UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
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:
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of | (IRS Employer | |
| Incorporation or Organization) | Identification No.) | |
| (Address of Principal Executive Offices) | (Zip Code) |
(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 | ||
| The
| ||||
| The 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.
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).
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 | ☐ |
| ☒ | 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 June 30, 2024 and August 8, 2024, there were and shares, respectively, of the registrant’s Common Stock, par value $ 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
| 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)
| June
30, 2024 | December
31, 2023 | |||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses, deposits, and other current assets | ||||||||
| Total current assets | ||||||||
| Fixed assets, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, Preferred Stock and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Senior Secured Convertible Notes - at fair value | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities, less current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $ par value. Authorized, shares; Series B Convertible Preferred Stock, par value $, issued and outstanding at June 30, 2024 and shares at December 31, 2023 | ||||||||
| Common stock, $ par value. Authorized, shares; and shares outstanding as of June 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total PAVmed Inc. Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ||||
| Noncontrolling interests | ||||||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
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 June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Amortization of acquired intangible assets | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value - Senior Secured Convertible Notes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on issue and offering costs - Senior Secured Convertible Note | ( | ) | ||||||||||||||
| Debt extinguishments loss - Senior Secured Convertible Notes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Debt modification expense | ( | ) | ||||||||||||||
| Change in fair value - derivative liability | ( | ) | ( | ) | ||||||||||||
| Gain on sale of intellectual property | ||||||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before provision for income tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss before noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to the noncontrolling interests | ||||||||||||||||
| Net loss attributable to PAVmed Inc. | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Series B Convertible Preferred Stock dividends earned | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Deemed dividend on Subsidiary Preferred Stock attributable to the noncontrolling interests | ( | ) | ||||||||||||||
| Net loss attributable to PAVmed Inc. common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Per share information: | ||||||||||||||||
| Net loss per share attributable to PAVmed Inc. common stockholders – basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average common shares outstanding, basic and diluted | ||||||||||||||||
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 June 30, 2024
(in thousands except number of shares and per share data)
| 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 - March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Dividends declared - Series B Convertible Preferred Stock | — | ( | ) | |||||||||||||||||||||||||||||
| Issue common stock - PAVM ATM Facility | — | |||||||||||||||||||||||||||||||
| Vest - restricted stock awards | — | |||||||||||||||||||||||||||||||
| Conversions - Senior Secured Convertible Note | — | |||||||||||||||||||||||||||||||
| Conversions - subsidiary common stock - Senior Secured Convertible Note | — | — | ||||||||||||||||||||||||||||||
| Impact of subsidiary equity transactions | — | — | ( | ) | ||||||||||||||||||||||||||||
| Issuance - vendor service agreement | — | |||||||||||||||||||||||||||||||
| Issuance - subsidiary preferred stock (Series B-1) | — | — | ||||||||||||||||||||||||||||||
| Stock-based compensation - PAVmed Inc. | — | — | ||||||||||||||||||||||||||||||
| Stock-based compensation - subsidiary | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance - June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
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 SIX MONTHS ENDED June 30, 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 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Dividends declared - Series B Convertible Preferred Stock | — | ( | ) | |||||||||||||||||||||||||||||
| Issue common stock - PAVM ATM Facility | — | |||||||||||||||||||||||||||||||
| Vest - restricted stock awards | — | |||||||||||||||||||||||||||||||
| Conversions - Senior Secured Convertible Note | — | |||||||||||||||||||||||||||||||
| Conversions - subsidiary common stock - Senior Secured Convertible Note | — | — | ||||||||||||||||||||||||||||||
| Exercise - stock options of subsidiary | — | — | ||||||||||||||||||||||||||||||
| Purchase - Employee Stock Purchase Plan | — | |||||||||||||||||||||||||||||||
| Purchase - subsidiary common stock - Employee Stock Purchase Plan | — | — | ||||||||||||||||||||||||||||||
| Impact of subsidiary equity transactions | — | — | ( | ) | ||||||||||||||||||||||||||||
| Issuance - vendor service agreement | — | |||||||||||||||||||||||||||||||
| Issuance - subsidiary preferred stock (Series A-1) | — | — | ||||||||||||||||||||||||||||||
| Exchange - subsidiary preferred stock (Series A and Series A-1) | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Issuance - subsidiary preferred stock (Series B and Series B-1) | — | — | ||||||||||||||||||||||||||||||
| Subsidiary deemed dividends on preferred stock attributable to noncontrolling interests | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation - PAVmed Inc. | — | — | ||||||||||||||||||||||||||||||
| Stock-based compensation - subsidiaries | — | — | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance - June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 4 |
PAVMED INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
for the THREE MONTHS ENDED June 30, 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 - March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Dividends declared - Series B Convertible Preferred Stock | — | ( | ) | |||||||||||||||||||||||||||||||||
| Issue common stock - PAVM ATM Facility | — | |||||||||||||||||||||||||||||||||||
| Conversions - Senior Secured Convertible Note | — | |||||||||||||||||||||||||||||||||||
| Impact of subsidiary equity transactions | — | — | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance - vendor service agreement | — | |||||||||||||||||||||||||||||||||||
| Stock-based compensation - PAVmed Inc. | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation - subsidiary | — | — | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance - June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | |||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
| 5 |
PAVMED INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
for the SIX MONTHS ENDED June 30, 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 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| Dividends declared - Series B Convertible Preferred Stock | — | ( | ) | |||||||||||||||||||||||||||||||||
| Issue common stock - PAVM ATM Facility | — | |||||||||||||||||||||||||||||||||||
| Vest - restricted stock awards | — | |||||||||||||||||||||||||||||||||||
| Conversions - Senior Secured Convertible Note | — | |||||||||||||||||||||||||||||||||||
| Purchase - Employee Stock Purchase Plan | — | |||||||||||||||||||||||||||||||||||
| Purchase - subsidiary common stock - Employee Stock Purchase Plan | — | — | ||||||||||||||||||||||||||||||||||
| Issuance - subsidiary common stock - Committed Equity Facility, net of financing charges | — | — | ||||||||||||||||||||||||||||||||||
| Impact of subsidiary equity transactions | — | — | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance - subsidiary common stock - Settlement APA-RDx - Installment Payment | — | — | ||||||||||||||||||||||||||||||||||
| Issuance - vendor service agreement | — | |||||||||||||||||||||||||||||||||||
| Issuance - subsidiary preferred stock (Series A) | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation - PAVmed Inc. | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation - subsidiaries | — | — | ||||||||||||||||||||||||||||||||||
| Treasury stock | — | ( | ) | |||||||||||||||||||||||||||||||||
| Net Loss | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance - June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | |||||||||||||||||||||||||
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)
| Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss - before noncontrolling interest (“NCI”) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss - before NCI to net cash used in operating activities | ||||||||
| Depreciation and amortization expense | ||||||||
| Stock-based compensation | ||||||||
| Gain on sale of intellectual property | ( | ) | ||||||
| APA-RDx: Issue common stock of subsidiary - termination payment | ||||||||
| Amortization of common stock payment for vendor service agreement | ||||||||
| Change in fair value - Senior Secured Convertible Notes | ||||||||
| Loss on issue - Senior Secured Convertible Note | ||||||||
| Debt extinguishment loss - Senior Secured Convertible Note | ||||||||
| Change in fair value - derivative liability | ||||||||
| Non-cash lease expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses, deposits and current and other assets | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses and other current liabilities | ||||||||
| Net cash flows used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of intellectual property | ||||||||
| Net cash flows provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds – issue of preferred stock - subsidiary | ||||||||
| Proceeds – issue of Senior Secured Convertible Note | ||||||||
| Payment – Senior Secured Convertible Note – acceleration floor payments | ( | ) | ||||||
| Proceeds – issue of common stock - At-The-Market Facility | ||||||||
| Proceeds – subsidiary common stock - Committed Equity Facility and At-The-Market Facility | ||||||||
| Proceeds – issue common stock – Employee Stock Purchase Plan | ||||||||
| Proceeds – subsidiary common stock – Employee Stock Purchase Plan | ||||||||
| Proceeds – exercise of stock options issued under equity plan of subsidiary | ||||||||
| Net cash flows provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 7 |
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 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 $
The
Company incurred a net loss attributable to PAVmed Inc. common stockholders of approximately $
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.
| 8 |
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 subsidiaries, majority-owned subsidiaries and Lucid Diagnostics. All intercompany transactions and balances have been eliminated in consolidation. The Company has a 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 subsidiary. See Note 14, Noncontrolling Interest, for a discussion of each of the 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 and six months ended June 30, 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.
| 9 |
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.
| 10 |
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, including the component related to accrued interest, 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 unaudited condensed 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 unaudited condensed consolidated financial statements.
