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,September 30, 2022

 

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: 001-37685

 

PAVMED INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware 47-1214177
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
   
One Grand Central Place  
60 E. 42nd Street  
Suite 4600  
New York, NY 10165 10165
(Address of Principal Executive OfficesOffices) (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 PAVM The NASDAQ Stock Market LLC
Series Z Warrants, each to purchase one share of Common Stock PAVMZ 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 filerAccelerated filed
Non-accelerated filerSmaller reporting company
  Emerging growth company

 

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

 

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

 

As of May 12,November 10, 2022, there were 87,974,14693,704,719 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 granted but unvested restricted stock awards granted under the PAVmed Inc. 2014 Long-Term Incentive Equity Plan as of such date).

 

 

 

 

 

TABLE OF CONTENTS

 

Page
 Page
Part I - Financial Information
   
Item 1.Financial Statements 
 Condensed Consolidated Balance Sheets (unaudited) as of March 31,September 30, 2022 and December 31, 20211
 Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended March 31,September 30, 2022 and 20212
 Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (unaudited) for the three and nine months ended March 31,September 30, 2022 and 20213
 Condensed Consolidated Statements of Cash Flows (unaudited) for the threenine months ended March 31,September 30, 2022 and 202157
 Notes to Unaudited Condensed Consolidated Financial Statements68
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations2529
Item 4.Controls and Procedures3540
   
 PARTPart II - Other Information 
   
Item 1.Legal Proceedings3641
Item 5.Other Information3641
Item 6.Exhibits3641
 Signature3742
 Exhibit Index3843

 

i

 

PARTPart I. Financial Information

Item 1. Financial Statements

 

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

      
 March 31, 2022 December 31, 2021  September 30, 2022  December 31, 2021 
Assets:                
Current assets:                
Cash $64,737  $77,258  $56,785  $77,258 
Accounts receivable  89   200   31   200 
Prepaid expenses, deposits, and other current assets  6,176   5,179   5,163   5,179 
Total current assets  71,002   82,637   61,979   82,637 
Fixed assets, net  2,066   1,585   2,374   1,585 
Operating lease right-of-use assets  2,951      3,079    
Intangible assets, net  7,620   2,029   3,950   2,029 
Other assets  695   725   1,083   725 
Total assets $84,334  $86,976  $72,465  $86,976 
Liabilities, Preferred Stock and Stockholders’ Equity                
Current liabilities:                
Accounts payable $8,235  $3,299  $2,454  $3,299 
Accrued expenses and other current liabilities  3,498   4,259   2,930   4,259 
Operating lease liabilities, current portion  873      1,027    
Contingent purchase consideration payable  4,887    
Senior Secured Convertible Notes - at fair value  35,500    
Total current liabilities  17,493   7,558   41,911   7,558 
Long-term liabilities        
Operating lease liabilities, less current portion  2,108      1,998    
Total long-term liabilities  2,108    
Total liabilities  19,601   7,558   43,909   7,558 
Commitments and contingencies (Note 10)  -    -  
Commitments and contingencies (Note 9)   -   -
Stockholders’ Equity:                
Preferred stock, $0.001 par value. Authorized, 20,000,000 shares; Series B Convertible Preferred Stock, par value $0.001, issued and outstanding 1,136,210 at March 31, 2022 and 1,113,919 shares at December 31, 2021  2,486   2,419 
Common stock, $0.001 par value. Authorized, 150,000,000 shares; 86,911,646 and 86,367,845 shares outstanding as of March 31, 2022 and December 31, 2021, respectively  87   86 
Preferred stock, $0.001 par value. Authorized, 20,000,000 shares; Series B Convertible Preferred Stock, par value $0.001, issued and outstanding 1,182,101 at September 30, 2022 and 1,113,919 shares at December 31, 2021  2,624   2,419 
Common stock, $0.001 par value. Authorized, 250,000,000 shares; 92,228,862 and 86,367,845 shares outstanding as of September 30, 2022 and December 31, 2021, respectively  92   86 
Additional paid-in capital  199,719   198,071   214,278   198,071 
Accumulated deficit  (155,849)  (138,910)  (207,638)  (138,910)
Treasury stock  (512)     (408)   
Total PAVmed Inc. Stockholders’ Equity  45,931   61,666   8,948   61,666 
Noncontrolling interests  18,802   17,752   19,608   17,752 
Total Stockholders’ Equity  64,733   79,418   28,556   79,418 
Total Liabilities and Stockholders’ Equity $84,334  $86,976  $72,465  $86,976 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

1

 

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

              
 Three Months Ended March 31,  Three Months Ended
September 30,
 Nine Months Ended
September 30,
 
 2022 2021  2022 2021 2022 2021 
Revenue $189  $  $76  $200  $265  $200 
Operating expenses:                
Cost of revenue  369      1,626   144   1,996   144 
Gross profit (loss)  (180)   
Operating expenses:        
Sales and marketing  3,925   1,387   4,736   2,293   13,559   5,555 
General and administrative  9,423   3,375   10,320   6,109   30,982   16,314 
Amortization of acquired intangible assets  505   17   1,278   23 
Research and development  5,932   3,315   6,202   5,305   18,873   12,878 
Total operating expenses  19,280   8,077   23,389   13,868   66,688   34,914 
Loss from operations  (19,460)  (8,077)
Net loss from operations  (23,313)  (13,668)  (66,423)  (34,714)
Other income (expense):                        
Change in fair value - contingent consideration payable  (173)   
Interest expense  (525)     (1,049)   
Change in fair value - Senior Secured Convertible Notes and Senior Convertible Note     1,682   261      (1,739)  1,682 
Loss on issue and offering costs - Senior Secured Convertible Note  (1,232)     (4,332)   
Debt extinguishments loss - Senior Secured Convertible Notes     (3,715)  (5,123)     (5,123)  (3,715)
Debt forgiveness           300 
Other income (expense), net  (173)  (2,033)  (6,619)     (12,243)  (1,733)
Loss before provision for income tax  (19,633)  (10,110)  (29,932)  (13,668)  (78,666)  (36,447)
Provision for income taxes                  
Net loss before noncontrolling interests  (19,633)  (10,110)  (29,932)  (13,668)  (78,666)  (36,447)
Net loss attributable to the noncontrolling interests  2,761   679   3,806   1,441   10,143   3,318 
Net loss attributable to PAVmed Inc.  (16,872)  (9,431)  (26,126)  (12,227)  (68,523)  (33,129)
Less: Series B Convertible Preferred Stock dividends earned  

(68

)  (75)  (71)  (67)  (209)  (216)
Net loss attributable to PAVmed Inc. common stockholders $(16,940) $(9,506) $(26,197) $(12,294) $(68,732) $(33,345)
Per share information:                        
Net loss per share attributable to PAVmed Inc. - basic and diluted $(0.20) $(0.13) $(0.29) $(0.15) $(0.78) $(0.41)
Net loss per share attributable to PAVmed Inc. common stockholders – basic and diluted $(0.20) $(0.13) $(0.29) $(0.15) $(0.78) $(0.42)
Weighted average common shares outstanding, basic and diluted  86,336,427   73,954,126   89,758,927   83,307,170   87,724,124   79,873,583 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

2

 

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIT)

for the THREE MONTHS ENDED March 31,September 30, 2022

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

 

 Shares Amount Shares Amount  Capital Deficit Stock Interest Total                     
 PAVmed Inc. Stockholders’ Equity (Deficit)       PAVmed Inc. Stockholders’ Equity (Deficit)      
 Series B   

       Series B Convertible Preferred Stock Common Stock Additional Paid-In Accumulated Treasury Non controlling  
 Convertible    Additional      Non    Shares Amount Shares Amount  Capital Deficit Stock Interest Total 
 Preferred Stock Common Stock  Paid-In  Accumulated Treasury controlling                      
 Shares Amount Shares Amount  Capital Deficit Stock Interest Total 
                   
Balance - December 31, 2021  1,113,919  $2,419   86,367,845  $86  $198,071  $(138,910) $  $17,752  $79,418 
Balance - June 30, 2022  1,158,950  $2,554   87,023,211  $87  $201,327  $(181,442) $(548) $19,426  $41,404 
Dividends declared - Series B Convertible Preferred Stock  22,291   67            (67)           23,196   70            (70)         
Restricted stock awards vestings        466,666                   
Exercise - Series Z warrants        5                   
Exercise - stock options        237,499   1   241            242 
Conversions - Series B Convertible Preferred Stock  (45)     45                   
Conversions - Senior Secured Convertible Note        5,013,908   5   10,107            10,112 
Exercise - stock options of majority-owned subsidiary                       187   187                        6   6 
Purchase - Employee Stock Purchase Plan        194,240      217            217                     140      140 
Purchase - majority-owned subsidiary common stock - Employee Stock Purchase Plan                       109   109 
Issuance - majority-owned subsidiary common stock - Committed Equity Facility, net of deferred financing charges                       1,767   1,767 
Impact of subsidiary equity transactions              (87)        87                  1,363         (1,363)   
Issuance - majority-owned subsidiary common stock - Settlement APA-RDx - Installment Payment                       186   186 
Stock-based compensation - PAVmed Inc.              1,277            1,277               1,481            1,481 
Stock-based compensation - majority-owned subsidiary                       3,537   3,537                        3,283   3,283 
Treasury stock        (354,609)           (512)     (512)        191,698                   
Net loss                 (16,872)     (2,761)  (19,633)                 (26,126)     (3,806)  (29,932)
Balance - March 31, 2022  1,136,210  $2,486   86,911,646  $87  $199,719  $(155,849) $(512) $18,802  $64,733 
Balance - September 30, 2022  1,182,101  $2,624   92,228,862  $92  $214,278  $(207,638) $(408) $19,608  $28,556 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

3

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIT)

for the NINE MONTHS ENDED September 30, 2022

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

  PAVmed Inc. Stockholders’ Equity (Deficit)       
  Series B Convertible Preferred Stock  Common Stock  Additional Paid-In  Accumulated  Treasury  Non controlling    
  Shares  Amount  Shares  Amount  Capital  Deficit  Stock  Interest  Total 
                            
Balance - December 31, 2021  1,113,919  $2,419   86,367,845  $86  $198,071  $(138,910) $  $17,752  $79,418 
Dividends declared - Series B Convertible Preferred Stock  68,227   205            (205)         
Conversions - Series B Convertible Preferred Stock  (45)     45                   
Vest - restricted stock awards        541,666   

1

   (1)           
Exercise - Series Z warrants        5                   
Conversions - Senior Secured Convertible Note        5,013,908   5   10,107            10,112 
Exercise - stock options        299,999      302            302 
Exercise - stock options of majority-owned subsidiary                       694   694 
Purchase - Employee Stock Purchase Plan        194,240      218      140      358 
Purchase - majority-owned subsidiary common stock - Employee Stock Purchase Plan                       109   109 
Issuance - majority-owned subsidiary common stock - Committed Equity Facility, net of deferred financing charges                       1,767   1,767 
Impact of subsidiary equity transactions              1,375         (1,375)   
Issuance - majority-owned subsidiary common stock - Settlement APA-RDx - Installment Payment                       427   427 
Stock-based compensation - PAVmed Inc.              4,206            4,206 
Stock-based compensation - majority-owned subsidiary                       10,377   10,377 
Treasury stock        (188,846)           (548)     (548)
Net loss                 (68,523)     (10,143)  (78,666)
Balance - September 30, 2022  1,182,101  $2,624   92,228,862  $92  $214,278  $(207,638) $(408) $19,608  $28,556 

See accompanying notes to the unaudited condensed consolidated financial statements.

4

 

 

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIT)

for the THREE MONTHS ENDED March 31,September 30, 2021

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

 

  Shares  Amount  Shares  Amount  Capital  Deficit  Interest  Total 
  PAVmed Inc. Stockholders’ Equity (Deficit)       
  

Series B

  

            
  Convertible     Additional     Non    
  Preferred Stock  Common Stock  Paid-In  Accumulated  controlling    
  Shares  Amount  Shares  Amount  Capital  Deficit  Interest  Total 
                         
Balance - December 31, 2020  1,228,075  $2,537   63,819,935  $64  $87,570  $(88,275) $(2,369) $(473)
Issue common stock – registered offerings, net        15,782,609   16   53,688         53,704 
Issue common stock upon partial conversions of Senior Secured Convertible Note        667,668      1,723         1,723 
Issue common stock – exercise Series Z warrants        860,217   1   1,375         1,376 
Issue common stock – conversion Series B Convertible Preferred Stock  (10,835)  (22)  10,835      22          
Series B Convertible Preferred Stock dividends declared  24,198   72            (72)      
Issue common stock - Employee Stock Purchase Plan        203,480      304         304 
Exercise - stock options        80,000      80         80 
Stock-based compensation - PAVmed Inc. 2014 Equity Plan              631         631 
Stock-based compensation - majority-owned subsidiary              3      802 �� 805 
Net Loss                 (9,431)  (679)  (10,110)
Balance - March 31, 2021  1,241,438  $2,587   81,424,744  $81  $145,396  $(97,778) $(2,246) $48,040 
                         
  PAVmed Inc. Stockholders’ Equity (Deficit)       
  Series B Convertible Preferred Stock  Common Stock  Additional Paid-In  Accumulated  Non controlling    
  Shares  Amount  Shares  Amount  Capital  Deficit  Interest  Total 
                         
Balance - June 30, 2021  1,185,685  $2,499   82,576,816  $83  $149,694  $(109,325) $(911) $42,040 
Dividends declared - Series B Convertible Preferred Stock  24,577   73            (73)      
Conversions - Series B Convertible Preferred Stock  (118,814)  (220)  118,814      220          
Exercise - Series Z warrants        1,186,467   1   1,897         1,898 
Exercise - Series W warrants        3,945      20         20 
Exercise - stock options        483,668      823         823 
Purchase - Employee Stock Purchase Plan        31,112      131         131 
Stock-based compensation - PAVmed Inc.              1,218         1,218 
Stock-based compensation - majority-owned subsidiary              56      2,716   2,772 
Net loss                 (12,227)  (1,441)  (13,668)
Balance - September 30, 2021  1,091,448  $2,352   84,400,822  $84  $154,059  $(121,625) $364  $35,234 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

45

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIT)

for the NINE MONTHS ENDED September 30, 2021

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

  PAVmed Inc. Stockholders’ Equity (Deficit)       
  Series B Convertible Preferred Stock  Common Stock  Additional Paid-In  Accumulated  Non controlling    
  Shares  Amount  Shares  Amount  Capital  Deficit  Interest  Total 
                         
Balance - December 31, 2020  1,228,075  $2,537   63,819,935  $64  $87,570  $(88,275) $(2,369) $(473)
Beginning balance  1,228,075  $2,537   63,819,935  $64  $87,570  $(88,275) $(2,369) $(473)
Dividends declared - Series B Convertible Preferred Stock  73,821   221            (221)      
Conversions - Series B Convertible Preferred Stock  (210,448)  (406)  210,448      406          
Issue common stock – registered offerings, net        15,782,609   16   53,688         53,704 
Vest - restricted stock awards        150,000                
Exercise - Series Z warrants        2,927,125   3   4,680         4,683 
Exercise - Series W warrants        3,945      20         20 
Conversions - Senior Secured Convertible Note        667,668   1   1,722         1,723 
Exercise - stock options        604,500      953         953 
Purchase - Employee Stock Purchase Plan        234,592      436         436 
Stock-based compensation - PAVmed Inc.              4,473         4,473 
Stock-based compensation - majority-owned subsidiary              111      6,045   6,156 
Investment in Veris Health Inc. subsidiary                    6   6 
Net Loss                 (33,129)  (3,318)  (36,447)
Balance - September 30, 2021  1,091,448  $2,352   84,400,822  $84  $154,059  $(121,625) $364  $35,234 
Ending balance  1,091,448  $2,352   84,400,822  $84  $154,059  $(121,625) $364  $35,234 

See accompanying notes to the unaudited condensed consolidated financial statements.

