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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2024

 

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.)
     
     
360 Madison Avenue    
25th Floor    
New York, NY   10017
(Address of Principal Executive Offices)   (Zip Code)

 

(917) 813-1828

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to 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 1/15th of one share of Common Stock   PAVMZ   The NASDAQ Stock Market LLC

 

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 March 31, 2024 and May 9, 2024, there were 9,319,124 and 9,431,721 shares, respectively, 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 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 Information
     
Item 1. Financial Statements  
  Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2024 and December 31, 2023 1
  Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2024 and 2023 2
  Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (unaudited) for the three months ended March 31, 2024 and 2023 3
  Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2024 and 2023 5
  Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28
Item 4. Controls and Procedures 37
     
  Part II - Other Information  
     
Item 1. Legal Proceedings 38
Item 5. Other Information 38
Item 6. Exhibits 38
  Signature 39
  Exhibit Index 40

 

i

 

 

Part I - Financial Information

 

Item 1. Financial Statements

 

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

   March 31, 2024   December 31, 2023 
Assets:          
Current assets:          
Cash  $25,536   $19,639 
Accounts receivable   67    61 
Inventory   410    278 
Prepaid expenses, deposits, and other current assets   3,561    4,520 
Total current assets   29,574    24,498 
Fixed assets, net   1,595    1,783 
Operating lease right-of-use assets   3,886    4,267 
Intangible assets, net   1,052    1,424 
Other assets   1,147    1,147 
Total assets  $37,254   $33,119 
Liabilities, Preferred Stock and Stockholders’ Equity          
Current liabilities:          
Accounts payable  $1,485   $1,786 
Accrued expenses and other current liabilities   6,657    6,626 
Operating lease liabilities, current portion   1,333    1,565 
Senior Secured Convertible Notes - at fair value   45,540    44,200 
Total current liabilities   55,015    54,177 
Operating lease liabilities, less current portion   2,814    2,960 
Total liabilities   57,829    57,137 
Commitments and contingencies (Note 8)   -    - 
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 1,331,336 at March 31, 2024 and 1,305,213 shares at December 31, 2023   3,071    2,993 
Common stock, $0.001 par value. Authorized, 50,000,000 shares; 8,858,597 and 8,578,505 shares outstanding as of March 31, 2024 and December 31, 2023, respectively   9    9 
Additional paid-in capital   237,863    237,600 
Accumulated deficit   (309,723)   (294,433)
Total PAVmed Inc. Stockholders’ Equity (Deficit)   (68,780)   (53,831)
Noncontrolling interests   48,205    29,813 
Total Stockholders’ Equity (Deficit)   (20,575)   (24,018)
Total Liabilities and Stockholders’ Equity (Deficit)  $37,254   $33,119 

 

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 data - unaudited)

 

         
  

Three Months Ended

March 31,

 
   2024   2023 
Revenue  $1,010   $446 
Operating expenses:          
Cost of revenue   1,744    1,346 
Sales and marketing   4,311    4,539 
General and administrative   6,678    10,407 
Amortization of acquired intangible assets   372    505 
Research and development   1,941    4,050 
Total operating expenses   15,046    20,847 
Operating loss   (14,036)   (20,401)
Other income (expense):          
Interest income   72    121 
Interest expense   (16)   (183)
Change in fair value - Senior Secured Convertible Notes   (2,163)   (1,040)
Loss on issue and offering costs - Senior Secured Convertible Note       (1,186)
Debt extinguishments loss - Senior Secured Convertible Notes   (369)   (525)
Debt modification expense   (2,000)    
Gain on sale of intellectual property       1,000 
Other income (expense), net   (4,476)   (1,813)
Loss before provision for income tax   (18,512)   (22,214)
Provision for income taxes        
Net loss before noncontrolling interests   (18,512)   (22,214)
Net loss attributable to the noncontrolling interests   3,300    4,283 
Net loss attributable to PAVmed Inc.   (15,212)   (17,931)
Less: Series B Convertible Preferred Stock dividends earned   (80)   (74)
Less: Deemed dividend on Subsidiary Preferred Stock attributable to the noncontrolling interests   (7,496)    
Net loss attributable to PAVmed Inc. common stockholders  $(22,788)  $(18,005)
Per share information:          
Net loss per share attributable to PAVmed Inc. common stockholders – basic and diluted  $(2.62)  $(2.78)
Weighted average common shares outstanding, basic and diluted   8,694,904    6,473,010 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

