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 | (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 | ||
The Stock Market LLC | ||||
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” , “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer | ☐ | Accelerated filed | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(c) of the Exchange Act ☐
Indicate by check mark whether the registrant 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 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
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, $ par value. Authorized, shares; Series B Convertible Preferred Stock, par value $ , issued and outstanding at March 31, 2022 and shares at December 31, 2021 | 2,486 | 2,419 | ||||||||||||||
Common stock, $ par value. Authorized, shares; and shares outstanding as of March 31, 2022 and December 31, 2021, respectively | 87 | 86 | ||||||||||||||
Preferred stock, $ | par value. Authorized, shares; Series B Convertible Preferred Stock, par value $ , issued and outstanding at September 30, 2022 and shares at December 31, 20212,624 | 2,419 | ||||||||||||||
Common stock, $ | par value. Authorized, shares; and shares outstanding as of September 30, 2022 and December 31, 2021, respectively92 | 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.
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.
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.
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.
Note 32 — Patent 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.
Note 54 — Related Party Transactions
Case Western Reserve University and Physician Inventors - Amended CWRU License Agreement
Case Western Reserve University (“CWRU”) and each of the three physician inventors (“Physician Inventors”) of the intellectual property licensed under the amended and restated patent license agreement with CWRU, dated August 23, 2021 (the “Amended CWRU License Agreement (“Physician Inventors”Agreement”), each hold a minority equity ownership minority interestsinterest in Lucid Diagnostics Inc. The expenses incurred with respect to the Amended CWRU License Agreement and the three Physician Inventors, as classified in the accompanying 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 stock options under the PAVmed Inc. 2014 Equity Plan, with a grant date of May 12, 2018, an exercise price of $ per share of common stock of PAVmed Inc., vesting ratably on a quarterly basis commencing June 30, 2018 and ending March 31, 2021, and a contractual period of 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 stock options under the PAVmed Inc. 2014 Equity Plan, with a grant date of June 21, 2021, an exercise price of $ per share of common stock of PAVmed Inc., vesting ratably on a quarterly basis commencing June 30, 2021 and ending March 31, 2024, and a contractual period of 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.
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.
Note 65 — AcquisitionsAsset 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 and 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.
Note 76 — Prepaid 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 87 — Leases
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.
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 98 — Intangible Assets, net
Intangible assets, less accumulated amortization, consisted of the following as of:
Schedule of Intangible Assets Accumulated Amortization
Estimated Useful Life | March 31, 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.
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 |
Note 109 — Commitment 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.
Note 1110 —Financial Instruments Fair Value Measurements
Recurring Fair Value Measurements
The fair value hierarchy table for the reporting datesdate noted is as follows:
Schedule of Financial Liabilities Measured at Fair Value 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 |
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 | $ | $ | $ | $ | ||||||||||||
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.
Note 1211 — Debt
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 $ 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 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 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.
Note 1312 — Stock-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 March 31,September 30, 2022. The share reservation is not diminished by a total of PAVmed Inc. stock options and restricted stock awards granted outside the PAVmed Inc. 2014 Equity Plan as of March 31,September 30, 2022. shares of common stock of PAVmed Inc. are reserved for issuance under the PAVmed Inc. 2014 Equity Plan, with shares available for grant as of
PAVmed Inc. 2014 Equity Plan - Stock Options
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 | $ | 3,516 | 8,720,198 | $ | 3.39 | $ | 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 | $ | 439 | |||||||||||||||||||||||||||
Vested and exercisable stock options at March 31, 2022 | 6,519,615 | $ | 3.08 | $ | 428 | |||||||||||||||||||||||||||
Outstanding stock options at September 30, 2022(3) | 11,611,571 | $ | 2.73 | $ | — | |||||||||||||||||||||||||||
Vested and exercisable stock options at September 30, 2022 | 6,623,157 | $ | 3.01 | $ | — |
(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 |
(2) | The intrinsic value is computed as the difference between the quoted price of the PAVmed Inc. common stock on each of |
(3) | The outstanding stock options presented in the table above, are inclusive of 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
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 |
The unvested restricted stock awards presented in the table above, are inclusive of 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 March 31, 2022, with theSeptember 30, 2022. The share reservation is not diminished by a total of Lucid Diagnostics Inc. stock options and restricted stock awards granted outside the Lucid Diagnostics Inc. 2018 Equity Plan.Plan, as of September 30, 2022. shares of common stock of Lucid Diagnostics Inc. are reserved for issuance under the Lucid Diagnostics Inc. 2018 Equity Plan, with shares available for grant as of
Lucid Diagnostics Inc. 2018 Equity Plan - Stock Options
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 | 1,419,242 | $ | 0.73 | $ | 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 | |||||||||||||||||||||||||
Vested and exercisable stock options at March 31, 2022 | 1,277,026 | $ | 0.99 | |||||||||||||||||||||||||
Outstanding stock options at September 30, 2022(3) | 2,633,089 | $ | 3.17 | $ | 499 | |||||||||||||||||||||||
Vested and exercisable stock options at September 30, 2022 | 960,364 | $ | 2.33 | $ | 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 |
(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 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
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 | ) | ||||||||||||
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 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, restricted stock awards were granted under the Lucid Diagnostics Inc 2018 Equity Plan, with such restricted stock awards having a single vesting date on January 7, 2025, and an aggregate grant date fair value of approximately $million, measured as the grant date closing price of Lucid Diagnostics Inc. common stock, with such aggregate estimated fair value recognized as stock-based compensation expense ratably on a straight-line basis over the vesting period, which is commensurate with the service period. The restricted stock awards are subject to forfeiture if the requisite service period is not completed.