6

 

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

 

 2022 2021      
 Three Months Ended March 31,  Nine Months Ended September 30, 
 2022 2021  2022 2021 
Cash flows from operating activities                
Net loss - before noncontrolling interest (“NCI”) $(19,633) $(10,110) $(78,666) $(36,447)
                
Adjustments to reconcile net loss - before NCI to net cash used in operating activities                
Depreciation expense  93   12 
Amortization expense  123    
Depreciation and amortization expense  1,731   60 
Stock-based compensation  4,814   1,436   14,583   10,629 
Fair value adjustment to contingent consideration payable  173    
Change in fair value - Senior Secured Convertible Notes and Senior Convertible Note     (1,682)
In-process R&D charge     133 
APA-RDx: Issue common stock of majority-owned subsidiary - settle installment payment  427    
Change in fair value - Senior Secured Convertible Note  1,739   (1,682)
Loss upon Issuance - Senior Secured Convertible Note  3,523    
Debt extinguishment loss - Senior Secured Convertible Notes and Senior Convertible Note     3,715   5,123   3,715 
Debt forgiveness     (300)
Non-cash lease expense  29      82    
Changes in operating assets and liabilities:                
Accounts receivable  111      169   (200)
Prepaid expenses and other current assets  (134)  (277)
Prepaid expenses and other current and non-current assets  (563)  (1,918)
Accounts payable  3,922   (1,070)  (981)  2,911 
Accrued expenses and other current liabilities  (1,761)  (1,192)  (1,329)  (715)
Net cash flows used in operating activities  (12,263)  (9,168)  (54,162)  (23,814)
                
Cash flows from investing activities                
Purchase of equipment  (574)  (36)  (1,242)  (192)
Acquisitions, net of cash acquired      
Payments – Acquisitions, net of cash  (3,200)  (147)
Net cash flows used in investing activities  (574)  (36)  (4,442)  (339)
                
Cash flows from financing activities                
Proceeds – issue of common stock – registered offerings     55,016      55,016 
Payment – offering costs – registered offerings     (1,312)     (1,312)
Proceeds – issue of Senior Secured Convertible Note, net of offering costs  35,227    
Payment – repayment of Senior Convertible Note and Senior Secured Convertible Note     (14,816)     (14,816)
Payment – Senior Convertible Note and Senior Secured Convertible Note – non-installment payments     (154)     (154)
Proceeds – majority-owned subsidiary common stock - Committed Equity Facility  1,807    
Proceeds – exercise of Series Z warrants     1,376      4,115 
Proceeds – exercise of stock options  241   80   302   953 
Proceeds – issue common stock – Employee Stock Purchase Plan  217   304   358   436 
Proceeds – majority-owned subsidiary common stock – Employee Stock Purchase Plan  109    
Proceeds – exercise of stock options issued under equity plan of majority owned subsidiary  187      694    
Purchase Treasury Stock – payment of employee payroll tax obligation in connection with stock-based compensation  (329)     (366)   
Net cash flows provided by financing activities  316   40,494   38,131   44,238 
Net increase (decrease) in cash  (12,521)  31,290   (20,473)  20,085 
Cash, beginning of period  77,258   17,256   77,258   17,256 
Cash, end of period $64,737  $48,546  $56,785  $37,341 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

57

 

PAVMED INC.

and SUBSIDIARIES

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 — The Company

 

Description of the Business

 

PAVmed Inc and Subsidiaries, referred to herein as “PAVmed” or the “Company”“Company,” is comprised of PAVmed Inc. and its wholly-owned subsidiary and its majority-owned subsidiaries, inclusive of Lucid Diagnostics Inc. (“Lucid Diagnostics” or “LUCID”), and Veris Health Inc. (“Veris Health” or “VERIS”), and Solys Diagnostics Inc. (“Solys Diagnostics” or “SOLYS”).

 

The Company is organized to advance a broad pipeline of innovative medical technologies from concept to commercialization, employing a business model focused on capital efficiency and speed to market. The Company’s activities have focused on advancing the lead products towards regulatory approval and commercialization, protecting its intellectual property, and building its corporate infrastructure and management team.

 

The ability of the Company to generate revenue depends upon the Company’s ability to successfully advance the commercialization of EsoGuard and CarpX while also completing the development and the necessary regulatory approvals of its other products and services.

Although the Company’s current operational activities are principally focused on the commercialization of EsoGuard, CarpX and CarpXVeris Solar, while its development activities are focused on pursuing FDA approval and clearance of other lead products in our product portfolio pipeline, including EsoGuard IVD, PortIO, NextFlo, EsoCure and digital health technologies acquired by the Company’s majority-owned subsidiary Veris Health Inc.

The ability of the Company to generate revenue depends upon the Company’s ability to successfully advance the commercialization of EsoGuard, CarpX, and Veris Solar while also completing the development and the necessary regulatory approvals of its other products and services. There are no assurances, however, the Company will be able to obtain an adequate level of financial resources required for the long-term commercialization and development of its products and services.

The Company has financed its operations principally through public and private issuances of its common stock, preferred stock, common stock purchase warrants, and debt. The Company is subject to all of the risks and uncertainties typically faced by medical device and diagnostic companies that devote substantially all of their efforts to the commercialization of their initial product and services and ongoing research and development activities and conducting clinical trials. The Company expects to continue to experience recurring losses from operations and will continue to fund its operations with debt and equity financing transactions. Notwithstanding, however, with the cash on-hand as of the date hereof and other debt and equity committed sources of financing, the Company expects to be able to fund its operations and meet its financial obligations as they become due for the one year period from the date of the issue of the Company’s unaudited condensed consolidated financial statements, as included herein in this Quarterly Report on Form 10-Q for the period ended March 31,September 30, 2022.

6

 

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, 2021 as filed with the SEC on April 6, 2022, except as otherwise noted herein below.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of PAVmed Inc. and 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 and majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The Company holds a majority-ownership interest and has controlling financial interest in each of: Lucid Diagnostics Inc., Veris Health Inc., and Solys Diagnostics Inc., with the corresponding noncontrolling interest included as a separate component of consolidated stockholders’ equity (deficit), including the recognition in the unaudited condensed consolidated statement of operations of a net loss attributable to the noncontrolling interest based on the respective minority-interest equity ownership of each majority-owned subsidiary. See Note 16,15, Noncontrolling Interest, for a discussion of each of the majority-owned subsidiaries noted above. 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, 2021 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.

8

Note 2 — Summary of Significant Accounting Policies - continued

The consolidated results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the consolidated results to be expected for the year ending December 31, 2022 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 PAVmed Inc and Subsidiaries audited consolidated financial statements and related notes thereto as of and for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K as filed with the SEC on April 6, 2022.

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.

 

Contingent ConsiderationReclassifications

Contingent Consideration relatesCertain prior-year amounts have been reclassified to conform to the potential payment for an acquisition that is contingent upon the achievementcurrent year presentation, which includes presenting costs of the acquired business meeting certain milestones. The Company records contingent consideration at fair value at the date of acquisition basedrevenue within operating expenses on the consideration expected to be transferred. For potential payments related to milestone achievements, the Company estimated the fair value based on the probabilitystatements of achievement of such milestones. The assumptions utilizedoperations, in the calculation of the acquisition date fair value include probability of success 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 financial statements and accompanying notes to the unaudited condensed consolidated financial statements. The impact of operations.the reclassifications made to prior year amounts is not material and did not affect net loss.

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, inclusive of acquired intangible assets and the determination of corresponding carrying value reserve, if any, and liabilities and the disclosure of contingent losses, as of the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Significant estimates in these unaudited condensed consolidated financial statements include those related to the estimated fair value of debt obligations, stock-based equity awards, contingent considerationintangible assets and common stock purchase warrants. 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.

Recent Accounting Standards Updates AdoptedLeases

 

Effective December 31, 2021, theThe Company adopted FASB ASC Topic 842, Leases, (“ASC 842”). effective December 31, 2021.

All significant lease agreements and contractual agreements with embedded lease agreements are accounted for under the provisions of ASC 842, establishedwherein, if the contractual arrangement: involves the use of a distinct identified asset; provides for the right to substantially all the economic benefits from the use of the asset throughout the contractual period; and provides for the right to direct the use of the asset. A lease agreement is accounted for as either a finance lease (generally with respect real estate) or an operating lease (generally with respect to equipment). Under both a finance lease and an operating lease, the Company recognizes as of the lease commencement date a lease right-of-use (“ROU”) model requiringasset and a lesseecorresponding lease payment liability.

A lease ROU asset represents the Company’s right to use an underlying asset for the lease term, and the lease liability represents its contractual obligation to make lease payments. The lease ROU asset is measured at the lease commencement date as the present value of the future lease payments plus initial direct costs incurred. The Company recognizes lease expense of the amortization of the lease ROU asset for an operating lease on a straight-line basis over the lease term; and for financing leases on a straight-line basis unless another basis is more representative of the pattern of economic benefit. The operating ROU asset also includes any lease incentives received for improvements to leased property, when the improvements are lessee-owned. For improvements to leased property that are lessor-owned, the Company includes amounts the Company incurred for the improvements as ROU assets which are amortized on a straight-line basis over the life of the lease.

The lease liability is measured at the lease commencement date with the discount rate generally based on the Company’s incremental borrowing rate (to the extent the lease implicit rate is not known nor determinable), with interest expense recognized using the interest method for financing leases.

Certain leases may include options to extend or terminate the agreement. The Company does not assume renewals in determination of the lease term unless the renewals are deemed to be reasonably certain at lease commencement. As well, an option to terminate is considered unless it is reasonably certain the Company will not exercise the option. The Company elected the practical expedient to not recognize a lease ROU asset and lease payment liability for leases with a term of twelve months or less (“short-term leases”), resulting in the aggregate lease payments being recognized on a straight line basis over the lease term. The Company’s leases with a commencement date prior to January 1, 2022 were short-term leases and therefore did not require recording a ROU asset and aor lease liability for all leases with terms greater-than 12 months. Leases are classified as either finance or operating, with classification affectingat December 31, 2021. Additionally, the pattern of expense recognition inCompany elected the income statement. The Company’s adoption of ASC 842 didpractical expedient to not have an effect on the Company’s consolidated financial statements. See Note 8, Leases.separate lease and non-lease components.

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Note 32Patent License AgreementSummary of Significant Accounting Policies - Case Western Reserve Universitycontinued

The Company has a patent license agreement with Case Western Reserve University (“CWRU”) which provides for each of patent fees reimbursement payments, milestone payments and royalty payments - each 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.

The CWRU License Agreement contained milestones for which a $75 research and development expense was recognized and paid 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 productFair Value Option (“PMA Milestone”FVO”) 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.

Under the Amended CWRU License Agreement, the Company is required to pay a royalty fee to CWRU with respect to the “Licensed Products” (as defined in 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

Note 4 — Revenue from Contracts with CustomersElection

 

Under a Securities Purchase Agreement dated March 31, 2022, the Company issued a Senior Secured Convertible Note dated April 4, 2022, referred to herein as the “April 2022 Senior Convertible Note”, and a Senior Secured Convertible Note dated September 8, 2022, referred to herein as the “September 2022 Senior Convertible Note”, 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 April 2022 Senior Convertible Note is presented in a single line item within other income (expense) in the accompanying unaudited condensed 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 April 2022 Senior Convertible Note or the September 2022 Senior Convertible Note).

See Note 10, Financial Instruments Fair Value Measurements, with respect to the FVO election; and Note 11, Debt, for a discussion of the April 2022 Senior Convertible Note and the September 2022 Senior Convertible Note.

Revenue isRecognition

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

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 deliveryCompany requires payment from the patient prior to the commencement of productthe Company’s performance obligations. The Company’s consideration can be deemed variable or fixed depending on the structure of specific payer contracts, and /or the provisionCompany 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 rendered,satisfied upon rendering of services, which culminates in the release of a patient’s test result to the ordering healthcare provider. The Company elects the practical expedient related to the disclosure of unsatisfied performance obligations, as the duration of time between providing testing supplies, the receipt of a sample, and the release of a test result to the ordering healthcare provider is measured asfar less than one year.

10

Note 2 — Summary of Significant Accounting Policies - continued

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

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

When the Company does not have significant historical experience or that experience has limited predictive value, the constraint over estimates of variable consideration may result in no revenue being recognized upon delivery of patient EsoGuard test results to the ordering healthcare provider. As such, the Company recognizes revenue up to the amount of variable consideration not subject to a significant reversal until additional information is obtained or the uncertainty associated with additional payments or refunds, if any, is subsequently resolved. Differences between original estimates and subsequent revisions, including final settlements, represent changes in estimated expected variable consideration, with the change in estimate recognized in the period ended March 31, 2022,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 recognized revenue underexpects the EsoGuard Commercialization Agreement, dated August 1, 2021, as discussed below.collection cycle to be one year or less.

Note 3 — Revenue from Contracts with Customers

 

EsoGuard Commercialization Agreement

 

The Company, through its majority-owned subsidiary, Lucid Diagnostics Inc., entered into the EsoGuard Commercialization Agreement, dated August 1, 2021, with its Commercial Laboratory Improvements Act (“CLIA”) certifiedformer commercial laboratory service provider, ResearchDx Inc. (“RDx”), an unrelated third-party. The EsoGuard Commercialization Agreement iswas on a month-to-month basis, and may bewas terminated by either party thereto, with or without cause, upon forty-five (45) days prior written notice.

Onon February 25, 2022 the EsoGuard Commercialization Agreement was terminated in conjunction withupon the execution of an Asset Purchase Agreementasset purchase agreement (“APA”) dated February 25, 2022, between LucidDx Labs Inc., a (a wholly-owned subsidiary of Lucid Diagnostics Inc.) and RDx, aswith such agreement is further discussed in Note 65, AcquisitionsAsset Purchase Agreement and Management Services Agreement..

Revenue Recognized

 

In the periodthree months and nine months ended March 31,September 30, 2022, the Company recognized total revenue of $18976 and $265, respectively. For the three month period ended September 30, 2022, the Company recognized revenue 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 as the Company did not estimate expected variable consideration given the lack of historical experience and objective reliable actual reimbursement data. In addition to the revenue recognized during the three month period ended September 30, 2022, the Company’s revenue for the nine month period ended September 30, 2022 includes $189 of revenue recognized under the EsoGuard Commercialization Agreement, which representsrepresented the minimum fixed monthly fee of $100 to be paid by RDx for the delivery of services under the EsoGuard Commercialization Agreement for the period fromJanuary 1, 2022 to the agreement inception date of August 1, 2021 and prorated to February 25, 2022.2022 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. In the three and nine months ended September 30, 2021, the Company recognized total revenue of $200 and $200, respectively, under the EsoGuard Commercialization Agreement.

 

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 September 30, 2022, the cost of revenue recognizedwas $1,626 and was primarily related to costs for our laboratory operations and EsoCheck device supplies. For the nine months ended September 30, 2022, the cost of revenue was $1,996, including $369 reflecting costs attributable to delivering the services under the EsoGuard Commercialization Agreement for the period January 1, 2022 to February 25, 2022. In the three and nine months ended March 31, 2022 totaledSeptember 30, 2021, the cost of revenue was $369144 and $144, inclusive of employeerespectively, which solely related costs of employees engaged into 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 LicenseCommercialization Agreement.