In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This update modifies the disclosure or presentation requirements of a variety of topics in the Accounting Standards Codification to conform with certain SEC amendments in Release No. 33-10532, Disclosure Update and Simplification. The amendments in this update should be applied prospectively, and the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or S-K becomes effective. However, if the SEC has not removed the related disclosure from its regulations by June 30, 2027, the amendments will be removed from the Codification and not become effective. Early adoption is prohibited. The Company is currently evaluating the impact this update will have on its unaudited condensed consolidated financial statements and disclosures.
| 11 |
Note 4 — Revenue from Contracts with Customers
Revenue Recognized
In
the three and six month periods ended June 30, 2024, the Company recognized total revenue of $
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 and six month periods ended June 30, 2024, the cost of revenue was $
Note 5 — Prepaid Expenses, Deposits, and Other Current Assets
Prepaid expenses and other current assets consisted of the following as of:
| June 30, 2024 | December 31, 2023 | |||||||
| Advanced payments to service providers and suppliers | $ | $ | ||||||
| Prepaid insurance | ||||||||
| Deposits | ||||||||
| Veris Box supplies | ||||||||
| Total prepaid expenses, deposits and other current assets | $ | $ | ||||||
Note 6 — Leases
During
the six months ended June 30, 2024,
The Company’s future lease payments as of June 30, 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) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payments | $ | |||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
| 12 |
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:
| Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | ||||||
| Weighted-average remaining lease term - operating leases (in years) | ||||||||
| Weighted-average discount rate - operating leases | % | % | ||||||
As
of June 30, 2024 and December 31, 2023, the Company’s right-of-use assets from operating leases were $
Note 7 — Intangible Assets, net
Intangible assets, less accumulated amortization, consisted of the following as of:
| Estimated Useful Life | June 30, 2024 | December 31, 2023 | ||||||||
| Defensive asset | $ | $ | ||||||||
| Laboratory licenses and certifications and laboratory information management software | ||||||||||
| Other | ||||||||||
| Total Intangible assets | ||||||||||
| Less Accumulated Amortization | ( | ) | ( | ) | ||||||
| Intangible Assets, net | $ | $ | ||||||||
Amortization
expense of the intangible assets discussed above was $
| 2024 (remainder of year) | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total | $ |
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.
| 13 |
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 | |||||||||||||
| June 30, 2024 | ||||||||||||||||
| Senior Secured Convertible Note - April 2022 | $ | $ | $ | $ | ||||||||||||
| Senior Secured Convertible Note - September 2022 | ||||||||||||||||
| Lucid Senior Secured Convertible Note - March 2023 | ||||||||||||||||
| Totals | $ | $ | $ | $ | ||||||||||||
| Level-1 Inputs | Level-2 Inputs | Level-3 Inputs | Total | |||||||||||||
| December 31, 2023 | ||||||||||||||||
| Senior Secured Convertible Note - April 2022 | $ | $ | $ | $ | ||||||||||||
| Senior Secured Convertible Note - September 2022 | ||||||||||||||||
| Lucid Senior Secured Convertible Note - March 2023 | ||||||||||||||||
| Totals | $ | $ | $ | $ | ||||||||||||
| 1 |
As
discussed in Note 10, Debt, the Company issued Senior Secured Convertible Notes dated April 4, 2022 and September 8, 2022, with
an initial $
As
discussed in Note 10, Debt, Lucid Diagnostics issued a Senior Secured Convertible Note dated March 21, 2023, with an initial $
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.
| 14 |
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 June 30, 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: June 30, 2024 | September
2022 Senior Convertible Note: June 30, 2024 | Lucid
March 2023 Senior Convertible Note: June 30, 2024 | ||||||||||
| Fair Value | $ | $ | $ | |||||||||
| Face value principal payable | $ | $ | $ | |||||||||
| Required rate of return | % | % | % | |||||||||
| Conversion Price | $ | $ | $ | |||||||||
| Value of common stock | $ | $ | $ | |||||||||
| Expected term (years) | ||||||||||||
| Volatility | % | % | % | |||||||||
| Risk free rate | % | % | % | |||||||||
| 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 | $ | $ | $ | |||||||||
| Face value principal payable | $ | $ | $ | |||||||||
| Required rate of return | % | % | % | |||||||||
| Conversion Price | $ | $ | $ | |||||||||
| Value of common stock | $ | $ | $ | |||||||||
| Expected term (years) | ||||||||||||
| Volatility | % | % | % | |||||||||
| Risk free rate | % | % | % | |||||||||
| Dividend yield | % | % | % | |||||||||
The estimated fair values recognized utilized PAVmed’s 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, as compared to the floor price on conversions, 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.
| 15 |
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 | % | $ | $ | $ | ||||||||||||||
| September 2022 Senior Convertible Note | % | $ | ||||||||||||||||
| Lucid March 2023 Senior Convertible Note | % | $ | ||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | ||||||||||||||||
| Contractual Maturity Date | Stated Interest Rate | Conversion Price per Share | Face Value Principal Outstanding | Fair Value | ||||||||||||||
| April 2022 Senior Convertible Note | % | $ | $ | $ | ||||||||||||||
| September 2022 Senior Convertible Note | % | $ | ||||||||||||||||
| Lucid March 2023 Senior Convertible Note | % | $ | ||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | ||||||||||||||||
The changes in the fair value of debt during the three and six month periods ended June 30, 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 - March 31, 2024 | $ | $ | $ | $ | $ | |||||||||||||||
| Installment repayments – common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Non-installment payments – common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Change in fair value | ( | ) | ( | ) | ||||||||||||||||
| Fair Value at June 30, 2024 | $ | $ | $ | $ | ||||||||||||||||
| Other Income (Expense) - Change in fair value – three month period ended June 30, 2024 | $ | ( | ) | |||||||||||||||||
| 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 | $ | $ | $ | $ | $ | |||||||||||||||
| Installment repayments – common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Non-installment payments – common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Change in fair value | ( | ) | ( | ) | ||||||||||||||||
| Fair Value at June 30, 2024 | $ | $ | $ | $ | ||||||||||||||||
| Other Income (Expense) - Change in fair value – six month period ended June 30, 2024 | $ | ( | ) | |||||||||||||||||
| 16 |
Note 10 — Debt - continued
The changes in the fair value of debt during the three and six month periods ended June 30, 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 - March 31, 2023 | $ | $ | $ | $ | $ | |||||||||||||||
| Installment repayments – common stock | ( | ) | ( | ) | ||||||||||||||||
| Non-installment payments – common stock | ( | ) | ( | ) | ||||||||||||||||
| Change in fair value | ( | ) | ( | ) | ||||||||||||||||
| Fair Value at June 30, 2023 | $ | $ | $ | $ | ||||||||||||||||
| Other Income (Expense) - Change in fair value – three month period ended June 30, 2023 | $ | ( | ) | |||||||||||||||||
| 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 | $ | $ | $ | $ | $ | |||||||||||||||
| Face value principal – issue date | ||||||||||||||||||||
| Fair value adjustment – issue date | ( | ) | ||||||||||||||||||
| Installment repayments – common stock | ( | ) | ( | ) | ||||||||||||||||
| Non-installment payments – common stock | ( | ) | ( | ) | ||||||||||||||||
| Change in fair value | ( | ) | ( | ) | ||||||||||||||||
| Fair Value at June 30, 2023 | $ | $ | $ | $ | ||||||||||||||||
| Other Income (Expense) - Change in fair value – six month period ended June 30, 2023 | $ | ( | ) | |||||||||||||||||
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 $
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 $
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 $
| 17 |
Note 10 — Debt - continued
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
In
consideration of the covenant waiver and maturity extensions discussed above, the Company agreed to pay the holder of the notes $
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
In
the three and six month periods ended June 30, 2024, approximately $
Lucid Diagnostics - Senior Secured Convertible Note
Lucid
Diagnostics entered into a Securities Purchase Agreement (“Lucid SPA”) dated March 13, 2023, with an accredited institutional
investor (“Investor”, “Lender”, and /or “Holder”), wherein, Lucid agreed to sell, and the Investor
agreed to purchase an aggregate of $
Under
the SPA dated March 13, 2023, Lucid issued a Senior Secured Convertible Note dated March 21, 2023, referred to herein as the “Lucid
March 2023 Senior Convertible Note”, with such note having a $
The
Lucid March 2023 Senior Convertible Note proceeds were $
During
the period from March 21, 2023 to September 20, 2023, Lucid was required to pay interest expense only (on the $
Commencing
September 21, 2023, and then on each of the successive first and tenth trading day of each month thereafter through to and including
March 14, 2025 (each referred to as an “Installment Date”); and on the
| 18 |
Note 10 — Debt - continued
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.
The payment of all amounts due and payable under this senior convertible note is guaranteed by Lucid’s subsidiaries; and the obligations under this senior convertible note are secured by all of the assets of Lucid and its subsidiaries.
Lucid is subject to certain customary affirmative and negative covenants regarding the rank of the note, 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.
Lucid
is subject to financial covenants requiring:
The
Lucid March 2023 Senior Convertible Note installment payments may be made in shares of Lucid Diagnostics common stock at a conversion
price that is the lower of the contractual conversion price and
In
the three and six month periods ended June 30, 2024, approximately $
During
the three and six month periods ended June 30, 2024, the Company recognized debt extinguishment losses in total of approximately $
See Note 9, Financial Instruments Fair Value Measurements, for a further discussion of fair value assumptions.
Note 11 — Stock-Based Compensation
PAVmed Inc. 2014 Long-Term Incentive Equity Plan
The PAVmed Inc. 2014 Long-Term Incentive Equity Plan (the “PAVmed 2014 Equity Plan”) is designed to enable PAVmed to offer employees, officers, directors, and consultants, as defined, an opportunity to acquire shares of common stock of PAVmed. The types of awards that may be granted under the PAVmed 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 compensation committee.
