Lucid Diagnostics Inc. 10-K

Item 1A. Risk Factors The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or we presently deem less significant may also impair our business operations. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected. Risks Factor Summary Our business is subject to numerous risks and uncertainties that you should consider before investing in our common stock. These risks are described more fully below and include, but are not limited to, risks relating to the following: Risks Associated with our Business ● Since we have a limited operating history, you will have little basis upon which to evaluate our ability to achieve our business objective. ● Our business may be adversely affected by health epidemics and or pandemics, including the COVID-19 pandemic. ● The markets in which we operate are attractive and other companies or institutions may develop and market novel or improved technologies, which may make the EsoGuard or EsoCheck technologies less competitive or obsolete. ● We expect to derive substantially all of our revenues from the EsoGuard and EsoCheck products. ● We are highly dependent on the License Agreement, the termination of which would prevent us from commercializing our products, and which imposes significant obligations on us. ● Our products may never achieve market acceptance. ● The sizes of the markets for our current and future products have not been established with precision, and may be smaller than we estimate. ● Recommendations in published clinical practice guidelines issued by various organizations, including professional societies and federal agencies may significantly affect payors’ willingness to cover, and physicians’ willingness to prescribe, our products and services. ● We expect to be dependent on third-party manufacturers since we do not expect to directly manufacture our products in the foreseeable future. ● Our third-party manufacturers may not have the manufacturing and processing capacity to meet the production requirements of consumer demand or clinical testing in a timely manner. ● Our EsoGuard test is performed in a single laboratory facility. ● We may remain dependent on the sales and marketing efforts of third parties if we are unable to or choose not to develop an extensive sales and marketing staff and other resources. ● Our results of operations can be adversely affected by labor shortages, turnover, and labor cost increases. ● We heavily rely upon certain suppliers, including suppliers that are the sole source of certain products. The loss or interruption of supply from our suppliers could have a disruptive effect on our business. ● We expect to rely on courier delivery services to transport EsoCheck devices and EsoGuard Specimen Kits to physicians and other medical professionals and samples back to laboratory facilities for analysis. ● If we attempt to bring any other products or services to market in addition to the EsoGuard test and EsoCheck device, we likely will be required to make significant investments in research and development, which ultimately may prove unsuccessful. ● Our officers may allocate their time to other businesses thereby potentially limiting the amount of time they devote to our affairs. This conflict of interest could have a negative impact on our operations. ● We are party to agreements pursuant to which we may be required to make payments to certain of our affiliates, which may reduce our cash flow and profits. ● Our ability to be successful is dependent upon the efforts of our key personnel. ● Our business may suffer if we are unable to manage our growth. ● We may conduct business internationally, in which case our business, financial condition and results of operations could be adversely affected by the political and economic conditions of countries other than the U.S. ● We may engage in acquisitions that are not successful and which could disrupt our business, cause dilution to our stockholders and reduce our financial resources. ● Adverse results in material litigation matters could have a material adverse effect upon our business. 23 Risks Associated with Healthcare Regulation, Billing and Reimbursement, and Product Safety and Effectiveness ● Our ability to market EsoGuard, or any other IVD that we may develop, license, or acquire, as LDTs without FDA approval, is entirely dependent on FDA continuing to exercise enforcement discretion with regard to requiring premarket review of LDTs. ● If our commercial clinical laboratory fails to maintain CLIA-certification or otherwise meet the applicable requirements of federal or state law regulating clinical laboratories, that failure could limit or prevent its ability to perform our EsoGuard test. ● EsoGuard, or any other IVD without FDA approval we may develop, license, or acquire and market as an LDT, may not be jointly marketed as a combined product with EsoCheck without first securing FDA approval of the combined product as an IVD. ● Securing FDA approval of EsoGuard, or any other IVD we may develop, license, or acquire, as an IVD, separately or as a combined product with EsoCheck, is a complex process requiring substantial time, commitment of resources and expense without any assurance that FDA will grant such approval. ● Failure to obtain regulatory approvals in foreign jurisdictions will prevent us from marketing our products internationally. ● Modifications to our cleared or approved products may require new clearances or premarket approvals, or may require us to cease marketing or recall the modified products until clearances are obtained. ● Clinical trials necessary to support regulatory submission will be expensive and will require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit. ● The results of our clinical trials may not support our product candidate claims or may result in the discovery of adverse side effects. ● If our clinical studies do not satisfy providers, payors, patients and others as to the reliability and performance of our EsoGuard test and the EsoCheck device, or any other product or service we may develop and seek to commercialize, we may experience reluctance or refusal on the part of physicians to order, and third-party payors to pay for, such test. ● If the validity of an informed consent for a clinical trial of one of our products was challenged, we could be subject to fines, penalties, litigation, or regulatory sanctions, or other adverse consequences. ● Our business and reputation will suffer if we are unable to establish and comply with, stringent quality standards to assure that the highest level of quality is observed in the performance of our tests. ● EsoCheck and any other products we develop that receive regulatory clearance or approval will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and subject us to penalties if we fail to comply with applicable regulatory requirements. ● If we are found to be promoting the use of our devices for unapproved or “off-label” uses or engaging in other noncompliant activities, we may be subject to recalls, seizures, fines, penalties, injunctions, adverse publicity, prosecution, or other adverse actions, resulting in damage to our reputation and business. ● Clinical laboratories and medical diagnostic companies are subject to extensive and frequently changing federal, state, and local laws. ● Patient service centers, where prescribing physicians can send patients for EsoGuard testing, including undergoing specimen collection using EsoCheck, are subject to federal and state regulations which may be burdensome, costly or difficult to comply with. ● Telemedicine, and its specific use in conjunction with DTC, is subject to numerous federal and state regulations and faces particularly intense scrutiny by these regulators. ● Many aspects of our business, beyond the specific elements described above are subject to complex, intertwined, costly and/or burdensome federal health care laws and regulations which may open to interpretation and be subject to varying levels of discretionary enforcement. ● If private or governmental third-party payors do not maintain reimbursement for our products at adequate reimbursement rates, we may be unable to successfully commercialize our products which would limit or slow our revenue generation and likely have a material adverse effect on our business. ● The regulations that govern pricing and reimbursement for new products vary widely from country to country, and may adversely affect the pricing, coverage and reimbursement rates of our products in other countries. ● Due to billing complexities in the diagnostic and laboratory service industry, we may not be able to collect payment for the EsoGuard tests we perform. ● Healthcare reform measures could hinder or prevent our products’ commercial success. ● We face uncertainty related to healthcare reform, pricing, coverage and reimbursement, which could reduce our revenue. ● Our products may cause serious adverse side effects or even death or have other properties that could delay or prevent their regulatory clearance or approval, limit the commercial desirability of an approved label or result in significant negative consequences following any marketing clearance or approval. ● We intend to market our products in Europe, however major changes in the EU regulation of medical devices and IVDs may make it burdensome, costly and impossible to successfully do so, which could adversely impact our business. 24 ● Our medical products may in the future be subject to product recalls that could harm our reputation, business, and financial results. ● If our medical products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions. ● Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of our products. ● Compliance with the HIPAA security, privacy and breach notification regulations may increase our costs. ● Our employees, independent contractors, consultants, commercial partners, and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements. Risks Associated with Our Intellectual Property and Technology Infrastructure ● We may not be able to protect or enforce the intellectual property rights for the technology used in, or expected to be used in, our products, which could impair our competitive position. ● We may be subject to intellectual property infringement claims by third parties which could be costly to defend, divert management’s attention and resources, and may result in liability. ● Competitors may violate the intellectual property rights for the technology used in, or expected to be used in, our products, and we may bring litigation to protect and enforce our intellectual property rights, which may result in substantial expense and may divert our attention from implementing our business strategy. ● Failure in our information technology, storage systems or our clinical laboratory equipment could significantly disrupt our operations and our research and development efforts, which could adversely impact our revenues, as well as our research, development and commercialization efforts. ● Our internal computer systems, or those used by our third-party research institution collaborators, vendors or other contractors or consultants, may suffer security breaches. Risks Associated with Our Financial Condition ● We have incurred operating losses since our inception and may not be able to achieve sustainable profitability. ● We have incurred recurring losses to date, which raised substantial doubt about our ability to continue as a going concern, although such doubt has been alleviated by PAVmed’s agreement to continue to fund our operations. ● We may need substantial additional funding and may be unable to raise capital when needed, which could force us to delay, reduce, eliminate or abandon growth initiatives or product development programs. ● Our quarterly operating results could be subject to significant fluctuation, which could increase the volatility of our stock price and cause losses to our stockholders. Risks Associated with Our Relationship with PAVmed ● PAVmed, our management, our initial stockholders and their respective affiliates control a substantial interest in us and thus may influence certain actions requiring a stockholder vote. ● Certain conflicts of interest may arise between us and our officers, directors, and affiliated companies, including PAVmed, and in some cases we have waived certain rights with respect thereto. ● Our historical financial information as a subsidiary of PAVmed may not be representative of our results as an independent public company. ● Our ability to operate our business effectively may suffer if the management services agreement with PAVmed is insufficient to meet our needs or if, upon the termination of the management services agreement, we do not cost-effectively establish our own fully functional financial, administrative, operational and other support systems in order to operate as a stand-alone company. ● In order to preserve the ability for PAVmed to distribute its shares of our common stock on a tax-free basis for U.S. federal income tax purposes, we may be prevented from pursuing opportunities to raise capital, to effectuate acquisitions or to provide equity incentives to our employees, which could hurt our ability to grow. ● Third parties may seek to hold us responsible for liabilities of PAVmed, which could result in a decrease in our income. ● Any disputes that arise between us and PAVmed with respect to our past and ongoing relationships could harm our business operations. ● PAVmed’s ability to control our board of directors and company may make it difficult for us to recruit high-quality independent directors and employees. 25 Risks Associated with Ownership of Our Common Stock ● We may issue shares of our capital stock or debt securities in the future which could reduce the equity interest of our stockholders and might cause a change in control of our ownership. ● An active trading market may not develop for our common stock, and you may not be able to sell your shares at or above the initial public offering price. ● If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and trading volume could decline. ● Nasdaq may in the future delist our common stock, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions. ● Our stock price may be volatile, and purchasers of our common stock could incur substantial losses. ● We do not intend to pay any dividends on our common stock at this time. ● We will incur significantly increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives. ● If we fail to establish and maintain proper and effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could decline significantly. ● Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud. ● We are subject to evolving corporate governance and public disclosure expectations and regulations that impact compliance costs and risks of noncompliance. ● We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors. ● Provisions in our corporate charter documents and under Delaware law could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our current management. ● Our charter provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware is the sole and exclusive forum for certain stockholder litigation matters, which limits our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders. 26 Risks Associated with our Business Since we have a limited operating history, and have not generated any significant revenues to date, you will have little basis upon which to evaluate our ability to achieve our business objective. Since we have a limited operating history, and have not generated any significant revenues, you will have little basis upon which to evaluate our ability to achieve our business objective. We are subject to all of the problems, expenses, delays and other risks inherent in any new business, as well as problems inherent in establishing name recognition and business reputation. Our business may be adversely affected by health epidemics and or pandemics, including the COVID-19 pandemic. In 2019, an outbreak of a novel strain of a coronavirus occurred, which spread on a global basis to other countries, including the U.S. On March 11, 2020, the World Health Organization declared a pandemic resulting from the coronavirus, with such pandemic commonly referred to as the “COVID-19 pandemic” after the related illness. The COVID-19 pandemic is ongoing, and we continue to monitor the ongoing impact of the COVID-19 pandemic on the United States national economy, the global economy, and our business. The COVID-19 pandemic may have an adverse impact on our operations, supply chains, and distribution systems and/or those of our contractors, and may increase our expenses, including because of preventive and precautionary measures being taken, restrictions on travel, quarantine polices, and social distancing. Such adverse impacts may include, for example, the inability of our employees and/or those of our contractors to perform their work or curtail their services provided to us. We expect the significance of the COVID-19 pandemic, including the extent of its effect on our consolidated financial condition and consolidated operational results and cash flows, to be dictated by the success of U.S. and global efforts to mitigate and/or to contain the spread of the coronavirus, as well as the impact of those efforts. The spread of the coronavirus also has disrupted the United States’ healthcare and healthcare regulatory systems which could divert healthcare resources away from, or materially delay FDA approval with respect to our products. In addition, our clinical trials have been, and may be further, affected by the COVID-19 pandemic, as site initiation and patient enrollment may be delayed, for example, due to prioritization of hospital resources toward the virus and/or illness response, as well as travel restrictions imposed by governments, the inability to access clinical test sites for initiation and monitoring, and the inability of our investigators to perform EGDs required by our clinical trials. Furthermore, the COVID-19 pandemic may have an adverse impact on the economies and financial markets of many countries, including the U.S., resulting in an economic downturn that could adversely affect demand for our products and services and/or our product candidates. Although we are continuing to monitor and assess the effects of the COVID-19 pandemic on our business, the ultimate impact of the COVID-19 pandemic (or any similar health epidemic) is highly uncertain and subject to change, and therefore, its impact on our consolidated financial condition, consolidated results of operations, and/or consolidated cash flows, the adverse impact could be material. 27 The markets in which we operate are attractive and other companies or institutions may develop and market novel or improved technologies, which may make the EsoGuard or EsoCheck technologies less competitive or obsolete. Given the large market opportunity for esophageal precancer screening we may face multiple competitors in the future, some of which possess significantly greater financial and other resources and development capabilities than us. Our EsoGuard test may face competition from new biomarkers also designed to detect esophageal precancer and conditions along the BE-EAC spectrum. The Mayo Clinic and Exact Sciences Inc. (Nasdaq: EXAS) have published preliminary data on such biomarkers and have publicly expressed a commitment to advancing them to commercialization. Investigators at Johns Hopkins University associated with a privately held firm called Capsulomics LLC have published limited data on methylation biomarkers for BE. Of note, both groups used the EsophaCap “sponge-on-a-string” cell collection device. Other manufactures have developed noninvasive esophageal cell collection devices most notably “sponge-on-a-string” devices which may compete with EsoCheck. Two such devices, Cytosponge, previously marketed by in the U.S. by Medtronic Inc. (NYSE: MDT), and EsophaCap, manufactured by CapNostics, LLC and utilized almost exclusively for clinical research, are spherical mesh sponges encapsulated in soluble gelatin that dissolve in the stomach. The expanded sponge brushes the lining of the esophagus as it is withdrawn and retrieved. Although, unlike EsoCheck, these devices do not provide anatomic targeting nor protect their sample from dilution and contamination during device withdrawal, future biomarkers may have sufficient sensitivity to detect BE-EAC despite such dilution and contamination. These or other manufacturers may also be developing new tools that have not yet been announced that provide noninvasive esophageal cell sampling with the same or better protection from dilution and contamination as EsoCheck. Several well-capitalized companies are developing “liquid biopsy” tests for early cancer detection based on circulating tumor DNA. Although none of these tests yet purport to detect early precancer in the bloodstream, technological advances could result in sufficient sensitivity to do so generally and for conditions along the BE-EAC spectrum. Such advances could put EsoGuard and EsoCheck at a significant competitive disadvantage in the esophageal precancer screening market as it would be logistically much simpler to send the patient for a routine blood draw instead of a specialized office procedure like EsoCheck, and patients would generally prefer such a blood draw over even a noninvasive procedure such as EsoCheck. Additional, still unproven, technologies with the potential to compete with EsoGuard and EsoCheck in the future, include breath tests and oral tests which may be capable of identifying the presence of BE. For example, there is early data to suggest that an “electric nose” device which measures volatile organic compounds (VOCs) developed by Aeonose, The eNose Company, based in the Netherlands, may be able to identify patients with BE. Preliminary published data from Columbia University School of Medicine found differences in the oral bacterial microbiome, obtain with a simple saliva sample or oral swab, may correlate with the presence of BE. Although there can be no assurance that we will pursue the development of any products other than EsoGuard and EsoCheck, if we seek to develop other products, we may need to compete with a broad range of organizations in the U.S. and other countries that are engaged in the development, production and commercialization of diagnostic products and services. These competitors include biotechnology, diagnostic and other life science companies; academic and scientific institutions, governmental agencies, and public and private research organizations. We may be unable to compete effectively against our competitors either because their products and services are superior or more cost efficient, or because they have access to greater resources than us. Our potential competitors may have substantially greater financial, marketing, sales, distribution, manufacturing, and technological resources. These competitors may also have broader product lines and greater name recognition than we do. Many of these competitors will have obtained FDA or other regulatory clearances or approvals, and patent protection, for their products, or are in the process of seeking such clearances, approvals, and