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 JuneSeptember 30, 2022

 

OR

 

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

Commission File Number: 001-37685

 

PAVMED INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware 47-1214177
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
   
One Grand Central Place  
60 E. 42nd Street  
Suite 4600  
New York, NY 10165 10165
(Address of Principal Executive OfficesOffices) (Zip Code)

 

(212) 949-4319

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered under Section 12(b) of the Exchange Act:

 

Title of each Class Trading Symbol(s) Name of each Exchange on which Registered
Common Stock, $0.001 par value per share PAVM The NASDAQ Stock Market LLC
Series Z Warrants, each to purchase one share of Common Stock PAVMZ The NASDAQ Stock Market LLC

Securities registered under Section 12(g) of the Exchange Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of  “large accelerated filer”, “accelerated filer” , “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated 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 AugustNovember 10, 2022, there were 90,999,07893,704,719 shares of the registrant’s Common Stock, par value $0.001 per share, issued and outstanding (with such number of shares inclusive of shares of common stock underlying granted but unvested restricted stock awards granted under the PAVmed Inc. 2014 Long-Term Incentive Equity Plan as of such date).

 

 

 

 
 

 

TABLE OF CONTENTS

 

 Page
Part I - Financial InformationPage
   
Item 1.Financial Statements 
 Condensed Consolidated Balance Sheets (unaudited) as of JuneSeptember 30, 2022 and December 31, 20211
 Condensed Consolidated Statements of Operations (unaudited) for the three and sixnine months ended JuneSeptember 30, 2022 and 20212
 Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (unaudited) for the three and sixnine months ended JuneSeptember 30, 2022 and 20213
 Condensed Consolidated Statements of Cash Flows (unaudited) for the sixnine months ended JuneSeptember 30, 2022 and 20217
 Notes to Unaudited Condensed Consolidated Financial Statements8
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations2829
Item 4.Controls and Procedures40
   
 PARTPart II - Other Information 
   
Item 1.Legal Proceedings41
Item 5.Other Information41
Item 6.Exhibits41
 Signature42
 Exhibit Index43

 

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)

 

      
 June 30, 2022  December 31, 2021  September 30, 2022  December 31, 2021 
Assets:                
Current assets:                
Cash $65,153  $77,258  $56,785  $77,258 
Accounts receivable  —   200   31   200 
Prepaid expenses, deposits, and other current assets  5,662   5,179   5,163   5,179 
Total current assets  70,815   82,637   61,979   82,637 
Fixed assets, net  2,253   1,585   2,374   1,585 
Operating lease right-of-use assets  3,205   —   3,079   — 
Intangible assets, net  4,456   2,029   3,950   2,029 
Other assets  1,725   725   1,083   725 
Total assets $82,454  $86,976  $72,465  $86,976 
Liabilities, Preferred Stock and Stockholders’ Equity                
Current liabilities:                
Accounts payable $4,492  $3,299  $2,454  $3,299 
Accrued expenses and other current liabilities  2,932   4,259   2,930   4,259 
Operating lease liabilities, current portion  943   —   1,027   — 
Senior Secured Convertible Notes - at fair value  29,500   —   35,500   — 
Purchase consideration payable  1,000   — 
Total current liabilities  38,867   7,558   41,911   7,558 
Long-term liabilities        
Operating lease liabilities, less current portion  2,183   —   1,998   — 
Total long-term liabilities  2,183   — 
Total liabilities  41,050   7,558   43,909   7,558 
Commitments and contingencies (Note 9)  -        -   -
Stockholders’ Equity:                
Preferred stock, $0.001 par value. Authorized, 20,000,000 shares; Series B Convertible Preferred Stock, par value $0.001, issued and outstanding 1,158,950 at June 30, 2022 and 1,113,919 shares at December 31, 2021  2,554   2,419 
Common stock, $0.001 par value. Authorized, 250,000,000 shares; 87,023,211 and 86,367,845 shares outstanding as of June 30, 2022 and December 31, 2021, respectively  87   86 
Preferred stock, $0.001 par value. Authorized, 20,000,000 shares; Series B Convertible Preferred Stock, par value $0.001, issued and outstanding 1,182,101 at September 30, 2022 and 1,113,919 shares at December 31, 2021  2,624   2,419 
Common stock, $0.001 par value. Authorized, 250,000,000 shares; 92,228,862 and 86,367,845 shares outstanding as of September 30, 2022 and December 31, 2021, respectively  92   86 
Additional paid-in capital  201,327   198,071   214,278   198,071 
Accumulated deficit  (181,442)  (138,910)  (207,638)  (138,910)
Treasury stock  (548)  —   (408)  — 
Total PAVmed Inc. Stockholders’ Equity  21,978   61,666   8,948   61,666 
Noncontrolling interests  19,426   17,752   19,608   17,752 
Total Stockholders’ Equity  41,404   79,418   28,556   79,418 
Total Liabilities and Stockholders’ Equity $82,454  $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)

 

 2022 2021 2022 2021          
 Three Months Ended June 30, Six Months Ended June 30,  Three Months Ended
September 30,		 Nine Months Ended
September 30,		 
 2022 2021 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  4,898   1,875   8,823   3,262   4,736   2,293   13,559   5,555 
General and administrative  11,839   6,837   21,436   10,211   10,320   6,109   30,982   16,314 
Amortization of acquired intangible assets  505   17   1,278   23 
Research and development  6,740   4,258   12,671   7,573   6,202   5,305   18,873   12,878 
Total operating expenses  23,477   12,970   42,930   21,046   23,389   13,868   66,688   34,914 
Loss from operations  (23,477)  (12,970)  (43,110)  (21,046)
Net loss from operations  (23,313)  (13,668)  (66,423)  (34,714)
Other income (expense):                                
Interest expense  (523)  —   (523)  —   (525)  —   (1,049)  — 
Change in fair value - Senior Secured Convertible Note  (2,000)  —   (2,000)  1,682 
Change in fair value - Senior Secured Convertible Notes and Senior Convertible Note  261   —   (1,739)  1,682 
Loss on issue and offering costs - Senior Secured Convertible Note  (3,101)  —   (3,101)  —   (1,232)  —   (4,332)  — 
Debt extinguishments loss - Senior Secured Convertible Notes  —   —   —   (3,715)  (5,123)  —   (5,123)  (3,715)
Debt forgiveness  —   300   —   300   —   —   —   300 
Other income (expense), net  (5,624)  300   (5,624)  (1,733)  (6,619)  —   (12,243)  (1,733)
Loss before provision for income tax  (29,101)  (12,670)  (48,734)  (22,779)  (29,932)  (13,668)  (78,666)  (36,447)
Provision for income taxes  —   —   —   —   —   —   —   — 
Net loss before noncontrolling interests  (29,101)  (12,670)  (48,734)  (22,779)  (29,932)  (13,668)  (78,666)  (36,447)
Net loss attributable to the noncontrolling interests  3,576   1,199   6,337   1,877   3,806   1,441   10,143   3,318 
Net loss attributable to PAVmed Inc.  (25,525)  (11,471)  (42,397)  (20,902)  (26,126)  (12,227)  (68,523)  (33,129)
Less: Series B Convertible Preferred Stock dividends earned  (70)  (74)  (138)  (149)  (71)  (67)  (209)  (216)
Net loss attributable to PAVmed Inc. common stockholders $(25,595) $(11,545) $(42,535) $(21,051) $(26,197) $(12,294) $(68,732) $(33,345)
Per share information:                                
Net loss per share attributable to PAVmed Inc. - basic and diluted $(0.29) $(0.14) $(0.49) $(0.27) $(0.29) $(0.15) $(0.78) $(0.41)
Net loss per share attributable to PAVmed Inc. common stockholders – basic and diluted $(0.29) $(0.14) $(0.49) $(0.27) $(0.29) $(0.15) $(0.78) $(0.42)
Weighted average common shares outstanding, basic and diluted  86,957,352   82,235,397   86,689,857   78,117,637   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 JuneSeptember 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 Convertible Preferred Stock Common Stock  Additional Paid-In Accumulated Treasury  Non controlling     Series B Convertible Preferred Stock Common Stock Additional Paid-In Accumulated Treasury Non controlling  
 Shares  Amount Shares Amount Capital Deficit Stock Interest Total  Shares Amount Shares Amount  Capital Deficit Stock Interest Total 
                                                        
Balance - March 31, 2022  1,136,210  $2,486   86,911,646  $87  $199,719  $(155,849) $(512) $18,802  $64,733 
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  22,740   68   —   —   —   (68)  —   —   —   23,196   70   —   —   —   (70)  —   —   — 
Vest - restricted stock awards  —   —   75,000   —   (1)  —   —   —   (1)
Exercise - stock options  —   —   62,500   —   61   —   —   —   61 
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  —   —   —   —   —   —   —   501   501   —   —   —   —   —   —   —   6   6 
Purchase - Employee Stock Purchase Plan  —   —   —   —   —   —   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  —   —   —   —   99   —   —   142   241   —   —   —   —   1,363   —   —   (1,363)  — 
Issuance - majority-owned subsidiary common stock - Settlement APA-RDx - Installment Payment  —   —   —   —   —   —   —   186   186 
Stock-based compensation - PAVmed Inc.  —   —   —   —   1,449   —   —   —   1,449   —   —   —   —   1,481   —   —   —   1,481 
Stock-based compensation - majority-owned subsidiary  —   —   —   —   —   —   —   3,557   3,557   —   —   —   —   —   —   —   3,283   3,283 
Treasury stock  —   —   (25,935)  —   —   —   (36)  —   (36)  —   —   191,698   —   —   —   —   —   — 
Net loss  —   —   —   —   —   (25,525)  —   

(3,576

)  

(29,101

)  —   —   —   —   —   (26,126)  —   (3,806)  (29,932)
Balance - June 30, 2022  1,158,950  $2,554   87,023,211  $87  $

201,327

  $

(181,442

) $(548) $

19,426

  $

41,404

 
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 SIXNINE MONTHS ENDED JuneSeptember 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 

  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  45,031   135   —   —   —   (135)  —   —   — 
Exercise - Series Z Warrants  —   —   5   —   —   —   —   —   — 
Vest - restricted stock awards  —   —   541,666   —   (1)  —   —   —   (1)
Exercise - stock options  —   —   299,999   1   302   —   —   —   303 
Exercise - stock options of majority-owned subsidiary  —   —   —   —   —   —   —   688   688 
Purchase - Employee Stock Purchase Plan  —   —   194,240   —   217   —   —   —   217 
Impact of subsidiary equity transactions  —   —   —   —   12   —   —   229   241 
Stock-based compensation - PAVmed Inc.  —   —   —   —   2,726   —   —   —   2,726 
Stock-based compensation - majority-owned subsidiary  —   —   —   —   —   —   —   7,094   7,094 
Treasury stock  —   —   (380,544)  —   —   —   (548)  —   (548)
Net loss  —   —   —   —   —   (42,397)  —   (6,337)  (48,734)
Balance - June 30, 2022  1,158,950  $2,554   87,023,211  $87  $

201,327

  $(181,442) $(548) $

19,426

  $

41,404

 

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 JuneSeptember 30, 2021

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

 

                                                 
 PAVmed Inc. Stockholders’ Equity (Deficit)       PAVmed Inc. Stockholders’ Equity (Deficit)      
 Series B Convertible Preferred Stock Common Stock Additional Paid-In Accumulated Non controlling     Series B Convertible Preferred Stock Common Stock Additional Paid-In Accumulated Non controlling    
 Shares Amount Shares Amount Capital Deficit Interest Total  Shares Amount Shares Amount Capital Deficit Interest Total 
                                  