 

811

 

Note 54Related 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 consolidated statement of operations for the periods indicated are summarized as follows:

 Schedule of Incurred Expenses of Minority Shareholders

  2022  2021 
  Three Months Ended March 31, 
  2022  2021 
Cost of Revenue      
CWRU – Royalty Fee $9  $ 
         
General and Administrative Expense        
Stock-based compensation expense – Physician Inventors’ restricted stock awards  272   91 
         
Research and Development Expense        
CWRU License Agreement - reimbursement of patent legal fees      
Fees - Physician Inventors’ consulting agreements  8   13 
Sponsored research agreement  3    
Stock-based compensation expense – Physician Inventors’ stock options  46   6 
Total Related Party Expenses $338  $110 

                 
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  2022  2021  2022  2021 
Cost of Revenue                
CWRU – Royalty Fee $4  $10  $13  $10 
Cost of Revenue $4  $10  $13  $10 
                 
General and Administrative Expense                
CWRU – License Agreement - Amendment Fee - Milestone III     10      10 
Stock-based compensation expense – Physician Inventors’ restricted stock awards  275   273   819   637 
                 
Research and Development Expense                
Amended CWRU License Agreement - reimbursement of patent legal fees     82   209   195 
Fees - Physician Inventors’ consulting agreements  15   8   32   22 
Sponsored research agreement  4      6    
Stock-based compensation expense – Physician Inventors’ stock options  52   56   151   114 
Total Related Party Expenses $350  $439  $1,230  $988 

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 25,000 stock options under the PAVmed Inc. 2014 Equity Plan, with a grant date of May 12, 2018, an exercise price of $1.59 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 ten years from the date of grant. As of March 31, 2021, such stock options were fully vested and exercisable. Each of the Physician Inventors were granted 50,000 stock options under the PAVmed Inc. 2014 Equity Plan, with a grant date of June 21, 2021, an exercise price of $6.41 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.

See Note 13,12, Stock-Based Compensation, for information regarding each of the “PAVmed Inc. 2014 Long-Term Incentive Equity Plan” and the separate “Lucid Diagnostics Inc 2018 Long-Term Incentive Equity Plan”; and Note 16,15, Noncontrolling Interest, for a discussion of Lucid Diagnostics Inc. and the corresponding noncontrolling interests.

9

Note 5 — Related Party Transactions - continued

 

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 $6 8 and $21in the periodthree and nine months ended March 31,September 30, 2021 in connection with the consulting agreement.

 

Effective June 2021, Veris Health Inc. entered into a consulting agreement with Andrew Thoreson, M.D. effective June 2021 with such consulting agreement providingwhich provides for compensation on a contractual rate per hour for consulting services provided. Dr. Thoreson holds a partial ownership interest in the legal entity which holds a minority interest in Veris Health Inc. Veris Health Inc. recognized general and administrative expense of $258 and $45 in the periodthree and nine months ended March 31,September 30, 2022 in connection with the consulting agreement.

 

1012

 

Note 65AcquisitionsAsset Purchase Agreement and Management Services Agreement

 

Asset Purchase Agreement - ResearchDx Inc.

 

On February 25, 2022, LucidDx Labs Inc., a wholly-owned subsidiary of Lucid Diagnostics Inc., 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 leased property and equipment to establish a Company-owned CLIACommercial Lab Improvements Act (“CLIA”) certified, CAPCollege of American Pathologists (“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.

As of March 31, 2022, the Company’s preliminary analysis is that the RDx APA transaction is a business combination, resulting in the recognition and measurement of a preliminary purchase consideration 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 aggregateThe total purchase price of up to $6.2 million forconsideration payable under the acquired assets. The totalAPA-RDx is a face value of $6.2 3,200million is comprised of non-contingent purchase considerationthree contractually specified periodic payments. The APA-RDx is being accounted for as an asset acquisition, with the recognition of an intangible asset of approximately $1.0 3,200million (included, which is included in “Accrued expenses and other liabilities”“Intangible assets, net” on the accompanying unaudited condensed consolidated balance sheets,sheet, as of March 31, 2022),further discussed in Note 8, Intangible Assets, net. In the three and contingent purchase consideration ofnine months ended September 30, 2022, a total of $5.2 1,000 and $3,200, respectively, of cash was paid with respect to the periodic payments.

million face value,

Additionally, the APA-RDx requires the Company to pay a total of $3,000 to be paid as twelve (12) equal installment payments commencing May 25, 2022 and then on each three month anniversary thereof, inclusive of a final installment payment on February 25, 2025, with such contingent purchase considerationinstallment payments recognized as current period expense as incurred. In the three and nine months ended September 30, 2022, as provided for in the APA-RDx, installment payments were settled with the issuances of 82,618 and 199,989 shares of common stock of Lucid Diagnostics Inc., with such shares having a preliminaryfair values of $4,714 188 and $427initial estimated, respectively, (with the fair value measured as of the transaction date. The preliminary $5,714 purchase consideration (inclusive of bothquoted closing price on the non-contingent and contingent purchase consideration discussed above) is unallocateddates the shares were issued), which was recognized as of March 31, 2022, and as such isa current period expense included in intangible assetsgeneral and administrative expenses in the accompanying unaudited condensed consolidated balance sheet. The preliminary estimated fair valuestatement of the contingent purchase price consideration and the identification and estimated fair value of acquired assets are subject-to further revision.

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 Informationoperations.

 

The RDx acquisition impactAPA-RDx provides for purposeseach of pro forma financial disclosures would have primarily impactedan acceleration and a cancellation of the Company’s EsoGuard Commercialization Agreement with RDx. The impact is reflected in the table below:remaining unpaid installment payments, summarized as follows:

 

The payment of the remaining unpaid installment payments will be accelerated as immediately due and payable as of the date the “MSA-RDx” (as such agreement is discussed below) is either terminated by LucidDx Labs Inc. without cause or if it is terminated by mutual agreement between LucidDx Labs Inc. and RDx.
The payment of the remaining unpaid installment payments will be cancelled if the MSA-RDx is terminated by LucidDx Labs Inc. for cause, defined as the occurrence of any one of: (i) a material breach by RDx which is not cured within thirty days of LucidDx Labs Inc. written notice; (ii) RDx becomes insolvent and /or bankrupt; or (ii) RDx fails to comply with applicable statutes, is barred from participating in federal health care programs, or by action of changes in law or regulation, or by action of judicial interpretation of law, or by judicial civil proceedings decisions.

Schedule Of Business Acquisition Pro Forma Information

         
  Three Months Ended March 31, 
  2022  2021 
Revenue      
As reported $189  $ 
Pro forma $  $ 
Net Loss        
As reported $(16,940) $(9,506)
Pro forma $(17,129) $(9,506)
Basic and diluted net loss per share        
As reported $(0.20) $(0.13)
Pro forma $(0.20) $(0.13)

Management Services Agreement - Research Dx Inc

LucidDx Labs Inc. and RDx entered into a separate management services agreement (“MSA-RDx”), dated and effective February 25, 2022, with such agreement having a term of three years commencing on the agreement’s effective date, and an initial fee of $150 per quarter. The MSA-RDx provides for the cancellation of the remaining unpaid installment payments upon termination of the MSA-RDx for any reason or no reason by either party thereto.

1113

 

Note 76Prepaid Expenses, Deposits, and Other Current Assets

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  September 30, 2022  December 31, 2021 
Advanced payments to service providers and suppliers $651  $808  $581  $808 
Prepaid insurance  1,174   1,856   453   1,856 
Deposits  2,973   1,989   3,980   1,989 
Deferred financing charges  1,014    
EsoCheck cell collection supplies  266   434   55   434 
EsoGuard mailer supplies  65   59   49   59 
CarpX devices  33   33   45   33 
Total prepaid expenses, deposits and other current assets $6,176  $5,179  $5,163  $5,179 

Note 87Leases

During the nine months ended September 30, 2022, the Company entered into additional lease agreements that have commenced and are classified as operating leases and short-term leases, including for each of: a research and development facility; a commercial clinical laboratory; additional Lucid Test Centers; and for office space.

The Company’s future lease payments as of September 30, 2022, 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 Minimum Lease Payments for Capital Leases

     
2022 (remainder of year) $299 
2023  1,229 
2024  1,184 
2025  288 
2026  272 
Thereafter  132 
Total lease payments $3,404 
Less: imputed interest  (379)
Present value of lease liabilities $3,025 

 

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

 Schedule of Supplemental Balance Sheet Information Related to Cash and Non-cash Activities with Leases

 2022 2021         
 Three Months Ended March 31,  Nine Months Ended September 30, 
 2022 2021  2022  2021 
Cash paid for amounts included in the measurement of lease liabilities             
Operating cash flows from operating leases $224  $  $763  $ 
Non-cash investing and financing activities                
Right-of-use assets obtained in exchange for new operating lease liabilities  $3,151  $  $3,753  $ 
Weighted-average remaining lease term - operating leases (in years)  3.32      3.08    
Weighted-average discount rate - operating leases  7.875%  %  7.875%  %

 

As of March 31,September 30, 2022, the Company’s right-of-use assets from operating leases are $2,9513,079, which are reporting in right-of-use assets - operating leases in the unaudited condensed consolidated balance sheets. As of March 31,September 30, 2022, the Company has outstanding operating lease obligations of $2,9813,025, of which $8731,027 is reported in operating lease liabilities, current portion and $2,1081,998 is reporting 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.

 

The Company executed lease agreements for: office space in Horsham, Pennsylvania, which commenced May 1, 2022; and a new light manufacturing facility in Riverton, Utah, with expected commencement of October 2022.

1214

 

Note 7 — Leases - continued

In September 2022, the Company entered into a lease agreement for its principal corporate offices, in New York, New York. The lease agreement term is from the September 15, 2022 execution date to the date which is seven years and eight months from the lease commencement date, with the rent abated for the first eight months of the lease term. The anticipated lease commencement date is dependent upon the completion of leasehold improvements, which, as of September 30, 2022, is currently expected to be no later than March 31, 2023. The aggregate (undiscounted) rent payments are approximately $ 3.2 million over the lease term.

Note 98Intangible Assets, net

 

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

 Schedule of Intangible Assets Accumulated Amortization

  Estimated Useful Life March 31, 2022  December 31, 2021 
Defensive asset 5 years $2,105  $2,105 
Other 1 year  70   70 
Identified finite intangible assets    

2,175

   

2,175

 
Unallocated purchase consideration1    

5,714

    
Total Intangible asset    7,889   2,175
Less Accumulated Amortization    (269)  (146)
Total Intangible Assets, net   $7,620  $2,029 
  Estimated Useful Life September 30, 2022  December 31, 2021 
Defensive asset 60 months $2,105  $2,105 
Laboratory licenses and certifications and laboratory information management software 24 months  3,200    
Other 1 year  70   70 
Total Intangible assets    5,375   2,175 
Less Accumulated Amortization    (1,425)  (146)
Intangible Assets, net   $3,950  $2,029 

The defensive technology intangible asset was recognized upon its acquisition of CapNostics, LLC, 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 LLC 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.

(1)See Note 6, Acquisitions - Asset Purchase Agreement - Research Dx Inc., for a discussion of the “unallocated purchase consideration” recognized as an intangible asset as of March 31, 2022, as presented in the table above.

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 transfer 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 acquired intangible assets discussed above was $123 505 and $17for the periodthree month periods ended March 31,September 30, 2022 (there was no such amortization expenseand 2021, respectively, and $1,278 and $23 for the prior periodnine month periods ended March 31, 2021),September 30, 2022 and 2021, respectively, and is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. As of March 31,September 30, 2022, the estimated future amortization expense associated with the Company’s identified finite-lived intangible assets (except for the unallocated purchase consideration included in total intangible asset presented above) for each of the five succeeding fiscal years is as follows:

Schedule of Estimated Amortization Expense for Intangible Assets

        
2022 (remainder of year) $327  $504 
2023  421   2,021 
2024  421   688 
2025  421   421 
2026  

316

   316 
Thereafter   
Total $1,906  $3,950 

1315

 

Note 109Commitment and Contingencies

Legal Proceedings

Delaware Court of Chancery Complaint

 

On November 2, 2020, a stockholder of the Company, on behalf of himself and other similarly situated stockholders, filed a complaint in the Delaware Court of Chancery alleging broker non-votes were not properly counted in accordance with the Company’s bylaws at the Company’s Annual Meeting of Stockholders on July 24, 2020, and, as a result, asserted certain matters deemed to have been approved were not so approved (including matters relating to the increase in the size of the PAVmed Inc. 2014 Long-Term Incentive Equity Plan and the ESPP)PAVmed Inc. Employee Stock Purchase Plan). The relief sought under the complaint includesincluded certain corrective actions by the Company, but did not seek any specific monetary damages. The Company did not believe it was clear the prior approval of these matters was invalid or otherwise ineffective. However, to avoid any uncertainty and the expense of further litigation, on January 5, 2021, the Company’s Boardboard of Directorsdirectors determined it would be advisable and in the best interests of the Company and its stockholders to re-submit these proposals to the Company’s stockholders for ratification and/or approval. In this regard, the Company held a special meeting of stockholders on March 4, 2021, at which such matters were ratified and approved. The parties have reached agreement on a proposed Settlement Term Sheet Agreement, dated January 28, 2021, to settle the complaint, the terms of which dodid not contemplate payment of monetary damages to the putative class in the proceeding. In connection with the foregoing, on August 3, 2022, the parties agreed that plaintiff’s counsel would not seek an award from the Court in excess of $450, to be paid by the Company, upon Court approval, as compensation for the benefits conferred by the settlement, and the Company would not object to an award of up to such maximum amount. The settlement and a plaintiff’s fee award of the complaint is pending approval$450 were approved by the Court. The settlement hearing before the Court is scheduled foron November 3, 2022. Such award shall become payable within 10 days of December 2, 2022, assuming no appeal is filed prior to such date. As of September 30, 2022, the Company has fully accrued for this settlement, which is included in accrued expenses and other current liabilities on the Company’s unaudited condensed consolidated balance sheets.

Benchmark Investments, Inc. / Benchmark Investments LLC

 

On December 23, 2020, Benchmark Investments, Inc. filed a complaint against the Company in the U.S. District Court of the Southern District of New York alleging the registered direct offerings of shares of common stock of the Company completed in December 2020 were in violation of provisions set forth in an engagement letter between the Company and Kingswood Capital Markets, a “division” of Benchmark Investments, Inc. On December 16, 2021, the court granted PAVmed’s motion to dismiss the case for lack of subject matter jurisdiction. On February 7, 2022, Benchmark Investments LLC, which claimed to be affiliated witha successor to Benchmark Investments, Inc., filed a new complaint in the Supreme Court of the State of New York, New York County, asserting claims similar to those in the federal action, and adding to its allegations that financings conducted by the Company in January 2021 and February 2021 also violated the Company’s engagement letter with Kingswood Capital Markets. The Company disagrees with the allegations set forth in the complaint and intends to vigorously contest the complaint.

Other Matters

 

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.

 

14

Note 1110Financial 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 on Recurring Basis

   

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 $  $  $4,887  $4,887 
Totals $  $  $4,887  $4,887 
  Fair Value Measurement on a Recurring Basis at Reporting Date Using(1) 
  

Level-1

Inputs

  

Level-2

Inputs

  

Level-3

Inputs

  Total 
September 30, 2022                
Senior Secured Convertible Note - April 2022 $  $  $23,500  $23,500 
Senior Secured Convertible Note - September 2022 $  $  $12,000  $12,000 
Totals $  $  $35,500  $35,500 

 

(1)As noted above, as presented in the fair value hierarchy table, Level-1 represents quoted prices in active markets for identical items, Level-2 represents significant other observable inputs, and Level-3 represents significant unobservable inputs. There were no transfers between the respective Levels during the period ended March 31,September 30, 2022.

16

Note 10 — Financial Instruments Fair value measurements of contingent considerationValue Measurements - continued

 

TheAs discussed in Note 11, Debt, the Company recorded $4.9issued Senior Secured Convertible Notes dated April 4, 2022 and September 8, 2022, with an initial $27.5 million which isface value principal (“April 2022 Senior Convertible Note”) and an initial $11.25 million face value principal (“September 2022 Senior Convertible Note”), respectively. Both convertible notes are accounted for under the ASC 825-10-15-4 fair value of contingent consideration related tooption (“FVO”) election, wherein, the RDx acquisition. The Companyfinancial instrument is required to make contingent consideration payments of up to $5.2 million related to the RDx APA agreement. The contingent agreement is based on achieving milestones to obtain certain certifications and licensing rights. The Companyinitially measured at its issue-date 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.

The final settlement of contingent consideration liabilities for the acquisition could vary from current estimates based on the actual results of the financial measures described above. This liability is considered to be a Level 3 financial liability that is re-measured each reporting period. The change in fair value of contingent consideration for these acquisitions is included in other income (expense), net.

