Lucid Diagnostics Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our unaudited condensed consolidated financial condition and results of operations should be read together with our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”). Unless the context otherwise requires, (i) “we”, “us”, and “our”, and the “Company”, “Lucid” and “Lucid Diagnostics” refer to Lucid Diagnostics Inc. and its subsidiaries LucidDx Labs Inc. (“LucidDx Labs”) and CapNostics, LLC (“CapNostics”), (ii) “FDA” refers to the Food and Drug Administration, (iii) “510(k)” refers to a premarket notification, submitted to the FDA by a manufacturer pursuant to § 510(k) of the Food, Drug and Cosmetic Act and 21 CFR § 807 subpart E, (iv) “CLIA” refers to the Clinical Laboratory Improvement Amendments of 1988 and associated regulations set forth in 42 CFR § 493, (v) “CE Mark” refers to a “Conformité Européenne” Mark, a mark indicating that a product such as a medical device conforms to the essential requirements of the relevant European directive, and (vi) “LDT” refers to a diagnostic test, defined by the FDA as “an IVD that is intended for clinical use and designed, manufactured and used within a single laboratory,” which is generally subject only to self-certification of analytical validity under the CMS CLIA program. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q (this “Form 10-Q”) including the following discussion and analysis of our unaudited condensed consolidated financial condition and results of operations, contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from those expressed or implied in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Item 1A of Part I of the Form 10-K under the heading “Risk Factors.” Important factors that may affect our actual results include: ● our limited operating history; ● our financial performance, including our ability to generate revenue; ● our ability to obtain regulatory approval for the commercialization of our products; ● the risk that the FDA will cease to exercise enforcement discretion with respect to LDTs, like EsoGuard; ● the ability of our products to achieve market acceptance; ● our success in retaining or recruiting, or changes required in, our officers, key employees or directors; ● our potential ability to obtain additional financing when and if needed; ● our ability to protect our intellectual property; ● our ability to complete strategic acquisitions; ● our ability to manage growth and integrate acquired operations; ● the potential liquidity and trading of our securities; ● our regulatory and operational risks; ● cybersecurity risks; ● risks related to the COVID-19 pandemic and other health-related emergencies; ● risks related to our relationship with PAVmed; and ● our estimates regarding expenses, future revenue, capital requirements and needs for additional financing. In addition, our forward-looking statements do not reflect the potential impact of any future financings, acquisitions, mergers, dispositions, joint ventures or investments we may make. We may not actually achieve the plans, intentions, and/or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. You should read this Form 10-Q, the documents we have filed as exhibits to this Form 10-Q, and the Form 10-K completely and with the understanding our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Overview We are a commercial-stage medical diagnostics technology company focused on the millions of patients who are at risk of developing esophageal precancer and cancer, specifically highly lethal esophageal adenocarcinoma (“EAC”). We believe that our flagship product, the EsoGuard Esophageal DNA Test, performed on samples collected with the EsoCheck Esophageal Cell Collection Device, constitutes the first and only commercially available diagnostic test capable of serving as a widespread tool for the early detection of esophageal precancer, including Barrett’s Esophagus (“BE”), in at-risk patients. Early detection of esophageal precancer allows patients to undergo appropriate monitoring and treatment, as indicated by clinical practice guidelines, in an effort to prevent progression to esophageal cancer. 21 Overview - continued EsoGuard is a bisulfite-converted next-generation sequencing (NGS) DNA assay performed on surface esophageal cells collected with EsoCheck. It quantifies methylation at 31 sites on two genes, Vimentin (VIM) and Cyclin A1 (CCNA1). The assay was evaluated in a 408-patient multicenter case-control study published in Science Translational Medicine and showed greater than 90% sensitivity and specificity at detecting esophageal precancer and all conditions along the BE-EAC spectrum, including on samples collected with EsoCheck (Moinova, et al. Sci Transl Med. 2018 Jan 17;10(424): eaao5848). EsoGuard is commercially available in the U.S. as a LDT performed at our CLIA-certified laboratory. Cell samples, including those collected with EsoCheck, as discussed below, are sent to our laboratory, for testing and analyses using EsoGuard. EsoCheck is an FDA 510(k) and CE Mark cleared noninvasive swallowable balloon capsule catheter device capable of sampling surface esophageal cells in a less than five-minute office procedure. It consists of a vitamin pill-sized rigid