UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 001-40901

LUCID DIAGNOSTICS INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		82-5488042
(State or Other Jurisdiction of		(IRS Employer
Incorporation or Organization)		Identification No.)

360 Madison Avenue
25th Floor
New York, NY		10017
(Address of Principal Executive Offices)		(Zip Code)

(212) 949-4319

(Registrant’s Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:

Title of each Class		Trading Symbol(s)		Name of each Exchange on which Registered
Common Stock, $0.001 par value per share		LUCD		The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” , “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer	☐	Accelerated filed	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(c) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 10, 2023 there were 43,725,703 shares of the registrant’s Common Stock, par value $0.001 per share, issued and outstanding (with such number of shares inclusive of shares of common stock underlying unvested restricted stock awards granted under the Lucid Diagnostics Inc. 2018 Long-Term Incentive Equity Plan as of such date).

TABLE OF CONTENTS

		Page
	Part I - Financial Information

Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2023 and 2022	2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (unaudited) for the three and six months ended June 30, 2023 and 2022	3
	Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2023 and 2022	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 4.	Controls and Procedures	32

	Part II - Other Information

Item 1.	Legal Proceedings	33
Item 5.	Other Information	33
Item 6.	Exhibits	33
	Signature	34
	Exhibit Index	35

Part I - Financial Information

Item 1. Financial Statements

LUCID DIAGNOSTICS INC.

and SUBSIDIARIES

(a majority-owned subsidiary of PAVmed Inc.)

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except number of shares and per share data - unaudited)

	June 30, 2023			December 31, 2022
Assets:
Current assets:
Cash	$	32,570		$	22,474
Accounts receivable		35			17
Prepaid expenses, deposits, and other current assets		3,144			1,865
Total current assets		35,749			24,356
Fixed assets, net		1,389			1,592
Operating lease right-of-use assets		1,835			2,008
Intangible assets, net		2,435			3,445
Other assets		1,078			1,108
Total assets	$	42,486		$	32,509
Liabilities, Preferred Stock and Stockholders’ Equity
Current liabilities:
Accounts payable	$	637		$	1,056
Accrued expenses and other current liabilities		2,640			1,447
Operating lease liabilities, current portion		1,099			962
Senior Secured Convertible Note - at fair value		11,610			—
Due To: PAVmed Inc. - MSA Fee and operating expenses		10,697			4,960
Total current liabilities		26,683			8,425
Operating lease liabilities, less current portion		732			1,037
Total liabilities		27,415			9,462
Commitments and contingencies		-			-
Stockholders’ Equity:
Preferred stock, $0.001 par value, 20,000,000 shares authorized; Series A Convertible Preferred Stock, issued and outstanding 13,625 at June 30, 2023 and no shares issued and outstanding at December 31, 2022		13,625			—
Common stock, $0.001 par value, 200,000,000 shares authorized; 41,853,603 and 40,518,792 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		42			41
Additional paid-in capital		127,107			121,081
Accumulated deficit		(125,703	)		(98,075	)
Total Stockholders’ Equity		15,071			23,047
Total Liabilities and Stockholders’ Equity	$	42,486		$	32,509

See accompanying notes to the unaudited condensed consolidated financial statements.

LUCID DIAGNOSTICS INC.

and SUBSIDIARIES

(a majority-owned subsidiary of PAVmed Inc.)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except number of shares and per share data - unaudited)

	2023			2022			2023			2022
	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue	$	159		$	—		$	605		$	189
Operating expenses:
Cost of revenue		1,549			—			2,887			369
Sales and marketing		4,032			3,873			8,159			7,191
General and administrative		3,830			6,676			10,340			12,568
Amortization of acquired intangible assets		505			639			1,010			639
Research and development		1,827			3,440			4,109			6,321
Total operating expenses		11,743			14,628			26,505			27,088
Operating loss		(11,584	)		(14,628	)		(25,900	)		(26,899	)
Other income (expense):
Interest income		136			4			214			5
Interest expense		(223	)		—			(257	)		—
Change in fair value - Senior Secured Convertible Note		290			—			(499	)		—
Loss on issue and offering costs - Senior Secured Convertible Note		—			—			(1,186	)		—
Other income (expense), net		203			4			(1,728	)		5
Loss before provision for income tax		(11,381	)		(14,624	)		(27,628	)		(26,894	)
Provision for income taxes		—			—			—			—
Net loss	$	(11,381	)	$	(14,624	)	$	(27,628	)	$	(26,894	)
Net loss per share - basic and diluted	$	(0.27	)	$	(0.41	)	$	(0.67	)	$	(0.76	)
Weighted average common shares outstanding, basic and diluted		41,833,823			35,760,492			41,404,547			35,443,526

See accompanying notes to the unaudited condensed consolidated financial statements.

