LUCID DIAGNOSTICS INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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, 2021 (the "Form 10-K"), as filed with the Securities and Exchange Commission (the "SEC"). We are a majority-owned consolidated subsidiary of PAVmed Inc. ("PAVmed").

Unless the context otherwise requires, references herein to "we", "us", and "our", and to the "Company" or "Lucid Diagnostics" are to Lucid Diagnostics Inc and its subsidiaries LucidDx Labs Inc. ("LucidDx Labs") and CapNostics, LLC ("CapNostics").

                           FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this "Form 10-Q"), including the following discussion and analysis of our (unaudited) condensed consolidated financial condition and results of operations, contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are not guarantees of future performance and the Company's actual results may differ significantly from 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;

? the ability of our products to achieve market acceptance; ? our success in retaining or recruiting, or changes required in, our officers,

  key employees or directors;
? our potential ability to obtain additional financing when and if needed;
? our ability to protect our intellectual property;
? our ability to complete strategic acquisitions;
? our ability to manage growth and integrate acquired operations;
? the potential liquidity and trading of our securities;
? our regulatory and operational risks;
? cybersecurity risks;
? risks related to the COVID-19 pandemic;
? risks related to our relationship with PAVmed; and
? our estimates regarding expenses, future revenue, capital requirements and

needs for additional financing.

In addition, our forward-looking statements do not reflect the potential impact of any future financings, acquisitions, mergers, dispositions, joint ventures or investments we may make.

We may not actually achieve the plans, intentions, and/or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. You should read this Form 10-Q 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.

18







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") 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 per year.

We believe that our lead products, the EsoGuard Esophageal DNA Test performed on samples collected with the EsoCheck Esophageal Cell Collection Device, constitute 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 a DNA test performed on surface esophageal cells collected with

EsoCheck in a brief noninvasive office procedure which has been shown to be

over 90% sensitive and specific at detecting Barrett's Esophagus ("BE"), a

precancerous condition of the esophagus and all conditions along the BE-EAC

spectrum. (Moinova, et al. Sci Transl Med. 2018 Jan 17;10(424): eaao5848).

? EsoCheck is a swallowable balloon capsule catheter capable of sampling surface

esophageal cells in a less-than -five-minute, noninvasive office procedure. We

believe EsoCheck's Collect+Protect™ technology makes it the only noninvasive

esophageal cell collection device capable of anatomically targeted and

protected sampling to prevent dilution and contamination during device

  withdrawal.

We are party to an amended and restated patent license agreement with CWRU, dated August 23, 2021 (the "Amended CWRU License Agreement"), which provides for the exclusive worldwide license of the intellectual property rights for the proprietary technologies underlying EsoCheck and EsoGuard.

EsoGuard is commercialized 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. ("RDx"), at their Clinical Laboratory Improvement Amendments ("CLIA") certified commercial clinical laboratory, located in Irvine, CA. Beginning in March 2022, EsoGuard has been performed at our own CLIA-certified commercial clinical laboratory, located in Lake Forest, CA. RDx also currently manufactures our EsoGuard specimen kits. EsoCheck is commercialized in the U.S. as a 510(k) cleared esophageal cell collection device currently manufactured for us by our contract manufacturing partner, Sage Product Development Inc., located in Foxborough, MA. As discussed below, we are in the process of transferring EsoCheck manufacturing to Coastline International Inc., a high-volume manufacturer headquartered in San Diego, CA. EsoCheck has completed the CE Mark certification process. EsoGuard, used with EsoCheck, was granted Food and Drug Administration ("FDA") Breakthrough Device designation and requires the completion of an international multicenter pre-market approval ("PMA") clinical trial to be able to submit EsoGuard to the FDA for approval as an in vitro diagnostic device ("IVD").

EsoGuard secured a final Medicare payment determination of $1,938.01, effective January 1, 2021. We are awaiting a Medicare local coverage determination ("LCD"), as discussed in more detail below. We are also aggressively pursuing U.S. private payor payment and coverage, as well as payment in Europe.

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. We have 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.

