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Item 7. Management’s Discussion and Analysis

2025-03-24 compared with 2024-03-25 · 597 added, 519 removed, 30 unchanged (97% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

following discussion and analysis of our consolidated financial condition and results of operations should be read together with our

consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K (the “Financial Statements”).

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including

information with respect to our plans and strategy for our business and related financing, includes forward-looking statements involving

risks and uncertainties and should be read together with the “Forward-Looking Statements” and “Risk Factors”

sections of this Annual Report on Form 10-K for a discussion of important factors which could cause actual results to differ materially

from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

the context otherwise requires, (i) “we”, “us”, and “our”, and the “Company”, “Lucid”

and “Lucid Diagnostics” refer to Lucid Diagnostics Inc.

Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and

analysis of our consolidated financial condition and results of operations should be read together with our consolidated financial statements

and related notes appearing elsewhere in this Annual Report on Form 10-K (the “Financial Statements”).

Some of the information

contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect

to our plans and strategy for our business and related financing, includes forward-looking statements involving risks and uncertainties

and should be read together with the “Forward-Looking Statements” and “Risk Factors” sections of this Annual

Report on Form 10-K for a discussion of important factors which could cause actual results to differ materially from the results described

in or implied by the forward-looking statements contained in the following discussion and analysis.

Unless the context otherwise

requires, (i) “we”, “us”, and “our”, and the “Company”, “Lucid” and “Lucid

Diagnostics” refer to Lucid Diagnostics Inc.

and its subsidiaries LucidDx Labs Inc.

(“LucidDx Labs”)

and CapNostics, LLC (“CapNostics”), (ii) “FDA” refers to the Food and Drug Administration, (iii) “510(k)”

refers to a premarket notification, submitted to the FDA by a manufacturer pursuant to § 510(k) of the Food, Drug and Cosmetic Act

and 21 CFR § 807 subpart E, (iv) “CLIA” refers to the Clinical Laboratory Improvement Amendments of 1988 and associated

(“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,

3 unchanged sentences

under the CMS CLIA program.

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 EAC.

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.

We are a commercial-stage, cancer

prevention medical diagnostics technology company focused on the millions of patients who are at risk of developing esophageal precancer

and cancer, specifically highly lethal esophageal adenocarcinoma (“EAC”).

We believe that our flagship

product, the EsoGuard Esophageal DNA Test, performed on samples collected with the EsoCheck Esophageal Cell Collection Device, constitutes

the first and only commercially available diagnostic test capable of serving as a widespread tool for the early detection of esophageal

precancer, including Barrett’s Esophagus (“BE”), in at-risk patients.

Early detection of esophageal precancer allows

patients to undergo appropriate monitoring and treatment, as indicated by clinical practice guidelines, in an effort to prevent progression

to esophageal cancer.

is a bisulfite-converted targeted next-generation sequencing (NGS) DNA assay performed on surface esophageal cells collected with EsoCheck.

It quantifies methylation at 31 sites on two genes, Vimentin (VIM) and Cyclin A1 (CCNA1).

Analytical validation tests of EsoGuard demonstrated

approximately 97% analytical sensitivity, 95% analytical specificity, approximately 98% analytical accuracy, and 100% inter-assay and

intra-assay precision.

Two independent clinical validation case control studies funded by the National Institute of Health utilized were

performed using upper endoscopy with biopsies as the diagnostic comparator and confirmed EsoGuard accurately identifies BE.

analysis of both studies demonstrated 84% sensitivity (95% confidence interval [CI] 76-90%), for detection of BE, and 86% specificity

(95% CI 81-91%).

Positive predictive value (PPV) and negative predictive value (NPV) were calculated using a BE prevalence of 10.6% published

in a meta-analysis of U.S patients with GERD.

This resulted in a PPV of approximately 42% and NPV of around 98% .

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.

and EsoCheck are based on patented technology licensed by Lucid from Case Western Reserve University (“CWRU”).

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 GERD, commonly known

as chronic heart burn, acid reflux, or just reflux.

Agreements with PAVmed

January 2024, in accordance with the MSA and the PBERA, PAVmed elected to receive payment of $4.7 million of fees and reimbursements accrued

under the MSA and the PBERA through the issuance of 3,331,771 shares

of the Company’s common stock.

March 2024, the Company entered into an eighth amendment to the MSA with PAVmed, increasing the monthly fee due thereunder from $0.75 million

to $0.83 million, effective as of January 1, 2024.