The following table presents a reconciliation of the liability measuredsubsequently 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 significantboth observable inputs and unobservable inputs (Level 3):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 April 2022 Senior Convertible Note as of each of April 4, 2022 and September 30, 2022, and the estimated fair value of the September 2022 Senior Convertible Note as of each of September 8, 2022 and September 30, 2022 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 Reconciliation of Liability Measured at Fair Value on a Recurring BasisAssumption Used

  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 
  April 2022 Senior Convertible Note:
April 4, 2022
  September 2022 Senior Convertible Note:
September 8, 2022
  April 2022 Senior Convertible Note:
September 30, 2022
  September 2022 Senior Convertible Note:
September 30, 2022
 
Fair Value $30,100  $12,200  $23,500  $12,000 
Face value principal payable $27,500  $11,250  $22,511  $11,250 
Required rate of return  7.875%  7.875%  11.50%  11.60%
Conversion Price $5.00  $5.00  $5.00  $5.00 
Value of common stock $1.26  $1.21  $0.86  $0.86 
Expected term (years)  2.00   2.00   1.30   1.94 
Volatility  115.00%  120.00%  135.00%  135.00%
Risk free rate  2.40%  3.42%  4.02%  4.12%
Dividend yield  %  %  %  %

 

AsThe estimated fair values reported utilized the Company’s common stock price along with certain Level 3 inputs (as discussed above), in the development of December 31, 2021 there were noMonte 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 the Company’s common stock price. Changes in these assumptions can materially affect the estimated fair values.

See Note 12, Debt for convertible notes the Company has entered into subsequent to March 31, 2022.

15

 

Note 1211Debt

 

Subsequent to March 31, 2022, on April 4, 2022, theThe Company entered into a Senior Secured Convertible Note in the amount of $27.5 million, pursuant to a Securities Purchase Agreement (“SPA”) dated March 31, 2022, with an accredited institutional investor. Under the SPA,investor (“Investor”, “Lender”, and /or “Holder”), wherein, the Company agreed to sell, and the investorInvestor agreed to purchase an aggregate of $50.0 million face value principal of debt - comprised of: an initial issuance of $27.5 million face value principal; and up to an additional $22.5 in additional initialmillion of face value principal amount of Senior Secured Convertible Notes (for an aggregate of $50.0 million in initial principal amount of Secured Promissory Notes) upon(upon the satisfaction of certain conditions (as more fully described below)conditions). The notes are being offered and solddebt was issued in a registered direct offering under the Company’s effective shelf registration statement (the “Offering”). The purchase price of the Secured Promissory Notes is $1,000 for each $1,100 in principal amount of the notes, representing an original issue discount of $100 per $1,100 in principal amount of the notes. We herein refer to the Senior Secured Convertible Notes issued from time to time under the SPA as March 2022 Notes.statement.

 

PursuantUnder the SPA dated March 31, 2022, the Company issued a Senior Secured Convertible Note dated April 4, 2022, referred to herein as the “April 2022 Senior Convertible Note”, with such note having a $27.5 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 April 4, 2024. The April 2022 Senior Convertible Note may be converted into shares of common stock of the Company at the Holder’s election.

Under the same SPA, the Company issued an additional Senior Secured Convertible Note dated September 8, 2022, referred to herein as the “September 2022 Senior Convertible Note”, with such note having a $11.25 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 September 6, 2024. The September 2022 Senior Convertible Note may be converted into shares of common stock of the Company at the Holder’s election.

17

Note 11 — Debt - continued

The April 2022 Senior Convertible Note proceeds were $25.0 million after deducting a $2.5 million lender fee; and additionally, the Company incurred total offering costs of approximately $601, inclusive of the payment of a total of $450 placement agent fees. The lender fee and offering costs were recognized as of the April 4, 2022 issue date as a current period expense in other income (expense) in the consolidated statement of operations.

The September 2022 Senior Convertible Note proceeds were $10.2 million after deducting a $1.0 million lender fee; and additionally, the Company incurred total offering costs of approximately $209, inclusive of the payment of a total of $184 placement agent fees. The lender fee and offering costs were recognized as of the September 8, 2022 issue date as a current period expense in other income (expense) in the consolidated statement of operations.

During the period from April 4, 2022 to October 3, 2022, the Company is required to pay interest expense only (on the $27.5 million face value principal), at 7.875% per annum, computed on a 360 day year. The Company paid in cash interest expense of approximately $481 and $1,005 for the three and nine month periods ended September 30, 2022, respectively; and approximately $153 subsequent to September 30, 2022 as of November 10, 2022.

During the period from September 8, 2022 to March 6, 2023, the Company is required to pay interest expense only (on the $11.25 million face value principal), at 7.875% per annum, computed on a 360 day year. The Company paid in cash interest expense of approximately $54 for both the three and nine month periods ended September 30, 2022; and approximately $76 subsequent to September 30, 2022 as of November 10, 2022.

Commencing October 4, 2022, and then on each of the successive first and tenth trading day of each month thereafter through to and including April 1, 2024 (each referred to as an “Installment Date”); and on the April 4, 2024 maturity date, the Company will be required to make a principal repayment of $724 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.

Commencing March 6, 2023, and then on each of the successive first and tenth trading day of each month thereafter through to and including September 1, 2024 (each referred to as an “Installment Date”); and on the September 6, 2024 maturity date, the Company will be required to make a principal repayment of $296 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 SPA we completed an initial closing forInstallment Amount repayments, the saleHolder may elect to accelerate the conversion of $27.5 million in principal amountfuture Installment Amount repayments, and interest thereon, subject to certain restrictions, as defined, utilizing the then current conversion price of March 2022 Notes, of which the investor funded and the Company received cash proceeds of $most recent Installment Date conversion price.

24.9 million on April 5, 2022, after deduction of lender fees.

Subject to certain conditions being met or waived, from time to time, after such time that stockholder approval for an increase in our authorized shares from 150 million to 250 million is obtained, but before March 31, 2024, one or more additional closings may occur, for up to the remaining $11.25 million face value principal, amount of March 2022 Notes may occur, upon five trading days’ notice given by usthe Company to the investor.Investor. The aggregate principal amount of March 2022 Notes that may be offered in the additional closings may not be more than $22.5 million. The investor’sInvestor’s obligation to purchase the additional notes at each additional closing is subject to certain conditions set forth in the SPA dated March 31, 2022, SPA (includingincluding, among others, contractual closing requirements: minimum price and trading volume thresholds of the Company’s common stock; the maximum ratio of debt to market capitalization (as defined); and minimum market capitalization)capitalization (as defined), which may bewith such requirements being waived by the Required Holders (as definedInvestor in the March 2022 SPA). Under the March 2022 SPA, the investor will be required to purchase March 2022 Notes in the additional closings if such conditions are met or waived. In addition, from and afterits sole discretion.

Additionally, effective March 31, 2023, the investorInvestor may by written notice to us elect to require usthe Company to issue additional notes of up to $22.5 11.25million in initialface value principal, amount of March 2022 Notes, so long as in doing so it would not cause the ratio of (a) the outstanding principal amount of the April 2022 Senior Convertible Note and the September 2022 Senior Convertible Note (and any additional notes issued under the SPA dated March 2022 Notes (including the additional March 2022 Notes)31, 2022), accrued and unpaid interest thereon and accrued and unpaid late charges to (b) our average market capitalization over the prior ten trading days, to exceed 25%. If we fail to complete the sale ofCompany does not issue the additional March 2022 Notesnotes contemplated by any such written notice, or if the investorInvestor is unable to deliver any such notice prior to March 31, 2024 as a result of the limitation described in the preceding sentence, then wethe Company will be obligated to pay up to a maximum of a $1.35 million a break-up fee to the investor at such time in an aggregate amount equal to $1.35 million..

 

The March 2022 Notes have a voluntary fixed conversion pricepayment of $5.00 per share, a stated interest rate of 7.875% per annum,all amounts due and a maturity of 24 months (subject to extension in certain circumstances). The March 2022 Notes will bepayable under both senior convertible notes are guaranteed by the Company and its subsidiaries, except for Lucid Diagnostics Inc and its subsidiaries; and the obligations under both senior convertible notes are secured by all our existingof the assets of the Company and future assets (including thoseeach guarantor, except in the case of our significant subsidiaries, other thanthe Lucid and its subsidiaries), but including only 9.99% of Lucid’s outstandingDiagnostics Inc. common stock held by us, pursuantPAVmed Inc. only 9.99% of Lucid Diagnostics Inc.’s issued and outstanding common stock is pledged to a security agreement by and betweensecure the Company andindebtedness of the investor.convertible notes.

 

We will beThe Company is subject to certain customary affirmative and negative covenants regarding the rank of the March 2022 Notes,notes, 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. We also will be

18

Note 11 — Debt - continued

The Company is subject to financial covenants requiring that requiring: (i) the amounta minimum of our$8.0 million of available cash equal or exceed $8.0 million at all times,times; (ii) the ratio of (a) the outstanding principal amount of the March 2022 Notes,total senior convertible notes outstanding, accrued and unpaid interest thereon and accrued and unpaid late charges to (b) ourthe Company’s average market capitalization over the prior ten trading days, to not exceed 30%, (except that such maximum percentage is 50% for the period from September 8, 2022 through March 5, 2023) (the “Debt to Market Cap Ratio Test”); and (iii) that ourthe Company’s market capitalization shallto at no time be less than $75 million. (the “Market Cap Test” and, together with the Debt to Market Cap Ratio Test, the “Financial Tests”). The March 2022 Notes include certain customary events of default.Company is in compliance with the above covenants.

 

The Company and the investor entered into a waiver dated August 9, 2022 whereby the April 2022 Senior Convertible Note was amended to permit the Investor to convert up to $5.0 million of the face value principal of the April 2022 Senior Convertible Note at the then current conversion price as if the date of conversion were an Installment Date, i.e. a price per share of common stock equal to the lower of (i) the fixed conversion price then in effect (currently $5.00) and (ii) 82.5% of the average VWAP of the Company’s common stock for each of the two trading days with the lowest VWAP of the Company’s common stock during the ten consecutive trading day period ending and including the trading day immediately prior to the applicable conversion date, but in the case of clause (ii), not less than $0.18 per share. As contemplated by such amendment, in August 2022, approximately $4,989 of principal repayments along with approximately $11 of interest expense thereon, were settled through the issuance of 5,013,908 shares of common stock of the Company, with such shares having a fair value of approximately $10,112 (with such fair value measured as the respective conversion date quoted closing price of the common stock of the Company). The conversions resulted in a debt extinguishment loss of $5.1 million in the three months ended September 30, 2022. Subsequent to September 30, 2022, as of November 10, 2022, approximately $424 of principal repayments along with approximately $4 of interest expense thereon, were settled through the issuance of 500,857 shares of common stock of the Company, with such shares having a fair value of approximately $536 (with such fair value measured as the respective conversion date quoted closing price of the common stock of the Company).

The fair value and face value principal outstanding of the Senior Convertible Notes as of September 30, 2022 are as follows:

Summary of Outstanding Debt

  Contractual Maturity Date Stated Interest Rate  Conversion Price per Share  Face Value Principal Outstanding  Fair Value 
April 2022 Senior Convertible Note April 4, 2024  7.875% $5.00  $22,511  $23,500 
September 2022 Senior Convertible Note September 6, 2024  7.875% $5.00  $11,250  $12,000 
Balance as of September 30, 2022           $33,761  $35,500 

The Company did not have convertible debt outstanding at December 31, 2021. During the nine month period ended September 30, 2021, the Company recognized debt extinguishment losses of approximately $3,715, in connection with repaying-in-full all remaining convertible notes outstanding at the time.

See Note 10, Financial Instruments Fair Value Measurements, for a further discussion of fair value assumptions.

1619

 

Note 1312Stock-Based Compensation

 

PAVmed Inc. 2014 Long-Term Incentive Equity Plan

 

The PAVmed Inc. 2014 Long-Term Incentive Equity Plan (the “PAVmed Inc. 2014 Equity Plan”) is designed to enable PAVmed Inc. to offer employees, officers, directors, and consultants, as defined, an opportunity to acquire shares of common stock of PAVmed Inc. The types of awards that may be granted under the PAVmed Inc. 2014 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 PAVmed Inc. board of directors.

 

A total of 16,352,807 shares of common stock of PAVmed Inc. are reserved for issuance under the PAVmed Inc. 2014 Equity Plan, with 2,776,7062,520,927 shares available for grant as of March 31,September 30, 2022. The share reservation is not diminished by a total of 600,854 PAVmed Inc. stock options and restricted stock awards granted outside the PAVmed Inc. 2014 Equity Plan as of March 31,September 30, 2022.

PAVmed Inc. 2014 Equity Plan - Stock Options

 

StockPAVmed Inc. stock options issued and outstandinggranted under the PAVmed Inc. 2014 Equity Plan and including PAVmed stock options granted outside thesuch plan isare summarized as follows:

Schedule of Summarizes Information About Stock Options

 Number of Stock Options Weighted Average Exercise Price Remaining Contractual Term (Years) Intrinsic Value(2)  Number of Stock Options Weighted Average Exercise Price Remaining Contractual Term (Years) Intrinsic Value(2) 
Outstanding stock options at December 31, 2021  8,720,198  $3.39   6.8  $3,516   8,720,198  $3.39   6.8  $3,516 
Granted(1)  3,109,350  $1.67           4,734,350  $1.54         
Exercised  (237,499) $1.02           (299,999) $1.01         
Forfeited  (273,757) $2.94           (1,542,978) $3.13         
Outstanding stock options at March 31, 2022  11,318,292  $2.98   7.1  $439 
Vested and exercisable stock options at March 31, 2022  6,519,615  $3.08   5.4  $428 
Outstanding stock options at September 30, 2022(3)  11,611,571  $2.73   7.7  $ 
Vested and exercisable stock options at September 30, 2022  6,623,157  $3.01   6.5  $ 

(1)Stock options granted under the PAVmed Inc. 2014 Equity Plan and those granted outside such plan generally vest ratably over twelve quarters, with the vesting commencing with the grant date quarter,quarter-end, and have a ten-year contractual term from date-of-grant.
(2)The intrinsic value is computed as the difference between the quoted price of the PAVmed Inc. common stock on each of March 31,September 30, 2022 and December 31, 2021 and the exercise price of the underlying PAVmed Inc. 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 500,854 stock options granted outside the PAVmed Inc. 2014 Equity Plan, as of September 30, 2022 and December 31, 2021.

20

Note 12 — Stock-Based Compensation - continued

 

PAVmed Inc. 2014 Equity Plan - Restricted Stock Awards

 

A summary ofPAVmed Inc. restricted stock awards granted under the PAVmed Inc. 2014 Equity Plan and restricted stock award activity isawards granted outside such plan are summarized as follows:

Schedule of Restricted Stock Award Activity

 Number of Stock Options 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  1,566,666  $2.31   1,666,666  $2.36 
Granted            
Vested  (466,666)  1.06   (541,666)  1.20 
Forfeited  (150,000)  2.04   (150,000)  2.04 
Unvested restricted stock awards as of March 31, 2022  950,000  $2.97 
Unvested restricted stock awards as of September 30, 2022(1)  975,000  $3.05 

17(1)The unvested restricted stock awards presented in the table above, are inclusive of 100,000 restricted stock awards granted outside the PAVmed Inc. 2014 Equity Plan as of September 30, 2022 and December 31, 2021.

Note 13 — Stock-Based Compensation - continued

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 above. 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. 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 5,644,0009,144,000 shares of common stock of Lucid Diagnostics Inc. are reserved for issuance under the Lucid Diagnostics Inc. 2018 Equity Plan, with 733,5413,754,051 shares available for grant as of March 31, 2022, with theSeptember 30, 2022. The share reservation is not diminished by a total of 473,300423,300 Lucid Diagnostics Inc. stock options and50,000 restricted stock awards granted outside the Lucid Diagnostics Inc. 2018 Equity Plan.Plan, as of September 30, 2022.