2

 

 

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

for the THREE MONTHS ENDED March 31, 2024

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

 

                                 
   PAVmed Inc. Stockholders’ Equity (Deficit)         
   Series B Convertible Preferred Stock   Common Stock   Additional Paid-In   Accumulated   Non controlling     
   Shares   Amount   Shares   Amount   Capital   Deficit   Interest   Total 
                                 
Balance - December 31, 2023    1,305,213   $2,993    8,578,505   $9   $237,600   $(294,433)- $29,813   $(24,018)
Dividends declared - Series B Convertible Preferred Stock    26,123    78                (78)-       
Issue common stock - PAVM ATM Facility            133,299        495            495 
Conversions - Senior Secured Convertible Note            112,461        307     -      307 
Conversions - majority-owned subsidiary common stock - Senior Secured Convertible Note                         -  687    687 
Exercise - stock options of majority-owned subsidiary                         -  4    4 
Purchase - Employee Stock Purchase Plan            34,332        62     -      62 
Purchase - majority-owned subsidiary common stock - Employee Stock Purchase Plan                         -  353    353 
Impact of subsidiary equity transactions                    (1,734)    -  1,734     
Issuance - majority-owned subsidiary preferred stock (Series A-1)                         -  5,670    5,670 
Exchange - majority-owned subsidiary preferred stock (Series A and Series A-1)                         -  (24,295)   (24,295)
Issuance - majority-owned subsidiary preferred stock (Series B)                         -  44,285    44,285 
Majority-owned subsidiary deemed dividends on preferred stock attributable to noncontrolling interests                         -  (7,495)   (7,495)
Stock-based compensation - PAVmed Inc.                    934     -      934 
Stock-based compensation - majority-owned subsidiaries                    199     -  749    948 
Net loss                        (15,212)-  (3,300)   (18,512)
Balance - March 31, 2024    1,331,336   $3,071    8,858,597   $9   $237,863   $(309,723)- $48,205   $(20,575)

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

3

 

 

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

for the THREE MONTHS ENDED March 31, 2023

(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, 2022   1,205,759   $2,695    6,300,703   $6   $216,195   $(228,169)  $(408)  $20,615   $10,934 
Dividends declared - Series B Convertible Preferred Stock   24,128    72                (72)            
Issue common stock - PAVM ATM Facility           72,134        557                557 
Vest - restricted stock awards           6,666                         
Conversions - Senior Secured Convertible Note           288,709    1    2,026                2,027 
Purchase - Employee Stock Purchase Plan           25,626        122        60        182 
Purchase - majority-owned subsidiary common stock - Employee Stock Purchase Plan                               276    276 
Issuance - majority-owned subsidiary common stock - Committed Equity Facility, net of financing charges                               284    284 
Impact of subsidiary equity transactions                   1,189            (1,189)    
Issuance - majority-owned subsidiary common stock - Settlement APA-RDx - Installment Payment                               713    713 
Issuance - majority-owned subsidiary preferred stock (Series A)                               13,625    13,625 
Stock-based compensation - PAVmed Inc.                   1,199                1,199 
Stock-based compensation - majority-owned subsidiaries                   401            2,820    3,221 
Treasury stock           12,589        (348)       348         
Net Loss                       (17,931)       (4,283)   (22,214)
Balance - March 31, 2023   1,229,887   $2,767    6,706,427   $7   $221,341   $(246,172)  $   $32,861   $10,804 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

4

 

 

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

 

         
   Three Months Ended March 31, 
   2024   2023 
Cash flows from operating activities          
Net loss - before noncontrolling interest (“NCI”)  $(18,512)  $(22,214)
           
