Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

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

The following discussion and analysis of our consolidated financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K (the "Financial Statements"). Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements involving risks and uncertainties and should be read together with the "Forward-Looking Statements" and "Risk Factors" sections of this Annual Report on Form 10-K for a discussion of important factors which could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Unless the context otherwise requires, (i) "we", "us", and "our", and the "Company", "Lucid" and "Lucid Diagnostics" refer to Lucid Diagnostics Inc. and its subsidiaries LucidDx Labs Inc. ("LucidDx Labs") and CapNostics, LLC ("CapNostics"), (ii) "FDA" refers to the Food and Drug Administration, (iii) "510(k)" refers to a premarket notification, submitted to the FDA by a manufacturer pursuant to § 510(k) of the Food, Drug and Cosmetic Act and 21 CFR § 807 subpart E, (iv) "CLIA" refers to the Clinical Laboratory Improvement Amendments of 1988 and associated regulations set forth in 42 CFR § 493, (v) "CE Mark" refers to a "Conformité Européenne" Mark, a mark indicating that a product such as a medical device conforms to the essential requirements of the relevant European directive, and (vi) "LDT" refers to a diagnostic test, defined by the FDA as "an IVD that is intended for clinical use and designed, manufactured and used within a single laboratory," which is generally subject only to self-certification of analytical validity under the CMS CLIA program.

Overview

Lucid Diagnostics is a commercial-stage cancer prevention medical diagnostics technology company. Lucid is focused on the millions of patients with gastroesophageal reflux disease ("GERD"), also known as chronic heartburn, who are at risk of developing esophageal precancer and cancer, specifically highly lethal esophageal adenocarcinoma ("EAC").

We believe that our flagship product, the EsoGuard Esophageal DNA Test, performed on samples collected with the EsoCheck Esophageal Cell Collection Device, constitutes the first and only commercially available diagnostic test capable of serving as a widespread testing tool with the goal of preventing EAC deaths, through early detection of esophageal precancer in at-risk GERD patients.

EsoGuard is a bisulfite-converted targeted next-generation sequencing ("NGS") DNA assay performed on surface esophageal cells collected with the FDA 510(k)-cleared EsoCheck device. It quantifies methylation at 31 sites on two genes, Vimentin ("VIM") and Cyclin A1 ("CCNA1"). Analytical validation tests of EsoGuard demonstrated approximately 97% analytical sensitivity, 95% analytical specificity, 98% analytical accuracy, and 100% inter-assay and intra-assay precision. Performance characteristics of the EsoGuard test have been evaluated in two case-control studies and two prospective, single-arm cohort studies. Both cohort studies were designed as "screening" studies, enrolling patients from the intended-use population. In these screening settings, EsoGuard demonstrated a positive predictive value ("PPV") of 30-33% and a negative predictive value ("NPV") of 99% for the detection of Barrett's esophagus ("BE") and EAC.

EsoCheck is an FDA 510(k) cleared and CE Mark certified noninvasive swallowable balloon capsule catheter device designed for in-office targeted sampling of surface esophageal cells in a less than two minute long office procedure. It consists of a vitamin sized semi-rigid plastic capsule tethered to a thin silicone catheter from which a soft inflatable silicone balloon with textured ridges emerges to gently swab surface esophageal cells. When suction is applied, the balloon and sampled cells are pulled into the capsule, protecting them from contamination and dilution by cells outside of the targeted region during device withdrawal. We believe this proprietary Collect+Protect™ technology makes EsoCheck the only noninvasive esophageal cell collection device capable of such anatomically targeted and protected sampling.

EsoGuard and EsoCheck are based on patented technology licensed by Lucid from Case Western Reserve University ("CWRU"). EsoGuard and EsoCheck have been developed to provide accurate, non-invasive, patient-friendly testing for the early detection of EAC and BE, including dysplastic BE and related pre-cursors to EAC in patients with chronic GERD.

Recent Developments

Business

Medicare Coverage

In November 2024, we submitted to MolDx our complete clinical evidence package in support of a request for reconsideration of the non-coverage language in the LCD, to secure Medicare coverage for EsoGuard. The EsoGuard clinical evidence package included six new peer-reviewed publications: three clinical validation studies (two in the intended use population, one case control), two clinical utility studies, and one analytical validation study. The current LCD provides clear coverage criteria consistent with the ACG, guidelines for esophageal precancer testing. The package was submitted as part of a request for reconsideration of the non-coverage language in the LCD to secure Medicare coverage for EsoGuard.

