Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and
analysis of our consolidated financial condition and results of operations should be read together with our consolidated financial statements
and related notes appearing elsewhere in this Annual Report on Form 10-K (the “Financial Statements”). Some of the information
contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect
to our plans and strategy for our business and related financing, includes forward-looking statements involving risks and uncertainties
and should be read together with the “Forward-Looking Statements” and “Risk Factors” sections of this Annual
Report on Form 10-K for a discussion of important factors which could cause actual results to differ materially from the results described
in or implied by the forward-looking statements contained in the following discussion and analysis.
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.
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+ProtectTM 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
Medicare Coverage
In November 2024, we submitted
to MolDx our complete clinical evidence package in support of a request for reconsideration of the non-coverage language in the LCD to
secure Medicare coverage for EsoGuard. The EsoGuard clinical evidence package included six new peer-reviewed publications: three clinical
validation studies (two in the intended use population, one case control), two clinical utility studies, and one analytical validation
study. The current LCD provides clear coverage criteria consistent with the American College of Gastroenterology (ACG) guidelines for
esophageal precancer testing. The package was submitted as part of a request for reconsideration of the non-coverage language in the
LCD to secure Medicare coverage for EsoGuard.
NCCN Clinical Practice Guidelines Update
In
March 2025, we announced that a recent update to the National Comprehensive Cancer Network® (NCCN) Clinical Practice Guidelines in
Oncology (NCCN Guidelines®) focused on Esophageal and Esophagogastric Junction Cancers (Version 1.2025) has added a new section on
BE screening. The NCCN Guidelines® now reference professional society guidelines on BE screening, including the most recent ACG clinical
guideline discussed above, which recommends non-endoscopic biomarker testing, such as EsoGuard performed on samples collected with EsoCheck,
as an acceptable alternative to invasive upper endoscopy to detect esophageal precancer.
Clinical Study Publications
On
March 18, 2025, the Company announced that its ENVET-BE clinical utility study has been accepted for publication in Gastroenterology
& Hepatology—the fifth peer-reviewed publication of clinical utility data for Lucid’s EsoGuard® Esophageal DNA Test, and
the second to present findings from a real-world screening population. The manuscript, entitled “Enhancing the Diagnostic Yield
of EGD for Diagnosis of Barrett’s Esophagus Through Methylated DNA Biomarker Triage,” demonstrates that confirmatory upper endoscopy
(EGD) performed in EsoGuard-positive patients had a substantially higher diagnostic yield for detecting esophageal precancer (Barrett’s
Esophagus or BE) than the expected yield of screening EGD alone in at-risk patients. The ENVET-BE study reviewed real-world data from
a cohort of 199 EsoGuard-positive patients who completed confirmatory EGD. The overall positive diagnostic yield for BE was 2.4-fold
higher than the expected yield of screening EGD alone, based on disease prevalence within an at-risk population. The yield was nearly
three-fold higher in patients meeting American College of Gastroenterology (ACG) screening criteria.
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). 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.
Recent Developments - continued
Business - continued
Highmark Reimbursement Approval
On March 13, 2025, the Company announced
that Highmark Blue Cross Blue Shield, an independent licensee of the Blue Cross and Blue Shield Association, has issued a positive coverage
policy for non-invasive screening of esophageal precancer and cancer in New York state. The new policy will cover EsoGuard in patients
who meet established criteria for esophageal precancer testing consistent with professional society guidelines.
CWRU NIH Grant Related to EsoGuard and EsoCheck
On February 27, 2025, the Company
announced that principal investigators from Case Western Reserve University (CWRU) and University Hospitals (UH), were awarded an $8 million
National Institutes of Health (NIH) R01 grant to conduct a five-year clinical study designed to evaluate esophageal precancer detection
using EsoCheck and EsoGuard among at-risk individuals without symptoms of chronic gastroesophageal reflux disease (GERD). The study, “A
Clinical Trial of Cancer Prevention by Biomarker Based Detections of Barrett’s Esophagus and Its Progression,” aims to evaluate
the effectiveness of EsoCheck and EsoGuard in detecting esophageal precancer (Barrett’s Esophagus or BE) to prevent esophageal cancer
(EAC) within a non-GERD at-risk population. To accomplish this aim, 800 patients without GERD symptoms who meet the American Gastroenterological
Association’s (AGA) risk criteria for screening will be recruited across five participating research centers: University Hospitals, University
of Colorado, Johns Hopkins University, University of North Carolina, and Cleveland Clinic.