A total of shares of common stock of PAVmed are reserved for issuance under the PAVmed 2014 Equity Plan, with shares available for grant as of June 30, 2024. The share reservation is not diminished by a total of PAVmed Inc. stock options and restricted stock awards granted outside the PAVmed 2014 Equity Plan as of June 30, 2024. In January 2024, the number of shares available for grant was increased by in accordance with the evergreen provisions of the plan.
| 19 |
Note 11 — Stock-Based Compensation - continued
PAVmed Stock Options
| Number
of Stock Options | Weighted
Average Exercise Price | Remaining
Contractual Term (Years) | Intrinsic Value(2) | |||||||||||||
| Outstanding stock options at December 31, 2023 | $ | $ | ||||||||||||||
| Granted(1) | $ | |||||||||||||||
| Exercised | $ | |||||||||||||||
| Forfeited | ( | ) | $ | |||||||||||||
| Outstanding stock options at June 30, 2024(3) | $ | $ | ||||||||||||||
| Vested and exercisable stock options at June 30, 2024 | $ | $ | ||||||||||||||
| (1) | |
| (2) | |
| (3) |
On February 22, 2024, the Company granted stock options under the PAVmed Inc 2014 Equity Plan with a weighted average exercise price of $. Each such option will vest one-third after one year then ratably over the next eight quarters. In addition, on February 22, 2024, a total of restricted stock awards were granted to the Board of Directors under the PAVmed 2014 Equity Plan, with such restricted stock awards having an aggregate fair value of approximately $ million, which was measured using the respective grant date quoted closing price per share of PAVmed Inc. common stock, with the 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 vesting of the restricted stock awards vest ratably on an annual basis over a three year period with the initial annual vesting date of November 30, 2024. The restricted stock awards are subject to forfeiture if the requisite service period is not completed.
PAVmed Restricted Stock Awards
| Number
of Restricted Stock Awards | Weighted
Average Grant Date Fair Value | |||||||
| Unvested restricted stock awards as of December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Unvested restricted stock awards as of June 30, 2024 | $ | |||||||
Lucid Diagnostics Inc. 2018 Long-Term Incentive Equity Plan
The Lucid Diagnostics Inc. 2018 Long-Term Incentive Equity Plan (“Lucid Diagnostics 2018 Equity Plan”) is separate and apart from the PAVmed 2014 Equity Plan discussed above. The Lucid Diagnostics 2018 Equity Plan is designed to enable Lucid Diagnostics to offer employees, officers, directors, and consultants, an opportunity to acquire shares of common stock of Lucid Diagnostics. The types of awards that may be granted under the Lucid Diagnostics 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 compensation committee.
A total of shares of common stock of Lucid Diagnostics are reserved for issuance under the Lucid Diagnostics 2018 Equity Plan, with shares available for grant as of June 30, 2024. The share reservation is not diminished by a total of stock options and restricted stock awards granted outside the Lucid Diagnostics 2018 Equity Plan, as of June 30, 2024. In January 2024, the number of shares available for grant was increased by in accordance with the evergreen provisions of the plan.
| 20 |
Note 11 — Stock-Based Compensation - continued
Lucid Diagnostics Stock Options
| Number
of Stock Options | Weighted
Average Exercise Price | Remaining
Contractual Term (Years) | Intrinsic Value(2) | |||||||||||||
| Outstanding stock options at December 31, 2023 | $ | $ | ||||||||||||||
| Granted(1) | $ | |||||||||||||||
| Exercised | ( | ) | $ | |||||||||||||
| Forfeited | ( | ) | $ | |||||||||||||
| Outstanding stock options at June 30, 2024(3) | $ | $ | ||||||||||||||
| Vested and exercisable stock options at June 30, 2024 | $ | $ | ||||||||||||||
| (1) | |
| (2) | |
| (3) |
On February 22, 2024, Lucid granted stock options under the Lucid Diagnostics Inc 2018 Equity Plan with a weighted average exercise price of $. Each option will vest one-third after one year then ratably over the next eight quarters.
Lucid Diagnostics Restricted Stock Awards
| Number
of Restricted Stock Awards | Weighted
Average Grant Date Fair Value | |||||||
| Unvested restricted stock awards as of December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Unvested restricted stock awards as of June 30, 2024 | $ | |||||||
In May 2024, a total of restricted stock awards were granted to management under the Lucid Diagnostics 2018 Equity Plan, with such restricted stock awards having an aggregate fair value of approximately $ million, which was measured using the respective grant date quoted closing price per share of Lucid Diagnostics Inc. common stock, with the 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 vesting of the restricted stock awards vest on a single vest date of May 20, 2026. The restricted stock awards are subject to forfeiture if the requisite service period is not completed.
Consolidated Stock-Based Compensation Expense
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Cost of revenue | $ | $ | $ | $ | ||||||||||||
| Sales and marketing expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
| 21 |
Note 11 — Stock-Based Compensation - continued
Stock-Based Compensation Expense Recognized by Lucid Diagnostics
As noted, the consolidated stock-based compensation expense presented above is inclusive of stock-based compensation expense recognized by Lucid Diagnostics, inclusive of each of: stock options granted under the PAVmed 2014 Equity Plan to the three physician inventors of the intellectual property underlying the Amended CWRU License Agreement; and stock options and restricted stock awards granted to employees of PAVmed and non-employee consultants under the Lucid Diagnostics 2018 Equity Plan. The stock-based compensation expense recognized by Lucid Diagnostics for both the PAVmed 2014 Equity Plan and the Lucid Diagnostics 2018 Equity Plan, with respect to stock options and restricted stock awards as discussed above, for the periods indicated, was as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Lucid Diagnostics 2018 Equity Plan – cost of revenue | $ | $ | $ | $ | ||||||||||||
| Lucid Diagnostics 2018 Equity Plan – sales and marketing | ||||||||||||||||
| Lucid Diagnostics 2018 Equity Plan – general and administrative | ||||||||||||||||
| Lucid Diagnostics 2018 Equity Plan – research and development | ||||||||||||||||
| PAVmed 2014 Equity Plan - cost of revenue | ||||||||||||||||
| PAVmed 2014 Equity Plan - sales and marketing | ||||||||||||||||
| PAVmed 2014 Equity Plan - general and administrative | ||||||||||||||||
| PAVmed 2014 Equity Plan - research and development | ||||||||||||||||
| Total stock-based compensation expense – recognized by Lucid Diagnostics | $ | $ | $ | $ | ||||||||||||
| Unrecognized Expense | Weighted Average Remaining Service Period (Years) | |||||||
| PAVmed 2014 Equity Plan | ||||||||
| Stock Options | $ | |||||||
| Restricted Stock Awards | $ | |||||||
| Lucid Diagnostics 2018 Equity Plan | ||||||||
| Stock Options | $ | |||||||
| Restricted Stock Awards | $ | |||||||
| 22 |
Note 11 — Stock-Based Compensation - continued
Stock-based compensation expense recognized with respect to stock options granted under the PAVmed 2014 Equity Plan was based on a weighted average estimated fair value of such stock options of $ per share and $ per share during the six month periods ended June 30, 2024 and 2023, respectively, calculated using the following weighted average Black-Scholes valuation model assumptions:
| Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Expected term of stock options (in years) | ||||||||
| Expected stock price volatility | % | % | ||||||
| Risk free interest rate | % | % | ||||||
| Expected dividend yield | % | % | ||||||
Stock-based compensation expense recognized with respect to stock options granted under the Lucid Diagnostics 2018 Equity Plan was based on a weighted average estimated fair value of such stock options of $ per share and $ per share during the six month periods ended June 30, 2024 and 2023, respectively, calculated using the following weighted average Black-Scholes valuation model assumptions:
| Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Expected term of stock options (in years) | ||||||||
| Expected stock price volatility | % | % | ||||||
| Risk free interest rate | % | % | ||||||
| Expected dividend yield | % | % | ||||||
PAVmed Inc. Employee Stock Purchase Plan (“PAVmed ESPP”)
A
total of shares and shares of common stock of the Company were purchased for proceeds of approximately $
Lucid Diagnostics Inc. Employee Stock Purchase Plan (“Lucid ESPP”)
A
total of shares and shares of common stock of Lucid Diagnostics were purchased for proceeds of approximately $
| 23 |
Note 12 — Preferred Stock
As of June 30, 2024 and December 31, 2023, there were and shares of PAVmed Series B Convertible Preferred Stock, classified in permanent equity, issued and outstanding, respectively.
PAVmed Series B Convertible Preferred Stock Dividends
The Series B Convertible Preferred Stock is issued pursuant to the PAVmed Inc. Certificate of Designation of Preferences, Rights, and Limitations of Series B Convertible Preferred Stock (“Series B Convertible Preferred Stock Certificate of Designation”), has a par value of $ per share, no voting rights, a stated value of $ per share, and was immediately convertible upon its issuance. At the holders’ election, fifteen shares of Series B Convertible Preferred Stock are currently convertible into one share of common stock of the Company, subject to further adjustment for the effect of future stock dividends, stock splits or similar events affecting the Company’s common stock. The Series B Convertible Preferred Stock shall not be redeemed for cash and under no circumstances shall the Company be required to net cash settle the Series B Convertible Preferred Stock.