plastic capsule tethered to a thin silicone catheter from which a soft silicone balloon with textured ridges emerges to gently swab surface esophageal cells. When vacuum suction is applied, the balloon and sampled cells are pulled into the capsule, protecting them from contamination and dilution by cells outside of the targeted region during device withdrawal. We believe this proprietary Collect+Protect™ technology makes EsoCheck the only noninvasive esophageal cell collection device capable of such anatomically targeted and protected sampling. EsoGuard and EsoCheck are based on patented technology licensed by Lucid from Case Western Reserve University (“CWRU”). EsoGuard and EsoCheck have been developed to provide an accurate, non-invasive, patient-friendly test for the early detection of EAC and BE, including dysplastic BE and related precursors to EAC in patients with chronic gastroesophageal reflux disease (“GERD”), commonly known as chronic heart burn, acid reflux, or just reflux. Recent Developments Business Status of Clinical Trials and Publications Lucid continues to accelerate its collection and publication of clinical utility data through a range of trials. These efforts include an investigator-initiated, retrospective analysis of prospectively collected data on San Antonio firefighters who underwent testing as part of a community-sponsored cancer awareness event described below; a virtual-patient randomized controlled trial with intended recruitment of at least 100 physician participants; a Lucid-sponsored multi-center, prospective, observational study with 500 patients; and two Lucid-sponsored registries, in which Lucid collects real-world clinical utility and clinical validity data on EsoGuard Esophageal DNA testing for the detection of esophageal precancer in two distinct populations. With regard to the two registries, the Prospective REView of Esophageal Precancer DetectioN in AT-Risk Patients (PREVENT) Registry collects data on EsoGuard testing in the commercial increased-risk population, while the PREVENT-Fire Fighters (PREVENT-FF) Registry focuses exclusively on increased-risk firefighters. Complete data for the San Antonio firefighter study has been accepted for peer review publication in Journal of Gastrointestinal & Digestive System (ISSN: 2161-069X). Combined early interim results from the PREVENT and PREVENT-FF registries focusing on provider decision impact has also been accepted for peer review publication in Journal of Gastroenterology & Digestive Systems (ISSN: 2640-7477). Interim results for the Lucid-sponsored observational study have been posted in preprint on medRxiv and are undergoing journal peer review. Enrollment for the Lucid-sponsored observational study is expected to be completed by the end of the year. Similarly, results for the Lucid-sponsored virtual-patient study are expected to be ready for analysis before the end of 2023. #CheckYourFoodTube Events In January 2023, Lucid completed its first #CheckYourFoodTube Precancer Testing Event, with the San Antonio Fire Department (the “SAFD”) during Firefighter Cancer Awareness Month as designated by the International Association of Fire Fighters (IAFF). A total of 391 members who were deemed to be at-risk for esophageal precancer, underwent a brief, on-site, noninvasive cell collection procedure, performed by our clinical personnel using EsoCheck. Firefighters with suspected esophageal precancer based on a positive EsoGuard result were identified, including some less than 40 years of age, and will undergo appropriate monitoring and treatment, as indicated by clinical practice guidelines, to prevent progression to esophageal cancer. Since then, additional testing events have been hosted with the SAFD, and similar events have been held with fire departments throughout the country. These events are ongoing and are an extension of Lucid’s satellite Lucid Test Center (“sLTC”) program, which brings Lucid precancer testing directly to patients—at their physician’s office and now at testing day events. Launch of Direct Contracting Strategic Initiative In March 2023, we launched a Direct Contracting Strategic Initiative (“DCSI”) to engage directly with large Administrative Services Only (“ASO”) self-insured employers, unions and other entities, seeking to replicate the successes of other cancer screening diagnostic companies that have deployed similar strategies. In August 2023, the company announced it had contracted with the Ancira Automotive Group as a result of this initiative, providing access to esophageal precancer testing for its employees at all 12 San Antonio locations. 