Adjustments to reconcile net loss - before NCI to net cash used in operating activities          
Depreciation and amortization expense   586    727 
Stock-based compensation   1,882    4,419 
Gain on sale of intellectual property       (1,000)
APA-RDx: Issue common stock of majority-owned subsidiary - termination payment       713 
Amortization of common stock payment for vendor service agreement   23     
Change in fair value - Senior Secured Convertible Notes   2,163    1,040 
Loss on issue - Senior Secured Convertible Note       1,111 
Debt extinguishment loss - Senior Secured Convertible Note   369    525 
Non-cash lease expense   2    79 
Changes in operating assets and liabilities:          
Accounts receivable   (6)   (10)
Prepaid expenses, deposits and current and other assets   531    (326)
Accounts payable   (301)   (1,444)
Accrued expenses and other current liabilities   154    18 
Net cash flows used in operating activities   (13,109)   (16,362)
           
Cash flows from investing activities          
Purchase of equipment   (42)   (26)
Proceeds from sale of intellectual property       1,000 
Net cash flows provided by (used in) investing activities   (42)   974 
           
Cash flows from financing activities          
Proceeds – issue of preferred stock - majority-owned subsidiary   18,165    13,625 
Proceeds – issue of Senior Secured Convertible Note       10,000 
Payment – Senior Secured Convertible Note – acceleration floor payments   (322)    
Proceeds – issue of common stock - At-The-Market Facility   786    557 
Proceeds – majority-owned subsidiary common stock - Committed Equity Facility and At-The-Market Facility       284 
Proceeds – issue common stock – Employee Stock Purchase Plan   62    182 
Proceeds – majority-owned subsidiary common stock – Employee Stock Purchase Plan   353    276 
Proceeds – exercise of stock options issued under equity plan of majority owned subsidiary   4     
Net cash flows provided by financing activities   19,048    24,924 
Net increase (decrease) in cash   5,897    9,536 
Cash, beginning of period   19,639    39,744 
Cash, end of period  $25,536   $49,280 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

5

 

 

PAVMED INC.

and SUBSIDIARIES

NOTES TO 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 is structured to be a multi-product life sciences company organized to advance a pipeline of innovative healthcare technologies. Led by a team of highly skilled personnel with a track record of bringing innovative products to market, PAVmed is focused on innovating, developing, acquiring, and commercializing novel products that target unmet medical needs with large addressable market opportunities. Leveraging our corporate structure—a parent company that will establish distinct subsidiaries for each financed asset—we have the flexibility to raise capital at the PAVmed level to fund product development, or to structure financing directly into each subsidiary in a manner tailored to the applicable product, the latter of which is our current strategy given prevailing market conditions.

 

Our current focus is multi-fold. We continue to pursue commercial expansion and execution of EsoGuard, which is the flagship product of our majority-owned subsidiary Lucid Diagnostics Inc. (Nasdaq: LUCD) (“Lucid”). In addition, through a separate majority-owned subsidiary, Veris Health (“Veris”), we are focused on entering into strategic partnership opportunities with leading academic oncology systems to expand access to the Veris Platform. In terms of other existing products and technologies, we have adopted an incubator-type platform where we are looking to obtain financing on a product-by-product basis as necessary to advance each asset to a meaningful inflection point along its path to commercialization. Finally, as resources permit, we will continue to explore external innovations that fulfill our project selection criteria without limiting ourselves to any target sector, specialty or condition.

 

Note 2 — Liquidity and Going Concern

 

The Company’s management is required to assess the Company’s ability to continue as a going concern for the one year period following the date of the financial statements being issued. In each reporting period, including interim periods, an entity is required to assess conditions known and reasonably knowable as of the financial statement issuance date to determine whether it is probable an entity will not meet its financial obligations within one year from the financial statement issuance date. Substantial doubt about an entity’s ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate it is probable the entity will be unable to meet its financial obligations as they become due within one year after the date the financial statements are issued.

 

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 generated $1.0 million of revenues for the three month period ended March 31, 2024, however the Company does not expect to generate positive cash flows from operating activities in the near future.