The
PAVmed Inc. Series B Convertible Preferred Stock dividends are
PAVmed 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
common stockholders for each of the respective corresponding periods presented in the accompanying unaudited condensed consolidated statement
of operations, inclusive of $
PAVmed Series B Convertible Preferred Stock Dividends Declared
During
the six months ended June 30, 2024, the Company’s board of directors declared an aggregate of approximately $
During
the six months ended June 30, 2023, the Company’s board of directors declared an aggregate of approximately $
Subsequent
to June 30, 2024, in August 2024, the Company’s board of directors declared a PAVmed Series B Convertible Preferred Stock dividend,
earned as of June 30, 2024, of $
The PAVmed Series B Convertible Preferred Stock dividends are recognized as a dividend payable liability only upon the dividend being declared payable by the Company’s board of directors. Accordingly, the dividends declared payable subsequent to the date of the accompanying unaudited condensed consolidated balance sheet were not recognized as a dividend payable liability as the Company’s board of directors had not declared the dividends payable as of each such date.
| 24 |
Note 13 — Common Stock and Common Stock Purchase Warrants
Common Stock
In
February 2023, the Company distributed a proxy statement for a special meeting of shareholders that was held on March 31, 2023 (the “Special
Meeting”), at which the Company sought approval of an amendment to the Company’s Certificate of Incorporation, to effect,
(i) a reverse split of the Company’s outstanding shares of common stock at a specific ratio, ranging from
During the six months ended June 30, 2024 a total of shares of common stock of the Company were issued under the PAVmed ESPP. See Note 11, Stock-Based Compensation, for a discussion of each of the PAVmed 2014 Equity Plan and the PAVmed ESPP.
In
the six months ended June 30, 2024, shares of the Company’s common stock were issued upon conversion, at the election of
the holder, of the April 2022 Senior Convertible Note and the September 2022 Senior Convertible Note, for $
In
the six months ended June 30, 2024, the Company sold shares through their at-the-market equity facility
for net proceeds of approximately $
PAVmed Distribution of Lucid Diagnostics Common Stock to Shareholders
On February 15, 2024, the Company distributed by special dividend to the Company stockholders shares of Lucid Diagnostics common stock held by the Company. On such date, each PAVmed shareholder as of the January 15, 2024 record date received a stock dividend of approximately shares of Lucid common stock for every shares of PAVmed common stock they held as of such date. The shares distributed were approximately equal to the number of shares of common stock that Lucid issued to PAVmed on or about January 26, 2024 in satisfaction of certain intercompany obligations due to Lucid from PAVmed.
The
Company’s distribution of Lucid common stock to PAVmed stockholders, constituted an “Extraordinary Dividend” as defined
in the Warrant Agreement. Accordingly, as a result of the distribution, pursuant to Section 4.3 of the Warrant Agreement, the Warrant
Price has been decreased by $
Common Stock Purchase Warrants
As
of June 30, 2024 and December 31, 2023, Series Z Warrants outstanding totaled
| 25 |
Note 14 — Noncontrolling Interest
The noncontrolling interest (“NCI”) included as a component of consolidated total stockholders’ equity is summarized for the periods indicated as follows:
| June 30, 2024 | ||||
| NCI – equity - December 31, 2023 | $ | |||
| Net loss attributable to NCI | ( | ) | ||
| Impact of subsidiary equity transactions | ( | ) | ||
| Lucid Diagnostics proceeds from issuance of preferred stock Series A-1 | ||||
| Lucid Diagnostics exchange of preferred stock Series A and Series A-1 | ( | ) | ||
| Lucid Diagnostics proceeds from issuance of preferred stock Series B and Series B-1 | ||||
| Lucid Diagnostics deemed dividend on preferred stock | ( | ) | ||
| Lucid Diagnostics issuance of common stock for settlement of vendor service agreement | 401 | |||
| Lucid Diagnostics 2018 Equity Plan stock option exercise | ||||
| Lucid Diagnostics Employee Stock Purchase Plan Purchase | ||||
| Conversion of Lucid Diagnostics common stock for Senior Secured Convertible Debt | ||||
| Stock-based compensation expense - Lucid Diagnostics 2018 Equity Plan | ||||
| Stock-based compensation expense - Veris Health 2021 Equity Plan | ||||
| NCI – equity - June 30, 2024 | $ | |||
The consolidated NCI presented above is with respect to the Company’s consolidated subsidiaries as a component of consolidated total stockholders’ equity as of June 30, 2024 and December 31, 2023; and the recognition of a net loss attributable to the NCI in the unaudited condensed consolidated statement of operations for the periods beginning on the acquisition date of the respective subsidiaries.
Lucid Diagnostics
As
of June 30, 2024, there were shares of common stock of Lucid Diagnostics issued and outstanding, of which, PAVmed held
On
January 26, 2024 PAVmed elected to receive payment of $
On
March 7, 2023, Lucid issued shares of newly designated Lucid Series A Convertible Preferred Stock (the “Lucid Series A Preferred
Stock”). Each share of the Lucid Series A Preferred Stock has a stated value of $ and a conversion price of $
On
March 13, 2024, Lucid issued an additional shares of Lucid Series A-1 Preferred Stock, for aggregate gross proceeds of $
On
March 13, 2024, Lucid issued shares of newly designated Lucid Series B Convertible Preferred Stock (the “Lucid Series B
Preferred Stock”). The terms of the Lucid Series B Preferred Stock are substantially identical to the terms of the Lucid Series
A Preferred Stock and the Lucid Series A-1 Preferred Stock, except that the Lucid Series B Preferred Stock has a conversion price of
$
As a result of % of the then-outstanding shares of Lucid Series A Preferred Stock and Lucid Series A-1 Preferred Stock being exchanged for shares of Lucid Series B Preferred Stock in the Lucid Series B Offering and Exchange, no shares of Lucid Series A Preferred Stock or Lucid Series A-1 Preferred Stock remain outstanding.
| 26 |
Note 14 — Noncontrolling Interest - continued
On
May 6, 2024, Lucid issued approximately shares of newly designated Lucid Series B-1 Convertible Preferred Stock (the “Lucid
Series B-1 Preferred Stock”). The terms of the Lucid Series B-1 Preferred Stock are substantially identical to the terms of the
Lucid Series B Preferred Stock, except that the Lucid Series B-1 Preferred Stock has a conversion price of $
Deemed Dividend on Series A and Series A-1 Convertible Preferred Stock Exchange Offer
The
fair value of the consideration given in the form of the issue of shares of Series B Convertible Preferred Stock, with such fair
value recognized as the carrying value of such issued shares of Series B Convertible Preferred Stock, as compared to both the newly issued
Series B Convertible Preferred Stock (fair value of $
| Series B Convertible Preferred Stock Issuance and Series A/A-1 Exchange Offer | March 13, 2024 | |||
| Fair Value - shares of Series B Preferred Stock issued | $ | |||
| Less: Fair value related to newly issued Series B Preferred Stock (of shares) | ( | ) | ||
| Less: Carrying value related to Series A and Series A-1 Preferred Stock Exchanged for Series B Preferred Stock (of shares) | ( | ) | ||
| Deemed Dividend Charged to Accumulated Deficit | $ | |||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Numerator | ||||||||||||||||
| Net loss - before noncontrolling interest | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss attributable to noncontrolling interest | ||||||||||||||||
| Net loss - as reported, attributable to PAVmed Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Series B Convertible Preferred Stock dividends – earned | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Deemed dividend on Subsidiary Preferred Stock attributable to the noncontrolling interests | $ | $ | $ | ( | ) | $ | ||||||||||
| Net loss attributable to PAVmed Inc. common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator | ||||||||||||||||
| Weighted average common shares outstanding, basic and diluted | ||||||||||||||||
| Net loss per share (1) | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
| Net loss attributable to PAVmed Inc. common stockholders | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| (1) |
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 each of the respective years noted, are included in the calculation of basic and diluted net loss attributable to PAVmed 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.
| 27 |
Note 15 — Net Loss Per Share - continued
Basic weighted-average number of shares of common stock outstanding for the six month periods ended June 30, 2024 and 2023 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 years 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:
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| Stock options and restricted stock awards | ||||||||
| Series Z Warrants | ||||||||
| Series B Convertible Preferred Stock | ||||||||
| Total | ||||||||
The total stock options and restricted stock awards are inclusive of and stock options as of June 30, 2024 and 2023, respectively, granted outside the PAVmed 2014 Equity Plan.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our unaudited condensed consolidated financial condition and results of operations should be read together with our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”).
Unless the context otherwise requires, (i) “we”, “us”, and “our”, and the “Company” and “PAVmed” refer to PAVmed Inc. and its subsidiaries, including its subsidiary Lucid Diagnostics Inc. (“Lucid Diagnostics” or “Lucid”) and its majority-owned subsidiary Veris Health Inc. (“Veris Health” or “Veris”), (ii) “FDA” refers to the Food and Drug Administration, (iii) “510(k)” refers to a premarket notification, submitted to the FDA by a manufacturer pursuant to § 510(k) of the Food, Drug and Cosmetic Act and 21 CFR § 807 subpart E, (iv) “CLIA” refers to the Clinical Laboratory Improvement Amendments of 1988 and associated regulations set forth in 42 CFR § 493, and (v) “LDT” refers to a diagnostic test, defined by the FDA as “an IVD that is intended for clinical use and designed, manufactured and used within a single laboratory,” which is generally subject only to self-certification of analytical validity under the CMS CLIA program.