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.
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).
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.
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. In addition, under the terms
of PAVmed’s convertible debt, PAVmed is required to elect that these payments be made in cash.
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 Mr. Matheis 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).
Recent Developments - continued
Financing
Registered Direct Offering
On March 5, 2025, the Company closed
on the sale of 13,939,331 shares of its common stock at a price of $1.10 per share (the “Offering”).
The net proceeds of the Offering,
after deducting the estimated placement agent’s fees and other expenses of the Offering, was approximately $14.5 million. The Company
intends to use the net proceeds from the Offering for working capital and other general corporate purposes.
Suspension of ATM Facility
In November 2022, the Company
entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co.
(“Cantor”). Pursuant to the Sales Agreement, from time to time, the Company may offer and sell shares of its common stock
to or through Cantor, acting as sales agent or principal. Sales of the Company’s common stock by Cantor, if any, under the Sales
Agreement may be made by any method permitted by law and deemed to be an “at the market offering” as defined in Rule 415(a)(4)
promulgated under the Securities Act (the “ATM Offering”). The Company filed a prospectus supplement dated December 6, 2022
(the “ATM Prospectus Supplement”), for the offer and sale of shares of its common stock having an aggregate offering price
of up to $6,500,000 in the ATM Offering.
Effective as of March 4, 2025, the Company terminated
the ATM Prospectus Supplement. The Company will not make any sales of common stock in the ATM Offering unless and until a new prospectus
or prospectus supplement is filed.
Other than the termination of the Prospectus Supplement,
the Sales Agreement remains in full force and effect.
Debt Refinancing
On November 22, 2024, the Company
closed on the sale of $21.975 million in principal amount of 12.0% Senior Secured Convertible Notes due 2029 (collectively, the “2024
Convertible Notes”), in a private placement, to certain accredited investors (the “2024 Note Investors”). The sale
of the 2024 Convertible Notes was completed pursuant to the terms of that certain Securities Purchase Agreement, dated as of November
12, 2024 (the “2024 SPA”), between the Company and the 2024 Note Investors. The Company realized gross proceeds of $21.975
million and, after giving effect to the repayment in full of the March 2023 Senior Convertible Note, net proceeds of $18.3 million from
the sale of the 2024 Convertible Notes.
The Company used a portion of
the proceeds from the sale of the 2024 Convertible Notes to redeem the March 2023 Senior Convertible Note, by paying the contractual
redemption price of approximately $3.6 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 audited 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 submission of regulatory filings;
● 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 year ended December 31, 2024 as
compared to year ended December 31, 2023
Revenue
In the year ended December 31,
2024, revenue was $4.3 million as compared to $2.4 million for the corresponding period in the prior year. The $1.9 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 year ended December 31,
2024, the cost of revenue was approximately $7.1 million as compared to $6.0 million for the corresponding period in the prior year.
The $1.1 million increase was principally related to:
Sales and marketing expenses
In the year ended December 31,
2024, sales and marketing costs were approximately $16.5 million as compared to $16.4 million for the corresponding period in the prior
year. The net increase of $0.1 million was principally related to:
General and administrative expenses
In the year ended December 31,
2024, general and administrative costs were approximately $20.2 million as compared to $19.3 million for the corresponding period in
the prior year. The net increase of $0.9 million was principally related to:
● approximately $2.4 million decrease in stock-based compensation;
● approximately $1.2 million increase in cash compensation costs;
Research and development expenses
In the year ended December 31,
2024, research and development costs were approximately $6.0 million, compared to $7.3 million for the corresponding period in the prior
year. The net decrease of $1.3 million was principally related to:
Results of Operations - continued
The year ended December 31, 2024 as compared
to year ended December 31, 2023 - continued
Amortization of Acquired Intangible Assets
The amortization of acquired
intangible assets was approximately $0.7 million in the year ended December 31, 2024, as compared to $2.0 million for the corresponding
period in the prior year. The decrease of $1.3 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 year ended
December 31, 2024, the change in the fair value of our convertible note was approximately $5.4 million of income, related to
the 2024 Convertible Notes and the March 2023 Senior Convertible Note (as defined in Note 12, Debt, to our accompanying
consolidated financial statements). The 2024 Convertible Notes and March 2023 Senior Convertible Note were 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 year ended December 31,
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 year ended December 31,
2024.