As part of the LCD reconsideration process, MolDx-participating Medicare Administrative Contractors convened a CAC, Meeting regarding the LCD on September 4, 2025. At the meeting, eleven experts, including physicians across multiple specialties (GI, primary care, pathology), major society guideline co-authors (ACG, AGA) and industry leaders (American Foregut Society, American Society for Gastrointestinal Endoscopy), participated in this extensive discussion of the unmet clinical need with respect to early detection of esophageal precancer and the strength of the EsoGuard clinical validity and clinical utility data.

Department of Veteran Affairs

On January 21, 2026, the Company announced that it has been awarded a contract by the U.S. Department of Veterans Affairs for its EsoGuard® Esophageal DNA Test, expanding access to esophageal precancer testing across the nation's largest integrated healthcare system, which serves more than nine million enrolled veterans annually.

Recent Developments - continued

Business - continued

Real-World Experience Data

In December 2025, the Company announced results from an 18-month real-world experience evaluating the EsoGuard and EsoCheck in approximately 12,000 patients. The analysis demonstrated high technical success rates, rapid procedure times, and appropriate physician utilization in routine clinical practice, consistent with previously reported clinical studies. The data are currently under peer review for publication.

Board Appointment

Effective September 22, 2025, the board of directors of the Company appointed John R. Palumbo as a Class B director of the Company. Mr. Palumbo was designated for appointment by certain of the holders of 2024 Convertible Notes.

Clinical Study Publications

In September 2025, a case series published in Gastroenterology & Hepatology highlighted four real-world cases in which EsoGuard facilitated the timely detection of either high-grade dysplasia (HGD) or intramucosal carcinoma (IMC; T1a esophageal adenocarcinoma). In all four cases, the patients had no prior history of EGD, including one individual who had previously declined multiple EGD referrals. Following positive in-office EsoGuard results, each patient proceeded with endoscopic evaluation, which led to successful identification and eradication of disease in all cases. This case series underscores both the clinical utility of EsoGuard in detecting early-stage neoplasia and the ease with which the test can be integrated into standard office workflows to enhance screening uptake and early disease detection.

Russell 2000® and 3000® Indexes

On June 27, 2025, the Company was added to the Russell 2000® Index and the Russell 3000® Index, following the 2025 annual reconstitution by FTSE Russell.

Hoag Comprehensive Esophageal Precancer Testing Program Using EsoGuard

On June 18, 2025, the Company announced that Hoag, a nationally recognized regional healthcare delivery network, launched a comprehensive, integrated esophageal precancer testing program using the Company's EsoGuard® Esophageal DNA Test. The Company will partner with Hoag to offer EsoGuard testing across its digestive health, primary care, and concierge medicine programs.

NCCN Clinical Practice Guidelines Update

In March 2025, we announced that a recent update to the NCCN Guidelines® focused on Esophageal and Esophagogastric Junction Cancers (Version 1.2025) has added a new section on BE screening. The NCCN Guidelines® now reference professional society guidelines on BE screening, including the most recent ACG clinical guideline discussed above, which recommends non-endoscopic biomarker testing, such as EsoGuard performed on samples collected with EsoCheck, as an acceptable alternative to invasive upper endoscopy to detect esophageal precancer.

Highmark Reimbursement Approval

On March 13, 2025, the Company announced that Highmark Blue Cross Blue Shield, an independent licensee of the Blue Cross and Blue Shield Association, has issued a positive coverage policy for non-invasive screening of esophageal precancer and cancer in New York state. The new policy, which became effective as of May 26, 2025, covers EsoGuard in patients who meet established criteria for esophageal precancer testing consistent with professional society guidelines.

Recent Developments - continued

Financing

September 2025 Confidentially Marketed Public Offering

On September 11, 2025, the Company closed on the September 2025 Offering. The net proceeds of the September 2025 Offering, after deducting the estimated placement agent's fees and other expenses of $1.8 million, was approximately $27.0 million. The Company intends to use the net proceeds from the September 2025 Offering for working capital and other general corporate purposes.