Updated Clinical Guidelines and Guidance

In April 2022, the American College of Gastroenterology ("ACG") updated its clinical guideline to support esophageal precancer (including BE) screening to prevent highly lethal EAC utilizing EsoGuard on samples collected with EsoCheck. The clinical guideline reiterates the ACG's long-standing recommendation for esophageal precancer screening in at-risk patients with GERD, commonly known as chronic heartburn, acid reflux or simply reflux. In its Recommendation 5, the ACG suggests a single screening endoscopy in patients with chronic GERD symptoms and 3 or more additional risk factors for BE, including male sex, age greater than 50 years, 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 our EsophaCap device, as such swallowable, nonendoscopic esophageal cell collection devices. The clinical guideline also mentions methylated DNA markers (like those detected by the EsoGuard test) as such a biomarker. The summary of evidence for this recommendation includes a reference to the seminal NIH-funded multicenter, case-control study published in 2018 in Science Translational Medicine, which demonstrated that EsoGuard is highly accurate at detecting esophageal precancer and cancer, including on samples collected with EsoCheck.

19







Overview - continued

In July 2022, the American Gastroenterology Association ("AGA") published updated clinical guidance that mirrors the same furnished by the ACG as described above, endorsing the use of non-invasive screening tools like EsoCheck, which is cited in its guideline, as an acceptable alternative to endoscopy to directly address the need for noninvasive screening tools that are easy to administer, patient friendly, and cost-effective for the detection of BE. The clinical practice update by the AGA also significantly expands the target population for esophageal precancer screening, including for EsoGuard and EsoCheck, by recommending, for the first time, screening in at-risk patients without symptoms of reflux. The AGA does so by adding a history of chronic GERD as merely an additional, seventh risk factor to the six risk factors for BE and EAC that have traditionally identified at-risk symptomatic patients recommended for screening. As a result, chronic symptomatic GERD is no longer a mandatory prerequisite and asymptomatic patients with three of the other six risk factors (e.g., male sex, age greater than 50 years, White race, tobacco smoking, obesity, and family history of BE) are now considered at-risk patients recommended for screening.

Local Coverage Determination

In April 2022, a proposed LCD DL39256, entitled "Molecular Testing for Detection of Upper Gastrointestinal Metaplasia, Dysplasia, and Neoplasia" was published on the Center for Medicare and Medicaid Services ("CMS") website by the Medicare Administrative Contractor ("MAC") Palmetto GBA. The proposed LCD is a further step in our 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 MAC Palmetto GBA's Molecular Diagnostic Services Program ("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.

Following the MAC Palmetto GBA release of a proposed LCD, the MAC Noridian Healthcare Solutions published a proposed LCD entitled Molecular Testing for Detection of Upper Gastrointestinal Metaplasia, Dysplasia, and Neoplasia DL39262. The proposed LCD mirrors the MAC Palmetto GBA proposed LCD. We have used the MAC Noridian Healthcare Solutions open meeting held on May 26, 2022, and the written comment period that ended on June 11, 2022 to bring the same essential information that we provided to the MAC Palmetto GBA to maintain consistency in our approach and advocate appropriately.

Status of Clinical Trials

In 2021, we began conducting two concurrent clinical trials, the "EsoGuard screening study" ("BE-1") and the "EsoGuard case-control study" ("BE-2"), to expand the clinical evidence for the technologies and to support FDA pre-market approval ("PMA") of the use of EsoGuard and EsoCheck as an in-vitro diagnostic medical device ("IVD"). However, in light of the MAC Palmetto GBA's recently published proposed LCD DL39256, the recently updated AGA guidance, and the ACG update to its clinical guideline that supports screening to prevent highly lethal EAC utilizing a biomarker test like EsoGuard on samples collected with a swallowable, nonendoscopic capsule device like EsoCheck, we have determined to prioritize our clinical trial efforts and resources towards supporting studies that will help secure insurance reimbursement adoption for EsoGuard by government and private insurers. Consequently, we have decided to delay for the time being the BE-1 trial while continuing to enroll GERD patients with a previous diagnosis of nondysplastic BE, low grade dysplasia, high grade dysplasia, or EAC in the BE-2 case-control study through Q2 2023.

EsoCure Esophageal Ablation Device

In connection with our efforts to expand our presence in the diagnostic market, we are also developing a third product, the EsoCure 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. As described in Note 5, Due To PAVmed Inc., we entered into a license agreement with our parent company, PAVmed, pursuant to which we were granted the rights to commercialize EsoCure. A successful pre-clinical feasibility animal study of EsoCure has been completed, demonstrating excellent, controlled circumferential ablation of the esophageal mucosal lining. An acute and survival animal study of EsoCure has also been completed, demonstrating successful direct thermal balloon catheter ablation of esophageal lining through the working channel of a standard endoscope. We plan to conduct additional development work and animal testing of EsoCure to support a future FDA 510(k) submission.