Loss on Debt Extinguishment
In the year ended December 31,
2024, a debt extinguishment loss in the aggregate of approximately $5.2 million was recognized in connection with our March 2023 Senior
Convertible Note as discussed below.
See Note 12, Debt, to
our accompanying 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 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:
Deemed Dividend Charged to Accumulated Deficit $ 7,496
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 $45.5 million and used approximately $44.1 million of cash in operations during the
year ended December 31, 2024. Financing activities provided $48.2 million of cash during the year ended December 31, 2024.
We ended the year with cash on-hand of $22.4 million as of December 31, 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 consolidated financial statements are issued .
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.
Liquidity and Capital Resources - continued
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.
During the year ended December 31,
2024, approximately $8.4 million of principal repayments along with approximately $0.9 million of interest expense thereon, were settled
through the issuance of 13,866,867 shares of common stock of the Company, with such shares having a fair value of approximately $13.5
million (with such fair value measured as the respective conversion date quoted closing price of the common stock of the Company).
As discussed below, the March
2023 Senior Convertible Note was redeemed in full in November 2024.
November 2024 Senior Convertible Note Refinancing
On November 22, 2024, the Company
closed on the sale of $21.975 million in principal amount of 12.0% Senior Secured Convertible Notes due 2029 (collectively, the “2024
Convertible Notes”), in a private placement, to certain accredited investors (the “2024 Note Investors”). The sale
of the 2024 Convertible Notes was completed pursuant to the terms of that certain Securities Purchase Agreement, dated as of November
12, 2024 (the “2024 SPA”), between the Company and the 2024 Note Investors. The Company realized gross proceeds of $21.975
million and, after giving effect to the repayment in full of the March 2023 Senior Convertible Note, net proceeds of $18.3 million from
the sale of the 2024 Convertible Notes.
The Company used a portion of
the proceeds from the sale of the 2024 Convertible Notes to redeem the March 2023 Senior Convertible Note, by paying the contractual
redemption price of approximately $3.7 million.
Liquidity and Capital Resources - continued
Registered Direct Offering
On March 5, 2025, the
Company closed on the sale of 13,939,331 shares of its common stock at a price of $1.10 per share (the “Offering”). The
net proceeds of the Offering, after deducting the estimated placement agent’s fees and other expenses of $0.8 million, of the
Offering, was approximately $14.5 million. The Company intends to use the net proceeds from the Offering for working capital and
other general corporate purposes.
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 December 31, 2024. This facility terminates on August 1, 2025, which is the first of the month following the 36-month anniversary
of the effective date of the registration statement for the same.
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 December 31, 2024. Effective as of March 4, 2025, the Company terminated the prospectus supplement for the “at-the-market
offering”. The Company will not make any sales of common stock in such offering unless and until a new prospectus or prospectus
supplement is filed.
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 January 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). Under the terms of PAVmed’s convertible debt, PAVmed is required
to elect that the MSA payments be made in cash.
As of December 31, 2024,
we had a Due To: PAVmed Inc. payment obligation liability of approximately $0.0 million, which liability reflects that we had no accrued
obligations under a payroll and benefit expense reimbursement agreement (the “PBERA”) and the MSA, or with respect to any other operating
expenses paid by PAVmed on our behalf. See our accompanying 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 consolidated financial statements, which have been prepared in accordance
with generally accepted accounting principles in the United States of America, or U.S. GAAP. The preparation of these consolidated financial
statements requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, and equity, along with
the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of
expenses during the corresponding periods. In accordance with U.S. GAAP, we base our estimates on historical experience and on various
other assumptions we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions
or conditions. While our significant accounting policies are described in more detail in our consolidated financial notes, we believe
the following accounting estimates to be critical to the judgments and estimates used in the preparation of our consolidated financial
statements.