22 Business - continued New Revenue Cycle Management Provider In May 2023, Lucid began to transition claims submission responsibility to a new revenue cycle management provider that offered more robust capabilities for, among other things, claims processing and appeals. The provider upgrade has been completed and claim submissions resumed in June 2023. Since completing the transition, the upgrade has continued to demonstrate an improvement in speed of collections, turnaround time to claim submission, percentage of claims paid, and actionable data for appeals. Personnel Update Effective on November 6, 2023, Lucid’s board of directors appointed Shaun M. O’Neil as the President of Lucid. Mr. O’Neil, who is 41 years old, also continues to serve as the Chief Operating Officer of PAVmed and as the Chief Operating Officer of Lucid. For additional biographical information about Mr. O’Neil, please refer to Lucid’s definitive proxy statement on Schedule 14A filed on May 1, 2023, which information is incorporated herein by reference. Other than in connection with his service as an officer of PAVmed and Lucid, Mr. O’Neil has not engaged in any transactions with Lucid that are required to be reported pursuant to Item 404(a) of Regulation S-K. Financing Series A Preferred Stock Offering On March 7, 2023, we sold 13,625 shares of Series A convertible preferred stock, par value $0.001 per share (the “Series A Preferred Stock”), solely to accredited investors. Each share of the Series A Preferred Stock has a stated value of $1,000 and a conversion price of $1.394. The Series A Preferred Stock is convertible into shares of our common stock at any time at the option of the holder from and after the six-month anniversary of its issuance (or, if later, the effective date of a registration statement covering the resale of the underlying shares), and automatically converts into shares of our common stock on the second anniversary of its issuance. The terms of the Series A Preferred Stock also include a preference on liquidation and a right to receive dividends equal to 20% of the number of shares into which such Series A Preferred Stock is convertible, payable on each of the one-year and two-year anniversary of the issuance date. The Series A Preferred Stock is a non-voting security, other than with respect to limited matters related to changes in terms of the Series A Preferred Stock. The aggregate gross proceeds from the sale of shares in such offering were $13.625 million. Series A-1 Preferred Stock Offering On October 17, 2023, we sold 5,000 shares of Series A-1 convertible preferred stock, par value $0.001 per share (the “Series A-1 Preferred Stock”), solely to accredited investors. The terms of the Series A-1 Preferred Stock are substantially identical to the terms of the Series A Preferred Stock, except that the Series A-1 Preferred Stock has a conversion price of $1.2592. The aggregate gross proceeds from the sale of shares in such offering were $5.0 million. Private Placement - Securities Purchase Agreement Effective as of March 13, 2023, we entered into a Securities Purchase Agreement (“SPA”) with an accredited institutional investor, pursuant to which we agreed to sell, and the investor agreed to purchase, a Senior Secured Convertible Note with a face value principal of $11.1 million (the “March 2023 Note”). We issued the March 2023 Note on March 21, 2023 pursuant to the SPA. The proceeds from the sale of the March 2023 Note were $9.925 million after deducting a $1.186 million lender fee and offering costs. The March 2023 Note has a 7.875% annual stated interest rate, a contractual conversion price of $5.00 per share of the Company’s common stock (subject to standard adjustments in the event of any stock split, stock dividend, stock combination, recapitalization or other similar transaction), and a contractual maturity date of the two-year anniversary of the date of issuance. The principal of the March 2023 Note and accrued interest thereon is convertible at the option of the holder into the Company’s common stock at the contractual conversion price. In addition, the principal of the March 2023 Note amortizes over 18 months commencing six months after its issuance. The amortization payments and accrued interest on the March 2023 Note are payable in shares of the Company’s common stock (subject to the satisfaction of certain customary equity conditions and except for interest payable prior to September 21, 2023), at prices based on the then current market price. ATM Facility In November 2022, Lucid Diagnostics entered into an “at-the-market offering” for up to $6.5 million of its common stock that may be offered and sold under a Controlled Equity Offering Agreement between Lucid Diagnostics and Cantor Fitzgerald & Co. (“Cantor”). In the nine months ended September 30, 2023, we sold 230,068 shares through our at-the-market equity facility for net proceeds of approximately $0.3 million, after payment of 3% commissions. No shares were sold through our at-the-market equity facility during the three months ended September 30, 2023. 23 Results of Operations Overview Revenue The Company recognized revenue resulting from the delivery of patient EsoGuard test results when the Company considered the collection of such consideration to be probable to the extent that it is unconstrained. Additionally, in the three months ended March 31, 2022, revenue was recognized with respect to the EsoGuard Commercialization Agreement, dated August 1, 2021, between the Company and RDx, a CLIA certified commercial laboratory service provider. On February 25, 2022, the EsoGuard Commercialization Agreement was terminated upon our acquisition, pursuant to the APA-RDx, of certain assets necessary to operate our own CLIA certified laboratory. For a fuller description of the APA-RDx, see Note 6, Asset Purchase Agreement and Management Services