Balance - March 31, 2021  1,241,438  $2,587   81,424,744  $81  $145,396  $(97,778)-$(2,246) $48,040 
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  25,046   76   —   —   —   (76)  —   —   24,577   73   —   —   —   (73)  —   — 
Conversions - Series B Convertible Preferred Stock  (80,799)  (164)  80,799   —   164   —   —   —   (118,814)  (220)  118,814   —   220   —   —   — 
Vest - restricted stock awards  —   —   150,000   —   —   — - —   — 
Exercise - Series Z warrants  —   —   880,441   2   1,409   —   —   1,411   —   —   1,186,467   1   1,897   —   —   1,898 
Exercise - Series W warrants  —   —   3,945   —   20   —   —   20 
Exercise - stock options  —   —   40,832   —   51   —   —   51   —   —   483,668   —   823   —   —   823 
Purchase - Employee Stock Purchase Plan  —   —   31,112   —   131   —   —   131 
Stock-based compensation - PAVmed Inc.  —   —   —   —   2,622   —   —   2,622   —   —   —   —   1,218   —   —   1,218 
Stock-based compensation - majority-owned subsidiary  —   —   —   —   52   —   2,528   2,580   —   —   —   —   56   —   2,716   2,772 
Investment in Veris Health Inc. subsidiary  —   —   —   —   —   —   6   6 
Net loss  —   —   —   —   —   (11,471)- (1,199)  (12,670)  —   —   —   —   —   (12,227)  (1,441)  (13,668)
Balance - June 30, 2021  1,185,685  $2,499   82,576,816  $83  $149,694  $(109,325)-$(911) $42,040 
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.

 

5

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIT)

for the SIXNINE MONTHS ENDED JuneSeptember 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)       PAVmed Inc. Stockholders’ Equity (Deficit)      
 Series B Convertible Preferred Stock Common Stock Additional Paid-In Accumulated Non controlling     Series B Convertible Preferred Stock Common Stock Additional Paid-In Accumulated Non controlling    
 Shares Amount Shares Amount Capital Deficit Interest Total  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)  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   —   —   15,782,609   16   53,688   —   —   53,704 
Issue common stock upon partial conversions of Senior Secured Convertible Note  —   —   667,668   1   1,722   —   —   1,723 
Issue common stock – exercise Series Z warrants  —   —   1,740,658   2   2,783   —   —   2,785 
Issue common stock – conversion Series B Convertible Preferred Stock  (91,634)  (186)  91,634   —   186   —   —   — 
Series B Convertible Preferred Stock dividends declared  49,244   148   —   —   —   (148)- —   — 
Issue common stock - Employee Stock Purchase Plan  —   —   203,480   —   304   —   —   304 
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  —   —   120,832   —   131   —   —   131   —   —   604,500   —   953   —   —   953 
Vest - restricted stock awards  —   —   150,000   —   —   —   —   — 
Purchase - Employee Stock Purchase Plan  —   —   234,592   —   436   —   —   436 
Stock-based compensation - PAVmed Inc.  —   —   —   —   3,254   —   —   3,254   —   —   —   —   4,473   —   —   4,473 
Stock-based compensation - majority-owned subsidiary  —   —   —   —   56   —   3,329   3,385   —   —   —   —   111   —   6,045   6,156 
Investment in Veris Health Inc. subsidiary  —   —   —   —   —   —   6   6   —   —   —   —   —   —   6   6 
Net Loss  —   —   —   —   —   (20,902)- (1,877)  (22,779)  —   —   —   —   —   (33,129)  (3,318)  (36,447)
Balance - June 30, 2021  1,185,685  $2,499   82,576,816  $83  $149,694  $(109,325)-$(911) $42,040 
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      
 Six Months Ended June 30,  Nine Months Ended September 30, 
 2022 2021  2022 2021 
Cash flows from operating activities                
Net loss - before noncontrolling interest (“NCI”) $(48,734) $(22,779) $(78,666) $(36,447)
                
Adjustments to reconcile net loss - before NCI to net cash used in operating activities                
Depreciation and amortization expense  1,031   28   1,731   60 
        
Stock-based compensation  9,820   6,639   14,583   10,629 
In-process R&D charge  —   133   —   133 
APA-RDx: Issue common stock of majority-owned subsidiary - settle installment payment  239  —   427   — 
Change in fair value - Senior Secured Convertible Note  2,000   (1,682)  1,739   (1,682)
Loss upon Issuance - Senior Secured Convertible Note  2,500   —   3,523   — 
Debt extinguishment loss - Senior Secured Convertible Notes and Senior Convertible Note  —   3,715   5,123   3,715 
Debt forgiveness  —   (300)  —   (300)
Non-cash lease expense  57   —   82   — 
Changes in operating assets and liabilities:                
Accounts receivable  200   —   169   (200)
Prepaid expenses and other current and non-current assets  (1,665)  (1,441)  (563)  (1,918)
Accounts payable  1,057   650   (981)  2,911 
Accrued expenses and other current liabilities  (1,326)  (759)  (1,329)  (715)
Net cash flows used in operating activities  (34,821)  (15,796)  (54,162)  (23,814)
                
Cash flows from investing activities                
Purchase of equipment  (926)  (157)  (1,242)  (192)
Payments - Acquisitions, net of cash  (2,200)  (47)
Payments – Acquisitions, net of cash  (3,200)  (147)
Net cash flows used in investing activities  (3,126)  (204)  (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  25,000   — 
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  —   2,785   —   4,115 
Proceeds – exercise of stock options  303   131   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  688   —   694   — 
Purchase Treasury Stock – payment of employee payroll tax obligation in connection with stock-based compensation  (366)  —   (366)  — 
Net cash flows provided by financing activities  25,842   41,954   38,131   44,238 
Net increase (decrease) in cash  (12,105)  25,954   (20,473)  20,085 
Cash, beginning of period  77,258   17,256   77,258   17,256 
Cash, end of period $65,153  $43,210  $56,785  $37,341 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

7

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 Company’s current operational activities are principally focused on the commercialization of EsoGuard, CarpX and CarpX,Veris 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, 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 CarpXVeris 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 JuneSeptember 30, 2022.

8

Note 2 —Summary of Significant Accounting Policies

 

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 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.

 

Reclassifications

Certain prior-year amounts have been reclassified to conform to the current year presentation, which includes presenting costs of revenue within operating expenses on the statements of operations, in the unaudited condensed consolidated financial statements and accompanying notes to the unaudited condensed consolidated financial statements. The impact of the reclassifications made to prior year amounts is not material and did not affect net loss.

Use of Estimates

 

In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and 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)unaudited condensed consolidated financial statements include those related to the estimated fair value of debt obligations, stock-based equity awards, intangible 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.

9

Note 2 — Summary of Significant Accounting Policies - continued

Significant Accounting Policies - Continued

 

Leases

 

The Company adopted FASB ASC Topic 842, Leases, (“ASC 842”) effective December 31, 2021, with such adoption not having an effect on the Company’s consolidated financial statements.2021.

 

All significant lease agreements and contractual agreements with embedded lease agreements are accounted for under the provisions of ASC 842, wherein, 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”) asset and a corresponding 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. ImprovementsFor 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 or lease liability at December 31, 2021. Additionally, the Company elected the practical expedient to not separate lease and non-lease components.

 

109

 

Note 2 — Summary of Significant Accounting Policies and Recent Accounting Standards Updates - continued

Significant Accounting Policies - Continued

 

Fair Value Option (“FVO”) Election

 

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 isare 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 Recognition

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 Company requires payment from the patient prior to the commencement of the Company’s performance obligations. The Company’s consideration can be deemed variable or fixed depending on the structure of specific payer contracts, and the Company considers collection of such consideration to be probable to the extent that it is unconstrained.

Performance obligations—A performance obligation is a promise in a contract to transfer a distinct good or service (or a bundle of goods or services) to the customer. The Company’s contracts have a single performance obligation, which is satisfied upon rendering of services, which culminates in the release of a patient’s test result to the ordering healthcare provider. The Company 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 far less than one year.

 

1110

Note 2 — Summary of Significant Accounting Policies - continued

Transaction price—The transaction price is the amount of consideration 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 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 of such revised estimate. With respect to a contracted service arrangement, the fixed consideration revenue is recognized on an as-billed basis upon delivery of the laboratory test report with realization of such fixed consideration deemed probable based upon actual historical experience.

Allocate transaction price—The transaction price is allocated entirely to the performance obligation contained within the contract with a customer on the basis of the relative standalone selling prices of each distinct good or service.

Practical Expedients—The Company does not adjust the transaction price for the effects of a significant financing component, as at contract inception, the Company expects the collection cycle to be one year or less.

 

Note 3 — Revenue from Contracts with Customers

 

Revenue is recognized when the satisfaction of the performance obligation occurs, which is when the delivery of product and /or the provision of service is rendered, and is measured as the amount of estimated consideration expected to be realized. In the period ended June 30, 2022, the Company recognized revenue under the EsoGuard Commercialization Agreement, dated August 1, 2021, as discussed below.

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 was on a month-to-month basis, and was terminated on February 25, 2022 upon the execution of an asset purchase agreement (“APA”) dated February 25, 2022, between LucidDx Labs Inc. (a wholly-owned subsidiary of Lucid Diagnostics Inc.) and RDx, with such agreement further discussed in Note 5, Asset Purchase Agreement and Management Services AgreementAgreement.,.

Revenue Recognized

 

In the sixthree months and nine months ended JuneSeptember 30, 2022, the Company recognized total revenue of $76 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 for the period January 1, 2022 to the February 25, 2022 termination date as discussed above,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 totaled. In the three and nine months ended September 30, 2021, the cost of revenue was $369144 and $144, inclusive of employeerespectively, which solely related costs of personnel 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.

 

1211

Note 4 — 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”), each hold a minority equity ownership interest 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  2022  2021                 
 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

  

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 
 2022  2021  2022  2021  2022  2021  2022  2021 
Cost of Revenue                                
CWRU – Royalty Fee $—  $—  $9  $—  $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  272   273   544   364   275   273   819   637 
                                
Research and Development Expense                                
Amended CWRU License Agreement - reimbursement of patent legal fees  209   113   209   113   —   82   209   195 
Fees - Physician Inventors’ consulting agreements  10   1   18   14   15   8   32   22 
Sponsored research agreement  —   —   3   —   4   —   6   — 
Stock-based compensation expense – Physician Inventors’ stock options  52   52   99   58   52   56   151   114 
Total Related Party Expenses $543  $439  $882  $549  $350  $439  $1,230  $988 

 

See Note 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 15, Noncontrolling Interest, for a discussion of Lucid Diagnostics Inc. and the corresponding noncontrolling interests.

 

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 $8 and $1421 in the three and sixnine months ended JuneSeptember 30, 2021 in connection with the consulting agreement.

 

Effective June 2021, Veris Health Inc. entered into a consulting agreement with Andrew Thoreson, M.D. which 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 $138 and $3745 in the three and sixnine months ended JuneSeptember 30, 2022 in connection with the consulting agreement.

 

1312

Note 5 — Asset Purchase Agreement and Management Services Agreement

 

Asset Purchase Agreement - ResearchDx Inc.

