esophageal DNA tests and in royalty costs for the test.

Sales and marketing expenses

In the nine months ended September 30, 2024, sales and marketing costs were approximately $12.5 million as compared to $12.0 million for the corresponding period in the prior year. The net increase of $0.5 million was principally related to:

• approximately $0.4 million increase in compensation related costs principally as a result of changes in headcount and bonus structure and travel expenses; and
• approximately $0.1 million increase related to the amended MSA with PAVmed due to the growth and expansion of our business and the services incurred through PAVmed.

General and administrative expenses

In the nine months ended September 30, 2024, general and administrative costs were approximately $14.3 million as compared to $15.0 million for the corresponding period in the prior year. The net decrease of $0.7 million was principally related to:

• approximately $2.6 million decrease in stock-based compensation;
• approximately $1.1 million increase related to the amended MSA with PAVmed due to the growth and expansion of our business and the services incurred through PAVmed;
• approximately $0.9 million increase in compensation costs; and
• approximately $0.1 million decrease in third-party professional fees, expenses related to the termination of the management services agreement with our former laboratory provider, and expenses for finance and legal services.

Research and development expenses

In the nine months ended September 30, 2024, research and development costs were approximately $4.5 million, compared to $5.3 million for the corresponding period in the prior year. The net decrease of $0.8 million was principally related to:

• approximately $0.8 million decrease in development costs, particularly in clinical trial activities and outside professional and consulting fees.

Results of Operations - continued

The nine months ended September 30, 2024 as compared to nine months ended September 30, 2023 - continued

Amortization of Acquired Intangible Assets

The amortization of acquired intangible assets was approximately $0.6 million in the nine months ended September 30, 2024, as compared to $1.5 million for the corresponding period in the prior year. The decrease of $0.9 million in the current period was due to certain acquired intangible assets being fully amortized in February 2024.

Other Income and Expense

Change in fair value of convertible debt

In the nine months ended September 30, 2024, the change in the fair value of our convertible note was approximately $0.6 million of income, related to the March 2023 Senior Convertible Note (as defined in Note 10*, Debt*, to our accompanying unaudited condensed consolidated financial statements). The March 2023 Senior Convertible Note was initially measured at its issue date estimated fair value and subsequently remeasured at estimated fair value as of each reporting period date. The Company initially recognized a $0.8 million fair value remeasurement as a non-cash expense on the issue date.

Loss on Issue and Offering Costs - Senior Secured Convertible Note

In the nine months ended September 30, 2023, in connection with the issue of the March 2023 Senior Convertible Note, we recognized a total of approximately $1.2 million of lender fee and offering costs paid by us. The Company did not incur lender fees and offering costs in the nine months ended September 30, 2024.

Loss on Debt Extinguishment

In the nine months ended September 30, 2024, a debt extinguishment loss in the aggregate of approximately $1.1 million was recognized in connection with our March 2023 Senior Convertible Note as discussed below.

• In the nine months ended September 30, 2024, approximately $2.4 million of principal repayments along with approximately $0.8 million of interest expense thereon, were settled through the issuance of 4,777,898 shares of common stock of the Company, with such shares having a fair value of approximately $4.3 million (with such fair value measured as the quoted closing price of the common stock of the Company on the respective conversion date). The conversions resulted in a debt extinguishment loss of $1.1 million in the nine months ended September 30, 2024. The Company incurred less than $0.1 million of debt extinguishment losses in the nine months ended September 30, 2023.

See Note 10*, Debt*, to our accompanying unaudited condensed consolidated financial statements, for additional information with respect to the March 2023 Senior Convertible Note.