20







Recent Developments



Business



Reimbursement - Private Payer

As part of the transition to our own CLIA-certified commercial clinical laboratory, we contracted with a revenue cycle management ("RCM") service provider to submit third-party reimbursement claims on our behalf. The RCM service provider has joint oversight of payer claims, appeals processes, patient billing, online payment collection, and claims tracking. On August 1, 2022, our new RCM company began submitting claims to third-party payers. At the point when submission by the RCM began, more than 2,000 claims had accumulated since the commencement of our laboratory operations on February 25, 2022. These claims and other claims that were subsequently generated are now being processed, including 1,088 tests in the three months ended September 30, 2022.

Refer to Note 3 of our Condensed Consolidated Financial Statements for more information on Revenue from Contracts with Customers.

EsoCheck Cell Collection Device Update

In October 2022, the FDA announced they completed their review of the EsoCheck 510(k) (#K222366) premarket notification of intent to market the device and granted the use of the EsoCheck Cell Collection Device for the collection and retrieval of surface cells of the esophagus in the general population of adults and adolescents, 12 years of age and older. This action by the FDA now expands the targeted US patient population to include adolescents not previously covered by the Company's initial EsoCheck 510(k) clearance.

EsoCheck Manufacturing Update

On October 4, 2022, we completed our first full day of manufacturing of EsoCheck at Coastline International Inc., a high-volume medical device manufacturer. By mid-2023, we expect to transition from our current manufacturer, Sage Product Development Inc., to Coastline International Inc., as the manufacturing process is further optimized.

Financing

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 of our common stock from time to time upon our request. While there are distinct differences, the facility is structured similarly to a traditional at-the-market equity facility, insofar as it allows us to raise primary capital on a periodic basis at prices based on the existing market price. Through September 30, 2022, 680,263 shares of our common stock were issued under this facility for total proceeds of $1.8 million.

21







Results of Operations



Overview



Revenue

The Company recognized revenue resulting from the delivery of patient EsoGuard test results for which cash collections have occurred or payment was reasonably assured. Additionally, revenue was recognized with respect to the EsoGuard Commercialization Agreement, dated August 1, 2021, between the Company and RDx, a CLIA certified commercial laboratory service provider. On February 25, 2022, the EsoGuard Commercialization Agreement was terminated upon the execution of an Asset Purchase Agreement between the Company's wholly-owned subsidiary of LucidDx Labs Inc. and 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 Fee (as defined and discussed herein below) allocated to 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 Lucid Test Centers; and Lucid Test Centers operating expenses, including rent expense and supplies.

Sales and marketing expenses

Sales and marketing expenses consist primarily of salaries and related costs for employees engaged in sales and marketing activities, as well as the portion of the MSA Fee allocated to sales and marketing expenses, which are principally employee related costs of PAVmed employees. 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 allocated to general and administrative expenses.

We anticipate our general and administrative expenses will increase in the future 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.

Research and development expenses

Research and development expenses are recognized in the period they are incurred and consist principally of internal and external expenses incurred for the development of our technologies and conducting clinical trials, including:

? consulting costs charged to us by various external contract research

organizations we contract with to conduct clinical and preclinical studies and

  engineering design and development;
? 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 as dollars in millions, except for per share amounts.

Three months ended September 30, 2022 as compared to three months ended September 30, 2021

Revenue

In the three months ended September 30, 2022, revenue was $0.1 million as compared to $0.2 million in the corresponding period in the prior year. The $0.1 million decrease principally relates to the termination of the EsoGuard Commercialization Agreement with RDx, as the Company transitioned to its own laboratory operations effective February 25, 2022. The decrease was offset by revenue for our EsoGuard Esophageal DNA Test performed in our own CLIA laboratory for the three months ended September 30, 2022.

Cost of revenue

In the three months ended September 30, 2022, cost of revenue was approximately $1.6 million as compared to $0.1 million for the corresponding period in the prior year. The $1.5 million increase principally related to:

? approximately $0.2 million increase in compensation related costs as a result

  of an increase in headcount;
? approximately $0.4 million increase in EsoCheck and EsoGuard supplies usage
  costs; and
? approximately $0.9 million increase in laboratory operations costs.