LUCID DIAGNOSTICS INC.

and SUBSIDIARIES

(a majority-owned subsidiary of PAVmed Inc.)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

for the THREE AND SIX MONTHS ENDED June 30, 2023

(in thousands except number of shares and per share data - unaudited)

	Shares		Amount		Shares		Amount		Capital		Deficit			Total
	Preferred Stock				Common Stock				Additional Paid-In		Accumulated
	Shares		Amount		Shares		Amount		Capital		Deficit			Total
Balance as of March 31, 2023		13,625		13,625		41,753,603	$	42	$	125,561	$	(114,322	)	$	24,906
Stock-based compensation - Lucid Diagnostics Inc.		—		—		—		—		1,165		—			1,165
Stock-based compensation - PAVmed Inc.		—		—		—		—		234		—			234
Issue common stock - vendor service agreement		—		—		100,000		—		147		—			147
Net loss		—		—		—		—		—		(11,381	)		(11,381	)
Balance as of June 30, 2023		13,625	$	13,625		41,853,603	$	42	$	127,107	$	(125,703	)	$	15,071
Balance		13,625	$	13,625		41,853,603	$	42	$	127,107	$	(125,703	)	$	15,071

	Preferred Stock				Common Stock				Additional Paid-In		Accumulated
	Shares		Amount		Shares		Amount		Capital		Deficit			Total
Balance as of December 31, 2022		—	$	—		40,518,792	$	41	$	121,081	$	(98,075	)	$	23,047
Balance		—	$	—		40,518,792	$	41	$	121,081	$	(98,075	)	$	23,047
Stock-based compensation - Lucid Diagnostics Inc. 2018 Equity Plan		—		—		—		—		3,982		—			3,982
Stock-based compensation - PAVmed Inc. 2014 Equity Plan		—		—		—		—		625		—			625
Vest - restricted stock awards		—		—		219,320		—		—		—			—
APA-RDx - Termination payment		—		—		553,436		—		713		—			713
Issuance - At-The-Market Facility, net of deferred financing charges		—		—		230,068		1		283		—			284
Purchase - Employee Stock Purchase Plan		—		—		231,987		—		276		—			276
Issuance - Series A Preferred Stock		13,625		13,625		—		—		—		—			13,625
Issue common stock - vendor service agreement		—		—		100,000				147		—			147
Net loss		—		—		—		—		—		(27,628	)		(27,628	)
Balance as of June 30, 2023		13,625	$	13,625		41,853,603	$	42	$	127,107	$	(125,703	)	$	15,071
Balance		13,625	$	13,625		41,853,603	$	42	$	127,107	$	(125,703	)	$	15,071

LUCID DIAGNOSTICS INC.

and SUBSIDIARIES

(a majority-owned subsidiary of PAVmed Inc.)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

for the THREE AND SIX MONTHS ENDED June 30, 2022

(in thousands except number of shares and per share data - unaudited)

	Shares		Amount		Capital			Deficit			Total
	Common Stock				Additional Paid-In			Accumulated
	Shares		Amount		Capital			Deficit			Total
Balance as of March 31, 2022		35,171,796	$	35	$	100,630		$	(54,174	)	$	46,491
Balance		35,171,796	$	35	$	100,630		$	(54,174	)	$	46,491
Exercise - stock options - Lucid Diagnostics Inc. 2018 Equity Plan		705,500		1		501			—			502
Stock-based compensation - Lucid Diagnostics Inc.		—		—		3,553			—			3,553
Stock-based compensation - PAVmed Inc.		—		—		290			—			290
CapNostics, LLC		—		—		(210	)		—			(210	)
APA-RDx - Installment Payment		117,371		—		239			—			239
Net loss		—		—		—			(14,624	)		(14,624	)
Balance as of June 30, 2022		35,994,667	$	36	$	105,003		$	(68,798	)	$	36,241
Balance		35,994,667	$	36	$	105,003		$	(68,798	)	$	36,241

	Common Stock				Additional Paid-In			Accumulated
	Shares		Amount		Capital			Deficit			Total
Balance as of December 31, 2021		34,917,907	$	35	$	96,608		$	(41,904	)	$	54,739
Balance		34,917,907	$	35	$	96,608		$	(41,904	)	$	54,739
Exercise - stock options - Lucid Diagnostics Inc. 2018 Equity Plan		959,389		1		687			—			688
Stock-based compensation - Lucid Diagnostics Inc. 2018 Equity Plan		—		—		7,091			—			7,091
Stock-based compensation - PAVmed Inc. 2014 Equity Plan		—		—		588			—			588
CapNostics, LLC		—		—		(210	)		—			(210	)
APA-RDx - Installment Payment		117,371		—		239			—			239
Net loss		—		—		—			(26,894	)		(26,894	)
Balance as of June 30, 2022		35,994,667	$	36	$	105,003		$	(68,798	)	$	36,241
Balance		35,994,667	$	36	$	105,003		$	(68,798	)	$	36,241

See accompanying notes to the unaudited condensed consolidated financial statements.

