UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| 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:
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of | (IRS Employer | |
| Incorporation or Organization) | Identification No.) | |
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each Class | Trading Symbol(s) | Name of each Exchange on which Registered | ||
| The
|
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.
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).
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 | ☐ |
| ☒ | 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 ☐
As of November 9, 2023 there were 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
| i |
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)
| September 30, 2023 | December 31, 2022 | |||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses, deposits, and other current assets | ||||||||
| Total current assets | ||||||||
| Fixed assets, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, Preferred Stock and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Senior Secured Convertible Note - at fair value | ||||||||
| Due To: PAVmed Inc. - MSA Fee and operating expenses | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities, less current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $ par value, shares authorized; Series A Convertible Preferred Stock, issued and outstanding at September 30, 2023 and shares issued and outstanding at December 31, 2022 | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 1 |
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)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Amortization of acquired intangible assets | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Change in fair value - Senior Secured Convertible Note | ( | ) | ( | ) | ||||||||||||
| Loss on issue and offering costs - Senior Secured Convertible Note | ( | ) | ||||||||||||||
| Debt extinguishments loss - Senior Secured Convertible Note | ( | ) | ( | ) | ||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Loss before provision for income tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average common shares outstanding, basic and diluted | ||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 2 |
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 NINE MONTHS ENDED September 30, 2023
(in thousands except number of shares and per share data - unaudited)
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Stock-based compensation - Lucid Diagnostics Inc. 2018 Equity Plan | — | — | ||||||||||||||||||||||||||
| Stock-based compensation - PAVmed Inc. 2014 Equity Plan | — | — | ||||||||||||||||||||||||||
| Vest - restricted stock awards | — | |||||||||||||||||||||||||||
| Conversions - Senior Secured Convertible Note | — | |||||||||||||||||||||||||||
| Purchase - Employee Stock Purchase Plan | — | |||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock-based compensation - Lucid Diagnostics Inc. 2018 Equity Plan | — | — | ||||||||||||||||||||||||||
| Stock-based compensation - PAVmed Inc. 2014 Equity Plan | — | — | ||||||||||||||||||||||||||
| Vest - restricted stock awards | — | |||||||||||||||||||||||||||
| Conversions - Senior Secured Convertible Note | — | |||||||||||||||||||||||||||
| APA-RDx - Termination payment | — | |||||||||||||||||||||||||||
| Issuance - At-The-Market Facility, net of deferred financing charges | — | |||||||||||||||||||||||||||
| Purchase - Employee Stock Purchase Plan | — | |||||||||||||||||||||||||||
| Issuance - Series A Preferred Stock | — | |||||||||||||||||||||||||||
| Issue common stock - vendor service agreement | — | |||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| 3 |
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 NINE MONTHS ENDED September 30, 2022
(in thousands except number of shares and per share data - unaudited)
| Common Stock | Additional Paid-In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Exercise - stock options - Lucid Diagnostics Inc. 2018 Equity Plan | ||||||||||||||||||||
| Stock-based compensation - Lucid Diagnostics Inc. | — | |||||||||||||||||||
| Stock-based compensation - PAVmed Inc. | — | |||||||||||||||||||
| Vest - restricted stock awards | ||||||||||||||||||||
| APA-RDx - Installment Payment | ||||||||||||||||||||
| Issuance - Committed Equity Facility, net of deferred financing charges | ||||||||||||||||||||
| Purchase - Employee Stock Purchase Plan | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock | Additional Paid-In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Exercise - stock options - Lucid Diagnostics Inc. 2018 Equity Plan | ||||||||||||||||||||
| Stock-based compensation - Lucid Diagnostics Inc. 2018 Equity Plan | — | |||||||||||||||||||
| Stock-based compensation - PAVmed Inc. 2014 Equity Plan | — | |||||||||||||||||||
| Vest - restricted stock awards | ||||||||||||||||||||
| CapNostics, LLC | — | ( | ) | ( | ) | |||||||||||||||
| APA-RDx - Installment Payment | ||||||||||||||||||||
| Issuance - Committed Equity Facility, net of deferred financing charges | ||||||||||||||||||||
| Purchase - Employee Stock Purchase Plan | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 4 |
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)
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation and amortization expense | ||||||||
| Stock-based compensation - Lucid Diagnostics Inc. 2018 Equity Plan | ||||||||
| Stock-based compensation - PAVmed Inc. 2014 Equity Plan | ||||||||
| Change in fair value - Senior Secured Convertible Note | ||||||||
| Loss on issue - Senior Secured Convertible Note | ||||||||
| Debt extinguishment loss - Senior Secured Convertible Note | ||||||||
| APA-RDx: Issue common stock - settle termination payment | ||||||||
| Issue common stock - vendor service agreement | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses and other current liabilities | ||||||||
| Due To: PAVmed Inc. - operating expenses, employee related costs, MSA Fee | ||||||||
| Net cash flows used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Asset acquisition | ( | ) | ||||||
| Net cash flows used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds – issue of preferred stock | ||||||||
| Proceeds – issue of Senior Convertible Note | ||||||||
| Proceeds – issue of common stock – Committed Equity Facility | ||||||||
| Proceeds – issue of common stock – At-The-Market Facility | ||||||||
| Proceeds – exercise of stock options | ||||||||
| Proceeds – issue common stock – Employee Stock Purchase Plan | ||||||||
| Net cash flows provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 5 |
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 —The Company
Description of the Business
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 GERD 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 a FDA 510(k) and CE Mark cleared noninvasive swallowable balloon capsule catheter device capable of sampling surface esophageal cells in a less than a 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, when inflated, 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.
Liquidity
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, including current obligations on the Company’s existing convertible debt which in accordance with management’s plans may include conversions to equity and refinancing our existing debt obligations to extend the maturity date. Notwithstanding, however, with the cash on-hand as of the date hereof and committed equity sources of financing, conversion and refinancing of existing convertible notes, the Company expects to be able to fund its operations and meet its financial obligations as they become due for the one year period from the date of the issue of the Company’s unaudited condensed consolidated financial statements, as included herein in this Quarterly Report on Form 10-Q for the period ended September 30, 2023.
| 6 |
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 nine months ended September 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.
| 7 |
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).
| 8 |
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 September 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.