 

The Company incurred a net loss attributable to PAVmed Inc. common stockholders of approximately $22.8 million and had net cash flows used in operating activities of approximately $13.1 million for the three month period ended March 31, 2024. As of March 31, 2024, the Company had negative working capital of approximately $25.4 million, with such working capital inclusive of the Senior Secured Convertible Notes classified as a current liability of an aggregate of approximately $45.5 million and approximately $25.5 million of cash.

 

The Company’s ability to continue operations 12 months beyond the issuance of the financial statements, will depend upon generating substantial revenue that is conditioned upon obtaining positive third-party reimbursement coverage for its EsoGuard Esophageal DNA Test from both government and private health insurance providers, increasing revenue through contracting directly with self-insured employers, and on its ability to raise additional capital through various potential sources including equity and/or debt financings or refinancing existing debt obligations. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the accompanying unaudited condensed consolidated financial statements are issued.

 

6

 

 

Note 3 — Summary of Significant Accounting Policies

 

Significant Accounting Policies

 

The Company’s significant accounting policies are as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on March 25, 2024, except as otherwise noted herein below.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of PAVmed and its 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 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 and Veris Health, 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 14, 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, 2023 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 statement of the Company’s unaudited condensed consolidated financial information.

 

The unaudited condensed consolidated results of operations for the three months ended March 31, 2024 are not necessarily indicative of the consolidated results to be expected for the year ending December 31, 2024 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 Company’s audited consolidated financial statements and related notes thereto as of and for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K as filed with the SEC on March 25, 2024.

 

All amounts in the accompanying unaudited condensed consolidated financial statements and the 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.

 

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 unaudited condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Significant estimates in these unaudited condensed consolidated financial statements include those related to the estimated fair value of debt obligations, stock-based equity awards, 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.

 

7

 

 

Note 3 — Summary of Significant Accounting Policies - continued

 

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.

 

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.

 

8

 

 

Note 3 — Summary of 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 are accounted under the “fair value option election” as discussed below.

 

Under a Securities Purchase Agreement dated March 13, 2023, Lucid Diagnostics issued a Senior Secured Convertible Note dated March 21, 2023, referred to herein as the “Lucid March 2023 Senior Convertible Note”, which is 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, the September 2022 Senior Convertible Note and the Lucid March 2023 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, the September 2022 Senior Convertible Note or the Lucid March 2023 Senior Convertible Note).

 

See Note 9, Financial Instruments Fair Value Measurements, with respect to the FVO election; and Note 10, Debt, for a discussion of the April 2022 Senior Convertible Note, the September 2022 Senior Convertible Note and the Lucid March 2023 Senior Convertible Note.

 

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.

 

Recent Accounting Standards Updates Not Yet Adopted

 

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures (“ASU 2023-09”), which is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 provide for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for the Company prospectively to all annual periods beginning after December 15, 2024. Early adoption is permitted. The Company does not expect the standard to have a significant impact on its consolidated financial statements.

 

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which require public companies disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. The guidance is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance is applied retrospectively to all periods presented in the financial statements, unless it is impracticable. The Company does not expect the standard to have a significant impact on its consolidated financial statements.

 

9

 

 

Note 3 — Summary of Significant Accounting Policies - continued

 

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

 

Note 4 — Revenue from Contracts with Customers

 

Revenue Recognized

 

In the three month period ended March 31, 2024, the Company recognized total revenue of $1,010, primarily 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. The Company’s revenue for the three month period ended March 31, 2023 was $446, primarily resulting from the delivery of patient EsoGuard test results.

 

Cost of Revenue

 

The cost of revenues 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 month period ended March 31, 2024, the cost of revenue was $1,744, primarily related to costs for our laboratory operations and EsoCheck device supplies. The Company’s cost of revenue for the three month period ended March 31, 2023 was $1,346, primarily related to costs for our laboratory operations and EsoCheck device supplies.