Agreement , to our accompanying unaudited condensed consolidated financial statements. Cost of revenue Cost of revenues recognized from the delivery of patient EsoGuard test results includes costs related to EsoCheck device usage, shipment of test collection kits, royalties and the cost of services to process tests and provide results to physicians. We incur expenses for tests in the period in which the activities occur, therefore, gross margin as a percentage of revenue may vary from quarter to quarter due to costs being incurred in one period that relate to revenues recognized in a later period. We expect that gross margin for our services will continue to fluctuate and be affected by EsoGuard test volume, our operating efficiencies, patient compliance rates, payer mix, the levels of reimbursement, and payment patterns of payers and patients. For the previously terminated EsoGuard Commercialization Agreement in February 2022, the cost of revenue recognized is inclusive of: a royalty fee incurred under the Amended CWRU License Agreement (as defined in Note 4, Related Party Transactions , to our accompanying unaudited condensed consolidated financial statements); the cost of EsoCheck devices and EsoGuard mailers (cell sample shipping costs); and Lucid Test Centers operating expenses, including rent expense and supplies. Sales and marketing expenses Sales and marketing expenses consist primarily of salaries and related costs for employees engaged in sales and marketing activities, as well as the portion of the MSA Fee (as defined in Note 4, Related Party Transactions , to our accompanying unaudited condensed consolidated financial statements) allocated to sales and marketing expenses, which are principally costs related to PAVmed employees who are performing services for the Company. We anticipate our sales and marketing expenses will increase in the future, to the extent we expand our commercial sales and marketing operations as resources permit and insurance reimbursement coverage for our EsoGuard test expands. General and administrative expenses General and administrative expenses consist primarily of professional fees for accounting, tax, audit and legal services (including those fees incurred as a result of our being a public company), consulting fees, expenses associated with obtaining and maintaining patents within our intellectual property portfolio, and certain employee costs, along with the portion of the MSA Fee allocated to general and administrative expenses. We anticipate our general and administrative expenses will increase in the future to the extent our business operations grow. Furthermore, we anticipate continued expenses related to being a public company, including fees and expenses for audit, legal, regulatory, tax-related services, insurance premiums and investor relations costs associated with maintaining compliance as a public company. Research and development expenses Research and development expenses are recognized in the period they are incurred and consist principally of internal and external expenses incurred for the development of our technologies and conducting clinical trials, including: ● costs associated with regulatory filings; ● patent license fees; ● cost of laboratory supplies and acquiring, developing, and manufacturing preclinical prototypes; and ● MSA Fee allocated to research and development. We plan to incur research and development expenses for the foreseeable future as we continue the development of our existing products as well as new innovations. Our research and development activities, including our clinical trials, are focused principally on facilitating insurer reimbursement, encouraging physician adoption and developing product improvements or extending the utility of the lead products in our pipeline, including EsoCheck and EsoGuard. Presentation of Dollar Amounts All dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented as dollars in millions, except for share and per share amounts. 24 Results of Operations - continued The three months ended September 30, 2023 as compared to three months ended September 30, 2022 Revenue In the three months ended September 30, 2023, revenue was $0.8 million as compared to $0.1 million for the corresponding period in the prior year. The $0.7 million increase principally relates to the increase in volume of our EsoGuard Esophageal DNA Tests performed in our own CLIA laboratory for the period and the consideration received for the performance of the EsoGuard Esophageal DNA Tests. Cost of revenue In the three months ended September 30, 2023, cost of revenue remained relatively level, at approximately $1.6 million, as compared to the corresponding period in the prior year. The factors contributing to cost of revenue remaining relatively level were as follows: ● approximately $0.3 million decrease in laboratory facility and operations costs; ● approximately $0.2 million increase in compensation related costs; and ● approximately $0.1 million increase in EsoCheck and EsoGuard supplies costs. Sales and marketing expenses In the three months ended September 30, 2023, sales and marketing costs were approximately $3.8 million as compared to $3.9 million for the corresponding period in the prior year. The