ATM Facility

On May 30, 2025, the Company entered into an ATM for up to $25.0 million of its common stock that may be offered and sold under a Controlled Equity Offering Agreement between the Company and Maxim Group LLC.

Results of Operations

Overview

Revenue

The Company recognized revenue resulting from the delivery of patient EsoGuard test results when the Company considered the collection of such consideration to be probable to the extent that it is unconstrained.

Cost of revenue

Cost of revenues recognized from the delivery of patient EsoGuard test results includes costs related to EsoCheck device usage, shipment of test collection kits, royalties and the cost of services to process tests and provide results to physicians. We incur expenses for tests in the period in which the activities occur, therefore, gross margin as a percentage of revenue may vary from quarter to quarter due to costs being incurred in one period that relate to revenues recognized in a later period.

We expect that the gross margin for our services will continue to fluctuate and be affected by EsoGuard test volume, our operating efficiencies, patient compliance rates, payer mix, the levels of reimbursement, and payment patterns of payers and patients.

Sales and marketing expenses

Sales and marketing expenses consist primarily of salaries and related costs for employees engaged in sales, sales support and marketing activities, as well as the portion of the MSA Fee (as defined in Note 5, Related Party Transactions, to our accompanying audited consolidated financial statements) allocated to sales and marketing expenses, which are principally costs related to PAVmed employees who are performing services for the Company. We anticipate our sales and marketing expenses will increase in the future, to the extent we expand our commercial sales and marketing operations as resources permit and insurance reimbursement coverage for our EsoGuard test expands.

General and administrative expenses

General and administrative expenses consist primarily of professional fees for accounting, tax, audit and legal services (including those fees incurred as a result of our being a public company), consulting fees, employees costs involved in third-party payor reimbursement, expenses associated with obtaining and maintaining patents within our intellectual property portfolio, and certain employee costs, along with the portion of the MSA Fee allocated to general and administrative expenses.

We anticipate our general and administrative expenses will increase in the future to the extent our business operations grow. Furthermore, we anticipate continued expenses related to being a public company, including fees and expenses for audit, legal, regulatory, tax-related services, insurance premiums and investor relations costs associated with maintaining compliance as a public company.

Research and development expenses

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

●

costs associated with submission of regulatory filings;

●

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

●

the portion of the MSA Fee allocated to research and development.

We plan to incur research and development expenses for the foreseeable future as we continue the development of our existing products as well as new innovations. Our research and development activities, including our clinical trials, are focused principally on facilitating insurer reimbursement, encouraging physician adoption and developing product improvements or extending the utility of the lead products in our pipeline, including EsoCheck and EsoGuard.

Results of Operations - continued

Other Income and Expense, net

Other income and expense, net, consists principally of changes in fair value of our convertible note and losses on extinguishment of debt upon repayment of such convertible note.

Presentation of Dollar Amounts

All dollar amounts in this Management's Discussion and Analysis of Financial Condition and Results of Operations are presented as dollars in millions, except for share and per share amounts.

The year ended December 31, 2025 as compared to year ended December 31, 2024

Revenue

In the year ended December 31, 2025, revenue was $4.7 million as compared to $4.3 million for the corresponding period in the prior year. The $0.4 million increase principally relates to the increase in the consideration received for the performance of the EsoGuard Esophageal DNA tests.

Cost of revenue

In the year ended December 31, 2025, the cost of revenue was approximately $6.7 million as compared to $7.1 million for the corresponding period in the prior year. The $0.4 million decrease was principally related to:

●

approximately $0.6 million decrease in the manufacturing costs associated with the EsoCheck devices and EsoGuard Esophageal DNA tests;

●

approximately $0.3 million increase in compensation related costs; and

●

approximately $0.1 million decrease in the CLIA laboratory supplies required to perform the EsoGuard Esophageal DNA tests.

Sales and marketing expenses

In the year ended December 31, 2025, sales and marketing costs were approximately $17.7 million as compared to $16.5 million for the corresponding period in the prior year. The net increase of $1.2 million was principally related to:

	●	approximately $0.7 million increase in compensation related costs, including stock-based compensation; and
	●	approximately $0.5 million increase in third-party professional services and consulting costs.