Stock Offerings

March 13, 2024, we entered into subscription agreements (each, a “Series B Subscription Agreement”) and exchange

agreements (each, an “Exchange Agreement”) with certain accredited investors (collectively, the “Series B

Investors”), which agreements provided for (i) the sale to the Series B Investors of 12,495 shares of our newly designated

Series B Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”), at a purchase price

of $1,000 per share, and (ii) the exchange by the Series B Investors of 13,625 shares of our Series A Convertible Preferred Stock,

par value $0.001 per share (the “Series A Preferred Stock”), and 10,670 shares of our Series A-1 Convertible Preferred

Stock, par value $0.001 per share (the “Series A-1 Preferred Stock”), held by them for 31,790 shares of Series B

Preferred Stock (collectively, the “Series B Offering and Exchange”).

Prior to the execution of the Series B

Subscription Agreements and the Exchange Agreements, we entered into subscription agreements with certain of the Series B Investors

providing for the sale to such investors of 5,670 shares of Series A-1 Preferred Stock, at a purchase price of $1,000 per share,

which shares the investors immediately agreed to exchange for shares of Series B Preferred Stock pursuant to the Exchange Agreements

(and are included in the 10,670 shares of Series A-1 Preferred Stock set forth above).

Each share of the Series B Preferred Stock

has a stated value of $1,000 and a conversion price of $1.2444.

The terms of the Series B Preferred Stock also include a one times

preference on liquidation and a right to receive dividends equal to 20% of the number of shares of our common stock into which such

Series B Preferred Stock is convertible, payable on the one-year and two-year anniversary of the issuance date.

Preferred Stock is a voting security.

The aggregate gross proceeds of these transactions was $18.16 million (inclusive of $5.67

million of aggregate gross proceeds from the sale of the Series A-1 Preferred Stock that was immediately exchanged for Series B

Preferred Stock in the transactions).

As a result of 100% of the then-outstanding

shares of Series A Preferred Stock and Series A-1 Preferred Stock being exchanged for shares of Series B Preferred Stock in the Series

B Offering and Exchange, no shares of Series A Preferred Stock or Series A-1 Preferred Stock remain outstanding.

On October 17, 2023, we sold 5,000 shares of Series A-1 Preferred Stock, solely to accredited investors (all of which

were included in the 10,670 shares of Series A-1 Preferred exchanged for Series B Preferred Stock in the Series B Offering and Exchange).

The aggregate gross proceeds to Lucid of this offering was $5.0 million.

The assay has been evaluated in multiple studies,

demonstrating sensitivity of ~90% for detecting disease along the full esophageal precancer to cancer spectrum, with a negative predictive

value (NPV) of ~99%.

Sensitivity and NPV remain very high even for detecting early precancer, which is unprecedented for a molecular

diagnostic test .

EsoCheck is an FDA 510(k) and

CE Mark cleared noninvasive swallowable balloon capsule catheter device capable of sampling surface esophageal cells in a less than five-minute

office procedure.

It consists of a vitamin pill-sized rigid plastic capsule tethered to a thin silicone catheter from which a soft silicone

balloon with textured ridges emerges to gently swab surface esophageal cells.

When vacuum suction is applied, the balloon and sampled

cells are pulled into the capsule, protecting them from contamination and dilution by cells outside of the targeted region during device

We believe this proprietary Collect+Protect™ technology makes EsoCheck the only noninvasive esophageal cell collection

device capable of such anatomically targeted and protected sampling.

EsoGuard and EsoCheck are based

on patented technology licensed by Lucid from Case Western Reserve University (“CWRU”).

EsoGuard and EsoCheck have been developed

to provide an accurate, non-invasive, patient-friendly test for the early detection of EAC and BE, including dysplastic BE and related

precursors to EAC in patients with gastroesophageal reflux disease (“GERD”), commonly known as chronic heartburn, acid reflux,

or just reflux.

Recent Developments

Medicare Coverage

In November 2024, we submitted

to MolDx our complete clinical evidence package in support of a request for reconsideration of the non-coverage language in the LCD to

secure Medicare coverage for EsoGuard.

The EsoGuard clinical evidence package included six new peer-reviewed publications:

three clinical

validation studies (two in the intended use population, one case control), two clinical utility studies, and one analytical validation

The current LCD provides clear coverage criteria consistent with the American College of Gastroenterology (ACG) guidelines for

esophageal precancer testing.