Sales and marketing expenses

In the three months ended September 30, 2022, sales and marketing costs were approximately $3.9 million, compared to $0.9 million for the corresponding period in the prior year. The net increase of $3.0 million was principally related to:

? approximately $2.9 million increase in compensation related costs, including

stock-based compensation of approximately $0.4 million with respect to

restricted stock awards ("RSA") grants under the Lucid Diagnostics Inc. 2018

Equity Plan to Lucid Diagnostics and PAVmed employees and non-employees, and an

increase in stock options granted corresponding with the increase in headcount;

and

? approximately $0.1 million increase in consulting and outside professional

  services fees.

General and administrative expenses

In the three months ended September 30, 2022, general and administrative costs were approximately $5.7 million, compared to $3.5 million for the corresponding period in the prior year. The net increase of $2.2 million was principally related to:

? approximately $0.7 million increase in compensation related costs, including

stock-based compensation of approximately $0.2 million with respect to RSA

grants under the Lucid Diagnostics Inc. 2018 Equity Plan to Lucid Diagnostics

and PAVmed employees and non-employees, and an increase in stock options

granted corresponding with the increase in headcount; ? approximately $0.5 million increase in consulting services related to patents,

regulatory compliance, legal processes for contract review, transition of

public relations and investor relations firms, and public company expenses; ? approximately $0.6 million increase in the MSA fee allocation from PAVmed

related to the growth and expansion of our business and the services incurred

  through PAVmed; and
? approximately $0.4 million increase in general business expenses.




23

Results of Operations - continued

Three months ended September 30, 2022 as compared to three months ended September 30, 2021 - continued

Research and development expenses

In the three months ended September 30, 2022, research and development costs were approximately $2.7 million, compared to $2.2 million for the corresponding period in the prior year. The net increase of $0.5 million was principally related to:

? approximately $0.3 million increase in development costs, particularly in

clinical trial activities and outside professional and consulting fees with

  respect to EsoCheck, EsoCure and EsoGuard; and
? approximately $0.2 million increase in the MSA fee allocation from PAVmed

related to the growth and expansion of our business and the services incurred

  through PAVmed.

See our accompanying unaudited condensed consolidated financial statements for each of: Note 4, 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 and for a discussion of the MSA between Lucid Diagnostics and PAVmed; and Note 10, Stock-Based Compensation, for information regarding each of the Lucid Diagnostics 2018 Equity Plan and the PAVmed Inc. 2014 Equity Plan.

Nine months ended September 30, 2022 as compared to nine months ended September 30, 2021

Revenue

In the nine months ended September 30, 2022, revenue was $0.3 million as compared to $0.2 million in the corresponding period in the prior year. The $0.1 million increase principally relates to revenue for laboratory services rendered for our EsoGuard Esophageal DNA Test performed in our own CLIA laboratory. The increase was partially offset by the termination of the EsoGuard Commercialization Agreement, with RDx as the Company transitioned to its own laboratory operations effective February 25, 2022.

Cost of revenue

In the nine months ended September 30, 2022, cost of revenue was approximately $2.0 million as compared to $0.1 million for the corresponding period in the prior year. The $1.9 million increase principally related to:

? approximately $0.4 million increase in compensation related costs as a result

  of an increase in headcount;
? approximately $0.6 million increase in EsoCheck and EsoGuard supplies usage
  costs; and
? approximately $0.9 million increase in laboratory operations costs.




Sales and marketing expenses

In the nine months ended September 30, 2022, sales and marketing costs were approximately $11.1 million, compared to $2.6 million for the corresponding period in the prior year. The net increase of $8.5 million was principally related to:

? approximately $7.7 million increase in compensation related costs, including

stock-based compensation of approximately $1.2 million with respect to

restricted stock awards ("RSA") grants under the Lucid Diagnostics Inc. 2018

Equity Plan to Lucid Diagnostics and PAVmed employees and non-employees, and an

increase in stock options granted corresponding with the increase in headcount; ? approximately $1.0 million increase in consulting and outside professional

services fees and for EsoCheck and EsoGuard; and ? approximately $0.2 million decrease in the MSA fee allocation from PAVmed

related to the growth and expansion of our business and the services incurred

  through PAVmed.