LUCID DIAGNOSTICS INC.

and SUBSIDIARIES

(a majority-owned subsidiary of PAVmed Inc.)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands except number of shares and per share data - unaudited)

	2023			2022
	Six Months Ended June 30,
	2023			2022
Cash flows from operating activities
Net loss	$	(27,628	)	$	(26,894	)

Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization expense		1,245			728
Stock-based compensation - Lucid Diagnostics Inc. 2018 Equity Plan		3,982			7,091
Stock-based compensation - PAVmed Inc. 2014 Equity Plan		625			588
Change in fair value - Senior Secured Convertible Note		499			—
Loss on issue - Senior Secured Convertible Note		1,111			—
APA-RDx: Issue common stock - settle termination payment		713			239
Issue common stock - vendor service agreement		23			—
Changes in operating assets and liabilities:
Accounts receivable		(18	)		200
Prepaid expenses and other current assets		(1,120	)		(748	)
Accounts payable		(419	)		916
Accrued expenses and other current liabilities		1,193			132
Due To: PAVmed Inc. - operating expenses, employee related costs, MSA Fee		5,737			(1,333	)
Net cash flows used in operating activities		(14,057	)		(19,081	)

Cash flows from investing activities
Purchase of equipment		(32	)		(384	)
Asset acquisition		—			(2,200	)
Net cash flows used in investing activities		(32	)		(2,584	)

Cash flows from financing activities
Proceeds – issue of preferred stock		13,625			—
Proceeds – issue of Senior Convertible Note		10,000			—
Proceeds – issue of common stock – Committed Equity Facility		284			—
Proceeds – exercise of stock options		—			688
Proceeds – issue common stock – Employee Stock Purchase Plan		276			—
Net cash flows provided by financing activities		24,185			688

Net increase (decrease) in cash		10,096			(20,977	)
Cash, beginning of period		22,474			53,656
Cash, end of period	$	32,570		$	32,679

See accompanying notes to the unaudited condensed consolidated financial statements.

LUCID DIAGNOSTICS INC.

and SUBSIDIARIES

(a majority-owned subsidiary of PAVmed Inc.)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in these accompanying notes are presented in thousands, except number of shares and per-share amounts.)

Note 1 — Summary Description of the Company

Lucid Diagnostics Inc. (“Lucid”, “Lucid Diagnostics” or the “Company”) is a commercial-stage medical diagnostics technology company focused on the millions of patients with gastroesophageal reflux disease (“GERD”), also known as chronic heartburn, acid reflux or simply reflux, who are at risk of developing esophageal precancer and cancer, specifically highly lethal esophageal adenocarcinoma (“EAC”). Lucid is a majority-owned subsidiary of PAVmed Inc. (“PAVmed”).

The Company believes that its 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 in at-risk gastroesophageal reflux disease (“GERD,” also commonly known as chronic heartburn, acid reflux or simply reflux) patients. Early detection of esophageal precancer allows patients to undergo appropriate monitoring and treatment, as indicated by clinical practice guidelines, in an effort to prevent progression to esophageal cancer.

EsoGuard is a bisulfite-converted next-generation sequencing (NGS) DNA assay performed on surface esophageal cells collected with EsoCheck. Cell samples, including those collected with EsoCheck, as discussed below, are sent to our laboratory, for testing and analyses using our proprietary EsoGuard NGS DNA assay.

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. The Company believes that 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 Barrett’s Esophagus (“BE”), including dysplastic BE and related pre-cursors to EAC in patients with chronic GERD.

The Company is 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. The Company expects to continue to experience recurring losses from operations and will continue to fund its operations with debt and equity financing transactions. Notwithstanding, however, with the cash on-hand as of the date hereof and committed equity sources of financing, 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 Quarterly Report on Form 10-Q for the period ended June 30, 2023.

Note 2 — Summary of Significant Accounting Policies

Significant Accounting Policies

The Company’s significant 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 herein below.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and applicable rules and regulations of the United States Securities and Exchange Commission (“SEC”), and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company is a majority-owned consolidated subsidiary of PAVmed, which has a majority equity ownership interest and has financial control of the Company. The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions.