| 9 |
Note 3 — Revenue from Contracts with Customers - continued
Revenue Recognized
In
the three and nine months ended September 30, 2023, the Company recognized revenue of $
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 nine months ended September 30, 2023, the cost of revenue was $
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:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Cost of Revenue | ||||||||||||||||
| CWRU – Royalty Fees | $ | $ | $ | $ | ||||||||||||
| General and Administrative Expense | ||||||||||||||||
| Amended CWRU – License Agreement - reimbursement of patent legal fees | ||||||||||||||||
| Stock-based compensation expense – Physician Inventors’ restricted stock awards | ||||||||||||||||
| Research and Development Expense | ||||||||||||||||
| Fees - Physician Inventors’ consulting agreements | ||||||||||||||||
| Sponsored research agreement | ||||||||||||||||
| Stock-based compensation expense – Physician Inventors’ stock options | ||||||||||||||||
| Total Related Party Expenses | $ | $ | $ | $ | ||||||||||||
As
of September 30, 2023, the Company had an outstanding payable of $
| 10 |
Note 4 — Related Party Transactions - continued
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 $
The MSA Fee expense classification in the unaudited condensed consolidated statement of operations for the periods noted is as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Sales & Marketing | ||||||||||||||||
| General & Administrative | ||||||||||||||||
| Research & Development | ||||||||||||||||
| Total MSA Fee | $ | $ | $ | $ | ||||||||||||
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 | $ | $ | $ | $ | ||||||||||||
| MSA fees | ||||||||||||||||
| ERC - Payroll & Benefits | ||||||||||||||||
| On Behalf Of (OBO) activities | ||||||||||||||||
| Cash payments to PAVmed Inc. | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance - September 30, 2023 | $ | $ | $ | $ | ||||||||||||
| 11 |
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 $
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 $
Note 7 — Prepaid Expenses, Deposits, and Other Current Assets
Prepaid expenses and other current assets consisted of the following as of:
| September 30, 2023 | December 31, 2022 | |||||||
| Advanced payments to service providers and suppliers | $ | $ | ||||||
| Prepaid insurance | ||||||||
| Deposits | ||||||||
| EsoCheck cell collection supplies | ||||||||
| EsoGuard mailer supplies | ||||||||
| Total prepaid expenses, deposits and other current assets | $ | $ | ||||||
Note 8 — Leases
During the nine months ended September 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 September 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) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total lease payments | $ | |||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ |
| 12 |
Note 8 — Leases - continued
Supplemental disclosure of cash flow information related to the Company’s cash and non-cash activities with its leases are as follows:
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | ||||||
| Weighted-average remaining lease term - operating leases (in years) | ||||||||
| Weighted-average discount rate - operating leases | % | % | ||||||
As
of September 30, 2023 and December 31, 2022, the Company’s right-of-use assets from operating leases were $
Note 9 — Intangible Assets, net
Intangible assets, less accumulated amortization, consisted of the following as of:
| Estimated Useful Life | September 30, 2023 | December 31, 2022 | ||||||||
| Defensive technology | $ | $ | ||||||||
| Laboratory licenses and certifications and laboratory information management software | $ | |||||||||
| Total Intangible assets | ||||||||||
| Less Accumulated Amortization | ( | ) | ( | ) | ||||||
| Intangible Assets, net | $ | $ | ||||||||
The
defensive technology intangible asset of $
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 $
| 2023 (remainder of year) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total | $ |
| 13 |
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 | |||||||||||||
| September 30, 2023 | ||||||||||||||||
| March 2023 Senior Convertible Note | $ | $ | $ | $ | ||||||||||||
| Totals | $ | $ | $ | $ | ||||||||||||
| 1 |
As
discussed in Note 11, Debt, the Company issued a Senior Secured Convertible Note dated March 21, 2023 with a $
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 September 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:
| March 2023 Senior Convertible Note: March 21, 2023 | March 2023 Senior Convertible Note: September 30, 2023 | |||||||
| Fair Value | $ | $ | ||||||
| Face value principal payable | $ | $ | ||||||
| Required rate of return | % | % | ||||||
| Conversion Price | $ | $ | ||||||
| Value of common stock | $ | $ | ||||||
| Expected term (years) | ||||||||
| Volatility | % | % | ||||||
| Risk free rate | % | % | ||||||
| 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.
| 14 |
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:
| Contractual Maturity Date | Stated Interest Rate | Conversion Price per Share | Face Value Principal Outstanding | Fair Value | ||||||||||||||
| March 2023 Senior Convertible Note | % | $ | $ | $ | ||||||||||||||
| Balance as of September 30, 2023 | $ | $ | ||||||||||||||||
The changes in the fair value of debt during the three and nine months ended September 30, 2023 is as follows:
March 2023 Senior Convertible Note | Other Income (expense) | |||||||
| Fair Value - June 30, 2023 | $ | $ | ||||||
| Installment repayments – common stock | ( | ) | ||||||
| Non-installment payments – common stock | ( | ) | ||||||
| Change in fair value | | ( | ) | |||||
| Fair Value at September 30, 2023 | $ | |||||||
| Other Income (Expense) - Change in fair value – three months ended September 30, 2023 | $ | ( | ) | |||||
March 2023 Senior Convertible Note | Other Income (expense) | |||||||
| Fair Value - December 31, 2022 | $ | $ | ||||||
| Face value principal – issue date | $ | |||||||
| Fair value adjustment – issue date | ( | ) | ||||||
| Installment repayments – common stock | ( | ) | ||||||
| Non-installment payments – common stock | ( | ) | ||||||
| Change in fair value | ( | ) | ||||||
| Fair Value at September 30, 2023 | $ | |||||||
| Other Income (Expense) - Change in fair value – nine months ended September 30, 2023 | $ | ( | ) | |||||
March 2023 Senior Secured Convertible Note
Lucid
Diagnostics entered into a Securities Purchase Agreement (“SPA”) dated March 13, 2023, with an accredited institutional investor
(“Investor”, “Lender”, and /or “Holder”), wherein Lucid agreed to sell, and the Investor agreed to
purchase, an aggregate of $
Under
the SPA, Lucid issued in a registered direct offering under its effective shelf registration statement a Senior Secured Convertible Note
dated March 21, 2023, referred to herein as the “March 2023 Senior Convertible Note”, with such note having a $
The
March 2023 Senior Convertible Note proceeds were $
During
the period from March 21, 2023 to September 20, 2023, Lucid is required to pay interest expense only (on the $
| 15 |
Note 11 — Debt - continued
Commencing
September 21, 2023, and then on each of the successive first and tenth trading day of each month thereafter through to and including
March 14, 2025 (each referred to as an “Installment Date”); and on the
In addition to the Installment Amount repayments, the Holder may elect to accelerate the conversion of future Installment Amount repayments, and interest thereon, subject to certain restrictions, as defined, utilizing the then current conversion price of the most recent Installment Date conversion price.
The payment of all amounts due and payable under this senior convertible note is guaranteed by all of Lucid Diagnostics’ subsidiaries; and the obligations under this senior convertible note are secured by all of the assets of Lucid Diagnostics and its subsidiaries.
Lucid is subject to certain customary affirmative and negative covenants regarding the rank of the note, along with the incurrence of further indebtedness, the existence of liens, the repayment of indebtedness and the making of investments, the payment of cash in respect of dividends, distributions or redemptions, the transfer of assets, the maturity of other indebtedness, and transactions with affiliates, among other customary matters.
Lucid
is subject to financial covenants requiring:
In
the nine months ended September 30, 2023, approximately $
Lucid Diagnostics Inc. 2018 Long-Term Incentive Equity Plan
The Lucid Diagnostics Inc. 2018 Long-Term Incentive Equity Plan (“Lucid Diagnostics 2018 Equity Plan”) is separate and apart from the PAVmed 2014 Equity Plan discussed below. The Lucid Diagnostics 2018 Equity Plan is designed to enable Lucid Diagnostics to offer employees, officers, directors, and consultants, an opportunity to acquire shares of common stock of Lucid Diagnostics. The types of awards that may be granted under the Lucid Diagnostics 2018 Equity Plan include stock options, stock appreciation rights, restricted stock, and other stock-based awards subject to limitations under applicable law. All awards are subject to approval by the Lucid Diagnostics compensation committee.
