UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20222023
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: 001-40901
LUCID DIAGNOSTICS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 82-5488042 | |
(State or Other Jurisdiction of | (IRS Employer | |
Incorporation or Organization) | Identification No.) | |
New York, NY | ||
(Address of Principal Executive | (Zip Code) |
(212) 949-4319
(Registrant’s Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of each Class | Trading Symbol(s) | Name of each Exchange on which Registered | ||
Common Stock, $0.001 par value per share | LUCD | The NASDAQ Stock Market LLC |
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer | ☐ | Accelerated filed | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(c) of the Exchange Act ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 12, 202211, 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.I - Financial Information
Item 1. Financial Statements
LUCID DIAGNOSTICS INC.
and SUBSIDIARYSUBSIDIARIES
(a majority-owned subsidiary of PAVmed Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except number of shares and per share data - unaudited)
March 31, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
Assets: | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash | $ | 47,919 | $ | 53,656 | $ | 39,522 | $ | 22,474 | ||||||||
Accounts receivable | 89 | 200 | 27 | 17 | ||||||||||||
Prepaid expenses, deposits, and other current assets | 4,324 | 3,447 | 2,172 | 1,865 | ||||||||||||
Total current assets | 52,332 | 57,303 | 41,721 | 24,356 | ||||||||||||
Fixed assets, net | 1,095 | 971 | 1,502 | 1,592 | ||||||||||||
Operating lease right-of-use assets | 2,224 | — | 1,884 | 2,008 | ||||||||||||
Intangible assets, net | 5,714 | — | 2,940 | 3,445 | ||||||||||||
Other assets | 695 | 725 | 1,078 | 1,108 | ||||||||||||
Total assets | $ | 62,060 | $ | 58,999 | $ | 49,125 | $ | 32,509 | ||||||||
Liabilities, Preferred Stock and Stockholders’ Equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 4,462 | $ | 1,490 | $ | 625 | $ | 1,056 | ||||||||
Accrued expenses and other current liabilities | 2,226 | 1,113 | 2,190 | 1,447 | ||||||||||||
Operating lease liabilities, current portion | 769 | — | 1,051 | 962 | ||||||||||||
Contingent purchase consideration payable | 4,887 | — | ||||||||||||||
Senior Secured Convertible Note - at fair value | 11,900 | — | ||||||||||||||
Due To: PAVmed Inc. - MSA Fee and operating expenses | 1,770 | 1,657 | 7,627 | 4,960 | ||||||||||||
Total current liabilities | 14,114 | 4,260 | 23,393 | 8,425 | ||||||||||||
Long-term liabilities | ||||||||||||||||
Operating lease liabilities, less current portion | 1,455 | — | 826 | 1,037 | ||||||||||||
Total long-term liabilities | 1,455 | — | ||||||||||||||
Total liabilities | 15,569 | 4,260 | 24,219 | 9,462 | ||||||||||||
Commitments and contingencies | - | - | ||||||||||||||
Stockholders’ Equity: | ||||||||||||||||
Preferred stock, $ | par value, shares authorized; shares issued and outstanding as of March 31, 2022 and December 31, 2021— | — | ||||||||||||||
Common stock, $ | par value, shares authorized; and shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively35 | 35 | ||||||||||||||
Preferred stock, $ | par value, shares authorized; Series A Convertible Preferred Stock, issued and outstanding at March 31, 2023 and shares issued and outstanding at December 31, 202213,625 | — | ||||||||||||||
Common stock, $ | par value, shares authorized; and shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively42 | 41 | ||||||||||||||
Additional paid-in capital | 100,630 | 96,608 | 125,561 | 121,081 | ||||||||||||
Accumulated deficit | (54,174 | ) | (41,904 | ) | (114,322 | ) | (98,075 | ) | ||||||||
Total Stockholders’ Equity | 46,491 | 54,739 | 24,906 | 23,047 | ||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 62,060 | $ | 58,999 | $ | 49,125 | $ | 32,509 |
See accompanying notes to the unaudited condensed consolidated financial statements.
1 |
LUCID DIAGNOSTICS INC.
and SUBSIDIARYSUBSIDIARIES
(a majority-owned subsidiary of PAVmed Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except number of shares and per share data - unaudited)
2022 | 2021 | 2023 | 2022 | |||||||||||||
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Revenue | $ | 189 | $ | — | $ | 446 | $ | 189 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of revenue | 369 | — | 1,338 | 369 | ||||||||||||
Gross profit (loss) | (180 | ) | — | |||||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 3,318 | 689 | 4,127 | 3,318 | ||||||||||||
General and administrative | 5,718 | 1,212 | 6,511 | 5,892 | ||||||||||||
Amortization of acquired intangible assets | 505 | — | ||||||||||||||
Research and development | 2,881 | 1,752 | 2,282 | 2,881 | ||||||||||||
Total operating expenses | 11,917 | 3,653 | 14,763 | 12,460 | ||||||||||||
Loss from operations | (12,097 | ) | (3,653 | ) | ||||||||||||
Operating loss | (14,317 | ) | (12,271 | ) | ||||||||||||
Other income (expense): | ||||||||||||||||
Change in fair value - contingent consideration payable | (173 | ) | — | |||||||||||||
Interest income | 78 | 1 | ||||||||||||||
Interest expense | (33 | ) | — | |||||||||||||
Change in fair value - Senior Secured Convertible Note | (789 | ) | — | |||||||||||||
Loss on issue and offering costs - Senior Secured Convertible Note | (1,186 | ) | — | |||||||||||||
Other income (expense), net | (173 | ) | — | (1,930 | ) | 1 | ||||||||||
Loss before provision for income tax | (12,270 | ) | (3,653 | ) | (16,247 | ) | (12,270 | ) | ||||||||
Provision for income taxes | — | �� | — | — | — | |||||||||||
Net loss | $ | (12,270 | ) | $ | (3,653 | ) | $ | (16,247 | ) | $ | (12,270 | ) | ||||
Net loss per share - basic and diluted | $ | (0.35 | ) | $ | (0.26 | ) | $ | (0.40 | ) | $ | (0.35 | ) | ||||
Weighted average common shares outstanding, basic and diluted | 35,123,039 | 14,114,437 | 40,970,504 | 35,123,039 |
See accompanying notes to the unaudited condensed consolidated financial statements.
2 |
LUCID DIAGNOSTICS INC.
and SUBSIDIARYSUBSIDIARIES
(a majority-owned subsidiary of PAVmed Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
for the THREE MONTHS ENDED March 31, 20222023 and 20212022
(in thousands except number of shares and per share data - unaudited)
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Common Stock | Additional Paid-In | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance as of December 31, 2021 | 34,917,907 | $ | 35 | $ | 96,608 | $ | (41,904 | ) | $ | 54,739 | ||||||||||
Exercise - stock options - Lucid Diagnostics Inc. 2018 Equity Plan | 253,889 | — | 187 | — | 187 | |||||||||||||||
Stock-based compensation - Lucid Diagnostics Inc. 2018 Equity Plan | — | — | 3,537 | — | 3,537 | |||||||||||||||
Stock-based compensation - PAVmed Inc. 2014 Equity Plan | — | — | 298 | — | 298 | |||||||||||||||
Net Loss | — | — | — | (12,270 | ) | (12,270 | ) | |||||||||||||
Balance as of March 31, 2022 | 35,171,796 | $ | 35 | $ | 100,630 | $ | (54,174 | ) | $ | 46,491 |
Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-In | Accumulated | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
Balance as of December 31, 2022 | — | $ | — | 40,518,792 | $ | 41 | $ | 121,081 | $ | (98,075 | ) | $ | 23,047 | |||||||||||||||
Stock-based compensation - Lucid Diagnostics Inc. 2018 Equity Plan | — | — | — | — | 2,817 | — | 2,817 | |||||||||||||||||||||
Stock-based compensation - PAVmed Inc. 2014 Equity Plan | — | — | — | — | 391 | — | 391 | |||||||||||||||||||||
Vest - restricted stock awards | — | — | 219,320 | — | — | — | — | |||||||||||||||||||||
APA-RDx - Termination payment | — | — | 553,436 | — | 713 | — | 713 | |||||||||||||||||||||
Issuance - At-The-Market Facility, net of deferred financing charges | — | — | 230,068 | 1 | 283 | — | 284 | |||||||||||||||||||||
Purchase - Employee Stock Purchase Plan | — | — | 231,987 | — | 276 | — | 276 | |||||||||||||||||||||
Issuance - Series A Preferred Stock | 13,625 | 13,625 | — | — | — | — | 13,625 | |||||||||||||||||||||
Net loss | — | — | — | — | — | (16,247 | ) | (16,247 | ) | |||||||||||||||||||
Balance as of March 31, 2023 | 13,625 | $ | 13,625 | 41,753,603 | $ | 42 | $ | 125,561 | $ | (114,322 | ) | $ | 24,906 |
S | — | — | 8 | — | 8 | |||||||||||||||||||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | Common Stock | Additional Paid-In | Accumulated | |||||||||||||||||||||||||||||||||
Common Stock | Additional Paid-In | Accumulated | Shares | Amount | Capital | Deficit | Total | |||||||||||||||||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2020 | 14,114,707 | $ | 10 | $ | 298 | $ | (13,826 | ) | $ | (13,518 | ) | |||||||||||||||||||||||||||||
Balance as of December 31, 2021 | - | 34,917,907 | $ | 35 | $ | 96,608 | $ | (41,904 | ) | $ | 54,739 | |||||||||||||||||||||||||||||
Beginning balance, value | - | 34,917,907 | $ | 35 | $ | 96,608 | $ | (41,904 | ) | $ | 54,739 | |||||||||||||||||||||||||||||
Exercise - stock options - Lucid Diagnostics Inc. 2018 Equity Plan | 253,889 | — | 187 | — | 187 | |||||||||||||||||||||||||||||||||||
Stock-based compensation - Lucid Diagnostics Inc. 2018 Equity Plan | — | — | 802 | — | 802 | - | — | — | 3,537 | — | 3,537 | |||||||||||||||||||||||||||||
Stock-based compensation - PAVmed Inc. 2014 Equity Plan | — | — | 3 | — | 3 | — | — | 298 | — | 298 | ||||||||||||||||||||||||||||||
Net loss | — | — | — | (3,653 | ) | (3,653 | ) | — | — | — | (12,270 | ) | (12,270 | ) | ||||||||||||||||||||||||||
Balance as of March 31, 2021 | 14,114,707 | $ | 10 | $ | 1,103 | $ | (17,479 | ) | $ | (16,366 | ) | |||||||||||||||||||||||||||||
Balance as of March 31, 2022 | - | 35,171,796 | $ | 35 | $ | 100,630 | $ | (54,174 | ) | $ | 46,491 | |||||||||||||||||||||||||||||
Ending balance, value | - | 35,171,796 | $ | 35 | $ | 100,630 | $ | (54,174 | ) | $ | 46,491 |
See accompanying notes to the unaudited condensed consolidated financial statements.
3 |
LUCID DIAGNOSTICS INC.
and SUBSIDIARYSUBSIDIARIES
(a majority-owned subsidiary of PAVmed Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands except number of shares and per share data - unaudited)
2022 | 2021 | 2023 | 2022 | |||||||||||||
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Cash flows from operating activities | ||||||||||||||||
Net loss | $ | (12,270 | ) | $ | (3,653 | ) | $ | (16,247 | ) | $ | (12,270 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||||||||||
Depreciation expense | 24 | 3 | ||||||||||||||
Depreciation and amortization expense | 612 | 24 | ||||||||||||||
Stock-based compensation - Lucid Diagnostics Inc. 2018 Equity Plan | 3,537 | 802 | 2,817 | 3,537 | ||||||||||||
Stock-based compensation - PAVmed Inc. 2014 Equity Plan | 298 | 3 | 391 | 298 | ||||||||||||
Fair value adjustment to contingent consideration payable | 173 | — | ||||||||||||||
Change in fair value - Senior Secured Convertible Note | 789 | — | ||||||||||||||
Loss on issue and offering costs - Senior Secured Convertible Note | 1,186 | — | ||||||||||||||
APA-RDx: Issue common stock - settle termination payment | 713 | — | ||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | 111 | — | (10 | ) | 111 | |||||||||||
Prepaid expenses and other current assets | 168 | 104 | (275 | ) | 168 | |||||||||||
Accounts payable | 1,958 | (1,269 | ) | (431 | ) | 1,958 | ||||||||||
Accrued expenses and other current liabilities | 112 | (108 | ) | 743 | 285 | |||||||||||
Due To: PAVmed Inc. - operating expenses paid on-behalf-of Lucid Diagnostics Inc. | (510 | ) | 33 | |||||||||||||
Due To: PAVmed Inc. - Management Services Agreement Fee | — | 770 | ||||||||||||||
Due To: PAVmed Inc. - Employee Related Costs | 623 | — | ||||||||||||||
Due To: PAVmed Inc. - operating expenses, employee related costs, MSA Fee | 2,667 | 113 | ||||||||||||||
Net cash flows used in operating activities | (5,776 | ) | (3,315 | ) | (7,045 | ) | (5,776 | ) | ||||||||
Cash flows from investing activities | ||||||||||||||||
Purchase of equipment | (148 | ) | (9 | ) | (17 | ) | (148 | ) | ||||||||
Net cash flows used in investing activities | (148 | ) | (9 | ) | (17 | ) | (148 | ) | ||||||||
Cash flows from financing activities | ||||||||||||||||
Proceeds – issue of preferred stock | 13,625 | — | ||||||||||||||
Proceeds – issue of Senior Convertible Note, net of offering cost | 9,925 | — | ||||||||||||||
Proceeds – issue of common stock – At-The-Market Facility | 284 | — | ||||||||||||||
Proceeds – exercise of stock options | 187 | — | — | 187 | ||||||||||||
Proceeds – Due To: PAVmed Inc. - working capital cash advances | — | 3,300 | ||||||||||||||
Proceeds – issue common stock – Employee Stock Purchase Plan | 276 | — | ||||||||||||||
Net cash flows provided by financing activities | 187 | 3,300 | 24,110 | 187 | ||||||||||||
Net increase (decrease) in cash | (5,737 | ) | (24 | ) | 17,048 | (5,737 | ) | |||||||||
Cash, beginning of period | 53,656 | 111 | 22,474 | 53,656 | ||||||||||||
Cash, end of period | $ | 47,919 | $ | 87 | $ | 39,522 | $ | 47,919 |
See accompanying notes to the unaudited condensed consolidated financial statements.