The package was submitted as part of a request for reconsideration of the non-coverage language in the

LCD to secure Medicare coverage for EsoGuard.

NCCN Clinical Practice Guidelines Update

March 2025, we announced that a recent update to the National Comprehensive Cancer Network® (NCCN) Clinical Practice Guidelines in

Oncology (NCCN Guidelines®) focused on Esophageal and Esophagogastric Junction Cancers (Version 1.2025) has added a new section on

BE screening.

The NCCN Guidelines® now reference professional society guidelines on BE screening, including the most recent ACG clinical

guideline discussed above, which recommends non-endoscopic biomarker testing, such as EsoGuard performed on samples collected with EsoCheck,

as an acceptable alternative to invasive upper endoscopy to detect esophageal precancer.

Clinical Study Publications

March 18, 2025, the Company announced that its ENVET-BE clinical utility study has been accepted for publication in Gastroenterology

& Hepatology—the fifth peer-reviewed publication of clinical utility data for Lucid’s EsoGuard® Esophageal DNA Test, and

the second to present findings from a real-world screening population.

The manuscript, entitled “Enhancing the Diagnostic Yield

of EGD for Diagnosis of Barrett’s Esophagus Through Methylated DNA Biomarker Triage,” demonstrates that confirmatory upper endoscopy

(EGD) performed in EsoGuard-positive patients had a substantially higher diagnostic yield for detecting esophageal precancer (Barrett’s

Esophagus or BE) than the expected yield of screening EGD alone in at-risk patients.

The ENVET-BE study reviewed real-world data from

a cohort of 199 EsoGuard-positive patients who completed confirmatory EGD.

The overall positive diagnostic yield for BE was 2.4-fold

higher than the expected yield of screening EGD alone, based on disease prevalence within an at-risk population.

The yield was nearly

three-fold higher in patients meeting American College of Gastroenterology (ACG) screening criteria.

On November 7, 2024, the Company

announced that its manuscript for its multi-center ESOGUARD BE-1 study has been accepted for publication in The American Journal of Gastroenterology,

the official journal of the American College of Gastroenterology (ACG).

This is the fourth publication presenting clinical validation

data for the Company’s EsoGuard® Esophageal DNA Test, and the second to demonstrate its performance in an intended-use screening

Consistent with previous studies, EsoGuard showed high sensitivity and negative predictive value in detecting esophageal precancer

(Barrett’s Esophagus or BE).

The prospective, multi-center study presented data from a cohort of patients who met ACG guideline criteria

for esophageal precancer screening and underwent non-endoscopic EsoGuard testing followed by traditional upper endoscopy.

EsoGuard sensitivity

and negative predictive value for detecting BE were approximately 88% and 99%, respectively.

Specificity and positive predictive value

were approximately 81% and 30%, respectively.

No serious adverse events were reported.

Recent Developments - continued

Business - continued

Highmark Reimbursement Approval

On March 13, 2025, the Company announced

that Highmark Blue Cross Blue Shield, an independent licensee of the Blue Cross and Blue Shield Association, has issued a positive coverage

policy for non-invasive screening of esophageal precancer and cancer in New York state.

The new policy will cover EsoGuard in patients

who meet established criteria for esophageal precancer testing consistent with professional society guidelines.

CWRU NIH Grant Related to EsoGuard and EsoCheck

On February 27, 2025, the Company

announced that principal investigators from Case Western Reserve University (CWRU) and University Hospitals (UH), were awarded an $8 million

National Institutes of Health (NIH) R01 grant to conduct a five-year clinical study designed to evaluate esophageal precancer detection

using EsoCheck and EsoGuard among at-risk individuals without symptoms of chronic gastroesophageal reflux disease (GERD).

The study, “A

Clinical Trial of Cancer Prevention by Biomarker Based Detections of Barrett’s Esophagus and Its Progression,” aims to evaluate

the effectiveness of EsoCheck and EsoGuard in detecting esophageal precancer (Barrett’s Esophagus or BE) to prevent esophageal cancer

(EAC) within a non-GERD at-risk population.

To accomplish this aim, 800 patients without GERD symptoms who meet the American Gastroenterological

Association’s (AGA) risk criteria for screening will be recruited across five participating research centers:

University Hospitals, University

of Colorado, Johns Hopkins University, University of North Carolina, and Cleveland Clinic.