As permitted under SEC rules, certain footnotes or other financial information normally required by U.S. GAAP have been condensed or omitted. The balance sheet as of December 31, 2022 has been derived from audited consolidated financial statements at such date. The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements, and in the opinion of management, include all adjustments, consisting only of routine recurring adjustments, necessary for a fair statement of the Company’s unaudited condensed consolidated financial information.

The consolidated results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the consolidated results to be expected for the year ending December 31, 2023 or for any other interim period or for any other future periods. The accompanying unaudited condensed consolidated financial statements and related unaudited condensed consolidated financial information should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto as of and for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K as filed with the SEC on March 14, 2023.

All amounts in the accompanying unaudited condensed consolidated financial statements and the notes thereto are presented in thousands of dollars, if not otherwise noted as being presented in millions of dollars, except for shares and per share amounts.

Use of Estimates

In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and the determination of corresponding carrying value reserves, if any, and liabilities and the disclosure of contingent losses, as of the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Significant estimates in these unaudited condensed consolidated financial statements include those related to the estimated fair value of debt obligations, stock-based equity awards and intangible assets. Other significant estimates include the estimated incremental borrowing rate, the provision or benefit for income taxes and the corresponding valuation allowance on deferred tax assets. Additionally, management’s assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash inflows and outflows. On an ongoing basis, the Company evaluates its estimates and assumptions. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable. Due to inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in these estimates.

Revenue Recognition

Revenues are recognized when the satisfaction of the performance obligation occurs, in an amount that reflects the consideration the Company expects to collect in exchange for those services. The Company’s revenue is primarily generated by its laboratory testing services utilizing its EsoGuard Esophageal DNA tests. The services are completed upon release of a patient’s test result to the ordering healthcare provider. Revenue recognized is inclusive of both variable consideration in connection with an individual patient’s third-party insurance coverage policy and fixed consideration in connection with a contracted services arrangement with an unrelated third party legal entity. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASC 606, Revenue from Contracts with Customers, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

Note 2 — Summary of Significant Accounting Policies - continued

The key aspects considered by the Company include the following:

Contracts—The Company’s customer is primarily the patient, but the Company does not enter into a formal reimbursement contract with a patient. The Company establishes a contract with a patient in accordance with other customary business practices, which is the point in time an order is received from a provider and a patient specimen has been returned to the laboratory for testing. Payment terms are a function of a patient’s existing insurance benefits, including the impact of coverage decisions with Center for Medicare & Medicaid Services (“CMS”) and applicable reimbursement contracts established between the Company and payers. However, when a patient is considered self-pay, the Company requires payment from the patient prior to the commencement of the Company’s performance obligations. The Company’s consideration can be deemed variable or fixed depending on the structure of specific payer contracts, and the Company considers collection of such consideration to be probable to the extent that it is unconstrained.

Performance obligations—A performance obligation is a promise in a contract to transfer a distinct good or service (or a bundle of goods or services) to the customer. The Company’s contracts have a single performance obligation, which is satisfied upon rendering of services, which culminates in the release of a patient’s test result to the ordering healthcare provider. The Company elects the practical expedient related to the disclosure of unsatisfied performance obligations, as the duration of time between providing testing supplies, the receipt of a sample, and the release of a test result to the ordering healthcare provider is far less than one year.

Transaction price—The transaction price is the amount of consideration that the Company expects to collect in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration expected to be collected from a contract with a customer may include fixed amounts, variable amounts, or both.

If the consideration derived from the contracts is deemed to be variable, the Company estimates the amount of consideration to which it will be entitled in exchange for the promised goods or services. The Company limits the amount of variable consideration included in the transaction price to the unconstrained portion of such consideration. In other words, the Company recognizes revenue up to the amount of variable consideration that is not subject to a significant reversal until additional information is obtained or the uncertainty associated with the additional payments or refunds is subsequently resolved.

When the Company does not have significant historical experience or that experience has limited predictive value, the constraint over estimates of variable consideration may result in no revenue being recognized upon delivery of patient EsoGuard test results to the ordering healthcare provider. As such, the Company recognizes revenue up to the amount of variable consideration not subject to a significant reversal until additional information is obtained or the uncertainty associated with additional payments or refunds, if any, is subsequently resolved. Differences between original estimates and subsequent revisions, including final settlements, represent changes in estimated expected variable consideration, with the change in estimate recognized in the period of such revised estimate. With respect to a contracted service arrangement, the fixed consideration revenue is recognized on an as-billed basis upon delivery of the laboratory test report with realization of such fixed consideration deemed probable based upon actual historical experience.

Allocate transaction price—The transaction price is allocated entirely to the performance obligation contained within the contract with a customer on the basis of the relative standalone selling prices of each distinct good or service.