net decrease of $0.1 million was principally related to: ● approximately $0.2 million decrease related to the amended MSA with PAVmed; ● approximately $0.4 million increase in compensation related costs, including stock-based compensation; and ● approximately $0.3 million decrease in third party marketing, corporate information technology and consulting expenses. General and administrative expenses In the three months ended September 30, 2023, general and administrative costs were approximately $4.3 million as compared to $5.7 million for the corresponding period in the prior year. The net decrease of $1.4 million was principally related to: ● approximately $2.3 million decrease in stock-based compensation from RSA and stock option grants to Lucid employees and non-employees; ● approximately $0.7 million increase related to the amended MSA with PAVmed due to the growth and expansion of our business and the services incurred through PAVmed; and ● approximately $0.2 million increase related to compensation related costs. Research and development expenses In the three months ended September 30, 2023, research and development costs were approximately $1.6 million, compared to $2.7 million for the corresponding period in the prior year. The net decrease of $1.1 million was principally related to: ● approximately $1.4 million decrease in development costs, particularly in clinical trial activities and outside professional and consulting fees with respect to EsoCure; and ● approximately $0.3 million increase in compensation related costs, including stock-based compensation. Amortization of Acquired Intangible Assets The amortization of acquired intangible assets remained relatively level, at approximately $0.5 million, in the three months ended September 30, 2023, as compared to the corresponding period in the prior year. Other Income and Expense Change in fair value of convertible debt In the three months ended September 30, 2023, the change in the fair value of our convertible note was approximately $3.0 million of income, related to the March 2023 Note. The March 2023 Note was initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value as of each reporting period date. The Company initially recognized a $0.8 million fair value non-cash expense on the issue date. See Note 11 , Debt, to our accompanying unaudited condensed consolidated financial statements, for additional information with respect to the March 2023 Note. 25 Results of Operations - continued The nine months ended September 30, 2023 as compared to nine months ended September 30, 2022 Revenue In the nine months ended September 30, 2023, revenue was $1.4 million as compared to $0.3 million for the corresponding period in the prior year. The $1.1 million increase principally relates to the revenue for our EsoGuard Esophageal DNA Test performed in our own CLIA laboratory, as compared to revenue from the EsoGuard Commercialization Agreement with RDx, recognized in first two months of the prior year period, which was terminated on February 25, 2022 when Lucid Diagnostics transitioned to its own laboratory operations. Cost of revenue In the nine months ended September 30, 2023, cost of revenue was approximately $4.5 million as compared to $2.0 million for the corresponding period in the prior year. The $2.5 million increase was principally related to: ● approximately $1.1 million increase in EsoCheck and EsoGuard supplies costs; ● approximately $0.7 million increase in laboratory facility and operations costs; and ● approximately $0.7 million increase in compensation related costs. Sales and marketing expenses In the nine months ended September 30, 2023, sales and marketing costs were approximately $12.0 million as compared to $11.1 million for the corresponding period in the prior year. The net increase of $0.9 million was principally related to: ● approximately $2.1 million increase in compensation related costs principally as a result of an increase in headcount, including stock-based compensation; and ● approximately $1.2 million decrease in third party marketing expenses. General and administrative expenses In the nine months ended September 30, 2023, general and administrative costs were approximately $15.0 million as compared to $18.5 million for the corresponding period in the prior year. The net decrease of $3.5 million was principally related to: ● approximately $5.5 million decrease in stock-based compensation; ● approximately $2.6 million increase related to the amended MSA with PAVmed due to the growth and expansion of our business and the services incurred through PAVmed; and ● approximately $0.6 million decrease related to outside professional services and facility related costs. Research and development expenses In the nine months ended September 30, 2023, research and development costs were approximately $5.3 million, compared to $8.8 million for the corresponding period in the prior year. The net decrease of $3.5 million was principally related to: ● approximately $4.8 million decrease in development costs, particularly in clinical trial activities and outside professional and consulting fees with respect to EsoCure; ● approximately $0.6 million increase related to the amended MSA with PAVmed due to the growth