A total of shares of common stock of Lucid Diagnostics are reserved for issuance under the Lucid Diagnostics 2018 Equity Plan, with shares available for grant as of September 30, 2023. The share reservation is not diminished by a total of stock options and restricted stock awards granted outside the Lucid Diagnostics 2018 Equity Plan, as of September 30, 2023.
| 16 |
Note 12 — Stock-Based Compensation - continued
Lucid Diagnostics Stock Options
Number of Stock Options | Weighted Average Exercise Price | Remaining Contractual Term (Years) | Intrinsic Value(2) | |||||||||||||
| Outstanding stock options at December 31, 2022 | $ | $ | ||||||||||||||
| Granted(1) | $ | |||||||||||||||
| Exercised | $ | |||||||||||||||
| Forfeited | ( | ) | $ | | ||||||||||||
| Outstanding stock options at September 30, 2023(3) | $ | $ | ||||||||||||||
| Vested and exercisable stock options at September 30, 2023 | $ | $ | ||||||||||||||
| (1) | |
| (2) | |
| (3) |
See Note 4, Related Party Transactions, for a summary of the stock-based compensation expense recognized with respect to the stock options granted under the Lucid Diagnostics 2018 Equity Plan to the Physician Inventors.
Subsequent to September 30, 2023, on November 6, 2023, the company granted to employees stock options under the Lucid Diagnostics Inc 2018 Equity Plan with a weighted average exercise price of $ for which will generally vest one-third after one year then ratably over the next eight quarters.
Lucid Diagnostics Restricted Stock Awards
Lucid Diagnostics restricted stock awards granted under the Lucid Diagnostics 2018 Equity Plan and restricted stock awards granted outside such plan are summarized as follows:
Number of Restricted Stock Awards | Weighted Average Grant Date Fair Value | |||||||
| Unvested restricted stock awards as of December 31, 2022(1) | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Unvested restricted stock awards as of September 30, 2023 | $ | |||||||
| (1) |
Subsequent to September 30, 2023, on November 6, 2023, restricted stock awards were granted under the Lucid Diagnostics Inc 2018 Equity Plan, with such restricted stock awards vesting one third each year for the next three years with the final vesting date on November 6, 2026, and an aggregate grant date fair value of approximately $ million, measured as the grant date closing price of Lucid Diagnostics Inc. common stock, with such aggregate estimated fair value recognized as stock-based compensation expense ratably on a straight-line basis over the vesting period, which is commensurate with the service period. The restricted stock awards are subject to forfeiture if the requisite service period is not completed.
PAVmed Inc. 2014 Equity Plan
The PAVmed Inc. 2014 Long-Term Incentive Equity Plan (the “PAVmed 2014 Equity Plan”), is separate and apart from the Lucid Diagnostics 2018 Equity Plan (as such equity plan is discussed above).
| 17 |
Note 12 — Stock-Based Compensation - continued
Stock-Based Compensation Expense
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Lucid Diagnostics 2018 Equity Plan – cost of revenue | $ | $ | $ | $ | ||||||||||||
| Lucid Diagnostics 2018 Equity Plan – sales and marketing | ||||||||||||||||
| Lucid Diagnostics 2018 Equity Plan - general and administrative | ||||||||||||||||
| Lucid Diagnostics 2018 Equity Plan - research and development | ||||||||||||||||
| PAVmed 2014 Equity Plan - cost of revenue | ||||||||||||||||
| PAVmed 2014 Equity Plan - sales and marketing | ||||||||||||||||
| PAVmed 2014 Equity Plan - general and administrative | ||||||||||||||||
| PAVmed 2014 Equity Plan - research and development | ||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
The stock-based compensation expense, as presented above, is inclusive of: stock options and restricted stock awards granted under the Lucid Diagnostics 2018 Equity Plan to employees of PAVmed, the Physician Inventors, and members of the board of directors of Lucid Diagnostics, as well as the stock options granted under the PAVmed 2014 Equity Plan to the Physician Inventors.
As of September 30, 2023, unrecognized stock-based compensation expense and weighted average remaining requisite service period with respect to stock options and restricted stock awards issued under each of the Lucid Diagnostics 2018 Equity Plan and the PAVmed 2014 Equity Plan, as discussed above, is as follows:
Unrecognized Expense | Weighted Average Remaining Service Period (Years) | |||||||
| Lucid Diagnostics 2018 Equity Plan | ||||||||
| Stock Options | $ | |||||||
| Restricted Stock Awards | $ | |||||||
| PAVmed 2014 Equity Plan | ||||||||
| Stock Options | $ | | ||||||
Stock-based compensation expense recognized with respect to stock options granted under the Lucid Diagnostics 2018 Equity Plan was based on a weighted average estimated fair value of such stock options of $ per share and $ per share during the periods ended September 30, 2023 and 2022, respectively, calculated using the following weighted average Black-Scholes valuation model assumptions:
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Expected term of stock options (in years) | ||||||||
| Expected stock price volatility | % | % | ||||||
| Risk free interest rate | % | % | ||||||
| Expected dividend yield | % | % | ||||||
Lucid Diagnostics Inc Employee Stock Purchase Plan (“Lucid ESPP”)
A
total of shares of common stock of Lucid Diagnostics were purchased for proceeds of approximately $
| 18 |
Note 13 — Stockholders’ Equity
Series A Preferred Stock Offering
On
March 7, 2023, the Company issued shares of newly designated Series A Convertible Preferred Stock, par value $ per share
(the “Series A Preferred Stock”), to accredited investors at a purchase price of $ per share, for aggregate gross proceeds
to the Company of $
Each
share of Series A Preferred Stock is convertible at the option of the holder, subject to certain beneficial ownership limitations into
such number of shares of the Company’s common stock, equal to the number of Series A Preferred Shares to be converted, multiplied
by the stated value of $
The Series A Preferred Stock will be senior to the Common Stock and any other class of the Company’s capital stock that is not by its terms senior to or pari passu with the Series A Preferred Stock.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company (or any Deemed Liquidation Event as defined in the Certificate of Designation), the holders of shares of Series A Preferred Stock then outstanding will be entitled to be paid out of the assets of the Company available for distribution to its stockholders, before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the greater of (i) the Stated Value, plus any dividends accrued but unpaid thereon, or (ii) such amount per share as would have been payable had all shares of Series A Preferred Stock been converted into Common Stock immediately prior to such event.
The Series A Preferred Stock is a non-voting security, other than with respect to limited matters related to changes in terms of the Series A Preferred Stock.
The Company and the investors in the offering also executed a registration rights agreement (the “Series A Registration Rights Agreement”), pursuant to which the Company agreed to file a registration statement covering the resale of the shares of Common Stock issuable pursuant to the Series A Preferred Stock.
Series A-1 Preferred Stock Offering
Subsequent
to September 30, 2023, on October 17, 2023, the Company issued shares of newly designated Lucid Series A-1 Convertible Preferred
Stock (the “Series A-1 Preferred Stock”). The terms of the Series A-1 Preferred Stock are substantially identical to the
terms of the Series A Preferred Stock, except that the Series A-1 Preferred Stock has a conversion price of $
The Company and the investors in the offering also executed a registration rights agreement (the “Series A-1 Registration Rights Agreement”), pursuant to which the Company agreed to file a registration statement covering the resale of the shares of Common Stock issuable pursuant to the Series A-1 Preferred Stock.
Lucid Diagnostics Common Stock
In June 2023, the Company received shareholder approval to issue up to million shares of its common stock, an increase of million shares.