Note 13 — Stock-Based Compensation - continued
Consolidated Stock-Based Compensation Expense
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 |
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
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 | $ | 8,424 | ||||||||||||
Restricted Stock Awards | $ | 1,796 | $ | 1,222 | ||||||||||||
Lucid Diagnostics Inc. 2018 Equity Plan | ||||||||||||||||
Stock Options | $ | 4,660 | $ | 3,791 | ||||||||||||
Restricted Stock Awards | $ | 14,080 | $ | 7,165 |
23 |
Note 12 — Stock-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 $March 31,September 30, 2022 and 2021, respectively, calculated using the following weighted average Black-Scholes valuation model assumptions: per share and $ per share during the periods ended
Three Months Ended March 31, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Expected term of stock options (in years) | ||||||||||||||||
Expected stock price volatility | % | % | % | % | ||||||||||||
Risk free interest rate | % | % | % | % | ||||||||||||
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 $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: per share during the
September 30, | |||||||
2022 | |||||||
Expected term of stock options (in years) | |||||||
Expected stock price volatility | % | ||||||
Risk free interest rate | % | ||||||
Expected dividend yield | % |
Note 13 — Stock-Based Compensation - continued
PAVmed Inc. Employee Stock Purchase Plan (“ESPP”)
A total of shares and shares 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 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 shares and shares of common stock of PAVmed Inc. of whichshares 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 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 shares of common stock of Lucid Diagnostics Inc. forof which all shares are available-for-issue as of March 31,September 30, 2022.
24 |
Note 1413 — Preferred Stock
As of March 31,September 30, 2022 and December 31, 2021, there were and 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 additional shares of Series B Convertible Preferred Stock, inclusive of: shares issued with respect to the dividends earned as of December 31, 2021; shares issued with respect to the dividends earned as of March 31, 2022; and 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 additional shares of Series B Convertible Preferred Stock, inclusive of: shares issued with respect to the dividends earned as of December 31, 2020; shares issued with respect to the dividends earned as of March 31, 2021; and 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 additionalshares 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 shares of Series B Convertible Preferred Stock.
Note 1514 —Common Stock and Common Stock Purchase Warrants
Common Stock
In June 2022, the Company received shareholder approval to issue up to million shares of its common stock, an increase of million shares.
During the periodnine months ended March 31,September 30, 2022, shares 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 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 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, 4,989 face value principal repayments, along with approximately $11 of interest thereon, as discussed in Note 11, Debt. 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 $
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 1615 — Noncontrolling 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 |
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 shares 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 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 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 % 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 were 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 remaining % minority-interest ownership held by unrelated third parties.
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:
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 March 31,September 30, 2022 and 2021; and restricted stock awards as of March 31,September 30, 2022, granted outside the PAVmed Inc. 2014 Equity Plan. stock options as of
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 | |
● | our estimates regarding expenses, future revenue, capital requirements and needs for additional financing. |
In addition, our forward-looking statements do not reflect the potential impact of any future financings, acquisitions, mergers, dispositions, joint ventures or investments we may make.
We may not actually achieve the plans, intentions, and /orand/or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. You should read this Form 10-Q and the Form 10-K, and the documents we have filed as exhibits to this Form 10-Q and the Form 10-K, completely and with the understanding our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Overview
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 | |
● | Medical Devices - CarpX Minimally Invasive Surgical Device for Carpal Tunnel Syndrome; | |
● | Digital Health - Veris | |
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 |
● | In |
Overview - continued
● | In |
● | 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 |
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 | ||
2023. | ||
Veris Health
● | In May 2021, we formed Veris Health, and concurrently, acquired Oncodisc | |
31 |
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.
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.
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.
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 | |
● | 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.
34 |
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.
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 | |
● | 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 | |
● | approximately $0.4 million increase in stock based compensation primarily due to the absence in the current year of stock based compensation expense incurred | |
● | 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.
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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 |
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 | |
● | approximately | |
● | approximately | |
● | approximately |
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 | |
● | approximately |
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 | |
● | 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 |
See our unaudited condensed consolidated financial statements Note 1211, Debt, for additional information with respect to the convertible notes.April 2022 Senior Convertible Note.
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 | |
● | We issued |
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.
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.
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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.
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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.
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.
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.
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. | ||
November 14, 2022 | By: | /s/ Dennis M McGrath |
Dennis M McGrath | ||
President and Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |
EXHIBIT INDEX
† | Filed herewith |