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 those expressed or implied 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 risk that the FDA will cease to exercise enforcement discretion with respect to LDTs, like EsoGuard; | |
|
● | 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 the COVID-19 pandemic and other health-related emergencies; 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 results, plans, and/or objectives disclosed in our forward-looking statements, and the intended or expected developments and/or other events disclosed in our forward-looking statements may not actually occur, and accordingly you should not place undue reliance on our forward-looking statements. You should read this Form 10-Q 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.
| 29 |
Overview
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 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 subsidiary, Lucid Diagnostics (Nasdaq: LUCD). In addition, through a separate majority-owned subsidiary, Veris Health, 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 created 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.
See Part I, Item 1, “Business”, in the Form 10-K for a more detailed summary of the medical device, diagnostics, and digital health sectors and our key products, including in particular EsoGuard and the Veris Platform, which are currently our two leading products.
Recent Developments
Business
PAVmed Distribution of Lucid Diagnostics Common Stock to Shareholders
On February 15, 2024, the Company distributed by special dividend to the Company stockholders 3,331,747 shares of Lucid Diagnostics common stock held by the Company. On such date, each PAVmed shareholder as of the January 15, 2024 record date received a stock dividend of approximately 38 shares of Lucid common stock for every 100 shares of PAVmed common stock they held as of such date. The shares distributed were approximately equal to the number of shares of common stock that Lucid issued to PAVmed on or about January 26, 2024 in satisfaction of certain intercompany obligations due to Lucid from PAVmed, as discussed above.
This distribution constituted an “Extraordinary Dividend” as defined in the warrant agreement that governs the Company’s Series Z Warrants. As a result, pursuant to the warrant agreement, the exercise price under the Series Z Warrants per full share of PAVmed common stock was automatically decreased by $0.52 (the fair market value of 0.37709668 of a share of Lucid Diagnostics’ common stock as of the date of the distribution) to $23.48 per share.
Management Services Agreement/Payroll Benefits and Expense Reimbursement Agreement with Lucid Diagnostics
On August 6, 2024, Lucid and the Company entered into a ninth amendment to the management services agreement between Lucid and PAVmed (“MSA”) to increase the monthly fee thereunder from $0.83 million per month to $1.05 million per month, effective as of July 1, 2024.
On March 22, 2024, PAVmed and Lucid entered into an eighth amendment to MSA to increase the monthly fee thereunder from $0.75 million per month to $0.83 million per month, effective as of January 1, 2024. The amendment also reset the maximum number of shares issuable under the agreement to 19.99% of the shares outstanding as of the date of the amendment.
On January 26, 2024, in accordance with the MSA and the payroll, benefits and expense reimbursement agreement between PAVmed and Lucid (“PBERA”), PAVmed elected to receive payment of approximately $4.7 million of fees and reimbursements accrued under the MSA and the PBERA through the issuance of 3,331,771 shares of Lucid’s common stock.
Nasdaq Notice
On March 7, 2024, the Company received a notice from the Nasdaq Listing Qualifications Department stating that, for the preceding 30 consecutive business days (through March 6, 2024), the market value of the Company’s listed securities (“MVLS”) had been below the minimum of $35 million required for continued inclusion on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(2). The notification letter stated that the Company would be afforded 180 calendar days (until September 3, 2024) to regain compliance. In order to regain compliance, the Company’s MVLS must close at $35 million or more for a minimum of ten consecutive business days. The notification letter also states that in the event the Company does not regain compliance prior to the expiration of the 180-day period, the Company will receive written notification that its securities are subject to delisting. The Nasdaq notification has no effect at this time on the listing of the Company’s common stock or Series Z warrants, and the stock and warrants will continue to trade uninterrupted under the symbol “PAVM” and “PAVMZ”, respectively. Moreover, the Company is actively pursuing strategies that it believes will allow it to regain compliance with the listing requirements, although there can be no assurance that those strategies will be successful.
| 30 |
Business - continued
Incubator Program
On March 21, 2024, the Company announced that it has launched a wholly owned incubator, PMX, to complete development and commercialization of existing portfolio technologies, including PortIO, EsoCure and CarpX. PMX and Hatch Medical, L.L.C. (“Hatch Medical”), a medical device incubator and technology brokerage firm, have executed a joint venture agreement to advance the technologies.
Pursuant to the joint venture agreement, PAVmed will assign PortIO, EsoCure and CarpX to its wholly owned incubator, PMX. Starting with PortIO, the Company will seek to independently finance a separate subsidiary of the incubator to develop and commercialize each technology. Hatch Medical will provide strategic advisory and brokerage services to the subsidiary to advance the technology through key milestones and, subsequently, seek to engage a strategic partner to acquire, license or distribute the commercial product.
Veris Cancer Care Platform
On June 13, 2024, we announced that Veris and a National Cancer Institute-Designated Comprehensive Cancer Center launched a pilot program and has enrolled the first patients from such center in such program on the Veris Cancer Care Platform.
FDA Enforcement Discretion
In April 2024, FDA published the final rule under which FDA intends to phase out its general enforcement discretion approach for LDTs so that IVDs manufactured by a laboratory would generally fall under the same enforcement approach as other IVDs (the proposed rule was published in October 2023). In the final rule, FDA has expanded the categories of LDTs that will be eligible for continued enforcement discretion, which include LDTs first marketed prior to May 6, 2024 and LDTs approved by New York State’s Clinical Laboratory Evaluation Program (NYS CLEP). As EsoGuard was marketed prior to the May 6, 2024, and is also NYS CLEP-approved, EsoGuard remains under continued enforcement discretion from FDA’s premarket review requirements and quality systems requirements (except for record-keeping). As such, there is no immediate impact from the final rule on EsoGuard’s regulatory strategy.
Financing
Extension of Senior Convertible Notes
Effective as of March 12, 2024, the Company entered into an amendment and waiver (the “Note Amendment and Waiver”) with the holder of the April 2022 Senior Convertible Note and the September 2022 Senior Convertible Note (each as defined in “Liquidity and Capital Resources” below). Pursuant to the Note Amendment and Waiver, the maturity date of the April 2022 Senior Convertible Note was extended to April 4, 2025 and the maturity date of the September 2022 Senior Convertible Note was extended to September 8, 2025, in each case subject to further extension in certain circumstances. The holder of the such note also waived, for the period commencing on December 1, 2023 and ending on August 31, 2024, the financial covenant contained in such notes requiring that the ratio of (a) the outstanding principal amount of the notes, 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, not exceed 30%, and that the Company’s market capitalization not be less than $75 million. In consideration of the Note Amendment and Waiver, the Company agreed to pay the holder of the notes $2.0 million in cash (or in such other form as may be mutually agreed in writing), which currently is included in accrued expenses and other current liabilities on the Company’s unaudited condensed consolidated balance sheets as of June 30, 2024.
See our accompanying unaudited condensed consolidated financial statements Note 10, Debt, for further discussion of the senior convertible notes.
| 31 |
Financing - continued
Lucid Diagnostics - Preferred Stock Offerings
On March 13, 2024, Lucid entered into subscription agreements (each, a “Lucid Series B Subscription Agreement”) and exchange agreements (each, a “Lucid Series B Exchange Agreement”) with certain accredited investors (collectively, the “Lucid Series B Investors”), which agreements provided for (i) the sale to the Lucid Series B Investors of 12,495 shares of Lucid’s newly designated Series B Convertible Preferred Stock, par value $0.001 per share (the “Lucid Series B Preferred Stock”), at a purchase price of $1,000 per share, and (ii) the exchange by the Lucid Series B Investors of 13,625 shares of Lucid’s Series A Convertible Preferred Stock, par value $0.001 per share (the “Lucid Series A Preferred Stock”), and 10,670 shares of Lucid’s Series A-1 Convertible Preferred Stock, par value $0.001 per share (the “Lucid Series A-1 Preferred Stock”), held by them for 31,790 shares of Lucid Series B Preferred Stock (collectively, the “Lucid Series B Offering and Exchange”). Prior to the execution of the Lucid Series B Subscription Agreements and the Lucid Series B Exchange Agreements, Lucid entered into subscription agreements with certain of the Lucid Series B Investors providing for the sale to such investors of 5,670 shares of Lucid Series A-1 Preferred Stock, at a purchase price of $1,000 per share, which shares the investors immediately agreed to exchange for shares of Lucid Series B Preferred Stock pursuant to the Lucid Series B Exchange Agreements (and are included in the 10,670 shares of Lucid Series A-1 Preferred Stock set forth above). Each share of the Lucid Series B Preferred Stock has a stated value of $1,000 and a conversion price of $1.2444. The terms of the Lucid Series B Preferred Stock also include a one times preference on liquidation and a right to receive dividends equal to 20% of the number of shares of Lucid common stock into which such Lucid Series B Preferred Stock is convertible, payable on the one-year and two-year anniversary of the issuance date. The holders of the Lucid Series B Preferred Stock also will be entitled to dividends equal, on an as-if-converted to shares of Lucid common stock basis, to and in the same form as dividends actually paid on shares of Lucid common stock when, as, and if such dividends are paid on shares of Lucid common stock. The Lucid Series B Preferred Stock is a voting security. The aggregate gross proceeds to Lucid of these transactions was $18.16 million (inclusive of $5.67 million of aggregate gross proceeds from the sale of the Lucid Series A-1 Preferred Stock that was immediately exchanged for Lucid Series B Preferred Stock in the transactions).
As a result of 100% of the then-outstanding shares of Lucid Series A Preferred Stock and Lucid Series A-1 Preferred Stock being exchanged for shares of Lucid Series B Preferred Stock in the Lucid Series B Offering and Exchange, no shares of Lucid Series A Preferred Stock or Lucid Series A-1 Preferred Stock remain outstanding.