As of September 30, 2023 and December 31, 2022 there were and shares of common stock issued and outstanding, respectively. As of September 30, 2023, PAVmed holds shares, representing a majority-interest equity ownership and PAVmed has a controlling financial interest in the Company.
| 19 |
Note 13 — Stockholders’ Equity - continued
Committed Equity Facility and ATM Facility
On
March 28, 2022, the Company entered into a committed equity facility with an affiliate of Cantor Fitzgerald (“Cantor”). Under
the terms of the committed equity facility, Cantor has committed to purchase up to $
In
November 2022, the Company entered into an “at-the-market offering” (“ATM”) for up to $
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Numerator | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator | ||||||||||||||||
| Weighted average common shares outstanding, basic and diluted | ||||||||||||||||
| Net loss per share | ||||||||||||||||
| Net loss per share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Basic weighted-average number of shares of common stock outstanding for the periods ended September 30, 2023 and 2022 include the shares of the Company issued and outstanding during such periods, each on a weighted average basis. The basic weighted average number of shares common stock outstanding excludes common stock equivalent incremental shares, while diluted weighted average number of shares outstanding includes such incremental shares. However, as the Company was in a loss position for all periods presented, basic and diluted weighted average shares outstanding are the same, as the inclusion of the incremental shares would be anti-dilutive. The common stock equivalents excluded from the computation of diluted weighted average shares outstanding are as follows:
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Stock options | ||||||||
| Unvested restricted stock awards | ||||||||
| Preferred stock | ||||||||
| Total | ||||||||
| 20 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our unaudited condensed consolidated financial condition and results of operations should be read together with our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”).
Unless the context otherwise requires, (i) “we”, “us”, and “our”, and the “Company”, “Lucid” and “Lucid Diagnostics” refer to Lucid Diagnostics Inc. and its subsidiaries LucidDx Labs Inc. (“LucidDx Labs”) and CapNostics, LLC (“CapNostics”), (ii) “FDA” refers to the Food and Drug Administration, (iii) “510(k)” refers to a premarket notification, submitted to the FDA by a manufacturer pursuant to § 510(k) of the Food, Drug and Cosmetic Act and 21 CFR § 807 subpart E, (iv) “CLIA” refers to the Clinical Laboratory Improvement Amendments of 1988 and associated regulations set forth in 42 CFR § 493, (v) “CE Mark” refers to a “Conformité Européenne” Mark, a mark indicating that a product such as a medical device conforms to the essential requirements of the relevant European directive, and (vi) “LDT” refers to a diagnostic test, defined by the FDA as “an IVD that is intended for clinical use and designed, manufactured and used within a single laboratory,” which is generally subject only to self-certification of analytical validity under the CMS CLIA program.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Form 10-Q”) including the following discussion and analysis of our unaudited condensed consolidated financial condition and results of operations, contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from those expressed or implied in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Item 1A of Part I of the Form 10-K under the heading “Risk Factors.”
Important factors that may affect our actual results include:
| ● | our limited operating history; | |
| ● | our financial performance, including our ability to generate revenue; | |
| ● | our ability to obtain regulatory approval for the commercialization of our products; | |
| ● | the risk that the FDA will cease to exercise enforcement discretion with respect to LDTs, like EsoGuard; | |
| ● | the ability of our products to achieve market acceptance; | |
| ● | our success in retaining or recruiting, or changes required in, our officers, key employees or directors; | |
| ● | our potential ability to obtain additional financing when and if needed; | |
| ● | our ability to protect our intellectual property; | |
| ● | our ability to complete strategic acquisitions; | |
| ● | our ability to manage growth and integrate acquired operations; | |
| ● | the potential liquidity and trading of our securities; | |
| ● | our regulatory and operational risks; | |
| ● | cybersecurity risks; | |
| ● | risks related to the COVID-19 pandemic and other health-related emergencies; | |
| ● | risks related to our relationship with PAVmed; and | |
| ● | our estimates regarding expenses, future revenue, capital requirements and needs for additional financing. |
In addition, our forward-looking statements do not reflect the potential impact of any future financings, acquisitions, mergers, dispositions, joint ventures or investments we may make.
We may not actually achieve the plans, intentions, and/or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. You should read this Form 10-Q, the documents we have filed as exhibits to this Form 10-Q, and the Form 10-K completely and with the understanding our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Overview
We are a commercial-stage medical diagnostics technology company focused on the millions of patients who are at risk of developing esophageal precancer and cancer, specifically highly lethal esophageal adenocarcinoma (“EAC”).
We believe that our flagship product, the EsoGuard Esophageal DNA Test, performed on samples collected with the EsoCheck Esophageal Cell Collection Device, constitutes the first and only commercially available diagnostic test capable of serving as a widespread tool for the early detection of esophageal precancer, including Barrett’s Esophagus (“BE”), in at-risk patients. Early detection of esophageal precancer allows patients to undergo appropriate monitoring and treatment, as indicated by clinical practice guidelines, in an effort to prevent progression to esophageal cancer.
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Overview - continued
EsoGuard is a bisulfite-converted next-generation sequencing (NGS) DNA assay performed on surface esophageal cells collected with EsoCheck. It quantifies methylation at 31 sites on two genes, Vimentin (VIM) and Cyclin A1 (CCNA1). The assay was evaluated in a 408-patient multicenter case-control study published in Science Translational Medicine and showed greater than 90% sensitivity and specificity at detecting esophageal precancer and all conditions along the BE-EAC spectrum, including on samples collected with EsoCheck (Moinova, et al. Sci Transl Med. 2018 Jan 17;10(424): eaao5848). EsoGuard is commercially available in the U.S. as a LDT performed at our CLIA-certified laboratory. Cell samples, including those collected with EsoCheck, as discussed below, are sent to our laboratory, for testing and analyses using EsoGuard.
EsoCheck is an FDA 510(k) and CE Mark cleared noninvasive swallowable balloon capsule catheter device capable of sampling surface esophageal cells in a less than five-minute office procedure. It consists of a vitamin pill-sized rigid plastic capsule tethered to a thin silicone catheter from which a soft silicone balloon with textured ridges emerges to gently swab surface esophageal cells. When vacuum suction is applied, the balloon and sampled cells are pulled into the capsule, protecting them from contamination and dilution by cells outside of the targeted region during device withdrawal. We believe this proprietary Collect+Protect™ technology makes EsoCheck the only noninvasive esophageal cell collection device capable of such anatomically targeted and protected sampling.
EsoGuard and EsoCheck are based on patented technology licensed by Lucid from Case Western Reserve University (“CWRU”). EsoGuard and EsoCheck have been developed to provide an accurate, non-invasive, patient-friendly test for the early detection of EAC and BE, including dysplastic BE and related precursors to EAC in patients with chronic gastroesophageal reflux disease (“GERD”), commonly known as chronic heart burn, acid reflux, or just reflux.
Recent Developments
Business
Status of Clinical Trials and Publications
Lucid continues to accelerate its collection and publication of clinical utility data through a range of trials. These efforts include an investigator-initiated, retrospective analysis of prospectively collected data on San Antonio firefighters who underwent testing as part of a community-sponsored cancer awareness event described below; a virtual-patient randomized controlled trial with intended recruitment of at least 100 physician participants; a Lucid-sponsored multi-center, prospective, observational study with 500 patients; and two Lucid-sponsored registries, in which Lucid collects real-world clinical utility and clinical validity data on EsoGuard Esophageal DNA testing for the detection of esophageal precancer in two distinct populations.