General and administrative expenses

In the year ended December 31, 2025, general and administrative costs were approximately $23.9 million as compared to $20.2 million for the corresponding period in the prior year. The net increase of $3.7 million was principally related to:

●

approximately $1.8 million increase related to the amended MSA with PAVmed due to the growth and expansion of our business and the services incurred through PAVmed;

●

approximately $1.6 million increase in third-party professional service fees, primarily due to financing related costs;

●

approximately $0.5 million decrease in other general corporate and consulting third-party expenses;

●

approximately $0.5 million increase in stock-based compensation; and

●

approximately $0.3 million increase in cash compensation costs.

Results of Operations - continued

The year ended December 31, 2025 as compared to year ended December 31, 2024 - continued

Research and development expenses

In the year ended December 31, 2025, research and development costs were approximately $5.7 million, compared to $6.0 million for the corresponding period in the prior year. The net decrease of $0.3 million was principally related to:

	●	approximately $0.8 million decrease in development costs, particularly in clinical trial activities; and
	●	approximately $0.5 million increase related to the amended MSA with PAVmed due to the growth and expansion of our business and the services incurred through PAVmed.

Amortization of Acquired Intangible Assets

The amortization of acquired intangible assets was approximately $0.4 million in the year ended December 31, 2025, as compared to $0.7 million for the corresponding period in the prior year. The decrease of $0.3 million in the current period was due to certain acquired intangible assets being fully amortized in February 2024.

Other Income and Expense

Change in fair value of convertible debt

In the year ended December 31, 2025, the change in the fair value of our convertible note was approximately $7.7 million of expense, related to the 2024 Convertible Notes (as defined in Note 13, Debt, to our accompanying consolidated financial statements). The 2024 Convertible Notes were initially measured at the issue date estimated fair value and subsequently remeasured at estimated fair value as of each reporting period date.

Loss on Debt Extinguishment

The Company did not incur debt extinguishment loss in the year ended December 31, 2025.

In the year ended December 31, 2024, a debt extinguishment loss in the aggregate of approximately $5.2 million was recognized in connection with our March 2023 Senior Convertible Note as discussed below.

●

In the year ended December 31, 2024, approximately $8.4 million of principal repayments under the March 2023 Senior Convertible Note along with approximately $0.9 million of interest expense thereon, were settled through the issuance of 13,866,867 shares of common stock of the Company, with such shares having a fair value of approximately $13.5 million (with such fair value measured as the quoted closing price of the common stock of the Company on the respective conversion date). The conversions resulted in a debt extinguishment loss of $4.2 million in the year ended December 31, 2024. In addition to principal payments through conversions, the Company redeemed the March 2023 Senior Convertible Note and incurred an additional $1.0 million of debt extinguishment loss in the year ended December 31, 2024.

See Note 13, Debt, to our accompanying consolidated financial statements, for additional information with respect to the 2024 Convertible Notes.

Results of Operations - continued

The year ended December 31, 2025 as compared to year ended December 31, 2024 - continued

Deemed Dividend on Series A and Series A-1 Convertible Preferred Stock Exchange Offer

The fair value of the consideration given in the form of the issue of 31,790 shares of Series B Convertible Preferred Stock, with such fair value recognized as the carrying value of such issued shares of Series B Convertible Preferred Stock, as compared to the carrying value of the extinguished Series A and Series A-1 Convertible Preferred Stock (carrying value of $24.3 million), resulting in an excess of fair value of $7.5 million recognized as a deemed dividend charged to accumulated deficit in the consolidated balance sheet on March 13, 2024, with such deemed dividend included as a component of net loss attributable to common stockholders, summarized as follows:

Liquidity and Capital Resources

Our current operational activities are principally focused on the commercialization of EsoGuard. We are pursuing commercialization across multiple sales channels, including: the communication to and education of medical practitioners and clinicians regarding EsoGuard; the establishment of Lucid Test Centers for the collection of cell samples using EsoCheck; use of our mobile testing unit; ongoing #CheckYourFoodTube testing days; and our direct contracting strategic initiative (including in the concierge medicine and employer markets sectors). 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.