 

Note 5 — Prepaid Expenses, Deposits, and Other Current Assets

 

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

  

   March 31, 2024   December 31, 2023 
Advanced payments to service providers and suppliers  $436   $739 
Prepaid insurance   520    848 
Deposits   2,347    2,672 
Veris Box supplies   258    261 
Total prepaid expenses, deposits and other current assets  $3,561   $4,520 

 

Note 6 — Leases

 

During the three months ended March 31, 2024, the Company entered into additional lease agreements that have commenced and are classified as operating leases.

 

The Company’s future lease payments as of March 31, 2024, 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:

   

      
2024 (remainder of year)  $1,374 
2025   841 
2026   794 
2027   624 
2028   472 
Thereafter   848 
Total lease payments  $4,953 
Less: imputed interest   (806)
Present value of lease liabilities  $4,147 

 

10

 

 

Note 6 — Leases - continued

 

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

  

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
Cash paid for amounts included in the measurement of lease liabilities        
Operating cash flows from operating leases  $476   $346 
Non-cash investing and financing activities          
Right-of-use assets obtained in exchange for new operating lease liabilities  $22   $2,473 
Weighted-average remaining lease term - operating leases (in years)   4.60    4.84 
Weighted-average discount rate - operating leases   7.875%   7.875%

 

As of March 31, 2024 and December 31, 2023, the Company’s right-of-use assets from operating leases were $3,886 and $4,267, respectively, which are reported in operating lease right-of-use assets in the unaudited condensed consolidated balance sheets. As of March 31, 2024 and December 31, 2023, the Company had outstanding operating lease obligations of $4,147 and $4,525, respectively, of which $1,333 and $1,565, respectively, are reported in operating lease liabilities, current portion and $2,814 and $2,960, respectively, are reported in operating lease liabilities less current portion in the Company’s unaudited condensed consolidated balance sheets. 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.

 

Note 7 — Intangible Assets, net

 

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

  

   Estimated Useful Life   March 31, 2024   December 31, 2023 
Defensive asset   60 months   $2,105   $2,105 
Laboratory licenses and certifications and laboratory information management software   24 months    3,200    3,200 
Other   1 year    70    70 
Total Intangible assets        5,375    5,375 
Less Accumulated Amortization        (4,323)   (3,951)
Intangible Assets, net       $1,052   $1,424 

 

Amortization expense of the intangible assets discussed above was $372 and $505 for the three month periods ended March 31, 2024 and 2023, respectively, and is included in amortization of acquired intangible assets in the accompanying unaudited condensed consolidated statements of operations. As of March 31, 2024, the estimated future amortization expense associated with the Company’s finite-lived intangible assets for each of the five succeeding fiscal years is as follows:

  Schedule of Estimated Amortization Expense for Intangible Assets 

      
2024 (remainder of year)  $316 
2025   421 
2026   315 
Total  $1,052 

 

Note 8 — Commitment and Contingencies

 

Other Matters

 

In the ordinary course of PAVmed 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. The Company is not aware of any such pending legal or other proceedings that are reasonably likely to have a material impact on the Company. 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.

 

11

 

 

Note 9 — Financial Instruments Fair Value Measurements

 

Recurring Fair Value Measurements

 

The fair value hierarchy table for the periods indicated is as follows:

  

   Fair Value Measurement on a Recurring Basis at Reporting Date Using1 
   Level-1 Inputs   Level-2 Inputs   Level-3 Inputs   Total 
March 31, 2024                    
Senior Secured Convertible Note - April 2022  $   $   $18,800   $18,800 
Senior Secured Convertible Note - September 2022           13,600    13,600 
Lucid Senior Secured Convertible Note - March 2023           13,140    13,140 
Totals  $   $   $45,540   $45,540 

 

   Level-1 Inputs   Level-2 Inputs   Level-3 Inputs   Total 
December 31, 2023                    
Senior Secured Convertible Note - April 2022  $   $   $19,000   $19,000 
Senior Secured Convertible Note - September 2022           11,250    11,250 
Lucid Senior Secured Convertible Note - March 2023           13,950    13,950 
Totals  $   $   $44,200   $44,200 

 

1There were no transfers between the respective Levels during the three months ended March 31, 2024.