With regard to the two registries, the Prospective REView of Esophageal Precancer DetectioN in AT-Risk Patients (PREVENT) Registry collects data on EsoGuard testing in the commercial increased-risk population, while the PREVENT-Fire Fighters (PREVENT-FF) Registry focuses exclusively on increased-risk firefighters. Complete data for the San Antonio firefighter study has been accepted for peer review publication in Journal of Gastrointestinal & Digestive System (ISSN: 2161-069X). Combined early interim results from the PREVENT and PREVENT-FF registries focusing on provider decision impact has also been accepted for peer review publication in Journal of Gastroenterology & Digestive Systems (ISSN: 2640-7477).
Interim results for the Lucid-sponsored observational study have been posted in preprint on medRxiv and are undergoing journal peer review. Enrollment for the Lucid-sponsored observational study is expected to be completed by the end of the year. Similarly, results for the Lucid-sponsored virtual-patient study are expected to be ready for analysis before the end of 2023.
#CheckYourFoodTube Events
In January 2023, Lucid completed its first #CheckYourFoodTube Precancer Testing Event, with the San Antonio Fire Department (the “SAFD”) during Firefighter Cancer Awareness Month as designated by the International Association of Fire Fighters (IAFF). A total of 391 members who were deemed to be at-risk for esophageal precancer, underwent a brief, on-site, noninvasive cell collection procedure, performed by our clinical personnel using EsoCheck. Firefighters with suspected esophageal precancer based on a positive EsoGuard result were identified, including some less than 40 years of age, and will undergo appropriate monitoring and treatment, as indicated by clinical practice guidelines, to prevent progression to esophageal cancer.
Since then, additional testing events have been hosted with the SAFD, and similar events have been held with fire departments throughout the country. These events are ongoing and are an extension of Lucid’s satellite Lucid Test Center (“sLTC”) program, which brings Lucid precancer testing directly to patients—at their physician’s office and now at testing day events.
Launch of Direct Contracting Strategic Initiative
In March 2023, we launched a Direct Contracting Strategic Initiative (“DCSI”) to engage directly with large Administrative Services Only (“ASO”) self-insured employers, unions and other entities, seeking to replicate the successes of other cancer screening diagnostic companies that have deployed similar strategies. In August 2023, the company announced it had contracted with the Ancira Automotive Group as a result of this initiative, providing access to esophageal precancer testing for its employees at all 12 San Antonio locations.
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Business - continued
New Revenue Cycle Management Provider
In May 2023, Lucid began to transition claims submission responsibility to a new revenue cycle management provider that offered more robust capabilities for, among other things, claims processing and appeals. The provider upgrade has been completed and claim submissions resumed in June 2023. Since completing the transition, the upgrade has continued to demonstrate an improvement in speed of collections, turnaround time to claim submission, percentage of claims paid, and actionable data for appeals.
Personnel Update
Effective on November 6, 2023, Lucid’s board of directors appointed Shaun M. O’Neil as the President of Lucid. Mr. O’Neil, who is 41 years old, also continues to serve as the Chief Operating Officer of PAVmed and as the Chief Operating Officer of Lucid. For additional biographical information about Mr. O’Neil, please refer to Lucid’s definitive proxy statement on Schedule 14A filed on May 1, 2023, which information is incorporated herein by reference. Other than in connection with his service as an officer of PAVmed and Lucid, Mr. O’Neil has not engaged in any transactions with Lucid that are required to be reported pursuant to Item 404(a) of Regulation S-K.
Financing
Series A Preferred Stock Offering
On March 7, 2023, we sold 13,625 shares of Series A convertible preferred stock, par value $0.001 per share (the “Series A Preferred Stock”), solely to accredited investors. Each share of the Series A Preferred Stock has a stated value of $1,000 and a conversion price of $1.394. The Series A Preferred Stock is convertible into shares of our common stock at any time at the option of the holder from and after the six-month anniversary of its issuance (or, if later, the effective date of a registration statement covering the resale of the underlying shares), and automatically converts into shares of our common stock on the second anniversary of its issuance. The terms of the Series A Preferred Stock also include a preference on liquidation and a right to receive dividends equal to 20% of the number of shares into which such Series A Preferred Stock is convertible, payable on each of the one-year and two-year anniversary of the issuance date. The Series A Preferred Stock is a non-voting security, other than with respect to limited matters related to changes in terms of the Series A Preferred Stock. The aggregate gross proceeds from the sale of shares in such offering were $13.625 million.
Series A-1 Preferred Stock Offering
On October 17, 2023, we sold 5,000 shares of Series A-1 convertible preferred stock, par value $0.001 per share (the “Series A-1 Preferred Stock”), solely to accredited investors. The terms of the Series A-1 Preferred Stock are substantially identical to the terms of the Series A Preferred Stock, except that the Series A-1 Preferred Stock has a conversion price of $1.2592. The aggregate gross proceeds from the sale of shares in such offering were $5.0 million.
Private Placement - Securities Purchase Agreement
Effective as of March 13, 2023, we entered into a Securities Purchase Agreement (“SPA”) with an accredited institutional investor, pursuant to which we agreed to sell, and the investor agreed to purchase, a Senior Secured Convertible Note with a face value principal of $11.1 million (the “March 2023 Note”). We issued the March 2023 Note on March 21, 2023 pursuant to the SPA. The proceeds from the sale of the March 2023 Note were $9.925 million after deducting a $1.186 million lender fee and offering costs.
The March 2023 Note has a 7.875% annual stated interest rate, a contractual conversion price of $5.00 per share of the Company’s common stock (subject to standard adjustments in the event of any stock split, stock dividend, stock combination, recapitalization or other similar transaction), and a contractual maturity date of the two-year anniversary of the date of issuance. The principal of the March 2023 Note and accrued interest thereon is convertible at the option of the holder into the Company’s common stock at the contractual conversion price. In addition, the principal of the March 2023 Note amortizes over 18 months commencing six months after its issuance. The amortization payments and accrued interest on the March 2023 Note are payable in shares of the Company’s common stock (subject to the satisfaction of certain customary equity conditions and except for interest payable prior to September 21, 2023), at prices based on the then current market price.
ATM Facility
In November 2022, Lucid Diagnostics entered into an “at-the-market offering” for up to $6.5 million of its common stock that may be offered and sold under a Controlled Equity Offering Agreement between Lucid Diagnostics and Cantor Fitzgerald & Co. (“Cantor”). In the nine months ended September 30, 2023, we sold 230,068 shares through our at-the-market equity facility for net proceeds of approximately $0.3 million, after payment of 3% commissions. No shares were sold through our at-the-market equity facility during the three months ended September 30, 2023.
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Results of Operations
Overview
Revenue
The Company recognized revenue resulting from the delivery of patient EsoGuard test results when the Company considered the collection of such consideration to be probable to the extent that it is unconstrained. Additionally, in the three months ended March 31, 2022, revenue was recognized with respect to the EsoGuard Commercialization Agreement, dated August 1, 2021, between the Company and RDx, a CLIA certified commercial laboratory service provider. On February 25, 2022, the EsoGuard Commercialization Agreement was terminated upon our acquisition, pursuant to the APA-RDx, of certain assets necessary to operate our own CLIA certified laboratory. For a fuller description of the APA-RDx, see Note 6, Asset Purchase Agreement and Management Services Agreement, to our accompanying unaudited condensed consolidated financial statements.
Cost of revenue
Cost of revenues recognized from the delivery of patient EsoGuard test results includes costs related to EsoCheck device usage, shipment of test collection kits, royalties and the cost of services to process tests and provide results to physicians. We incur expenses for tests in the period in which the activities occur, therefore, gross margin as a percentage of revenue may vary from quarter to quarter due to costs being incurred in one period that relate to revenues recognized in a later period.