Fair Value Option (“FVO”) Election
Under a Securities Purchase Agreement
dated March 13, 2023, the Company issued a Senior Secured Convertible Note dated March 21, 2023, referred to herein as the “March
2023 Senior Convertible Note”, which is accounted under the “fair value option election” as discussed below.
Under a Securities Purchase Agreement
dated November 12, 2024, the Company issued Senior Secured Convertible Notes dated November 22, 2024, referred to herein as the “2024
Convertible Notes”, which are accounted under the “fair value option election” as discussed below.
Under Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, Derivative and Hedging, (“ASC
815”), a financial instrument containing embedded features and/or options may be required to be bifurcated from the financial instrument
host and recognized as separate derivative asset or liability, with the bifurcated derivative asset or liability initially measured at
estimated fair value as of the transaction issue date and then subsequently remeasured at estimated fair value as of each reporting period
balance sheet date.
Alternatively, FASB ASC Topic
825, Financial Instruments, (“ASC 825”) provides for the “fair value option” (“FVO”) election.
In this regard, ASC 825-10-15-4 provides for the FVO election (to the extent not otherwise prohibited by ASC 825-10-15-5) to be afforded
to financial instruments, wherein the financial instrument is initially measured at estimated fair value as of the transaction issue
date and then subsequently remeasured at estimated fair value as of each reporting period balance sheet date, with changes in the estimated
fair value recognized as other income (expense) in the statement of operations. The estimated fair value adjustment of the March 2023
Senior Convertible Note is presented in a single line item within other income (expense) in the accompanying consolidated statement of
operations (as provided for by ASC 825-10-50-30(b)). Further, as required by ASC 825-10-45-5, to the extent a portion of the fair value
adjustment is attributed to a change in the instrument-specific credit risk, such portion would be recognized as a component of other
comprehensive income (“OCI”) (for which there was no such adjustment with respect to the March 2023 Senior Convertible Note).
The estimated fair values reported
utilized the Company’s common stock price along with certain Level 3 inputs, in the development of Monte Carlo simulation models,
discounted cash flow analyses, and /or Black-Scholes valuation models. The estimated fair values are subjective and are affected by changes
in inputs to the valuation models and analyses, including the Company’s common stock price, the Company’s dividend yield,
the risk-free rates based on U.S. Treasury security yields, and certain other Level-3 inputs including, assumptions regarding the estimated
volatility in the value of the Company’s common stock price and the volatility of similar entities within the medical device industry.
Changes in these assumptions can materially affect the estimated fair values.
See Note 11, Financial Instruments
Fair Value Measurements, with respect to the FVO election; and Note 12, Debt, for a discussion of the March 2023 Senior Convertible
Note.
Recent Accounting Standards Updates Adopted
In November 2023, the FASB issued
ASU No. 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which
require public companies disclose significant segment expenses and other segment items on an annual and interim basis and to provide
in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually.
The guidance is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years
beginning after December 15, 2024. Early adoption is permitted. The guidance was adopted by the Company on January 1, 2024. The adoption
of the ASU did not have a significant impact on the Company’s consolidated financial statements.
Recent Accounting Standards Updates Not Yet Adopted
In November 2024, the FASB issued
ASU No. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40):
Disaggregation of Income Statement Expenses. This update enhances financial statement disclosures by requiring public business entities
to disclose specified information about certain costs and expenses including the amounts of (a) purchases of inventory, (b) employee compensation,
(c) depreciation, and (d) intangible asset amortization included in each relevant expense caption. The update also requires disclosure
of certain amounts that are already required to be disclosed under current GAAP, disclosure of a qualitative description of the amounts
remaining in relevant expense captions that are not separately disaggregated quantitatively, and disclosure of the total amount of selling
expenses and, in annual reporting periods, an entity’s definition of selling expenses. The amendments in this update may be applied
either prospectively or retrospectively and are effective for annual reporting periods beginning after December 15, 2026, and interim
reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the potential impact
of this guidance on its consolidated financial statements.
In December 2023, the FASB issued
ASU No. 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures (“ASU 2023-09”), which is intended to
enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 provide for enhanced income
tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for
the Company prospectively to all annual periods beginning after December 15, 2024. Early adoption is permitted. The Company does not expect the standard to have a significant impact on its consolidated financial statements.