 

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 - “APA-RDx”(“APA-RDx”). Under the APA-RDx, LucidDx Labs Inc. acquired certain assets from RDx which were combined with LucidDx Labs Inc. purchased and leased property and equipment to establish a Company-owned Commercial Lab Improvements Act (“CLIA”) certified, College 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 February 25, 2022, RDx provided such laboratory services at its owned CLIA-certified, CAP-accredited clinical laboratory.

 

The total purchase price consideration payable under the APA-RDx is a face value of $3,200 comprised of three contractually specified periodic payments. The APA-RDx is being accounted for as an asset acquisition, with the recognition of an intangible asset of approximately $3,200, which is included in “Intangible assets, net” on the accompanying unaudited condensed consolidated balance sheet, as further discussed in Note 8, Intangible Assets, netnet. . In the three and sixnine months ended JuneSeptember 30, 2022, a total of $2,2001,000 and $3,200, respectively, of cash was paid with respect to the periodic payments. Subsequent to June 30, 2022, in July 2022, $1,000 of cash was paid with respect to the remaining unpaid balance of the periodic payments. 

 

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 installment payments recognized as current period expense as incurred. In the three and sixnine months ended JuneSeptember 30, 2022, as provided for in the APA-RDx, an installment payment waspayments were settled bywith the issueissuances of 82,618 and 117,371199,989 shares of common stock of Lucid Diagnostics Inc., with such shares having a fair valuevalues of $239188 and $427, respectively, (with the fair value measured as the quoted closing price on the datedates the shares were issued), which was recognized as a current period expense included in general and administrative expenses in the accompanying unaudited condensed consolidated statement of operations.

 

The APA-RDx provides for each of an acceleration and a cancellation of the 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.

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.

 

1413

Note 6 — Prepaid Expenses, Deposits, and Other Current Assets

 

Prepaid expenses and other current assets consisted of the following as of:

 Schedule of Prepaid Expenses and Other Current Assets

        
 June 30, 2022  December 31, 2021  September 30, 2022  December 31, 2021 
Advanced payments to service providers and suppliers $834  $808  $581  $808 
Prepaid insurance  1,156   1,856   453   1,856 
Deposits  3,317   1,989   3,980   1,989 
EsoCheck cell collection supplies  215   434   55   434 
EsoGuard mailer supplies  65   59   49   59 
CarpX devices  75   33   45   33 
Total prepaid expenses, deposits and other current assets $5,662  $5,179  $5,163  $5,179 

Note 7 — Leases

 

During the sixnine months ended JuneSeptember 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 JuneSeptember 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 paymentsFuture Minimum Lease Payments for capital leasesCapital Leases

        
2022 (remainder of year) $562  $299 
2023  1,175   1,229 
2024  1,139   1,184 
2025  272   288 
2026  272   272 
Thereafter  132   132 
Total lease payments $3,552  $3,404 
Less: imputed interest  (426)  (379)
Present value of lease liabilities $3,126  $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         
 Six Months Ended June 30,  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 $483  $—  $763  $— 
Non-cash investing and financing activities                
Right-of-use assets obtained in exchange for new operating lease liabilities $3,633  $—  $3,753  $— 
Weighted-average remaining lease term - operating leases (in years)  3.31   —   3.08   — 
Weighted-average discount rate - operating leases  7.875%  —%  7.875%  —%

 

As of JuneSeptember 30, 2022, the Company’s right-of-use assets from operating leases are $3,2053,079, which are reporting in right-of-use assets - operating leases in the unaudited condensed consolidated balance sheets. As of JuneSeptember 30, 2022, the Company has outstanding operating lease obligations of $3,1263,025, of which $9431,027 is reported in operating lease liabilities, current portion and $2,1831,998 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.

 

1514

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 8 — Intangible Assets, net

 

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

 Schedule of Intangible Assets Accumulated Amortization

 

Estimated

Useful Life

 June 30, 2022  December 31, 2021  Estimated Useful Life September 30, 2022  December 31, 2021 
Defensive asset 60 months $2,105  $2,105  60 months $2,105  $2,105 
Laboratory licenses and certifications and laboratory information management software (“LIMSDx”) 24 months  3,200   --- 
Laboratory licenses and certifications and laboratory information management software 24 months  3,200   — 
Other 1 year  70   70  1 year  70   70 
Total Intangible assets  5,375   2,175   5,375   2,175 
Less Accumulated Amortization  (919)  (146)  (1,425)  (146)
Intangible Assets, net $4,456  $2,029  $3,950  $2,029 

The defensive technology intangible asset was recognized by PAVmed Subsidiary Corp upon its acquisition of CapNostics, LLC, an unrelated third-party, for total purchase consideration paid on the October 5, 2021 acquisition date of approximately $2.1million 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 60months commencing on the acquisition date.

As noted in Note 5, Asset Purchase Agreement and Management Services Agreement, the asset purchase agreement between the Company and ResearchDx Inc. (“APA-RDx”), is being accounted as asset acquisition. The intangible assets recognized under the APA-RDx are the laboratory licenses and certifications, inclusive of 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 (“LIMSDx”) perpetual-use royalty-free license granted under the APA-RDx, with such intangible asset having a useful life of twenty-four months commencing on the APA-RDx February 25, 2022 transaction date.

Amortization expense of the intangible assets discussed above was $650505 and $617 for the three month periods ended JuneSeptember 30, 2022 and 2021, respectively, and $7731,278 and $623 for the sixnine month periods ended JuneSeptember 30, 2022 and 2021, respectively, and is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. As of JuneSeptember 30, 2022, the estimated future amortization expense associated with the Company’s identified finite-lived intangible assets for each of the five succeeding fiscal years is as follows:

Schedule of Estimated Amortization Expense for Intangible Assets

     
2022 (remainder of year) $504 
2023  2,021 
2024  688 
2025  421 
2026  316 
Total $3,950 

 

     
2022 (remainder of year) $1,010 
2023  2,021 
2024  688 
2025  421 
2026  316 
Total $4,456 

1615

Note 9 — 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 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 board of directors 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. Such agreement wasThe settlement and a plaintiff’s fee award of $450 were approved by the Company’s board of directors as of August 5, 2022.The settlement of the complaint and plaintiff’s counsel’s fee award is subject-to the approval of 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 a 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 has made a motion to dismiss this complaint for Benchmark Investments LLC’s lack of standing, which motion is pending. In any event, 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.

 

17

Note 10 —Financial Instruments Fair Value Measurements

 

Recurring Fair Value Measurements

 

The fair value hierarchy table for the reporting date 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) Fair Value Measurement on a Recurring Basis at Reporting Date Using(1) 
 Level-1 Inputs Level-2 Inputs Level-3 Inputs Total 

Level-1

Inputs

 

Level-2

Inputs

 

Level-3

Inputs

 Total 
June 30, 2022        
September 30, 2022                
Senior Secured Convertible Note - April 2022 $ — $ — $ 29,500 $ 29,500 $—  $—  $23,500  $23,500 
Senior Secured Convertible Note - September 2022 $—  $—  $12,000  $12,000 
Totals $ — $ — $ 29,500 $ 29,500 $—  $—  $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 JuneSeptember 30, 2022.

 

16

Note 10 — Financial Instruments Fair Value Measurements - continued

As discussed in Note 11, Debt, the Company issued a Senior Secured Convertible NoteNotes dated April 4, 2022 and September 8, 2022, with an initial $27.5$27.5 million face value principal (“April 2022 Senior Convertible Note”). The April and an initial $11.25 million face value principal (“September 2022 Senior Convertible Note isNote”), respectively. Both convertible notes are accounted for under the ASC 825-10-15-4 fair value option (“FVO”) election, wherein, the financial instrument is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date.

 

The estimated fair value of the financial instruments classified within the Level 3 category was determined using both observable inputs and unobservable inputs. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs.

 

The estimated fair value of the April 2022 Senior Convertible Note as of each of April 4, 2022 and JuneSeptember 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 Fair Value Assumption Used

 

April 2022

Senior
Convertible Note:
April 4, 2022		 

April 2022

Senior

Convertible Note:
June 30, 2022

  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  $29,500  $30,100  $12,200  $23,500  $12,000 
Face value principal payable $27,500  $27,500  $27,500  $11,250  $22,511  $11,250 
Required rate of return  7.875%  11.20%  7.875%  7.875%  11.50%  11.60%
Conversion Price $5.00  $5.00  $5.00  $5.00  $5.00  $5.00 
Value of common stock $1.26  $0.94  $1.26  $1.21  $0.86  $0.86 
Expected term (years)  2.00   1.76   2.00   2.00   1.30   1.94 
Volatility  115.00%  130.00%  115.00%  120.00%  135.00%  135.00%
Risk free rate  2.40%  2.85%  2.40%  3.42%  4.02%  4.12%
Dividend yield  —%  —%  —%  —%  —%  —%

 

The estimated fair values reported utilized the Company’s common stock price along with certain Level 3 inputs (as discussed above), in the development of Monte Carlo simulation models, discounted cash flow analyses, and /or Black-Scholes valuation models. The estimated fair values are subjective and are affected by changes in inputs to the valuation models /analyses,and analyses, including the Company’s common stock price, the Company’s dividend yield, the risk-free rates based on U.S. Treasury security yields, and certain other Level-3 inputs including, assumptions regarding the estimated volatility in the value of the Company’s common stock price. Changes in these assumptions can materially affect the estimated fair values.

 

18

Note 11 — Debt

 

The Company entered into a Securities Purchase Agreement (“SPA”) dated March 31, 2022, with an accredited institutional investor (“Investor”, “Lender”, and /or “Holder”), wherein, the Company agreed to sell, and the Investor 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 million of face value principal (upon the satisfaction of certain conditions). The debt is beingwas issued in a registered direct offering under the Company’s effective shelf registration statement.

 

Under 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,election.

Under the same SPA, the Company issued an additional Senior Secured Convertible Note dated September 8, 2022, referred to herein as discussed below.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 $523481 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 April 4,from September 8, 2022 to JuneMarch 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 $18176 subsequent to JuneSeptember 30, 2022 as of AugustNovember 10, 2022.2022.

 

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 Installment Amount repayments, the Holder may elect to accelerate the conversion of future Installment Amount repayments, and interest thereon, subject to certain restrictions, as defined, utilizing the then current conversion price of the most recent Installment Date conversion price.

 

Subject to certain conditions being met or waived, from time to time, one or more additional closings may occur, for up to the remaining $22.511.25 million face value principal, upon five trading days’ notice given by the Company to the Investor. The Investor’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, including, 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 (as defined), with such requirements being waived by the Investor in its sole discretion.

 

Additionally, effective March 31, 2023, the Investor may by written notice elect to require the Company to issue additional notes of up to $22.511.25 million in face value principal, 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 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 the Company does not issue the additional notes contemplated by any such written notice, or if the Investor is unable to deliver any such notice prior to March 31, 2024 as a result of the limitation described in the preceding sentence, then the Company will be obligated to pay up to a maximum of a $1.35 million a break-up fee.

 

19

Note 11 — Debt - continued

The payment of all amounts due and payable under the April 2022 Senior Convertible Note isboth senior convertible notes are guaranteed by the Company and its wholly-owned and majority-owned subsidiaries, except for Lucid Diagnostics Inc and its wholly-owned subsidiaries; and the obligations under the April 2022 Senior Convertible Noteboth senior convertible notes are secured by all of the assets of the Company and each guarantor, except only up to 9.99%in the case of the shares ofLucid Diagnostics Inc. common stock held by PAVmed Inc. only 9.99% of Lucid Diagnostics Inc. held by PAVmed Inc. are’s issued and outstanding common stock is pledged to secure the indebtedness underof the April 2022 Senior Convertible Note.convertible notes.