On May 6, 2024, Lucid issued approximately 11,634 shares of newly designated Lucid Series B-1 Convertible Preferred Stock (the “Lucid Series B-1 Preferred Stock”). The terms of the Lucid Series B-1 Preferred Stock are substantially identical to the terms of the Lucid Series B Preferred Stock, except that the Lucid Series B-1 Preferred Stock has a conversion price of $0.7228. The aggregate gross proceeds from the sale of shares in such offering were $11.6 million.
PAVmed - ATM Facility
In December 2021, we entered into an “at-the-market offering” for up to $50 million of our common stock that may be offered and sold under a Controlled Equity Offering Agreement between us and Cantor Fitzgerald & Co. (“Cantor”). In March 2023, the “at-the-market offering” became subject to General Instruction I.B.6 of Form S-3, which limits sales of our securities under this instruction in any 12-month period to one-third of the aggregate market value of our public float (unless our public float rises to $75 million or more, in which case the instruction will cease to apply). As a result of this limitation and our then-current public float, in May 2023, we amended our “at-the-market offering” to cover up to $18 million of our common stock. In the six month period ended June 30, 2024, the Company sold 333,299 shares through its at-the-market equity facility for net proceeds of approximately $0.7 million, after payment of 3% commissions. As of June 30, 2024, the Company had approximately $15.3 million remaining under the PAVmed ATM Facility. Subsequent to June 30, 2024, as of August 8, 2024, the Company sold 288,067 shares through their at-market equity facility for net proceeds of approximately $0.3 million after payment of 3% commissions.
Lucid Diagnostics - Committed Equity Facility and ATM Facility
In March 2022, Lucid Diagnostics entered into a committed equity facility with a Cantor affiliate. Under the terms of the committed equity facility, the Cantor affiliate has committed to purchase up to $50 million of Lucid Diagnostics’ common stock from time to time at Lucid Diagnostics’ request. While there are distinct differences, the committed equity facility is structured similarly to a traditional at-the-market equity facility, insofar as it allows Lucid Diagnostics to raise primary equity capital on a periodic basis at prices based on the existing market price. Cumulatively, a total of 680,263 shares of Lucid Diagnostics’ common stock were issued for net proceeds of approximately $1.8 million, after a 4% discount, as of June 30, 2024.
In November 2022, Lucid Diagnostics also entered into an “at-the-market offering” for up to $6.5 million of its common stock that may be offered and sold under a Controlled Equity Offering Agreement between Lucid Diagnostics and Cantor. Cumulatively, a total of 230,068 shares of Lucid Diagnostics’ common stock were issued through its at-the-market equity facility for net proceeds of approximately $0.3 million, after payment of 3% commissions, as of June 30, 2024.
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Results of Operations
Overview
Revenue
The Company recognized revenue resulting from the delivery of patient EsoGuard test results when the Company considered the collection of such consideration to be probable to the extent that it is unconstrained.
Cost of revenue
Cost of revenues recognized from the delivery of patient EsoGuard test results includes costs related to EsoCheck device usage, shipment of test collection kits, royalties and the cost of services to process tests and provide results to physicians. We incur expenses for tests in the period in which the activities occur, therefore, gross margin as a percentage of revenue may vary from quarter to quarter due to costs being incurred in one period that relate to revenues recognized in a later period.
We expect that gross margin for our services will continue to fluctuate and be affected by EsoGuard test volume, our operating efficiencies, patient compliance rates, payer mix, the levels of reimbursement, and payment patterns of payers and patients.
Sales and marketing expenses
Sales and marketing expenses consist primarily of salaries and related costs for employees engaged in sales, sales support and marketing activities, as well as advertising and promotion expenses. We anticipate our sales and marketing expenses will increase in the future, to the extent we expand our commercial sales and marketing operations as resources permit and insurance reimbursement coverage for our EsoGuard test expands.
General and administrative expenses
General and administrative expenses consist primarily of salaries and related costs for personnel, travel expenses, facility-related costs, professional fees for accounting, tax, audit and legal services, salaries and related costs for employees involved in third-party payor reimbursement contract negotiations and consulting fees and other expenses associated with obtaining and maintaining patents within our intellectual property portfolio.
We anticipate our general and administrative expenses will increase in the future to the extent our business operations grow. Furthermore, we anticipate continued expenses related to being a public company, including fees and expenses for audit, legal, regulatory, tax-related services, insurance premiums and investor relations costs associated with maintaining compliance as a public company.
Research and development expenses
Research and development expenses are recognized in the period they are incurred and consist principally of internal and external expenses incurred for the development of our products, including:
| ● | consulting costs for engineering design and development; | |
| ● | salary and benefit costs associated with our medical research personnel 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 | |
| ● | expenses for facilities maintained solely for research and development purposes. |
Our current research and development activities, including our clinical trials, are focused principally on the acceleration of EsoGuard and Veris Cancer Care Platform commercialization. We will resume research and development activities with respect to other products in our pipeline as well as applicable new technologies, as resources permit.
Other Income and Expense, net
Other income and expense, net, consists principally of changes in fair value of our convertible notes and losses on extinguishment of debt upon repayment of such convertible notes.
Presentation of Dollar Amounts
All dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented as dollars in millions, except for share and per share amounts.
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The three months ended June 30, 2024 as compared to three months ended June 30, 2023
Revenue
In the three months ended June 30, 2024, revenue was $1.0 million as compared to $0.2 million for the corresponding period in the prior year. The $0.8 million increase principally relates to the increase in volume of our EsoGuard Esophageal DNA Tests performed in our own CLIA laboratory for the period and the consideration received for the performance of the EsoGuard Esophageal DNA Tests.
Cost of revenue
In the three months ended June 30, 2024, cost of revenue remained relatively level, at approximately $1.7 million, as compared to the corresponding period in the prior year.
Sales and marketing expenses
In the three months ended June 30, 2024, sales and marketing costs were approximately $4.2 million as compared to $4.3 million for the corresponding period in the prior year. The net decrease of $0.1 million was principally related to:
| ● | approximately $0.1 million decrease in third-party consulting services at Lucid. |
General and administrative expenses
In the three months ended June 30, 2024, general and administrative costs were approximately $7.0 million as compared to $6.7 million for the corresponding period in the prior year. The net increase of $0.3 million was principally related to:
| ● | approximately $0.8 million increase in third-party professional fees and expenses related to investor relations and legal services; and | |
| ● | approximately $0.5 million decrease in stock based compensation from RSA and stock option grants to Lucid and PAVmed employees. |
Research and development expenses
In the three months ended June 30, 2024, research and development costs were approximately $1.6 million as compared to $3.5 million for the corresponding period in the prior year. The net decrease of $1.9 million was principally related to:
| ● | approximately $1.5 million decrease in development costs, particularly in clinical trial activities and outside professional and consulting fees; and | |
| ● | approximately $0.4 million decrease in compensation and stock based compensation from RSA and stock option grants to Lucid and PAVmed employees and non-employees. |
Amortization of Acquired Intangible Assets
The amortization of acquired intangible assets was approximately $0.1 million in the three months ended June 30, 2024, as compared to $0.5 million for the corresponding period in the prior year. The decrease of $0.4 million in the current period was due to certain acquired intangible assets being fully amortized in February 2024.
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Results of Operations - continued
The three months ended June 30, 2024 as compared to the three months ended June 30, 2023 - continued
Other Income and Expense
Change in fair value of convertible debt
In the three months ended June 30, 2024, the change in the fair value of our convertible notes was approximately $0.6 million of expense, related to the April 2022 Senior Convertible Note (as defined in “Liquidity and Capital Resources” below), the September 2022 Senior Convertible Note (as defined in “Liquidity and Capital Resources” below), and the Lucid March 2023 Senior Convertible Note (as defined in “Liquidity and Capital Resources” below). The April 2022 Senior Convertible Note, the September 2022 Senior Convertible Note, and the Lucid March 2023 Senior Convertible Note were initially measured at their issue-date estimated fair value and subsequently remeasured at estimated fair value as of each reporting period date. The Company initially recognized an aggregate of $4.3 million of fair value non-cash expense on the issue dates.
Loss on Debt Extinguishment
In the three months ended June 30, 2024, a debt extinguishment loss in the aggregate of approximately $0.8 million was recognized in connection with our April 2022 Senior Convertible Note, September 2022 Senior Convertible Note and the Lucid March 2023 Senior Convertible Note as discussed below.
| ● | In the three months ended June 30, 2024, approximately $0.7 million of principal repayments, along with less than $0.1 million of interest expense thereon, were settled through the issuance of 461,963 shares of common stock of the Company, with such shares having a fair value of approximately $0.8 million (with such fair value measured as the respective conversion date quoted closing price of the common stock of the Company). In addition, the Company paid $0.2 million in cash related to acceleration floor payments on these notes related to the conversion price being below the floor, recorded as debt extinguishment loss. The conversions and cash paid resulted in a debt extinguishment loss of $0.3 million in the three months ended June 30, 2024. | |
| ● | In the three months ended June 30, 2024, approximately $1.1 million of principal repayments along with approximately $0.2 million of interest expense thereon, were settled through the issuance of 2,117,883 shares of Lucid common stock, with such shares having a fair value of approximately $1.9 million (with such fair value measured as the quoted closing price of the common stock of Lucid on the respective conversion date). The conversions resulted in a debt extinguishment loss of $0.5 million in the three months ended June 30, 2024. |
In comparison, in the three months ended June 30, 2023, a debt extinguishment loss in the aggregate of approximately $0.7 million was recognized in connection with our April 2022 Senior Convertible Note as discussed below.
| ● | In the three months ended June 30, 2023, approximately $1.7 million of principal repayments, along with less than $0.1 million of interest expense thereon, were settled through the issuance of 346,190 shares of common stock of the Company, with such shares having a fair value of approximately $2.4 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 $0.7 million in the three months ended June 30, 2023. |
See Note 10, Debt, to the Financial Statements, for additional information with respect to the April 2022 Senior Convertible Note, the September 2022 Senior Convertible Note, and the Lucid March 2023 Senior Convertible Note.