 

Lucid Diagnostics Inc. 2018 Equity Plan - Stock Options

 

StockLucid Diagnostics Inc. stock options issued and outstandinggranted under the Lucid Diagnostics Inc. 2018 Equity Plan and including Lucid Diagnosticsstock options granted outside thesuch plan isare summarized as follows:

Schedule of Summarizes Information About Stock Options

 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   7.0   1,419,242  $0.73   7.0  $6,665 
Granted(1)  1,760,000  $4.16       2,320,000  $3.71         
Exercised  (253,889) $0.74       (964,717) $0.72         
Forfeited  (60,926) $4.61       (141,436) $4.33         
Outstanding stock options at March 31, 2022  2,864,427  $2.75   6.9 
Vested and exercisable stock options at March 31, 2022  1,277,026  $0.99   3.3 
Outstanding stock options at September 30, 2022(3)  2,633,089  $3.17   8.6  $499 
Vested and exercisable stock options at September 30, 2022  960,364  $2.33   7.2  $499 

(1)

Stock options granted under the Lucid Diagnostics Inc. 2018 Equity Plan and those granted outside such plan generally vest ratably over twelve quarters, with the vesting commencing with the grant date quarter,quarter-end, and have a ten-year contractual term from date-of-grant.
(2)The intrinsic value is computed as the difference between the quoted price of the Lucid Diagnostics Inc. common stock on each of September 30, 2022 and December 31, 2021 and the exercise price of the underlying Lucid Diagnostics Inc. 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 423,300 stock options granted outside the Lucid Diagnostics Inc. 2018 Equity Plan, as of September 30, 2022 and December 31, 2021.

21

Note 12 — Stock-Based Compensation - continued

 

Lucid Diagnostics Inc. 2018 Equity Plan – Restricted Stock Awards

 

A summary ofLucid Diagnostics Inc. restricted stock awards granted under the Lucid Diagnostics Inc. 2018 Equity Plan and restricted stock award activity isawards granted outside such plan are summarized as follows:

Schedule of Restricted Stock Award Activity

 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   1,940,740  $12.76 
Granted  320,000   4.53   320,000   4.53 
Vested        (169,320)  13.48 
Forfeited            
Unvested restricted stock awards as of March 31, 2022  2,210,740  $11.07 
Unvested restricted stock awards as of September 30, 2022(1)  2,091,420  $11.44 

(1)The unvested restricted stock awards presented in the table above, are inclusive of 50,000 restricted stock awards granted outside the Lucid Diagnostics Inc. 2018 Equity Plan as of September 30, 2022 and December 31, 2021.

 

On January 7, 2022, 320,000restricted 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 $1.4million, 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.

18

Note 13 — Stock-Based Compensation - continued

 

Consolidated Stock-Based Compensation Expense

 

The consolidated stock-based compensation expense recognized by each of PAVmed Inc. and Lucid Diagnostics Inc. for both the PAVmed Inc. 2014 Equity Plan and the Lucid Diagnostics Inc. 2018 Equity Plan, with respect to stock options and restricted stock awards as discussed above, for the periods indicated, was as follows:

 

Schedule of Stock-Based Compensation Awards Granted

 Three Months Ended March 31,                 
 2022 2021  

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 
 2022  2021  2022  2021 
Cost of revenue $9  $  $9  $ 
Sales and marketing expenses $625  $202   643   327   1,859   814 
General and administrative expenses  4,002   1,124   3,854   3,353   12,016   9,088 
Research and development expenses  187   110   258   310   699   727 
Total stock-based compensation expense $4,814  $1,436  $4,764  $3,990  $14,583  $10,629 

22

Note 12 — Stock-Based Compensation - continued

 

Stock-Based Compensation Expense Recognized by Lucid Diagnostics Inc.

 

As noted, the consolidated stock-based compensation expense presented above is inclusive of stock-based compensation expense recognized by Lucid Diagnostics Inc., inclusive of each of: stock options granted under the PAVmed Inc. 2014 Equity Plan to the three physician inventors of the intellectual property underlying the CWRU License Agreement (“Physician Inventors”) (as discussed above in Note 5,4, Related Party Transactions); and stock options and restricted stock awards granted to employees of PAVmed Inc. and non-employee consultants under the Lucid Diagnostics Inc. 2018 Equity Plan.

The stock-based compensation expense recognized by Lucid Diagnostics Inc. for both the PAVmed Inc. 2014 Equity Plan and the Lucid Diagnostics Inc. 2018 Equity Plan, with respect to stock options and restricted stock awards as discussed above, for the periods indicated, was as follows:

Schedule of Stock-Based Compensation Expense Classified in Research and Development Expenses

  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 expenses  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 – recognized by Lucid Diagnostics Inc $3,835  $805 

19

  2022  2021  2022  2021 
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  2022  2021  2022  2021 
Lucid Diagnostics Inc 2018 Equity Plan – cost of revenue $9  $  $9  $ 
Lucid Diagnostics Inc 2018 Equity Plan – sales and marketing expenses  253      733    
Lucid Diagnostics Inc 2018 Equity Plan – general and administrative expenses  2,990   2,695   9,504   5,988 
Lucid Diagnostics Inc 2018 Equity Plan – research and development expenses  28   21   125   57 
PAVmed Inc 2014 Equity Plan - sales and marketing expenses  161      497    
PAVmed Inc 2014 Equity Plan - general and administrative expenses  78      224    
PAVmed Inc 2014 Equity Plan - research and development expenses  52   56   159   111 
Total stock-based compensation expense – recognized by Lucid Diagnostics Inc $3,571  $2,772  $11,251  $6,156 
Total stock-based compensation expense $3,571  $2,772  $11,251  $6,156 

 

Note 13 — Stock-Based Compensation - continued

The consolidated 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 PAVmed Inc. 2014 Equity Plan and the Lucid Diagnostics Inc. 2018 Equity Plan, as discussed above, is as follows:

Schedule of Unrecognized Compensation Expense

 Unrecognized Expense Weighted Average Remaining Service Period (Years)  Unrecognized
Expense
  Weighted Average
Remaining Service
Period (Years)
 
PAVmed Inc. 2014 Equity Plan                
Stock Options $9,667   2.4  $8,424   2.1 
Restricted Stock Awards $1,796   1.4  $1,222   0.9 
                
Lucid Diagnostics Inc. 2018 Equity Plan                
Stock Options $4,660   2.7  $3,791   2.4 
Restricted Stock Awards $14,080   1.3  $7,165   0.8 

 

23

Note 12Stock-Based Compensation - continued

Stock-based compensation expense recognized with respect to stock options granted under the PAVmed Inc. 2014 Equity Plan was based on a weighted average estimated fair value of such stock options of $1.221.08 per share and $2.793.47 per share during the periods ended March 31,September 30, 2022 and 2021, respectively, calculated using the following weighted average Black-Scholes valuation model assumptions:

Schedule of Fair Values of Stock Options Granted Using Black-scholes Valuation Model Assumptions

 Three Months Ended March 31,  

Nine Months Ended

September 30,

 
 2022 2021  2022  2021 
Expected term of stock options (in years)  5.8   5.7   5.8   5.6 
Expected stock price volatility  87.7%  75.0%  86.0%  76.0%
Risk free interest rate  1.8%  1.0%  2.9%  0.9%
Expected dividend yield  %  %  %  %

 

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 $2.95 1.61per share during the year ended March 31, 2022. There were no stock-based awards granted under the Lucid Diagnostics Inc. 2018 Equity Plan during the period ended March 31, 2021.September 30, 2022. The stock-based compensation was calculated using the following weighted average Black-Scholes valuation model assumptions:

Schedule of Fair Values of Stock Options Granted Using Black-scholes Valuation Model Assumptions

ThreeNine Months Ended March 31,

September 30,

2022
Expected term of stock options (in years)5.85.6
Expected stock price volatility72.085.7%
Risk free interest rate3.21.7%
Expected dividend yield%

20

Note 13 — Stock-Based Compensation - continued

 

PAVmed Inc. Employee Stock Purchase Plan (“ESPP”)

 

A total of 194,240shares and 203,480shares of common stock of the Company were purchased for proceeds of approximately $217 218and $304, on March 31, 2022 and 2021, respectively under the PAVmed Inc Employee Stock Purchase Plan (“PAVmed Inc ESPP”). A total of 191,698 shares and 31,112 shares of common stock of the Company were purchased for proceeds of approximately $140 and $131, on September 30, 2022 and 2021, respectively under the PAVmed Inc ESPP. The September 30, 2022 purchase was settled through the redeployment of treasury stock, and did not reduce the number of shares available-for-issue under the PAVmed Inc ESPP. The PAVmed Inc. ESPP has a total reservation of 3,010,690 1,750,000shares of common stock of PAVmed Inc. of which2,192,531 931,841shares are available-for-issue as of March 31,September 30, 2022.

 

Lucid Diagnostics, Inc Employee Stock Purchase Plan (“ESPP”)

 

The Lucid Diagnostics Inc Employee Stock Purchase Plan (“Lucid Diagnostics Inc ESPP”), initial six-month stock purchase period iswas April 1, 2022 to September 30, 2022. TheA total of 84,030 shares of common stock of Lucid Diagnostics Inc were purchased for proceeds of approximately $109 on September 30, 2022 under the Lucid Diagnostics Inc. ESPP share purchase dates are March 31 and September 30.ESPP. The Lucid Diagnostics Inc. ESPP has a total reservation of 500,000shares of common stock of Lucid Diagnostics Inc. forof which all415,970 shares are available-for-issue as of March 31,September 30, 2022.

24

 

Note 1413Preferred Stock

 

As of March 31,September 30, 2022 and December 31, 2021, there were 1,136,2101,182,101 and 1,241,4381,113,919 shares of Series B Convertible Preferred Stock (classified in permanent equity) issued and outstanding, respectively.

Series B Convertible Preferred Stock Dividends

The Series B Convertible Preferred Stock dividends are 8.0% per annum based on the $3.00 per share stated value of the Series B Convertible Preferred Stock, with such dividends compounded quarterly, accumulate, and are payable in arrears upon being declared by the Company’s board of directors, with the dividends earned from April 1, 2018 through October 1, 2021 payable-in-kind (“PIK”) by the issue of additional shares of Series B Convertible Preferred Stock; and after October 1, 2021, dividends may be settled, at the election of the discretion of the board of directors, through any combination of the issue of shares of Series B Convertible Preferred Stock, the issue shares of common stock of the Company, and /or cash payment.

Series B Convertible Preferred Stock Dividends Earned

 

The Series B Convertible Preferred Stock dividends earned are included in the calculation of basic and diluted net loss attributable to PAVmed Inc. common stockholders for each of the respective corresponding periods presented. Notwithstanding,presented in the accompanying unaudited condensed consolidated statement of operations, inclusive of dividends earned as of each of March 31, 2022, June 30, 2022, and September 30, 2022, of approximately $71 and $209 in the three and nine months ended September 30, 2022, respectively. The prior year unaudited condensed consolidated statement of operations, inclusive of dividends earned as of each of March 31, 2021, June 30, 2021, and September 30, 2021 of approximately $67 and $216 in the three and nine months ended September 30, 2021, respectively.

Series B Convertible Preferred Stock Dividends Declared

The Series B Convertible Preferred Stock dividends are recognized as a dividend payable only upon the dividend being declared payable by the Company’s board of directors. In this regard, in the nine months ended September 30, 2022, the Company’s board-of-directors declared Series B Convertible Preferred Stock dividends of an aggregate of approximately $204, inclusive of approximately $67 earned as of December 31, 2021, and approximately $68 earned as of March 31, 2022, and approximately $69 earned as of June 30, 2022; with each such dividends settled by the issue of an aggregate 68,227 additional shares of Series B Convertible Preferred Stock, inclusive of: 22,291 shares issued with respect to the dividends earned as of December 31, 2021; 22,740 shares issued with respect to the dividends earned as of March 31, 2022; and 23,196 shares issued with respect to the dividends earned as of June 30, 2022.

 

In the nine months ended September 30, 2021, the Company’s board-of-directors declared Series B Convertible Preferred Stock dividends of an aggregate of approximately $221, inclusive of approximately $73 earned as of December 31, 2020; approximately $75 earned as of March 31, 2021; and approximately $74 earned as of June 30, 2021; with each such dividends settled by the issue of an aggregate 73,821 additional shares of Series B Convertible Preferred Stock, inclusive of: 24,198 shares issued with respect to the dividends earned as of December 31, 2020; 25,046 shares issued with respect to the dividends earned as of March 31, 2021; and 24,577 shares issued with respect to the dividends earned as of June 30, 2021.

Subsequent to March 31,September 30, 2022, in AprilOctober 2022, the Company’s board-of-directors declared a Series B Convertible Preferred Stock dividend earned as of March 31,September 30, 2022 and payable as of AprilOctober 1, 2022, of approximately $6871, which willto be settled by the issue of an additional22,740 23,658shares of Series B Convertible Preferred Stock (with such dividend not recognized as a dividend payable as of March 31,September 30, 2022, as the Company’s board of directors had not declared such dividends payable as of such date). In the prior year October 2021, the Company’s board-of-directors declared a Series B Convertible Preferred Stock dividend earned as of September 30, 2021 and payable as of October 1, 2021, of approximately $67, settled by the issue of an additional 22,471 shares of Series B Convertible Preferred Stock.

 

2125

 

 

Note 1514Common Stock and Common Stock Purchase Warrants

 

Common Stock

 

In June 2022, the Company received shareholder approval to issue up to 250 million shares of its common stock, an increase of 100 million shares.

During the periodnine months ended March 31,September 30, 2022, 237,499 299,999shares of common stock of the Company were issued upon exercise of stock options for cash of approximately $241302; and during the nine months ended September 30, 2022 a total of 385,938 shares of common stock of the Company were issued under the PAVmed Inc. Employee Stock Purchase Plan (“ESPP”). See Note 13,12, Stock-Based Compensation, for a discussion of each of the PAVmed Inc. 2014 Equity Plan. During the period ended,Plan and the PAVmed Inc. Employee Stock Purchase Plan purchased 194,240 shares of common stock of the Company. See Note 13, Stock-Based Compensation, for a discussion of the PAVmed Inc. Employee Stock Purchase Plan.ESPP.

 

In August 2022, 5,103,908 shares of the Company’s common stock were issued upon conversion, at the election of the holder, of the April 2022 Senior Convertible Note for $4,989 face value principal repayments, along with approximately $11 of interest thereon, as discussed in Note 11, Debt.

Common Stock Purchase Warrants

 

TheAs of September 30, 2022 and December 31, 2021, Series Z Warrants outstanding totaled 11,937,450 and 11,937,455, respectively. A Series Z Warrant is exercisable to purchase one share of common stock purchase warrants (classified in permanent equity) outstanding as of the dates indicated are as follows:

Company at an exercise price of $Schedule of Outstanding Warrants to Purchase Common Stock1.60

  Common Stock Purchase Warrants Issued and Outstanding   
  March 31, 2022  Weighted Average Exercise Price / Share  December 31, 2021  Weighted Average Exercise Price / Share  Expiration Date
Series Z Warrants  11,937,450  $1.60   11,937,455  $1.60  April 2024
Series W Warrants    $   377,873  $5.00  January 2022
Total  11,937,450  $1.60   12,315,328  $1.68   

per share, and expire April 30, 2024

. During the periodnine months ended March 31,September 30, 2022, a total of 5 Series Z Warrants were exercised for cash at $1.60 per share, resulting in the issue of the same number of shares of common stock of the Company.

 

As of December 31, 2021, Series W Warrants outstanding totaled 377,873. The remaining 377,873Series W Warrants expired unexercised as of January 29, 2022.2022.