protection. Certain of our potential competitors may commercialize their products in advance of our products. In addition, our competitors may make technical advances that render our products obsolete. We may be unable to respond to such technical advances, especially given our focus on the EsoGuard and EsoCheck technology. Although there can be no assurance that we will pursue the development of any products other than EsoGuard and EsoCheck, even if we do develop new marketable products or services, our current and future competitors may develop products and services that are more commercially attractive than ours, and they may bring those products and services to market earlier or more effectively than us. 28 We expect to derive substantially all of our revenues from the EsoGuard and EsoCheck products. Although we may develop additional products based on the technology underlying our EsoGuard and EsoCheck products, or other related technologies we develop, license, or acquire, we presently expect to derive substantially all of our revenues from sales of our EsoGuard and EsoCheck products. As such, any factor adversely affecting sales of our products, including the product development and release cycles, regulatory issues, intellectual property rights issues, market acceptance, product competition, performance and reliability, reputation, price competition and economic and market conditions, and the other factors discussed in this prospectus, could adversely affect our business prospects, financial condition and results of operations, and could threaten the viability of our business. We are highly dependent on the License Agreement, the termination of which would prevent us from commercializing our products, and which imposes significant obligations on us. We are highly dependent on the intellectual property licensed from CWRU, pursuant to which we license the technology underlying our EsoGuard and EsoCheck products. Other products or services we may develop also may rely on the same technology. In the event that we default in the payment of any amount when due under the License Agreement, and such amount is not paid within 30 days of notice of nonpayment, CWRU may terminate the exclusivity of the license or terminate the License Agreement in full. Furthermore, if we breach the agreement, including by failing to use our commercially best efforts to achieve the milestones prescribed by the agreement, and we do not cure such breach within the applicable time period, in addition to seeking damages, CWRU could terminate the License Agreement. Any termination of the License Agreement resulting in the loss of the licensed rights would prevent us from marketing and selling the EsoGuard and EsoCheck products and any other products or services we may develop based on the same underlying technology. Any termination of the exclusivity of the license could damage our competitive position within the marketplace. In addition, disputes may also arise between us and CWRU regarding the License Agreement. If any such dispute results in an impairment of our ability to use the intellectual property, we may be unable to commercialize the EsoGuard and EsoCheck products and any other product or service we may develop based on the same underlying technology. Accordingly, any such termination or dispute could threaten the viability of our business. Furthermore, the License Agreement imposes significant obligations on us. We will be required to pay CWRU a minimum yearly royalty commencing the year after the first commercial sale of a product utilizing the EsoGuard or EsoCheck technology, with the minimum amount rising based on prior years’ net sales of the product. The License Agreement also is subject to certain regulatory and commercialization milestones, with a payment due from us to CWRU upon the achievement of certain of the milestones. The remaining milestone is the submission of a PMA application to FDA for a product using the licensed technology. Accordingly, we could be obligated to pay royalties or other amounts to CWRU even though we have generated no or limited revenue. Such payments could materially and adversely affect our profitability and could limit our investment in our business. Our products may never achieve market acceptance. To date, we have not generated any significant revenues. Our ability to generate revenues from product sales and to achieve profitability will depend upon our ability to successfully commercialize the EsoGuard and EsoCheck products and any other products, tests or services we develop. Because we have just begun to offer our products, tests or services for sale, we have no basis to predict whether any of our products will achieve market acceptance. A number of factors may limit the market acceptance of any of our products, including: ● the effectiveness, reliability and safety of our products, including any potential side effects, and the other competitive features of our products, including price, as compared to alternatives; ● the rate of adoption of our products by hospitals, doctors and nurses and acceptance by the health care community, and the ease of the ordering process for doctors; ● guidelines and other recommendations from medical societies and other similar organizations relating to screening for, monitoring, diagnosing and treating esophageal precancer and cancer or other medical conditions for which our products are used; ● the product labeling or product inserts required by regulatory authorities for each of our products; ● the availability and amount of insurance or other third-party reimbursement, such as Medicare, for patients using our products; ● the extent and success of our marketing efforts and those of our collaborators; ● unfavorable publicity concerning our products or similar products; and ● in the case of FDA PMA approval of the EsoGuard combined with EsoCheck as an IVD device, and in the case of any other products or services we may develop in the future, the timing of regulatory approvals of our products and market entry compared to competitive products. 29 The sizes of the markets for our current and future products have not been established with precision, and may be smaller than we estimate. Our estimates of the annual total addressable markets for our current products are based on a number of internal and third-party estimates, including, without limitation, the number of patients with esophageal cancer and precancer, the number of individuals who are at a higher risk for developing cancer, and the assumed prices at which we can sell tests for markets that have not been established. While we believe our assumptions and the data underlying our estimates are reasonable, these assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates may change at any time, thereby reducing the predictive accuracy of these underlying factors. As a result, our estimates of the annual total addressable market for our current or future products may prove to be incorrect. If the actual number of patients who would benefit from our products, the price at which we can sell our products, or the annual total addressable market for our products is smaller than we have estimated, it may impair our sales growth and have an adverse impact on our business. Recommendations in published clinical practice guidelines issued by various organizations, including professional societies and federal agencies may significantly affect payors’ willingness to cover, and physicians’ willingness to prescribe, our products and services. Long-term adoption of our products as well as payment and coverage for them may depend on their recommendation in clinical practice guidelines. These include professional society guidelines published by gastroenterology specialty societies, such as the American College of Gastroenterology (ACG), the American Gastroenterological Association (AGA), and the American Society for Gastrointestinal Endoscopy (ASGE), internal medicine and family practice societies such as the American College of Physicians (ACP) and American Academy of Family Physicians (AAFP), and oncology societies such as the American Cancer Society (ACS). These also include federal agencies and federally funded affiliates such as the U.S. Preventative Services Task Force (“USPSTF”) and the Agency for Healthcare Research & Quality (“AHRQ”). The recommendations in these clinical practice guidelines may shape payors’ coverage decisions. The USPSTF, a panel of primary care physicians and epidemiologists and other national experts funded by the U.S. Department of Health and Human Services’ AHRQ, makes influential recommendations on clinical preventative services. We intend to seek a USPSTF recommendation in the future. The process of USPSTF recommendation development is lengthy, requires high quality supporting evidence for a positive recommendation, and the outcome of any USPSTF process is uncertain. We expect to be dependent on third-party manufacturers since we do not expect to directly manufacture our products in the foreseeable future. We do not expect to directly manufacture our products and expect to rely on third parties to do so for us for the foreseeable future. If our manufacturing agreements are not satisfactory, we may not be able to develop or commercialize products as planned. In addition, we may not be able to contract with third parties to manufacture our products in an economical manner. Furthermore, third-party manufacturers may not adequately perform their obligations, which may delay distribution of our products, clinical development or submission of products for regulatory clearance or approval or otherwise may impair our competitive position. We may not be able to enter into or maintain relationships with manufacturers that comply with good manufacturing practices. If a product manufacturer fails to comply with good manufacturing practices, we could experience significant delays, or we may be unable to commercialize or continue to market the products. Changes in our manufacturers could require costly new product testing and facility compliance inspections. In the United States, failure to comply with good manufacturing practices or other applicable legal requirements can lead to federal seizure of violative products, injunctive actions brought by the federal government, and potential criminal and civil liability on the part of a company and its officers and employees. Because of these and other factors, we may not be able to replace our manufacturing capacity quickly or efficiently if our manufacturers are unable to manufacture our products at one or more of their facilities. As a result, the sale and marketing of our products could be delayed or we could be forced to develop our own manufacturing capacity, which could require substantial additional funds and personnel and compliance with extensive regulations. 30 Our third-party manufacturers may not have the manufacturing and processing capacity to meet the production requirements of consumer demand or clinical testing in a timely manner. Our capacity to commercialize our products and conduct any clinical trials required for additional regulatory clearances or approvals will depend in part on our ability to manufacture or provide our products on a large scale, at a competitive cost and in accordance with regulatory requirements. We must establish and maintain a commercial scale manufacturing process for all our products in order to meet customer demand and to complete the clinical trials required for certain regulatory clearance or approval pathways. We have no direct experience in large-scale product manufacturing, nor do we currently have the internal resources or facilities to manufacture most of our products on a commercial scale. Accordingly, we expect to rely on third party manufacturers. We cannot guarantee that our third-party manufacturers will be able to establish or increase production and processing capacity in a timely or cost-effective manner, or at all. Our third-party manufacturers may encounter delays or other difficulties in establishing or in increasing production or processing capacity at any time that could result in delays in the commercialization of our products, in the distribution of our products, in the clinical trials for our products or in the submissions for additional regulatory clearances or approvals for our products. Any such delays could have an adverse effect on our ability to obtain regulatory clearance or approval for, commercialize and secure sales of our products. Our EsoGuard test is performed in a single commercial clinical laboratory facility. If demand for our EsoGuard test grows, we may lack adequate facility space and capabilities to meet increased processing requirements. Moreover, if these or any future facilities or their equipment were damaged or destroyed, or if we experience a significant disruption in our commercial clinical laboratory operations for any reason, our ability to continue to operate our business could be materially harmed. Further, our CLIA-certified laboratory is partially managed through a laboratory management services agreement with our previous laboratory partner who may terminate its contract with us which may interrupt our ability to perform our tests and potentially materially harm our business. Our EsoGuard test is performed in a single commercial clinical laboratory facility located in Lake Forest, California. Our commercial clinical laboratory is partially managed by RDx under a laboratory management services agreement, under which RDx may terminate on short notice for any or no reason. This may interrupt our ability to perform our tests until we are able to transition to fully staff our laboratory with qualified personnel which may take substantial resources and time to fully operate our own laboratory. This may materially harm our business for a substantial period of time. Our CLIA-certified commercial clinical laboratory facility, without purchasing additional lab equipment applicable to our test, is expected to have an annual capacity of approximately 100,000 tests per year. If demand for the EsoGuard test outstrips this capacity, and the laboratory fails to add additional equipment and staff, or complete, or timely complete, an expansion of its available laboratory facilities, it may significantly delay EsoGuard processing times and limit the volume of EsoGuard tests it can process, which may adversely affect our business, financial condition, and results of operation. In addition, our financial condition may be adversely affected if they are unable to complete these expansion projects on budget and otherwise on terms and conditions acceptable to us. We cannot guarantee our CLIA-certified commercial clinical laboratory will be able to maintain or increase processing capacity in a timely or cost-effective manner, or at all. Our CLIA-certified commercial clinical laboratory may encounter delays or other difficulties in maintaining or in increasing processing capacity at any time that could result in delays in the commercialization of our products, in the distribution of our products, in the clinical trials for our products or in the submissions for additional regulatory clearances or approvals for our products. Any such delays could have an adverse effect on our ability to obtain regulatory clearance or approval for, commercialize and secure sales of our products. If the present, or any future, laboratory facilities we utilize were to be damaged, destroyed or otherwise unable to operate, whether due to fire, floods, storms, tornadoes, other inclement weather events or natural disasters, employee malfeasance, terrorist acts, power outages, or otherwise, our business could be severely disrupted. We may not be able to perform our EsoGuard test or generate test reports as promptly as patients and healthcare providers require or expect, or possibly not at all. If we are unable to perform our EsoGuard test or generate test reports within a timeframe that meets patient and healthcare provider expectations, our business, financial results and reputation could be materially harmed. 31 We may remain dependent on the sales and marketing efforts of third parties if we are unable to or choose not to develop an extensive sales and marketing staff and other resources. We expect to continue to depend, at least in part, on the efforts of third parties (including independent sales representatives and, potentially in the future, distributors) to carry out the sales and marketing of our products. We anticipate that each third party will control the amount and timing of resources generally devoted to these activities. However, these third parties may not be able to generate demand for our products. In addition, there is a risk that these third parties will develop products competitive to ours, which would likely decrease their incentive to vigorously promote and sell our products. Various market factors may force us to expend substantially more time and resources to develop an effective internal sales infrastructure on a larger scale, requiring more capital and much sooner than we might have anticipated or budgeted. However, it may not be economical for us to market our own products, or we may be unable to effectively market our products. Therefore, our business could be harmed if we fail to enter into arrangements with third parties for the sales and marketing of our products or otherwise fail to establish sufficient marketing capabilities. Our results of operations can be adversely affected by labor shortages, turnover, and labor cost increases. Labor is a significant component of operating our business. A number of factors may adversely affect the labor force available to us or increase labor costs, including high employment levels, federal unemployment subsidies, including unemployment benefits offered in response to the COVID-19 pandemic, increased wages offered by other employers, vaccine mandates and other government regulations and our responses thereto. As more employers offer remote work, we may have more difficulty recruiting for jobs that require on-site attendance, such as certain clinical laboratory and sales roles. Although we have not experienced any material labor shortage to date, we have recently observed an overall tightening and increasingly competitive labor market. A sustained labor shortage or increased turnover rates within our employee base, caused by COVID-19 or as a result of general macroeconomic factors, could lead to increased costs, such as increased overtime or financial incentives to meet demand and increased wage rates to attract and retain employees, and could negatively affect our ability to efficiently operate our clinical laboratories and overall business. If we are unable to hire and retain employees capable of performing at a high level, or if mitigation measures we may take to respond to a decrease in labor availability have unintended negative effects, our business could be adversely affected. Additionally, the operations of our vendors and partners could also suffer from labor shortages, turnover, and labor cost increases which could result in supply chain disruptions and increases in the costs of the products and services we purchase, each of which could adversely affect our operations. We heavily rely upon certain suppliers, including suppliers that are the sole source of certain products. The loss or interruption of supply from our suppliers could have a disruptive effect on our business . We purchase certain supplies from third-party suppliers and manufacturers. In some cases, due to the unique attributes of products that are incorporated into our tests, we may maintain either a single-source supplier relationship or a very limited set of supplier relationships. Certain of our third-party suppliers may possess exclusive intellectual property or otherwise may be the only party with the rights or expertise to provide us critical supplies. These third parties are independent entities subject to their own unique operational, regulatory compliance, and financial risks that are outside our control. These third parties may not be willing to enter or renew long-term supply arrangements with us or continue to supply us at all. Additionally, they may not perform their obligations in a timely and cost-effective manner and they may be unwilling to increase production capacity commensurate with demand for our tests or future products or services. Our relationships with suppliers may also be negatively affected by general supply chain material shortages worldwide, as suppliers struggle to keep pace with demand and manage their own supply chains. We may become dependent on additional single- or limited-source suppliers, or become increasingly dependent on existing suppliers, as we expand and develop our product and service pipeline. The loss of a critical supplier, the failure to perform by a critical supplier, the deterioration of our relationship with a critical supplier or any unilateral modification to the contractual terms under which we are supplied materials could have a disruptive effect on our business, and could adversely affect our results of operations for an extended period of time, particularly if we are required to validate an alternative supplier. 