Practical Expedients—The Company does not adjust the transaction price for the effects of a significant financing component, as at contract inception, the Company expects the collection cycle to be one year or less.

Financial Instruments Fair Value Measurements

FASB ASC Topic 820, Fair Value Measurement, (ASC 820) defines fair value as the price which would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a transaction measurement date. The ASC 820 three-tier fair value hierarchy prioritizes the inputs used in the valuation methodologies, as follows:

	Level 1	Valuations based on quoted prices for identical assets and liabilities in active markets.

	Level 2	Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets which are not active, or other inputs observable or can be corroborated by observable market data.

	Level 3	Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

The Company evaluates its financial instruments to determine if those instruments or any embedded components of those instruments potentially qualify as derivatives required to be separately accounted for in accordance with FASB ASC Topic 815, Derivatives and Hedging (ASC 815).

Note 2 — Summary of Significant Accounting Policies - continued

The recurring and non-recurring estimated fair value measurements are subjective and are affected by changes in inputs to the valuation models, including the Company’s common stock price, and certain Level 3 inputs, including, the assumptions regarding the estimated volatility in the value of the Company’s common stock price; the Company’s dividend yield; the likelihood and timing of future dilutive transactions, as applicable, along with the risk-free rates based on U.S. Treasury security yields. Changes in these assumptions can materially affect the estimated fair values.

As of June 30, 2023 and December 31, 2022, the carrying values of cash, and accounts payable, approximate their respective fair value due to the short-term nature of these financial instruments.

Fair Value Option (“FVO”) Election

Under a Securities Purchase Agreement dated March 13, 2023, the Company issued a Senior Secured Convertible Note dated March 21, 2023, referred to herein as the “March 2023 Senior Convertible Note”, which is accounted under the “fair value option election” as discussed below.

Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, Derivative and Hedging, (“ASC 815”), a financial instrument containing embedded features and/or options may be required to be bifurcated from the financial instrument host and recognized as separate derivative asset or liability, with the bifurcated derivative asset or liability initially measured at estimated fair value as of the transaction issue date and then subsequently remeasured at estimated fair value as of each reporting period balance sheet date.

Alternatively, FASB ASC Topic 825, Financial Instruments, (“ASC 825”) provides for the “fair value option” (“FVO”) election. In this regard, ASC 825-10-15-4 provides for the FVO election (to the extent not otherwise prohibited by ASC 825-10-15-5) to be afforded to financial instruments, wherein the financial instrument is initially measured at estimated fair value as of the transaction issue date and then subsequently remeasured at estimated fair value as of each reporting period balance sheet date, with changes in the estimated fair value recognized as other income (expense) in the statement of operations. The estimated fair value adjustment of the March 2023 Senior Convertible Note is presented in a single line item within other income (expense) in the accompanying consolidated statement of operations (as provided for by ASC 825-10-50-30(b)). Further, as required by ASC 825-10-45-5, to the extent a portion of the fair value adjustment is attributed to a change in the instrument-specific credit risk, such portion would be recognized as a component of other comprehensive income (“OCI”) (for which there was no such adjustment with respect to the March 2023 Senior Convertible Note).

See Note 10, Financial Instruments Fair Value Measurements, with respect to the FVO election; and Note 11, Debt, for a discussion of the March 2023 Senior Convertible Note.

Reclassifications

Certain prior-year amounts have been reclassified to conform to the current year presentation, which includes presenting costs of revenue within operating expenses on the statements of operations, in the unaudited condensed consolidated financial statements and accompanying notes to the unaudited condensed consolidated financial statements. The impact of the reclassifications made to prior year amounts is not material and did not affect net loss.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The updated guidance requires companies to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets, including trade receivables. The guidance was adopted by the Company on January 1, 2023. The adoption of the ASU did not have an impact on the Company’s unaudited condensed consolidated financial statements.

Note 3 — Revenue from Contracts with Customers

EsoGuard Commercialization Agreement

The Company entered into the EsoGuard Commercialization Agreement, dated August 1, 2021, with its former commercial laboratory service provider, ResearchDx Inc. (“RDx”), an unrelated third-party. The EsoGuard Commercialization Agreement was on a month-to-month basis and was terminated on February 25, 2022 upon the execution of an asset purchase agreement (“APA”) dated February 25, 2022, between LucidDx Labs Inc., a wholly-owned subsidiary of the Company, and RDx, with such agreement further discussed in Note 6, Asset Purchase Agreement and Management Services Agreement.