26

 

Note 1615Noncontrolling Interest

 

The noncontrolling interest (“NCI”) included as a component of consolidated total stockholders’ equity is summarized for the periods indicated as follows:

Schedule of Noncontrolling Interest of Stockholders' Equity

  March 31, 2022  December 31, 2021 
NCI – equity (deficit) – beginning of period $17,752  $(2,369)
Investment in Veris Health Inc.     6 
Net loss attributable to NCI  (2,761)  (5,779)
Impact of subsidiary equity transactions  87   16,760 
Lucid Diagnostics Inc. 2018 Equity Plan stock option exercise  187    
Stock-based compensation expense - Lucid Diagnostics Inc. 2018 Equity Plan  3,537   9,134 
NCI – equity (deficit) – end of period $18,802  $17,752 

22

Note 16 — Noncontrolling Interest - continued

  September 30, 2022  December 31, 2021 
NCI – equity (deficit) – beginning of period $17,752  $(2,369)
Investment in Veris Health Inc.     6 
Net loss attributable to NCI – Lucid Diagnostics Inc.  (9,032)  (5,779)
Net loss attributable to NCI – Solys Diagnostics Inc.  (6)   
Net loss attributable to NCI – Veris Health Inc.  (1,105)   
Impact of subsidiary equity transactions  (1,375)  16,760 
Lucid Diagnostics Inc. proceeds from Committed Equity Facility, net of deferred financing charges  1,767    
Lucid Diagnostics Inc. issuance of common stock for settlement of APA-RDx installment payment  427    
Lucid Diagnostics Inc. 2018 Equity Plan stock option exercise  694    
Lucid Diagnostics Inc. Employee Stock Purchase Plan Purchase  109    
Stock-based compensation expense - Lucid Diagnostics Inc. 2018 Equity Plan  10,371   9,134 
Stock-based compensation expense - Veris Health Inc. 2021 Equity Plan  6    
NCI – equity (deficit) – end of period $19,608  $17,752 

 

The consolidated NCI presented above is with respect to the Company’s consolidated majority-owned subsidiaries, inclusive of: Lucid Diagnostics Inc., Veris Health Inc. and Solys Diagnostics Inc., as a component of consolidated total stockholders’ equity as of March 31,September 30, 2022 and December 31, 2021; and the recognition of a net loss attributable to the NCI in the unaudited condensed consolidated statement of operations with respect to Lucid Diagnostics Inc. and Solys Diagnostics Inc. for the three and nine months ended March 31,September 30, 2022 and 2021; and with respect to Veris Health Inc. for the three and nine months ended March 31,September 30, 2022 and from the period of May 28, 2021 to September 30, 2021 (as the Veris Health IncInc. inception date was May 28, 2021).

 

Lucid Diagnostics Inc.

 

As of March 31,September 30, 2022, there were 35,171,796 37,016,225shares of common stock of Lucid Diagnostics Inc. issued and outstanding, of which, PAVmed Inc. holds 27,927,190shares, representing a majority ownership equity interest and PAVmed Inc. has a controlling financial interest in Lucid Diagnostics Inc., and accordingly, Lucid Diagnostics Inc. is a consolidated majority-owned subsidiary of PAVmed Inc.

 

On March 28, 2022, Lucid Diagnostics, Inc. 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. common stock from time to time at the request of Lucid Diagnostics Inc.

In connection with While there are distinct differences, the executionfacility 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. As of the agreement forSeptember 30, 2022, under the committed equity facility, a total of 680,263 shares of common stock of Lucid Diagnostics Inc. agreed to pay Cantorwere issued for proceeds of approximately $1.0 1,807million 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, Lucid Diagnostics agreed to reimburse Cantor for certain of its expenses. Lucid Diagnostics Inc. also entered into a registration rights agreement with Cantor. Lucid Diagnostics Inc. 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..

 

Veris Health Inc.

 

As of March 31,September 30, 2022, there were 8,000,000 shares of common stock of Veris Health Inc. issued and outstanding, of which PAVmed Inc. holds an 80.44% majority-interest ownership and PAVmed Inc. has a controlling financial interest, with the remaining 19.56% minority-interest ownership held by an unrelated third-party. Accordingly, Veris Health Inc. is a consolidated majority-owned subsidiary of the Company, for which a provision of a noncontrolling interest (NCI) is included as a separate component of consolidated stockholders’ equity in the unaudited condensed consolidated balance sheet as of March 31,September 30, 2022 along with the recognition of a net loss attributable to the NCI in the unaudited condensed consolidated statement of operations for the period of May 28, 2021 to December 31, 2021, upon its formation and contemporaneous acquisition of Oncodisc Inc.

 

Solys Diagnostics Inc.

 

As of each of March 31,September 30, 2022 and December 31, 2021, there were9,189,190 shares of common stock of Solys Diagnostics Inc. issued and outstanding, of which PAVmed Inc. holds a 90.3235% majority-interest ownership and PAVmed Inc. has a controlling financial interest, with the remaining9.6765% minority-interest ownership held by unrelated third parties.

 

2327

 

 

Note 1716Net Loss Per Share

 

The respective “Net loss per share - attributable to PAVmed Inc. - basic and diluted” and “Net loss per share - attributable to PAVmed Inc. common stockholders - basic and diluted” - for the respective periods indicated - is as follows:

Schedule of Comparison of Basic and Fully Diluted Net Loss Per Share

 2022 2021  2022  2021  2022  2021 
 Three Months Ended March 31,  

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 
 2022 2021  2022  2021  2022  2021 
Numerator                        
Net loss - before noncontrolling interest $(19,633) $(10,110) $(29,932) $(13,668) $(78,666) $(36,447)
Net loss attributable to noncontrolling interest  2,761 �� 679   3,806   1,441   10,143   3,318 
Net loss - as reported, attributable to PAVmed Inc. $(16,872) $(9,431) $(26,126) $(12,227) $(68,523) $(33,129)
                        
Series B Convertible Preferred Stock dividends – earned $(68) $(75) $(71) $(67) $(209) $(216)
                        
Net loss attributable to PAVmed Inc. common stockholders $(16,940) $(9,506) $(26,197) $(12,294) $(68,732) $(33,345)
                        
Denominator                        
Weighted average common shares outstanding, basic and diluted  86,336,427   73,954,126   89,758,927   83,307,170   87,724,124   79,873,583 
                        
Loss per share        
Net loss per share                
Basic and diluted                        
Net loss - as reported, attributable to PAVmed Inc. $(0.20) $(0.13) $(0.29) $(0.15) $(0.78) $(0.41)
Net loss attributable to PAVmed Inc. common stockholders $(0.20) $(0.13) $(0.29) $(0.15) $(0.78) $(0.42)

 

The common stock equivalents have been excluded from the computation of diluted weighted average shares outstanding as their inclusion would be anti-dilutive, are as follows:

 

The Series B Convertible Preferred Stock dividends earned as of the each of the respective periods noted, are included in the calculation of basic and diluted net loss attributable to PAVmed Inc. common stockholders for each respective period presented. Notwithstanding, the Series B Convertible Preferred Stock dividends are recognized as a dividend payable only upon the dividend being declared payable by the Company’s board of directors.

 

Basic weighted-average number of shares of common stock outstanding for the periods ended March 31,September 30, 2022 and 2021 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 of 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:

Schedule of Antidilutive Securities Excluded from Computation of Diluted Earnings Per Share

 2022 2021  2022  2021 
 March 31,  September 30, 
 2022 2021  2022  2021 
Stock options and restricted stock awards  12,368,292   8,539,362   12,586,571   10,214,448 
Series Z Warrants  11,937,450   15,954,722   11,937,450   13,887,814 
Series W Warrants     381,818      377,873 
Series B Convertible Preferred Stock  1,136,210   1,241,438   1,182,101   1,091,448 
Total  25,441,952   26,117,340   25,706,122   25,571,583 

 

The total stock options and restricted stock awards are inclusive of 500,854 stock options as of March 31,September 30, 2022 and 2021; and 100,000 restricted stock awards as of March 31,September 30, 2022, granted outside the PAVmed Inc. 2014 Equity Plan.

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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, 2021 (the “Form 10-K”) as filed with the Securities and Exchange Commission (the “SEC”).

 

Unless the context otherwise requires, references herein to “we”, “us”, and “our”, and to the “Company” or “PAVmed” are to PAVmed Inc. and Subsidiaries, including each of the PAVmed Inc. and its majority-owned subsidiaries, including:including Lucid Diagnostics Inc. (“Lucid Diagnostics” or “LUCID”), and Veris Health Inc. (“Veris Health” or “VERIS”), and Solys Diagnostics, Inc. (“Solys Diagnostics” or “SOLYS”).

 

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 SARS-CoV-2 /COVID-19the COVID-19 pandemic;
the impact of the material weakness identified by our management; 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 /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.

 

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Overview

 

The Company is a highly differentiated, multi-product, commercial-stage medical technology company organized to advance a broad pipeline of innovative medical technologies from concept to commercialization, employing a business model focused on capital efficiency and speed to market. Since the Company’s inception of PAVmed Inc. on June 26, 2014, its activities have focused on advancing its lead products towardsthrough regulatory approval, expanding commercial operations, and commercialization, protecting its intellectual property, andwhile building its corporate infrastructure and management team. The Company has ongoing operations conducted both through PAVmed Inc. and its majority-owned subsidiaries.

 

The Company operates in one segment as a medical technology company, with the following lines-of-business: “Medical Devices”, “Diagnostics”, “Digital Health”,lines of business: Diagnostics, Medical Devices and “Emerging Innovations”.Digital Health.

 

Our products and services and opportunities,in each line of business, as discussed hereinbelow and in Item 1 of Part I of the Form 10-K under the heading Business“Business Background and Overview, are as follows:

Diagnostics - EsoGuard Esophageal DNA Laboratory Developed Test and EsoCheck Esophageal Cell Collection Device, and EsoCure Esophageal Ablation Device with Caldus Technology;Device;
Medical Devices - CarpX Minimally Invasive Surgical Device for Carpal Tunnel Syndrome; Infusion Therapy -EsoCure Esophageal Ablation Device with Caldus Technology, and PortIO Implantable Intraosseous Vascular Access Device and NextFlo Highly Accurate Disposable Intravenous Infusion Platform Technology;Device;
Digital Health - Veris cancer healthcare platform andCancer Care Platform with implantable intelligent vascular port combiningsmart device, remote monitoring and data analytics;
Emerging Innovations -Include a diversified and expanding portfolio of innovative products designed to address unmet clinical needs across a broad range of clinical conditions. We are evaluating a number of these product opportunities and intellectual property covering a wide spectrum of clinical conditions, which have either been developed internally or have been presented to us by clinician innovators and academic medical institutions for consideration of a partnership to develop and commercialize these products.analytics.

We are also pursuing a number of research and development project and product opportunities across these three lines of business, which have either been developed internally or have been presented to us by clinician innovators and academic medical institutions for consideration.

 

Our multiple products and services are in various phases of development, regulatory clearances, approvals,approval and commercialization.commercialization, as follows:

EsoGuard and EsoCheck

 

We believe that 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. The Company has advanced the proprietary technologies underlying EsoGuard and EsoCheck device received 510(k) marketing clearance from the U.S. Foodacademic research laboratory to commercial diagnostics tests and Drug Administration (“FDA”), in June 2019devices with scalable manufacturing capacity. The Company is presently focused on expanding commercialization across multiple sales channels, including the communication and European CE Mark Certification in May 2021 as an esophagealeducation of medical practitioners and clinicians of EsoGuard and the establishment of “Lucid Diagnostics Test Centers” for the collection of cell collection device; and, EsoGuard has been established as a Laboratory Developed Test (“LDT”), completed European CE Mark Certification in June 2021, and was launched commercially in December 2019 after Clinical Laboratory Improvement Amendment (“CLIA”) and College of American Pathologists (“CAP”) accreditation ofsamples using EsoCheck. Previously the test at Lucid Diagnostics commercial diagnostic laboratory partnercollected cell samples were sent to ResearchDx Inc. (“RDx”), headquartered in Irvine, California.an unrelated third-party Clinical Laboratory Improvement Amendments (“CLIA”) certified commercial laboratory service provider, for the performance of EsoGuard. On February 25, 2022, Lucid Diagnostics’ wholly owned subsidiary, LucidDx Labs Inc. (“LucidDx Labs”) acquired from RDx certain licenses and other related assets necessary for LucidDx Labs to operate its own new CLIA-certified, CAP-accreditedCLIA certified, College of American Pathologists (“CAP”) accredited clinical laboratory located in Lake Forest, CA. RDx was previously responsible for submitting claims for EsoGuard tests performed and was receiving out-of-network private insurance payments. As part of the transition to our own lab, we also contracted with a revenue cycle management (“RCM”) provider to submit claims on our behalf. The RCM provider has joint oversight of payer claims, appeals processes, patient billing, online payment collection, and claims tracking. At the point when submission by the RCM began in August 2022, more than 2,000 claims had accumulated since the commencement of our CLIA laboratory operations (LucidDX Labs, 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.

In August 2021, Lucid Diagnostics launched a strategic partnership with direct-to-consumer telemedicine company UpScriptHealthApril 2022, the American College of Gastroenterology (“ACG”) updated its clinical guideline to support esophageal precancer (“Barrett’s Esophagus”, “BE”) screening to prevent highly lethal esophageal cancer (“EAC”) utilizing Lucid Diagnostics’ EsoGuard Esophageal DNA Test on samples collected with our commercialization efforts. AlsoEsoCheck Cell Collection Device. The clinical guideline reiterates the ACG’s long-standing recommendation for esophageal precancer screening in August 2021, we testedat-risk patients with GERD. 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 first patients referredEsophaCap device, as such swallowable, nonendoscopic esophageal cell collection devices. The clinical guideline also mentions methylated DNA markers (like those detected by primary care physicians (“PCPs”) in our initial Lucid Test Centers opened in the Phoenix metropolitan area. We have since expanded our Lucid Test Centers into six additional cities expanding from its origin in the Southwest United States and stretchingEsoGuard test) as such a biomarker. The summary of evidence for this recommendation includes a reference to the Northwest.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.

 

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Overview - continued

In connectionJuly 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 our EsoCheck Cell Collection Device, 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 our effortsthree 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.

In 2021 the Lucid Diagnostics Inc. began conducting two concurrent clinical trials, the “EsoGuard screening study” (“BE-1”) and the “EsoGuard case-control study” (“BE-2”), to expand our presence in the diagnostic market, we are developing EsoCureclinical evidence for the technologies and to support a United States Food and Drug Administration (“FDA”) pre-market approval (“PMA”) application of the use of EsoGuard and EsoCheck as an Esophageal Ablation Device, within-vitro diagnostic medical device (“IVD”). However, in light of the intentrecently published proposed Local Coverage Determination (“LCD”) DL39256, the recently updated AGA guidance, and the ACG update to allow a clinicianits clinical guideline that supports screening to treat dysplastic BE before it can progress to EAC, aprevent highly lethal esophageal cancer (“EAC”) utilizing a biomarker test like EsoGuard on samples collected with a swallowable, nonendoscopic capsule device like EsoCheck, the Company has determined to prioritize its clinical trial efforts and resources towards supporting studies that will help secure insurance reimbursement adoption for EsoGuard and EsoCheck by government and private insurers. Consequently, we have decided to do so withoutdelay for the need for complex and expensive capital equipment. We have successfully completedtime being the BE-1 trial while continuing to enroll GERD patients with a pre-clinical feasibility animalprevious diagnosis of nondysplastic BE, low grade dysplasia, high grade dysplasia, or EAC in the BE-2 case-control study of EsoCure demonstrating excellent, controlled circumferential ablation of the esophageal mucosal lining. We have also completed an acute and survival animal study of EsoCure™ Esophageal Ablation Device, 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.Q2 2023.