4 |
LUCID DIAGNOSTICS INC.
and SUBSIDIARYSUBSIDIARIES
(a majority-owned subsidiary of PAVmed Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in these accompanying notes are presented in thousands, except number of shares and per-share amounts.)
Note 1 — Summary Description of the Company
The accompanying unaudited condensed consolidated financial statements are those of Lucid Diagnostics Inc. (“LucidLucid”, “Lucid Diagnostics” or “the Company”), which was incorporated in the State of Delaware on May 8, 2018. Lucid Diagnostics Inc.“Company”) is a majority-owned subsidiary of PAVmed Inc., as discussed below.
The Company operates in one segment as a commercial-stage medical diagnostics technology company focused on the millions of patients with gastroesophageal reflux disease - “GERD” - which is(“GERD”), also known as chronic heartburn, acid reflux or simply reflux, who are at risk forof developing esophageal precancer and cancer, specifically highly lethal esophageal adenocarcinoma (EAC)(“EAC”). Lucid is a majority-owned subsidiary of PAVmed Inc. (“PAVmed”).
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 screening tool to prevent esophageal adenocarcinoma (“EAC”) deaths, through early detection of esophageal precancer in at-risk gastroesophageal reflux disease (“GERD,” also commonly known as chronic heartburn, acid reflux or simply reflux) patients.
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 Laboratory Developed Test (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 our proprietary EsoGuard NGS DNA assay.
EsoCheck is an FDA 510(k) and CE Mark cleared noninvasive swallowable balloon capsule catheter device capable of sampling surface esophageal cells in a less than five-minute office. 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 Diagnostics Inc. entered into a patent license agreement withfrom Case Western Reserve University (“CWRU”), captioned the Amended and Restated License Agreement, dated August 23, 2021 (“Amended CWRU License Agreement”). The Amended CWRU License Agreement is a successor to and replaced in its entirety the previous CWRU License Agreement, dated May 12, 2018. The Amended CWRU License Agreement terminates upon the expiration of certain related patents, or on May 12, 2038 in countries where no such patents exist, or upon expiration of any exclusive marketing rights granted by the FDA or other U.S. government agency, whichever comes later.
The Amended CWRU License Agreement (as did the predecessor CWRU License Agreement) provides for the exclusive worldwide license of the intellectual property rights for the proprietary technologies of two distinct technology components - the “EsoCheck Cell Collection Device” referred to as “EsoCheck®”; and a panel of proprietary methylated DNA biomarkers, a laboratory developed test (“LDT”), referred to as “EsoGuard®”; and together are collectively referred to as the “EsoGuard Technology”. See Note 3, Patent License Agreement – Case Western Reserve University, for a discussion of the Amended CWRU License Agreement.
Since its inception, the Company has advanced the proprietary technologies underlying EsoGuard and EsoCheck from the academic research laboratoryhave been developed to commercial diagnostics tests and devices with scalable manufacturing capacity. The Company is presently focused on expanding commercialization across multiple sales channels, including: the communication and education of medical practitioners and clinicians of the EsoGuard LDT; and establishing “Lucid Diagnostics Test Centers”provide an accurate, non-invasive, patient-friendly screening test for the collectionearly detection of cell samples using EsoCheck UpEAC and until February 25, 2022, delivery of the collected cell samples were sentBarrett’s Esophagus (“BE”), including dysplastic BE and related pre-cursors to ResearchDX Inc. (“RDx”), a CLIA certified commercial laboratory service provider, for the performance of the EsoGuard LDT. See LucidDx Labs, Inc. and Asset Purchase Agreement-February 2022 below. Additionally, the Company is conducting two concurrent clinical trials, including each of: the “EsoGuard screening study” (“ESOGUARD-BE-1”); and the “EsoGuard case control study” (“ESOGUARD-BE-2”), to support a United States Food and Drug Administration (“FDA”) pre-market approval (“PMA”) of the use of EsoGuard and EsoCheck as an in-vitro diagnostic medical device (“IVD”). Further, the Company is developing expanded clinical evidence to support recommendation of our productsEAC in professional society guidelines.patients with chronic GERD.
Note 1 — Summary DescriptionCertain operations of the Company- continued
Since its inception and through the date of the Company’s IPO on October 14, 2021, the operations of Lucid Diagnostics Inc. have been funded by PAVmed Inc. providing working capital cash advances and the payment by PAVmed Inc. of certain operating expenses on-behalf-of Lucid Diagnostics Inc. Additionally, the daily operations of Lucid Diagnostics Inc. continue to be managed by personnel employed byof PAVmed, Inc., for which Lucid Diagnostics Inc.the Company incurs expense according to the provisions of a Management Services Agreement between Lucid Diagnostics Inc.the Company and PAVmed Inc.PAVmed. See Note 5,4, Related Party Transactions, for information with respect to the Management Services Agreement; and Note 6,5, Due To PAVmed Inc., for further information with respect to amounts owed to PAVmed Inc. by Lucid Diagnostics Inc.the Company.
The Company is subject to all of the risks and uncertainties typically faced by medical device and diagnostic and medical device companies that devote substantially all of their efforts to the commercialization of their initial product and services and ongoing research and development activities and conducting clinical trials. The Company expects to continue to experience recurring losses from operations and will continue to fund its operations with debt and equity financing transactions. Notwithstanding, however, with the cash on-hand as of the date hereof and other debt andcommitted equity committed sources of capital with Lucid and its parent company, PAVmed,financing, the Company expects to be able to fund its future 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 March 31, 2022.
Lucid Diagnostics Inc. Initial Public Offering - October 14, 20212023.
On October 14, 2021, Lucid Diagnostics Inc. completed an initial public offering (“IPO”) of its common stock under an effective registration statement on Form S-1 (SEC File No. 333-259721), wherein a total of million IPO shares of common stock were issued, with such total IPO shares inclusive of IPO shares issued to PAVmed Inc., at an IPO price of $ per share, resulting gross proceeds of $70.0 million, before underwriting fees of $4.9 million, and approximately $0.7 million of offering costs incurred by the Company.
LucidDx Labs Inc.
In December 2021, Lucid Diagnostics, Inc. formed a new wholly owned subsidiary, LucidDx Labs Inc., principally to construct and operate a Company-owned Commercial Lab Improvements Act (“CLIA”) certified, College of American Pathologists (“CAP”) accredited commercial clinical laboratory.
On February 25, 2022, LucidDx Labs, Inc., entered into an asset purchase agreement (“APA”) with ResearchDx, Inc. (“RDx”), an unrelated third-party - “RDx APA”. Under the RDx APA, LucidDx Labs Inc. acquired certain assets from RDx to be combined with LucidDx Labs Inc. purchased and leased 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. See Note 7, Acquisitions - Asset Purchase Agreement - Research Dx Inc., for a further discussion of the RDx APA.
Note 2 — Summary of Significant Accounting Policies and Recent Accounting Standards Updates
Significant Accounting Policies
The Company’s significant accounting policies are as disclosed in the Company’s annual reportAnnual Report on Form 10-K for the year ended December 31, 20212022 as filed with the SEC on April 6, 2022,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 subsidiary, LucidDx Labs Inc.subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Lucid Diagnostics Inc. (“the Company”)The Company is a majority-owned consolidated subsidiary of PAVmed, Inc., which has a majority equity ownership interest and has financial control of Lucid Diagnostics Inc.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 presentation of the Company’s unaudited condensed consolidated financial information.
The consolidated results of operations for the three months ended March 31, 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 these 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 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 contingent consideration.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.
Contingent ConsiderationRevenue Recognition
Contingent Consideration relatesRevenues 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 potentialordering 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.
6 |
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 for an acquisition that is contingent uponfrom the achievementpatient prior to the commencement of the acquired business meeting certain milestones.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 records contingentelects 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 at fair value atthat the dateCompany expects to collect in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of acquisition based on thethird parties (for example, some sales taxes). The consideration expected to be transferred. For potential payments relatedcollected from a contract with a customer may include fixed amounts, variable amounts, or both.
If the consideration derived from the contracts is deemed to milestone achievements,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 based onas the probability of achievement of such milestones.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 assumptions utilizedASC 820 three-tier fair value hierarchy prioritizes the inputs used in the calculationvaluation 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 the acquisition date fair value include probability of successthose instruments potentially qualify as derivatives required to be separately accounted for in accordance with FASB ASC Topic 815, Derivatives and the discount rates. Contingent consideration involves certain assumptions requiring significant judgment and actual results may differ from assumed and estimated amounts. Contingent consideration is remeasured each reporting period, and subsequent changes in fair value, including accretion for the passage of time, are recognized within other income (expense), net in the Company’s unaudited condensed consolidated statements of operations.Hedging (ASC 815).
7 |
Note 2 — Summary of Significant Accounting Policies and Recent Accounting Standards Updates - continued
Recent Accounting Standards Updates AdoptedThe 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.
EffectiveAs of March 31, 2023 and December 31, 2021,2022, the Company adopted FASB ASC Topic 842, Leases, (“ASC 842”). ASC 842 established a right-of-use (“ROU”) model requiring a lesseecarrying values of cash, and accounts payable, approximate their respective fair value due to recognize a ROU asset and a lease liability for all leases with terms greater-than 12 months. Leases are classified as either finance or operating, with classification affecting the patternshort-term nature of expense recognition in the income statement. The Company’s adoption of ASC 842 did not have an effect on the Company’s consolidatedthese financial statements. See Note 9, Leases.instruments.
Note 3 — Patent License Agreement - Case Western Reserve UniversityFair Value Option (“FVO”) Election
TheUnder a Securities Purchase Agreement dated March 13, 2023, the Company hasissued a patent license agreement with CWRUSenior Secured Convertible Note dated March 21, 2023, referred to herein as the “March 2023 Senior Convertible Note”, which provides for each of patent fees reimbursement payments, milestone payments and royalty payments - eachis accounted under the “fair value option election” as discussed below. For further details of this agreement, see Note 3 of the Company’s Consolidated Financial Statements in the Company’s Form 10-K for the year ended December 31, 2021.
Lucid Diagnostics Inc. is responsible for reimbursement of certain CWRU billed patent fees. See Note 5, Related Party Transactions, for patent fee reimbursement payments paid to CWRU in the periods ended March 31, 2022 and 2021.
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 CWRU License Agreement contained milestonesestimated 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 a $75 research and development expensethere was recognized and paidno such adjustment with respect to the achievement of the regulatory milestone related to FDA clearance of EsoCheck. The CWRU License Agreement was amended effective February 12, 2021 such that a regulatory milestone related to FDA PMA submission of a licensed product (“PMA Milestone”) is included in the Amended CWRU License Agreement, and is the sole remaining unachieved milestone, for which a $200 milestone payment would be payable to CWRU upon its achievement.
Note 3 — Patent License Agreement - Case Western Reserve University - continuedMarch 2023 Senior Convertible Note).
Under the Amended CWRU License Agreement, the Company is required to pay a royalty fee to CWRUSee Note 10, Financial Instruments Fair Value Measurements, with respect to the “Licensed Products” (as defined inFVO election; and Note 11, Debt, for a discussion of the CWRU License Agreement) of a percentage of “Net Sales”, as defined in the Amended CWRU License Agreement, as follows: 5.0% of Net Sales up to $100.0 million per year; and 8.0% of Net Sales of $100.0 million or greater per year, with such amounts subject-to a minimum annual royalty fee. The Company recorded a royalty expense of $10 for the three months ended March 31, 2022
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 43 — Revenue from Contracts with Customers
Revenue is recognized when the satisfaction of the performance obligation occurs, which is when the delivery of product and /or the provision of service is rendered, and is measured as the amount of estimated consideration expected to be realized. In the period ended March 31, 2022, the Company recognized revenue under the EsoGuard Commercialization Agreement, dated August 1, 2021, as discussed below.