We expect that gross margin for our services will continue to fluctuate and be affected by EsoGuard test volume, our operating efficiencies, patient compliance rates, payer mix, the levels of reimbursement, and payment patterns of payers and patients.
For the previously terminated EsoGuard Commercialization Agreement in February 2022, the cost of revenue recognized is inclusive of: a royalty fee incurred under the Amended CWRU License Agreement (as defined in Note 4, Related Party Transactions, to our accompanying unaudited condensed consolidated financial statements); the cost of EsoCheck devices and EsoGuard mailers (cell sample shipping costs); and Lucid Test Centers operating expenses, including rent expense and supplies.
Sales and marketing expenses
Sales and marketing expenses consist primarily of salaries and related costs for employees engaged in sales and marketing activities, as well as the portion of the MSA Fee (as defined in Note 4, Related Party Transactions, to our accompanying unaudited condensed consolidated financial statements) allocated to sales and marketing expenses, which are principally costs related to PAVmed employees who are performing services for the Company. We anticipate our sales and marketing expenses will increase in the future, to the extent we expand our commercial sales and marketing operations as resources permit and insurance reimbursement coverage for our EsoGuard test expands.
General and administrative expenses
General and administrative expenses consist primarily of professional fees for accounting, tax, audit and legal services (including those fees incurred as a result of our being a public company), consulting fees, expenses associated with obtaining and maintaining patents within our intellectual property portfolio, and certain employee costs, along with the portion of the MSA Fee allocated to general and administrative expenses.
We anticipate our general and administrative expenses will increase in the future to the extent our business operations grow. Furthermore, we anticipate continued expenses related to being a public company, including fees and expenses for audit, legal, regulatory, tax-related services, insurance premiums and investor relations costs associated with maintaining compliance as a public company.
Research and development expenses
Research and development expenses are recognized in the period they are incurred and consist principally of internal and external expenses incurred for the development of our technologies and conducting clinical trials, including:
| ● | costs associated with regulatory filings; | |
| ● | patent license fees; | |
| ● | cost of laboratory supplies and acquiring, developing, and manufacturing preclinical prototypes; and | |
| ● | MSA Fee allocated to research and development. |
We plan to incur research and development expenses for the foreseeable future as we continue the development of our existing products as well as new innovations. Our research and development activities, including our clinical trials, are focused principally on facilitating insurer reimbursement, encouraging physician adoption and developing product improvements or extending the utility of the lead products in our pipeline, including EsoCheck and EsoGuard.
Presentation of Dollar Amounts
All dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented as dollars in millions, except for share and per share amounts.
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Results of Operations - continued
The three months ended September 30, 2023 as compared to three months ended September 30, 2022
Revenue
In the three months ended September 30, 2023, revenue was $0.8 million as compared to $0.1 million for the corresponding period in the prior year. The $0.7 million increase principally relates to the increase in volume of our EsoGuard Esophageal DNA Tests performed in our own CLIA laboratory for the period and the consideration received for the performance of the EsoGuard Esophageal DNA Tests.
Cost of revenue
In the three months ended September 30, 2023, cost of revenue remained relatively level, at approximately $1.6 million, as compared to the corresponding period in the prior year. The factors contributing to cost of revenue remaining relatively level were as follows:
| ● | approximately $0.3 million decrease in laboratory facility and operations costs; | |
| ● | approximately $0.2 million increase in compensation related costs; and | |
| ● | approximately $0.1 million increase in EsoCheck and EsoGuard supplies costs. |
Sales and marketing expenses
In the three months ended September 30, 2023, sales and marketing costs were approximately $3.8 million as compared to $3.9 million for the corresponding period in the prior year. The net decrease of $0.1 million was principally related to:
| ● | approximately $0.2 million decrease related to the amended MSA with PAVmed; | |
| ● | approximately $0.4 million increase in compensation related costs, including stock-based compensation; and | |
| ● | approximately $0.3 million decrease in third party marketing, corporate information technology and consulting expenses. |
General and administrative expenses
In the three months ended September 30, 2023, general and administrative costs were approximately $4.3 million as compared to $5.7 million for the corresponding period in the prior year. The net decrease of $1.4 million was principally related to:
| ● | approximately $2.3 million decrease in stock-based compensation from RSA and stock option grants to Lucid employees and non-employees; | |
| ● | approximately $0.7 million increase related to the amended MSA with PAVmed due to the growth and expansion of our business and the services incurred through PAVmed; and | |
| ● | approximately $0.2 million increase related to compensation related costs. |
Research and development expenses
In the three months ended September 30, 2023, research and development costs were approximately $1.6 million, compared to $2.7 million for the corresponding period in the prior year. The net decrease of $1.1 million was principally related to:
| ● | approximately $1.4 million decrease in development costs, particularly in clinical trial activities and outside professional and consulting fees with respect to EsoCure; and | |
| ● | approximately $0.3 million increase in compensation related costs, including stock-based compensation. |
Amortization of Acquired Intangible Assets
The amortization of acquired intangible assets remained relatively level, at approximately $0.5 million, in the three months ended September 30, 2023, as compared to the corresponding period in the prior year.
Other Income and Expense
Change in fair value of convertible debt
In the three months ended September 30, 2023, the change in the fair value of our convertible note was approximately $3.0 million of income, related to the March 2023 Note. The March 2023 Note was initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value as of each reporting period date. The Company initially recognized a $0.8 million fair value non-cash expense on the issue date.
See Note 11, Debt, to our accompanying unaudited condensed consolidated financial statements, for additional information with respect to the March 2023 Note.
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Results of Operations - continued
The nine months ended September 30, 2023 as compared to nine months ended September 30, 2022
Revenue
In the nine months ended September 30, 2023, revenue was $1.4 million as compared to $0.3 million for the corresponding period in the prior year. The $1.1 million increase principally relates to the revenue for our EsoGuard Esophageal DNA Test performed in our own CLIA laboratory, as compared to revenue from the EsoGuard Commercialization Agreement with RDx, recognized in first two months of the prior year period, which was terminated on February 25, 2022 when Lucid Diagnostics transitioned to its own laboratory operations.
Cost of revenue
In the nine months ended September 30, 2023, cost of revenue was approximately $4.5 million as compared to $2.0 million for the corresponding period in the prior year. The $2.5 million increase was principally related to:
| ● | approximately $1.1 million increase in EsoCheck and EsoGuard supplies costs; | |
| ● | approximately $0.7 million increase in laboratory facility and operations costs; and | |
| ● | approximately $0.7 million increase in compensation related costs. |
Sales and marketing expenses
In the nine months ended September 30, 2023, sales and marketing costs were approximately $12.0 million as compared to $11.1 million for the corresponding period in the prior year. The net increase of $0.9 million was principally related to:
| ● | approximately $2.1 million increase in compensation related costs principally as a result of an increase in headcount, including stock-based compensation; and | |
| ● | approximately $1.2 million decrease in third party marketing expenses. |
General and administrative expenses
In the nine months ended September 30, 2023, general and administrative costs were approximately $15.0 million as compared to $18.5 million for the corresponding period in the prior year. The net decrease of $3.5 million was principally related to:
| ● | approximately $5.5 million decrease in stock-based compensation; | |
| ● | approximately $2.6 million increase related to the amended MSA with PAVmed due to the growth and expansion of our business and the services incurred through PAVmed; and | |
| ● | approximately $0.6 million decrease related to outside professional services and facility related costs. |
Research and development expenses
In the nine months ended September 30, 2023, research and development costs were approximately $5.3 million, compared to $8.8 million for the corresponding period in the prior year. The net decrease of $3.5 million was principally related to:
| ● | approximately $4.8 million decrease in development costs, particularly in clinical trial activities and outside professional and consulting fees with respect to EsoCure; | |
| ● | approximately $0.6 million increase related to the amended MSA with PAVmed due to the growth and expansion of our business and the services incurred through PAVmed; and | |
| ● | approximately $0.7 million increase in compensation related costs, including stock-based compensation. |
Amortization of Acquired Intangible Assets
The amortization of acquired intangible assets increased to $1.5 million in the nine months ended September 30, 2023, as compared to $1.1 million in the corresponding period in the prior year. The increase of $0.4 million in the current period was due to the timing of the acquired intangible assets in 2022.