Revenue Recognized

In the three and six months ended June 30, 2023, the Company recognized revenue of $159 and $605, respectively, resulting from the delivery of patient EsoGuard test results. Revenue recognized from customer contracts deemed to include a variable consideration transaction price is limited to the unconstrained portion of the variable consideration. The Company’s revenue for the three and six months ended June 30, 2022 was $0 and $189, which solely reflects the revenue recognized under the EsoGuard Commercialization Agreement, which represented the minimum fixed monthly fee of $100 for the period January 1, 2022 to the February 25, 2022 termination date as discussed above. The monthly fee was deemed to be collectible for such period as RDx has timely paid the applicable respective monthly fee.

Cost of Revenue

The cost of revenues principally includes the costs related to the Company’s laboratory operations (excluding estimated costs associated with research activities), the costs related to the EsoCheck cell collection device, cell sample mailing kits and license royalties.

In the three and six months ended June 30, 2023, the cost of revenue was $1,549 and $2,887, respectively, and was primarily related to costs for our laboratory operations and EsoCheck device supplies. The Company’s cost of revenue for the three and six months ended June 30, 2022 was $0 and $369, which solely reflects the costs attributable to delivering the services under the EsoGuard Commercialization Agreement for the period January 1, 2022 to February 25, 2022. In the three months ended June 30, 2022, laboratory operations costs are included in operating expenses as general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

Note 4 — Related Party Transactions

Case Western Reserve University and Physician Inventors - Amended CWRU License Agreement

Case Western Reserve University (“CWRU”) and each of the three physician inventors (“Physician Inventors”) of the intellectual property licensed under the amended and restated patent license agreement with CWRU, dated August 23, 2021 (the “Amended CWRU License Agreement”), each hold a minority equity ownership interest in Lucid Diagnostics Inc. The expenses incurred with respect to the Amended CWRU License Agreement and the three Physician Inventors, as classified in the accompanying unaudited condensed consolidated statement of operations for the periods indicated are summarized as follows:

	2023		2022		2023		2022
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of Revenue
CWRU – Royalty Fees	$	10	$	—	$	34	$	9

General and Administrative Expense
Stock-based compensation expense – Physician Inventors’ restricted stock awards		—		272		180		544

Research and Development Expense
Amended CWRU – License Agreement - reimbursement of patent legal fees		—		209		389		209
Fees - Physician Inventors’ consulting agreements		9		10		10		18
Sponsored research agreement		—		—		—		3
Stock-based compensation expense – Physician Inventors’ stock options		52		52		105		99
Total Related Party Expenses	$	71	$	543	$	718	$	882

PAVmed Inc. - Management Services Agreement

The Company’s daily operations are also managed in part by personnel employed by PAVmed, for which the Company incurs a service fee, referred to as the “MSA Fee”, according to the provisions of a Management Services Agreement (“MSA”) with PAVmed. The MSA does not have a termination date, but may be terminated by the Company’s board of directors. 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 boards of directors of each of the Company and PAVmed. 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, which was entered into by PAVmed and the Company on May 9, 2023. During the three and six months ended June 30, 2022, MSA Fees were $390 per month.

Note 4 — Related Party Transactions - continued

The MSA Fee expense classification in the unaudited condensed consolidated statement of operations for the periods noted is as follows:

	2023		2022		2023		2022
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Sales & Marketing		109		183		218		383
General & Administrative		1,554		640		3,108		1,284
Research & Development		587		347		1,174		673
Total MSA Fee	$	2,250	$	1,170	$	4,500	$	2,340

The classification of the MSA Fee as presented above is based on the PAVmed classification of employee salary expense and other operating expenses. In this regard, PAVmed classifies employee salary expense as sales and marketing expenses for employees performing sales, marketing, and reimbursement activities and functions, general and administrative, and research and development except for those employees who are engaged in product and services engineering development and design and /or clinical trials activities, for which such employee salary is classified as research and development expense.

Note 5 — Due To PAVmed Inc.

The aggregate Due To: PAVmed Inc. for the periods indicated is summarized as follows:

	MSA Fees		Employee-Related Costs		PAVmed Inc. OBO Payments			Total
Balance - December 31, 2022	$	1,650	$	3,026	$	284		$	4,960
MSA fees		4,500		—		—			4,500
ERC - Payroll & Benefits		—		922		—			922
On Behalf Of (OBO) activities		—		—		601			601
Cash payments to PAVmed Inc.		—		—		(286	)		(286	)
Balance - June 30, 2023	$	6,150	$	3,948	$	599		$	10,697

Note 6 — Asset Purchase Agreement and Management Services Agreement

Asset Purchase Agreement and Management Services Agreement - ResearchDx Inc.