General and administrative expenses

In the nine months ended September 30, 2022, general and administrative costs were approximately $18.2 million, compared to $7.8 million for the corresponding period in the prior year. The net increase of $10.4 million was principally related to:

? approximately $2.7 million increase in compensation related costs, including

stock-based compensation of approximately $1.8 million with respect to RSA

grants under the Lucid Diagnostics Inc. 2018 Equity Plan to Lucid Diagnostics

and PAVmed employees and non-employees, and an increase in stock options

granted corresponding with the increase in headcount; ? approximately $4.8 million increase in consulting services related to patents,

regulatory compliance, legal processes for contract review, transition of

public relations and investor relations firms, and public company expenses; ? approximately $1.3 million increase in the MSA fee allocation from PAVmed

related to the growth and expansion of our business and the services incurred

  through PAVmed; and
? approximately $1.6 million increase general business expenses.




24

Results of Operations - continued

Nine months ended September 30, 2022 as compared to nine months ended September 30, 2021 - continued

Research and development expenses

In the nine months ended September 30, 2022, research and development costs were approximately $9.0 million, compared to $5.8 million for the corresponding period in the prior year. The net increase of $3.2 million was principally related to:

? approximately $2.5 million increase in development costs, particularly in

clinical trial activities and outside professional and consulting fees with

  respect to EsoCheck, EsoCure and EsoGuard;
? approximately $0.2 million increase in compensation related costs and related
  to expanded clinical and engineering staff; and
? approximately $0.5 million increase in the MSA fee allocation from PAVmed

related to the growth and expansion of our business and the services incurred

  through PAVmed.

See our accompanying unaudited condensed consolidated financial statements for each of: Note 4, 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 and for a discussion of the MSA between Lucid Diagnostics and PAVmed; and Note 10, Stock-Based Compensation, for information regarding each of the Lucid Diagnostics 2018 Equity Plan and the PAVmed Inc. 2014 Equity Plan.

Liquidity and Capital Resources

Our current operational activities are principally focused on the commercialization of EsoGuard. We are 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, the Company is also pursuing development of other products and services, including EsoCure, an Esophageal Ablation Device.

Our ability to generate revenue depends upon our ability to successfully advance the commercialization of EsoGuard, while also completing the clinical studies, product and service development, and necessary regulatory approval thereof. There are no assurances, however, we will be able to obtain an adequate level of financial resources required for the long-term commercialization and development of our products and services.

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, 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 research and development activities and conducting clinical trials. We expect to continue to experience recurring losses from operations and will continue to fund our operations with debt and equity financing transactions. Notwithstanding, however, with our cash on-hand as of the date hereof and committed equity sources of financing, the Company expects to be able to fund its operations and meet its financial obligations as they become due for the one year period from the date of the issue of the Company's unaudited condensed consolidated financial statements, as included herein in this Form 10-Q.

Committed Equity Facility - March 28, 2022

On March 28, 2022, we entered into a committed equity facility with Cantor. Under the terms of the committed equity facility, Cantor 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. As of September 30, 2022, under the committed equity facility, a total of 680,263 shares of common stock of the Company were issued for proceeds of approximately $1.8 million.

Due To: PAVmed Inc.

Since our inception in May 2018 through our IPO in October 2021, our operations were funded by PAVmed providing working capital cash advances and the payment by PAVmed of certain operating expenses 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. 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 Company, 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 August 2022, the boards of directors of Lucid Diagnostics Inc. and PAVmed Inc. approved a sixth amendment to the MSA to increase the MSA Fee to $550 per month from $390 per month, with such increase effective on a prospective basis commencing July 1, 2022. Pursuant to the sixth amendment, the parties agreed PAVmed Inc. 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 Inc. 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). The shares that may be issued under the MSA, as amended, are being offered and sold in transactions exempt from registration under the Securities Act of 1933, as amended, in reliance on the exemption afforded under Section 4(a)(2) thereof.

As of September 30, 2022, we had a Due To: PAVmed Inc. payment obligation liability of an aggregate of approximately $6.6 million payable for the transfer of CapNostics, LLC, and for reimbursement of employee related costs and certain operating expenses paid by PAVmed on our behalf. See our accompanying unaudited condensed consolidated financial statements Note 5, Due To PAVmed Inc.

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 affecting the reported amounts of assets, liabilities, and equity, along with the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of expenses during the corresponding periods. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are as disclosed in the Company's annual report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on April 6, 2022, except as otherwise noted in Note 2, Summary of Significant Accounting Policies and Recent Accounting Standards Updates, of our unaudited condensed consolidated financial statements included herein in this Form 10-Q.

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