32 We expect to rely on courier delivery services to transport EsoCheck devices and EsoGuard Specimen Kits to physicians and other medical professionals and samples back to laboratory facilities for analysis. If these delivery services are disrupted or become prohibitively expensive, customer satisfaction and our business could be negatively impacted. In most cases, we expect to ship EsoCheck devices EsoGuard Specimen Kits to physicians and have the physician’s office ship samples by air express courier delivery service to our CLIA-certified laboratory for EsoGuard testing. Disruptions in delivery service, whether due to bad weather, natural disaster, labor disruptions, terrorist acts or threats, or for other reasons, can adversely affect customer satisfaction, specimen quality and our ability to provide our services on a timely basis. If the courier delivery services that transport EsoCheck devices or EsoGuard Specimen Kits institute significant price increases, our profitability would be negatively affected and we may need to identify alternative delivery methods, if possible, modify our service model, or attempt to raise our pricing, which may not be possible with regard to Medicare claims or commercially practicable with regard to commercial claims. If we attempt to bring any other products or services to market in addition to the EsoGuard test and EsoCheck device, we likely will be required to make significant investments in research and development, which ultimately may prove unsuccessful. Our future performance may be affected by the success of products we have not yet developed, licensed, acquired. Although there can be no assurance that we will pursue the development of any products or services other than the EsoGuard test and EsoCheck device, we may develop additional products or services based on the same underlying technologies or other technologies we develop, license, or acquire. If we attempt to bring any other such products or services to market, we likely will incur significant expenses on research and development efforts, which ultimately may prove unsuccessful. Developing new or improved diagnostic tests and other medical products and services is a speculative and risky endeavor. Candidate products and services that may initially show promise may fail to achieve the desired results in larger clinical studies or may not achieve acceptable levels of clinical accuracy. Any test we develop will need to demonstrate a high level of accuracy in clinical studies. If in a clinical study a candidate product or service fails to identify even a small number of cases, the sensitivity rate may be materially and adversely affected, and we may have to abandon the candidate product or service. We may need to explore a number of different designs, methods or technologies, alter our candidate products or services, and repeat clinical studies before we identify a potentially successful candidate. We may need to acquire, whether through purchase, license or otherwise, technologies owned by third parties, and we may not be able to acquire such technologies on commercially reasonable terms or at all. Product development is expensive, may take years to complete and can have uncertain outcomes. Failure can occur at any stage of the development. If, after development, a candidate product or service appears successful, we may, depending on the nature of the product or service, still need to obtain FDA and other regulatory clearances or approvals before we can market it. FDA’s clearance or approval pathways are likely to involve significant time, as well as additional research, development and clinical study expenditures. There can be no guarantee that FDA would clear or approve any future product or service we may develop. Even if FDA clears or approves a new product or service we develop, we would need to commit substantial resources to commercialize, sell and market it before it could be profitable, and the product or service may never be commercially viable. Additionally, development of any product or service may be disrupted or made less viable by the development of competing products or services. 33 Commitments to develop new products must be made well in advance of any resulting sales, and technologies and standards may change during development, potentially rendering our products outdated or uncompetitive before their introduction. Our ability to develop products to meet evolving industry requirements and at prices acceptable to our customers will be significant factors in determining our competitiveness. We may expend considerable funds and other resources on the development of our products without any guarantee that these products will be successful. If we attempt to bring, but are not successful in bringing, one or more products to market, whether because we fail to address marketplace demand, fail to develop viable products or otherwise, our results of operations could be seriously harmed. If we determine that any of our current or future development programs is unlikely to succeed, we may abandon it without any return on our investment into the program. We may need to raise significant additional capital to bring any new products or services to market, which may not be available on acceptable terms, if at all. Our officers may allocate their time to other businesses thereby potentially limiting the amount of time they devote to our affairs. This conflict of interest could have a negative impact on our operations. Our officers and directors are not required to commit their full time to our affairs, which could create a conflict of interest when allocating their time between our operations and their other commitments. We presently expect each of our employees to devote such amount of time as they reasonably believe is necessary to our business. All of our officers are engaged, at least to some degree, in other business endeavors and are not obligated to devote any specific number of hours to our affairs. If our officers’ other business affairs require them to devote more substantial amounts of time to such affairs, it could limit their ability to devote time to our affairs and could have a negative impact on our operations. We cannot assure you these conflicts will be resolved in our favor. We are party to agreements pursuant to which we may be required to make payments to certain of our affiliates, which may reduce our cash flow and profits. We are party to agreements pursuant to which we may be required to make payments to certain of our affiliates. For instance, under the License Agreement, we are required to make royalty and other payments to CWRU, which presently owns more than 5% of our outstanding common stock. In addition, we are required to make payments to PAVmed, our majority shareholder, under the MSA. While we believe that the agreements reflect arms’-length negotiations, we cannot assure you that such services are not available at lower cost from third parties. Any payments made to affiliates will reduce our cash flow and profits. Our ability to be successful will be dependent upon the efforts of our key personnel. Our ability to successfully carry out our business plan is dependent upon the efforts of our key personnel. We cannot assure you that any of our key personnel will remain with us for the immediate or foreseeable future. The unexpected loss of the services of our key personnel could have a detrimental effect on us. We may also be unable to attract and retain additional key personnel in the future. An inability to do so may impact our ability to continue and grow our operations. Our business may suffer if we are unable to manage our growth. If we fail to effectively manage our growth, our ability to execute our business strategy could be impaired. The anticipated rapid growth of our business may place a strain on our management, operations and financial systems. We may need to improve existing systems and controls or implement new systems and controls in response to anticipated growth. 34 We may conduct business internationally, in which case our business, financial condition and results of operations could be adversely affected by the political and economic conditions of countries other than the U.S. Our business, financial condition and results of operations could be adversely affected by the political and economic conditions of countries other than the U.S. in which we conduct business. These factors include: ● differences in clinical practices, needs, products, modalities and preferences; ● differences in legal and regulatory requirements and approvals, permits and licenses for our products, and difficulties in complying with unclear product regulations in various jurisdictions, including the changing regulation in Europe with regard to medical device and IVD regulations; ● complexities associated with managing multiple payer reimbursement regimes, public payers or patient self-pay systems, and the complexity of compliance with local standard contractual requirements to access public customers and payers; ● logistics and regulations associated with shipping tissue samples or complying with local regulations concerning the analysis of tissue, including infrastructure conditions and transportation delays; ● limits in our ability to access or penetrate international markets if we are not able to process tests locally; ● variability in sterilization requirements for medical devices; ● challenges in implementing educational programs required by our approach to doing business; ● competition from local and regional product offerings; ● financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our tests, and exposure to foreign currency exchange rate fluctuations; ● foreign exchange controls that might prevent us from repatriating cash earned in certain countries; ● import or export licensing requirements or restrictions imposed by governments; ● potentially burdensome taxation and adverse changes in foreign tax; ● adverse changes in laws and governmental policies, especially those affecting healthcare, trade and investment; ● varying practices of the regulatory, tax, judicial and administrative bodies in the jurisdictions where we operate. ● the threat that our operations or property could be subject to nationalization and expropriation; ● political and economic instability, including the threat of war, terrorist attacks, epidemic or civil unrest; ● pandemics, such as the coronavirus, the Ebola virus, the enterovirus and the avian flu, which may adversely affect our workforce as well as our local suppliers and customers; ● challenges associated with cultural differences, languages and distance; ● differing labor standards and employment laws; ● differing levels of protection of intellectual property; ● differing data protection laws and restrictions or prohibitions of transmitting personal data, including patient data, from foreign jurisdictions to our centralized laboratories in the U.S.; and ● regulatory and compliance risks that relate to maintaining accurate information and control over the activities of our salesforce and distributors that may fall within the purview of the U.S. F.C.P.A., its books and records provisions or its anti-bribery provisions, or similar anti-bribery or anti-corruption laws or regulations, such as the U.K. Anti-bribery Act and the U.K. Criminal Finances Act. We may engage in acquisitions that are not successful and which could disrupt our business, cause dilution to our stockholders and reduce our financial resources. We have entered into, and may in the future enter into transactions to acquire other businesses, products, services or technologies. While we recently completed several small acquisitions, because we have not made any major acquisitions to date, our ability to do so successfully is unproven. If we do identify suitable candidates, we may not be able to make such acquisitions on favorable terms or at all. In addition, an insufficient amount of time has passed to evaluate whether the acquisitions we completed were cost effective and otherwise beneficial to our business. The acquisitions we have completed and any acquisitions we make in the future may not strengthen our products, technologies or businesses or otherwise improve our competitive position, and these transactions may be viewed negatively by investors, healthcare providers, patients and others. For examples, we may be unable to timely and effectively integrate the acquired businesses into our business; we may lose key employees; we may encounter potential unknown liabilities and unforeseen risks, including liabilities associated with contracts containing consent and/or other provisions that may be triggered by the acquisitions; we may be unable to realize the anticipated benefits of the acquisitions or do so within the anticipated timeframe; or we may be unable to effectively manage our expanded operations. In addition to the risks outlined above, we may decide to incur debt in connection with an acquisition or issue our common stock or other securities to the stockholders of the acquired company, which would reduce the percentage ownership of our existing stockholders. We cannot predict the number, timing or size of future acquisitions or the effect that any such transactions might have on our operating results. For the foregoing reasons, the market price of our common stock may decline as a result of any acquisitions. 35 Adverse results in material litigation matters could have a material adverse effect upon our business. We may become subject in the ordinary course of business to material legal actions related to, among other things, intellectual property disputes, contract disputes, data and privacy issues, professional liability and employee-related matters. We may also receive inquiries and requests for information from governmental agencies and bodies, including CMS or private payors, requesting comment and/or information on allegations of billing irregularities, billing and pricing arrangements, or privacy practices that are brought to our attention through audits or third parties. Legal actions could result in substantial monetary damages, as well as damage to our reputation with customers and diversion of the attention of our management, which could have a material adverse effect upon its business. Risks Associated with Healthcare Regulation, Billing and Reimbursement, and Product Safety and Effectiveness Our ability to market EsoGuard, or any other IVD product that we may develop, license, or acquire, as LDTs without FDA approval, is entirely dependent on FDA continuing to exercise enforcement discretion with regard to requiring premarket review of LDTs. If FDA ceases to exercise, or modifies how it exercises, this discretion through guidance documents, formal rulemaking, departmental directive, executive order or pursuant to legislation, we may be abruptly forced to halt commercialization of these diagnostic tests until we are able satisfy FDA’s modified enforcement regime, or until we secure FDA approval for these IVD products. EsoGuard is currently being marketed as an LDT and has not received FDA approval to be marketed as an IVD. We would very likely also choose to market as LDTs, at least initially, any other IVD product without FDA approval that we may develop, license, or acquire. FDA defines an LDT as “an IVD product that is intended for clinical use and designed, manufactured and used within a single laboratory.” Thus, LDTs are considered “devices”, specifically IVD devices, as defined by the FDCA. FDA has long maintained that it has clear regulatory authority over LDTs and could, therefore, require them to fully comply with the regulatory requirements governing device safety and effectiveness. FDA, however, has generally not enforced these regulatory requirements for LDTs and has generally not required LDTs to undergo FDA premarket review of analytical validity and clinical validity, as other IVD products must. For over a decade, FDA has expressed the opinion that its enforcement discretion was based on the fact that, historically, most LDTs were low-risk, and that it has become concerned about insufficient regulatory oversight over increasingly high-risk LDTs. FDA has also exercised enforcement discretion of elements of its “single laboratory” definition of LDTs which by strict interpretation would require the LDT to have been “designed” at the “single laboratory” and not transferred from another research or commercial laboratory. FDA has demonstrated its position that it has regulatory authority over all IVD products, by choosing to fully exercise its authority for certain classes of “single laboratory” IVD products which would satisfy its definition of an LDT, such as direct-to-consumer tests that do not involve a health care provider. In July 2010, FDA announced its intent to reconsider its long-standing policy of enforcement discretion with respect to LDTs after identifying issues with several high-risk LDTs and hosted a public workshop to gather feedback from industry stakeholders. In October 2014, FDA published two draft guidance documents describing a proposed risk-based framework under which it might regulate LDTs. FDA’s draft framework proposed, among other things, premarket review for higher-risk LDTs, such as those that have the same intended use as FDA-approved or cleared diagnostics currently on the market. In November 2015, FDA issued a report citing evidence for the need for additional regulation of LDTs and stated FDA is continuing to work to finalize premarket review requirements for LDTs. However, in November 2016, FDA announced it would not issue a final guidance for LDTs. In January 2017, FDA issued a Discussion Paper on LDTs, which confirmed it would not finalize guidance on the regulation of LDTs to allow more time for public discussion and time for the congressional authorizing committees to develop a legislative solution. In March 2020, the bipartisan Verifying Accurate Leading-edge IVCT Development (VALID) Act of 2020, which seeks to revamp the regulatory framework of diagnostic tests, including LDTs, was introduced in both chambers of the 116th Congress but was never brought to a vote. The VALID Act is expected to be reintroduced in 2021. In August 2020, HHS announced that, effective immediately, it was rescinding all guidance, compliance manuals, website statements, or other informal issuances concerning FDA premarket review of LDTs, and that FDA may not require premarket review of LDTs absent a formal notice-and-comment rulemaking process. 36 The long-standing ambiguity of the regulatory status for LDTs makes it impossible for us to predict the future regulatory status of LDTs, and if or when it may be substantially modified through guidance documents, formal rulemaking, departmental directive, executive order or pursuant to legislation. For example, the current administration could abruptly rescind the August 2020 HHS directive of the prior administration, which could restore FDA regulatory authority over LDTs and herald a return to enforcement discretion. Similarly, passage of the VALID Act could usher a new era of full FDA oversight of LDTs. We cannot predict the potential effect of such shifts in LDT regulation on EsoGuard or any other LDT we may develop, license or acquire, or the potential impact of such shifts on our business, financial condition or results of operation. Our business could also be materially affected if FDA regains enforcement discretion and modifies it, for example, to require that LDTs be truly “home brewed” at a single laboratory, since EsoGuard was designed and developed at the CWRU laboratory and transferred to our third-party CLIA-certified laboratory partner and then to our own CLIA-certified commercial clinical laboratory. It could also be materially affected if FDA is granted broader authority and a mandate to regulate LDTs, through pending legislation such as the VALID Act. If any of these were to occur, we may be required to change business plans regarding the development and commercialization of EsoGuard and any other LDTs we develop, license or acquire. They may significantly slow the time it would take us to bring LDTs to market, may materially increase the costs of developing, and decrease the profitability of providing, EsoGuard and any other LDTs we may develop, license or acquire, and may prevent us from commercializing certain products or services. We cannot provide any assurance that FDA clearance or approval will not be required in the future for EsoGuard or any other LDTs we develop, license or acquire, whether as a result of additional guidance or regulations issued by FDA, new enforcement policies adopted by FDA or new legislation adopted by Congress. It is possible that legislation will be enacted into law, regulations could be promulgated or guidance could be issued by FDA that may result in increased regulatory burdens for us to continue to offer diagnostic tests or to develop and introduce new tests. Moreover, if pre-market review is required by FDA or if we decide to voluntarily pursue FDA’s pre-market review for any of our IVD products, there can be no assurance that they will be approved, or timely approved, nor can there be assurance that labeling claims will be consistent with our current claims or adequate to support continued adoption of and reimbursement for our tests. If pre-market review is required, our business could be negatively impacted as a result of commercial delay that may be caused by any new requirements. If we fail to maintain CLIA-certification or otherwise meet the applicable requirements of federal or state law regulating commercial clinical laboratories, such failure could limit or prevent our ability to perform our EsoGuard test, or any other tests which we may develop, license or acquire, affect any payor consideration of such tests, prevent their clearance or approval entirely, and/or interrupt the commercial sale and/or marketing of any such tests, cause us to incur significant expense to remedy this failure and otherwise negatively impact our business. Previously, our unrelated third-party CLIA-certified commercial clinical laboratory partner performed the EsoGuard test. In March 2022, we started to perform the EsoGuard test in our own CLIA-certified commercial clinical laboratory, and like all clinical laboratories which perform non-research laboratory testing on human samples in the U.S., it is regulated by CMS through CLIA and associated federal regulations set forth in 42 CFR § 493, as well as through other federal and state laws and regulations. Federal CLIA requirements and laws of certain states impose certification requirements for clinical laboratories, establish standards for quality assurance and quality control, among other things. Some state laws restrict laboratory marketing activities, which may adversely affect our ability to market our laboratory services. Clinical laboratories are subject to inspection by regulators, and to sanctions for failing to comply with applicable requirements. Sanctions available under CLIA include prohibiting a laboratory from running tests, requiring a laboratory to implement a corrective plan, and imposing civil monetary penalties. If we fail to maintain CLIA-certification or otherwise meet the applicable requirements of federal or state law, that failure could adversely limit or prevent its ability to perform our EsoGuard test, or any other diagnostic tests which we may develop, license or acquire, affect any payor consideration of such tests, prevent their clearance or approval entirely, and/or interrupt the commercial sale and/or marketing of any such tests, cause us to incur significant expense to remedy this failure and otherwise negatively impact our business. 