On October 15, 2024, the Company

announced that it received a Notice of Allowance from the United States Patent and Trademark Office (USPTO) for a patent application covering

its proprietary method of using methylation of the cyclin-A1 (CCNA1) gene to help detect esophageal precancer and cancer, a key component

of its EsoGuard® Esophageal DNA Test.

EsoGuard utilizes next-generation

sequencing (NGS) to assess DNA methylation at 31 sites on two genes, vimentin (VIM) and cyclin-A1 (CCNA1).

Such methylation has been shown

to be strongly associated with conditions along the spectrum from early esophageal precancer (non-dysplastic Barrett’s Esophagus or BE),

to late precancer (dysplastic BE), to cancer (esophageal adenocarcinoma).

Although VIM methylation had been previously associated with

gastrointestinal neoplasias, the association of CCNA1 methylation with esophageal neoplasia is novel and appears to be more specific.

Appointment of Dennis Matheis to Board of Directors

On May 6, 2024, the board of directors

of the Company appointed Dennis Matheis as a Class C director of the Company (and he was subsequently re-elected to the board, together

with the incumbent Class C directors of the Company, at the Company’s annual shareholders meeting held on July 23, 2024).

Lucid IP Matters

On October 15, 2024, the Company

announced that it received a Notice of Allowance from the United States Patent and Trademark Office (USPTO) for a patent application

covering its proprietary method of using methylation of the cyclin-A1 (CCNA1) gene to help detect esophageal precancer and cancer, a

key component of its EsoGuard® Esophageal DNA Test.

EsoGuard utilizes next-generation

sequencing (NGS) to assess DNA methylation at 31 sites on two genes, vimentin (VIM) and cyclin-A1 (CCNA1).

Such methylation has been

shown to be strongly associated with conditions along the spectrum from early esophageal precancer (non-dysplastic Barrett’s Esophagus

or BE), to late precancer (dysplastic BE), to cancer (esophageal adenocarcinoma).

Although VIM methylation had been previously associated

with gastrointestinal neoplasias, the association of CCNA1 methylation with esophageal neoplasia is novel and appears to be more specific.

Intercompany Agreements with PAVmed

On August 6, 2024, PAVmed and the

Company entered into a ninth amendment to the management services agreement between PAVmed and Lucid (“MSA”) to increase the

monthly fee thereunder from $0.83 million per month to $1.05 million per month, effective as of July 1, 2024.

In addition, under the terms

of PAVmed’s convertible debt, PAVmed is required to elect that these payments be made in cash.

Appointment of Dennis Matheis to Board of

On May 6, 2024, the board of directors

of the Company appointed Dennis Matheis as a Class C director of the Company (and Mr.

Matheis was subsequently re-elected to the board,

together with the incumbent Class C directors of the Company, at the Company’s annual shareholders meeting held on July 23, 2024).

Recent Developments - continued

Registered Direct Offering

On March 5, 2025, the Company closed

on the sale of 13,939,331 shares of its common stock at a price of $1.10 per share (the “Offering”).

The net proceeds of the Offering,

after deducting the estimated placement agent’s fees and other expenses of the Offering, was approximately $14.5 million.

intends to use the net proceeds from the Offering for working capital and other general corporate purposes.

Suspension of ATM Facility

In November 2022, the Company

entered into a Controlled Equity Offering℠ Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co.

Pursuant to the Sales Agreement, from time to time, the Company may offer and sell shares of its common stock

to or through Cantor, acting as sales agent or principal.

Sales of the Company’s common stock by Cantor, if any, under the Sales

Agreement may be made by any method permitted by law and deemed to be an “at the market offering” as defined in Rule 415(a)(4)

promulgated under the Securities Act (the “ATM Offering”).

The Company filed a prospectus supplement dated December 6, 2022

(the “ATM Prospectus Supplement”), for the offer and sale of shares of its common stock having an aggregate offering price

of up to $6,500,000 in the ATM Offering.

Effective as of March 4, 2025, the Company terminated

the ATM Prospectus Supplement.

The Company will not make any sales of common stock in the ATM Offering unless and until a new prospectus

or prospectus supplement is filed.

Other than the termination of the Prospectus Supplement,

the Sales Agreement remains in full force and effect.

Debt Refinancing

On November 22, 2024, the Company

closed on the sale of $21.975 million in principal amount of 12.0% Senior Secured Convertible Notes due 2029 (collectively, the “2024

Convertible Notes”), in a private placement, to certain accredited investors (the “2024 Note Investors”).

of the 2024 Convertible Notes was completed pursuant to the terms of that certain Securities Purchase Agreement, dated as of November

12, 2024 (the “2024 SPA”), between the Company and the 2024 Note Investors.