and expansion of our business and the services incurred through PAVmed; and ● approximately $0.7 million increase in compensation related costs, including stock-based compensation. Amortization of Acquired Intangible Assets The amortization of acquired intangible assets increased to $1.5 million in the nine months ended September 30, 2023, as compared to $1.1 million in the corresponding period in the prior year. The increase of $0.4 million in the current period was due to the timing of the acquired intangible assets in 2022. Other Income and Expense Change in fair value of convertible debt In the nine months ended September 30, 2023, the change in the fair value of our convertible note was approximately $3.5 million of expense, related to the March 2023 Note. The March 2023 Note was initially measured at its issue date estimated fair value and subsequently remeasured at estimated fair value as of each reporting period date. The Company initially recognized a $0.8 million fair value non-cash expense on the issue date. Loss on Issue and Offering Costs - Senior Secured Convertible Note In the nine months ended September 30, 2023, in connection with the issue of the March 2023 Note, we recognized a total of approximately $1.2 million of lender fee and offering costs paid by us. 26 Results of Operations - continued The nine months ended September 30, 2023 as compared to nine months ended September 30, 2022 - continued See Note 11 , Debt, to our accompanying unaudited condensed consolidated financial statements, for additional information with respect to the March 2023 Note. Liquidity and Capital Resources Our current operational activities are principally focused on the commercialization of EsoGuard. We are pursuing commercialization across multiple sales channels, including: the communication to and education of medical practitioners and clinicians regarding EsoGuard; the establishment of Lucid Diagnostics Test Centers for the collection of cell samples using EsoCheck; the launch of the mobile testing unit; ongoing #CheckYourFoodTube testing days; and our direct contracting strategic initiative. Additionally, we are developing expanded clinical evidence to support insurance reimbursement adoption by government and private insurers. Further, as resources permit, the Company also intends to pursue development of other products and services, including EsoCure, an Esophageal Ablation Device. Our ability to generate revenue depends upon our ability to successfully advance the commercialization of EsoGuard, including significantly expanding insurance reimbursement coverage, while also completing the clinical studies, product and service development, and necessary regulatory approval thereof. There are no assurances, however, we will be able to obtain an adequate level of financial resources required for the long-term commercialization and development of our products and services. We are subject to all of the risks and uncertainties typically faced by medical device and diagnostic companies that devote substantially all of their efforts to the commercialization of their initial product and services and ongoing research and development activities and conducting clinical trials. We experienced a net loss of approximately $41.8 million and used approximately $22.8 million of cash in operations for the nine months ended September 30, 2023. Financing activities provided $24.5 million of cash during the nine months ended September 30, 2023. We ended the quarter with cash on-hand of $24.1 million as of September 30, 2023. We expect to continue to experience recurring losses and negative cash flow from operations and will continue to fund our operations with debt and equity financing transactions including current obligations on our existing convertible debt which in accordance with management’s plans may include conversions to equity and refinancing our existing debt obligations to extend the maturity date. Notwithstanding, however, with our cash on-hand as of the date hereof and the committed equity sources of financing, described below, and conversion and refinancing of existing convertible notes, the Company expects to be able to fund its operations and meet its financial obligations as they become due for the one year period from the date of the issue of the Company’s unaudited condensed consolidated financial statements, as included herein in this Form 10-Q. Series A Preferred Stock Offering On March 7, 2023, we sold 13,625 shares of Series A Preferred Stock, solely to accredited investors. Each share of the Series A Preferred Stock has a stated value of $1,000 and a conversion price of $1.394. The Series A Preferred Stock is convertible into shares of our common stock at any time at the option of the holder from and after the six-month anniversary of its issuance (or, if later, the effective date of a registration statement covering the resale of the underlying shares), and automatically converts into shares of our common stock on the second anniversary of its issuance. The terms of the Series A Preferred Stock also include a preference on liquidation and a right to receive dividends equal to 20% of the number of shares into which such Series A Preferred Stock is convertible, payable on