CarpX

CarpX is a minimally invasive surgical device for use in the treatment of carpal tunnel syndrome which received FDA 510(k) marketing clearance in April 2020, with the first commercial procedure successfully performed in December 2020. After an initial slowdown in commercialization related to COVID, more recently we have recruited new sales leadership and have recently trained eight new surgeons to perform the CarpX procedure with four more scheduled to undergo training in the coming months. Our limited-release commercialization efforts thruthrough 2022 are focused on engaging key opinion hand surgeons designed to solicit input for ergonomic improvements to the device, procedure development and surgical-time optimization, and ease of use. Concurrently,As a result of this clinical input, we are presently working on improvementshave initiated a product development project to incorporate intraluminal ultrasound into the device that will be released in stages over the next several quarters
We believe CarpX is designed to allow the physician to relieve the compression on the median nerve without an open incision or the need for endoscopic or otherinclude real time imaging equipment. To use CarpX, the operator first advances a guidewire through the carpal tunnel underof the ligament to be cut together with critical anatomic structures. The design and then advanced over the wiredevelopment work, including cadaver testing is expected to culminate in a FDA submission and positionedclearance in the carpal tunnel under ultrasonic and/or fluoroscopic guidance. When the CarpX balloon is inflated it creates tension in the ligament positioning the cutting electrodes underneath it and creates space within the tunnel, providing anatomic separation between the target ligament and critical structures such as the median nerve. Radiofrequency energy is briefly delivered to the electrodes, rapidly cutting the ligament, and relieving the pressure on the nerve. We believe CarpX will be significantly less invasive than existing treatments .
2023.

 

Veris Health

In May 2021, we formed Veris Health, and concurrently, acquired Oncodisc IncInc. (“Oncodisc”), a digital health company with ground breaking tools to improve personalized cancer care through remote patient monitoring. Oncodisc’smonitoring, which we now refer to as our Veris Cancer Care Platform. The core technologies incorporated in the Veris Cancer Care Platform include the first intelligent implantable vascular healthcare platform that provides patients and physicians with new tools to improve outcomes and optimize the delivery of cost-effective care through remote monitoring and data analytics. Its vascular access port contains biologic sensors capable of generating continuous data on key physiologic parameters known to predict adverse outcomes in cancer patients undergoing treatment. Wireless communication to the patient’s smartphone and its cloud-based digital healthcare platform efficiently and effectively deliverswill deliver actionable real time data to patients and physicians. The technologies are the subject of multiple patent applications and one allowed patent awaiting final issuance.
Our other products We plan to seek commercialization of the implantable device through a FDA 510(k) process, and, as such, we will begin to commercialize the digital health offering in development have not yet received clearance or approvalthree phases which include software, device, and data. The initial launch will be in conjunction with a package we are calling Veris Solar, with Veris branded OEM Bluetooth enabled connected health care devices. The next product, which we call Veris Mercury, is an implantable physiologic monitor designed to be marketedimplanted in conjunction with a traditional vascular access port for chemotherapy or soldother treatments. We have recently completed a successful pre-submission meeting with the FDA, which provided us with an outline for a clear path to 510(k) clearance of Veris Mercury with a submission in 2023 (although there can be no assurance as to product clearance). Veris Venus will be the third product in the U.S.development process which will include full integration of the implantable monitor with the vascular access port. We are working with the FDA to finalize the regulatory path for Veris Venus to determine if it will be a 510(k) submission or elsewherea de novo pathway.

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Overview - continued

EsoCure

In connection with our efforts to expand our presence in the EAC diagnostic market, we are also developing 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. We have successfully completed a pre-clinical feasibility animal study of EsoCure demonstrating excellent, controlled circumferential ablation of the esophageal mucosal lining. An acute and survival animal study of EsoCure Esophageal Ablation Device 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.

PortIO

PortIO is an implantable intraosseous vascular access device that is being developed as a means for infusing fluids, medications, and other substances directly into the bone marrow cavity and from there into the central venous circulation. We are pursuing an FDA clearance for use in patients with a need for longer-term vascular access under de novo classification of section 513(f)2 of the FDCA. The broader clearance is being pursued in discussion with FDA following our previous initial submission to the FDA for a 510(k) premarket notification for use in patients only requiring 24-hour emergency type vascular access. PortIO completed its first-in-human clinical study in Colombia, South America, and has earlier this year successfully implanted seven additional patients for a series of infusions over seven days and a successful explant of the device. The next set of patients will have device implanted for 60 days which will influence the regulatory path of pursuing a CE Mark in Europe or to proceed with a US IDE trial. Recruitment of these patients is underway.

Recent Developments

 

Business

EsoCheck Manufacturing Update

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

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.

Veris Health Update

At the end of August, we moved our software platform from a development environment to a production environment. At the same time, we initiated our HIPAA and SOC2 audits which were completed in October. During the quarter we completed a presubmission meeting with the FDA, outlining a clear regulatory pathway for our first intelligent implantable device.

New Opportunities - Novosound Agreement

In October 2022, PAVmed entered into an option agreement with Novosound Ltd, a Scottish company specializing in the design and manufacturing of ultrasound sensors using a proprietary thin-film technique. Pursuant to the terms of the agreement, PAVmed and Novosound will collaborate on an research and development project leveraging Novosound’s ultrasound platform technology for development of novel intravascular ultrasound (“IVUS”) imaging devices, with PAVmed having the option to license the technology on an exclusive basis for use in intravascular imaging.

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OverviewRecent Developments - continued

Financing

 

Subsequent toSecurities Purchase Agreement - March 31, 2022 on April 4, 2022, the Company entered into a- Senior Secured Convertible Note in the amount- April 4, 2022 and Senior Secured Convertible Note - September 8, 2022

Effective as of $27.5 million, pursuant toMarch 31, 2022, we entered into a Securities Purchase Agreement (“SPA”) executed in March 2022 with an accredited institutional investor (“investor”Investor”, “Lender”, and /or “Holder”). Under the SPA, the Company, pursuant to which we agreed to sell, and the investorInvestor agreed to purchase an aggregate of $50.0 million face value principal of Senior Secured Convertible Notes. The SPA provided for the sale to the Investor of an initial Senior Secured Convertible Note with a face value principal of $27.5 million, which closed on April 4, 2022 (the “April 2022 Senior Convertible Note”). The SPA also provided for sales of additional Senior Secured Convertible Notes in one or more additional closings (upon the satisfaction of certain conditions), with an aggregate face value principal of up to an additional $22.5 million. The April 2022 Senior Convertible Note proceeds were $24.4 million initial principal amountafter deducting a $2.5 million lender fee and the Company’s offering costs of approximately $0.6 million, inclusive primarily of $0.5 million placement agent fees.

On September 8, 2022, we completed an additional closing under the SPA, in which we sold to the Investor an additional Senior Secured Convertible Notes (for an aggregateNote with a face value principal of $50.0$11.25 million in initial principal) upon(the “September 2022 Senior Convertible Note”). The September 2022 Senior Convertible Note proceeds were $10.0 million after deducting a $1.0 million lender fee and the satisfactionCompany’s offering costs of certain conditions. The purchase priceapproximately $0.2 million, inclusive primarily of the Secured Promissory Notes is $1,000placement agent fees.

See our accompanying unaudited condensed consolidated financial statements Note 11, Debt, for each $1,100 in principal amount of the notes, representing an original issue discount of $100 per $1,100 in principal amount of the notes. A further discussion of the SPA dated March 31, 2022 can be found herein below under Liquidity and Capital Resources - PAVmed Inc - Private Placement - Securities Purchase Agreement.the senior convertible notes.

 

Lucid Diagnostics Inc. - Committed Equity Facility

In March 2022, our majority-owned subsidiary, Lucid Diagnostics, Inc. 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 Lucid Diagnostics Inc. common stock from time to time atupon the request of Lucid Diagnostics Inc.Diagnostics. 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. Through September 30, 2022, 680,263 shares of common stock of Lucid Diagnostics were issued under this facility for total proceeds of approximately $1.8 million.

 

Impact of SARS-CoV-2 - COVID-19 Pandemic

Previously, in December 2019, there was an outbreak of a novel strain of a coronavirus occurred, with such coronavirus designated by the United Nations (UN) 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, the WHO declared a pandemic resulting from SARS-CoV-2, with such pandemic commonly referred to by its resulting illness of coronavirus disease 2019, or “COVID-19”. The COVID-19 pandemic is ongoing, and we continue to monitor the ongoing impact of the COVID-19 pandemic on the United States national economy, the global economy, and our business.

The COVID-19 pandemic may have an adverse impact on our operations, supply chains, and distribution systems and /or those of our contractors of our laboratory partner, 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, for example, the inability of our employees and /or those of our contractors or laboratory partner to perform their work or curtail their services provided to us.

We expect the significance of the COVID-19 pandemic, including the extent of its effect on our consolidated financial condition and consolidated operational results and cash flows, to 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.

In addition, the spread 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.

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 United States, 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.

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Results of Operations

 

Overview

 

Revenue

 

RevenueThe 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’s majority-owned subsidiary, Lucid Diagnostics Inc., and ResearchDXResearchDx Inc. (“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., athe Company’s wholly-owned subsidiary of Lucid DiagnosticsLucidDx 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; employee related costs of employees engaged in the administration to patients of the EsoCheck cell sample collection procedure (principally at the LUCIDLucid 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 advertising and promotion expenses. 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 salaries and related costs for personnel, travel expenses, facility-related costs, professional fees, accounting and legal services, employees involved in third-party payor reimbursement contract negotiations and consultants and expenses associated with obtaining and maintaining patents within our intellectual property portfolio.

 

We anticipate our general and administrative expenses will increase in the future, as we anticipate an increase in payroll and related expenses related with the growth and expansion of our business operations objectives. We also anticipate continued expenses related to being a public company, including audit, legal, regulatory, and tax-related services associated with maintaining compliance as a public company, insurance premiums and investor relations costs.

 

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Results of Operations - continued

Overview - continued

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 research and development of our products, including:

 

consulting costs charged to us by various external contract research organizations we contract with to conduct clinical and preclinical studies and engineering studies;design and development;
salary and benefit costs associated with our chief medical officer and engineering personnel;
costs associated with regulatory filings;
patent license fees;
cost of laboratory supplies and acquiring, developing, and manufacturing preclinical prototypes;
product design engineering studies; and
rental expense for facilities maintained solely for research and development purposes.

 

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 CarpX, EsoCheck and EsoGuard and CarpX, along with advancing our Veris Cancer Care Platform and EsoCure and PortIO and NextFlo products, our Digital Health product, and two of our Emerging Innovation product candidates through their respective development phase, including our DisappEAR reabsorable ear tubes product and a non-invasive glucose monitoring product.products.

 

Other Income and Expense, net

 

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

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Results of Operations - 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.

 

30

Three months ended March 31,September 30, 2022 as compared to three months ended March 31,September 30, 2021

 

Revenue

 

In the three months ended March 31,September 30, 2022, revenue was $0.2$0.1 million as compared to no revenue$0.2 million in the corresponding period in the prior year. The $0.2$0.1 million decrease principally relates to ourthe termination of the EsoGuard Commercialization Agreement dated August 1, 2021, which resulted in revenue recognition of $0.1 million per month beginning August 2021 - throughwith RDx, as the Company transitioned to its own laboratory operations effective February 25, 2022 termination date of such agreement.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 March 31,September 30, 2022, cost of revenue was approximately $0.4$1.6 million as compared to no cost of revenue in$0.1 million for the corresponding period in the prior year. The $0.4$1.5 million increase principally relates to costs associated with the EsoGuard Commercialization Agreement noted above.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 March 31,September 30, 2022, sales and marketing costs were approximately $3.9$4.7 million, compared to $1.4$2.3 million for the corresponding period in the prior year. The net increase of $2.5$2.4 million was principally related to:

 

approximately $1.6$2.1 million increase in compensation related costs, including stock based compensation of approximately $0.3 million with respect to restricted stock awards to Lucid Diagnostics and PAVmed employees and non-employees, and an increase in stock options granted corresponding with the increase in headcount; and
approximately $0.3 million increase in consulting and outside professional services.

General and administrative expenses

In the three months ended September 30, 2022, general and administrative costs were approximately $10.3 million, compared to $6.1 million for the corresponding period in the prior year. The net increase of $4.2 million was principally related to:

approximately $1.8 million increase in compensation related costs principally related toas a result of an increase in headcount and severanceheadcount;
approximately $0.4 million increase in stock based compensation primarily due to the absence in the current year of stock based compensation expense incurred for 2in the prior year resulting from the acceleration of vesting of stock options granted to former members of the Company’s board of directors, partially offset by an increase in stock options granted corresponding with the increase in the number of employees;
approximately $1.5 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; and
approximately $0.5 million increase in general business expenses.

 

Research and development expenses

In the three months ended September 30, 2022, research and development costs were approximately $6.2 million as compared to $5.3 million for the corresponding period in the prior year. The net increase $0.9 million was principally related to:

approximately $0.2 million increase in development costs, particularly in clinical trial activities and outside professional and consulting fees with respect to EsoCheck, CarpX, Veris Cancer Care Platform, EsoCure and PortIO; and
approximately $0.7 million increase in compensation related costs and related to expanded clinical and engineering staff.

Change in fair value of convertible debt

In the three months ended September 30, 2022, the non-cash expense recognized for the change in the fair value of our convertible notes was approximately $0.3 million of income, related to both the April 2022 and September 2022 Senior Convertible Notes. The April 2022 and September 2022 Senior Convertible Notes were initially measured at their issue-date estimated fair value and subsequently remeasured at estimated fair value as of the reporting period date. The Company initially recognized a $0.9 million fair value non-cash expense on the September 2022 Senior Convertible Note issue-date. This initial recognition was more than offset by $1.2 million of decreases in fair value upon remeasurements through September 30, 2022.

35

Results of Operations - continued

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

Loss on Issue and Offering Costs - Senior Secured Convertible Note

In the three months ended September 30, 2022, in connection with the issue of the September 2022 Senior Convertible Note, we recognized a total of approximately $1.2 million of other expense, inclusive of approximately $1.0 million of lender fee non-cash expense, and approximately $0.2 million of offering costs paid by us.

See our unaudited condensed consolidated financial statements Note 11, Debt, for additional information with respect to the September 2022 Senior Convertible Note.

Loss on Debt Extinguishment

In the three months ended September 30, 2022, a debt extinguishment loss in the aggregate of approximately $5.1 million was recognized in connection with our April 2022 Senior Convertible Note as discussed below.

In August 2022, approximately $5.0 million of principal repayments along with less than $0.1 million of interest expense thereon, were settled through the issuance of 5,013,908 shares of common stock of the Company, with such shares having a fair value of approximately $10.1 million (with such fair value measured as the respective conversion date quoted closing price of the common stock of the Company). The conversions resulted in a debt extinguishment loss of $5.1 million in the three months ended September 30, 2022.

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 $13.6 million, compared to $5.6 million for the corresponding period in the prior year. The net increase of $8.0 million was principally related to:

approximately $5.5 million increase in compensation related costs principally as a result of an increase in headcount;
approximately $1.0 million increase in stock based compensation from RSA grants to Lucid and PAVmed employees and non-employees, and an increase in stock options granted corresponding with the increase in the number of employees; and
approximately $0.5$1.5 million increase in consulting and outside professional services, related toand for EsoCheck and EsoGuard and consulting and professional services fees.marketing supplies.

 

General and administrative expenses

 

In the threenine months ended March 31,September 30, 2022, general and administrative costs were approximately $9.4$31.0 million, compared to $3.4$16.3 million for the corresponding period in the prior year. The net increase of $6.0$14.7 million was principally related to:

 

approximately $1.1$4.3 million increase in compensation related costs principally related toas a result of an increase in headcount;
approximately $1.8$1.0 million increase in stock based compensation from RSA grants to Lucid and PAVmed employees and non-employees, and an increase in stock options granted corresponding with the increase in the number of employees; and
approximately $2.3$7.7 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; and
approximately $0.8$1.7 million increase in general business expenses.

36

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 threenine months ended March 31,September 30, 2022, research and development costs were approximately $5.9$18.9 million as compared to $3.3$12.9 million for the corresponding period in the prior year. The net increase $2.6$6.0 million was principally related to:

 

approximately $2.1$4.3 million increase in development costs, particularly in clinical trial activities and outside professional and consulting fees with respect to EsoCheck, CarpX, Veris Cancer Care Platform, EsoCure CarpX, NextFlo, Port IO, our Digital Health product, and one of our Emerging Innovation product candidates (the non-invasive glucose monitoring product);PortIO; and
approximately $0.5$1.7 million increase in compensation related costs and related to expanded clinical and engineering staff.