The Company realized gross proceeds of $21.975

million and, after giving effect to the repayment in full of the March 2023 Senior Convertible Note, net proceeds of $18.3 million from

the sale of the 2024 Convertible Notes.

The Company used a portion of

the proceeds from the sale of the 2024 Convertible Notes to redeem the March 2023 Senior Convertible Note, by paying the contractual

redemption price of approximately $3.6 million.

of Operations

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 consolidated financial statements.

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.

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.

the previously terminated EsoGuard Commercialization Agreement in February 2022, the cost of revenue recognized is inclusive of:

fee incurred under our license agreement with CWRU;

the cost of EsoCheck devices and EsoGuard mailers (cell sample shipping costs);

Lucid Test Centers operating expenses, including rent expense and supplies.

and marketing expenses

and marketing expenses consist primarily of salaries and related costs for employees engaged in sales, sales support and marketing activities,

as well as the portion of the MSA Fee (as defined in Note 5, Related Party Transactions , to our accompanying consolidated financial

The Company recognized revenue

resulting from the delivery of patient EsoGuard test results when the Company considered the collection of such consideration to be probable

to the extent that it is unconstrained.

Cost of revenue

Cost of revenues recognized from

the delivery of patient EsoGuard test results includes costs related to EsoCheck device usage, shipment of test collection kits, royalties

and the cost of services to process tests and provide results to physicians.

We incur expenses for tests in the period in which the activities

occur, therefore, gross margin as a percentage of revenue may vary from quarter to quarter due to costs being incurred in one period

that relate to revenues recognized in a later period.

We expect that the gross margin

for our services will continue to fluctuate and be affected by EsoGuard test volume, our operating efficiencies, patient compliance rates,

payer mix, the levels of reimbursement, and payment patterns of payers and patients.

Sales and marketing expenses

consist primarily of salaries and related costs for employees engaged in sales, sales support and marketing activities, as well as the

portion of the MSA Fee (as defined in Note 5, Related Party Transactions , to our accompanying audited consolidated financial

statements) allocated to sales and marketing expenses, which are principally costs related to PAVmed employees who are performing services

2 unchanged sentences

and marketing operations as resources permit and insurance reimbursement coverage for our EsoGuard test expands.

and administrative expenses

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

anticipate our general and administrative expenses will increase in the future to the extent our business operations grow.

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.

and development expenses

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:

associated with regulatory filings;

license fees;

of laboratory supplies and acquiring, developing, and manufacturing preclinical prototypes;

Fee allocated to research and development.

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.

of Dollar Amounts

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.

of Operations - continued

year ended December 31, 2023 as compared to year ended December 31, 2022

the year ended December 31, 2023, revenue was $2.4 million as compared to $0.4 million in the prior year.

The $2.0 million increase principally

relates to the revenue for our EsoGuard Esophageal DNA Test performed in our own CLIA laboratory.

During the year ended December 31,

2022, there was 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.

the year ended December 31, 2023, cost of revenue was approximately $6.0 million as compared to $3.6 million in the prior year.

million increase was principally related to:

approximately

$1.6 million increase in EsoCheck and EsoGuard supplies costs;

approximately

$0.8 million increase in compensation related costs, including stock-based compensation.

and marketing expenses

the year ended December 31, 2023, sales and marketing costs were approximately $16.4 million as compared to $16.1 million in the prior

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

are recognized in the period they are incurred and consist principally of internal and external expenses incurred for the development

of our technologies and conducting clinical trials, including:

● costs associated with submission of regulatory filings;

● cost of laboratory supplies and

acquiring, developing, and manufacturing preclinical prototypes;

● the portion of the MSA Fee allocated

to research and development.

We plan to incur research and

development expenses for the foreseeable future as we continue the development of our existing products as well as new innovations.

research and development activities, including our clinical trials, are focused principally on facilitating insurer reimbursement, encouraging

physician adoption and developing product improvements or extending the utility of the lead products in our pipeline, including EsoCheck

and EsoGuard.

Other Income and Expense, net

Other income and expense, net,

consists principally of changes in fair value of our convertible note and losses on extinguishment of debt upon repayment of such convertible

Presentation of Dollar Amounts

All dollar amounts in this Management’s

Discussion and Analysis of Financial Condition and Results of Operations are presented as dollars in millions, except for share and per

share amounts.