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

We are subject to all of the risks and uncertainties typically faced by medical device and diagnostic companies that devote substantially all of their efforts to the commercialization of their initial products and services, to ongoing research and development activities, and to conducting clinical trials. We experienced a net loss of approximately $58.0 million and used approximately $46.5 million of cash in operations during the year ended December 31, 2025. Financing activities provided $59.0 million of cash during the year ended December 31, 2025. We ended the year with cash on-hand of $34.7 million as of December 31, 2025. We expect to continue to experience recurring losses and negative cash flow from operations, and will continue to fund our operations with debt and/or equity financing transactions, which in accordance with management's plans may include conversions of our existing debt to equity and refinancing our existing debt obligations to extend the maturity date. The Company's ability to continue operations 12 months beyond the issuance of the financial statements will depend upon generating substantial revenue that is conditioned on obtaining positive third-party reimbursement coverage for its EsoGuard Esophageal DNA Test from both government and private health insurance providers, increasing revenue through contracting directly with self-insured employers, and upon raising additional capital through various potential sources including equity and/or debt financings or refinancing existing debt obligations. These factors raise substantial doubt about the Company's ability to continue as a going concern within one year after the date the accompanying consolidated financial statements are issued .

Preferred Stock Offerings

On March 13, 2024, we entered into subscription agreements (each, a "Series B Subscription Agreement") and exchange agreements (each, a "Series B Exchange Agreement") with certain accredited investors (collectively, the "Series B Investors"), which agreements provided for (i) the sale to the Series B Investors of 12,495 shares of our newly designated Series B Convertible Preferred Stock, par value $0.001 per share (the "Series B Preferred Stock"), at a purchase price of $1,000 per share, and (ii) the exchange by the Series B Investors of 13,625 shares of our Series A Convertible Preferred Stock, par value $0.001 per share (the "Series A Preferred Stock"), and 10,670 shares of our Series A-1 Convertible Preferred Stock, par value $0.001 per share (the "Series A-1 Preferred Stock"), held by them for 31,790 shares of Series B Preferred Stock (collectively, the "Series B Offering and Exchange"). Prior to the execution of the Series B Subscription Agreements and the Series B Exchange Agreements, we entered into subscription agreements with certain of the Series B Investors providing for the sale to such investors of 5,670 shares of Series A-1 Preferred Stock, at a purchase price of $1,000 per share, which shares the investors immediately agreed to exchange for shares of Series B Preferred Stock pursuant to the Series B Exchange Agreements (and are included in the 10,670 shares of Series A-1 Preferred Stock set forth above). Each share of the Series B Preferred Stock has a stated value of $1,000 and a conversion price of $1.2444. The terms of the Series B Preferred Stock also include a one times preference on liquidation and a right to receive dividends equal to 20% of the number of shares of our common stock into which such Series B Preferred Stock is convertible, payable on the one-year and two-year anniversary of the issuance date. The holders of the Series B 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. The Series B Preferred Stock is a voting security. The aggregate gross proceeds of these transactions were $18.16 million (inclusive of $5.67 million of aggregate gross proceeds from the sale of the Series A-1 Preferred Stock that was immediately exchanged for Series B Preferred Stock in the transactions).

As a result of 100% of the then-outstanding shares of Series A Preferred Stock and Series A-1 Preferred Stock being exchanged for shares of Series B Preferred Stock in the Series B Offering and Exchange, no shares of Series A Preferred Stock or Series A-1 Preferred Stock remain outstanding.

Liquidity and Capital Resources - continued

On May 6, 2024, the Company issued approximately 11,634 shares of newly designated Series B-1 Convertible Preferred Stock (the "Series B-1 Preferred Stock"). The terms of the Series B-1 Preferred Stock are substantially identical to the terms of the Series B Preferred Stock, except that the Series B-1 Preferred Stock has a conversion price of $0.7228. The aggregate gross proceeds from the sale of shares in such offering were $11.6 million.

In March 2026, the Company issued 29,270,685 shares of common stock to the holders of the Series B Preferred Stock, upon the conversion thereof (inclusive of the annual dividend payable thereon). As a result of the application of the beneficial ownership limitations in such Certificate of Designations, 13,294,267 shares of common stock otherwise issuable upon conversion of the Series B Preferred Stock are held in abeyance until such time that they can be issued without exceeding any such limitations. We also anticipate that on or about May 6, 2026, the Company shall issue 16,823,762 shares of common stock to the holders of the Series B-1 Preferred Stock, upon the conversion thereof (inclusive of the annual dividend payable thereon, but subject to any applicable beneficial ownership limitations). Upon the occurrence of these events, no shares of Series B Preferred or Series B-1 Preferred Stock shall remain outstanding.