EsoGuard Commercialization Agreement
The Company entered into the EsoGuard Commercialization Agreement, dated August 1, 2021, with its CLIA certifiedformer commercial laboratory service provider, ResearchDXResearchDx Inc. (“RDx”), an unrelated third-party. The EsoGuard Commercialization Agreement initial term 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, APA. Seewith such agreement further discussed in Note 7,6, Acquisitions - Asset Purchase Agreement - Research Dx Inc.and Management Services Agreement, for a further discussion of the RDx APA..
Revenue Recognized
In the three months ended March 31, 2023 and March 31, 2022, the Company recognized total revenue of $446 and $189, respectively. In the three months ended March 31, 2023, the Company recognized revenue of $446, resulting from the delivery of patient EsoGuard test results. Revenue recognized from customer contracts deemed to include a variable consideration transaction price is limited to the unconstrained portion of the variable consideration. The Company’s revenue for the three months ended March 31, 2022 was $189, which solely reflects the revenue recognized under the EsoGuard Commercialization Agreement,, which representsrepresented the minimum fixed monthly fee of $100for the period January 1, 2022 to the February 25, 2022 termination date as discussed above. The monthly fee was deemed to be collectible for such period as RDx has timely paid the applicable respective monthly fee.
8 |
Cost of Revenue
The cost of revenue recognized with respectrevenues 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 months ended March 31, 2023, the cost of revenue recognizedwas $1,338 and was primarily related to costs for our laboratory operations and EsoCheck device supplies. The Company’s cost of revenue for the three months ended March 31, 2022 was $369, which solely reflects the costs attributable to delivering the services under the EsoGuard Commercialization Agreement for the period January 1, 2022 to February 25, 2022 totaled $369, inclusive of employee related costs of employees engaged in the delivery of the administration to patients of the EsoCheck cell sample collection procedure, EsoCheck devices and EsoGuard mailers (cell sample shipping costs) distributed to medical practitioners’ locations and the Lucid Test Centers; Lucid Test Centers operating expenses, including rent expense and supplies; and royalty fees incurred under the Amended CWRU License Agreement.2022.
Note 54 —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 (“Physician Inventors”Agreement”), each hold a minority equity ownership minority interestsinterest 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:
Schedule of Incurred Expenses of Minority Shareholders
2022 | 2021 | 2023 | 2022 | |||||||||||||
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Cost of Revenue | ||||||||||||||||
CWRU – Royalty Fee | $ | 9 | $ | — | ||||||||||||
Cost of Revenue | 369 | - | ||||||||||||||
CWRU – Royalty Fees | $ | 24 | $ | 9 | ||||||||||||
General and Administrative Expense | ||||||||||||||||
Stock-based compensation expense – Physician Inventors’ restricted stock awards | 272 | 91 | 180 | 272 | ||||||||||||
General and Administrative Expense | 5,718 | 1,212 | ||||||||||||||
Research and Development Expense | ||||||||||||||||
CWRU License Agreement - reimbursement of patent legal fees | — | — | ||||||||||||||
Amended CWRU – License Agreement - reimbursement of patent legal fees | 389 | — | ||||||||||||||
Fees - Physician Inventors’ consulting agreements | 8 | 13 | 1 | 8 | ||||||||||||
Sponsored research agreement | 3 | — | — | 3 | ||||||||||||
Stock-based compensation expense – Physician Inventors’ stock options | 46 | 6 | 52 | 46 | ||||||||||||
Research and Development Expense | 2,881 | 1,752 | ||||||||||||||
Total Related Party Expenses | $ | 338 | $ | 110 | $ | 646 | $ | 338 |
Lucid Diagnostics Inc. entered into consulting agreements with each of the three Physician Inventors, with each such consulting agreement providing for compensation on a contractual rate per hour for consulting services provided, and an expiration date of May 12, 2024, upon the agreements’ renewal effective May 12, 2021. Additionally, as discussed below, each of the Physician Inventors have been granted stock options under the PAVmed Inc. 2014 Long-Term Incentive Equity Plan, and stock options and restricted stock awards under the Lucid Diagnostics Inc. 2018 Long-Term Incentive Equity Plan.
Under each of their respective (initial) consulting agreements with Lucid Diagnostics Inc., the three Physician Inventors were each granted stock options under the PAVmed Inc. 2014 Equity Plan, with a grant date of May 12, 2018, an exercise price of $ per share of common stock of PAVmed Inc., vesting ratably on a quarterly basis commencing June 30, 2018 and ending March 31, 2021, and a contractual period of from the date of grant. As of March 31, 2021, such stock options were fully vested and exercisable. Subsequent to March 31, 2021, each of the Physician Inventors were granted stock options under the PAVmed Inc. 2014 Equity Plan, with a grant date of June 21, 2021, an exercise price of $ per share of common stock of PAVmed Inc., vesting ratably on a quarterly basis commencing June 30, 2021 and ending March 31, 2024, and a contractual period of ten years from the date of grant.
On March 1, 2021, restricted stock awards were granted under the Lucid Diagnostics Inc. 2018 Equity Plan to each of the three Physician Inventors, with such restricted stock awards having a single vesting date of March 1, 2023, with the fair value of such restricted stock awards 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.
Note 54 — Related Party Transactions - continued
PAVmed Inc. - Management Services Agreement
The Company’s daily operations of Lucid Diagnostics Inc. are also managed in part by personnel employed by PAVmed, Inc., for which Lucid Diagnostics Inc.the Company incurs a service fee, referred to as the “MSA Fee”, according to the provisions of a Management Services Agreement (“MSA”) with PAVmed Inc.PAVmed. The MSA does not have a termination date, but may be terminated by the Lucid Diagnostics Inc.Company’s board of directors. The MSA Fee is charged on a quarterlymonthly basis and is subject-to periodic adjustment corresponding with changes in the number ofservices provided by PAVmed Inc. employees providing servicespersonnel to Lucid Diagnostics Inc.,the Company, with theany such change in the MSA Fee approved bybeing subject to approval of the boards of directors of each of the Lucid Diagnostics Inc.Company and PAVmed. The respective companies’ boards of directors approved a seventh amendment to the MSA to increase the MSA Fee to $750 per month, effective January 1, 2023, which was entered into by PAVmed Inc. board of directors.and the Company on May 9, 2023. During the three months ended March 31, 2022, MSA Fees were $390 per month.
9 |
Note 4 — Related Party Transactions - continued
Lucid Diagnostics Inc. recognized MSA Fee expense of $1,170 and $770 in the periods ended March 31, 2022 and 2021, respectively. The MSA Fee expense classification in the unaudited condensed consolidated statement of operations for the periods noted is as follows:
Schedule of MSA Fee Expense Classification in Unaudited Condensed StatementStatements of Operations
2022 | 2021 | 2023 | 2022 | |||||||||||||
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Cost of Revenues | $ | — | $ | — | ||||||||||||
Sales & Marketing | 183 | 323 | 109 | 183 | ||||||||||||
General & Administrative | 640 | 270 | 1,554 | 640 | ||||||||||||
Research & Development | 347 | 177 | 587 | 347 | ||||||||||||
Total MSA Fee | $ | 1,170 | $ | 770 | $ | 2,250 | $ | 1,170 |
The classification of the MSA Fee as presented above is based on the PAVmed Inc. classification of employee salary expense.expense and other operating expenses. In this regard, PAVmed Inc. classifies employee salary expense as cost-of-revenue for employees engaged in service delivery under the EsoGuard Commercialization Agreement, and 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.
Other Related Party Transactions
Lucid Diagnostics Inc. previously entered into a consulting agreement with Stanley N. Lapidus, effective June 2020 with such consulting agreement providing for compensation on a contractual rate per hour for consulting services provided. In July 2021, Mr. Lapidus was appointed as Vice Chairman of the Board of Directors of Lucid Diagnostics Inc. Lucid Diagnostics Inc. recognized general and administrative expense of $6in the period ended March 31, 2021 in connection with the consulting agreement.
Note 65 — Due To PAVmed Inc.Inc.
The aggregate Due To: PAVmed Inc., inclusive of the Senior Unsecured Promissory Note, for the periods indicated is summarized as follows:
Schedule of Senior Unsecured Promissory Note
Working Capital Cash Advances | PAVmed Inc. OBO Payments | Employee-Related Costs | MSA Fees | Total | PAVmed Inc. OBO Payments | Employee- Related Costs | MSA Fees | Total | ||||||||||||||||||||||||||||
Balance - December 31, 2021 | $ | — | $ | 620 | $ | 1,037 | $ | — | $ | 1,657 | ||||||||||||||||||||||||||
Balance - December 31, 2022 | $ | 284 | $ | 3,026 | $ | 1,650 | $ | 4,960 | ||||||||||||||||||||||||||||
MSA fees | — | — | — | 1,170 | 1,170 | — | — | 2,250 | 2,250 | |||||||||||||||||||||||||||
On Behalf Of (OBO) activities | — | 153 | — | — | 153 | 219 | — | — | 219 | |||||||||||||||||||||||||||
ERC - Payroll & Benefits | — | — | 2,122 | — | 2,122 | — | 484 | — | 484 | |||||||||||||||||||||||||||
Cash payments to PAVmed Inc. | — | (662 | ) | (1,500 | ) | (1,170 | ) | (3,332 | ) | (286 | ) | — | — | (286 | ) | |||||||||||||||||||||
Balance - March 31, 2022 | $ | — | $ | 111 | $ | 1,659 | $ | — | $ | 1,770 | ||||||||||||||||||||||||||
Balance - March 31, 2023 | $ | 217 | $ | 3,510 | $ | 3,900 | $ | 7,627 |
Prior to the Company’s initial public offering (IPO), itNote 6 — principally financed its operations through working capital cash advances from PAVmed Inc.Asset Purchase Agreement and the periodic payment of certain operating expenses by PAVmed Inc. on-behalf-of Lucid Diagnostics Inc. (the “PAVmed Inc. OBO Payments”). Additionally, the daily operations of Lucid Diagnostics Inc. are managed by personnel employed by PAVmed Inc., for which the Company incurs expense according to the provisions of a Management Services Agreement (the “MSA”) between the Company and PAVmed Inc (the “MSA Fee”). See Note 5, Related Party Transactions, for further information regarding the MSA.
Note 7 — Acquisitions
Asset Purchase Agreement and Management Services Agreement - ResearchDx Inc.
On February 25, 2022,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 - “RDx APA”“APA-RDx”. Under the RDx APA,APA-RDx, LucidDx Labs Inc. acquired certain assets from RDx to bewhich were combined with LucidDx Labs Inc. purchased and leasedother 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 consummation of the RDx APA,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.
As of March 31, 2022,The total purchase price consideration payable under the Company’s preliminary analysis is the RDx APA transactionAPA-RDx is a business combination, resulting inface value of $3,200 comprised of three contractually specified periodic payments. The APA-RDx is being accounted for as an asset acquisition, with the recognition and measurement of a preliminary purchase considerationan intangible asset of approximately $3,200, which is included in accordance with the valuation methodology described in Note 2, Summary of Significant Accounting Policies and Recent Accounting Standards Updates.
Under the terms of the RDx APA, LucidDx Labs Inc. will pay RDx an aggregate purchase price of up to $6.2 million for the acquired assets. The total of $6.2 million is comprised of non-contingent purchase consideration of $1.0 million (included in “Accrued expenses and other liabilities” in“Intangible assets, net” on the accompanying unaudited condensed consolidated balance sheets,sheet, as of March 31, 2022), and contingent purchase consideration of a total of $5.2 million face value, with such contingent purchase consideration having a preliminary $4,714 initial estimated fair value as of the transaction date. The preliminary $5,714 purchase consideration (inclusive of both the non-contingent and contingent purchase considerationfurther discussed above) is unallocated as of March 31, 2022, and as such is included in intangible assets in the accompanying unaudited consolidated balance sheet. The preliminary estimated fair value of the contingent purchase price consideration and the identification and estimated fair value of acquired assets are subject-to further revision.Note 9, Intangible Assets, net.
Concurrent with the RDx APA, LucidDx Labs Inc. and RDx also entered into a management services agreement (“RDx MSA”), with a term of three years, and a total of approximately $1.8 million payable in equal quarterly payments.
Pro Forma Information.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 RDx APA transaction impact for purposesMSA Termination Agreement reduces the remaining amounts of pro forma financial statement disclosures would have primarily impactedthe earnout payments and management fees due under the APA-RDx and the MSA-RDx to $713. The payment was satisfied through the issuance of shares of the Company’s EsoGuard Commercialization Agreementcommon stock in February 2023. The Company was not required to make any cash payments in connection with RDx, summarized as follows:the termination.