Deemed Dividend on Series A and Series A-1 Convertible Preferred Stock Exchange Offer

The fair value of the consideration given in the form of the issue of 31,790 shares of Series B Convertible Preferred Stock, with such fair value recognized as the carrying value of such issued shares of Series B Convertible Preferred Stock, as compared to the carrying value of the extinguished Series A and Series A-1 Convertible Preferred Stock (carrying value of $24.3 million), resulting in an excess of fair value of $7.5 million recognized as a deemed dividend charged to accumulated deficit in the unaudited condensed consolidated balance sheet on March 13, 2024, with such deemed dividend included as a component of net loss attributable to common stockholders, summarized as follows:

30

Liquidity and Capital Resources

Our current operational activities are principally focused on the commercialization of EsoGuard. We are pursuing commercialization across multiple sales channels, including: the communication to and education of medical practitioners and clinicians regarding EsoGuard; the establishment of Lucid Test Centers for the collection of cell samples using EsoCheck; use of our mobile testing unit; ongoing #CheckYourFoodTube testing days; and our direct contracting strategic initiative (including in the concierge medicine and employer markets sectors). Additionally, we are developing expanded clinical evidence to support insurance reimbursement adoption by government and private insurers. Further, as resources permit, the Company also intends to pursue development of other products and services.

Our ability to generate revenue depends upon our ability to successfully advance the commercialization of EsoGuard, including significantly expanding insurance reimbursement coverage, while also completing the clinical studies, product and service development, and necessary regulatory approval thereof. There are no assurances, however, we will be able to obtain an adequate level of financial resources required for the long-term commercialization and development of our products and services.

We are subject to all of the risks and uncertainties typically faced by medical device and diagnostic companies that devote substantially all of their efforts to the commercialization of their initial products and services, to ongoing research and development activities, and to conducting clinical trials. We experienced a net loss of approximately $34.0 million and used approximately $34.3 million of cash in operations during the nine month period ended September 30, 2024. Financing activities provided $30.2 million of cash during the nine month period ended September 30, 2024. We ended the quarter with cash on-hand of $14.5 million as of September 30, 2024. We expect to continue to experience recurring losses and negative cash flow from operations, and will continue to fund our operations with debt and/or equity financing transactions, which in accordance with management’s plans may include conversions of our existing debt to equity and refinancing our existing debt obligations to extend the maturity date. The Company’s ability to continue operations 12 months beyond the issuance of the financial statements will depend upon generating substantial revenue that is conditioned on obtaining positive third-party reimbursement coverage for its EsoGuard Esophageal DNA Test from both government and private health insurance providers, increasing revenue through contracting directly with self-insured employers, and upon raising additional capital through various potential sources including equity and/or debt financings or refinancing existing debt obligations. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the accompanying unaudited condensed consolidated financial statements are issued.

Preferred Stock Offerings

On March 13, 2024, we entered into the Series B Subscription Agreements and Series B Exchange Agreements with the Series B Investors, which agreements provided for (i) the sale to the Series B Investors of 12,495 shares of our newly designated Series B Preferred Stock, at a purchase price of $1,000 per share, and (ii) the exchange by the Series B Investors of 13,625 shares of our Series A Preferred Stock and 10,670 shares of our Series A-1 Preferred Stock held by them for 31,790 shares of Series B Preferred Stock. Prior to the execution of the Series B Subscription Agreements and the Series B Exchange Agreements, we entered into subscription agreements with certain of the Series B Investors providing for the sale to such investors of 5,670 shares of Series A-1 Preferred Stock, at a purchase price of $1,000 per share, which shares the investors immediately agreed to exchange for shares of Series B Preferred Stock pursuant to the Series B Exchange Agreements (and are included in the 10,670 shares of Series A-1 Preferred Stock set forth above). Each share of the Series B Preferred Stock has a stated value of $1,000 and a conversion price of $1.2444. The terms of the Series B Preferred Stock also include a one times preference on liquidation and a right to receive dividends equal to 20% of the number of shares of our common stock into which such Series B Preferred Stock is convertible, payable on the one-year and two-year anniversary of the issuance date. The holders of the Series B Preferred Stock also will be entitled to dividends equal, on an as-if-converted to shares of common stock basis, to and in the same form as dividends actually paid on shares of the common stock when, as, and if such dividends are paid on shares of the common stock. The Series B Preferred Stock is a voting security. The aggregate gross proceeds of these transactions were $18.16 million (inclusive of $5.67 million of aggregate gross proceeds from the sale of the Series A-1 Preferred Stock that was immediately exchanged for Series B Preferred Stock in the transactions).

As a result of 100% of the then-outstanding shares of Series A Preferred Stock and Series A-1 Preferred Stock being exchanged for shares of Series B Preferred Stock in the Series B Offering and Exchange, no shares of Series A Preferred Stock or Series A-1 Preferred Stock remain outstanding.