31

Three months ended March 31, 2022 as compared to three months ended March 31, 2021 - continued

Other Income and Expense

 

Change in fair value of convertible debt

 

In the threenine months ended March 31,September 30, 2022, the non-cash expense recognized for the change in the fair value of our convertible notes was approximately $1.7 million, related to both the April 2022 and September 2022 Senior Convertible Notes. The April 2022 and September 2022 Senior Convertible Notes were initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value as of the reporting period date. The Company initially recognized a $3.5 million fair value non-cash expense on the issue-dates. This initial recognition was partially offset by $1.8 million of decreases in fair value upon remeasurements through September 30, 2022.

In the nine months ended September 30, 2021, the non-cash income (expense) recognized for the change in the fair value of our convertible notes was approximately $1.7 million.million of other income. The change in the fair value adjustment of the convertible notes is principally related to each of the convertible notes being repaid-in-full during the threenine months ended March 31,September 30, 2021, as discussed herein below under “Other Income and Expense - Loss“Loss from Extinguishment of Debt”.Debt.”

 

Loss on Issue and Offering Costs - Senior Secured Convertible Note

In the nine months ended September 30, 2022, in connection with the issue of both the April 2022 and September 2022 Senior Convertible Notes, we recognized a total of approximately $4.3 million of other expense, inclusive of approximately $3.5 million of lender fee non-cash expense, and approximately $0.8 million of offering costs paid by us.

Loss from Extinguishment of Debt

 

In the threenine months ended March 31,September 30, 2022, a debt extinguishment loss in the aggregate of approximately $5.1 million was recognized in connection with our April 2022 Senior Convertible Note as discussed below.

In August 2022, approximately $5.0 million of principal repayments along with less than $0.1 million of interest expense thereon, were settled through the issuance of 5,013,908 shares of common stock of the Company, with such shares having a fair value of approximately $10.1 million (with such fair value measured as the respective conversion date quoted closing price of the common stock of the Company). The conversions resulted in a debt extinguishment loss of $5.1 million in the nine months ended September 30, 2022.

In the prior year nine months ended September 30, 2021, a debt extinguishment loss in the aggregate of approximately $3.7 million was recognized in connection with the (previous) convertible notes, as discussed below.

 

On January 5, 2021, the repayment of the remaining face value principal of the November 2019 Senior Convertible Note, along with the payment of interest thereon of approximately $1.0 million, were settled with the issuance of 667,668 shares of our common stock, with a fair value of approximately $1,7$1.7 million (with such fair value measured as the respective conversion date quoted closing price of our common stock), resulting in the recognition of a loss from extinguishment of debt of approximately $0.8 million in the sixnine months ended JuneSeptember 30, 2021; and,

 

On January 30, 2021, we paid in cash a $350 partial principal repayment of the Senior Convertible Note dated April 30, 2020 (“April 2020 Senior Convertible Note”); and on March 2, 2021, we made a cash payment of approximately $14,466,$14.5 million, resulting in the repayment-in-full on such date of both the April 2020 Senior Convertible Note and the Senior Secured Convertible Note dated August 6, 2021, resulting in the recognition of a loss from extinguishment of debt of approximately $2,955$3.0 million in the sixnine months ended JuneSeptember 30, 2021.

 

See our unaudited condensed consolidated financial statements Note 1211, Debt, for additional information with respect to the convertible notes.April 2022 Senior Convertible Note.

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Liquidity and Capital Resources

Our current operational activities are principally focused on the commercialization of EsoGuard and CarpX, and our development activities are focused on pursuing FDA approval and clearance of other lead products in our product portfolio pipeline. Our ability to generate revenue depends upon successfully advancing the commercialization of EsoGuard and CarpX while also completing the development and the necessary regulatory approvals of its other products and services. 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 its products and services.

 

We have financed our operations principally through the public and private issuances of our common stock, preferred stock, common stock purchase warrants, and debt. We are 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 R&D and clinical trials. We expect to continue to experience recurring losses from operations, and will continue to fund our operations with debt and/or equity financing transactions. Notwithstanding, however, with the cash on-hand as of March 31, 2022,the date hereof and other debt and equity committed sources of financing, we expect to be able to fund our future operations for one year from the date of the issue of our unaudited condensed consolidated financial statements, as included in this Quarterly Report on Form 10-Q for the period ended March 31, 2022.10-Q.

 

Issue of Shares of Our Common Stock Transactions

 

During the threenine months ended March 31, 2022:September 30, 2022

 

We issued 237,499299,999 shares of our common stock for cash proceeds of approximately $241$0.3 million upon exercise of stock options granted under the PAVmed Inc 2014 Equity Plan, as such equity plan is discussed in Note 13,12, Stock-Based Compensation, of our unaudited condensed consolidated financial statements.
We issued 194,240385,938 shares of our common stock for proceeds of approximately $0.4 million under the PAVmed Inc. Employee Stock Purchase Plan (“ESPP”), as such ESPPplan is discussed in Note 13,12, Stock-Based Compensation, of our unaudited condensed consolidated financial statements.

Debt TransactionsSecurities Purchase Agreement - March 31, 2022 - Senior Secured Convertible Notes - April 4, 2022 and September 8, 2022

 

Subsequent toEffective as of March 31, 2022, on April 4, 2022, the Companywe entered into a Senior Secured Convertible Note in the amount of $27.5 million, pursuant to the SPA with an accredited institutional investor. Under the SPA, the CompanyInvestor, pursuant to which we agreed to sell, and the investorInvestor agreed to purchase an aggregate of $50.0 million face value principal of Senior Secured Convertible Notes. The SPA provided for the sale of the initial Senior Secured Convertible Note with a face value principal of $27.5 million, which closed on April 4, 2022 (referred to as the “April 2022 Senior Convertible Note”). The SPA also provided for sales of additional Senior Secured Convertible Notes in one or more additional closings (upon the satisfaction of certain conditions), with an aggregate face value principal of up to an additional $22.5 in additional initial principal amount ofmillion.

The April 2022 Senior Secured Convertible Notes (for an aggregate of $50.0 million in initial principal amount of Secured Promissory Notes) upon the satisfaction of certain conditions (as more fully described below). The notes are being offered and sold inNote has a registered direct offering under the Company’s effective shelf registration statement (the “Offering”). The purchase price of the Secured Promissory Notes is $1,000 for each $1,100 in principal amount of the notes, representing an original issue discount of $100 per $1,100 in principal amount of the notes. We herein refer to the Senior Secured Convertible Notes issued or issuable under the SPA as March 2022 Notes.

Pursuant to the SPA we completed an initial closing for the sale of $27.5 million in principal amount of March 2022 Notes, of which the investor funded and the Company received cash proceeds of $24.9 million on April 5, 2022, after deduction of lender fees. Subject to certain conditions being met or waived, from time to time after such time stockholder approval for an increase in our authorized shares from 150 million to 250 million is obtained, but before March 31, 2024, one or more additional closings for up to the remaining principal amount of March 2022 Notes may occur, upon five trading days’ notice by us to the investor. The aggregate principal amount of March 2022 Notes that may be offered in the additional closings may not be more than $22.5 million. The investor’s obligation to purchase the notes at each additional closing is subject to certain conditions set forth in the March 2022 SPA (including minimum price and volume thresholds, maximum ratio of debt to market capitalization, and minimum market capitalization), which may be waived by the Required Holders (as defined in the March 2022 SPA). Under the March 2022 SPA, the investor will be required to purchase March 2022 Notes in the additional closings if such conditions are met or waived. In addition, from and after March 31, 2023, the investor may by written notice to us elect to require us to issue up to $22.5 million in initial principal amount of March 2022 Notes, so long as in doing so it would not cause the ratio of (a) the outstanding principal amount of the March 2022 Notes (including the additional March 2022 Notes), accrued and unpaid7.875% annual stated interest thereon and accrued and unpaid late charges to (b) our average market capitalization over the prior ten trading days, to exceed 25%. If we fail to complete the sale of the additional March 2022 Notes contemplated by any such written notice, or if the investor is unable to deliver any such notice prior to March 31, 2024 asrate, a result of the limitation described in the preceding sentence, then we will be obligated to pay a break-up fee to the investor at such time in an aggregate amount equal to $1.35 million.

33

Liquidity and Capital Resources - continued

We will not pay any selling commission to any party in connection with the Offering, although we will pay a financial advisory fee equal to 1.8% of the gross proceeds from the Offering to an independent financial advisor. We estimate that the net cash proceeds will be approximately $20.4 million from the additional closings of the Offering, after deducting the estimated expenses of the Offering, assuming the sale of all of the March 2022 Notes.

The March 2022 Notes have a voluntary fixedcontractual conversion price of $5.00 per share a stated interest rate of 7.875% per annum, and a maturity of 24 months (subject to extension in certain circumstances). The March 2022 Notes will be secured by all our existing and future assets (including those of our significant subsidiaries, other than Lucid and its subsidiaries), but including only 9.99% of Lucid’s outstanding common stock held by us, pursuant to a security agreement by and between the Company and the investor.

On the date six months after the issuance of a March 2022 Note, on the 1st and 10th trading day of each calendar month thereafter, and on the maturity date (each an “Installment Date”), the Company will make an amortization payment on the March 2022 Note in an amount equal to the initial principal balance of the note divided by the total number of such amortization payments (such that the entire initial principal balance will be repaid by the maturity date), plus any amounts that have been deferred or accelerated to the applicable installment date, plus all accrued and unpaid interest and any late charges (the “Installment Amount”). Each Installment Amount will be satisfied in shares of the Company’s common stock subject(subject to certain customary equity conditions (including minimum pricestandard adjustments in the event of any stock split, stock dividend, stock combination, recapitalization or other similar transaction), and volume thresholds) at 100%a contractual maturity date of the Installment AmountApril 4, 2024. The April 2022 Senior Convertible Note may be converted into or otherwise (or at our election, in whole or in part) in cash at 115% of the Installment Amount. The conversion price for any Installment Amount so converted will be based on the then current market price, but not more than the fixed conversion price then in effect and not less than a floor price. The March 2022 Notes also may required to be repaidpaid in shares of our common stock atas described in Note 11, Debt.

On September 8, 2022, we completed an additional closing under the SPA, in which we sold to the Investor an additional Senior Secured Convertible Note with a face value principal of $11.25 million (referred to as the “September 2022 Senior Convertible Note”). The September 2022 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 September 6, 2024. The September 2022 Senior Convertible Note may be converted into or otherwise paid in shares of our common stock based onas described in Note 11, Debt.

The April 2022 Senior Convertible Note proceeds were $24.4 million after deducting a $2.5 million lender fee and the then current market price, but not more thanCompany’s offering costs of approximately $0.6 million, inclusive primarily of $0.5 million placement agent fees.

The September 2022 Senior Convertible Note proceeds were $10.0 million after deducting a $1.0 million lender fee and the fixed conversion price then in effect and not less than a floor price, upon the occurrenceCompany’s total offering costs of certain eventsapproximately $0.2 million, inclusive primarily of default. We may be required to repay the March 2022 Notes, in cash, at a premium to the outstanding principal balance, upon the occurrence of an event of default or upon a Change of Control (as defined in the March 2022 Notes).placement agent fees.

38

Liquidity and Capital Resources - continued

We will be

Under the Senior Convertible Notes and the SPA, we are subject to certain customary affirmative and negative covenants regarding the rank of the March 2022 Notes, 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. We also will beare subject to financial covenants requiring that (i) the amount of our available cash equal or exceed $8.0 million at all times, (ii) the ratio of (a) the outstanding principal amount of the March 2022 Notes,notes issued under the SPA, accrued and unpaid interest thereon and accrued and unpaid late charges to (b) our average market capitalization over the prior ten trading days, not exceed 30% (except that such maximum percentage is 50% for the period from September 8, 2022 through March 5, 2023) (the “Debt to Market Cap Ratio Test”), and (iii) that our market capitalization shall at no time be less than $75 million. The Marchmillion (the “Market Cap Test” and, together with the Debt to Market Cap Ratio Test, the “Financial Tests”). As of September 30, 2022, Notes include certain customary eventsthe Company was in compliance with the Financial Tests. In addition, the Company presently is in compliance with the Financial Tests.

On August 9, 2022, the Company and the Investor also agreed, in connection with the waiver described in Note 11 above, that the Investor may convert up to $5.0 million of default.the principal amount of the April 2022 Senior Convertible Note at the then current conversion price as if the date of conversion were an Installment Date, i.e. a price per share of common stock equal to the lower of (i) the fixed conversion price then in effect (currently $5.00) and (ii) 82.5% of the average VWAP of the Company’s common stock for each of the two trading days with the lowest VWAP of the Company’s common stock during the ten consecutive trading day period ending and including the trading day immediately prior to the applicable conversion date, but in the case of clause (ii), not less than $0.18 per share. As contemplated by such amendment, in August 2022, approximately $5.0 million of principal repayments along with less than $0.1 million of interest expense thereon, were settled through the issuance of 5,103,908 shares of our common stock.

See Note 11, Debt, for additional information about the SPA and the Senior Secured Convertible Notes.

 

Lucid Diagnostics IncInc. - Committed Equity Facility

 

In March 2022, our majority-owned subsidiary, Lucid Diagnostics, Inc. entered into a committed equity facility with an affiliate of Cantor Fitzgerald (“Cantor”).Cantor. Under the terms of the committed equity facility, Cantor has committed to purchase up to $50 million of Lucid Diagnostics Inc. common stock from time to time at the request of Lucid Diagnostics Inc.Diagnostics. 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 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 Lucid Diagnostics were issued for proceeds of approximately $1.8 million.

39

 

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. Please seeOur 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, for a summary of significant accounting policies.10-Q.

34

 

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,September 30, 2022. 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 (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controlsforms 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(ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes to Internal Controls Over Financial Reporting

 

There has been no change in internal 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,September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

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Part II - Other Information

 

Item 1. Legal Proceedings

 

See Note 10,9, Commitment and Contingencies - Legal Proceedings, of the unaudited condensed consolidated financial statements included in this Quarterly Report, for a description of certain material legal proceedings involving the Company, which description is incorporated herein by reference.

 

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 5. Other Information

 

None.

 

Item 6. Exhibits

 

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth in the “Exhibit Index” below.

 

3641

 

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.

 

 PAVmed Inc.
   
May 16,

November 14, 2022

By:/s/ Dennis M McGrath
  Dennis M McGrath
  President and Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit No. Description
2.1 Asset Purchase Agreement, dated as of February 25, 2022, by and among LucidDx Labs Inc., Lucid Diagnostics Inc. and ResearchDx, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by Lucid on March 3, 2022).
10.1Common Stock Purchase Agreement, dated as of March 28, 2022, by and between CF Principal Investments LLC and Lucid Diagnostics Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Lucid Diagnostics on April 1, 2022).
10.2Registration Rights Agreement, dated as of March 28, 2022, by and between CF Principal Investments LLC and Lucid Diagnostics Inc. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Lucid on April 1, 2022).
10.3Management Services Agreement, dated as of February 25, 2022, by and among LucidDx Labs Inc. and ResearchDx, Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Lucid on March 3, 2022).
10.4Employment Agreement, dated as of February 22, 2022, by and between Lishan Aklog, M.D. and Lucid Diagnostics Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Lucid Diagnostics on January 20, 2022).
10.5Employment Agreement, dated as of February 22, 2022, by and between Dennis McGrath and Lucid Diagnostics Inc. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Lucid Diagnostics on January 20, 2022).
10.6Employment Agreement, dated as of February 22, 2022, by and between Shaun O’Neil and PAVmed Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on February 24, 2022).
10.7Employment Agreement, dated as of February 22, 2022, by and between Shaun O’Neil and Lucid Diagnostics Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Lucid Diagnostics on March 23, 2022).
31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.†
31.2 Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. †
32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †
32.2 Certification of Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB Inline XBRL Taxonomy Extension Label Linkbase
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

Filed herewith

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