The Company is subject to certain customary affirmative and negative covenants regarding the rank of the 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.

18

Note 11 — Debt - continued

 

The Company is subject to financial covenants requiring: (i) a minimum of $8.0 million of available cash at all times; (ii) the ratio of (a) the outstanding principal amount of the April 2022 Senior Convertible Note, (and any additionaltotal senior convertible notes issued under the SPA dated March 31, 2022),outstanding, accrued and unpaid interest thereon and accrued and unpaid late charges to (b) the Company’s average market capitalization over the prior ten trading days, 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) the Company’s market capitalization to 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 Company is currently in compliance with these financialthe above covenants although from time to time since.

The Company and the date of issuance ofinvestor entered into a waiver dated August 9, 2022 whereby the April 2022 Senior Convertible Note through August 10, 2022 (including, in the case of the Debt to Market Cap Ratio Test, as of June 30, 2022), the Company was not in compliance with the Financial Tests. As of August 9, 2022, the Investor agreed to waive any such non-compliance during such aforementioned time periods, under each of the SPA dated March 31, 2022 and the April 2022 Senior Convertible Note.

In connection with the waiver dated August 9, 2022, the Company and the Investor also amended the April 2022 Senior Convertible Note to permit the Investor to convert up to $5.0 million of the face value principal of the April 2022 Senior Convertible Note at the then current conversion price as if the date of conversion were an Installment Date, i.e. a price per share of common stock equal to the lower of (i) the fixed conversion price then in effect (currently $5.00) and (ii) 82.5% of the average VWAP of the Company’s common stock for each of the two trading days with the lowest VWAP of the Company’s common stock during the ten consecutive trading day period ending and including the trading day immediately prior to the applicable conversion date, but in the case of clause (ii), not less than $0.18 per share. As contemplated by such amendment, subsequent to June 30, 2022, onin August 10, 2022, approximately $2,8824,989 of principal repayments along with approximately $611 of interest expense thereon, were settled through the issuance of 3,000,8675,013,908 shares of common stock of the Company, with such shares having a fair value of approximately $5,46210,112 (with such fair value measured as the respective conversion date quoted closing price of the common stock of the Company). The conversions resulted in a debt extinguishment loss of $5.1 million in the three months ended September 30, 2022. Subsequent to September 30, 2022, as of November 10, 2022, approximately $424 of principal repayments along with approximately $4 of interest expense thereon, were settled through the issuance of 500,857 shares of common stock of the Company, with such shares having a fair value of approximately $536 (with such fair value measured as the respective conversion date quoted closing price of the common stock of the Company).

 

The fair value and face value principal of outstanding of the April 2022 Senior Convertible NoteNotes as of JuneSeptember 30, 2022 isare as follows:

 

Summary of Outstanding Debt

 Contractual Maturity Date Stated Interest Rate Conversion Price per Share Face Value Principal Outstanding Fair Value  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  $27,500  $29,500  April 4, 2024  7.875% $5.00  $22,511  $23,500 
Balance as of June 30, 2022         $27,500  $29,500 
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 sixnine month period ended JuneSeptember 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.

 

The April 2022 Senior Convertible Note is accounted for under the ASC 825-10-15-4 fair value option (“FVO”) election, wherein, the financial instrument is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date with the resulting fair value adjustment recognized as other income (expense) in the (unaudited) condensed consolidated statement of operations. In this regard, as provided for by ASC 825-10-50-30(b), the estimated fair value adjustment is presented as a single line item within other income (expense) in the accompanying consolidated statement of operations. See Note 10, Financial Instruments Fair Value Measurements, for a further discussion of fair value assumptions.

 

2019

Note 12 — 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 16,352,807 shares of common stock of PAVmed Inc. are reserved for issuance under the PAVmed Inc. 2014 Equity Plan, with 2,830,0922,520,927 shares available for grant as of JuneSeptember 30, 2022. The share reservation is not diminished by a total of 600,854 PAVmed Inc. stock options and restricted stock awards granted outside the PAVmed Inc. 2014 Equity Plan as of JuneSeptember 30, 2022.

 

PAVmed Inc. Stock Options

 

PAVmed Inc. stock options granted under the PAVmed Inc. Inc. 2014 Equity Plan and stock options granted outside such plan are summarized as follows:

 

Schedule of Summarizes Information About Stock Options

 Number of Stock Options Weighted Average Exercise Price Remaining Contractual Term (Years) Intrinsic Value(2)  Number of Stock Options Weighted Average Exercise Price Remaining Contractual Term (Years) Intrinsic Value(2) 
Outstanding stock options at December 31, 2021  8,720,198  $3.39   6.8  $3,516   8,720,198  $3.39   6.8  $3,516 
Granted(1)  4,219,350  $1.49           4,734,350  $1.54         
Exercised  (299,999) $1.01           (299,999) $1.01         
Forfeited  (1,437,143) $3.04           (1,542,978) $3.13         
Outstanding stock options at June 30, 2022(3)  11,202,406  $2.79   7.9  $8 
Vested and exercisable stock options at June 30, 2022  5,994,046  $3.07   6.5  $1 
Outstanding stock options at September 30, 2022(3)  11,611,571  $2.73   7.7  $— 
Vested and exercisable stock options at September 30, 2022  6,623,157  $3.01   6.5  $— 

 

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

20

Note 12 — Stock-Based Compensation - continued

 

PAVmed Inc. Restricted Stock Awards

 

PAVmed Inc. restricted stock awards granted under the PAVmed Inc. 2014 Equity Plan and restricted stock awards granted outside such plan are summarized as follows:

 

Schedule of Restricted Stock Award Activity

 Number of Restricted Stock Awards Weighted Average Grant Date Fair Value  Number of Restricted Stock Awards Weighted Average Grant Date Fair Value 
Unvested restricted stock awards as of December 31, 2021  1,666,666  $2.36   1,666,666  $2.36 
Granted  —   —   —   — 
Vested  (541,666)  1.20   (541,666)  1.20 
Forfeited  (150,000)  2.04   (150,000)  2.04 
Unvested restricted stock awards as of June 30, 2022(1)  975,000  $3.05 
Unvested restricted stock awards as of September 30, 2022(1)  975,000  $3.05 

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

21

Note 12 — 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 9,144,000 shares of common stock of Lucid Diagnostics Inc. are reserved for issuance under the Lucid Diagnostics Inc. 2018 Equity Plan, with 3,932,8023,754,051 shares available for grant as of JuneSeptember 30, 2022, with the2022. The share reservation is not diminished by a total of 473,300423,300 Lucid Diagnostics Inc. stock options and50,000 restricted stock awards granted outside the Lucid Diagnostics Inc. 2018 Equity Plan.Plan, as of September 30, 2022.

 

Lucid Diagnostics Inc. Stock Options

 

Lucid Diagnostics Inc. stock options granted under the Lucid Diagnostics Inc. 2018 Equity Plan and stock options granted outside such plan are summarized as follows:

 

Schedule of Summarizes Information About Stock Options

 Number of Stock Options Weighted Average Exercise Price Remaining Contractual Term (Years)  Number of Stock Options Weighted Average Exercise Price Remaining Contractual Term (Years) Intrinsic Value(2) 
Outstanding stock options at December 31, 2021  1,419,242  $0.73   7.0   1,419,242  $0.73   7.0  $6,665 
Granted(1)  2,107,500  $3.82       2,320,000  $3.71         
Exercised  (959,389) $0.72       (964,717) $0.72         
Forfeited  (107,687) $4.45       (141,436) $4.33         
Outstanding stock options at June 30, 2022(2)  2,459,666  $3.22   9.0 
Vested and exercisable stock options at June 30, 2022  741,869  $1.90   7.4 
Outstanding stock options at September 30, 2022(3)  2,633,089  $3.17   8.6  $499 
Vested and exercisable stock options at September 30, 2022  960,364  $2.33   7.2  $499 

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

21

Note 12 — Stock-Based Compensation - continued

 

Lucid Diagnostics Inc. Restricted Stock Awards

 

Lucid Diagnostics Inc. restricted stock awards granted under the Lucid Diagnostics Inc. 2018 Equity Plan and restricted stock awards granted outside such plan are summarized as follows:

 

Schedule of Restricted Stock Award Activity

 Number of Restricted Stock Awards Weighted Average Grant Date Fair Value  Number of Restricted Stock Awards Weighted Average Grant Date Fair Value 
Unvested restricted stock awards as of December 31, 2021  1,940,740  $12.76   1,940,740  $12.76 
Granted  320,000   4.53   320,000   4.53 
Vested  —   —   (169,320)  13.48 
Forfeited  —   —   —   — 
Unvested restricted stock awards as of June 30, 2022(1)  2,260,740  $11.59 
Unvested restricted stock awards as of September 30, 2022(1)  2,091,420  $11.44 

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

 

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

 

22

Note 12 — Stock-Based Compensation - continued

Consolidated Stock-Based Compensation Expense

 

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

Schedule of Stock-Based Compensation Awards Granted

                                
 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

  

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 
 2022  2021  2022  2021  2022  2021  2022  2021 
Cost of revenue $9  $—  $9  $— 
Sales and marketing expenses $591  $298  $1,216  $500   643   327   1,859   814 
General and administrative expenses  4,162   4,599   8,164   5,722   3,854   3,353   12,016   9,088 
Research and development expenses  254   306   440   417   258   310   699   727 
Total stock-based compensation expense $5,007  $5,203  $9,820  $6,639  $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 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

                 2022  2021  2022  2021 
 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

  

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 
 2022  2021  2022  2021  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 $215  $—  $480  $—   253   —   733   — 
Lucid Diagnostics Inc 2018 Equity Plan – general and administrative expenses  3,313   2,505   6,514   3,295   2,990   2,695   9,504   5,988 
Lucid Diagnostics Inc 2018 Equity Plan – research and development expenses  26   22   97   34   28   21   125   57 
PAVmed Inc 2014 Equity Plan - sales and marketing expenses  161   —   336   —   161   —   497   — 
PAVmed Inc 2014 Equity Plan - general and administrative expenses  77   —   145   —   78   —   224   — 
PAVmed Inc 2014 Equity Plan - research and development expenses  52   53   107   56   52   56   159   111 
Total stock-based compensation expense – recognized by Lucid Diagnostics Inc $3,844  $2,580  $7,679  $3,385  $3,571  $2,772  $11,251  $6,156 
Total stock-based compensation expense $3,571  $2,772  $11,251  $6,156 

 

The consolidated unrecognized stock-based compensation expense and weighted average remaining requisite service period with respect to stock options and restricted stock awards issued under each of the PAVmed Inc. 2014 Equity Plan and the Lucid Diagnostics Inc. 2018 Equity Plan, as discussed above, is as follows:

Schedule of Unrecognized Compensation Expense

 Unrecognized Expense  Weighted Average Remaining Service Period (Years)  Unrecognized
Expense		  Weighted Average
Remaining Service
Period (Years)		 
PAVmed Inc. 2014 Equity Plan                
Stock Options $9,127   2.3  $8,424   2.1 
Restricted Stock Awards $1,510   1.2  $1,222   0.9 
                