On May 6, 2024, the Company issued approximately 11,634 shares of newly designated Series B-1 Preferred Stock. The terms of the Series B-1 Preferred Stock are substantially identical to the terms of the Series B Preferred Stock, except that the Series B-1 Preferred Stock has a conversion price of $0.7228. The aggregate gross proceeds from the sale of shares in such offering were $11.6 million.

Private Placement - Securities Purchase Agreement

Effective as of March 13, 2023, we entered into a Securities Purchase Agreement (the “Note SPA”) with an accredited institutional investor, pursuant to which we agreed to sell, and the investor agreed to purchase the March 2023 Senior Convertible Note with a face value principal of $11.1 million. We issued the March 2023 Senior Convertible Note on March 21, 2023 pursuant to the Note SPA. The March 2023 Senior Convertible Note proceeds were $9.925 million after deducting a $1.186 million lender fee and offering costs.

Liquidity and Capital Resources - continued

The March 2023 Senior Convertible Note has a 7.875% annual stated interest rate, a contractual conversion price of $5.00 per share of the Company’s common stock (subject to standard adjustments in the event of any stock split, stock dividend, stock combination, recapitalization or other similar transaction), and a contractual maturity date of the two-year anniversary of the date of issuance. The principal of the March 2023 Senior Convertible Note and accrued interest thereon is convertible at the option of the holder into the Company’s common stock at the contractual conversion price. In addition, the principal of the March 2023 Senior Convertible Note amortizes over 18 months commencing six months after its issuance. The amortization payments and accrued interest on the March 2023 Senior Convertible Note are payable in shares of the Company’s common stock (subject to the satisfaction of certain customary equity conditions and except for interest payable prior to September 21, 2023), at prices based on the then current market price.

Under the March 2023 Senior Convertible Note, the Company is subject to certain customary affirmative and negative covenants regarding the incurrence of indebtedness, the existence of liens, the repayment of indebtedness and the making of investments, the payment of cash in respect of dividends, distributions or redemptions, the transfer of assets, the maturity of other indebtedness, and transactions with affiliates, among other customary matters. Under the March 2023 Senior Convertible Note, the Company is also subject to financial covenants requiring that (i) the amount of the Company’s available cash shall equal or exceed $5.0 million at all times, (ii) the ratio of (a) the outstanding principal amount of the notes issued under the Note SPA, accrued and unpaid interest thereon and accrued and unpaid late charges, as of the last day of any fiscal quarter commencing with September 30, 2023 to (b) the Company’s average market capitalization over the prior ten trading days, shall not exceed 30%, and (iii) the Company’s market capitalization shall at no time be less than $30 million (the “Financial Tests”). As of September 30, 2024, the Company was in compliance, and as of the date hereof, the Company is in compliance, with the Financial Tests.

During the nine month period ended September 30, 2024, approximately $2.4 million of principal repayments along with approximately $0.8 million of interest expense thereon, were settled through the issuance of 4,777,898 shares of common stock of the Company, with such shares having a fair value of approximately $4.3 million (with such fair value measured as the respective conversion date quoted closing price of the common stock of the Company).

March 2023 Senior Convertible Note Refinancing

On November 8, 2024, the Company gave notice to the holder of the March 2023 Senior Convertible Note that it was exercising its right pursuant to such note to redeem the same for the Optional Redemption Price specified in such note. Pursuant to the terms of the March 2023 Senior Convertible Note, the Company has not less than ten business days, and not more than twenty business days, from the date of the notice (which we sometimes refer to as the “Optional Redemption Notice Period”) to pay the Optional Redemption Price.

To finance the payment of the Optional Redemption Price, the Company has entered into a securities purchase agreement with the 2024 Note Investors. Under the agreement, subject to customary closing conditions, the Company has agreed to issue, and each 2024 Note Investor has agreed to purchase, the November 2024 Senior Convertible Notes, which are 12.0% senior secured convertible notes due 2029. As of the date hereof, the aggregate commitments of the 2024 Note Investors exceed the Lucid Optional Redemption Price.