In October 2023, the FASB issued
ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification
Initiative. This update modifies the disclosure or presentation requirements of a variety of topics in the Accounting Standards Codification
to conform with certain SEC amendments in Release No. 33-10532, Disclosure Update and Simplification. The amendments in this update should
be applied prospectively, and the effective date for each amendment will be the date on which the SEC’s removal of that related
disclosure from Regulation S-X or S-K becomes effective. However, if the SEC has not removed the related disclosure from its regulations
by June 30, 2027, the amendments will be removed from the Codification and not become effective. Early adoption is prohibited. We are
currently evaluating the potential impact of this guidance on its consolidated financial statements and disclosures.
Off-Balance sheet arrangements
We do not have any off-balance
sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosure
About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary
Data
Our consolidated financial statements,
together with the report of our independent registered public accounting firm, appear herein commencing on page F-1 of this Annual Report
on Form 10-K and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
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 December 31, 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.
Management’s Report on Internal Control
Over Financial Reporting
Our management is responsible
for establishing and maintaining an adequate system of internal control over financial reporting, as such term is defined in Exchange
Act Rules 13(a)-15(f). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting
principles generally accepted in the U.S.
Our internal control over financial
reporting includes those policies and procedures that:
Due to its inherent limitations,
a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect all misstatements.
Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time. Our system
contains self-monitoring mechanisms, so actions will be taken to correct deficiencies as they are identified.
Our management conducted an evaluation
of the effectiveness of the system of internal control over financial reporting based on the framework in Internal Control-Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management
concluded our system of internal control over financial reporting was effective as of December 31, 2024.
This Form 10-K does not include
an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by our registered public accounting firm pursuant to the rules of the SEC to permit us to provide
only management’s report in this Form 10-K.
Changes to Internal Controls Over Financial Reporting
There has been no change in our
internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during
the quarter ended December 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.
Item 9B. Other Information
During the fiscal quarter ended
December 31, 2024, none of our directors or officers (as defined in Rule 16a-1 under the Exchange Act) adopted or terminated a “Rule
10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as those terms are defined in Item 408 of Regulation
S-K).
Item 9C. Disclosure Regarding Foreign Jurisdictions
that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and
Corporate Governance
The information required by this
Item 10 is incorporated by reference to our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission within 120 days of the fiscal year ended December 31, 2024.
Item 11. Executive Compensation
The information required by this
Item 11 is incorporated by reference to our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission within 120 days of the fiscal year ended December 31, 2024.
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
The information required by this
Item 12 is incorporated by reference to our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission within 120 days of the fiscal year ended December 31, 2024.
Item 13. Certain Relationships and Related
Transactions, and Director Independence
The information required by this
Item 13 is incorporated by reference to our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission within 120 days of the fiscal year ended December 31, 2024.
Item 14. Principal Accounting Fees and Services
The information required by this
Item 14 is incorporated by reference to our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission within 120 days of the fiscal year ended December 31, 2024.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents filed as a part of the report:
(1) The following financial statements:
Report of Independent Registered Public Accounting Firm (PCAOB ID #688)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) The financial statement schedules:
(3) The following exhibits:
Incorporation by Reference
Exhibit No. Description Form Exhibit No. Date
3.1.1 Amended and Restated Certificate of Incorporation S-1/A 3.1 10/7/2021
4.1 Description of Registrant’s Securities *
Incorporation by Reference
Exhibit No. Description Form Exhibit No. Date
10.19# Lucid Diagnostics Inc. Employee Stock Purchase Plan S-8 10.1 3/15/2022
19.1 Insider Trading Policy *
21.1 List of Subsidiaries *
23.1 Consent of Marcum LLP *
* Filed herewith.
# Indicates management contract or compensatory plan.
† Certain confidential portions of this exhibit
were omitted by means of marking such portions with asterisks because the identified confidential portions (i) are not material and (ii)
would be competitively harmful if publicly disclosed.
‡ Certain exhibits and schedules have been
omitted pursuant to Item 601(b)(10) of Regulation S-K. The registrant hereby undertakes to furnish a copy of any omitted exhibit or schedule