each of the one-year and two-year anniversary of the issuance date. The Series A Preferred Stock is a non-voting security, other than with respect to limited matters related to changes in terms of the Series A Preferred Stock. The aggregate gross proceeds from the sale of shares in such offering were $13.625 million. Series A-1 Preferred Stock Offering On October 17, 2023, we sold 5,000 shares of Series A-1 Preferred Stock, solely to accredited investors. The terms of the Series A-1 Preferred Stock are substantially identical to the terms of the Series A Preferred Stock, except that the Series A-1 Preferred Stock has a conversion price of $1.2592. The aggregate gross proceeds from the sale of shares in such offering were $5.0 million. Private Placement - Securities Purchase Agreement Effective as of March 13, 2023, we entered into the SPA with an accredited institutional investor, pursuant to which we agreed to sell, and the investor agreed to purchase the March 2023 Note with a face value principal of $11.1 million. We issued the March 2023 Note on March 21, 2023 pursuant to the SPA. The March 2023 Note proceeds were $9.925 million after deducting a $1.186 million lender fee and offering costs. The March 2023 Note has a 7.875% annual stated interest rate, a contractual conversion price of $5.00 per share of the Company’s common stock (subject to standard adjustments in the event of any stock split, stock dividend, stock combination, recapitalization or other similar transaction), and a contractual maturity date of the two-year anniversary of the date of issuance. The principal of the March 2023 Note and accrued interest thereon is convertible at the option of the holder into the Company’s common stock at the contractual conversion price. In addition, the principal of the March 2023 Note amortizes over 18 months commencing six months after its issuance. The amortization payments and accrued interest on the March 2023 Note are payable in shares of the Company’s common stock (subject to the satisfaction of certain customary equity conditions and except for interest payable prior to September 21, 2023), at prices based on the then current market price. 27 Liquidity and Capital Resources - continued Under the March 2023 Note, the Company is subject to certain customary affirmative and negative covenants regarding the incurrence of indebtedness, the existence of liens, the repayment of indebtedness and the making of investments, the payment of cash in respect of dividends, distributions or redemptions, the transfer of assets, the maturity of other indebtedness, and transactions with affiliates, among other customary matters. Under the March 2023 Note, the Company is also subject to financial covenants requiring that (i) the amount of the Company’s available cash shall equal or exceed $5.0 million at all times, (ii) the ratio of (a) the outstanding principal amount of the notes issued under the SPA, accrued and unpaid interest thereon and accrued and unpaid late charges, as of the last day of any fiscal quarter commencing with September 30, 2023 to (b) the Company’s average market capitalization over the prior ten trading days, shall not exceed 30%, and (iii) the Company’s market capitalization shall at no time be less than $30 million (the “Financial Tests”). As of September 30, 2023, the Company was in compliance, and as of the date hereof, the Company is in compliance, with the Financial Tests. In the nine months ended September 30, 2023, approximately $92 of principal repayments along with approximately $48 of interest expense thereon, were settled through the issuance of 115,388 shares of common stock of the Company, with such shares having a fair value of approximately $166 (with such fair value measured as the respective conversion date quoted closing price of the common stock of the Company). In the three months ended September 30, 2023, 115,388 shares of common stock of the Company were issued in satisfaction of a portion of this debt. Committed Equity Facility and ATM Facility In March 2022, we entered into a committed equity facility with a Cantor affiliate. Under the terms of the committed equity facility, the Cantor affiliate has committed to purchase up to $50 million of our common stock from time to time at our request. While there are distinct differences, the committed equity facility is structured similarly to a traditional at-the-market equity facility, insofar as it allows us to raise primary equity capital on a periodic basis at prices based on the existing market price. Cumulatively, a total of 680,263 shares of common stock of the Company were issued for net proceeds of approximately $1.8 million, after a 4% discount, as of September 30, 2023. No shares were sold through this facility during the three months ended September 30, 2023. In November 2022, Lucid Diagnostics also entered into an “at-the-market offering” for up to $6.5 million of its common stock that may be offered and sold under a Controlled Equity Offering Agreement between Lucid Diagnostics and Cantor. In the nine months ended September 30, 2023, we sold 230,068 shares through our at-the-market equity facility for net proceeds of approximately $0.3 million, after payment of 3% commissions. No shares