Schedule of Business Acquisition Pro Forma Information
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Revenue | ||||||||
As reported | $ | 189 | $ | — | ||||
Pro forma | $ | — | $ | — | ||||
Net Loss | ||||||||
As reported | $ | (12,270 | ) | $ | (3,653 | ) | ||
Pro forma | $ | (12,459 | ) | $ | (3,653 | ) | ||
Basic and diluted net loss per share | ||||||||
As reported | $ | (0.35 | ) | $ | (0.26 | ) | ||
Pro forma | $ | (0.35 | ) | $ | (0.26 | ) |
Note 87 — Prepaid Expenses, Deposits, and Other Current Assets
Prepaid expenses and other current assets consisted of the following as of:
Schedule of Prepaid Expenses and Other Current Assets
March 31, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
Advanced payments to service providers and suppliers | $ | 259 | $ | 260 | $ | 308 | $ | 371 | ||||||||
Prepaid insurance | 1,052 | 1,578 | 76 | 52 | ||||||||||||
Deposits | 1,668 | 1,116 | 1,726 | 1,331 | ||||||||||||
Deferred financing charges | 1,014 | — | ||||||||||||||
EsoCheck cell collection supplies | 266 | 434 | 27 | 59 | ||||||||||||
EsoGuard mailer supplies | 65 | 59 | 35 | 52 | ||||||||||||
Total prepaid expenses, deposits and other current assets | $ | 4,324 | $ | 3,447 | $ | 2,172 | $ | 1,865 |
Note 98 — Leases
During the three months ended March 31, 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 March 31, 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:
Schedule Of Future Lease Payments Of Operating Lease Liabilities
2023 (remainder of year) | $ | 870 | ||
2024 | 1,071 | |||
2025 | 65 | |||
Total lease payments | $ | 2,006 | ||
Less: imputed interest | (129 | ) | ||
Present value of lease liabilities | $ | 1,877 |
Supplemental disclosure of cash flow information related to the Company’s cash and non-cash activities with its leases are as follows:
Schedule ofOf Cash Flow Supplemental Information
2022 | 2021 | |||||||||||||||
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||||||||||
Operating cash flows from operating leases | $ | 224 | $ | — | $ | 285 | $ | 224 | ||||||||
Non-cash investing and financing activities | ||||||||||||||||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 2,404 | $ | — | $ | 125 | $ | 2,404 | ||||||||
Weighted-average remaining lease term - operating leases (in years) | 2.72 | — | 1.77 | 2.72 | ||||||||||||
Weighted-average discount rate - operating leases | 7.875 | % | — | % | 7.875 | % | 7.875 | % |
As of March 31, 2023 and December 31, 2022, the Company’s right-of-use assets from operating leases arewere $2,2241,884 and $2,008, respectively, which are reportingreported in operating lease right-of-use assets - operating leases in the unaudited condensed consolidated balance sheets. As of March 31, 2023 and December 31, 2022, the Company hashad outstanding operating lease obligations of $2,2241,877 and $1,999, respectively, of which $7691,051 and $is962, respectively, are reported in operating lease liabilities, current portion and $1,455 826 and $1,037is reporting, respectively, are reported in operating lease liabilities less current portion in the Company’s unaudited condensed consolidated balance sheets. The Company did not have operating leases as of December 31, 2021. The Company calculates its incremental borrowing rates for specific lease terms, used to discount future lease payments, as a function of the financing terms the Company would likely receive on the open market.
Note 9 — Intangible Assets, net
Intangible assets, less accumulated amortization, consisted of the following as of:
Schedule of Intangible Assets Accumulated Amortization
Estimated Useful Life | March 31, 2023 | December 31, 2022 | ||||||||
Defensive technology | 60 months | $ | 2,105 | $ | 2,105 | |||||
Laboratory licenses and certifications and laboratory information management software | 24 months | 3,200 | $ | 3,200 | ||||||
Total Intangible assets | 5,305 | 5,305 | ||||||||
Less Accumulated Amortization | (2,365 | ) | (1,860 | ) | ||||||
Intangible Assets, net | $ | 2,940 | $ | 3,445 |
The defensive technology intangible asset of $2.1 million (and approximately $0.2 million of accumulated amortization) was recognized by the Company as of the April 1, 2022 effective date of the transfer of CapNostics, LLC (“CapNostics”) to the Company from PAVmed Subsidiary Corp (a wholly-owned subsidiary of PAVmed). The transfer was accounted for as entities under common control. The defensive technology intangible asset was recognized by PAVmed Subsidiary Corp upon its acquisition of CapNostics, an unrelated third-party, for total purchase consideration paid on the October 5, 2021 acquisition date of approximately $2.1 million in cash. The CapNostics transaction was accounted for as an asset acquisition, resulting in the recognition of the defensive technology intangible asset. The defensive technology intangible asset is being amortized on a straight-line basis over an expected useful life 60 months commencing on the acquisition date.
As noted in Note 6, Asset Purchase Agreement and Management Services Agreement, the asset purchase agreement between the Company and ResearchDx Inc. (“APA-RDx”), is being accounted for as an asset acquisition. The intangible assets recognized under the APA-RDx are the laboratory licenses and certifications (inclusive of a CLIA certification, CAP accreditation, and clinical laboratory licenses for five (5) U.S. States transferred to the Company from RDx), and a laboratory information management software perpetual-use royalty-free license granted under the APA-RDx, with such intangible asset having a useful life of twenty-four months commencing on the APA-RDx February 25, 2022 transaction date.
Amortization expense of the intangible assets discussed above was $505 for the period ended March 31, 2023 (there was no such amortization expense for the prior period ended March 31, 2022), and is included in amortization of acquired intangible assets in the accompanying unaudited condensed consolidated statements of operations. As of March 31, 2023, the estimated future amortization expense associated with the Company’s finite-lived intangible assets for each of the five succeeding fiscal years is as follows:
Schedule of Future Amortization Expense
2023 (remainder of year) | $ | 1,516 | ||
2024 | 688 | |||
2025 | 421 | |||
2026 | 315 | |||
Total | $ | 2,940 |
12 |
Note 10 — Financial Instruments Fair Value Measurements
Recurring Fair Value Measurements
The fair value hierarchy table for the reporting datesdate noted is as follows:
Schedule of Financial Liabilities Measured at Fair value MeasurementValue on Recurring Basis
Level-1 Inputs | Level-2 Inputs | Level-3 Inputs | Total | |||||||||||||
Fair Value Measurement on a Recurring Basis at Reporting Date Using(1) | ||||||||||||||||
Level-1 Inputs | Level-2 Inputs | Level-3 Inputs | Total | |||||||||||||
March 31, 2022 | ||||||||||||||||
Contingent consideration payable (1) | $ | — | $ | — | $ | 4,887 | $ | 4,887 | ||||||||
Totals (1) | $ | — | $ | — | $ | 4,887 | $ | 4,887 |
Fair Value Measurement on a Recurring Basis at Reporting Date Using1 | ||||||||||||||||
Level-1 Inputs | Level-2 Inputs | Level-3 Inputs | Total | |||||||||||||
March 31, 2023 | ||||||||||||||||
March 2023 Senior Convertible Note | $ | — | $ | — | $ | 11,900 | $ | 11,900 | ||||||||
Totals | $ | — | $ | — | $ | 11,900 | $ | 11,900 |
As discussed in Note 11, Debt, the Company issued a Senior Secured Convertible Note dated March 21, 2023 with a $11.1 million face value principal (“March 2023 Senior Convertible Note”.) The convertible note is accounted for under the ASC 825-10-15-4 fair value option (“FVO”) election, wherein, the financial instrument is initially measured at its issue date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date.
The estimated fair value of the financial instruments classified within the Level 3 category was determined using both observable inputs and unobservable inputs. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs.
The estimated fair value of the March 2023 Senior Convertible Note as of each of March 21, 2023 and March 31, 2023 were computed using a Monte Carlo simulation of the present value of its cash flows using a synthetic credit rating analysis and a required rate-of-return, using the following assumptions:
Schedule of Fair Value Assumption Used
March 2023 Senior Convertible Note: March 21, 2023 | March 2023 Senior Convertible Note: March 31, 2023 | |||||||
Fair Value | $ | 11,900 | $ | 11,900 | ||||
Face value principal payable | $ | 11,111 | $ | 11,111 | ||||
Required rate of return | 11.00 | % | 11.00 | % | ||||
Conversion Price | $ | 5.00 | $ | 5.00 | ||||
Value of common stock | $ | $ | ||||||
Expected term (years) | 2.00 | 1.98 | ||||||
Volatility | 75.00 | % | 75.00 | % | ||||
Risk free rate | 4.09 | % | 3.99 | % | ||||
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 measurements of contingent considerationthe Company’s common stock price. Changes in these assumptions can materially affect the estimated fair values.
13 |
Note 11 — Debt
The Company recorded $fair value and face value principal outstanding of the March 2023 Senior Convertible Note as of the dates indicated are as follows:
4.9
Summary of Outstanding Debt
Contractual Maturity Date | Stated Interest Rate | Conversion Price per Share | Face Value Principal Outstanding | Fair Value | ||||||||||||||
March 2023 Senior Convertible Note | March 21, 2025 | 7.875 | % | $ | 5.00 | $ | 11,111 | $ | 11,900 | |||||||||
Balance as of March 31, 2023 | $ | 11,111 | $ | 11,900 |
million, which is
The changes in the fair value of contingent consideration relateddebt during the three months ended March 31, 2023 is as follows:
Schedule of Changes in Fair Value of Debt
March 2023 Senior Convertible Note | Other Income (expense) | |||||||
Fair Value - December 31, 2022 | $ | — | $ | — | ||||
Face value principal – issue date | 11,111 | — | ||||||
Fair value adjustment – issue date | 789 | (789 | ) | |||||
Change in fair value | — | — | ||||||
Fair Value at March 31, 2023 | $ | 11,900 | - | |||||
Other Income (Expense) - Change in fair value – three months ended March 31, 2023 | $ | (789 | ) |
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 RDx acquisition.Investor agreed to purchase an aggregate of $11.1 million face value principal of debt. The debt was issued in a registered direct offering under the Lucid’s effective shelf registration statement.
Under the SPA dated March 13, 2023, Lucid issued a Senior Secured Convertible Note dated March 21, 2023, referred to herein as the “March 2023 Senior Convertible Note”, with such note having a $11.1 million face value principal, 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 March 21, 2025. The March 2023 Senior Convertible Note may be converted into shares of common stock of the Company is required to make contingent consideration payments of up to $5.2 million related toat the RDx APA agreement. The contingent agreement is based on achieving milestones to obtain certain certifications and licensing rights. The Company estimated the fair value on a probability based model that assessed achievement of such milestones. The model used present value factors, that applied probability ranges of 94-99%, a discount rate of 7.875% and achievement times ranging from one month to six months to achieve the respective milestones.Holder’s election.
The final settlement of contingent consideration liabilities for the acquisition could vary from current estimates based on the actual resultsMarch 2023 Senior Convertible Note proceeds were $9.925 million after deducting a $1.186 million lender fee and offering costs. The lender fee and offering costs were recognized as of the financial measures described above. This liability is considered to beMarch 21, 2023 issue date as a Level 3 financial liability that is re-measured each reporting period. The change in fair value of contingent consideration for these acquisitions is includedcurrent period expense in other income (expense) in the Company’s unaudited condensed consolidated statement of operations.
During the period from March 21, 2023 to September 20, 2023, Lucid is required to pay interest expense only (on the $11.1 million face value principal), net.at 7.875% per annum, computed on a 360 day year. The Company paid in cash interest expense of $24 for the three months ended March 31, 2023.
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 March 21, 2025 maturity date, the Company will be required to make a principal repayment of $292 together with accrued interest thereon, with such 38 payments referred to herein as the “Installment Amount”, settled in shares of common stock of the Company, subject to customary equity conditions, including minimum share price and volume thresholds, or at the election of the Company, in cash, in whole or in part.
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.
14 |
Note 11 — Debt - continued
The following table presents a reconciliationpayment 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 liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
Scheduleassets of Reconciliation of Liability Measured at Fair Value Recurring Basis Using Unobservable Inputs
March 31, 2022 | ||||
Fair value of contingent consideration at the date of acquisition | $ | 4,714 | ||
Payments | — | |||
Change in fair value of contingent consideration | 173 | |||
Contingent consideration payable | $ | 4,887 |
As of December 31, 2021 there were no fair value measurements.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: (i) a minimum of $5.0 million of available cash at all times; (ii) the ratio of (a) the outstanding principal amount of the total senior convertible notes outstanding, accrued and unpaid interest thereon and accrued and unpaid late charges to (b) the Company’s average market capitalization over the prior ten trading days, as of the last day of any fiscal quarter commencing with September 30, 2023, to not exceed 30%; and (iii) the Company’s market capitalization to at no time be less than $30 million.