 

As discussed in Note 10, Debt, the Company issued Senior Secured Convertible Notes dated April 4, 2022 and September 8, 2022, with an initial $27.5 million face value principal (“April 2022 Senior Convertible Note”) and an initial $11.25 million face value principal (“September 2022 Senior Convertible Note”), respectively. Both convertible notes are accounted for under the ASC 825-10-15-4 fair value 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.

 

As discussed in Note 10, Debt, Lucid Diagnostics issued a Senior Secured Convertible Note dated March 21, 2023, with an initial $11.1 million face value principal (“Lucid March 2023 Senior Convertible Note”). This convertible note is also 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.

 

12

 

 

Note 9 — Financial Instruments Fair Value Measurements - continued

 

The estimated fair value of the April 2022 Senior Convertible Note, the September 2022 Senior Convertible Note and the Lucid March 2023 Senior Convertible Note as of each of March 31, 2024 and December 31, 2023, 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:

   

  

April 2022 Senior

Convertible Note:
March 31, 2024

  

September 2022 Senior

Convertible Note:
March 31, 2024

  

Lucid March 2023 Senior

Convertible Note:
March 31, 2024

 
Fair Value  $18,800   $13,600   $13,140 
Face value principal payable  $17,602   $8,782   $10,936 
Required rate of return   9.800%   9.600%   9.80%
Conversion Price  $75.00   $75.00   $5.00 
Value of common stock  $2.14   $2.14   $0.81 
Expected term (years)   1.01    1.44    0.97 
Volatility   105.00%   105.00%   55.00%
Risk free rate   4.91%   4.72%   4.93%
Dividend yield   %   %   %

 

  

April 2022 Senior

Convertible Note:

December 31, 2023

  

September 2022 Senior

Convertible Note:
December 31, 2023

  

Lucid March 2023 Senior

Convertible Note:

December 31, 2023

 
Fair Value  $19,000   $11,250   $13,950 
Face value principal payable  $17,602   $9,062   $11,019 
Required rate of return   10.00% - 10.50%   10.00% - 10.20%    10.00%
Conversion Price  $75.00   $75.00   $5.00 
Value of common stock  $4.12   $4.12   $1.41 
Expected term (years)   0.26 - 1.26    0.69 - 1.69    1.22 
Volatility   85.00%   85.00%   60.00%
Risk free rate   4.54% - 5.25%    4.31% - 4.96%    4.56%
Dividend yield   %   %   %

 

The estimated fair values recognized utilized PAVmed and Lucid’s common stock prices, along with certain Level 3 inputs (as presented in the respective tables 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 and analyses, including the respective common stock prices, probability weighting of floor prices on conversions under two scenarios, the dividend yields, 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 respective common stock prices. Changes in these assumptions can materially affect the recognized estimated fair values.

 

13

 

 

Note 10 — Debt

 

The fair value and face value principal outstanding of the Senior Convertible Notes as of the dates indicated are as follows:

 

   Contractual Maturity Date  Stated Interest Rate   Conversion Price per Share   Face Value Principal Outstanding   Fair Value 
April 2022 Senior Convertible Note  April 4, 2025   7.875%  $75.00   $17,602   $18,800 
September 2022 Senior Convertible Note  September 8, 2025   7.875%  $75.00    8,782    13,600 
Lucid March 2023 Senior Convertible Note  March 21, 2025   7.875%  $5.00    10,936    13,140 
Balance as of March 31, 2024               $37,320   $45,540 

 

   Contractual Maturity Date  Stated Interest Rate   Conversion Price per Share   Face Value Principal Outstanding   Fair Value 
April 2022 Senior Convertible Note  April 4, 2025   7.875%  $75.00   $17,602   $19,000 
September 2022 Senior Convertible Note  September 6, 2025   7.875%  $75.00    9,062    11,250 
Lucid March 2023 Senior Convertible Note  March 21, 2025   7.875%  $5.00    11,019    13,950 
Balance as of December 31, 2023               $37,683   $44,200 