37 EsoGuard, or any other IVD product without FDA approval we may develop, license, or acquire and market as an LDT, may not be jointly marketed as a combined product with EsoCheck without first securing FDA approval of the combined product as an IVD device. If FDA deems that we are jointly marketing such an IVD product with EsoCheck without FDA approval of the combined product as an IVD device, we would be subject to FDA enforcement action which could limit or halt commercialization of our products, and result in FDA sanctions which could severely impact our business. EsoCheck has received FDA 510(k) clearance permitting us to market it in the U.S. as a cell collection device indicated for use in the collection and retrieval of surface cells of the esophagus in the general population of adults, 22 years of age and older. EsoGuard, on the other hand, has not received FDA approval to be marketed as an IVD device and is being marketed as an LDT. As such we must market EsoGuard and EsoCheck as separate products. Jointly marketing EsoGuard, or any other IVD product that we develop, license or acquire, as a combined product with EsoCheck would require us to secure FDA approval of the combined product as an IVD device. If we were to jointly market such products, even inadvertently, without such FDA approval we would be subject to FDA enforcement actions which could result in fines, unanticipated compliance expenditures, recall or seizures of our products, total or partial suspension of production or distribution, restrictions on labeling and promotion, termination of ongoing research, disqualification of data for submission to regulatory authorities, enforcement actions, injunctions and criminal prosecution. Responding to such actions could cause us to incur significant expense, limit or halt commercialization of our products and severely impact our business. Securing FDA approval of EsoGuard, or any other IVD product we may develop, license, or acquire, as an IVD device, separately or as a combined product with EsoCheck, is a complex process requiring substantial time, commitment of resources and expense without any assurance that FDA will grant such approval. FDA has indicated to us through its pre-submission process that jointly marketing EsoGuard combined with EsoCheck as an IVD device would be subject to PMA premarket approval, the most stringent FDA premarket medical device scientific and regulatory review process, which requires sufficient valid scientific evidence in addition to general and special controls to assure that it is safe and effective for its intended use(s). Any other IVD product we may develop, license, or acquire, would likely also require PMA premarket approval to be marketed with EsoCheck as an IVD device. If we choose, or are required, as a result of changes in LDT regulation, to secure FDA approval of EsoGuard, or any other IVD product we may develop, license or acquire, as an IVD device, even if not combined with EsoCheck, we expect we would this require FDA PMA approval. The process of securing FDA PMA approval is complex and requires substantial time, commitment of resources and expense. The process may take many years to complete, and approval may never be obtained. It requires us to demonstrate with substantial evidence, gathered in preclinical and large, complex well-controlled clinical trials, that the planned product is safe and effective for use for as intended. We may not conduct such a trial or may not successfully enroll or complete any such trial, if required. Any products we may develop may not achieve the required primary endpoint in the clinical trial and may not receive regulatory approval. We must also demonstrate that the manufacturing facilities, processes and controls for any products we may develop are adequate. There can be no assurance that FDA will ever permit us to market EsoGuard, used with EsoCheck, as a combined product or any new product or service that we develop. Also, any regulatory clearance or approval of a product, once obtained, may be withdrawn. If we are unable to successfully obtain or maintain regulatory clearance or approval to sell any products we may develop in the U.S., our business, financial condition, results of operations and growth prospects could be adversely affected. Furthermore, delays in receipt of clearances or approvals could materially delay or prevent us from commercializing our products and services or result in substantial additional costs that could decrease our profitability. Even if we were to successfully obtain and maintain regulatory clearance or approval for a product, any clearance or approval might contain significant limitations related to use restrictions for specified age groups, warnings, precautions or contraindications, or may be subject to burdensome post-approval study or risk management requirements. FDA can delay, limit, or deny clearance or approval of a future product for many reasons, including but not limited to: ● a future product may not be deemed to be safe and effective; ● FDA officials may not find the data from clinical and preclinical studies sufficient; ● FDA may not approve our or our third-party manufacturer’s processes or facilities; or ● FDA may change its clearance or approval policies or adopt new regulations. If any products we may develop fail to demonstrate safety and efficacy, or otherwise do not gain regulatory clearance or approval, our business and results of operations will be materially and adversely harmed. 38 Failure to obtain regulatory approvals in foreign jurisdictions will prevent us from marketing our products internationally. We intend to seek distribution and marketing partners for one or more of the products we are developing in foreign countries. The approval procedures vary among countries and can involve additional clinical testing, and the time required to obtain approval may differ from that required to obtain FDA approval. Moreover, clinical studies or manufacturing processes conducted in one country may not be accepted by regulatory authorities in other countries. Approval by FDA does not ensure approval by regulatory authorities in other countries, and approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in other foreign countries or by FDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals and even if we file, we may not receive necessary approvals to commercialize our products in any market. Modifications to our cleared or approved products may require new clearances or premarket approvals, or may require us to cease marketing or recall the modified products until clearances are obtained. For any product approved pursuant to a PMA, we are required to seek supplemental approval for many types of changes to the approved product, for which we will need to determine whether a PMA supplement or other regulatory filing is needed or whether the change may be reported via the PMA Annual Report. Similarly, any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design, or manufacture, requires new 510(k) clearance or, possibly, approval of a new PMA. If the FDA requires us to seek approvals or clearances for modifications to our previously approved or cleared products, for which we concluded that new approvals or clearances are unnecessary, we may be required to cease marketing or distribution of our products or to recall the modified product until we obtain the approval or clearance, and we may be subject to significant regulatory fines or penalties. Foreign regulatory regimes may have comparable requirements, which present the same or substantially similar risks. Clinical trials necessary to support regulatory submission will be expensive and will require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit. Delays or failures in our clinical trials will prevent us from expanding our commercial efforts and will adversely affect our business, operating results and prospects. Initiating and completing clinical trials necessary to support regulatory submission will be time-consuming and expensive and their outcome uncertain. Moreover, the results of early clinical trials are not necessarily predictive of future results, and any product we advance into clinical trials may not have favorable results in early or later clinical trials. For example, the results of the studies to date on EsoGuard may not be replicated by the clinical trials being undertaken to obtain PMA approval of the use of EsoGuard and EsoCheck together as an IVD device. Conducting successful clinical studies will require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit. Patient enrollment in clinical trials and completion of patient participation and follow-up depend on many factors, including the size of the patient population, the nature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by patients enrolled as subjects, the availability of appropriate clinical trial investigators, support staff, and proximity of patients to clinical sites and ability to comply with the eligibility and exclusion criteria for participation in the clinical trial and patient compliance. For example, patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to assess the safety and effectiveness of our products or if they determine that the treatments received under the trial protocols are not attractive or involve unacceptable risks, discomforts or expenditures. Patients may also not participate in our clinical trials if they choose to participate in contemporaneous clinical trials of competitive products. In addition, patients participating in clinical trials may die before completion of the trial or suffer adverse medical events unrelated to investigational products. Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy may be required and we may not adequately develop such protocols to support clearance and approval. Further, FDA may require us to submit data on a greater number of patients than it originally anticipated and/or for a longer follow-up period or change the data collection requirements or data analysis for any clinical trials. Delays in patient enrollment or failure of patients to continue to participate in a clinical trial may cause an increase in costs and delays in the approval and attempted commercialization of our products or result in the failure of the clinical trial. FDA may not consider our data adequate to demonstrate safety and efficacy. Such increased costs and delays or failures could adversely affect our business, operating results and prospects. 39 We expect to depend on clinical investigators, medical institutions and contract research organizations to perform the clinical trials. If these parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if the quality, completeness or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or for other reasons, our clinical trials may have to be extended, delayed or terminated. Many of these factors would be beyond our control. We may not be able to enter into replacement arrangements without undue delays or considerable expenditures. If there are delays in testing or approvals as a result of the failure to perform by third parties, our research and development costs would increase, and we may not be able to obtain regulatory clearance or approval for EsoGuard and any other products we may develop. In addition, we may not be able to establish or maintain relationships with these parties on favorable terms, if at all. Each of these outcomes would harm our ability to market EsoGuard and any other products we may develop, license or acquire, or to achieve sustained profitability. The results of our clinical trials may not support our product candidate claims or may result in the discovery of adverse side effects. Even if any of our clinical trials are completed as planned, it cannot be certain that study results will support product candidate claims or that FDA or foreign regulatory authorities will agree with our conclusions regarding them. Success in pre-clinical evaluation and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the later trials will replicate the results of prior trials and pre-clinical studies. The clinical trial process may fail to demonstrate that our product candidates are safe and effective for the proposed indicated uses, which could cause us to abandon a product candidate and may delay development of others. Any delay or termination of our clinical trials will delay the filing of our product submissions and, ultimately, our ability to commercialize our product candidates and generate revenues. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’s profile. If our clinical studies do not satisfy providers, payors, patients and others as to the reliability and performance of our EsoGuard test and the EsoCheck device, or any other product or service we may develop and seek to commercialize, we may experience reluctance or refusal on the part of physicians to order, and third-party payors to pay for, such test. Although we have received FDA 510(k) clearance to market EsoCheck, and EsoGuard may be performed in our own CLIA-certified commercial clinical laboratory and marketed as an LDT, if the results of any research and clinical studies conducted by us, including those conducted for the purpose of obtaining FDA approval of the combined EsoGuard and EsoCheck product as an IVD device, and our sales and marketing activities relating to communication of these results, do not convince guidelines organizations, physicians and other healthcare providers, third-party payors and patients that EsoGuard and EsoCheck are safe and effective, we may experience reluctance or refusal on the part of physicians to order, and third-party payors to pay for, EsoGuard or EsoCheck, which could adversely affect our business prospects. Likewise, if the results of our research and clinical studies and our sales and marketing activities relating to new products or services we may develop and seek to commercialize in the future do not convince FDA and other regulators, guidelines organizations, physicians and other healthcare providers, third-party payors and patients that such other products and services are safe and reliable, those tests may not receive or sustain necessary regulatory clearances or approvals and we may experience reluctance or refusal on the part of physicians to order, and third-party payors to pay for, those tests, which could adversely affect our business prospects. If the validity of an informed consent for a clinical trial of one of our products was challenged, we could be subject to fines, penalties, litigation, or regulatory sanctions, or other adverse consequences, including invalidating or requiring us to repeat clinical trials which could negatively affect our business and results of operations. Our products are the subject of multiple clinical trials and we anticipate they will continue to be so in the future. We have implemented measures to ensure that data and biological samples that we receive have been collected from, and any procedures that have been performed using our products have been on, subjects who have provided appropriate informed consent. We also act as a sponsor of clinical trials in connection with the development of our tests, which are frequently conducted in collaboration with different parties. We seek to receive approval from an ethical review board, or institutional review board (“IRB”) for projects that meet the definition of “human subjects research,” which includes review and approval of processes for subject informed consent and authorization for use of personal information or waivers thereof. We could conduct clinical trials in a number of different countries. When we utilize clinical research contractor or partner with other third parties, we rely upon them to comply with the requirements to obtain the subject’s informed consent and to comply with applicable laws and regulations. The collection of data and samples in many different countries results in complex legal questions regarding the adequacy of informed consent and the status of genetic material under a large number of different legal systems. Those informed consents could be challenged and prove invalid, unlawful, or otherwise inadequate for our purposes. Any such findings against us, could force us to stop accessing or using data and samples or servicing or conducting clinical trials, which would hinder our product offerings or development. We could also become involved in legal actions, which could consume our management and financial resources. 40 Our business and reputation will suffer if we are unable to establish and comply with, stringent quality standards to assure that the highest level of quality is observed in the performance of our tests. Inherent risks are involved in providing and marketing cancer tests and related services. Patients and healthcare providers rely on us to provide accurate clinical and diagnostic information that may be used to make critical healthcare decisions. As such, users of our tests may have a greater sensitivity to errors than users of some other types of products and services. We must maintain top service standards and FDA-mandated and other quality controls. Past or future performance or accuracy defects, incomplete or improper process controls, excessively slow turnaround times, unanticipated uses of our tests or mishandling of samples or test results (whether by us, patients, healthcare providers, courier delivery services or others) can lead to adverse outcomes for patients and interruptions to our services. These events could lead to voluntary or legally mandated safety alerts relating to our tests or our laboratory facilities and could result in the removal of our products and services from the market or the suspension of our laboratories’ operations. Insufficient quality controls and any resulting negative outcomes could result in significant costs and litigation, as well as negative publicity that could reduce demand for our tests and payers’ willingness to cover our tests. Even if we maintain adequate controls and procedures, damaging and costly errors may occur. EsoCheck and any other products we develop that receive regulatory clearance or approval will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and subject us to penalties if we fail to comply with applicable regulatory requirements. Even after regulatory clearance or approval has been obtained for our products, the cleared or approved product and its manufacturer remain subject to continual review by FDA or non-U.S. regulatory authorities. Our cleared or approved products may be subject to limitations on the indicated uses for which the product may be marketed, as in the case of the FDA 510(k) marketing clearance for our EsoCheck cell collection device. Furthermore, future approvals may contain requirements for potentially costly post-marketing follow-up studies to monitor the safety and efficacy of the approved product. There is a risk that FDA may modify or withdraw the approval of a product if the results of a post-approval study are not satisfactory or are inconsistent with previous studies. We may rely on third parties, such as contract research organizations, medical institutions and clinical investigators to conduct any post-approval studies. We will have limited control over the activities of these third parties and any post-approval studies may be delayed or halted prior to its completion for reasons outside our control. In addition, we and our cleared or approved products will be subject to extensive and ongoing regulatory requirements by FDA and other regulatory authorities with regard to the labeling, packaging, adverse event reporting, storage, advertising, promotion and recordkeeping for our products. We and our contract manufacturers also will be required to comply with current good manufacturing practice (“cGMP”) regulations regarding the manufacture of our products, which include requirements related to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Further, regulatory authorities must approve these manufacturing facilities before they can be used to manufacture medical devices, and these facilities are subject to continual review and periodic inspections by FDA and other regulatory authorities for compliance with cGMP regulations. Operations at these facilities could be interrupted or halted if FDA or other governmental agency deems the findings of such inspections unsatisfactory. Failure to comply with FDA or other regulatory requirements could result in fines, unanticipated compliance expenditures, recall or seizures of our products, total or partial suspension of production or distribution, restrictions on labeling and promotion, termination of ongoing research, disqualification of data for submission to regulatory authorities, enforcement actions, injunctions and criminal prosecution. If we or a third party discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory authority may impose restrictions on that product, the manufacturer or us, including requiring recall of the product from the market or suspension of manufacturing. We also may voluntarily recall a product. Any recalls could have an adverse effect on our ability to provide our products, which in turn would adversely affect our financial condition. 41 If we are found to be promoting the use of our devices for unapproved or “off-label” uses or engaging in other noncompliant activities, we may be subject to recalls, seizures, fines, penalties, injunctions, adverse publicity, prosecution, or other adverse actions, resulting in damage to our reputation and business. Our labeling, advertising, promotional materials and user training materials must comply with FDA and other applicable laws and regulations, including the prohibition of the promotion of a medical device for a use that has not been cleared or approved by FDA. Obtaining 510(k) clearance or PMA approval only permits us to promote our products for the uses specifically cleared by FDA. Use of a device outside its cleared or approved indications is known as “off-label” use. Physicians and consumers may use our products off-label because FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine nor is there oversight on patient use of over-the-counter devices. Although we may request additional cleared indications for our current products, FDA may deny those requests, require additional expensive clinical data to support any additional indications or impose limitations on the intended use of any cleared product as a condition of clearance. Even if regulatory clearance or approval of a product is granted, such clearance or approval may be subject to limitations on the intended uses for which the product may be marketed and reduce our potential to successfully commercialize the product and generate revenue from the product. If FDA determines that our labeling, advertising, promotional materials, or user training materials, or representations made by our personnel, include the promotion of an off-label use for the device, or that we have made false or misleading or inadequately substantiated promotional claims, or claims that could potentially change the regulatory status of the product, the agency could take the position that these materials have misbranded our devices and request that we modify our labeling, advertising, or user training or promotional materials and/or subject us to regulatory or legal enforcement actions, including the issuance of an Untitled Letter or a Warning Letter, injunction, seizure, recall, adverse publicity, civil penalties, criminal penalties, or other adverse actions. It is also possible that other federal, state, or foreign enforcement authorities might take action if they consider our labeling, advertising, promotional, or user training materials to constitute promotion of an unapproved use, which could result in significant fines, penalties, or other adverse actions under other statutory authorities, such as laws prohibiting false claims for reimbursement. In that event, we would be subject to extensive fines and penalties and our reputation could be damaged and adoption of the products would be impaired. Although we intend to refrain from statements that could be considered off-label promotion of our products, FDA or another regulatory agency could disagree and conclude that we have engaged in off-label promotion. In addition, any such off-label use of our products may increase the risk of injury to patients, and, in turn, the risk of product liability claims, and such claims are expensive to defend and could divert our management’s attention and result in substantial damage awards against us. Clinical laboratories and medical diagnostic companies are subject to extensive and frequently changing federal, state, and local laws. We could be subject to significant fines and penalties if we fail (or if our prior unrelated third-party laboratory partner previously failed) to comply with these laws and regulations. As a provider of clinical diagnostic products and services, we are subject (and our prior third-party laboratory partner previously was subject) to extensive and frequently changing federal, state, and local laws and regulations governing various other aspects of our business. In particular, the clinical laboratory industry is subject to significant governmental certification and licensing regulations, as well as federal and state laws regarding: ● test ordering and billing practices; ● marketing, sales and pricing practices; ● health information privacy and security, including the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and comparable state laws; ● insurance; ● anti-markup legislation; and ● consumer protection. 