November 2024 Senior Convertible Note Refinancing

On November 22, 2024, the Company closed on the sale of $21.975 million in principal amount of 12.0% Senior Secured Convertible Notes due 2029 (collectively, the "2024 Convertible Notes"), in a private placement, to certain accredited investors (the "2024 Note Investors"). The sale of the 2024 Convertible Notes was completed pursuant to the terms of that certain Securities Purchase Agreement, dated as of November 12, 2024 (the "2024 SPA"), between the Company and the 2024 Note Investors. The Company realized gross proceeds of $21.975 million and, after giving effect to the repayment in full of the March 2023 Senior Convertible Note, net proceeds of $18.3 million from the sale of the 2024 Convertible Notes. As of December 31, 2025, the Company was, and as of the date hereof, the Company is, in compliance with all covenants under the 2024 Convertible Notes.

The Company used a portion of the proceeds from the sale of the 2024 Convertible Notes to redeem the March 2023 Senior Convertible Note, by paying the contractual redemption price of approximately $3.7 million.

March 2025 Registered Direct Offering

On March 5, 2025, the Company closed on the sale of 13,939,330 shares of its common stock at a price of $1.10 per share (the "Offering"). The net proceeds of the Offering, after deducting the estimated placement agent's fees and other expenses of $0.4 million, was approximately $14.9 million. The Company used the net proceeds from the Offering for working capital and other general corporate purposes.

April 2025 Confidentially Marketed Public Offering

On April 11, 2025, the Company closed on the sale of 14,375,000 shares of its common stock at a price of $1.20 per share (the "April 2025 Offering"). The net proceeds of the April 2025 Offering, after deducting the estimated placement agent's fees and other expenses of $1.1 million, was approximately $16.2 million. The Company used the net proceeds from the April 2025 Offering for working capital and other general corporate purposes.

September 2025 Confidentially Marketed Public Offering

On September 11, 2025, the Company closed on the September 2025 Offering. The net proceeds of the September 2025 Offering, after deducting the estimated placement agent's fees and other expenses of $1.8 million, was approximately $27.0 million. The Company intends to use the net proceeds from the September 2025 Offering for working capital and other general corporate purposes.

ATM Facility

On May 30, 2025, the Company entered into an ATM for up to $25.0 million of its common stock that may be offered and sold under a Controlled Equity Offering Agreement between the Company and Maxim Group LLC. In the year ended December 31, 2025, the Company sold 215,421 shares through its at-the-market equity facility for net proceeds of approximately $0.3 million, after payment of 3% commissions. Subsequent to December 31, 2025, as of March 23, 2026, the Company sold 4,161,747 shares through its at-the-market equity facility for net proceeds of approximately $5.3 million, after payment of 3% commissions.

Liquidity and Capital Resources - continued

Intercompany Agreements with PAVmed

From our inception in May 2018 through our initial public offering in October 2021, our operations were funded by PAVmed providing working capital cash advances and by PAVmed paying certain operating expenses on our behalf. Additionally, our daily operations have been and continue to be conducted in part by personnel employed by PAVmed, for which we incur an MSA Fee expense. The MSA Fee is charged on a monthly basis and is subject to periodic adjustment corresponding with changes in the services provided by PAVmed personnel to the Company, with any such change in the MSA Fee being subject to approval of the Company and PAVmed boards of directors. In March 2024, PAVmed and the Company were authorized by their respective boards of directors to enter, and they did enter, into a eighth amendment to the MSA. Under this amendment, the monthly fee due from the Company to PAVmed was increased from $750 to $833, effective January 1, 2024. In August 2024, PAVmed and the Company were authorized by their respective boards of directors to enter, and they did enter, into a ninth amendment to the MSA. Under this amendment, the monthly fee due from the Company to PAVmed was increased from $833 to $1,050, effective July 1, 2024. Pursuant to the MSA, as amended, 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, from and after the date of the eighth amendment to the MSA, more than 9,644,135 shares of our common stock (representing 19.99% of our outstanding shares of common stock as of immediately prior to the execution of the eighth amendment). In December 2025, PAVmed and the Company were authorized by their respective boards of directors to enter, and they did enter, into a tenth amendment to the MSA. Under this amendment, the monthly fee due from the Company to PAVmed for December 2025 was increased from $1,050 to $2,277 (such increased amount reflects certain PAVmed employee-related costs in respect of services they performed for the benefit of the Company under the MSA).