Other Income and Expense
Change in fair value of convertible debt
In the nine months ended September 30, 2023, the change in the fair value of our convertible note was approximately $3.5 million of expense, related to the March 2023 Note. The March 2023 Note was initially measured at its issue date estimated fair value and subsequently remeasured at estimated fair value as of each reporting period date. The Company initially recognized a $0.8 million fair value non-cash expense on the issue date.
Loss on Issue and Offering Costs - Senior Secured Convertible Note
In the nine months ended September 30, 2023, in connection with the issue of the March 2023 Note, we recognized a total of approximately $1.2 million of lender fee and offering costs paid by us.
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Results of Operations - continued
The nine months ended September 30, 2023 as compared to nine months ended September 30, 2022 - continued
See Note 11, Debt, to our accompanying unaudited condensed consolidated financial statements, for additional information with respect to the March 2023 Note.
Liquidity and Capital Resources
Our current operational activities are principally focused on the commercialization of EsoGuard. We are pursuing commercialization across multiple sales channels, including: the communication to and education of medical practitioners and clinicians regarding EsoGuard; the establishment of Lucid Diagnostics Test Centers for the collection of cell samples using EsoCheck; the launch of the mobile testing unit; ongoing #CheckYourFoodTube testing days; and our direct contracting strategic initiative. Additionally, we are developing expanded clinical evidence to support insurance reimbursement adoption by government and private insurers. Further, as resources permit, the Company also intends to pursue development of other products and services, including EsoCure, an Esophageal Ablation Device.
Our ability to generate revenue depends upon our ability to successfully advance the commercialization of EsoGuard, including significantly expanding insurance reimbursement coverage, while also completing the clinical studies, product and service development, and necessary regulatory approval thereof. There are no assurances, however, we will be able to obtain an adequate level of financial resources required for the long-term commercialization and development of our products and services.
We are subject to all of the risks and uncertainties typically faced by medical device and diagnostic companies that devote substantially all of their efforts to the commercialization of their initial product and services and ongoing research and development activities and conducting clinical trials. We experienced a net loss of approximately $41.8 million and used approximately $22.8 million of cash in operations for the nine months ended September 30, 2023. Financing activities provided $24.5 million of cash during the nine months ended September 30, 2023. We ended the quarter with cash on-hand of $24.1 million as of September 30, 2023. We expect to continue to experience recurring losses and negative cash flow from operations and will continue to fund our operations with debt and equity financing transactions including current obligations on our existing convertible debt which in accordance with management’s plans may include conversions to equity and refinancing our existing debt obligations to extend the maturity date. Notwithstanding, however, with our cash on-hand as of the date hereof and the committed equity sources of financing, described below, and conversion and refinancing of existing convertible notes, the Company expects to be able to fund its operations and meet its financial obligations as they become due for the one year period from the date of the issue of the Company’s unaudited condensed consolidated financial statements, as included herein in this Form 10-Q.
Series A Preferred Stock Offering
On March 7, 2023, we sold 13,625 shares of Series A Preferred Stock, solely to accredited investors. Each share of the Series A Preferred Stock has a stated value of $1,000 and a conversion price of $1.394. The Series A Preferred Stock is convertible into shares of our common stock at any time at the option of the holder from and after the six-month anniversary of its issuance (or, if later, the effective date of a registration statement covering the resale of the underlying shares), and automatically converts into shares of our common stock on the second anniversary of its issuance. The terms of the Series A Preferred Stock also include a preference on liquidation and a right to receive dividends equal to 20% of the number of shares into which such Series A Preferred Stock is convertible, payable on each of the one-year and two-year anniversary of the issuance date. The Series A Preferred Stock is a non-voting security, other than with respect to limited matters related to changes in terms of the Series A Preferred Stock. The aggregate gross proceeds from the sale of shares in such offering were $13.625 million.
Series A-1 Preferred Stock Offering
On October 17, 2023, we sold 5,000 shares of Series A-1 Preferred Stock, solely to accredited investors. The terms of the Series A-1 Preferred Stock are substantially identical to the terms of the Series A Preferred Stock, except that the Series A-1 Preferred Stock has a conversion price of $1.2592. The aggregate gross proceeds from the sale of shares in such offering were $5.0 million.
Private Placement - Securities Purchase Agreement
Effective as of March 13, 2023, we entered into the SPA with an accredited institutional investor, pursuant to which we agreed to sell, and the investor agreed to purchase the March 2023 Note with a face value principal of $11.1 million. We issued the March 2023 Note on March 21, 2023 pursuant to the SPA. The March 2023 Note proceeds were $9.925 million after deducting a $1.186 million lender fee and offering costs.
The March 2023 Note has a 7.875% annual stated interest rate, a contractual conversion price of $5.00 per share of the Company’s common stock (subject to standard adjustments in the event of any stock split, stock dividend, stock combination, recapitalization or other similar transaction), and a contractual maturity date of the two-year anniversary of the date of issuance. The principal of the March 2023 Note and accrued interest thereon is convertible at the option of the holder into the Company’s common stock at the contractual conversion price. In addition, the principal of the March 2023 Note amortizes over 18 months commencing six months after its issuance. The amortization payments and accrued interest on the March 2023 Note are payable in shares of the Company’s common stock (subject to the satisfaction of certain customary equity conditions and except for interest payable prior to September 21, 2023), at prices based on the then current market price.
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Liquidity and Capital Resources - continued
Under the March 2023 Note, the Company is subject to certain customary affirmative and negative covenants regarding the incurrence of indebtedness, the existence of liens, the repayment of indebtedness and the making of investments, the payment of cash in respect of dividends, distributions or redemptions, the transfer of assets, the maturity of other indebtedness, and transactions with affiliates, among other customary matters. Under the March 2023 Note, the Company is also subject to financial covenants requiring that (i) the amount of the Company’s available cash shall equal or exceed $5.0 million at all times, (ii) the ratio of (a) the outstanding principal amount of the notes issued under the SPA, accrued and unpaid interest thereon and accrued and unpaid late charges, as of the last day of any fiscal quarter commencing with September 30, 2023 to (b) the Company’s average market capitalization over the prior ten trading days, shall not exceed 30%, and (iii) the Company’s market capitalization shall at no time be less than $30 million (the “Financial Tests”). As of September 30, 2023, the Company was in compliance, and as of the date hereof, the Company is in compliance, with the Financial Tests.
In the nine months ended September 30, 2023, approximately $92 of principal repayments along with approximately $48 of interest expense thereon, were settled through the issuance of 115,388 shares of common stock of the Company, with such shares having a fair value of approximately $166 (with such fair value measured as the respective conversion date quoted closing price of the common stock of the Company). In the three months ended September 30, 2023, 115,388 shares of common stock of the Company were issued in satisfaction of a portion of this debt.