Lucid Diagnostics Inc. 2018 Equity Plan                
Stock Options $4,030   2.6  $3,791   2.4 
Restricted Stock Awards $10,873   1.0  $7,165   0.8 

 

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 $0.74$1.08 per share and $3.32$3.47 per share during the periods ended JuneSeptember 30, 2022 and 2021, respectively, calculated using the following weighted average Black-Scholes valuation model assumptions:

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

 

Six Months Ended

June 30,

  

Nine Months Ended

September 30,

 
 2022  2021  2022  2021 
Expected term of stock options (in years)  5.8   5.6   5.8   5.6 
Expected stock price volatility  84.0%  75.0%  86.0%  76.0%
Risk free interest rate  3.0%  1.0%  2.9%  0.9%
Expected dividend yield  —%  —%  —%  —%

 

Stock-based compensation expense recognized with respect to stock options granted under the Lucid Diagnostics Inc. 2018 Equity Plan was based on a weighted average estimated fair value of such stock options of $1.481.61 per share during the year ended June 30, 2022. There were no stock-based awards granted under the Lucid Diagnostics Inc. 2018 Equity Plan during the period ended JuneSeptember 30, 2021.2022. The stock-based compensation was calculated using the following weighted average Black-Scholes valuation model assumptions:

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

  

SixNine Months Ended

JuneSeptember 30,

 
  2022 
Expected term of stock options (in years)  5.75.8 
Expected stock price volatility  71.072.0%
Risk free interest rate  3.03.2%
Expected dividend yield  —%

 

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

 

A total of 194,240 shares and 203,480 shares of common stock of the Company were purchased for proceeds of approximately $217218 and $304, on March 31, 2022 and 2021, respectively under the PAVmed Inc Employee Stock Purchase Plan (“PAVmed Inc ESPP”). A total of 191,698 shares and 31,112 shares of common stock of the Company were purchased for proceeds of approximately $140 and $131, on September 30, 2022 and 2021, respectively under the PAVmed Inc ESPP. The September 30, 2022 purchase was settled through the redeployment of treasury stock, and did not reduce the number of shares available-for-issue under the PAVmed Inc ESPP. The PAVmed Inc. ESPP has a total reservation of 1,750,000 shares of common stock of PAVmed Inc. of which931,841 shares are available-for-issue as of JuneSeptember 30, 2022.

 

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

 

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

24

 

Note 13 — Preferred Stock

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

Series B Convertible Preferred Stock Dividends

 

The Series B Convertible Preferred Stock dividends are 8.0% per annum based on the $3.00 per share stated value of the Series B Convertible Preferred Stock, with such dividends compounded quarterly, accumulate, and are payable in arrears upon being declared by the Company’s board of directors. 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 in the accompanying unaudited condensed consolidated statement of operations, inclusive of dividends earned of $68as of the three months endedeach of March 31, 2022, June 30, 2022, and September 30, 2022, of approximately $71and $70209 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 the three months ended June 30, 2022; and dividends earnedeach of $75 as of the three months ended March 31, 2021, June 30, 2021, and September 30, 2021 of approximately $67and $74216 as ofin the three and nine months ended JuneSeptember 30, 2021.2021, 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 sixnine months ended JuneSeptember 30, 2022, the Company’s board-of-directors declared Series B Convertible Preferred Stock dividends of an aggregate of approximately $135204, 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 45,03168,227 additional shares of Series B Convertible Preferred Stock, inclusive ofof: 22,291 shares issued with respect to the dividends earned as of December 31, 2021, and2021; 22,740 shares issued with respect to the dividends earned as of March 31, 2022; and 23,196 shares issued with respect to the dividends earned as of June 30, 2022.

In the sixnine months ended JuneSeptember 30, 2021, the Company’s board-of-directors declared Series B Convertible Preferred Stock dividends of an aggregate of approximately $148221, inclusive of approximately $73 earned as of December 31, 2020, and2020; approximately $75 earned as of March 31, 2021,2021; and approximately $74 earned as of June 30, 2021; with each such dividends settled by the issue of an aggregate 49,24473,821 additional shares of Series B Convertible Preferred Stock, inclusive ofof: 24,198 shares issued with respect to the dividends earned as of December 31, 2020, and2020; 25,046 shares issued with respect to the dividends earned as of March 31, 2021; and 24,577 shares issued with respect to the dividends earned as of June 30, 2021.

 

Subsequent to JuneSeptember 30, 2022, in JulyOctober 2022, the Company’s board-of-directors declared a Series B Convertible Preferred Stock dividend earned as of JuneSeptember 30, 2022 and payable as of JulyOctober 1, 2022, of approximately $7071, to be settled by the issue of an additional23,196 23,658 shares of Series B Convertible Preferred Stock (with such dividend not recognized as a dividend payable as of JuneSeptember 30, 2022, as the Company’s board of directors had not declared such dividends payable as of such date). In the prior year October 2021, the Company’s board-of-directors declared a Series B Convertible Preferred Stock dividend earned as of September 30, 2021 and payable as of October 1, 2021, of approximately $67, settled by the issue of an additional 22,471 shares of Series B Convertible Preferred Stock.

25

 

Note 14 —Common Stock and Common Stock Purchase Warrants

 

Common Stock

 

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

 

During the sixnine months ended JuneSeptember 30, 2022, 299,999 shares of common stock of the Company were issued upon exercise of stock options for cash of approximately $302; and . during the sixnine months ended JuneSeptember 30, 2022 a total of 194,240385,938 shares of common stock of the Company were issued under the PAVmed Inc. Employee Stock Purchase Plan (“ESPP”). See Note 12, Stock-Based Compensation, for a discussion of each of the PAVmed Inc. 2014 Equity Plan and the PAVmed IncInc. ESPP.

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

 

Common Stock Purchase Warrants

 

As of JuneSeptember 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 of the Company at an exercise price of $1.60 per share, and expire April 30, 2024. During the sixnine months ended JuneSeptember 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 377,873 Series W Warrants expired unexercised as of January 29, 2022.

 

2526

 

Note 15 — 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

 June 30, 2022  December 31, 2021  September 30, 2022  December 31, 2021 
NCI – equity (deficit) – beginning of period $17,752  $(2,369) $17,752  $(2,369)
Investment in Veris Health Inc.  —   6   —   6 
Net loss attributable to NCI - Lucid Diagnostics Inc.  (5,711)  (5,779)
Net loss attributable to NCI – Lucid Diagnostics Inc.  (9,032)  (5,779)
Net loss attributable to NCI – Solys Diagnostics Inc.  (6)  —   (6)  — 
Net loss attributable to NCI – Veris Health Inc.  (620)  —   (1,105)  — 
Impact of subsidiary equity transactions  229   16,760   (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  688   —   694   — 
Lucid Diagnostics Inc. Employee Stock Purchase Plan Purchase  109   — 
Stock-based compensation expense - Lucid Diagnostics Inc. 2018 Equity Plan  7,091   9,134   10,371   9,134 
Stock-based compensation expense - Veris Health Inc. 2021 Equity Plan  3   —   6   — 
NCI – equity (deficit) – end of period $19,426  $17,752  $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 JuneSeptember 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 sixnine months ended JuneSeptember 30, 2022 and 2021; and with respect to Veris Health Inc. for the three and sixnine months ended JuneSeptember 30, 2022 and from the period of May 28, 2021 to JuneSeptember 30, 2021 (as the Veris Health Inc. inception date was May 28, 2021).

 

Lucid Diagnostics Inc.

 

As of JuneSeptember 30, 2022, there were 35,171,79637,016,225 shares of common stock of Lucid Diagnostics Inc. issued and outstanding, of which, PAVmed Inc. holds 27,927,190 shares, 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. While there are distinct differences, the facility is structured similarly to a traditional at-the-market equity facility, insofar as it allows the Company to raise primary equity capital on a periodic basis at prices based on the existing market price. As of JuneSeptember 30, 2022, there were 0 shares of common stock issued under the committed equity facility. Subsequent to June 30, 2022, as of August 10, 2022, under the committed equity facility, a total of 308,152680,263 shares of common stock of Lucid Diagnostics Inc. were issued for proceeds of approximately $9271,807.

 

Veris Health Inc.

 

As of JuneSeptember 30, 2022, there were 8,000,000 shares of common stock of Veris Health Inc. issued and outstanding, of which PAVmed Inc. holds an 80.44% majority-interest ownership and PAVmed Inc. has a controlling financial interest, with the remaining 19.56% minority-interest ownership held by an unrelated third-party. Accordingly, Veris Health Inc. is a consolidated majority-owned subsidiary of the Company, for which a provision of a noncontrolling interest (NCI) is included as a separate component of consolidated stockholders’ equity in the unaudited condensed consolidated balance sheet as of JuneSeptember 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 June30,September 30, 2022 and December 31, 2021, there were9,189,190 shares of common stock of Solys Diagnostics Inc. issued and outstanding, of which PAVmed Inc. holds a 90.3235% majority-interest ownership and PAVmed Inc. has a controlling financial interest, with the remaining 9.6765% minority-interest ownership held by unrelated third parties.

 

2627

 

Note 16 —Net Loss Per Share

 

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

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

                 2022  2021  2022  2021 
 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

  

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 
 2022  2021  2022  2021  2022  2021  2022  2021 
Numerator                                
Net loss - before noncontrolling interest $(29,101) $(12,670) $(48,734) $(22,779) $(29,932) $(13,668) $(78,666) $(36,447)
Net loss attributable to noncontrolling interest  3,576   1,199   6,337   1,877   3,806   1,441   10,143   3,318 
Net loss - as reported, attributable to PAVmed Inc. $(25,525) $(11,471) $(42,397) $(20,902) $(26,126) $(12,227) $(68,523) $(33,129)
                                
Series B Convertible Preferred Stock dividends – earned $(70) $(74) $(138) $(149) $(71) $(67) $(209) $(216)
                                
Net loss attributable to PAVmed Inc. common stockholders $(25,595) $(11,545) $(42,535) $(21,051) $(26,197) $(12,294) $(68,732) $(33,345)
                                
Denominator                                
Weighted average common shares outstanding, basic and diluted  86,957,352   82,235,397   86,689,857   78,117,637   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. $(0.29) $(0.14) $(0.49) $(0.27) $(0.29) $(0.15) $(0.78) $(0.41)
Net loss attributable to PAVmed Inc. common stockholders $(0.29) $(0.14) $(0.49) $(0.27) $(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 JuneSeptember 30, 2022 and 2021 include the shares of the Company issued and outstanding during such periods, each on a weighted average basis. The basic weighted average number of shares of common stock outstanding excludes common stock equivalent incremental shares, while diluted weighted average number of shares outstanding includes such incremental shares. However, as the Company was in a loss position for all periods presented, basic and diluted weighted average shares outstanding are the same, as the inclusion of the incremental shares would be anti-dilutive. The common stock equivalents excluded from the computation of diluted weighted average shares outstanding are as follows:

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

 2022  2021  2022  2021 
 June 30,  September 30, 
 2022  2021  2022  2021 
Stock options and restricted stock awards  12,177,406   10,573,530   12,586,571   10,214,448 
Series Z Warrants  11,937,450   15,074,281   11,937,450   13,887,814 
Series W Warrants  —   381,818   —   377,873 
Series B Convertible Preferred Stock  1,158,950   1,185,685   1,182,101   1,091,448 
Total  25,273,806   27,215,314   25,706,122   25,571,583 

 

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

2728

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 PAVmed Inc. and its wholly-owned subsidiary PAVmed Subsidiary Corp; and its majority-owned subsidiaries, including:including Lucid Diagnostics Inc. (“Lucid Diagnostics” or “LUCID”), and Veris Health Inc. (“Veris Health” or “VERIS”), and Solys Diagnostics, Inc. (“Solys Diagnostics” or “SOLYS”).