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Results of Operations - continued
The six months ended June 30, 2024 as compared to six months ended June 30, 2023
Revenue
In the six months ended June 30, 2024, revenue was $2.0 million as compared to $0.6 million for the corresponding period in the prior year. The $1.4 million increase principally relates to the revenue for our EsoGuard Esophageal DNA Test performed in our own CLIA laboratory for the period and the consideration received for the performance of the EsoGuard Esophageal DNA Tests.
Cost of revenue
In the six months ended June 30, 2024, cost of revenue was approximately $3.4 million as compared to $3.0 million for the corresponding period in the prior year. The $0.4 million increase was principally related to:
| ● | approximately $0.2 million increase in the CLIA laboratory supplies required to perform the EsoGuard Esophageal DNA tests and royalty costs; and | |
| ● | approximately $0.2 million increase in compensation related costs, including stock-based compensation. |
Sales and marketing expenses
In the six months ended June 30, 2024, sales and marketing costs were approximately $8.6 million as compared to $8.9 million for the corresponding period in the prior year. The net decrease of $0.3 million was principally related to:
| ● | approximately $0.2 million decrease in compensation related costs, including stock-based compensation; and | |
| ● | approximately $0.1 million decrease in third party sales and marketing costs. |
General and administrative expenses
In the six months ended June 30, 2024, general and administrative costs were approximately $13.7 million as compared to $17.1 million for the corresponding period in the prior year. The net decrease of $3.4 million was principally related to:
| ● | approximately $3.0 million decrease in stock-based compensation, related to decreases at both PAVmed and Lucid; | |
| ● | approximately $0.5 million decrease in third-party professional fees and expenses related to related to the termination of the MSA-RDx, finance and legal services; and | |
| ● | approximately $0.1 million increase in compensation related costs. |
Research and development expenses
In the six months ended June 30, 2024, research and development costs were approximately $3.6 million as compared to $7.5 million for the corresponding period in the prior year. The net decrease of $3.9 million was principally related to:
| ● | approximately $3.0 million decrease in development costs, particularly in clinical trials activities and outside professional and consulting fees; and | |
| ● | approximately $0.9 million decrease in compensation related costs and stock-based compensation, related to employees at PAVmed and Lucid. |
Amortization of Acquired Intangible Assets
The amortization of acquired intangible assets was approximately $0.5 million in the six months ended June 30, 2024, as compared to $1.0 million for the corresponding period in the prior year. The decrease of $0.5 million in the current period was due to certain acquired intangible assets being fully amortized in February 2024.
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Results of Operations - continued
The six months ended June 30, 2024 as compared to six months ended June 30, 2023 - continued
Other Income and Expense
Change in fair value of convertible debt
In the six months ended June 30, 2024 and June 30, 2023, the change in the fair value of our convertible notes was approximately $2.7 million and $1.4 million of expense, respectively, related to the April 2022 Senior Convertible Note, the September 2022 Senior Convertible Note, and the Lucid March 2023 Senior Convertible Note. The April 2022 Senior Convertible Note, the September 2022 Senior Convertible Note, and the Lucid March 2023 Senior Convertible Note were initially measured at their issue-date estimated fair value and subsequently remeasured at estimated fair value as of each reporting period date. The Company initially recognized an aggregate of $4.3 million of fair value non-cash expense on the issue dates.
Loss on Issue and Offering Costs - Senior Secured Convertible Note
In the six months ended June 30, 2023, in connection with the issue of the Lucid March 2023 Senior Convertible Note, we recognized a total of approximately $1.2 million of lender fees and offering costs. The Company did not incur lender fees and offering costs in the six months ended June 30, 2024.
Loss on Debt Extinguishment
In the six months ended June 30, 2024, a debt extinguishment loss in the aggregate of approximately $1.1 million was recognized in connection with our April 2022 Senior Convertible Note and September 2022 Senior Convertible Note as discussed below.
| ● | In the six months ended June 30, 2024, approximately $1.0 million of principal repayments along with less than $0.1 million of interest expense thereon, were settled through the issuance of 574,424 shares of common stock of the Company, with such shares having a fair value of approximately $1.1 million (with such fair value measured as the quoted closing price of the common stock of the Company on the respective conversion date). In addition, the Company paid $0.4 million in cash related to acceleration floor payments on these notes related to the conversion price being below the floor, recorded as debt extinguishment loss. The conversions and cash paid resulted in a debt extinguishment loss of $0.5 million in the six months ended June 30, 2024. | |
| ● | In the six months ended June 30, 2024, approximately $1.2 million of principal repayments along with approximately $0.7 million of interest expense thereon, were settled through the issuance of 2,661,181 shares of Lucid common stock, with such shares having a fair value of approximately $2.5 million (with such fair value measured as the quoted closing price of the common stock of Lucid on the respective conversion date). The conversions resulted in a debt extinguishment loss of $0.7 million in the six months ended June 30, 2024. |
In comparison, in the six months ended June 30, 2023, a debt extinguishment loss in the aggregate of approximately $1.3 million was recognized in connection with our April 2022 Senior Convertible Note as discussed below.
| ● | In the six months ended June 30, 2023, approximately $3.2 million of principal repayments along with less than $0.1 million of interest expense thereon, were settled through the issuance of 634,899 shares of common stock of the Company, with such shares having a fair value of approximately $4.4 million (with such fair value measured as the quoted closing price of the common stock of the Company on the respective conversion date). The conversions resulted in a debt extinguishment loss of $1.3 million in the six months ended June 30, 2023. |
See Note 10, Debt, to the Financial Statements, for additional information with respect to the April 2022 Senior Convertible Note, the September 2022 Senior Convertible Note, and the Lucid March 2023 Senior Convertible Note.
Deemed Dividend on Series A and Series A-1 Convertible Preferred Stock Exchange Offer
The fair value of the consideration given in the form of the issue of 44,285 shares of Lucid Series B Preferred Stock, with such fair value recognized as the carrying value of such issued shares of Lucid Series B Preferred Stock, as compared to both the newly issued Lucid Series B Preferred Stock (fair value of $12.5 million) and the carrying value of the extinguished Lucid Series A and Series A-1 Preferred Stock (carrying value of $24.3 million), resulting in an excess of fair value of $7.5 million recognized as a deemed dividend charged to accumulated deficit in the unaudited condensed consolidated balance sheet on March 13, 2024, with such deemed dividend included as a component of net loss attributable to common stockholders, summarized as follows:
| Series B Convertible Preferred Stock Issuance and Series A/A-1 Exchange Offer | March 13, 2024 | |||
| Fair Value - 44,285 shares of Series B Preferred Stock issued | $ | 44,285 | ||
| Less: Fair value related to newly issued Series B Preferred Stock (of 12,495 shares) | (12,495 | ) | ||
| Less: Carrying value related to Series A and Series A-1 Preferred Stock Exchanged for Series B Preferred Stock (of 24,295 shares) | (24,294 | ) | ||
| Deemed Dividend Charged to Accumulated Deficit | $ | 7,496 | ||
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Liquidity and Capital Resources
Our current financing strategy is to obtain capital directly into Lucid, Veris and other subsidiaries to fund any product development or other related activities. There are no assurances, however, we will be able to obtain an adequate level of financial resources required for the short-term or long-term commercialization and development of our 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 experienced a net loss before noncontrolling interests of approximately $33.4 million and used approximately $24.8 million of cash in operations for the six months ended June 30, 2024. Financing activities provided $30.7 million of cash during the six months ended June 30, 2024. We ended the quarter with cash on-hand of $25.5 million as of June 30, 2024. We expect to continue to experience recurring losses and negative cash flows from operations, and will continue to fund our operations with debt and/or equity financing transactions, including current obligations on the Company’s existing convertible debt which in accordance with management’s plans may include conversions to equity and refinancing our existing debt obligations to extend the maturity date. The Company’s ability to continue operations 12 months beyond the issuance of the financial statements will depend upon generating substantial revenue that is conditioned on obtaining positive third-party reimbursement coverage for its EsoGuard Esophageal DNA Test from both government and private health insurance providers, increasing revenue through contracting directly with self-insured employers, and 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.