42 We are also required to comply with FDA regulations, including with respect to our labeling and promotion activities. In addition, advertising of our tests is subject to regulation by the Federal Trade Commission (“FTC”) and advertising of laboratory services is regulated by certain state laws. Violation of any FDA requirement could result in enforcement actions, such as seizures, injunctions, civil penalties and criminal prosecutions, and violation of any FTC or state law requirement could result in injunctions and other associated remedies, all of which could have a material adverse effect on our business. Most states also have similar regulatory and enforcement authority for devices. Additionally, most foreign countries have authorities comparable to FDA and processes for obtaining marketing approvals. Obtaining and maintaining these approvals, and complying with all laws and regulations, may subject us to similar risks and delays as those we could experience under FDA, FTC and state regulation. We incur various costs in complying and overseeing compliance with these laws and regulations. Healthcare policy has been a subject of extensive discussion in the executive and legislative branches of the federal and many state governments and healthcare laws and regulations are subject to change. Development of the existing commercialization strategy for our EsoGuard test and EsoCheck device has been based on existing healthcare policies. We cannot predict what additional changes, if any, will be proposed or adopted or the effect that such proposals or adoption may have on our business, financial condition and results of operations. If we or our partners fail to comply with these laws and regulations, we could incur significant fines and penalties and our reputation and prospects could suffer. Additionally, any such partners could be forced to cease offering our products and services in certain jurisdictions, which could materially disrupt our business. We intend to operate patient service centers where prescribing physicians can send patients for EsoGuard testing, including undergoing specimen collection using EsoCheck. These patient service centers are subject to federal and state regulations which may be burdensome, costly or difficult to comply with. Failure to comply with these regulations could result in sanctions, fines or other enforcement actions which may be costly, time-consuming and limit our ability to utilize them and adversely impact our business. As part of our commercialization efforts for EsoGuard, we are operating patient service centers in jurisdictions where a licensed health care professional, employed or contracted by us, will perform the esophageal cell collection procedure using EsoCheck and then package the specimen for transport to our CLIA-certified commercial clinical laboratory. The patient service centers may be deemed laboratory draw stations or outpatient centers or clinics, which may be subject to state licensure and operating requirements. In addition, states may require personnel performing the specimen collection procedure to be licensed and may require collaboration with or supervision by a physician. The health care professionals may also be subject to malpractice claims. We will need to purchase insurance policies to cover such claims but the coverage limits on such policies may be insufficient to cover any monetary awards for damages granted for such claims. In certain states, our patient service centers may trigger the corporate practice of medicine doctrine, a general prohibition in some jurisdictions against non-licensed individuals or corporations owning medical practices or employing physicians and other licensed HCPs. In many states, a general business corporation cannot directly employ health care professionals or enter any arrangement where the physicians or the healthcare professional is in any way controlled or directed by the corporation. Complying with these state regulations can be complex, burdensome and costly and we may be unable to do so in certain states, limiting our commercialization efforts and business in those states. The patient service centers may be subject to additional state regulations relating to the distribution of the collection devices, test orders, patient consents, medical necessity requirements and billing regulations. Our failure to comply with these regulations in the operation of these patient service centers or in managing the personnel interacting with patients at these centers could subject us to sanctions, fines or other enforcement actions. Responding to these actions may be costly and time-consuming and may require us to cease operations at these centers which may limit our commercialization efforts and adversely impact our business. 43 We intend to engage with one or more third-party telemedicine companies to provide physicians to evaluate patients who respond to our direct-to-consumer (“DTC”) marketing activities seeking EsoGuard testing and, if clinically indicated, refer the patient to our patient service centers to undergo EsoCheck specimen collection for EsoGuard testing. Telemedicine, and its specific use in conjunction with DTC, is subject to numerous federal and state regulations and faces particularly intense scrutiny by these regulators. If we fail to comply with federal healthcare regulations, we could face substantial penalties, sanctions, fines or prosecution and our business, operations and financial condition could be adversely affected. One pillar of our growth strategy is to expand EsoGuard commercialization across multiple channels, including DTC marketing. Patients with chronic heartburn who respond to DTC advertising of our products or to consumer-oriented educational material we provide, or who otherwise become aware of the availability of a simple noninvasive test to screen for esophageal precancer may seek EsoGuard testing. We intend to facilitate access to EsoGuard testing for such patients by contracting with one or more third-party telemedicine companies who will provide physicians to evaluate such a patient via video communications, determine whether EsoGuard testing is clinically indicated based on the patient’s history and condition, and order an EsoGuard test by referring the patient to one of our patient service centers where the patient would undergo EsoCheck specimen collection for EsoGuard testing by our CLIA-certified commercial clinical laboratory. The EsoGuard test result would then be sent directly to the prescribing telemedicine physician who, based on the test result, would refer the patient to a gastroenterologist for further care. The logistics required to manage the patient’s journey through such a DTC/telemedicine program, in a manner which is compliant with all applicable regulations, are complex and require very careful coordination between us and our third-party telemedicine and laboratory partners broadly operating within our quality management system. Our activities and the activities of our third-party partners on our behalf within this DTC/telemedicine program are subject to numerous federal and state regulations. The telemedicine provider itself may be subject to additional state regulations relating to the corporate practice of medicine, test orders, patient consents, medical necessity requirements and billing regulations. Telemedicine, and its specific use in conjunction with DTC, faces particularly intense scrutiny from regulators due to numerous cases of companies failing to operate in this space with a properly functioning regulatory and compliance infrastructure. For example, in recent years, the federal government has conducted several major investigations into the use of telemedicine to generate orders or prescriptions for laboratory tests, pharmaceuticals, durable medical equipment and other ancillary items and services that are billed to Medicare and other federal health care program (“FHCPs”). In such cases, the supplier that received the order or prescription and billed for the ancillary item or service would compensate the telemedicine provider (or management company) for the patient consultation because the actual telehealth service may not be a covered service or meet the coverage requirements under the Medicare or other FHCPs (due to lack of provider-patient relationship or audio-only modality). The Department of Justice has prosecuted providers on the legal theory that this is akin to a kickback or bribe in the form of remuneration paid to the telemedicine provider or management company for the order or prescription itself, whether the ancillary item or service was medically necessary. The complexities of these regulations have required us to establish a costly and substantial regulatory and compliance infrastructure for the DTC/telemedicine program, including retaining multiple legal and regulatory consultants with specific expertise in this space and a special Quality & Compliance Committee of our board of directors to provide board-level oversight. Our contracts with our third-party telemedicine partners are also complex, as are the standard operating procedures that our quality management system requires all parties to meticulously follow. Despite these measures, we cannot guarantee that our personnel or those of our third-party partners will comply with the applicable regulations at all times. If any such personnel fail to comply with regulations, we could face substantial penalties, sanctions, fines or prosecution and our business, operations and financial condition could be adversely affected. Many aspects of our business, beyond the specific elements described above are subject to complex, intertwined, costly and/or burdensome federal health care laws and regulations which may open to interpretation and be subject to varying levels of discretionary enforcement. If we fail to comply with these laws and regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected. Even though we do not and do not expect to control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. The regulations that may affect our ability to operate include, without limitation: 44 ● the federal healthcare program Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving, or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs; ● the U.S. Foreign Corrupt Practices Act (“FCPA”) which prohibits payments or the provision of anything of value to foreign officials for the purpose of obtaining or keeping business; ● the federal False Claims Act (“FCA”) which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government, and which may apply to entities like us which provide coding and billing advice to customers; ● federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; ● the federal transparency requirements under the Health Care Reform Law requires manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests; ● the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information, and ● state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers. The PPACA, among other things, amends the intent requirement of the Federal Anti-Kickback Statute and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the PPACA provides that the government may assert that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. In 2018, Congress passed Eliminating Kickbacks in Recovery Act (“EKRA”) as part of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act. Similar to the Anti-Kickback Statute, EKRA imposes criminal penalties for knowing or willful payment or offer, or solicitation or receipt, of any remuneration, whether directly or indirectly, overtly or covertly, in cash or in kind, in exchange for the referral or inducement of laboratory testing (among other healthcare services) unless a specific exception applies. However, unlike the Anti-Kickback Statute, EKRA is not limited to services covered by federal or state healthcare programs but applies more broadly to services covered by “healthcare benefit programs,” including commercial insurers. As currently drafted, EKRA potentially expands the universe of arrangements that could be subject to government enforcement under federal fraud and abuse laws. In addition, while the Anti-Kickback Statute includes certain exceptions that are widely relied upon in the healthcare industry, not all of those same exceptions apply under EKRA. Because EKRA is a relatively new law, there is no agency guidance or court precedent to indicate how and to what extent it will be applied and enforced. We cannot assure you that our relationships with healthcare providers, sales representatives, hospitals, customers, or any other party will not be subject to scrutiny or will survive regulatory challenge under EKRA. Recently, the medical device industry has been under heightened scrutiny as the subject of government investigations and regulatory or legal enforcement actions involving manufacturers who allegedly offered unlawful inducements to potential or existing customers in an attempt to procure their business, including arrangements with physician consultants. If our operations or arrangements are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment or restructuring of our operations. Any penalties, damages, fines, exclusions, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. The risk of us being found in violation of these laws is increased by the fact that many of these laws are broad and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against that action and the underlying alleged violations, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. If the physicians or other providers or entities with whom we do business are found to be non-compliant with applicable laws, they may be subject to sanctions, which could also have a negative impact on our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly. 45 If private or governmental third-party payors do not maintain reimbursement for our products at adequate reimbursement rates, we may be unable to successfully commercialize our products which would limit or slow our revenue generation and likely have a material adverse effect on our business. Successful commercialization of our EsoGuard test and EsoCheck device, and of any other product or service we develop, license or acquire depends, in large part, on the availability of adequate reimbursement from private or governmental third-party payors. EsoGuard’s PLA code 0114U has been granted “gapfill” determination through the CMS CLFS process, allowing us to engage directly with Medicare Administrative Contractor (“MAC”) Palmetto GBA, whose Molecular Diagnostics Program (“MolDx”) performs technical assessment of molecular diagnostic tests on behalf of itself and other MACs. We submitted EsoGuard payment and coverage dossiers to MolDx in 2020. Although CMS granted EsoGuard final Medicare payment determination of $1,938.01, effective January 1, 2021, we are awaiting Medicare local coverage determination from MolDx, where the Covid-19 pandemic and change of administrations has resulted in a significant backlog of local coverage reviews. We have no information on when MolDx will complete its technical assessment of our dossier, cannot predict whether or not it will grant EsoGuard local coverage determination and whether other MACs will utilize the MolDx determination. Commercial third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for new healthcare products. As a result, there is uncertainty surrounding whether EsoGuard or EsoCheck, or any other product or service we develop, will be eligible for coverage by third-party payors or, if eligible for coverage, what the reimbursement rates will be. Reimbursement of esophageal precancer and cancer screening by a third-party payor may depend on a number of factors, including a payor’s determination that tests using our technologies are sufficiently sensitive and specific for esophageal cancer and precancer; not experimental or investigational; approved or recommended by the major guidelines organizations; reliable, safe and effective; medically necessary; appropriate for the specific patient; and cost-effective. Coverage determinations and reimbursement rates are also subject to the effects of federal and state coverage mandates and other healthcare regulations and reform initiatives as described below. As noted below, federal and state coverage mandates may be deemed not to apply to EsoGuard and EsoCheck, may be interpreted in a manner unfavorable to us, may be difficult to enforce and are subject to repeal or modification. For example, the Patient Protection and Affordable Care Act (the “PPACA”) may be repealed or materially modified, in whole or in part, or replaced with an alternative legal framework governing healthcare matter. Such repeal, modification or replacement may eliminate or modify coverage mandates for preventive services, and any such elimination or modification may have an adverse effect on our business prospects. In addition to the risk of adverse reimbursement decisions, we also may experience material delays in obtaining such reimbursement decisions and payment for our EsoGuard test and EsoCheck device that are beyond our control. Further, there can be no assurance that CMS and other third-party payors who initially decide to cover our products will continue to do so. Coverage determinations and reimbursement rates are subject to change, including as a result of reimbursement rate adjustments under the Protecting Access to Medicare Act of 2014 (“PAMA”) as described below, and we cannot guarantee that even if we initially achieve coverage and adequate reimbursement rates, they will continue to be applicable to our products in the future. Furthermore, it is possible that Medicare or other federal payors that provide reimbursement for our tests may suspend, revoke or discontinue coverage at any time, may require co-payments from patients, or may reduce the reimbursement rates payable to us. We may pursue a variety of strategies to increase commercial payor coverage and reimbursement of EsoGuard, used with EsoCheck, and any other product or service we may develop. In certain situations, where we believe payors are obligated to cover EsoGuard under federal and state laws that mandate coverage for certain esophageal precancer and cancer screening tests, we may sue to enforce coverage obligations or pursue similar tactics. Such litigation and tactics may be costly, may divert management attention from other responsibilities, may cause payors, including those not directly involved in any litigation, to resist contracting with us, and may ultimately prove unsuccessful. 46 If we are unable to obtain favorable decisions from third-party payors, including CMS and managed care organizations, approving reimbursement at adequate levels for our EsoGuard test and EsoCheck device, and any other product or service we may develop, or if coverage is later revoked or reimbursement levels are reduced, our commercial success will be compromised, our ability to raise capital may be restricted and our revenues would be significantly limited. Healthcare providers may be reluctant to prescribe our products if they believe that reimbursement for the test will not be available for a significant number of their patients. Even where a third-party payor agrees to cover EsoGuard and EsoCheck at an adequate reimbursement rate, other factors may have a significant impact on the actual reimbursement we receive for an EsoGuard test or EsoCheck device from that payor. For example, if we do not have a contract with a given payor, we may be deemed an “out-of-network” provider by that payor, which could result in the payor allocating a portion of the cost of the EsoGuard test or EsoCheck device to the patient, notwithstanding any applicable coverage mandate. We may be unsuccessful in our efforts to enter into, or maintain, a network contract with a given payor, and we expect that our network status with a given payor may change from time to time for a variety of reasons, many of which may be outside our control. To the extent EsoGuard or EsoCheck is out of network for a given payor, physicians may be less likely to prescribe EsoGuard and EsoCheck for their patients and their patients may be less likely to comply with those prescriptions that are written. Also, some payors may require that they give prior authorization for an EsoGuard test or EsoCheck device before they are willing to pay for it or review claims post-service to ensure the service was medically appropriate for specific patients. Prior authorization and other medical management practices may require that we, patients or physicians provide the payor with extensive medical records and other information. Prior authorization and other medical management practices impose a significant additional cost on us, may be difficult to comply with given our position as a laboratory that generally does not have direct access to patient medical records, may make physicians less likely to prescribe EsoGuard and EsoCheck for their patients, and may make patients less likely to comply with physician orders for EsoGuard and EsoCheck, all or any of which may have an adverse effect on our revenues. Payment rates also may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower cost products that are already reimbursed and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the U.S. The regulations that govern pricing and reimbursement for new products vary widely from country to country, and may adversely affect the pricing, coverage and reimbursement rates of our products in other countries. The regulations that govern pricing and reimbursement for new products vary widely from country to country. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing clearance or approval is granted. In some foreign markets, pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain regulatory clearance or approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product and negatively impact the revenue we are able to generate from the sale of the product in that country. In addition, to obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product to other available therapies. Adverse pricing limitations may hinder our ability to recoup our investment in the EsoGuard and EsoCheck products and any other products, tests or services we develop, even if our products obtain regulatory approval. Due to billing complexities in the diagnostic and laboratory service industry, we may not be able to collect payment for the EsoGuard tests we perform. Billing for diagnostic and laboratory services is a complex process. Laboratories bill many different payors including patients, private insurance companies, Medicare, Medicaid, and employer groups, all of which have different billing requirements. We are continuing to work with third-party payors to cover and reimburse EsoGuard tests. If we are unsuccessful, we may not receive payment for EsoGuard tests we perform for patients on a timely basis, if at all, and we may not be able to provide services for patients with certain healthcare plans. We may face lawsuits by government or commercial payors if they believe they have overpaid us for our EsoGuard test services. We may face write-offs of doubtful accounts, disputes with payors and patients, and long collection cycles. We may face patient dissatisfaction, complaints or lawsuits, including to the extent EsoGuard tests are not fully covered by insurers and patients become responsible for all or part of the price of the test. As a result, patient compliance in fulfilling prescriptions for EsoGuard could be adversely affected. To the extent patients express dissatisfaction with our billing practices to their physicians, those physicians may be less likely to prescribe EsoGuard for other patients, and our business would be adversely affected. 47 Even if payors do agree to cover EsoGuard, our billing and collections process may be complicated by the following and other factors, which may be beyond our control: ● disputes among payors as to which payor is responsible for payment; ● disparity in coverage among various payors or among various healthcare plans offered by a single payor; ● payer medical management requirements, including prior authorization requirements; ● differing information and billing requirements among payors; and ● failure by patients or physicians to provide complete and correct billing information. Furthermore, our contracts with a commercial payor may not permit us to bill patients insured by that payor for amounts beyond deductibles, co-payments and co-insurance as prescribed in the coverage agreement between the payor and the patients. Moreover, when contracted payors do not cover an EsoGuard test, for example, for failure to satisfy prior-authorization or other payor medical management requirements, we may not be permitted to collect the balance from the patient and our business may be adversely impacted. The uncertainty of receiving payment for our EsoGuard test and complex laboratory billing processes could negatively affect our business and our operating results. Healthcare reform measures could hinder or prevent our products’ commercial success. In the U.S., there have been, and we expect there will continue to be, ongoing legislative and regulatory changes to the healthcare system which could affect our future revenue and profitability. Federal and state lawmakers regularly propose and, at times, enact legislation that could result in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. For example, one of the most significant healthcare reform measures in decades, the Patient Protection and Affordable Care Act, as amended by the PPACA was enacted in 2010. The PPACA contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse measures, all of which will impact existing government healthcare programs. The PPACA, among other things, also could result in the imposition of injunctions. While the U.S. Supreme Court has repeatedly upheld the constitutionality of most elements of the PPACA, other legal challenges are still pending final adjudication in several jurisdictions. Although efforts in Congress to repeal the PPACA have repeatedly fallen short, there are a number of ongoing legislative initiatives to modify it. At this time, it remains unclear whether there will be any changes made to the PPACA. We cannot assure you that the PPACA, as currently enacted or as amended in the future, will not adversely affect our business and financial results and we cannot predict how future federal or state legislative or administrative changes relating to healthcare reform will affect our business. In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. There likely will continue to be legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of health care. Medicare reimbursement for all products and services, including ours, remains highly susceptible to threats of automatic reductions triggered by budgetary shortfalls. Such payments are subject to recovery of purported overpayment for several years. We cannot predict the initiatives that may be adopted in the future or their full impact. We cannot predict whether any additional legislative changes will affect our business. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of health care may adversely affect: ● our ability to set a price that we believe is fair for our products; ● our ability to generate revenue and achieve or maintain profitability; and ● the availability of capital. 48 Further, changes in regulatory requirements and guidance may occur, both in the United States and in foreign countries, and we may need to amend clinical study protocols to reflect these changes. Amendments may require us to resubmit our clinical study protocols to an IRB for reexamination, which may impact the costs, timing or successful completion of a clinical study. In light of widely publicized events concerning the safety risk of certain drug and medical device products, regulatory authorities, members of Congress, the Governmental Accounting Office, medical professionals and the general public have all raised concerns about potential safety issues. These events have resulted in the recall and withdrawal of medical device products, revisions to product labeling that further limit use of products and establishment of risk management programs that may, for instance, restrict distribution of certain products or require safety surveillance or patient education. The increased attention to safety issues may result in a more cautious approach by FDA or other regulatory authorities to clinical studies and the medical device approval process. Adverse event data from clinical studies may receive greater scrutiny with respect to product safety, which may make FDA or other regulatory authorities more likely to terminate or suspend clinical studies before completion, or require longer or additional clinical studies that may result in substantial additional expense and a delay or failure in obtaining approval or approval for a more limited indication than originally sought. Given the serious public health risks of high profile adverse safety events with certain products, FDA or other regulatory authorities may require, as a condition of approval, costly risk evaluation and mitigation strategies, which may include safety surveillance, restricted distribution and use, patient education, enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events, preapproval of promotional materials and restrictions on direct-to-consumer advertising. We face uncertainty related to healthcare reform, pricing, coverage and reimbursement, which could reduce our revenue. Healthcare reform laws, including the PPACA and PAMA, are significantly affecting the U.S. healthcare and medical services industry. Recently passed legislation and possible future legal and regulatory changes, including potential repeal or modification of the PPACA, or approval of health plans that allow lower levels of coverage for preventive services, could substantially change the structure and finances of the health insurance system and the methodology for reimbursing medical services, drugs and devices, including our current and future products and services. Healthcare reforms, which may intend to reduce healthcare costs, may have the effect of discouraging third-party payors from covering certain kinds of medical products and services, particularly newly developed technologies, such as our EsoGuard test or EsoCheck device, or any other products or services we develop. We cannot predict whether future healthcare reform initiatives will be implemented at the federal or state level or the effect any such future legislation or regulation will have on us. The taxes imposed by new legislation, cost reduction measures and the expansion in the government’s role in the U.S. healthcare industry may result in decreased profits to us, which may adversely affect our business, financial condition and results of operations. Because Medicare currently covers a significant portion of the patients in the current targeted screening population for EsoGuard, any reduction in the CMS reimbursement rate for EsoGuard would negatively affect our revenues and our business prospects. There can be no assurance under PAMA that adequate CMS reimbursement rates will initially be assigned or will continue to be assigned to our tests. Further, it is possible that Medicare or other federal payors that provide reimbursement for our tests in the future may later suspend, revoke or discontinue coverage at any time, may require co-payments from patients, or may reduce the reimbursement rates payable to us. Any such action could have a negative impact on our revenues. Our products may cause serious adverse side effects or even death or have other properties that could delay or prevent their regulatory clearance or approval, limit the commercial desirability of an approved label or result in significant negative consequences following any marketing clearance or approval. All clinical trials have a substantial risk of failing to meet their safety or effectiveness endpoints. EsoCheck is our only product which has received FDA marketing clearance in the U.S. EsoGuard is currently marketed as an LDT without FDA approval as an IVD device. It is impossible to predict when or if EsoGuard, or any other products we are develop, license or acquire, including EsoGuard, used with EsoCheck, as a combined IVD product, will prove safe and effective and receive regulatory approval as an IVD device. Undesirable side effects caused by any products we are developing could cause us or regulatory authorities to interrupt, delay or halt any required clinical trials. They could also result in a more restrictive label or the delay or denial of regulatory clearance or approval by FDA or other comparable foreign regulatory authority. 49 Additionally, after receipt of marketing clearance or approval of any products we may develop, if we or others later identify undesirable side effects or even deaths caused by such products, a number of potentially significant negative consequences could result, including: ● we may be forced to recall such product and suspend the marketing of such product; ● regulatory authorities may withdraw their clearance or approval of such product; ● regulatory authorities may require additional warnings on the label that could diminish the usage or otherwise limit the commercial success of such products; ● FDA or other regulatory bodies may issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings about such product; ● FDA may require the establishment or modification of Risk Evaluation Mitigation Strategies, or a comparable foreign regulatory authority may require the establishment or modification of a similar strategy that may, for instance, restrict distribution of our products and impose burdensome implementation requirements on us; ● we may be required to change the way the product is administered or conduct additional clinical trials; ● we could be sued and held liable for harm caused to subjects or patients; ● we may be subject to litigation or product liability claims; and ● our reputation may suffer. Any of these events could prevent us from achieving or maintaining market acceptance of the particular product. We intend to market our products in Europe, however major changes in the EU regulation of medical devices and IVDs may make it burdensome, costly and impossible to successfully do so, which could adversely impact our business. We recently received CE Mark certification for EsoCheck under MDD and completed CE Mark self-certification for EsoGuard, which qualifies as a General IVD, under IVDD, indicating that both may be marketed in CE Mark European countries, namely the European Economic Area (the European Union, Norway, Iceland, and Lichtenstein), Switzerland, and, until July 1, 2023, the United Kingdom. MDD, which refers to Medical Device Directive 93/42/EEC, has provided the essential requirements and conformity assessment procedure that medical devices must undergo to be affixed with a CE Mark and sold in CE Mark European countries for nearly three decades but is now obsolete and has been replaced by MDR, which refers to Regulation (EU) 2017/745 and incorporates several new concepts and registrations, stricter oversight of manufacturers by notified bodies, universal device identification (UDI) marking, and increased post-market surveillance requirements. Similarly, IVDD, which refers to In-Vitro Diagnostic Medical Devices Directive (98/79/EC), has provided the essential requirements and conformity assessment procedure that in-vitro diagnostic medical devices must undergo to be affixed with a CE Mark and sold in CE Mark European countries for over twenty years but will become obsolete and replaced in 2022 with IVDR, which refers to Regulation (EU) 2017/746, and has an expanded scope, risk-based classification, more rigorous clinical evidence and surveillance requirements, and more stringent documentation. Both MDR and IVDR have sunset provisions for medical device and IVD certifications under MDD and IVD, respectively. Both EsoGuard and EsoCheck will require recertification under their stricter regulations in the coming years. Failure to secure these recertifications under MDR and IVDR will halt our ability to commercialize our products in the CE Mark European countries. In addition, the United Kingdom, which is a major target market for us, has left the European Union (“Brexit”) and will transition from CE Mark certification to its own UKCA certification mark. If we fail to secure UKCA mark certification for our products before CE Mark certification expires in the UK, we will no longer be able to commercialize our products there, which may adversely impact our business. Our medical products may in the future be subject to product recalls that could harm our reputation, business, and financial results. FDA has the authority to require the recall of commercialized medical device products in the event of material deficiencies or defects in design or manufacture. In the case of FDA, the authority to require a recall must be based on an FDA finding that there is a reasonable probability that the device would cause serious injury or death. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found. A government-mandated or voluntary recall by us or one of our distributors could occur as a result of component failures, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of our products would divert managerial and financial resources and have an adverse effect on our financial condition and results of operations. FDA requires that certain classifications of recalls be reported to FDA within ten working days after the recall is initiated. Companies are required to maintain certain records of recalls, even if they are not reportable to FDA. We may initiate voluntary recalls involving our products in the future that we determine do not require notification of FDA. If FDA disagrees with our determinations, they could require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect its sales. In addition, FDA could take enforcement action for failing to report the recalls when they were conducted. No recalls of our medical products have been reported to FDA. 50 If our medical products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions. Under FDA medical device reporting regulations, medical device manufacturers are required to report to FDA information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury if the malfunction of the device or one of our similar devices were to recur. If we fail to report these events to FDA within the required timeframes, or at all, FDA could take enforcement action against us. Any such adverse event involving our products also could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results. Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of our products. We face an inherent risk of product liability exposure related to the sale of the EsoGuard and EsoCheck products and any other products we develop. The marketing, sale and use of our products could lead to the filing of product liability claims against us if someone alleges product failures, product malfunctions, manufacturing flaws, or design defects resulted in injury to patients. We may also be subject to liability for a misunderstanding of, or inappropriate reliance upon, the information we provide. If we cannot successfully defend ourselves against claims that a product we developed caused injuries, we may incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in: ● decreased demand for our products; ● injury to our reputation and significant negative media attention; ● withdrawal of patients from clinical studies or cancellation of studies; ● significant costs to defend the related litigation and distraction to our management team; ● substantial monetary awards to patients; ● loss of revenue; and ● the inability to commercialize any products that we may develop. In addition, insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. Compliance with the HIPAA security, privacy and breach notification regulations may increase our costs. The HIPAA privacy, security and breach notification regulations, including the expanded requirements under HITECH, establish comprehensive federal standards with respect to the uses and disclosures of protected health information, or “PHI,” by health plans, healthcare providers and healthcare clearinghouses, in addition to setting standards to protect the confidentiality, integrity and security of PHI. The regulations establish a complex regulatory framework on a variety of subjects, including: ● the circumstances under which uses and disclosures of PHI are permitted or required without a specific authorization by the patient, including but not limited to treatment purposes, activities to obtain payments for our services, and our healthcare operations activities; ● a patient’s rights to access, amend and receive an accounting of certain disclosures of PHI; ● requirements to notify individuals if there is a breach of their PHI; ● the contents of notices of privacy practices for PHI; ● administrative, technical and physical safeguards required of entities that use or receive PHI; and ● the protection of computing systems maintaining electronic PHI. 51 We have implemented practices intended to meet the requirements of the HIPAA privacy, security and breach notification regulations, as required by law. We are required to comply with federal privacy, security and breach notification regulations as well as varying state privacy, security and breach notification laws and regulations, which may be more stringent than federal HIPAA requirements. In addition, for healthcare data transfers from other countries relating to citizens of those countries, we must comply with the laws of those countries. The federal privacy regulations restrict our ability to use or disclose patient identifiable data, without patient authorization, for purposes other than payment, treatment, healthcare operations and certain other specified disclosures such as public health and governmental oversight of the healthcare industry. HIPAA provides for significant fines and other penalties for wrongful use or disclosure of PHI, including potential civil and criminal fines and penalties. Computer networks are always vulnerable to breach and unauthorized persons may in the future be able to exploit weaknesses in the security systems of our computer networks and gain access to PHI. Additionally, we share PHI with third-parties who are legally obligated to safeguard and maintain the confidentiality of PHI. Unauthorized persons may be able to gain access to PHI stored in such third-parties computer networks. Any wrongful use or disclosure of PHI by us or such third-parties, including disclosure due to data theft or unauthorized access to our or our third-parties computer networks, could subject us to fines or penalties that could adversely affect our business and results of operations. Although the HIPAA statute and regulations do not expressly provide for a private right of damages, we could also incur damages under state laws to private parties for the wrongful use or disclosure of confidential health information or other private personal information. Our employees, independent contractors, consultants, commercial partners, and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements. We are exposed to the risk of fraud, misconduct, or other illegal activity by our employees, independent contractors, consultants, commercial partners, and vendors. Misconduct by these parties could include intentional, reckless and negligent conduct that fails to: comply with the rules and regulations of the CMS, FDA, and other comparable foreign regulatory authorities; provide true, complete and accurate information to such regulatory authorities; comply with manufacturing and clinical laboratory standards; comply with healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws; or report financial information or data accurately or to disclose unauthorized activities to us. In particular, research, sales, marketing, education, and other business arrangements in the healthcare industry are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing, and other abusive practices, as well as off-label product promotion. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, educating, marketing and promotion, sales and commission, certain customer incentive programs, and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of participant recruitment for clinical studies, which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of business conduct and ethics, but it is not always possible to identify and deter misconduct by employees and third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions. Even if it is later determined after an action is instituted against us that we were not in violation of these laws, we may be faced with negative publicity, incur significant expenses defending our actions, and have to divert significant management resources from other matters. 52 Risks Associated with Our Intellectual Property and Technology Infrastructure We may not be able to protect or enforce the intellectual property rights for the technology used in, or expected to be used in, our products, which could impair our competitive position. Our success depends significantly on our ability to protect the patents, trademarks, trade secrets, copyrights and the other intellectual property rights for the technology used, or expected to be used, in our products. We rely primarily on patent protection and trade secrets, including the patents to the EsoGuard and EsoCheck technologies licensed by us from CWRU, as well as a combination of copyright and trademark laws and nondisclosure and confidentiality agreements to protect the technology and other intellectual property on which we rely. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or maintain any competitive advantage. In addition, although we have the right to direct CWRU to seek patent protection for the EsoGuard and EsoCheck technology in additional countries, we have limited control over the prosecution of any such application and have limited control over CWRU’s other intellectual property practices as they relate to the EsoGuard and EsoCheck technologies. Despite our intellectual property rights practices, it may be possible for a third party to copy or otherwise obtain and use the technology on which we rely without authorization, develop similar technology independently or design around our patents. Furthermore, protecting intellectual property rights is costly and time consuming. We are responsible for the costs of CWRU in preparing, filing and prosecuting any patents related to the EsoGuard technology (subject to a provision for cost sharing in the event CWRU grants additional licenses to the technology, none of which would be permitted to overlap with our field of use). Patents relied on by us may expire or may be challenged, invalidated, or circumvented, which could limit our ability to stop competitors from marketing related technologies. If any of the patents fails to protect the technology used by us, it would make it easier for our competitors to offer similar products. In addition, there is no assurance that competitors will not be able to design around the patents. Upon expiration of the patents, we may lose some of our rights to exclude others from making, using, selling, or importing products using the technology based on the expired patents. We cannot be assured that any pending or future patent applications for the technology on which we rely will result in the issuance of a patent to us. The U.S. Patent and Trademark Office, or the “PTO,” may deny or require significant narrowing of claims in the patent applications, and patents issued as a result of the patent applications, if any, may not provide us with significant commercial protection or be issued in a form that is advantageous to us. We could also incur substantial costs in proceedings before the PTO. We also rely on unpatented proprietary technology. We cannot assure you that we can meaningfully protect all our rights in our unpatented proprietary technology or that others will not independently develop substantially equivalent proprietary products or processes or otherwise gain access to our unpatented proprietary technology. We seek to protect our know-how and other unpatented proprietary technology with confidentiality agreements and/or intellectual property assignment agreements with our team members, independent distributors and consultants. However, such agreements may not be enforceable or may not provide meaningful protection for our proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements or in the event that our competitors discover or independently develop similar or identical designs or other proprietary information. Our trade secrets may be vulnerable to disclosure or misappropriation by employees, contractors, and other persons. We also rely on the use of registered and common law trademarks with respect to the brand names of some of our products. Common law trademarks provide less protection than registered trademarks. Furthermore, we may not be able to obtain patent protection and other intellectual property rights in all the countries in which we operate, and under the laws of such countries, patents and other intellectual property rights may be unavailable or limited in scope. Any inability on our part to adequately protect our intellectual property may have a material adverse effect on our business, financial condition and results of operations. 53 We may be subject to intellectual property infringement claims by third parties which could be costly to defend, divert management’s attention and resources, and may result in liability. The medical device industry is characterized by vigorous protection and pursuit of intellectual property rights. Companies in the medical device industry have used intellectual property litigation to gain a competitive advantage in the marketplace. From time to time, third parties may assert against us or CWRU their patent, copyright, trademark, and other intellectual property rights relating to technologies that are important to our business. Searches for existing intellectual property rights may not reveal important intellectual property and our competitors may also have filed for patent protection, information which is not publicly available, just as claimed trademark rights may not be revealed through our searches. We may be subject to claims that our team members or CWRU’s personnel have disclosed, or that we have used, or CWRU has used, trade secrets or other proprietary information of our team members’ or CWRU’s personnel’s former employers. Our efforts to identify and avoid infringing upon third parties’ intellectual property rights may not always be successful. Any claims that our products or processes infringe these rights, regardless of their merit or resolution, could be costly, time consuming and may divert the efforts and attention of our management and technical personnel. In addition, we may not prevail in such proceedings given the complex technical issues and inherent uncertainties in intellectual property litigation. In any infringement litigation against CWRU relating to the EsoGuard technology, we will have the right to assume the defense of such suit at our expense. Any claims of patent or other intellectual property infringement against us or CWRU, even those without merit, could: ● increase the cost of our products; ● be expensive and/or time consuming to defend; ● result in our being required to pay significant damages to third parties; ● force us to cease making or selling products that incorporate the challenged intellectual property; ● require us to redesign, reengineer or rebrand our products and technologies; ● require us to enter into royalty or licensing agreements in order to obtain the right to use a third party’s intellectual property on terms that may not be favorable or acceptable to us; ● require us to develop alternative non-infringing technology, which could require significant effort and expense; ● require us to indemnify third parties pursuant to contracts in which we have agreed to provide indemnification for intellectual property infringement claims; ● result in our customers or potential customers deferring or limiting their purchase or use of the affected products impacted by the claims until the claims are resolved; and ● otherwise have a material adverse effect on our business. Any of the foregoing could affect our ability to compete or have a material adverse effect on our financial condition and results of operations. Competitors may violate the intellectual property rights for the technology used in, or expected to be used in, our products, and we may bring litigation to protect and enforce our intellectual property rights, which may result in substantial expense and may divert our attention from implementing our business strategy. We believe that the success of our business will depend, in significant part, on obtaining patent protection for our products and technologies, defending our patents and preserving our trade secrets and other proprietary intellectual property rights. Our failure to pursue any potential claim could result in the loss of our proprietary intellectual property rights and harm our position in the marketplace. Therefore, we may be forced to pursue litigation to enforce our rights. Future litigation could result in significant costs and divert the attention of our management and key personnel from our business operations and the implementation of our business strategy. Failure in our information technology systems could significantly disrupt our operations and our research and development efforts, which could adversely impact our revenues, as well as our research, development and commercialization efforts. Our ability to execute our business strategy depends, in part, on the continued and uninterrupted performance of our information technology (“IT”) systems that support our operations and our research and development efforts, and those IT systems within the control of our contract manufacturers. We are substantially dependent on those IT systems to receive and process EsoGuard test orders, securely store patient health records and deliver the results of our EsoGuard tests. IT systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts including cyberattacks, and natural disasters. Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our IT systems, and the precautionary measures taken by our contract parties, sustained or repeated system failures that interrupt our ability to generate and maintain data, and in particular to operate our clinical laboratory, could adversely affect our ability to operate our business. Any interruption in the operation of IT systems could have an adverse effect on our operations. 54 System upgrades, enhancements and replacements, as well as new systems, are required from time to time, and require significant expenditures and allocation of valuable employee resources. Delays in integration or disruptions to our business from implementation of these new or upgraded systems could have a material adverse impact on our financial condition and operating results. There can be no assurance that our process of improving existing systems, developing new systems to support our expanding operations, integrating new systems, protecting confidential patient information, and improving service levels will not be delayed or that additional systems issues will not arise in the future. Failure to adequately protect and maintain the integrity of our information systems issues and data may result in a material adverse effect on our financial position, results of operations and cash flows. Our internal computer systems, or those used by our third-party research institution collaborators, vendors or other contractors or consultants, may suffer security breaches. In the ordinary course of our business, we and our contract manufacturers store sensitive data, including intellectual property, proprietary business information, personally identifiable information of our employees and patient health records, in our data centers and on our networks. The integrity and protection of our own data, and that of our customers and employees, is critical to our business. The regulatory environment governing information, security and privacy laws is increasingly demanding and continues to evolve. Despite the implementation of security measures by us and by our contractors, our internal computer systems and those of our contractors may be vulnerable to security breaches and damage from computer viruses, unauthorized access and ransomware attacks, including the unauthorized encryption of data stored on our computer network. Any such breach or attack could materially affect business operations and result in a loss of data, damage to our IT systems, or inappropriate disclosure of confidential or proprietary information, including protected health information, which is protected by HIPAA and other laws. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, damage to our reputation, and delays in the commercialization of our products. In addition, we could incur additional cost, expense and the diversion of time and resources to recover from such an attack, and any such attach could cause our management to conclude that our disclosure controls and procedures were not effective. Risks Associated with Our Financial Condition We have incurred operating losses since our inception and may not be able to achieve profitability. We have incurred net losses since our inception. For the years ended December 31, 2021 and December 31, 2020, we had a net loss of $28.1 million and $8.3 million, respectively. Our ability to generate sufficient revenue from any of our products in development, and to transition to profitability and generate consistent positive cash flows is dependent upon factors that may be outside of our control. We expect that our operating expenses will continue to increase as we continue to develop, pursue regulatory clearance or approval for and commercialize our products, build our manufacturing, sales and other commercial infrastructure, and incur additional operational and reporting costs associated with being a public company. As a result, we expect to continue to incur operating losses for the foreseeable future. We are subject to all of the risks and uncertainties typically faced by a medical device and diagnostic company devoting substantially all its efforts to the commercialization of its initial products and services and ongoing research and development activities and clinical trials. 55 We may need substantial additional funding and may be unable to raise capital when needed, which could force us to delay, reduce, eliminate or abandon growth initiatives or product development programs. We intend to continue to make investments to support our business growth, and we may require additional funds to: ● continue our research and development including existing and new clinical trials; ● pursue additional regulatory clearances and approvals for our products; ● protect our intellectual property rights or defend, in litigation or otherwise, any claims that we infringe third-party patents or other intellectual property rights; ● fund our operations; ● manufacture and distribute our products; and ● promote market acceptance of our products. Our need for additional funds may be affected by: ● the cost and timing of expanding our sales, marketing and distribution capabilities; ● the effect of competing technological and market developments; and ● the extent to which we acquire or invest in businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions. Debt or preferred stock financing, if available, may involve covenants restricting our operations or our ability to incur additional debt or issue additional preferred stock, and may contain other terms that are not favorable to us or our stockholders. Additional equity financing may result in substantial dilution to our existing stockholders. If we do not have, or are not able to obtain, sufficient funds, we may have to delay product development initiatives or license to third parties the rights to commercialize products or technologies that we would otherwise seek to market. We also may have to reduce manufacturing, distribution, marketing, customer support or other resources devoted to our products. Our quarterly operating results could be subject to significant fluctuation, which could increase the volatility of our stock price and cause losses to our stockholders. Our results of operations, including our revenue and profits, assuming we are able to successfully commercialize the EsoGuard and EsoCheck products, may fluctuate significantly, depending on a variety of factors, including the following: ● our success in marketing and selling, and changes in demand for, our products, and the level of reimbursement and collection obtained for our products; ● seasonal variations affecting physician recommendations for esophageal precancer and cancer screenings and patient compliance with physician recommendations, including without limitation holidays, weather events, and circumstances such as the outbreak of COVID-19, influenza or other disease that may limit patient access to medical practices for preventive services such as esophageal precancer and cancer screening; ● our success in collecting payments from third-party payors, patients and collaborative partners, variation in the timing of these payments and recognition of these payments as revenues; ● the pricing of our products, including potential changes in CMS reimbursement rates or other reimbursement rates; ● circumstances affecting our ability to provide our products, including weather events, supply shortages, or regulatory or other circumstances that adversely affect our ability to manufacture our products or process tests in our clinical laboratory; ● fluctuations in the amount and timing of our selling and marketing costs and our ability to manage costs and expenses and effectively implement our business; and ● our research and development activities, including the timing of costly clinical trials. 56 Risks Associated with Our Relationship with PAVmed Inc. PAVmed owns a majority of our voting stock and thus may control certain actions requiring a stockholder vote. PAVmed owns approximately 75.8% as of December 31, 2021 and 74.6% as of March 29, 2022 of our issued common stock (with such percentage inclusive of shares of our common stock underlying granted but unvested restricted stock awards). Thus, we are a majority-owned subsidiary of PAVmed, and PAVmed has a controlling financial interest. Accordingly, for the foreseeable future, PAVmed will control us and our corporate affairs. So long as PAVmed continues to control more than 50% of the voting control of our common stock, PAVmed will be able to direct the election of all the members of our board of directors. In addition, as long as PAVmed continues to control more than 50% of our common stock, PAVmed will have the ability to take stockholder action without the vote of any other stockholder and without having to call a stockholder meeting. Similarly, PAVmed will have the ability to prevent the approval of any action submitted to the stockholders. If PAVmed does not provide any requisite consent allowing us to take any such action when requested, we will not be able to engage in the related activities and, as a result, our business and our operating results may be harmed. PAVmed’s voting control and its additional rights described above may discourage transactions involving a change of control of us, including transactions in which holders of our common stock might otherwise receive a premium for their shares over the then-current market price. PAVmed is not prohibited from selling a controlling interest in us to a third party and may do so without the approval of the other stockholders and without providing for a purchase of our other shares of common stock. Accordingly, shares of common stock held by our other stockholders may be worth less than they would be if PAVmed did not maintain voting control over us or have the additional rights described above. PAVmed’s interests and objectives as a stockholder may not align with, or may even directly conflict with, your interests and objectives as a stockholder. For example, PAVmed may be more or less interested in us entering into a transaction or conducting an activity due to the impact such transaction or activity may have on PAVmed as a company, independent of us. In such instances, PAVmed may exercise its control over us in a way that is beneficial to PAVmed, and you will not be able to affect the outcome so long as PAVmed continues to hold a majority of the shareholder votes. In the event PAVmed is acquired or otherwise undergoes a change of control, any acquiror or successor will be entitled to exercise the voting control and contractual rights of PAVmed and may do so in a manner that could vary significantly from that of PAVmed. With the goal of mitigating the risks flowing from PAVmed’s control position, we have decided not to seek exemption as a “controlled company” from the corporate governance rules of Nasdaq, and therefore will be bound by the same corporate governance principles as other public companies, including the requirement that a majority of our directors be independent and that we maintain audit, compensation and nominating committees comprised of independent directors. However, our decision not to rely on the “controlled company” exemption could change. Although we do not anticipate changing our decision, for so long as a majority of our outstanding common stock is held by PAVmed (or by any other stockholder or group of stockholders), we could choose to rely on this exemption in the future to avoid complying with certain of the Nasdaq corporate governance rules, including the rules that require us to have a board comprised of at least 50% independent directors, to have board nominations either selected, or recommended for the board’s selection, by either a nominating committee comprised solely of independent directors or by a majority of the independent directors and to have officer compensation determined, or recommended to the board for determination, either by a compensation committee comprised solely of independent directors or by a majority of the independent directors. Any decision to rely on the “controlled company” exemption will be disclosed in our annual proxy statement. Certain conflicts of interest may arise between us and our officers, directors, and affiliated companies, including PAVmed, and in some cases we have waived certain rights with respect thereto. Certain of our officers have fiduciary obligations to other companies and organizations engaged in medical device business activities, namely PAVmed. Accordingly, they may participate in transactions and have obligations that may be in conflict or competition with our business. In addition, some of our directors and executive officers own equity awards based on PAVmed’s common stock, and some of our directors are executive officers and/or directors of PAVmed. Ownership of equity awards based on PAVmed’s common stock by our directors and officers after this offering and the presence of executive officers or directors of PAVmed on our board of directors could create or appear to create conflicts of interest with respect to matters involving both us and PAVmed that could have different implications for PAVmed than they do for us. 57 Our certificate of incorporation includes a provision stating that we renounce any interest or expectancy in, or being offered an opportunity to participate in, any business opportunities, that are presented to our officers, directors, employees or stockholders, or affiliates thereof, who are also officers, directors, employees or stockholders of PAVmed or affiliates thereof, each a “PAVmed Party,” and in which a PAVmed Party may have an interest or expectancy, a “PAVmed Opportunity,” except as may be prescribed by any written agreement between us and PAVmed approved by our Board of Directors. In addition, no PAVmed Party will have any duty to communicate or present such business opportunities to us, and no PAVmed Party will be liable to our company or our stockholders for breach of any fiduciary duty, including by reason of a PAVmed Party pursuing or acquiring any PAVmed Opportunity. Pursuant to the management services agreement, no PAVmed Party will pursue any opportunity related to commercializing the EsoGuard diagnostic test and the EsoCheck cell collection device or developing and commercializing other products that use or enhance the same underlying