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (this “Form 10-Q”), including the following discussion and analysis of our (unaudited) condensed consolidated financial condition and results of operations, contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Item 1A of Part I of the Form 10-K under the heading “Risk Factors.”

 

Important factors that may affect our actual results include:

 

●our limited operating history;
●our financial performance, including our ability to generate revenue;
●our ability to obtain regulatory approval for the commercialization of our products;
●the ability of our products to achieve market acceptance;
●our success in retaining or recruiting, or changes required in, our officers, key employees or directors;
●our potential ability to obtain additional financing when and if needed;
●our ability to protect our intellectual property;
●our ability to complete strategic acquisitions;
●our ability to manage growth and integrate acquired operations;
●the potential liquidity and trading of our securities;
●our regulatory and operational risks;
●cybersecurity risks;
●risks related to SARS-CoV-2 /COVID-19the COVID-19 pandemic;
●the impact of the material weakness identified by our management; and
●our estimates regarding expenses, future revenue, capital requirements and needs for additional financing.

 

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

 

We may not actually achieve the plans, intentions, and /orand/or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. You should read this Form 10-Q and the Form 10-K, and the documents we have filed as exhibits to this Form 10-Q and the Form 10-K, completely and with the understanding our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

 

2829

 

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 on June 26, 2014, its activities have focused on advancing its lead products through regulatory approval, expanding commercial operations, and protecting its intellectual property, while 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: “Diagnostics”, “Medical Devices”,lines of business: Diagnostics, Medical Devices and “Digital Health”.Digital Health.

 

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

 

●Diagnostics - EsoGuard Esophageal DNA Laboratory Developed Test-Test and EsoCheck Esophageal Cell Collection Device;
●Medical Devices –- CarpX Minimally Invasive Surgical Device for Carpal Tunnel Syndrome, –Syndrome; EsoCure Esophageal Ablation Device with Caldus Technology, and PortIO Implantable Intraosseous Vascular Access Device.Device;
●
●

Digital Health –- Veris Cancer Care Platform with implantable smart device, remote monitoring and data analytics.

 

We are also pursuing a number of research and development project and product opportunities across these three segments,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”)GERD,” also commonly known as chronic heartburn, acid reflux or simply reflux) patients. The Company has advanced the proprietary technologies underlying EsoGuard and EsoCheck from the academic research laboratory to commercial diagnostics tests and devices with scalable manufacturing capacity. The Company is presently focused on expanding commercialization across multiple sales channels, including:including the communication and education of medical practitioners and clinicians of EsoGuard;EsoGuard and establishingthe establishment of “Lucid Diagnostics Test Centers” for the collection of cell samples using EsoCheck. Previously the collected cell samples were sent to ResearchDx Inc. (“RDx”), an unrelated third-party CLIA-certifiedClinical Laboratory Improvement Amendments (“CLIA”) certified commercial laboratory service provider, for the performance of the EsoGuard LDT.EsoGuard. On February 25, 2022, Lucid Diagnostics’ wholly owned subsidiary, LucidDx Labs Inc. (“LucidDx Labs”) acquired from RDx certain licenses and other related assets necessary for LucidDx Labs to operate its own new Clinical Laboratory Improvement Amendments (“CLIA”)CLIA certified, College of American Pathologists (“CAP”) accredited clinical laboratory located in Lake Forest, CA. RDx was previously responsible for submitting claims for EsoGuard tests performed and was receiving out-of-network private insurance payments. As part of the transition to our own lab, we also contracted with a revenue cycle management (“RCM”) provider to submit claims on our behalf. The RCM provider will have completehas joint oversight of payer claims, appeals processes, patient billing, online payment collection, and claims tracking. WithAt the appropriate licenses and certifications for billing and credentialing secured, and our recently having putpoint when submission by the RCM began in place the necessary back office systems, claims forAugust 2022, more than 1,000 tests performed2,000 claims had accumulated since the establishmentcommencement of our own labCLIA laboratory operations (LucidDX Labs, on February 25, 2022). These claims and other claims that were subsequently generated are now being processed, including 8501,088 tests in the three months ended JuneSeptember 30, 2022 (although not having yet secured reimbursed rates from Medicare and Medicaid, the Company does not know the amount per claim it will receive from payors).2022. Refer to Note 3 of our Condensed Consolidated Financial Statements for more information on Revenue from Contracts with Customers.  Presently, recognized revenue for GAAP purposes is subject to actual amounts collected during the period.  Accordingly, since the RCM began submitting claims processed from our own lab subsequent to June 30, 2022, there were no collections during the three months ended June 30, 2022.

 

●In April 2022, the American College of Gastroenterology (“ACG”) updated its clinical guideline to support esophageal precancer (“Barrett’s Esophagus”, “BE”) screening to prevent highly lethal esophageal cancer (“EAC”) utilizing Lucid Diagnostics’ EsoGuard Esophageal DNA Test on samples collected with our EsoCheck Cell Collection Device. The clinical guideline reiterates the ACG’s long-standing recommendation for esophageal precancer screening in at-risk patients with GERD. In its Recommendation 5, the ACG suggests a single screening endoscopy in patients with chronic GERD symptoms and 3 or more additional risk factors for BE, including male sex, age greater than 50 years, White race, tobacco smoking, obesity, and family history of BE or EAC in a first-degree relative. Furthermore, and importantly for the first time, the clinical guideline also endorses nonendoscopic biomarker screening as an acceptable alternative to costly and invasive endoscopy by stating in its Recommendation 6 that the ACG suggests that a swallowable, nonendoscopic capsule device combined with a biomarker is an acceptable alternative to endoscopy for screening for BE. The clinical guideline specifically mentions EsoCheck, along with our EsophaCap device, as such swallowable, nonendoscopic esophageal cell collection devices. The clinical guideline also mentions methylated DNA markers (like those detected by the EsoGuard test) as such a biomarker. The summary of evidence for this recommendation includes a reference to the seminal NIH-funded, multicenter, case-control study published in 2018 in Science Translational Medicine, which demonstrated that EsoGuard is highly accurate at detecting esophageal precancer and cancer, including on samples collected with EsoCheck.

2930

Overview - continued

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

●In 2021 the Lucid Diagnostics Inc. began conducting two concurrent clinical trials, the “EsoGuard screening study” (“BE-1”) and the “EsoGuard case-control study” (“BE-2”), to expand our presence in the diagnostic market, we are developing EsoCureclinical evidence for the technologies and to support a United States Food and Drug Administration (“FDA”) pre-market approval (“PMA”) application of the use of EsoGuard and EsoCheck as an Esophageal Ablation Device, within-vitro diagnostic medical device (“IVD”). However, in light of the intentrecently published proposed Local Coverage Determination (“LCD”) DL39256, the recently updated AGA guidance, and the ACG update to allow a clinicianits clinical guideline that supports screening to treat dysplastic Barrett’s Esophagus (“BE”) before it can progress to EAC, aprevent highly lethal esophageal cancer (“EAC”) utilizing a biomarker test like EsoGuard on samples collected with a swallowable, nonendoscopic capsule device like EsoCheck, the Company has determined to prioritize its clinical trial efforts and resources towards supporting studies that will help secure insurance reimbursement adoption for EsoGuard and EsoCheck by government and private insurers. Consequently, we have decided to do so withoutdelay for the need for complex and expensive capital equipment. We have successfully completedtime being the BE-1 trial while continuing to enroll GERD patients with a pre-clinical feasibility animalprevious diagnosis of nondysplastic BE, low grade dysplasia, high grade dysplasia, or EAC in the BE-2 case-control study of EsoCure demonstrating excellent, controlled circumferential ablation of the esophageal mucosal lining. We have also completed an acute and survival animal study of EsoCure, demonstrating successful direct thermal balloon catheter ablation of esophageal lining through the working channel of a standard endoscope. We plan to conduct additional development work and animal testing of EsoCure to support a future FDA 510(k) submission.Q2 2023.

CarpX

●CarpX is a minimally invasive surgical device for use in the treatment of carpal tunnel syndrome which received FDA 510(k) marketing clearance in April 2020, with the first commercial procedure successfully performed in December 2020. Our limited-release commercialization efforts through 2022 are focused on engaging key opinion hand surgeons designed to solicit input for ergonomic improvements to the device, procedure development and surgical-time optimization, and ease of use. As a result of this clinical input, we have initiated a product development project to incorporate intraluminal ultrasound into the device to include real time imaging of the ligament to be cut together with critical anatomic structures. The design and development work, including cadaver testing is expected to culminate in a FDA submission and clearance in 2023.

Veris Health

●
●In May 2021, we formed Veris Health, and concurrently, acquired Oncodisc IncInc. (“Oncodisc”), a digital health company with ground breaking tools to improve personalized cancer care through remote patient monitoring, which we now refer to as our Veris Cancer Care Platform. TheseThe core technologies incorporated in the Veris Cancer Care Platform include the first intelligent implantable vascular healthcare platform that provides patients and physicians with new tools to improve outcomes and optimize the delivery of cost-effective care through remote monitoring and data analytics. Its vascular access port contains biologic sensors capable of generating continuous data on key physiologic parameters known to predict adverse outcomes in cancer patients undergoing treatment. Wireless communication to the patient’s smartphone and its cloud-based digital healthcare platform efficiently and effectively deliverswill deliver actionable real time data to patients and physicians. The technologies are the subject of multiple patent applications and one allowed patent awaiting final issuance. We plan to seek commercialization of the implantable device through a de novoFDA 510(k) process, and, as such, we’llwe will begin to commercialize the digital health offering in three phases. The three phases are called Veris Solar, Veris Mercury, and Veris Venus which include software, device, and data. Recently,The initial launch will be in conjunction with a package we hadare calling Veris Solar, with Veris branded OEM Bluetooth enabled connected health care devices. The next product, which we call Veris Mercury, is an implantable physiologic monitor designed to be implanted in conjunction with a favorabletraditional vascular access port for chemotherapy or other treatments. We have recently completed a successful pre-submission meeting with the FDA, surroundingwhich provided us with an outline for a clear path to 510(k) clearance of Veris Mercury with a submission in 2023 (although there can be no assurance as to product clearance). Veris Venus will be the Mercury phase.third product in the development process which will include full integration of the implantable monitor with the vascular access port. We are working with the FDA to finalize the regulatory path for Veris Venus to determine if it will be a 510(k) submission or a de novo pathway.

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 recentlyearlier this year successfully implanted seven additional patients. We are currently working with our partners to first pursuepatients for a European study to support EUseries 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 clearance followed by providing additional human data for U.S. approval.in Europe or to proceed with a US IDE trial. Recruitment of these patients is underway.