Results of Operations - continued

The year ended December 31, 2024 as

compared to year ended December 31, 2023

In the year ended December 31,

2024, revenue was $4.3 million as compared to $2.4 million for the corresponding period in the prior year.

The $1.9 million increase

principally relates to the revenue for our EsoGuard Esophageal DNA Test performed in our CLIA laboratory for the period and the consideration

received for the performance of the EsoGuard Esophageal DNA Test.

Cost of revenue

In the year ended December 31,

2024, the cost of revenue was approximately $7.1 million as compared to $6.0 million for the corresponding period in the prior year.

The $1.1 million increase was principally related to:

● approximately $0.5 million increase

in compensation related costs, including stock-based compensation;

● approximately $0.3 million increase

in third party professional fees and IT services;

● approximately $0.2 million increase

in the CLIA laboratory supplies required to perform the EsoGuard Esophageal DNA tests;

● approximately $0.1 million increase

in royalty costs due to the increased EsoGuard Esophageal DNA Tests performed in the year.

Sales and marketing expenses

In the year ended December 31,

2024, sales and marketing costs were approximately $16.5 million as compared to $16.4 million for the corresponding period in the prior

The net increase of $0.1 million was principally related to:

approximately

$2.0 million increase in compensation related costs principally as a result of an increase in headcount, including stock-based compensation;

approximately

$1.7 million decrease in third party marketing expenses.

and administrative expenses

the year ended December 31, 2023, general and administrative costs were approximately $19.3 million as compared to $24.0 million in the

The net decrease of $4.7 million was principally related to:

● approximately $0.1 million increase

related to the amended MSA with PAVmed due to the growth and expansion of our business and

the services incurred through PAVmed.

General and administrative expenses

In the year ended December 31,

2024, general and administrative costs were approximately $20.2 million as compared to $19.3 million for the corresponding period in

the prior year.

The net increase of $0.9 million was principally related to:

● approximately $2.4

million decrease in stock-based compensation;

approximately

$3.3 million increase related to the amended MSA with PAVmed due to the growth and expansion of our business and the services

incurred through PAVmed;

approximately

$0.3 million increase related to outside professional services and facility related costs.

and development expenses

the year ended December 31, 2023, research and development costs were approximately $7.3 million, compared to $11.3 million in the prior

● approximately $1.8 million increase

related to the amended MSA with PAVmed due to the growth and expansion of our business and

the services incurred through PAVmed;

● approximately $1.2 million increase

in cash compensation costs;

● approximately $1.0 million increase

in third-party professional fees, including expenses related to investor relations;

● approximately $0.7 million decrease

due to a settlement payment related to the termination of the management services agreement

with our former laboratory provider in 2023 and reduced expenses for legal and information

technology services.

Research and development expenses

In the year ended December 31,

2024, research and development costs were approximately $6.0 million, compared to $7.3 million for the corresponding period in the prior

The net decrease of $1.3 million was principally related to:

● approximately $1.3

$5.5 million decrease in development costs, particularly in clinical trial activities and outside professional and consulting fees

with respect to EsoCure;

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;

approximately

$0.8 million increase in compensation related costs, including stock-based compensation.

of Acquired Intangible Assets

amortization of acquired intangible assets increased to $2.0 million in the year ended December 31, 2023, as compared to $1.6 million

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.

Income and Expense

in fair value of convertible debt

the year ended December 31, 2023, the change in the fair value of our convertible note was approximately $3.0 million of expense,

related to the March 2023 Senior Convertible Note.

The March 2023 Senior Convertible Note was initially measured at its issue date

estimated fair value and subsequently remeasured at estimated fair value as of each reporting period date.

The Company initially

recognized a $0.8 million fair value non-cash expense on the issue date.

of Operations - continued

year ended December 31, 2023 as compared to year ended December 31, 2022 - continued

on Issue and Offering Costs - Senior Secured Convertible Note

the year ended December 31, 2023, in connection with the issue of the March 2023 Senior Convertible Note, we recognized a total of

approximately $1.2 million of lender fee and offering costs paid by us.

Note 13 , Debt, to our accompanying consolidated financial statements, for additional information with respect to the March 2023

Senior Convertible Note.

and Capital Resources

current operational activities are principally focused on the commercialization of EsoGuard.