In accordance with the MSA and the PBERA, on January 26, 2024, PAVmed elected to receive payment of approximately $4.7 million of fees and reimbursements accrued under the MSA and the PBERA through the issuance of 3,331,771 shares of the Company's common stock.

As of December 31, 2025, we had a Due To: PAVmed Inc. payment obligation liability of approximately $0.0 million, which liability reflects that we had no accrued obligations under a PBERA and the MSA, or with respect to any other operating expenses paid by PAVmed on our behalf. See our accompanying audited consolidated financial statements Note 5, Related Party Transactions.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. The preparation of these 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 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. While our significant accounting policies are described in more detail in our consolidated financial notes, we believe the following accounting estimates to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Fair Value Option ("FVO") Election

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

Under a Securities Purchase Agreement dated November 12, 2024, the Company issued Senior Secured Convertible Notes dated November 22, 2024, referred to herein as the "2024 Convertible Notes", which are accounted under the "fair value option election" as discussed below.

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

Alternatively, FASB ASC Topic 825, Financial Instruments, ("ASC 825") provides for the "fair value option" ("FVO") election. In this regard, ASC 825-10-15-4 provides for the FVO election (to the extent not otherwise prohibited by ASC 825-10-15-5) to be afforded to financial instruments, wherein the financial instrument is initially measured at estimated fair value as of the transaction issue date and then subsequently remeasured at estimated fair value as of each reporting period balance sheet date, with changes in the estimated fair value recognized as other income (expense) in the statement of operations. The estimated fair value adjustment of the March 2023 Senior Convertible Note and 2024 Senior Convertible Notes is presented in a single line item within other income (expense) in the accompanying consolidated statement of operations (as provided for by ASC 825-10-50-30(b)). Further, as required by ASC 825-10-45-5, to the extent a portion of the fair value adjustment is attributed to a change in the instrument-specific credit risk, such portion would be recognized as a component of other comprehensive income ("OCI") (for which there was no such adjustment with respect to the March 2023 Senior Convertible Note and 2024 Convertible Notes).

The estimated fair values reported utilized the Company'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 and the volatility of similar entities within the medical device industry. Changes in these assumptions can materially affect the estimated fair values.

See Note 12, Financial Instruments Fair Value Measurements, with respect to the FVO election; and Note 13, Debt, for a discussion of the March 2023 Senior Convertible Note and 2024 Senior Convertible Notes.

Recent Accounting Standards

Recent Accounting Standards Updates Adopted

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740)-Improvements to Income Tax Disclosures ("ASU 2023-09"), which is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 provide for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for the Company prospectively to all annual periods beginning after December 15, 2024. Early adoption is permitted. The guidance was adopted by the Company effective January 1, 2025, on a prospective basis. The adoption of this standard did not have a material impact on the Company's consolidated financial statements, but resulted in new or expanded disclosures upon adoption.

Recent Accounting Standards Updates Not Yet Adopted

In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This update enhances financial statement disclosures by requiring public business entities to disclose specified information about certain costs and expenses including the amounts of (a) purchases of inventory, (b) employee compensation, (c) depreciation, and (d) intangible asset amortization included in each relevant expense caption. The update also requires disclosure of certain amounts that are already required to be disclosed under current GAAP, disclosure of a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, and disclosure of the total amount of selling expenses and, in annual reporting periods, an entity's definition of selling expenses. The amendments in this update may be applied either prospectively or retrospectively and are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the potential impact of this guidance on its consolidated financial statements.

In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative. This update modifies the disclosure or presentation requirements of a variety of topics in the Accounting Standards Codification to conform with certain SEC amendments in Release No. 33-10532, Disclosure Update and Simplification. The amendments in this update should be applied prospectively, and the effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or S-K becomes effective. However, if the SEC has not removed the related disclosure from its regulations by June 30, 2027, the amendments will be removed from the Codification and not become effective. Early adoption is prohibited. We are currently evaluating the potential impact of this guidance on its consolidated financial statements and disclosures.

Off-Balance sheet arrangements

We do not have any off-balance sheet arrangements.