Recent Developments

Business

 

Clinical GuidelineEsoCheck Manufacturing Update – ACG and AGA

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 AprilOctober 2022, the American CollegeFDA announced they completed their review of Gastroenterology (“ACG”) updated its clinical guidelinethe EsoCheck 510(k) (#K222366) premarket notification of intent to support esophageal precancer (“Barrett’s Esophagus”, “BE”) screening to prevent highly lethal esophageal cancer (“EAC”) utilizing Lucid Diagnostics’ EsoGuard® DNA Test on samples collected with our EsoCheck®market the device and granted the use of the EsoCheck Cell Collection Device. The clinical guideline reiterates the ACG’s long-standing recommendation for esophageal precancer screening in at-risk patients with gastroesophageal reflux disease (“GERD”), commonly known as chronic heartburn, acid reflux or simply reflux. In its Recommendation 5, the ACG suggests a single screening endoscopy in patients with chronic GERD symptoms and 3 or more additional risk factors for BE, including male sex, age >50 yr, White race, tobacco smoking, obesity, and family history of BE or EAC in a first-degree relative. Furthermore, and importantlyDevice 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 time, the clinical guideline also endorses nonendoscopic biomarker screening as an acceptable alternative to costly and invasive endoscopy by stating in its Recommendation 6 that the ACG suggests that a swallowable, nonendoscopic capsule device combined with a biomarker is an acceptable alternative to endoscopy for screening for BE. The clinical guideline specifically mentions EsoCheck, along with Lucid Diagnostics’ EsophaCap® device, as such swallowable, nonendoscopic esophageal cell collection devices, as well as methylated DNA biomarkers such as EsoGuard. The summary of evidence for this recommendation cites the seminal NIH-funded multicenter, case-control study published in 2018 in Science Translational Medicine, which demonstrated that EsoGuard is highly accurate at detecting esophageal precancer and cancer, including on samples collected with EsoCheck.intelligent implantable device.

New Opportunities - Novosound Agreement

 

In JulyOctober 2022, PAVmed entered into an option agreement with Novosound Ltd, a Scottish company specializing in the American Gastroenterology Association (“AGA”) published updated clinical guidance that mirrors the same furnished by the ACG as described above, endorsing the usedesign and manufacturing of non-invasive screening tools like our EsoCheck® Cell Collection Device, which is cited in its guideline, as an acceptable alternative to endoscopy to directly address the need for noninvasive screening tools that are easy to administer, patient friendly, and cost-effective for the detection of BE. The clinical practice update by the AGA also significantly expands the target population for esophageal precancer screening, including for EsoGuard and EsoCheck, by recommending, for the first time, screening in at-risk patients without symptoms of reflux. The AGA does so by addingultrasound sensors using a history of chronic GERD as merely an additional, seventh, risk factorproprietary thin-film technique. Pursuant to the six risk factors for BE and EAC that have traditionally identified at-risk symptomatic patients recommended for screening. As a result, chronic symptomatic GERD is no longer a mandatory prerequisite and asymptomatic patients with threeterms of the other six risk factors (e.g., male sex, age >50 yr, White race, tobacco smoking, obesity,agreement, PAVmed and family historyNovosound will collaborate on an research and development project leveraging Novosound’s ultrasound platform technology for development of BE) are now considered appropriatenovel intravascular ultrasound (“IVUS”) imaging devices, with PAVmed having the option to license the technology on an exclusive basis for screening.use in intravascular imaging.

32

EsoGuard BE-1 and BE-2 Clinical TrialsRecent Developments - continued

 

In 2021 the Lucid Diagnostics Inc. began conducting two concurrent clinical trials, including each of: the “EsoGuard screening study” (“BE-1”); and the “EsoGuard case-control study” (“BE-2”), to expand the clinical evidence for the technologies and to support a United States Food and Drug Administration (“FDA”) pre-market approval (“PMA”) of the use of EsoGuard and EsoCheck as an in-vitro diagnostic medical device (“IVD”). However, in light of the recently published proposed Local Coverage Determination (“LCD”) DL39256, the recently updated AGA guidance, and the ACG update to its clinical guideline that supports screening to prevent highly lethal esophageal cancer (“EAC”) utilizing our EsoGuard® DNA Test on samples collected with our EsoCheck® Cell Collection Device, the Company has determined to prioritize its clinical trial efforts and resources towards supporting studies that will help secure insurance reimbursement adoption by government and private insurers. Consequently, we have decided to delay for the time being the BE-1 trial while continuing to enroll GERD patients with a previous diagnosis of nondysplastic BE, low grade dysplasia, high grade dysplasia,, or EAC in the BE-2 case-control study through Q2 2023.

Recent Developments - continued

Financing

Securities Purchase Agreement - March 31, 2022

- Senior Secured Convertible Note - April 4, 2022 and Senior Secured Convertible Note - September 8, 2022

WeEffective as of March 31, 2022, we entered into a Securities Purchase Agreement (“SPA”) dated March 31, 2022, with an accredited institutional investor (“Investor”, “Lender”, and /or “Holder”), wherein,pursuant to which we agreed to sell, and the Investor agreed to purchase an aggregate of $50.0 million face value principal of debt - comprised of:Senior Secured Convertible Notes. The SPA provided for the sale to the Investor of an initial issuanceSenior 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; andprincipal of up to an additional $22.5 million. The April 2022 Senior Convertible Note proceeds were $24.4 million after 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 Note with a face value principal (upon the satisfaction of certain conditions)$11.25 million (the “September 2022 Senior Convertible Note”). The debt is being issued inSeptember 2022 Senior Convertible Note proceeds were $10.0 million after deducting a registered direct$1.0 million lender fee and the Company’s offering under our effective shelf registration statement.costs of approximately $0.2 million, inclusive primarily of placement agent fees.

 

See our accompanying unaudited condensed consolidated financial statements Note 11, Debt, for further discussion of the SPA dated March 31, 2022 and the April 2022 Senior Convertible Note, including a description of a recent waiver and amendment.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 committed equity 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. As of JuneThrough September 30, 2022, there were no680,263 shares of common stock of Lucid Diagnostics Inc.were issued under the committed equity facility. Subsequent to June 30, 2022, as of August 10, 2022, under the committed equitythis facility afor total of 308,152 shares of common stock of Lucid Diagnostics Inc. were issued for proceeds of approximately $927.$1.8 million.

 

3233

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 ResearchDx 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.

 

Research and development expenses

 

Research and development expenses are recognized in the period they are incurred and consist principally of internal and external expenses incurred for the research and development of our products, including:

 

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

 

We plan to incur research and development expenses for the foreseeable future as we continue the development of our existing products as well as new innovations. Our research and development activities, including our clinical trials, are focused principally on obtaining FDA approvals, facilitating insurer reimbursement, encouraging physician adoption and developing product improvements or extending the utility of the lead products in our pipeline, including EsoCheck and EsoGuard and CarpX, along with advancing our Veris Cancer Care Platform and EsoCure and PortIO products.

 

33

Results of Operations - continued

Overview - continued

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.

34

 

Results of Operations - continued

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

 

The Company did not recognize revenue nor cost of revenue during the three months ended June 30, 2022 and June 30, 2021.

Revenue

Sales and marketing expenses

 

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

Cost of revenue

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

●approximately $0.2 million increase in compensation related costs as a result of an increase in headcount;
●approximately $0.4 million increase in EsoCheck and EsoGuard supplies usage costs; and
●approximately $0.9 million increase in laboratory operations costs.

Sales and marketing expenses

In the three months ended September 30, 2022, sales and marketing costs were approximately $4.9$4.7 million, compared to $1.9$2.3 million for the corresponding period in the prior year. The net increase of $3.0$2.4 million was principally related to:

 

●approximately $2.2$2.1 million increase in compensation related costs, including stock based compensation of approximately $0.3 million with respect to restricted stock awards to Lucid Diagnostics and PAVmed employees and non-employees, and an increase in stock options granted corresponding with the increase in headcount; and
●approximately $0.3 million increase in consulting and outside professional services.

General and administrative expenses

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

●approximately $1.8 million increase in compensation related costs principally related toas a result of an increase in headcount;
●approximately $0.4 million increase in stock based compensation primarily due to the absence in the current year of stock based compensation expense incurred in the prior year resulting from the acceleration of vesting of stock options granted to former members of the Company’s board of directors, partially offset by an increase in stock options granted corresponding with the increase in the number of employees;
●approximately $1.5 million increase in consulting services related to patents, regulatory compliance, legal processes for contract review, transition of public relations and investor relations firms, and public company expenses; and
●approximately $0.5 million increase in general business expenses.

 

Research and development expenses

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

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

Change in fair value of convertible debt

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

35

Results of Operations - continued

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

Loss on Issue and Offering Costs - Senior Secured Convertible Note

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

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

Loss on Debt Extinguishment

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

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

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

Revenue

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

Cost of revenue

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

●approximately $0.4 million increase in compensation related costs as a result of an increase in headcount;
●approximately $0.6 million increase in EsoCheck and EsoGuard supplies usage costs; and
●approximately $0.9 million increase in laboratory operations costs.

Sales and marketing expenses

In the nine months ended September 30, 2022, sales and marketing costs were approximately $13.6 million, compared to $5.6 million for the corresponding period in the prior year. The net increase of $8.0 million was principally related to:

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

 

General and administrative expenses

 

In the threenine months ended JuneSeptember 30, 2022, general and administrative costs were approximately $11.8$31.0 million, compared to $6.8$16.3 million for the corresponding period in the prior year. The net increase of $5.0$14.7 million was principally related to:

 

●approximately $1.3$4.3 million increase in compensation related costs principally related toas a result of an increase in headcount;
●

approximately $1.1 million decrease stock based compensation primarily due to the absence in the current year of stock-based compensation expense incurred in the prior year period resulting from the acceleration of vesting of stock options granted to former members of the Company’s board of directors in June 2021, partially offset by an increase in stock options granted corresponding with the increase in the number of employees;

●approximately $3.4 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 $0.6 million of amortization expense related to our intangible assets;
●approximately $0.8 million increase in general business expenses.

Research and development expenses

In the three months ended June 30, 2022, research and development costs were approximately $6.7 million as compared to $4.3 million for the corresponding period in the prior year. The net increase $2.5 million was principally related to:

●

approximately $2.1 million increase in development costs, particularly in clinical trial activities and outside professional and consulting fees with respect to EsoCheck, EsoCure, CarpX, our Veris Cancer Care Platform and PortIO, and

●approximately $0.4 million increase in compensation related costs and related to expanded clinical and engineering staff.

Other Income and Expense

Change in fair value of convertible debt

In the three months ended June 30, 2022, the non-cash expense recognized for the change in the fair value of our convertible notes was approximately $2.0 million, related to the April 2022 Senior Convertible Note. The April 2022 Senior Convertible Note was 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 $2.6 million fair value non-cash expense on the issue-date. This initial recognition was partially offset by a $0.6 million decrease in estimated fair value upon remeasurement as of June 30, 2022.

Loss on Issue and Offering Costs - Senior Secured Convertible Note

In the three months ended June 30, 2022, in connection with the issue of the April 2022 Senior Convertible Note, we recognized a total of approximately $3.1 million of other expense, inclusive of approximately $2.5 million of lender fee non-cash expense, and approximately $0.6 million of offering costs paid by us.

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

35

Results of Operations - continued

Six months ended June 30, 2022 as compared to six months ended June 30, 2021

Revenue

In the six months ended June 30, 2022, revenue was $0.2 million as compared to no revenue in the corresponding period in the prior year. The $0.2 million relates to our EsoGuard Commercialization Agreement, dated August 1, 2021, which resulted in revenue recognition of $0.1 million per month commencing August 2021 and ending February 2022 upon the February 25, 2022 termination date of such agreement.

Cost of revenue

In the six months ended June 30, 2022, cost of revenue was approximately $0.4 million as compared to no cost of revenue in the corresponding period in the prior year. The $0.4 million increase principally relates to costs associated with the EsoGuard Commercialization Agreement noted above.