Committed Equity Facility and ATM Facility
In March 2022, we entered into a committed equity facility with a Cantor affiliate. Under the terms of the committed equity facility, the Cantor affiliate has committed to purchase up to $50 million of our common stock from time to time at our request. While there are distinct differences, the committed equity facility is structured similarly to a traditional at-the-market equity facility, insofar as it allows us to raise primary equity capital on a periodic basis at prices based on the existing market price. Cumulatively, a total of 680,263 shares of common stock of the Company were issued for net proceeds of approximately $1.8 million, after a 4% discount, as of September 30, 2023. No shares were sold through this facility during the three months ended September 30, 2023.
In November 2022, Lucid Diagnostics also entered into an “at-the-market offering” for up to $6.5 million of its common stock that may be offered and sold under a Controlled Equity Offering Agreement between Lucid Diagnostics and Cantor. In the nine months ended September 30, 2023, we sold 230,068 shares through our at-the-market equity facility for net proceeds of approximately $0.3 million, after payment of 3% commissions. No shares were sold through our at-the-market equity facility during the three months ended September 30, 2023.
Due To: PAVmed Inc.
Since our inception in May 2018 through our IPO in October 2021, our operations were funded by PAVmed providing working capital cash advances and by PAVmed paying certain operating expenses on our behalf. Additionally, our daily operations have been and continue to be conducted in part by personnel employed by PAVmed, for which we incur an MSA Fee expense. The MSA Fee is charged on a monthly basis and is subject-to periodic adjustment corresponding with changes in the services provided by PAVmed personnel to the Company, with any such change in the MSA Fee being subject to approval of the Company and PAVmed boards of directors. In this regard, in May 2023, the respective companies’ boards of directors approved a seventh amendment to the MSA to increase the MSA Fee to $750 per month, effective January 1, 2023. Pursuant to the MSA, as amended by the seventh amendment, the parties agreed PAVmed may elect to receive payment of the monthly MSA Fee in cash or in shares of our common stock, with such shares valued at the volume weighted average price (“VWAP”) during the final ten trading days of the applicable month (subject to a floor price of $0.70 per share). However, in no event will PAVmed be entitled to receive under the MSA, as amended, more than 7,709,836 shares of our common stock (representing 19.99% of our outstanding shares of common stock as of immediately prior to the execution of the sixth amendment).
In addition, on November 30, 2022, we entered into a payroll and benefit expense reimbursement agreement (the “PBERA”)with PAVmed. Historically, PAVmed has paid for certain payroll and benefit-related expenses in respect of our personnel on our behalf, and we have reimbursed PAVmed for the same. Pursuant to the PBERA, PAVmed will continue to pay such expenses, and we will continue to reimburse PAVmed for the same. The PBERA provides that the expenses will be reimbursed on a quarterly basis or at such other frequency as the parties may determine, in cash or, subject to approval by PAVmed’s and our boards of directors, in shares of our common stock, with such shares valued at the volume weighted average price of such stock during the final ten trading days preceding the later of the two dates on which such stock issuance is approved by PAVmed’s and our boards of directors (subject to a floor price of $0.40 per share), or in a combination of cash and shares. However, in no event will we issue any shares of our common stock to PAVmed in satisfaction of all or any portion of the expenses if the issuance of such shares of our common stock would exceed the maximum number of shares of common stock that we may issue under the rules or regulations of Nasdaq, unless we obtain the approval of our stockholders as required by the applicable rules of the Nasdaq for issuances of shares of our common stock in excess of such amount.
As of September 30, 2023, we had a Due To: PAVmed Inc. payment obligation liability of approximately $10.3 million, which liability is primarily comprised of our obligations under the PBERA and the MSA, as well other operating expenses paid by PAVmed on our behalf. See our accompanying unaudited condensed consolidated financial statements Note 5, Due To PAVmed Inc.
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Critical Accounting Policies and Significant Judgments and Estimates
The discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the amounts reporting in our unaudited condensed consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgements. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other factors that are believed to be appropriate under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 14, 2023, except as otherwise noted in “Fair Value Option (“FVO”) Election” subsection of Note 2, Summary of Significant Accounting Policies, to our unaudited condensed consolidated financial statements included herein in this Form 10-Q with respect to the March 2023 Note. We determined upon the issuance of our March 2023 Note to elect the fair value option. At issuance, the carrying value of the March 2023 Note was recorded at estimated fair value. The estimated fair values reported utilized Lucid’s common stock price along with certain Level 3 inputs, in the development of Monte Carlo simulation models, discounted cash flow analyses, and /or Black-Scholes valuation models. The estimated fair values are subjective and are affected by changes in inputs to the valuation models and analyses, including the Company’s common stock price, the Company’s dividend yield, the risk-free rates based on U.S. Treasury security yields, and certain other Level-3 inputs including, assumptions regarding the estimated volatility in the value of the Company’s common stock price. We remeasure the March 2023 Note to its estimated fair value at each reporting period using valuation techniques similar to those applied at issuance. The change in the fair value is recognized as other income (expense) in the statement of operations. A significant change in the volatility could have a material impact to the carrying value of the March 2023 Note as well as the amount of change recognized during the period.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023. Based on such evaluation, our principal executive officer and principal financial officer concluded our disclosure controls and procedures (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) were effective as of such date to provide reasonable assurance the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes to Internal Controls Over Financial Reporting
There has been no change in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our fiscal quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Part II - Other Information
Item 1. Legal Proceedings
In the ordinary course of our business, particularly as it begins commercialization of its products, the Company may be subject to certain other legal actions and claims, including product liability, consumer, commercial, tax and governmental matters, which may arise from time to time. The Company is not aware of any such pending legal or other proceedings that are reasonably likely to have a material impact on the Company. Notwithstanding, legal proceedings are subject to inherent uncertainties, and an unfavorable outcome could include monetary damages, and excessive verdicts can result from litigation, and as such, could result in a material adverse impact on the Company’s business, financial position, results of operations, and /or cash flows. Additionally, although the Company has specific insurance for certain potential risks, the Company may in the future incur judgments or enter into settlements of claims which may have a material adverse impact on the Company’s business, financial position, results of operations, and /or cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Except as previously disclosed in our current reports on Form 8-K filed prior to the date of this Form 10-Q, we did not sell any unregistered securities or repurchase any of our securities during the three months ended September 30, 2023.
On October 14, 2021, we completed our initial public offering (“IPO”) of our common stock under an effective registration statement on Form S-1 (SEC File No. 333-259721). As of September 30, 2023, of the net proceeds of $64.4 million, approximately $64.4 million has been used, in a manner consistent with the use of proceeds set forth in the prospectus for our IPO, as follows: approximately $7.5 million of net repayments of Due To: PAVmed Inc.; approximately $5.0 million for the purchase of our laboratory equipment, software, and its operating expenses; and $51.9 million of working capital expenditures. None of the proceeds have been paid to any of our directors, officers, 10% stockholders, or affiliates, other than as described above.
Item 5. Other Information
The information set forth in Item 2 under “Recent Developments—Business—Personnel Update” is incorporated by reference in this Item 5.
Item 6. Exhibits
The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth in the “Exhibit Index” below.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Lucid Diagnostics Inc. | ||
| November 13, 2023 | By: | /s/ Dennis M McGrath |
| Dennis M McGrath | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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EXHIBIT INDEX
* Filed herewith.
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