technology. As a result of the foregoing, a potential business opportunity may be presented by certain members of our management team to another entity prior to its presentation to us and we may not be afforded the opportunity to engage in such a transaction. In addition, if any PAVmed Party becomes aware of a potential business opportunity that is a PAVmed Opportunity (other than those specified in the management services agreement), including any such opportunity relating to any other diagnostic test or medical device, he or she will be entitled to present those opportunities to another PAVmed Party prior to presenting them to us. Accordingly, any conflicts of interest among us and our officers, directors, stockholders or their affiliates, including PAVmed and certain of our officers and directors, relating to business opportunities may not be resolved in our favor, and in cases where the business opportunity is a PAVmed Opportunity and it is presented to another PAVmed Party, we have waived our right to monetary damages in the event of any such conflict. Furthermore, PAVmed, our majority shareholder, operates in the medical device industry. As a result, PAVmed may produce devices that compete directly or indirectly with our products. While PAVmed will not pursue any opportunity related to commercializing the EsoGuard diagnostic test or the EsoCheck cell collection device or developing and commercializing other products that use or enhance the same underlying technology, there can be no assurance that PAVmed will not engage in increased competition with us in the future. PAVmed could assert control over us in a manner which could impede our growth or our ability to enter new markets or otherwise adversely affect our business. PAVmed could utilize its control over us to cause us to take or refrain from taking certain actions, including with respect to entering into relationships with sales, marketing, distribution, technology and other partners, enforcing our intellectual property rights, and pursuing corporate opportunities or product development initiatives, which could adversely affect our competitive position, including our competitive position relative to that of PAVmed in markets where we may compete with them in the future. If any of these scenarios were to materialize, our market share could be reduced, which could have an adverse impact on our results of operations. Our historical financial information as a private subsidiary of PAVmed, during which time we were managed as part of PAVmed’s overall business, may not be representative of our results as an independent public company. A substantial portion of our historical financial information reflects our operations as a private subsidiary of PAVmed, during which time we were managed as part of PAVmed’s overall business. Accordingly, such historical financial information may not necessarily reflect what our financial position, results of operations or cash flows would have been had we been an independent public company during the historical periods presented or what they would have been if we were managed independently. The historical costs and expenses reflected in our combined financial statements include charges under the management services agreement for management, technical and administrative services provided by PAVmed, including centralized legal, accounting, tax, treasury, information technology and other corporate services and infrastructure costs. We will continue to incur these charges until such time as our Board of Directors determines to terminate the management services agreement or amend the scope of services to be provided thereby. We and PAVmed believe these charges are reasonable reflections of the utilization levels of these services in support of our business. The historical financial information, however, is not necessarily indicative of our future results of operations, financial position, cash flows or costs and expenses. We have not made adjustments to reflect the changes that will occur in our cost structure, funding and operations as a result of our separation from PAVmed, such as increased costs associated with being a publicly traded, stand-alone company. We also have not made adjustments to reflect the many significant changes that will occur in our cost structure, funding and operations once our Board of Directors determines that we should be managed independently and terminates the management services agreement or amends the scope of the services to be provided thereby, including changes in our employee base, potential increased costs associated with reduced economies of scale, increased marketing expenses and increased administrative expenses. For additional information, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical combined financial statements included elsewhere herein and the notes thereto. 58 Our ability to operate our business effectively may suffer if the MSA with PAVmed is insufficient to meet our needs or if, upon the termination of the MSA, we do not cost-effectively establish our own fully functional financial, administrative, operational and other support systems in order to operate as a stand-alone company. As a private subsidiary of PAVmed, we have historically relied on the financial resources and the services provided by PAVmed pursuant to the MSA to operate our business. The MSA covers a variety of matters and provides for our use of PAVmed’s office space and personnel for management, technical and administrative services. See Item 1, “Business.” We will continue to use PAVmed’s services under the MSA until such time as our Board of Directors determines it would be in our best interest to engage a dedicated management team. Upon termination or amendment of the MSA, we may need to create our own financial, administrative, operational and other support systems or contract with third parties to replace PAVmed’s systems. As such systems will be new, it may take additional time to fully implement and stabilize these systems. In order to successfully implement our own systems and operate as a stand-alone business, we must be able to attract and retain a number of highly skilled employees. The services provided under the MSA may not be sufficient to meet our needs and, after we terminate the MSA, we may not be able to replace these services or facilities at favorable costs and on favorable terms, if at all. Any gap in the services provided by PAVmed, or failure or significant downtime in our own financial or administrative systems once established, could result in unexpected costs, impact our results and/or prevent us from paying our suppliers and employees and performing other administrative services on a timely basis and could materially harm our business, financial condition, results of operations and cash flows. In order to preserve the ability for PAVmed to distribute its shares of our common stock on a tax-free basis for U.S. federal income tax purposes, we may be prevented from pursuing opportunities to raise capital, to effectuate acquisitions or to provide equity incentives to our employees, which could hurt our ability to grow. Beneficial ownership of at least 80% of the total voting power and 80% of each class of non-voting capital stock is required in order for PAVmed to effect a spin-off of our company that is tax-free for U.S. federal income tax purposes. PAVmed has advised us that it does not have any present intention or plans to undertake any spin-off. However, PAVmed may wish to preserve its ability to engage in a spin-off in the future. If PAVmed decides to retain its ability to effectuate a spin-off, it may use its controlling position to prevent us from raising capital, effectuating acquisitions or providing equity incentives to our employees. This could cause us to forgo capital raising or acquisition opportunities that would otherwise be available to us. As a result, we may be precluded from pursuing certain growth initiatives. Third parties may seek to hold us responsible for liabilities of PAVmed, which could result in a decrease in our income. Third parties may seek to hold us responsible for PAVmed’s liabilities. Likewise, our relationship with PAVmed, as a larger company and our majority shareholder, may make us more of a target for litigation than we otherwise would be on our own. If are ultimately responsible for any such liabilities, it could have a material adverse effect on our business, financial condition and results of operations. Any disputes that arise between us and PAVmed with respect to our past and ongoing relationships could harm our business operations. Disputes may arise between PAVmed and us in a number of areas relating to our past and ongoing relationships, including: ● employee allocation, retention and recruiting; ● the nature, quality, and pricing of the services PAVmed has agreed to provide us; and ● business opportunities that may be attractive to both PAVmed and us. We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party. 59 PAVmed’s ability to control our board of directors and company may make it difficult for us to recruit high-quality independent directors and employees. So long as PAVmed beneficially owns shares of our common stock representing at least a majority of the votes entitled to be cast by the holders of outstanding voting stock, PAVmed can effectively control and direct our board of directors and our company generally. Further, the interests of PAVmed and our other stockholders may diverge. Under these circumstances, persons who might otherwise accept our invitation to join our board of directors or become our employees may decline. Risks Associated with Ownership of Our Common Stock We may issue shares of our capital stock or debt securities in the future which could reduce the equity interest of our stockholders and might cause a change in control of our ownership. Our certificate of incorporation authorizes the issuance of up to 100,000,000 shares of common stock, par value $.001 per share, and 20,000,000 shares of preferred stock, par value $.001 per share. There are 62,567,464 authorized but unissued shares of our common stock available for issuance as of March 29, 2022 (inclusive of granted but unvested restricted stock awards granted as of each such date under the Lucid Diagnostics 2018 Long-Term Incentive Equity Plan). We have issued and expect to continue to issue equity awards, including stock options, under our 2018 Long-Term Incentive Equity Plan (the “Lucid Diagnostics Inc. 2018 Equity Plan”) and our Employee Stock Purchase Plan (the “Lucid Diagnostics Inc. ESPP”). Furthermore, in February 2022, we entered into the asset purchase agreement with RDx, pursuant which we acquired certain licenses and other related assets necessary to operate a CLIA-certified, CAP-accredited clinical laboratory, with $3,000,000 of the purchase price payable in installments in cash or, at our election, in shares of our common stock valued at a price based on the current market price. In addition, in March 2022, we entered into a committed equity facility with an affiliate of Cantor. Under the terms of the facility, Cantor has committed to purchase up to $50 million in shares of our common shares stock from time to time at the our request. Although we have no commitments to issue our securities (including pursuant the committed equity facility with an affiliate of Cantor), we may issue a substantial number of additional shares of our common stock or preferred stock, or a combination of common and preferred stock, to raise additional funds or in connection with any strategic acquisition or as compensation to our officers, directors, employees and consultants. The issuance of additional shares of our common stock or any number of shares of our preferred stock, and the availability for sale of such shares in the public markets: ● may significantly reduce the equity interest of our current investors; ● may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded to our common stockholders; ● may cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carryforwards, if any, and most likely also result in the resignation or removal of some or all of our present officers and directors; and ● may adversely affect prevailing market prices for our common stock. Similarly, if we issue debt securities, it could result in: ● default and foreclosure on our assets if our operating revenues were insufficient to pay our debt obligations; ● acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contains covenants that require the maintenance of certain financial ratios or reserves, and any such covenant is breached without a waiver or renegotiation of that covenant; ● our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; ● our inability to obtain additional financing, if necessary, if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding; and ● our inability to conduct acquisitions, joint ventures or similar arrangements if the debt security contains covenants restricting such transactions or the funding thereof or requiring prior approval of the debt holders. 60 If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and trading volume could decline. The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for our common stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our stock price and trading volume to decline. Nasdaq may in the future delist our common stock, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions. Our common stock is listed on the Nasdaq Global Market. We are required to meet certain financial and liquidity criteria to maintain the listing of our common stock on Nasdaq. If we violate the Nasdaq continued listing requirements or fail to meet any of Nasdaq’s continued listing standards, our common stock may be delisted. In addition, while we have no present intention to do so, our Board of Directors may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. If Nasdaq delists our common stock from trading on its exchange, or we voluntarily remove our common stock from listing, we could face significant material adverse consequences, including: ● a limited availability of market quotations for our common stock; ● reduced liquidity with respect to our common stock; ● a determination that our shares of common stock are “penny stock” which will require brokers trading in our shares of common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock; ● a limited amount of news and analyst coverage for our company; and ● a decreased ability to issue additional securities or obtain additional financing in the future. Our stock price may be volatile, and purchasers of our common stock could incur substantial losses. Our stock price is likely to be volatile. The stock market in general, and the market for life science companies, and medical device companies in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the initial public offering price. The market price for our common stock may be influenced by many broad market and industry factors. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In addition, the market price for our common stock may be subject to price movements that may not comport with macro, industry or company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as may be expressed on financial trading and other social media sites and online forums), the direct access by retail investors to broadly available trading platforms, the amount and status of short interest in our securities, access to margin debt, trading in options and other derivatives on our common stock and any related hedging and other trading factors. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects. We do not intend to pay any dividends on our common stock at this time. We have not paid any cash dividends on our shares of common stock to date. The payment of cash dividends on our common stock in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition and will be within the discretion of our Board of Directors. It is the present intention of our Board of Directors to retain all earnings, if any, for use in our business operations and, accordingly, our Board of Directors does not anticipate declaring any dividends on our common stock in the foreseeable future. As a result, any gain you will realize on our common stock will result solely from the appreciation of such shares. 61 We will incur significantly increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives. As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, the other rules and regulations of the Securities and Exchange Commission, or “SEC,” and the rules and regulations of Nasdaq. The expenses that will be required in order to adequately prepare for being a public company will be material, and compliance with the various reporting and other requirements applicable to public companies will require considerable time and attention of management. For example, the Sarbanes-Oxley Act and the rules of the SEC and national securities exchanges have imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. These rules and regulations will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits on coverage or incur substantial costs to maintain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified personnel to serve on our Board of Directors, our board committees, or as executive officers. If we fail to establish and maintain proper and effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could decline significantly. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. As a public company, we will be required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act requires annual management assessment of the effectiveness of our internal control over financial reporting, beginning as early as our annual report on Form 10-K for the fiscal year ended December 31, 2021. However, our auditors will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until we are no longer an emerging growth company if we continue to take advantage of the exemptions available to us through the JOBS Act. Implementing any appropriate changes to our internal controls may distract our officers and employees, entail substantial costs to modify our existing processes and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and harm our business. In addition, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis could cause investors to lose confidence in the accuracy and completeness of our financial reports and could cause the market price of our common stock to decline significantly. Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud. We are subject to the periodic reporting requirements of the Exchange Act. We designed our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the facts that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected. We are subject to evolving corporate governance and public disclosure expectations and regulations that impact compliance costs and risks of noncompliance. We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory organizations, including the SEC and Nasdaq, as well as evolving investor expectations around corporate governance and environmental and social practices and disclosures. These rules and regulations continue to evolve in scope and complexity, and many new requirements have been created in response to laws enacted by the U.S. and foreign governments, making compliance more difficult and uncertain. The increase in costs to comply with such evolving expectations, rules and regulations, as well as any risk of noncompliance, could adversely impact us. 62 We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors. We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, which was enacted in April 2012. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the date on which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may suffer or be more volatile. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period under the JOBS Act. Provisions in our corporate charter documents and under Delaware law could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our current management. Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors. Because our Board of Directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. Among others, these provisions include the following. ● our Board of Directors will be divided into three classes with staggered three-year terms which may delay or prevent a change of our management or a change in control; ● our Board of Directors will have the right to elect directors to fill a vacancy created by the expansion of our Board of Directors or the resignation, death or removal of a director, which will prevent stockholders from being able to fill vacancies on our Board of Directors; ● our certificate of incorporation will not permit cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; ● our stockholders will be required to provide advance notice and additional disclosures in order to nominate individuals for election to our Board of Directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company; and ● our Board of Directors will be able to issue, without stockholder approval, shares of undesignated preferred stock, which makes it possible for our Board of Directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us. 63 Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Our charter will provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders. Our amended and restated certificate of incorporation will require, to the fullest extent permitted by law, subject to limited exceptions, that derivative actions brought in our name, actions against directors, officers and employees for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel in any action brought to enforce the exclusive forum provision. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our amended and restated certificate of incorporation. Notwithstanding the foregoing, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. In addition, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. As a result, the exclusive forum provision will provide that the Court of Chancery and the federal district court for the District of Delaware will have concurrent jurisdiction over any action arising under the Securities Act or the rules and regulations thereunder, and the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder or any other claim for which the federal courts have exclusive jurisdiction. To the extent the exclusive forum provision restricts the courts in which our stockholders may bring claims arising under the Securities Act and the rules and regulations thereunder, there is uncertainty as to whether a court would enforce such provision. Investors cannot waive compliance with the federal securities laws and the rules and regulations promulgated thereunder. This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. By requiring a stockholder to bring such a claim in the Court of Chancery (or the federal district court for the District of Delaware, in the case of an action under the Securities Act or the rules and regulations thereunder), the exclusive forum provision also may increase the costs to a stockholder of bringing such a claim. Alternatively, if a court were to find the exclusive forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition. 64