Lucid Diagnostics Inc. 2018 Long-Term Incentive Equity Plan
The Lucid Diagnostics Inc. 2018 Long-Term Incentive Equity Plan (“Lucid Diagnostics Inc. 2018 Equity Plan”) is separate and apart from the PAVmed Inc. 2014 Equity Plan discussed below. The Lucid Diagnostics Inc. 2018 Equity Plan is designed to enable Lucid Diagnostics Inc. to offer employees, officers, directors, and consultants, as defined, an opportunity to acquire shares of common stock of Lucid Diagnostics Inc.Diagnostics. The types of awards that may be granted under the Lucid Diagnostics Inc. 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 Inc. board of directors.
A total of Inc. are reserved for issuance under the Lucid Diagnostics Inc. 2018 Equity Plan, with shares available for grant as of March 31, 2022.2023. The share reservation is not diminished by a total of Lucid Diagnostics Inc. stock options and restricted stock awards granted outside the Lucid Diagnostics Inc. 2018 Equity Plan, as of March 31, 2022.2023. In January 2023, the number of shares available for grant was increased by in accordance with the evergreen provisions of the plan. shares of common stock of Lucid Diagnostics
Lucid Diagnostics Inc. 2018 Equity Plan - Stock Options
Schedule of Stock Options Issued and Outstanding Activities
Number of Stock Options | Weighted Average Exercise Price | Remaining Contractual Term (Years) | Number of Stock Options | Weighted Average Exercise Price | Remaining Contractual Term (Years) | Intrinsic Value(2) | ||||||||||||||||||||||
Outstanding stock options at December 31, 2021 | 1,419,242 | $ | 0.73 | |||||||||||||||||||||||||
Outstanding stock options at December 31, 2022 | 2,565,377 | $ | 3.14 | $ | 428 | |||||||||||||||||||||||
Granted(1) | 1,760,000 | $ | 4.16 | 2,697,500 | $ | 1.31 | ||||||||||||||||||||||
Exercised | (253,889 | ) | $ | 0.74 | — | $ | — | |||||||||||||||||||||
Forfeited | (60,926 | ) | $ | 4.61 | (210,419 | ) | $ | 2.46 | ||||||||||||||||||||
Outstanding stock options at March 31, 2022 | 2,864,427 | $ | 2.75 | |||||||||||||||||||||||||
Vested and exercisable stock options at March 31, 2022 | 1,277,026 | $ | 0.99 | |||||||||||||||||||||||||
Outstanding stock options at March 31, 2023(3) | 5,052,458 | $ | 2.19 | $ | 676 | |||||||||||||||||||||||
Vested and exercisable stock options at March 31, 2023 | 1,254,494 | $ | 2.67 | $ | 444 |
(1) | Stock options granted under the Lucid Diagnostics |
(2) | The intrinsic value is computed as the difference between the quoted price of the Lucid Diagnostics common stock on each of March 31, 2023 and December 31, 2022 and the exercise price of the underlying Lucid Diagnostics stock options, to the extent such quoted price is greater than the exercise price. |
(3) | The outstanding stock options presented in the table above, are inclusive of stock options granted outside the Lucid Diagnostics 2018 Equity Plan, as of March 31, 2023 and December 31, 2022. |
See Note 5,4, Related Party Transactions, for a summary of the stock-based compensation expense recognized with respect to the stock options granted under the Lucid Diagnostics Inc. 2018 Equity Plan to the Physician Inventors.
Note 1112 — Stock-Based Compensation - continued
Lucid Diagnostics Inc. 2018 Equity Plan – Restricted Stock Awards
A summary ofLucid Diagnostics restricted stock award activity isawards 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 | Number of Restricted Stock Awards | Weighted Average Grant Date Fair Value | |||||||||||||
Unvested restricted stock awards as of December 31, 2021 | 1,890,740 | $ | 12.94 | |||||||||||||
Unvested restricted stock awards as of December 31, 2022(1) | 2,091,420 | $ | 11.44 | |||||||||||||
Granted | 320,000 | 4.53 | — | — | ||||||||||||
Vested | — | — | (219,320 | ) | 11.27 | |||||||||||
Forfeited | — | — | — | — | ||||||||||||
Unvested restricted stock awards as of March 31, 2022 | 2,210,740 | $ | 11.07 | |||||||||||||
Unvested restricted stock awards as of March 31, 2023 | 1,872,100 | $ | 11.46 |
(1) | The unvested restricted stock awards presented in the table above, are inclusive of restricted stock awards granted outside the Lucid Diagnostics 2018 Equity Plan as of December 31, 2022. These restricted stock awards were fully vested during the period ended March 31, 2023. |
On January 7, 2022, restricted stock awards were granted under the Lucid Diagnostics Inc 2018 Equity Plan, with such restricted stock awards having a single vesting date on January 7, 2025, 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 Inc. 2014 Equity Plan”), is separate and apart from the Lucid Diagnostics Inc. 2018 Equity Plan (as such equity plan is discussed above).
The three Physician Inventors were each granted stock options under the PAVmed Inc. 2014 Equity Plan, with a grant date of May 12, 2018, an exercise price of $ per share of common stock of PAVmed Inc., vesting ratably on a quarterly basis commencing June 30, 2018 and ending March 31, 2021, and a contractual period of from the date of grant. Additionally, the three Physician Inventors were each granted stock options under the PAVmed Inc. 2014 Equity Plan, with a grant date of June 21, 2021, an exercise price of $ per share of common stock of PAVmed Inc., vesting ratably on a quarterly basis commencing June 30, 2021 and ending March 31, 2024, and a contractual period of ten years from the date of grant. See Note 5, Related Party Transactions, for a summary of the stock-based compensation expense recognized with respect to the stock options granted under the PAVmed Inc. 2014 Equity Plan to the Physician Inventors.
Stock-Based Compensation Expense
Schedule of Stock-Based Compensation Expense
2022 | 2021 | |||||||
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Lucid Diagnostics Inc 2018 Equity Plan – sales and marketing expenses | $ | 265 | $ | — | ||||
Lucid Diagnostics Inc 2018 Equity Plan - general and administrative expense | 3,201 | 789 | ||||||
Lucid Diagnostics Inc 2018 Equity Plan - research and development expenses | 71 | 13 | ||||||
PAVmed Inc 2014 Equity Plan - sales and marketing expenses | 175 | — | ||||||
PAVmed Inc 2014 Equity Plan - general and administrative expenses | 68 | — | ||||||
PAVmed Inc 2014 Equity Plan - research and development expenses | 55 | 3 | ||||||
Total stock-based compensation expense | $ | 3,835 | $ | 805 |
2023 | 2022 | |||||||
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Lucid Diagnostics 2018 Equity Plan – cost of revenue | $ | 12 | $ | — | ||||
Lucid Diagnostics 2018 Equity Plan – sales and marketing expenses | 223 | 265 | ||||||
Lucid Diagnostics 2018 Equity Plan - general and administrative expenses | 2,512 | 3,201 | ||||||
Lucid Diagnostics 2018 Equity Plan - research and development expenses | 70 | 71 | ||||||
PAVmed 2014 Equity Plan - cost of revenue | 7 | — | ||||||
PAVmed 2014 Equity Plan - sales and marketing expenses | 133 | 175 | ||||||
PAVmed 2014 Equity Plan - general and administrative expenses | 156 | 68 | ||||||
PAVmed 2014 Equity Plan - research and development expenses | 95 | 55 | ||||||
Total stock-based compensation expense | $ | 3,208 | $ | 3,835 |
The stock-based compensation expense, as presented above, is inclusive of: stock options and restricted stock awards granted under the Lucid Diagnostics Inc. 2018 Equity Plan to employees of PAVmed, Inc., the Physician Inventors, (as discussed above), and members of the board of directors of Lucid Diagnostics, Inc., as well as the stock options granted under the PAVmed Inc. 2014 Equity Plan to the Physician Inventors (as discussed above).
Note 11 — Stock-Based Compensation - continuedInventors.
As of March 31, 2022,2023, 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 Inc. 2018 Equity Plan and the PAVmed Inc. 2014 Equity Plan, as discussed above, is as follows:
Schedule of Unrecognized Compensation Expense and Weighted Average Remaining Service Period
Unrecognized Expense | Weighted Average Remaining Service Period (Years) | Unrecognized Expense | Weighted Average Remaining Service Period (Years) | |||||||||||||
Lucid Diagnostics Inc. 2018 Equity Plan | ||||||||||||||||
Lucid Diagnostics 2018 Equity Plan | ||||||||||||||||
Stock Options | $ | 4,660 | $ | 4,806 | ||||||||||||
Restricted Stock Awards | $ | 14,080 | $ | 1,706 | ||||||||||||
PAVmed Inc. 2014 Equity Plan | ||||||||||||||||
PAVmed 2014 Equity Plan | ||||||||||||||||
Stock Options | $ | 2,317 | $ | 1,165 | ||||||||||||
Restricted Stock Awards | $ | 264 | $ | — |
16 |
Note 12 — Stock-Based Compensation - continued
Stock-based compensation expense recognized with respect to stock options granted under the Lucid Diagnostics Inc. 2018 Equity Plan was based on a weighted average estimated fair value of such stock options of $ per share and $ per share during the yearperiods ended March 31, 2022. There were stock-based awards granted under the Lucid Diagnostics Inc. 2018 Equity Plan during the period ended March 31, 2021. The stock-based compensation was2023 and 2022, respectively, calculated using the following weighted average Black-Scholes valuation model assumptions:
2023 | 2022 | |||||||
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Expected term of stock options (in years) | ||||||||
Expected stock price volatility | 75 | % | 86 | % | ||||
Risk free interest rate | 3.7 | % | 1.7 | % | ||||
Expected dividend yield | — | % | — | % |
Lucid Diagnostics Inc Employee Stock Purchase Plan (“Lucid ESPP”)
TheA total of shares of common stock of Lucid Diagnostics Inc Employee Stock Purchase Plan (“were purchased for proceeds of approximately $276 on March 31, 2023 under the Lucid Diagnostics Inc ESPP”), initial six-month stock purchase period is April 1, 2022 to September 30, 2022.ESPP. The Lucid Diagnostics Inc. ESPP has a total reservation of shares of common stock forof which all shares are available-for-issue as of March 31, 2022.2023. In January 2023, the number of shares available-for-issue was increased by in accordance with the evergreen provisions of the plan.
Note 1213 — Stockholders’ Equity
Series A Preferred Stock Offering
On March 7, 2023, the Company issued 13.625 million. In connection with the issuance the Company filed a Certificate of Designation of Preferences, Rights and Limitations of the Series A Preferred Stock with the Secretary of State of the State of Delaware (the “Certificate of Designation”). The key terms of the Series A Preferred Stock are as follows: 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 $1,000 (the “Stated Value”), divided by the conversion price in effect at the time of the conversion. The initial conversion price will be $1.394, subject to adjustment in the event of stock splits, stock dividends, and similar transactions. 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, and automatically converts into shares of our common stock on March 7, 2025, the second anniversary of its issuance.
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.
The holders of Series A Preferred Stock will be entitled to dividends payable as follows: (i) a number of shares of Common Stock equal to 20% of the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock then held by such Holder on March 7, 2024, and (ii) a number of shares of Common Stock equal to 20% of the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock then held by such Holder on March 7, 2025. A holder that converts its Series A Preferred Stock prior to March 7, 2024 or March 7, 2025, as the case may be, will not receive the dividend that accrues on such date with respect to such converted Series A Preferred Stock. The holders of the Series A Preferred Stock also will be entitled to dividends equal, on an as-if-converted to shares of Common Stock basis, to and in the same form as dividends actually paid on shares of the Common Stock when, as, and if such dividends are paid on shares of the Common 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.
Except as otherwise provided in the Certificate of Designation or as otherwise required by law, the holders of outstanding shares of Series A Preferred Stock will have no voting rights.
The Company will not effect any conversion of the Series A Preferred Stock, and a holder will not have the right to receive dividends or convert any portion of the Series A Preferred Stock, to the extent that, after giving effect to the receipt of dividends or the conversion, the holder (together with such holder’s affiliates, and any persons acting as a group together with such holder or any of the holder’s affiliates) would beneficially own in excess of 4.99% of the Company’s outstanding common stock (or, upon election of the holder, 9.99% of the Company’s outstanding common stock).
17 |
Note 13 — Stockholders' Equity - continued
The Company and the investors in the offering also executed a registration rights agreement (the “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.
Lucid Diagnostics Inc. Common Stock
ThereAs of March 31, 2023 and December 31, 2022 there were and shares of common stock issued and outstanding, as of March 31, 2022 and December 31, 2021, respectively. As of March 31, 2022,2023, PAVmed Inc. holds shares, representing a majority-interest equity ownership and PAVmed has a controlling financial interest in Lucid Diagnostics Inc.the Company.