We are pursuing commercialization across

multiple sales channels, including:

million decrease in development costs, particularly in clinical trial activities and outside

professional and consulting fees.

Results of Operations - continued

The year ended December 31, 2024 as compared

to year ended December 31, 2023 - continued

Amortization of Acquired Intangible Assets

The amortization of acquired

intangible assets was approximately $0.7 million in the year ended December 31, 2024, as compared to $2.0 million for the corresponding

period in the prior year.

The decrease of $1.3 million in the current period was due to certain acquired intangible assets being fully

amortized in February 2024.

Other Income and Expense

Change in fair value of convertible debt

In the year ended

December 31, 2024, the change in the fair value of our convertible note was approximately $5.4 million of income, related to

the 2024 Convertible Notes and the March 2023 Senior Convertible Note (as defined in Note 12 , Debt , to our accompanying

consolidated financial statements).

The 2024 Convertible Notes and March 2023 Senior Convertible Note were initially measured at its

issue date estimated fair value and subsequently remeasured at estimated fair value as of each reporting period date.

initially recognized a $0.8 million fair value remeasurement as a non-cash expense on the issue date.

Loss on Issue and Offering Costs - Senior Secured

Convertible Note

In the year ended December 31,

2023, in connection with the issue of the March 2023 Senior Convertible Note, we recognized a total of approximately $1.2 million of

lender fee and offering costs paid by us.

The Company did not incur lender fees and offering costs in the year ended December 31,

Loss on Debt Extinguishment

In the year ended December 31,

2024, a debt extinguishment loss in the aggregate of approximately $5.2 million was recognized in connection with our March 2023 Senior

Convertible Note as discussed below.

the year ended December 31, 2024, approximately $8.4 million of principal repayments

along with approximately $0.9 million of interest expense thereon, were settled through the

issuance of 13,866,867 shares of common stock of the Company, with such shares having a fair

value of approximately $13.5 million (with such fair value measured as the quoted closing

price of the common stock of the Company on the respective conversion date).

The conversions

resulted in a debt extinguishment loss of $4.2 million in the year ended December 31,

In addition to principal payments through conversions, the Company redeemed the March

2023 Senior Convertible Note and incurred an additional $1.0 million of debt extinguishment

loss in the year ended December 31, 2024.

The Company incurred less than $0.1 million

of debt extinguishment losses in the year ended December 31, 2023.

See Note 12 , Debt , to

our accompanying consolidated financial statements, for additional information with respect to the March 2023 Senior Convertible Note.

Deemed Dividend on Series A and Series A-1 Convertible

Preferred Stock Exchange Offer

The fair value of the consideration

given in the form of the issue of 31,790 shares of Series B Convertible Preferred Stock, with such fair value recognized as the carrying

value of such issued shares of Series B Convertible Preferred Stock, as compared to the carrying value of the extinguished Series A and

Series A-1 Convertible Preferred Stock (carrying value of $24.3 million), resulting in an excess of fair value of $7.5 million recognized

as a deemed dividend charged to accumulated deficit in the consolidated balance sheet on March 13, 2024, with such deemed dividend included

as a component of net loss attributable to common stockholders, summarized as follows:

Series B Convertible Preferred Stock Issuance and Series A/A-1 Exchange Offer

March 13, 2024

Fair Value - 31,790 shares of Series B Preferred Stock issued in exchange for Series A and

Series A-1 Preferred Stock

Carrying value related to Series A and Series A-1 Preferred Stock Exchanged

for Series B Preferred Stock (of 24,295 shares)

Deemed Dividend Charged to Accumulated Deficit

Liquidity and Capital

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;

establishment of Lucid Test Centers for the collection of cell samples using EsoCheck;

the launch of the mobile testing unit;

#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.

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

$52.7 million and used approximately $32.8 million of cash in operations during the year ended December 31, 2023.

Financing activities

provided $29.5 million of cash during the year ended December 31, 2023.

We ended the year with cash on-hand of $18.9 million as of

December 31, 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/or 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.

The Company’s ability to continue operations beyond March 2025 will depend upon generating substantial

revenue that is conditioned on obtaining positive third-party reimbursement coverage for its EsoGuard Esophageal DNA Test from both government

and private health insurance providers, increasing revenue through contracting directly with self-insured employers, and on its ability

to raise additional capital through various potential sources including equity and/or debt financings or refinancing existing debt obligations.

These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date

the accompanying consolidated financial statements are issued.