were sold through our at-the-market equity facility during the three months ended September 30, 2023. Due To: PAVmed Inc. Since our inception in May 2018 through our IPO in October 2021, our operations were funded by PAVmed providing working capital cash advances and by PAVmed paying certain operating expenses on our behalf. Additionally, our daily operations have been and continue to be conducted in part by personnel employed by PAVmed, for which we incur an MSA Fee expense. The MSA Fee is charged on a monthly basis and is subject-to periodic adjustment corresponding with changes in the services provided by PAVmed personnel to the Company, with any such change in the MSA Fee being subject to approval of the Company and PAVmed boards of directors. In this regard, in May 2023, the respective companies’ boards of directors approved a seventh amendment to the MSA to increase the MSA Fee to $750 per month, effective January 1, 2023. Pursuant to the MSA, as amended by the seventh amendment, the parties agreed PAVmed may elect to receive payment of the monthly MSA Fee in cash or in shares of our common stock, with such shares valued at the volume weighted average price (“VWAP”) during the final ten trading days of the applicable month (subject to a floor price of $0.70 per share). However, in no event will PAVmed be entitled to receive under the MSA, as amended, more than 7,709,836 shares of our common stock (representing 19.99% of our outstanding shares of common stock as of immediately prior to the execution of the sixth amendment). In addition, on November 30, 2022, we entered into a payroll and benefit expense reimbursement agreement (the “PBERA”)with PAVmed. Historically, PAVmed has paid for certain payroll and benefit-related expenses in respect of our personnel on our behalf, and we have reimbursed PAVmed for the same. Pursuant to the PBERA, PAVmed will continue to pay such expenses, and we will continue to reimburse PAVmed for the same. The PBERA provides that the expenses will be reimbursed on a quarterly basis or at such other frequency as the parties may determine, in cash or, subject to approval by PAVmed’s and our boards of directors, in shares of our common stock, with such shares valued at the volume weighted average price of such stock during the final ten trading days preceding the later of the two dates on which such stock issuance is approved by PAVmed’s and our boards of directors (subject to a floor price of $0.40 per share), or in a combination of cash and shares. However, in no event will we issue any shares of our common stock to PAVmed in satisfaction of all or any portion of the expenses if the issuance of such shares of our common stock would exceed the maximum number of shares of common stock that we may issue under the rules or regulations of Nasdaq, unless we obtain the approval of our stockholders as required by the applicable rules of the Nasdaq for issuances of shares of our common stock in excess of such amount. As of September 30, 2023, we had a Due To: PAVmed Inc. payment obligation liability of approximately $10.3 million, which liability is primarily comprised of our obligations under the PBERA and the MSA, as well other operating expenses paid by PAVmed on our behalf. See our accompanying unaudited condensed consolidated financial statements Note 5 , Due To PAVmed Inc. 28 Critical Accounting Policies and Significant Judgments and Estimates The discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the amounts reporting in our unaudited condensed consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgements. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other factors that are believed to be appropriate under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 14, 2023, except as otherwise noted in “Fair Value Option (“FVO”) Election” subsection of Note 2, Summary of Significant Accounting Policies , to our unaudited condensed consolidated financial statements included herein in this Form 10-Q with respect to the March 2023 Note. We determined upon the issuance of our March 2023 Note to elect the fair value option. At issuance, the carrying value of the March 2023 Note was recorded at estimated fair value. The estimated fair values reported utilized Lucid’s common stock price along with certain Level 3 inputs, in the development of Monte Carlo simulation models, discounted cash flow analyses, and /or Black-Scholes valuation models. The estimated fair values are subjective and are affected by changes in inputs to the valuation models and analyses, including the Company’s common stock price, the Company’s dividend yield, the risk-free rates based on U.S. Treasury security yields, and certain other Level-3 inputs including, assumptions regarding the estimated volatility in the value of the Company’s common stock price. We remeasure the March 2023 Note to its estimated fair value at each reporting period using valuation techniques similar to those applied at issuance. The change in the fair value is recognized as other income (expense) in the statement of operations. A significant change in the volatility could have a material impact to the carrying value of the March 2023 Note as well as the amount of change recognized during the period.