Committed Equity Facility - March 28, 2022and ATM Facility
On March 28, 2022, Lucid Diagnostics, Inc.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 $50 million of Lucid Diagnostics Inc.the Company’s common stock from time to time at the request of the Company. While there are distinct differences, the facility is structured similarly to a traditional at-the-market equity facility, insofar as it allows the Company to raise primary equity capital on a periodic basis at prices based on the existing market price. Cumulatively a total of shares of Lucid Diagnostics’ common stock were issued for net proceeds of approximately $1.8 million, after payment of 4% commissions, as of March 31, 2023.
In connection withNovember 2022, the executionCompany 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 the agreement forCompany and Cantor Fitzgerald & Co. In the committedthree months ended March 31, 2023, the Company sold shares through the at-the-market equity facility the Company agreed to pay Cantorfor net proceeds of approximately $1.00.3 million, as consideration for its irrevocable commitment to purchase the shares upon the terms and subject to the satisfactionafter payments of the conditions set forth in such agreement. In addition, pursuant to the agreement, we agreed to reimburse Cantor for certain of its expenses. the Company also entered into a registration rights agreement with Cantor. the Company has the right to terminate the agreement at any time after initial satisfaction of the conditions to Cantor’s obligation to purchase shares under the facility, at no cost or penalty, upon three trading days’ prior written notice.3% commissions.
Schedule of Basic and Fully Diluted Net Loss Per Share
2022 | 2021 | 2023 | 2022 | |||||||||||||
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Numerator | ||||||||||||||||
Net loss | $ | (12,270 | ) | $ | (3,653 | ) | $ | (16,247 | ) | $ | (12,270 | ) | ||||
Denominator | ||||||||||||||||
Weighted average common shares outstanding, basic and diluted | 35,123,039 | 14,114,437 | 40,970,504 | 35,123,039 | ||||||||||||
Loss per share | ||||||||||||||||
Net loss per share | ||||||||||||||||
Net loss per share - basic and diluted | $ | (0.35 | ) | $ | (0.26 | ) | $ | (0.40 | ) | $ | (0.35 | ) |
Basic weighted-average number of shares of common stock outstanding for the periodsthree months ended March 31, 20222023 and 20212022 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:
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Lucid Diagnostics Inc. 2018 Equity Plan: | ||||||||
Stock options | 3,287,727 | 1,145,353 | ||||||
Unvested restricted stock awards | 2,260,740 | 1,467,440 | ||||||
Total | 5,548,467 | 2,612,793 |
2023 | 2022 | |||||||
March 31, | ||||||||
2023 | 2022 | |||||||
Stock options | 5,052,458 | 2,864,427 | ||||||
Unvested restricted stock awards | 1,872,100 | 2,260,740 | ||||||
Preferred stock | 13,695,850 | — | ||||||
Total | 20,620,408 | 5,125,167 |
The total of stock options and unvested restricted stock awards presented in the table above, are inclusive of stock options as of March 31, 2022 and 2021, and restricted stock awards as of March 31, 2022, granted outside the Lucid Diagnostics Inc. 2018 Equity Plan.
Note 14 — Subsequent Events
CapNostics, LLC
On October 5, 2021, PAVmed Subsidiary Corporation, a wholly-owned subsidiary of PAVmed Inc., acquired all of the outstanding common stock of CapNostics, LLC (“CapNostics”) for total (gross) purchase consideration of approximately $2.1 million of cash, paid at the closing of the transaction. In April 2022, following the approval from both the PAVmed and Lucid board of directors, the respective companies entered into an agreement to transfer the CapNostics, LLC assets from PAVmed to Lucid as well as transferring the consulting agreement with the previous principal owner of CapNostics, LLC. The transfer price is $2.1 million for the assets.
EsoCure
EsoCure has been in development as an Esophageal Ablation Device by PAVmed, with the intent to allow a clinician to treat dysplastic BE before it can progress to EAC, a highly lethal esophageal cancer, and to do so without the need for complex and expensive capital equipment. In April 2022, following the approval from both the PAVmed and Lucid board of directors have the Companies entered into an intercompany license between PAVmed and Lucid such that Lucid will be granted the rights to commercialize EsoCure for the treating dysplastic Barrett’s Esophagus, including a royalty arrangement whereby Lucid will pay PAVmed a 5% royalty on all EsoCure sales up to $100 million per calendar year, and 8% above that threshold. Lucid will obligated to fund ongoing development costs and cumulative patent expenses. EsoCure will become part of an integrated suite of Lucid products addressing BE-EAC.
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, 20212022 (the “Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”). We are a majority-owned consolidated subsidiary of PAVmed Inc.
Unless the context otherwise requires, references herein to (i) “we”, “us”, and “our”, and to the “Company”, “Lucid” or “Lucid Diagnostics” are to Lucid Diagnostics Incthe Company and its subsidiarysubsidiaries LucidDx Labs Inc. (“LucidDx Labs”). and CapNostics, LLC (“CapNostics”), (ii) “FDA” are to the Food and Drug Administration, (iii) “510(k)” are 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” are to the Clinical Laboratory Improvement Amendments of 1988 and associated regulations set forth in 42 CFR § 493, and (v) “CE Mark” are 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.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Form 10-Q”), including the following discussion and analysis of our (unaudited)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 the results discussed 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; | |
● | ||
● | 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 | |
● | ||
● | 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 /orand/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, and the Form 10-K, and 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 cancer prevention, medical diagnostics technology company focused on the millions of patients with long-standing 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”), which is expected to lead to approximately 16,000 U.S. deaths in 2021..
We believe that our lead products,flagship product, the EsoGuard Esophageal DNA Test, performed on samples collected with the EsoCheck Esophageal Cell Collection Device, constituteconstitutes the first and only commercially available diagnostic test capable of serving as a widespread screening tool to prevent EAC deaths, through early detection of esophageal precancer in at-risk GERD patients.
EsoGuard is commercializeda 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 laboratory developed test (“LDT”). It was previously performed by our unrelated third-party commercial clinical laboratory service partner ResearchDx Inc. (with a d/b/a “Pacific Dx”) (“RDx”), at their Clinical Laboratory Improvement Amendments (“CLIA”) certified commercial clinical laboratory, located in Irvine, CA. Beginning in March 2022, the EsoGuard LDT has beenDeveloped Test (LDT) performed at our own CLIA-certified commercial clinicallaboratory. Cell samples, including those collected with EsoCheck, as discussed below, are sent to our laboratory, located in Lake Forest, CA. Additionally, RDx also manufacturesfor testing and analyses using our proprietary EsoGuard Specimen Kits. NGS DNA assay.
19 |
EsoCheck is commercializedan 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. 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 U.S. as a 510(k) clearedballoon 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 currently manufactured for uscapable of such anatomically targeted and protected sampling.
EsoGuard and EsoCheck are based on patented technology licensed by our contract manufacturing partner, Sage Product Development Inc., located in Foxborough, MA. We are in the process of transferring EsoCheck manufacturing to Coastline International Inc., a high-volume manufacturer headquartered in San Diego, CA with plants in Mexico. BothLucid from Case Western Reserve University (“CWRU”). EsoGuard and EsoCheck have completedbeen developed to provide an accurate, non-invasive, patient-friendly screening test for the CE Mark certification process. While EsoGuardearly detection of EAC and EsoCheck may be marketed separately, they are not presently approved for marketing together as anBarrett’s Esophagus (“BE”), including dysplastic BE and related precursors to EAC in vitro diagnostic device (“IVD”). EsoGuard, usedpatients with EsoCheck as an IVD, was granted FDA Breakthrough Device designation and is the subject of two large, actively enrolling, international multicenter PMA clinical trials.chronic GERD.
The EsoGuard PLA code 0114U secured final Medicare payment determination of $1,938.01, effective January 1, 2021. The CLIA certified laboratory where the EsoGuard assay is performed has begun to submit claims and receive out-of-network private insurance payments. We are awaiting Medicare local coverage determination. We are also aggressively pursuing EsoGuard U.S. private payor payment and coverage as well as payment in Europe.Recent Developments
We are working to expand EsoGuard commercialization across multiple channels by building a direct sales and marketing team targeting primary care physicians, specialists, institutions and consumers. To assure sufficient testing capacity and geographic coverage, as part of this expansion, we are building our own network of Lucid Test Centers, staffed by Lucid-employed clinical personnel, where patients can undergo the EsoCheck procedure and have the sample sent for EsoGuard testing, starting with three test centers launched in the Phoenix metropolitan area and have recently expanded our test centers into Utah, Nevada, Colorado, Washington, Oregon and Idaho. We’ve also established an EsoGuard Telemedicine Program, in partnership with UpScript, LLC, an independent third-party telemedicine provider, that can accommodate EsoGuard self-referrals from direct-to-consumer marketing.
We are a majority owned subsidiary of PAVmed. We are party to an amended and restated patent license agreement with CWRU, dated August 23, 2021 (“Amended CWRU License Agreement”), which provides for the exclusive worldwide license of the intellectual property rights for the proprietary technologies underlying EsoCheck and EsoGuard.
Recent Developments
Business
Status of Clinical GuidelineTrials
Lucid is currently seeking to accelerate its collection of clinical utility data through a range of trials that can be efficiently executed. These efforts include a planned investigator-initiated, retrospective analysis of prospectively collected data on the approximately 400 San Antonio fire fighters who underwent testing as part of a community-sponsored cancer awareness event (in respect of which we expect to publish results in the first half of 2023); a virtual-patient randomized controlled trial with intended recruitment of at least 100 physician participants (in respect of which we expect to publish results this year); a Lucid-sponsored multi-center, prospective, observational study with 500 patients; and a Lucid-sponsored registry at existing Lucid Test Centers, whereby all patients undergoing EsoCheck testing will be given the opportunity to provide informed consent and contribute data about their risk factors, EsoGuard results, and subsequent diagnostic and/or therapeutic journey. Both Lucid-sponsored observational/registry studies expect to have preliminary results and/or interim analysis before the end of 2023.
LucidDx Labs Laboratory Operations Update - ACG
On February 14, 2023, Lucid and its subsidiary, LucidDx Labs, entered into an agreement (the “MSA Termination Agreement”) with RDx, pursuant to which the parties mutually agreed to terminate the management service agreement between them (the “MSA-RDx”) without cause. The termination was effective as of February 10, 2023. Until the termination of the MSA-RDx, RDx had provided certain testing and related services for our laboratory in accordance with the terms of the MSA-RDx. In anticipation of the termination of the MSA-RDx, however, Lucid accelerated the development of internal resources necessary to operate its laboratory entirely on its own. Accordingly, we believe that termination of the MSA-RDx will improve the efficiency of the performance of the EsoGuard assay.
Among other things, the MSA Termination Agreement reduces the remaining amounts of the earnout payments and management fees due under the MSA-RDx and the related asset purchase agreement (the “APA-RDx”) to $0.7 million (from the $3.4 million that would otherwise have been payable under the MSA-RDx and APA-RDX, if the MSA-RDx had remained in effect through the balance of its stated term), resulting in a net savings to Lucid of $2.7 million. The payment was satisfied through the issuance of 553,436 shares of Lucid’s common stock on February 25, 2023. Lucid was not required to make any cash payments in connection with the termination.
#CheckYourFoodTube Events
In April 2022,January 2023, we completed our first #CheckYourFoodTube Precancer Testing Event, with the American CollegeSan Antonio Fire Department (the “SAFD”) during Firefighter Cancer Awareness Month as designated by the International Association of Gastroenterology (“ACG”) updated its clinical guidelineFire Fighters (IAFF). A total of 391 members who were deemed to support esophageal precancer (“Barrett’s Esophagus”, “BE”) screening to prevent highly lethal esophageal cancer (“EAC”) utilizing our EsoGuard® DNA Test on samples collected with our EsoCheck® Cell Collection Device. The clinical guideline reiterates the ACG’s long-standing recommendationbe at-risk for esophageal precancer, screening in at-risk patients with gastroesophageal reflux disease (“GERD”), commonly known as chronic heartburn, acid reflux or simply reflux. In its Recommendation 5, the ACG suggestsunderwent a single screening endoscopy in patients with chronic GERD symptoms and 3 or more additional risk factors for BE, including male sex, age >50 yr, White race, tobacco smoking, obesity, and family history of BE or EAC in a first-degree relative. Furthermore, and importantly for the first time, the clinical guideline also endorses nonendoscopic biomarker screening as an acceptable alternative to costly and invasive endoscopy by stating in its Recommendation 6 that the ACG suggests that a swallowable, nonendoscopic capsule device combined with a biomarker is an acceptable alternative to endoscopy for screening for BE. The clinical guideline specifically mentions EsoCheck, along with Lucid’s EsophaCap® device, as such swallowable, nonendoscopic esophagealbrief, on-site, noninvasive cell collection devices, as well as methylated DNA biomarkers such as EsoGuard. The summary of evidence for this recommendation cites the seminal NIH-funded multicenter, case-control study published in 2018 in Science Translational Medicine, which demonstrated that EsoGuard is highly accurate at detectingprocedure, 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 cancer, including on samples collectedwill undergo appropriate monitoring and treatment, as indicated by clinical practice guidelines, to prevent progression to esophageal cancer.