Sales and marketing expenses

In the six months ended June 30, 2022, sales and marketing costs were approximately $8.8 million, compared to $3.3 million for the corresponding period in the prior year. The net increase of $5.6 million was principally related to:

●approximately $3.8 million increase in compensation related costs principally related to an increase in headcount;
●approximately $0.7 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 $1.1 million increase in outside professional services related to EsoCheck, EsoGuard and consulting and professional services fees.

General and administrative expenses

In the six months ended June 30, 2022, general and administrative costs were approximately $21.4 million, compared to $10.2 million for the corresponding period in the prior year. The net increase of 11.2 million was principally related to:

●approximately $2.5 million increase in compensation related costs principally related to an increase in headcount;
●approximately $0.7$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;
●approximately $5.7$7.7 million increase in consulting services related to patents, regulatory compliance, legal processes for contract review, transition of public relations and investor relations firms, and public company expenses; and
●approximately $0.7 million of amortization expense related to our intangible assets;
●approximately $1.6$1.7 million increase in general business expenses.

36

Results of Operations - continued

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

 

Research and development expenses

 

In the sixnine months ended JuneSeptember 30, 2022, research and development costs were approximately $12.7$18.9 million as compared to $7.6$12.9 million for the corresponding period in the prior year. The net increase $5.1$6.0 million was principally related to:

 

●approximately $4.1$4.3 million increase in development costs, particularly in clinical trial activities and outside professional and consulting fees with respect to EsoCheck, EsoCure, CarpX, our Veris Cancer Care Platform, EsoCure and PortIO,PortIO; and
●approximately $1.0$1.7 million increase in compensation related costs and related to expanded clinical and engineering staff.

36

Results of Operations - continued

Six months ended June 30, 2022 as compared to six months ended June 30, 2021 - continued

 

Other Income and Expense

 

Change in fair value of convertible debt

 

In the sixnine months ended JuneSeptember 30, 2022, the non-cash expense recognized for the change in the fair value of our convertible notes was approximately $2.0$1.7 million, related to both the April 2022 and September 2022 Senior Convertible Note.Notes. The April 2022 and September 2022 Senior Convertible Note wasNotes 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 $2.6$3.5 million fair value non-cash expense on the issue-date.issue-dates. This initial recognition was partially offset by a $0.6$1.8 million decreaseof decreases in fair value upon remeasurement Juneremeasurements 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 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 nine months ended September 30, 2021, as discussed herein below under “Loss from Extinguishment of Debt.”

 

Loss on Issue and Offering Costs - Senior Secured Convertible Note

 

In the sixnine months ended JuneSeptember 30, 2022, in connection with the issue of both the April 2022 and September 2022 Senior Convertible Note,Notes, we recognized a total of approximately $3.1$4.3 million of other expense, inclusive of approximately $2.5$3.5 million of lender fee non-cash expense, and approximately $0.6$0.8 million of offering costs paid by us.

 

Loss from Extinguishment of Debt

 

In the nine 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 nine months ended September 30, 2022.

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

 

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

 

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

 

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

37

 

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, the Companywe 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 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 June 30, 2022.10-Q.

 

Issue of Shares of Our Common Stock

 

During the sixnine months ended JuneSeptember 30, 2022

 

●We issued 299,999 shares of our common stock for cash proceeds of approximately $0.3 million upon exercise of stock options granted under the PAVmed Inc 2014 Equity Plan, as such equity plan is discussed in Note 12, Stock-Based Compensation, of our unaudited condensed consolidated financial statements.
●We issued 194,240385,938 shares of our common stock for proceeds of approximately $0.2$0.4 million under the PAVmed Inc. Employee Stock Purchase Plan (“ESPP”), as such plan is discussed in Note 12, Stock-Based Compensation of our unaudited condensed consolidated financial statements.

Securities Purchase Agreement - March 31, 2022

- Senior Secured Convertible NoteNotes - April 4, 2022 and September 8, 2022

 

We entered into a Securities Purchase Agreement (“SPA”) datedEffective as of March 31, 2022, we entered into the SPA with an accredited institutional investor (“Investor”, “Lender”, and /or “Holder”),the Investor, pursuant to which we agreed to sell, and the Investor agreed to purchase an aggregate of $50.0 million face value principal of debt - comprised of: anSenior Secured Convertible Notes. The SPA provided for the sale of the initial issuance of $27.5 million face value principal; and up to an additional $22.5 million of face value principal (upon the satisfaction of certain conditions).

Under the SPA dated March 31, 2022, we issued a Senior Secured Convertible Note datedwith a face value principal of $27.5 million, which closed on April 4, 2022 referred(referred to herein 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 such note having a $27.5 millionan aggregate face value principal of up to an additional $22.5 million.

The April 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 April 4, 2024. The April 2022 Senior Convertible Note may be converted into or otherwise paid in shares of our common stock at the Holder’s election. During the period from April 4, 2022 to October 3,as described in Note 11, Debt.

On September 8, 2022, we are requiredcompleted an additional closing under the SPA, in which we sold to pay interest expense only (on the $27.5 millionInvestor an additional Senior Secured Convertible Note with a face value principal)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), at 7.875% per annum, computed onand a 360 day year.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 as described in Note 11, Debt.

The April 2022 Senior Convertible Note proceeds were $25.0$24.4 million after deducting a $2.5 million lender fee;fee and additionally, we incurredthe Company’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 Company’s total offering costs of approximately $601,$0.2 million, inclusive primarily of the payment of a total of $450 placement agent fees.

Subject to certain conditions being met or waived, from time to time, one or more additional closings may occur, for up to the remaining $22.5 million face value principal, upon five trading days’ notice given by us to the Investor. The Investor’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, including, among others, contractual closing requirements: minimum price and trading volume thresholds of our common stock; the maximum ratio of debt to market capitalization (as defined); and minimum market capitalization (as defined), with such requirements being waived by the Investor in its sole discretion.

38

Liquidity and Capital Resources- continued

Securities Purchase Agreement - March 31, 2022

- Senior Secured Convertible Note - April 4, 2022 - continued

Under the April 2022 Senior Convertible NoteNotes and the SPA, we are subject to certain customary affirmative and negative covenants regarding the incurrence of indebtedness, the existence of liens, the repayment of indebtedness and the making of investments, the payment of cash in respect of dividends, distributions or redemptions, the transfer of assets, the maturity of other indebtedness, and transactions with affiliates, among other customary matters. We also are subject to financial covenants requiring that (i) the amount of our available cash equal or exceed $8,000,000$8.0 million at all times, (ii) the ratio of (a) the outstanding principal amount of the notes issued under the SPA, accrued and unpaid interest thereon and accrued and unpaid late charges 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 “Market Cap Test” and, together with the Debt to Market Cap Ratio Test, the “Financial Tests”). The Company is currently in compliance with these financial covenants, although from time to time since the dateAs of issuance of the AprilSeptember 30, 2022, Senior Convertible Note through August 10, 2022 (including, in the case of the Debt to Market Cap Ratio Test, as of June 30, 2022), the Company was not in compliance with the Financial Tests. As of August 9, 2022,In addition, the Investor agreed to waive any such non-compliance during such aforementioned time periods, under each ofCompany presently is in compliance with the SPA dated March 31, 2022 and the April 2022 Senior Convertible Note.Financial Tests.

 

In connection with such waiver,On August 9, 2022, the Company and the Investor also amendedagreed, in connection with the April 2022 Senior Convertible to permitwaiver described in Note 11 above, that the Investor tomay convert up to $5,000,000$5.0 million of 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, subsequent to June 30, 2022, onin August 10, 2022, approximately $2,882$5.0 million of principal repayments along with approximately $6less than $0.1 million of interest expense thereon, were settled through the issuance of 3,000,8675,103,908 shares of our common stock, with such shares having a fair value of approximately $5,462 (with such fair value measured asstock.

See Note 11, Debt, for additional information about the respective conversion date quoted closing price of our common stock).SPA and the Senior Secured 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 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 JuneSeptember 30, 2022, there were no shares of common stock of Lucid Diagnostics Inc. issued under the committed equity facility. Subsequent to June 30, 2022, as of August 10, 2022, under the committed equity facility, a total of 308,152680,263 shares of common stock of Lucid Diagnostics Inc. were issued for proceeds of approximately $927.$1.8 million.

39

 

Critical Accounting Policies and Significant Judgments and Estimates

 

The discussion and analysis of our (unaudited) financial condition and consolidated results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, and equity, along with the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of expenses during the corresponding periods. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are as disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on April 6, 2022, except as otherwise noted in Note 2, Summary of Significant Accounting Policies and Recent Accounting Standards Updates, of our unaudited condensed consolidated financial statements included herein in this Form 10-Q.

39

 

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 JuneSeptember 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 JuneSeptember 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

40

Part II - Other Information

 

Item 1. Legal Proceedings

 

See Note 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.

Under the April 2022 Senior Convertible Note and the SPA, we are subject to certain customary affirmative and negative covenants regarding the incurrence of indebtedness, the existence of liens, the repayment of indebtedness and the making of investments, the payment of cash in respect of dividends, distributions or redemptions, the transfer of assets, the maturity of other indebtedness, and transactions with affiliates, among other customary matters. We also are subject to financial covenants requiring that (i) the amount of our available cash equal or exceed $8,000,000 at all times, (ii) the ratio of (a) the outstanding principal amount of the notes issued under the SPA, accrued and unpaid interest thereon and accrued and unpaid late charges to (b) our average market capitalization over the prior ten trading days, not exceed 30% (the “Debt to Market Cap Ratio Test”), and (iii) that our market capitalization shall 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 Company is currently in compliance with these financial covenants, although from time to time since the date of issuance of the April 2022 Senior Convertible Note through August 10, 2022 (including, in the case of the Debt to Market Cap Ratio Test, as of June 30, 2022), the Company was not in compliance with the Financial Tests. As of August 9, 2022, the Investor agreed to waive any such non-compliance during such aforementioned time periods, under each of the SPA dated March 31, 2022 and the April 2022 Senior Convertible Note. In connection with such waiver, the Company and the Investor also amended the April 2022 Senior Convertible to permit the Investor to convert up to $5,000,000 of 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. As contemplated by the amendment discussed above, on August 10, 2022, the Investor converted $2,882,000 of the principal amount of the April 2022 Senior Convertible Note (plus interest accrued thereon), resulting in an issuance to the Investor of 3,000,867 shares of the Company’s common stock.

 

Item 6. Exhibits

 

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

 

41

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.
   
August 15,

November 14, 2022

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

 

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EXHIBIT INDEX

 

Exhibit No. Description
2.1 Asset Purchase Agreement, dated as of February 25, 2022, by and among LucidDx Labs Inc., Lucid Diagnostics Inc. and ResearchDx, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by Lucid on March 3, 2022).
3.1Certificate of Amendment to Certificate of Incorporation dated June 21, 2022 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by the Company on June 22, 2022).
4.1Form of Senior Secured Convertible Note (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by the Company on April 4, 2022).
10.1Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on April 4, 2022).
10.2Form of Security Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Company on April 4, 2022).
10.3Form of Voting Agreement (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by the Company on April 4, 2022).
31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.†
31.2 Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. †
32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †
32.2 Certification of Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB InlineXBRL Taxonomy Extension Label Linkbase
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase
104Cover Page Interactive Data File (embedded within the Inline XBRL document)
   
† Filed herewith

 

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