 

The changes in the fair value of debt during the three month period ended March 31, 2024 is as follows:

 

   April 2022 Senior Convertible Note   September 2022 Senior Convertible Note   Lucid March 2023 Senior Convertible Note   Sum of Balance Sheet Fair Value Components   Other Income (expense) 
Fair Value - December 31, 2023  $19,000   $11,250   $13,950   $44,200   $ 
Installment repayments – common stock       (280)   (83)   (363)    
Non-installment payments – common stock       (24)   (436)   (460)    
Change in fair value   (200)   2,654    (291)   2,163    (2,163)
Fair Value at March 31, 2024  $18,800   $13,600   $13,140   $45,540    -  
Other Income (Expense) - Change in fair value – three month period ended March 31, 2024                      $(2,163)

 

The changes in the fair value of debt during the three month period ended March 31, 2023 is as follows:

 

   April 2022 Senior Convertible Note   September 2022 Senior Convertible Note   Lucid March 2023 Senior Convertible Note   Sum of Balance Sheet Fair Value Components   Other Income (expense) 
Fair Value - December 31, 2022  $22,000   $11,650   $   $33,650   $ 
Face value principal – issue date           11,111    11,111     
Fair value adjustment – issue date           789    789    (789)
Installment repayments – common stock   (1,335)           (1,335)    
Non-installment payments – common stock   (166)           (166)    
Change in fair value   251            251    (251)
Fair Value at March 31, 2023  $20,750   $11,650   $11,900   $44,300    -  
Other Income (Expense) - Change in fair value – three month period ended March 31, 2023                      $(1,040)

 

14

 

 

Note 10 — Debt - continued

 

PAVmed - Senior Secured Convertible Notes

 

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 was issued in a registered direct offering under the Company’s effective shelf registration statement.

 

Under the SPA, 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 $75.00 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, which maturity date the investor agreed to extend by one year, to April 4, 2025. The April 2022 Senior Convertible Note may be converted into shares of common stock of the Company at the Holder’s election.

 

Under the same SPA, the Company issued an additional Senior Secured Convertible Note dated September 8, 2022, referred to herein as the “September 2022 Senior Convertible Note”, with such note having a $11.25 million face value principal, a 7.875% annual stated interest rate, a contractual conversion price of $75.00 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, which maturity date the investor agreed to extend by one year, to September 8, 2025. The September 2022 Senior Convertible Note may be converted into shares of common stock of the Company at the Holder’s election.

 

The Company has agreed to reduce temporarily, and the Investor has consented to reducing temporarily, the contractual conversion price under the April 2022 Senior Convertible Note and the September 2022 Senior Convertible Note to equal to 82.5% of the two lowest VWAPs during the last 10 trading days preceding the date of conversion, subject to a conversion floor price of $1.00, during the period from April 23, 2024 through May 7, 2024 (which period has been extended to August 6, 2024); provided that the aggregate amount of conversions under the April 2022 Senior Convertible Note and the September 2022 Senior Convertible Note during such period may not exceed $2,000.

 

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 total senior convertible notes 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% (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”). From time to time from and after December 1, 2023 through March 12, 2024, the Company was not in compliance with the Financial Tests. As of March 12, 2024, the Investor agreed to waive any such non-compliance during such time period and thereafter through August 31, 2024.

 

In the three months ended March 31, 2024, in consideration of the covenant waiver and maturity extensions discussed above, the Company agreed to pay the holder of the notes $2,000 in cash (or in such other form as may be mutually agreed in writing) by April 25, 2024, which has been extended to June 15, 2024. The covenant waiver and maturity extension fee was recognized as debt modification expense on the Company’s unaudited condensed consolidated statement of operations, and currently included in accrued expenses and other current liabilities on the Company’s unaudited condensed consolidated balance sheets as of March 31, 2024.

 

The April 2022 Senior Convertible Note and September 2022 Senior Convertible Note installment payments may be made in shares of PAVmed common stock at a conversion price that is the lower of the contractual conversion price and