Since then, an additional screening event was hosted with EsoCheck.the SAFD and four similar events have been held with fire departments in Athens, GA, Barnstable, MA, Gainesville, FL, and Orange County, CA. These events, which Lucid continues to expand across the country, are an extension of Lucid’s expanding satellite Lucid Test Center (“sLTC”) program, which brings Lucid precancer testing directly to patients—at their physician’s office and now at large testing day events.
Local Coverage Determination Update - CMS
In April 2022, a proposed Local Coverage Determination (“LCD”) DL39256, entitled “Molecular Testing for DetectionLaunch of Upper Gastrointestinal Metaplasia, Dysplasia, and Neoplasia” was published on the Center for Medicare and Medicaid Services (“CMS”) website by MAC Palmetto GBA. The proposed LCD is a further step in Lucid’s efforts to secure Medicare coverage and payment for EsoGuard.
The proposed LCD, which the CMS website explicitly characterizes as a “work in progress” for “public review,” outlines criteria that MolDX expects upper gastrointestinal precancer and cancer molecular diagnostic tests to meet. These criteria include active GERD with at least two risk factors, as well as evidence of analytic validity, clinical validity, and clinical utility. Although it found that no currently existing test has fulfilled all these criteria, it indicated that it will “monitor the evidence and will provide coverage based on the pertinent literature and society recommendations.” Notably, the proposed LCD pre-dated, and therefore does not include consideration of, the most recent ACG clinical guideline update endorsing swallowable, nonendoscopic capsule devices combined with a biomarker, such as EsoCheck and EsoGuard. The publication of the proposed LCD included a written comment period that extended through May 14, 2022. MolDX held an open meeting on May 10, 2022, during which stakeholders and other interested parties had the opportunity to address the proposed LCD.
We have used the written comment process and the open meeting to bring to MolDX essential information that was not incorporated into the proposed LCD. These include: the updated ACG clinical guideline; the fact that EsoGuard’s published performance is at or above accepted performance criteria for detection of lower gastrointestinal cancers in approved and currently effective Medicare coverage determinations; and data from ongoing clinical utility studies Lucid and clinical investigators are performing. A final LCD will not be issued until the MAC has had the opportunity to assess and consider the comments and input from the written comment period and the open meeting.
MediNcrease Health Plans
In May 2022 LucidDx Labs, Inc. entered into a participating provider agreement with MediNcrease Health Plans, LLC (“MediNcrease”). A national directly-contracted, multi-specialty PPO provider network with over 8 million lives covered through its clients and payers, which include regional and national health plans, insurance companies, third party administrators, self-insured employer groups, municipalities, unions and other entities involved in the management of medical claims. Pursuant to the agreement, persons covered by MediNcrease clients and payers will have in-network access to Lucid’s EsoGuard® DNA test, the first and only commercially available test capable of serving as a widespread tool to prevent esophageal cancer deaths through the early detection of esophageal precancer in at-risk chronic heartburn patients. The agreement provides rates of reimbursement as a percent of charges for services rendered to such covered persons by LucidDx Labs, including the performance of the EsoGuard test.
Recent Developments - continued
Business - continued
CLIA Lab Acquisition
In February 2022, Lucid Diagnostics, Inc. through its wholly owned subsidiary LucidDx Labs, Inc. entered into an asset purchase agreement (“APA”) with ResearchDx, Inc. (“RDx”) Under the APA, LucidDx Labs acquired certain licenses and other related assets necessary to operate a CLIA-certified, CAP-accredited clinical laboratory. The acquired assets, together with certain additional assets necessary to commence laboratory operations that were separately purchased by LucidDx Labs, will be used by Lucid to perform the EsoGuard® Esophageal DNA assay.
EsoCure Intercompany License
In April 2022, we entered into an intercompany license between PAVmed and Lucid such that Lucid has been granted the rights to commercialize EsoCure for treating dysplastic Barrett’s Esophagus, including a royalty arrangement whereby Lucid will pay PAVmed will be obligated to fund ongoing development costs and cumulative patent expenses. EsoCure will become part of an integrated suite of Lucid products addressing BE-EAC. EsoCure is in development as an “Esophageal Ablation Device” with the intent to allow a clinician to treat dysplastic BE before it can progress to EAC, a highly lethal esophageal cancer, and to do so without the need for complex and expensive capital equipment. We have successfully completed a pre-clinical feasibility animal study of EsoCure demonstrating excellent, controlled circumferential ablation of the esophageal mucosal lining. We plan to conduct additional development work and animal testing of EsoCure to support a planned FDA 510(k) submission in the second half of 2022.
EsophaCap Intercompany Assignment
In April 2022, following the approval from both the PAVmed and Lucid board of directors, the respective companies entered into an agreement to transfer the CapNostics, LLC assets from PAVmed to Lucid as well as transferring the consulting agreement with the previous principal owner of CapNostics, LLC. The transfer price is $2.1 million for the assets. On October 5, 2021, PAVmed Subsidiary Corporation, a wholly-owned subsidiary of PAVmed Inc., acquired all of the outstanding common stock of CapNostics, LLC (“CapNostics”) for a total (gross) purchase consideration of approximately $2.1 million of cash, paid at the closing of the transaction.
FinancingDirect Contracting Strategic Initiative
In March 2022, Lucid Diagnostics, Inc.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.
Seventh Amendment to Management Services Agreement
As discussed, above, 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. On May 9, 2023, the Company and PAVmed entered into a committed equity facility with an affiliate of Cantor Fitzgerald (“Cantor”). Underseventh amendment to the terms ofMSA to increase the facility, Cantor has committedMSA Fee to purchase up to $50$0.75 million of Lucid Diagnostics Inc. common stock from time to time at the request of Lucid Diagnostics Inc. While there are distinct differences, the facility is structured similarly to a traditional at-the-market equity facility, insofar as it allows Lucid Diagnostics Inc. to raise primary capital on a periodic basis at prices based on the existing market price.per month, effective January 1, 2023.
Impact of SARS-CoV-2 - COVID-19 PandemicFinancing
Series A Preferred Stock Offering
Previously, in December 2019, there was an outbreak of a novel strain of a coronavirus occurred, with such coronavirus designated by the United Nations World Health Organization (“WHO”) as the “Severe Acute Respiratory Syndrome Coronavirus 2” - or “SARS-CoV-2”. The SARS-CoV-2 spread on a global basis to other countries, including the United States. On March 11, 2020,7, 2023, we entered into subscription agreements for the WHO declared a pandemic resulting from SARS-CoV-2, with such pandemic commonly referred to by its resulting illnesssale of coronavirus disease 2019, or “COVID-19”13,625 shares of Series A convertible preferred stock, par value $0.001 per share (the “Series A Preferred Stock”). The COVID-19 pandemic is ongoing, and we continue to monitor the ongoing impactEach share of the COVID-19 pandemicSeries 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, and automatically converts into shares of our common stock on the United States national economy,second anniversary of its issuance. The terms of the global economy,Series A Preferred Stock also include a preference on liquidation and our business.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.
Private Placement - Securities Purchase Agreement
Effective as of March 13, 2023, we entered into a Securities Purchase Agreement (“SPA”) with an accredited institutional investor (“Investor”, “Lender”, and /or “Holder”), 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 Senior Convertible Note”). We issued the March 2023 Senior Convertible Note on March 21, 2023 pursuant to the SPA. The March 2023 Senior Convertible Note proceeds were $9.925 million after deducting a $1.186 million lender fee and offering costs.
The COVID-19 pandemic may have an adverse impactMarch 2023 Senior Secured Convertible 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 and interest on our operations, supply chains,the March 2023 Senior Convertible Note is convertible into or otherwise payable in shares of the Company’s common stock (subject to the satisfaction of certain customary equity conditions and distribution systems and /or those of our contractors, and increase our expenses, including as a result of impacts associated with preventive and precautionary measures being taken, restrictions on travel, quarantine polices, and social distancing. Such adverse impact may include,except for example, the inability of our employees and /or those of our contractorsinterest payable prior to perform their work or curtail their services provided to us.September 21, 2023).
We expectUnder the significanceMarch 2023 Senior Convertible 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 Senior Convertible Note, the Company is also subject to financial covenants requiring that (i) the amount of our available cash equal or exceed $5.0 million at all times, (ii) the ratio of (a) the outstanding principal amount of the COVID-19 pandemic, includingnotes issued under the extentSPA, accrued and unpaid interest thereon and accrued and unpaid late charges as of its effect on our consolidated financial conditionthe 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, not exceed 30%, and consolidated operational results and cash flows, to(iii) that the Company’s market capitalization shall at no time be dictated by the success of United States and global efforts to mitigate the spread of and /or to contain the SARS-CoV-2 and the impact of such efforts.less than $30 million.
ATM Facility
In addition,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 Fitzgerald & Co. (“Cantor”). In the spreadthree months ended March 31, 2023, we sold 230,068 shares through our at-the-market equity facility for net proceeds of the SARS-CoV-2 has disrupted the United States’ healthcare and healthcare regulatory systems which could divert healthcare resources away from, or materially delay United States Food and Drug Administration (“FDA”) approval with respect to our products.approximately $0.3 million, after payment of 3% commissions.
Furthermore, our clinical trials have been and may be further affected by the COVID-19 pandemic, as site initiation and patient enrollment may be delayed, for example, due to prioritization of hospital resources toward the virus and /or illness response, as well as travel restrictions imposed by governments, and the inability to access clinical test sites for initiation and monitoring.
The COVID-19 pandemic may have an adverse impact on the economies and financial markets of many countries, including the USA, resulting in an economic downturn that could adversely affect demand for our products and services and /or our product candidates.
Although we are continuing to monitor and assess the effects of the COVID-19 pandemic on our business, the ultimate impact of the COVID-19 pandemic (or a similar health epidemic) is highly uncertain and subject to change, and therefore, its impact on our consolidated financial condition, consolidated results of operations, and /or consolidated cash flows, the adverse impact could be material.
Results of Operations
Overview
Revenue
RevenueThe 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’s majority-owned subsidiary, Lucid Diagnostics Inc.,Company and ResearchDX Inc. (“RDx”),RDx, a CLIA certified commercial laboratory service provider. On February 25, 2022, the EsoGuard Commercialization Agreement was terminated upon the execution of an Asset Purchase Agreement between LucidDx Labs Inc., a wholly-owned subsidiary of Lucid Diagnostics Inc. and RDx.the APA-RDx.
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.
The cost of revenue recognized with respect to the revenue recognized under the EsoGuard Commercialization Agreement is inclusive of: a royalty fee incurred under the Amended CWRU License Agreement; the MSA FeeAgreement (as defined and discussed herein below) allocatedin Note 4, Related Party Transactions, to our accompanying unaudited condensed consolidated financial statements); the cost of revenue, which is principally employee related costs of PAVmed employees engaged in the administration to patients of the EsoCheck cell sample collection procedure (principally at the LUCID Test Centers); the EsoCheck devices and EsoGuard mailers (cell sample shipping costs) distributed to medical practitioners locations and the LUCIDLucid Test Centers; and LUCIDLucid 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 allocated to sales and marketing expenses, which are principally employeecosts related costs ofto PAVmed employees as well as advertising and promotion expenses.who are performing services for the Company. We anticipate our sales and marketing expenses will increase in the future, as we anticipate an increase in payroll and related expenses related to the roll-out of our commercial sales and marketing operations as we execute on our business strategy.
General and administrative expenses
General and administrative expenses consist primarily of professional fees, accounting and legal services, consultants and expenses associated with obtaining and maintaining patents within our intellectual property portfolio, along with the portion of the MSA Fee (as defined in Note 4, Related Party Transactions, to our accompanying unaudited condensed consolidated financial statements) allocated to general and administrative expenses.
We anticipate our general and administrative expenses will increase in the future as we anticipate an increase in the MSA Fee allocated to general and administrative expense, related to continued expansion of our overall business operations. We also anticipate expenses related to being a public company, including professional services fees for legal, accounting, tax, audit, employees involved in third-party payor reimbursement contract negotiations and regulatory services associated with maintaining compliance as a public company, along with insurance premiums, investor relations, and other corporate expenses.
Results of Operations - continued
Overview - continued
Research and Development Expensesdevelopment 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:
● | consulting costs charged to us by various external contract research organizations we contract with to conduct clinical and preclinical studies and engineering | |
● | costs associated with regulatory filings; | |
● | patent license fees; | |
● | cost of laboratory supplies and acquiring, developing, and manufacturing preclinical prototypes; | |
● | product design engineering studies; | |
● | fees associated with conducting clinical trials for our EsoGuard diagnostic assay; and | |
● | MSA Fee allocated to research and development, as such MSA Fee are discussed below. |
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 obtaining FDA approvals, 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.