The Company expects to complete the issuance of the November 2024 Senior Convertible Notes and the redemption of the March 2023 Senior Convertible Note on or prior to the end of the Optional Redemption Notice Period, although there can be no assurance that such issuance and redemption will be completed during such period, if at all

Liquidity and Capital Resources - continued

The Company expects to complete the issuance of the November 2024 Senior Convertible Notes and the redemption of the March 2023 Senior Convertible Note on or prior to the end of the Optional Redemption Notice Period, although there can be no assurance that such issuance and redemption will be completed during such period, if at all.

Committed Equity Facility and ATM Facility

In March 2022, we entered into a committed equity facility with a Cantor affiliate. Under the terms of the committed equity facility, the Cantor affiliate has committed to purchase up to $50 million of our common stock from time to time at our request. While there are distinct differences, the committed equity facility is structured similarly to a traditional at-the-market equity facility, insofar as it allows us to raise primary equity capital on a periodic basis at prices based on the existing market price. Cumulatively, a total of 680,263 shares of common stock of the Company have been issued through our committed equity facility for net proceeds of approximately $1.8 million, after a 4% discount, as of September 30, 2024.

In November 2022, Lucid Diagnostics also entered into an “at-the-market offering” for up to $6.5 million of its common stock that may be offered and sold under a Controlled Equity Offering Agreement between Lucid Diagnostics and Cantor. Cumulatively, a total of 230,068 shares of the Company have been issued through our at-the-market equity facility for net proceeds of approximately $0.3 million, after payment of 3% commissions, as of September 30, 2024.

Intercompany Agreements with PAVmed

From our inception in May 2018 through our initial public offering in October 2021, our operations were funded by PAVmed providing working capital cash advances and by PAVmed paying certain operating expenses on our behalf. Additionally, our daily operations have been and continue to be conducted in part by personnel employed by PAVmed, for which we incur an MSA Fee expense. The MSA Fee is charged on a monthly basis and is subject to periodic adjustment corresponding with changes in the services provided by PAVmed personnel to the Company, with any such change in the MSA Fee being subject to approval of the Company and PAVmed boards of directors. In March 2024, PAVmed and the Company were authorized by their respective boards of directors to enter, and they did enter, into a eighth amendment to the MSA. Under this amendment, the monthly fee due from the Company to PAVmed was increased from $750 to $833, effective Janaury 1, 2024. In August 2024, PAVmed and the Company were authorized by their respective boards of directors to enter, and they did enter, into a ninth amendment to the MSA. Under this amendment, the monthly fee due from the Company to PAVmed was increased from $833 to $1,050, effective July 1, 2024. Pursuant to the MSA, as amended, PAVmed may elect to receive payment of the monthly MSA Fee in cash or in shares of our common stock, with such shares valued at the volume weighted average price (“VWAP”) during the final ten trading days of the applicable month (subject to a floor price of $0.70 per share). However, in no event will PAVmed be entitled to receive under the MSA, as amended, from and after the date of the eighth amendment to the MSA, more than 9,644,135 shares of our common stock (representing 19.99% of our outstanding shares of common stock as of immediately prior to the execution of the eighth amendment).

As of September 30, 2024, we had a Due To: PAVmed Inc. payment obligation liability of approximately $0.1 million, which liability is primarily comprised of our obligations under a payroll and benefit expense reimbursement agreement (the “PBERA”) and the MSA, as well other operating expenses paid by PAVmed on our behalf. See our accompanying unaudited condensed consolidated financial statements Note 5*, Related Party Transactions.* In accordance with the MSA and the PBERA, on January 26, 2024, PAVmed elected to receive payment of approximately $4.7 million of fees and reimbursements accrued under the MSA and the PBERA through the issuance of 3,331,771 shares of the Company’s common stock.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the amounts reporting in our unaudited condensed consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgements. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other factors that are believed to be appropriate under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on March 25, 2024. There have been no material changes to our critical accounting policies and estimates in the nine months ended September 30, 2024.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024. Based on such evaluation, our principal executive officer and principal financial officer concluded our disclosure controls and procedures (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) were effective as of such date to provide reasonable assurance the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes to Internal Controls Over Financial Reporting

There has been no change in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our fiscal quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.