Issue of Shares of Our Common Stock
During the six months ended June 30, 2024
| ● | We issued 34,332 shares of our common stock for proceeds of approximately $0.1 million under the PAVmed Employee Stock Purchase Plan (“ESPP”), as such plan is discussed in Note 11, Stock-Based Compensation, to the Financial Statements. | |
| ● | We issued 333,299 shares of our common stock for net proceeds of approximately $0.7 million, after payment of 3% commissions, from the sale of shares through PAVmed’s at-the-market equity facility through Cantor. See below for more information. | |
| ● | We issued 574,424 shares of our common stock in satisfaction of approximately $1.0 million of principal repayments along with less than $0.1 million of interest expense thereon under the April 2022 Senior Convertible Note and September 2022 Senior Convertible Note. |
Securities Purchase Agreement - March 31, 2022 - Senior Secured Convertible Notes - April 4, 2022 and September 8, 2022
Effective as of March 31, 2022, we entered into a Securities Purchase Agreement (referred to as the “SPA”) with an accredited investor, pursuant to which we agreed to sell, and the investor agreed to purchase an aggregate of $50.0 million face value principal of Senior Secured Convertible Notes. The SPA provided for the sale of the initial Senior Secured Convertible Note with a face value principal of $27.5 million, which closed on April 4, 2022 (referred to as the “April 2022 Senior Convertible Note”). The April 2022 Senior Secured Convertible Note had an initial 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 or otherwise paid in shares of our common stock as described in Note 10, Debt.
On September 8, 2022, we completed an additional closing under the SPA, in which we sold to the investor an additional Senior Secured Convertible Note with a face value principal of $11.25 million (referred to as the “September 2022 Senior Convertible Note”). The September 2022 Senior Secured Convertible Note had an initial 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 or otherwise paid in shares of our common stock as described in Note 10, Debt.
Under the April 2022 Senior Convertible Note, the September 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 $8.0 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% (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”). 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. Based on the waiver, as of June 30, 2024, the Company was in compliance with the Financial Tests. In addition, based on the waiver, the Company presently is in compliance with the Financial Tests.
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Liquidity and Capital Resources - continued
In consideration of the covenant waiver and maturity extensions discussed above, the Company agreed to pay the holder of the notes $2.0 million in cash (or in such other form as may be mutually agreed in writing).
See Note 10, Debt, to the Financial Statements for additional information about the SPA, the April 2022 Senior Convertible Note, and the September 2022 Senior Convertible Note.
Lucid Diagnostics - Preferred Stock Offerings
On March 13, 2024, Lucid entered into Lucid Series B Subscription Agreements and Lucid Series B Exchange Agreements with the Lucid Series B Investors, which agreements provided for (i) the sale to the Lucid Series B Investors of 12,495 shares of newly designated Lucid Series B Preferred Stock, at a purchase price of $1,000 per share, and (ii) the exchange by the Lucid Series B Investors of 13,625 shares of Lucid Series A Preferred Stock, and 10,670 shares of Lucid Series A-1 Preferred Stock held by them for 31,790 shares of Lucid Series B Preferred Stock. Prior to the execution of the Lucid Series B Subscription Agreements and the Lucid Series B Exchange Agreements, Lucid entered into subscription agreements with certain of the Lucid Series B Investors providing for the sale to such investors of 5,670 shares of Lucid Series A-1 Preferred Stock, at a purchase price of $1,000 per share, which shares the investors immediately agreed to exchange for shares of Lucid Series B Preferred Stock pursuant to the Lucid Series B Exchange Agreements (and are included in the 10,670 shares of Lucid Series A-1 Preferred Stock set forth above). Each share of the Lucid Series B Preferred Stock has a stated value of $1,000 and a conversion price of $1.2444. The terms of the Lucid Series B Preferred Stock also include a one times preference on liquidation and a right to receive dividends equal to 20% of the number of shares of Lucid common stock into which such Lucid Series B Preferred Stock is convertible, payable on the one-year and two-year anniversary of the issuance date. The holders of the Lucid Series B Preferred Stock also will be entitled to dividends equal, on an as-if-converted to shares of Lucid common stock basis, to and in the same form as dividends actually paid on shares of the Lucid common stock when, as, and if such dividends are paid on shares of the Lucid common stock. The Lucid Series B Preferred Stock is a voting security. The aggregate gross proceeds to Lucid of these transactions was $18.16 million (inclusive of $5.67 million of aggregate gross proceeds from the sale of the Lucid Series A-1 Preferred Stock that was immediately exchanged for Lucid Series B Preferred Stock in the transactions).
As a result of 100% of the then-outstanding shares of Lucid Series A Preferred Stock and Lucid Series A-1 Preferred Stock being exchanged for shares of Lucid Series B Preferred Stock in the Lucid Series B Offering and Exchange, no shares of Lucid Series A Preferred Stock or Lucid Series A-1 Preferred Stock remain outstanding.
On May 6, 2024, Lucid issued approximately 11,634 shares of newly designated Lucid Series B-1 Preferred Stock. The terms of the Lucid Series B-1 Preferred Stock are substantially identical to the terms of the Lucid Series B Preferred Stock, except that the Lucid Series B-1 Preferred Stock has a conversion price of $0.7228. The aggregate gross proceeds from the sale of shares in such offering were $11.6 million.
Lucid Diagnostics - Securities Purchase Agreement - March 13, 2023 - Senior Secured Convertible Note - March 21, 2023
Effective as of March 13, 2023, Lucid Diagnostics entered into a Securities Purchase Agreement (referred to as the “Lucid SPA”) with an accredited institutional investor, pursuant to which Lucid Diagnostics agreed to sell, and the investor agreed to purchase a Senior Convertible Note (referred to as the “Lucid March 2023 Senior Convertible Note”) with a face value principal of $11.1 million. Lucid Diagnostics issued the Lucid March 2023 Senior Convertible Note on March 21, 2023 pursuant to the Lucid SPA.
Under the Lucid March 2023 Senior Convertible Note, Lucid Diagnostics is 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. Under the Lucid March 2023 Senior Convertible Note, Lucid Diagnostics is also subject to financial covenants requiring that (i) the amount of its available cash equal or exceed $5.0 million at all times, (ii) the ratio of (a) the outstanding principal amount of the notes issued under the Lucid SPA, accrued and unpaid interest thereon and accrued and unpaid late charges, as of the last day of any fiscal quarter commencing with September 30, 2023, to (b) Lucid Diagnostics’ average market capitalization over the prior ten trading days, not exceed 30%, and (iii) that Lucid Diagnostics’ market capitalization shall at no time be less than $30 million (the “Lucid Financial Tests”). As of June 30, 2024, Lucid Diagnostics was in compliance with the Lucid Financial Tests. In addition, Lucid Diagnostics presently is in compliance with the Lucid Financial Tests.
PAVmed Inc. ATM Facility
In December 2021, we entered into an “at-the-market offering” for up to $50 million of our common stock that may be offered and sold under a Controlled Equity Offering Agreement between us and Cantor. In the six months ended June 30, 2024, the Company sold 333,299 shares through its at-the-market equity facility for net proceeds of approximately $0.7 million, after payment of 3% commissions. Subsequent to June 30, 2024, as of August 8, 2024, the Company sold 288,067 shares through their at-market equity facility for net proceeds of approximately $0.3 million after payment of 3% commissions.
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Liquidity and Capital Resources - continued
Lucid Diagnostics Inc. - Committed Equity Facility and ATM Facility
In March 2022, Lucid Diagnostics entered into a committed equity facility with a Cantor affiliate. Cumulatively, a total of 680,263 shares of Lucid Diagnostics’ common stock were issued for net proceeds of approximately $1.8 million, after a 4% discount, as of June 30, 2024.
In November 2022, Lucid Diagnostics also entered into an “at-the-market offering” for up to $6.5 million of its common stock that may be offered and sold under a Controlled Equity Offering Agreement between Lucid Diagnostics and Cantor. Cumulatively, a total of 230,068 shares of Lucid Diagnostics’ common stock were issued through its at-the-market equity facility for net proceeds of approximately $0.3 million, after payment of 3% commissions, as of June 30, 2024.
Critical Accounting Estimates
The discussion and analysis of our financial condition and 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 that affect the amounts reporting in our unaudited condensed consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgements. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other factors that are believed to be appropriate 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, 2023 as filed with the SEC on March 25, 2024. There have been no material changes to our critical accounting policies and estimates in the six months ended June 30, 2024.
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 June 30, 2024. 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 recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls 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 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 control 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 June 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Part II - Other Information
Item 1. Legal Proceedings
In the ordinary course of PAVmed business, particularly as it begins commercialization of its products, the Company may be subject to 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Except as previously disclosed in our current reports on Form 8-K filed prior to the date of this Form 10-Q and in Note 12, Preferred Stock, to our accompanying unaudited condensed consolidated financial statements, we did not sell any unregistered securities or repurchase any of our securities during the three months ended March 31, 2024. The offers and sales disclosed in Note 12, Preferred Stock, to our accompanying unaudited condensed consolidated financial statements were exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) of the Securities Act, as transactions not involving public offerings.
See Part I, Item 2 under the caption “Liquidity and Capital Resources” for a description of limitations on the payment of dividends.
Item 3. Defaults Upon Senior Securities
The information set forth in Part I, Item 2 under the caption “Liquidity and Capital Resources — Securities Purchase Agreement - March 31, 2022 - Senior Secured Convertible Notes - April 4, 2022 and September 8, 2022” is incorporated herein by reference.
Item 5. Other Information
During
the fiscal quarter ended June 30, 2024, none of our directors or officers (as defined in Rule 16a-1 under the Exchange Act)
Item 6. Exhibits
The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth in the “Exhibit Index” below.
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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 12, 2024 | By: | /s/ Dennis M McGrath |
| Dennis M McGrath | ||
| President and Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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EXHIBIT INDEX
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