Through its wholly-owned subsidiary, LucidDx Labs Inc. (“LucidDx Labs”), the Company entered into an asset purchase agreement (“APA”) dated February 25, 2022, with ResearchDx, Inc. (“RDx”), an unrelated third-party - “APA-RDx”. Under the APA-RDx, LucidDx Labs Inc. acquired certain assets from RDx which were combined with other property and equipment to establish a Company-owned CLIA certified, CAP accredited commercial clinical laboratory capable of performing the EsoGuard® Esophageal DNA assay, inclusive of DNA extraction, next generation sequencing (“NGS”) and specimen storage. Prior to February 25, 2022, RDx provided such laboratory services at its owned CLIA-certified, CAP-accredited clinical laboratory. In connection with the execution and delivery of the APA-RDx, LucidDx Labs Inc. and RDx entered into a separate management services agreement (“MSA-RDx”), dated and effective February 25, 2022, pursuant to which RDx provided certain testing and related services for the Laboratory.

The total purchase price consideration payable under the APA-RDx is a face value of $3,200 comprised of three contractually specified periodic payments. The APA-RDx is being accounted for as an asset acquisition, with the recognition of an intangible asset of approximately $3,200, which is included in “Intangible assets, net” on the accompanying unaudited condensed consolidated balance sheet, as further discussed in Note 9, Intangible Assets, net.

Termination of Management Services Agreement and Modification of Other Payment Obligations - ResearchDx Inc.

On February 14, 2023, through LucidDx Labs Inc, the Company entered into an agreement (the “MSA Termination Agreement”) with RDx, pursuant to which the parties mutually agreed to terminate the MSA-RDx without cause. The termination was effective as February 10, 2023. Until the termination of the management service agreement with RDx, RDx had continued to provide certain testing and related services for the Laboratory in accordance with the terms of the MSA-RDx.

The MSA Termination Agreement reduces the remaining amounts of the earnout payments and management fees due under the APA-RDx and the MSA-RDx to $713. The payment was satisfied through the issuance of 553,436 shares of the Company’s common stock in February 2023. The Company was not required to make any cash payments in connection with the termination.

Note 7 — Prepaid Expenses, Deposits, and Other Current Assets

Prepaid expenses and other current assets consisted of the following as of:

	June 30, 2023		December 31, 2022
Advanced payments to service providers and suppliers	$	344	$	371
Prepaid insurance		171		52
Deposits		2,587		1,331
EsoCheck cell collection supplies		39		59
EsoGuard mailer supplies		3		52
Total prepaid expenses, deposits and other current assets	$	3,144	$	1,865

Note 8 — Leases

During the six months ended June 30, 2023, the Company entered into additional lease agreements that have commenced and are classified as operating leases and short-term leases for additional Lucid Test Centers.

The Company’s future lease payments as of June 30, 2023, which are presented as operating lease liabilities, current portion and operating lease liabilities, less current portion on the Company’s unaudited condensed consolidated balance sheets are as follows:


2023 (remainder of year)	$	611
2024		1,133
2025		127
2026		63
2027		24
Total lease payments	$	1,958
Less: imputed interest		(127	)
Present value of lease liabilities	$	1,831

Supplemental disclosure of cash flow information related to the Company’s cash and non-cash activities with its leases are as follows:

	Six Months Ended June 30,
	2023			2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	583		$	453
Non-cash investing and financing activities
Right-of-use assets obtained in exchange for new operating lease liabilities	$	341		$	2,448
Weighted-average remaining lease term - operating leases (in years)		1.80			2.48
Weighted-average discount rate - operating leases		7.875	%		7.875	%

As of June 30, 2023 and December 31, 2022, the Company’s right-of-use assets from operating leases were $1,835 and $2,008, respectively, which are reported in operating lease right-of-use assets in the unaudited condensed consolidated balance sheets. As of June 30, 2023 and December 31, 2022, the Company had outstanding operating lease obligations of $1,831 and $1,999, respectively, of which $1,099 and $962, respectively, are reported in operating lease liabilities, current portion and $732 and $1,037, respectively, are reported in operating lease liabilities less current portion in the Company’s unaudited condensed consolidated balance sheets. The Company calculates its incremental borrowing rates for specific lease terms, used to discount future lease payments, as a function of the financing terms the Company would likely receive on the open market.