22 |
Results of Operations - continued
Overview - continued
Presentation of Dollar Amounts
All dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented in thousands of dollars, if not otherwise indicated as being presented as dollars in millions, except for the number of shares and per share amounts.
Three Monthsmonths ended March 31, 20222023 as compared to three months ended March 31, 20212022
Revenue
In the three months ended March 31, 2022,2023, revenue was $0.2$0.4 million as compared to no revenue in$0.2 million for the corresponding period in the prior year. The $0.2 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 dated August 1, 2021,with RDx, in the prior year period, which resulted in revenue recognition of $0.1 million per month beginning August 2021 - through thewas terminated on February 25, 2022 termination date of such agreement.as the Company transitioned to its own laboratory operations.
Cost of revenue
In the three months ended March 31, 2022,2023, cost of revenue was approximately $1.3 million as compared to $0.4 million compared to no cost of revenue infor the corresponding period in the prior year. The $0.4$0.9 million increase principally relates to costs associated with the EsoGuard Commercialization Agreement noted above.related to:
● | approximately $0.4 million increase in laboratory facility and operations costs; | |
● | approximately $0.3 million increase in EsoCheck and EsoGuard supplies usage costs; and | |
● | approximately $0.2 million increase in compensation related costs as a result of an increase in headcount. |
Sales and marketing expenses
In the three months ended March 31, 2022,2023, sales and marketing costs were approximately $3.3$4.1 million as compared to $0.7$3.3 million for the corresponding period in the prior year. The net increase of $2.6$0.8 million was principally related to:
● | approximately | |
● | approximately | |
General and administrative expenses
In the three months ended March 31, 2022,2023, general and administrative costs were approximately $5.7$6.5 million as compared to $1.2$5.9 million for the corresponding period in the prior year. The net increase of $4.5$0.6 million was principally related to:
● | approximately | |
● | approximately $0.6 million increase in third-party professional services related to legal services, accounting and audit services, outsourced information technology services, investor relations expenses, and public company expenses; | |
● | approximately $0.6 million decrease in stock-based compensation from RSA and stock option grants to Lucid employees and non-employees; and | |
● | approximately $0.3 million decrease in general business expenses related to favorable renewal of corporate insurance policies. |
Results of Operations - continued
Three Monthsmonths ended March 31, 20222023 as compared to three months ended March 31, 20212022 - continued
Research and development expenses
In the three months ended March 31, 2022,2023, research and development costs were approximately $2.9$2.3 million, compared to $1.8$2.9 million for the corresponding period in the prior year. The net increasedecrease of $1.1$0.6 million was principally related to:
● | approximately | |
● | approximately | |
● | approximately $0.2 million increase |
See our accompanying unaudited condensed consolidated financial statements for each of: Note 54, Related Party Transactions,for a discussion of the consulting fee expense and stock based compensation expense recognized with respect to the Physician Inventors consulting agreements and stock options and restricted stock awards;awards and for a discussion of the MSA between Lucid Diagnostics and PAVmed; and Note 1112, Stock-Based Compensation, for information regarding each of the Lucid Diagnostics 2018 Equity Plan and the PAVmed Inc. 2014 Equity Plan.
Amortization of Acquired Intangible Assets
In the three months ended March 31, 2023, the amortization of acquired intangible assets was approximately $0.5 million as compared to no intangible asset amortization in the corresponding period in the prior year. The increase was principally related to the purchase of laboratory licenses and certifications and laboratory information management software in Q1 2022 and the amortization of a defensive asset.
Other Income and Expense
Change in fair value of convertible debt
In the three months ended March 31, 2023, the non-cash expense recognized for the change in the fair value of our convertible notes was approximately $0.8 million, related to the March 2023 Senior Convertible Note. The March 2023 Convertible Note was initially measured at it’s issue-date estimated fair value and subsequently remeasured at estimated fair value as of the reporting period date. The Company initially recognized a $0.8 million fair value non-cash expense on the issue-dates. There was no change in fair value upon remeasurement through March 31, 2023.
Loss on Issue and Offering Costs - Senior Secured Convertible Note
In the three months ended March 31, 2023, in connection with the issue of the March 2023 Senior Convertible Notes, we recognized a total of approximately $1.2 million of lender fee and offering costs paid by us.
See Note 11, Debt, to our accompanying unaudited condensed consolidated financial statements, for additional information with respect to the March 2023 Senior Convertible Note.
24 |
Liquidity and Capital Resources
Our current operational activities are principally focused on the commercialization of EsoGuard. We have financedare expanding commercialization across multiple sales channels, including: the communication to and education of medical practitioners and clinicians regarding EsoGuard; and the establishment of Lucid Diagnostics Test Centers for the collection of cell samples using EsoCheck. 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 operations principally through advances from PAVmedability to successfully advance the commercialization of EsoGuard, while also completing the clinical studies, product and throughservice 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 issuancelong-term commercialization and development of common stock inour products and services.
Prior to our initial public offering (“IPO”). of our common stock in October 2021, our operations were funded by PAVmed, inclusive of providing working capital cash advances and the payment of certain operating expenses on our behalf. Additionally, certain of our operations continue to be managed by PAVmed personnel, for which we incur expense according to the provisions of a MSA between us and PAVmed. See Note 4, Related Party Transactions, to our accompanying unaudited condensed consolidated financial statements, for a discussion of the MSA.
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 R&Dresearch and development activities and conducting clinical trials. We experienced a net loss of approximately $16.2 million and used approximately $7.0 million of cash in operations for the three months ended March 31, 2023. Financing activities provided $24.1 million of cash during the three months ended March 31, 2023. We ended the quarter with cash on-hand of $39.5 million as of March 31, 2023. We expect to continue to experience recurring losses and negative cash flow from operations and will continue to fund our operations with debt and/orand equity financing transactions. Notwithstanding, however, with theour cash on-hand as of March 31, 2022, we expectthe date hereof and the committed equity sources of financing described below, the Company expects to be able to fund our futureits operations and meet its financial obligations as they become due for the one year period from the date of the issue of ourthe Company’s unaudited condensed consolidated financial statements, as included herein in this Quarterly Report on Form 10-Q10-Q.
Series A Preferred Stock Offering
On March 7, 2023, we entered into subscription agreements for the periodsale of 13,625 shares of Series A Preferred Stock. 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, 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.
Private Placement - Securities Purchase Agreement
Effective as of March 13, 2023, we entered into a Securities Purchase Agreement (“SPA”) with an accredited institutional investor (“Investor”, “Lender”, and /or “Holder”), 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 Senior Convertible Note”). We issued the March 2023 Senior Convertible Note on March 21, 2023 pursuant to the SPA. The Lucid March 2023 Senior Convertible Note proceeds were $9.925 million after deducting a $1.186 million lender fee and offering costs.
The March 2023 Senior Secured Convertible 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 and interest on the March 2023 Senior Convertible Note is convertible into or otherwise 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).
Under the March 2023 Senior Convertible 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 Senior Convertible Note, the Company is also subject to financial covenants requiring that (i) the amount of our available cash 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, not exceed 30%, and (iii) that the Company’s market capitalization shall at no time be less than $30 million (the "Financial Tests"). As of March 31, 2023, the Company was in compliance with the Financial Tests. In addition, the Company presently is in compliance with the Financial Tests.
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 payment of 4% commissions, as of March 31, 2023.
25 |
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 three months ended March 31, 2022.2023, 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.
Due To: PAVmed Inc.
Since our inception in May 2018 through our IPO in October 2021, our operations were been funded by PAVmed providing working capital cash advances and the payment by PAVmed of certain operating expenses on-our-behalf.on our behalf. Additionally, our daily operations have been and continue to be principally managed by personnel employed by PAVmed, for which we incur a MSA Fee expense accordingexpense. The MSA Fee is charged on a monthly basis and is subject-to periodic adjustment corresponding with changes in the services provided by PAVmed Inc. personnel to the provisionsCompany, with any such change in the MSA Fee being subject to approval of the Lucid Diagnostics Inc. and PAVmed Inc. boards of directors. In this regard, in May 2023, the respective companies’ boards of directors approved a seventh amendment to the MSA discussed above.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, PAVmed and we entered into a payroll and benefit expense reimbursement agreement (the “PBERA”). 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 March 31, 2022,2023, we had a Due To: PAVmed Inc. payment obligation liability of an aggregate of approximately $1.8$7.6 million payable to reimburse for the reimbursement of employee related costs and certain payroll, benefit and other operating expenses paid by PAVmed Inc. on our behalf. See our accompanying unaudited condensed consolidated financial statements Note 6,5, Due To PAVmed Inc.
Lucid Diagnostics Inc. Committed Equity Facility
In March 2022, we entered into a committed equity facility with an affiliate of Cantor Fitzgerald (“Cantor”). Under the terms of the facility, Cantor has committed to purchase up to $50 million in our shares of our common stock from time to time at our request. While there are distinct differences, the facility is structured similarly to a traditional at-the-market equity facility, insofar as it allows the Company to raise primary equity capital on a periodic basis at prices based on the existing market price.
Upon the initial satisfaction of the conditions to Cantor’s obligation to purchase shares under the facility, including that a registration statement registering the resale by Cantor of the Shares under the Securities Act is declared effective by the SEC and a final prospectus relating thereto is filed with the SEC, we will have the right, but not the obligation, from time to time at our sole discretion until the first day of the month next following the expiration of the 36-month period after the effective date of the registration statement, to direct Cantor to purchase shares in accordance with the terms of the facility, by delivering written notice to Cantor prior to the commencement of trading on any trading day, subject to certain maximum amounts. The purchase price of the shares will be 96% of the volume weighted average price of the shares of common stock during the trading date on which we have timely delivered written notice to Cantor directing it to purchase shares under the facility.
We will not sell, and Cantor will not purchase, any shares pursuant to the facility, if the aggregate number of shares of common stock issued pursuant to the facility would exceed 7,482,763 shares of common stock, unless we obtain approval of our stockholders for the sale of shares in excess of such amount. In addition, we will not sell, and Cantor will not purchase, any shares pursuant to the facility, which, when aggregated with all other shares of common stock then beneficially owned by Cantor and its affiliates, would result in the beneficial ownership by Cantor and its affiliates of more than 4.99% of our outstanding voting power or shares of common stock.
In connection with the execution of the agreement for the facility, we agreed to pay Cantor $1.0 million as consideration for its irrevocable commitment to purchase the shares upon the terms and subject to the satisfaction of the conditions set forth in such agreement. In addition, pursuant to the agreement, e agreed to reimburse Cantor for certain of its expenses. We also entered into a registration rights agreement with Cantor. We have the right to terminate the agreement at any time after initial satisfaction of the conditions to Cantor’s obligation to purchase shares under the facility, at no cost or penalty, upon three trading days’ prior written notice.
Critical Accounting Policies and Significant Judgments and Estimates
The discussion and analysis of our (unaudited) financial condition and consolidated 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 affectingthat affect the reported amounts of assets, liabilities, and equity, along with the disclosure of contingent assets and liabilities at the date of thereporting in our unaudited condensed consolidated financial statements and the reported amounts of expenses during the corresponding periods.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 assumptions we believefactors that are reasonablebelieved to be appropriate under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Please seeOur 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 and Recent Accounting Standards Updates, ofto our unaudited condensed consolidated financial statements included herein in this Form 10-Q forwith respect to our Senior Convertible Notes issued in March 2023. We determined upon the issuance of our March 2023 Senior Convertible Note to elect the fair value option. At issuance, the carrying value of the March 2023 Senior Convertible 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 Senior Convertible 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 summarymaterial impact to the carrying value of significant accounting policies.the Senior Convertible 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 March 31, 2022.2023. 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 our internal controls 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 March 31, 20222023 that has materially affected, or is reasonably likely to materially affect, our internals control over financial reporting.
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. Except as otherwise noted herein, the Company does not believe it is currently a party to any other pending legal proceedings. 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, we did not sell any unregistered securities or repurchase any of our securities during the three months ended March 31, 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 March 31, 2023, of the net proceeds of $64.4 million, approximately $50.6 million has been used, in a manner consistent with the use of proceeds set forth in the prospectus for our IPO, as follows: approximately $5.3 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 $40.3 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
None.As discussed, above, 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. On May 9, 2023, the Company and PAVmed entered into a seventh amendment to the MSA to increase the MSA Fee to $0.75 million per month, effective January 1, 2023.
Item 6. Exhibits
The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth in the “Exhibit Index” below.
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. | ||
May | By: | /s/ Dennis M McGrath |
Dennis M McGrath | ||
Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |
EXHIBIT INDEX
* Filed herewith.
‡ Certain exhibits and schedules have been omitted pursuant to Item 601(b)(10) of Regulation S-K. The registrant hereby undertakes to furnish supplementally a copy of any omitted exhibit or schedule upon request by the Securities and Exchange Commission.