Note 9 — Intangible Assets, net

Intangible assets, less accumulated amortization, consisted of the following as of:

	Estimated Useful Life	June 30, 2023			December 31, 2022
Defensive technology	60 months	$	2,105		$	2,105
Laboratory licenses and certifications and laboratory information management software	24 months		3,200		$	3,200
Total Intangible assets			5,305			5,305
Less Accumulated Amortization			(2,870	)		(1,860	)
Intangible Assets, net		$	2,435		$	3,445

The defensive technology intangible asset of $2.1 million (and approximately $0.2 million of accumulated amortization) was recognized by the Company as of the April 1, 2022 effective date of the transfer of CapNostics, LLC (“CapNostics”) to the Company from PAVmed Subsidiary Corp (a wholly-owned subsidiary of PAVmed). The transfer was accounted for as entities under common control. The defensive technology intangible asset was recognized by PAVmed Subsidiary Corp upon its acquisition of CapNostics, an unrelated third-party, for total purchase consideration paid on the October 5, 2021 acquisition date of approximately $2.1 million in cash. The CapNostics transaction was accounted for as an asset acquisition, resulting in the recognition of the defensive technology intangible asset. The defensive technology intangible asset is being amortized on a straight-line basis over an expected useful life 60 months commencing on the acquisition date.

As noted in Note 6, Asset Purchase Agreement and Management Services Agreement, the asset purchase agreement between the Company and ResearchDx Inc. (“APA-RDx”), is being accounted for as an asset acquisition. The intangible assets recognized under the APA-RDx are the laboratory licenses and certifications (inclusive of a CLIA certification, CAP accreditation, and clinical laboratory licenses for five (5) U.S. States transferred to the Company from RDx), and a laboratory information management software perpetual-use royalty-free license granted under the APA-RDx, with such intangible asset having a useful life of twenty-four months commencing on the APA-RDx February 25, 2022 transaction date.

Amortization expense of the intangible assets discussed above was $505 and $639 for the three month periods ended June 30, 2023 and 2022, respectively, and $1,010 and $639 for the six month periods ended June 30, 2023 and 2022, respectively, and is included in amortization of acquired intangible assets in the accompanying unaudited condensed consolidated statements of operations. As of June 30, 2023, the estimated future amortization expense associated with the Company’s finite-lived intangible assets for each of the five succeeding fiscal years is as follows:

Schedule of Future Amortization Expense


2023 (remainder of year)	$	1,011
2024		688
2025		421
2026		315
Total	$	2,435

Note 10 — Financial Instruments Fair Value Measurements

Recurring Fair Value Measurements

The fair value hierarchy table for the reporting date noted is as follows:

	Fair Value Measurement on a Recurring Basis at Reporting Date Using¹
	Level-1 Inputs		Level-2 Inputs		Level-3 Inputs		Total
June 30, 2023
March 2023 Senior Convertible Note	$	—	$	—	$	11,610	$	11,610
Totals	$	—	$	—	$	11,610	$	11,610

There were no transfers between the respective Levels during the period ended June 30, 2023.

As discussed in Note 11, Debt, the Company issued a Senior Secured Convertible Note dated March 21, 2023 with a $11.1 million face value principal (“March 2023 Senior Convertible Note”.) The convertible note is accounted for under the ASC 825-10-15-4 fair value option (“FVO”) election, wherein, the financial instrument is initially measured at its issue date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date.

The estimated fair value of the financial instruments classified within the Level 3 category was determined using both observable inputs and unobservable inputs. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs.

The estimated fair value of the March 2023 Senior Convertible Note as of each of March 21, 2023 and June 30, 2023 were computed using a Monte Carlo simulation of the present value of its cash flows using a synthetic credit rating analysis and a required rate-of-return, using the following assumptions:

Schedule of Fair Value Assumption Used

	March 2023 Senior Convertible Note: March 21, 2023			March 2023 Senior Convertible Note: June 30, 2023
Fair Value	$	11,900		$	11,610
Face value principal payable	$	11,111		$	11,111
Required rate of return		11.00	%		11.00	%
Conversion Price	$	5.00		$	5.00
Value of common stock	$	1.54		$	1.39
Expected term (years)		2.00			1.73
Volatility		75.00	%		70.00	%
Risk free rate		4.09	%		4.89	%
Dividend yield		—	%		—	%

The estimated fair values reported utilized the Company’s common stock price along with certain Level 3 inputs (as discussed in the table above), 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. Changes in these assumptions can materially affect the estimated fair values.

Note 11 — Debt

The fair value and face value principal outstanding of the March 2023 Senior Convertible Note as of the dates indicated are as follows:

Summary of Outstanding Debt

	Contractual Maturity Date	Stated Interest Rate			Conversion Price per Share		Face Value Principal Outstanding		Fair Value
March 2023 Senior Convertible Note	March 21, 2025		7.875	%	$	5.00	$	11,111	$	11,610
Balance as of June 30, 2023							$	11,111	$	11,610

The changes in the fair value of debt during the three and six months ended June 30, 2023 is as follows:

	March 2023 Senior Convertible Note		Other Income (expense)
Fair Value - December 31, 2022	$	—	$	—
Face value principal – issue date		11,111		—
Fair value adjustment – issue date		789		(

SEC Form 10-Q filed by Lucid Diagnostics Inc.