0001493152-22-032037.txt : 20221114 0001493152-22-032037.hdr.sgml : 20221114 20221114161127 ACCESSION NUMBER: 0001493152-22-032037 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 81 CONFORMED PERIOD OF REPORT: 20220930 FILED AS OF DATE: 20221114 DATE AS OF CHANGE: 20221114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAVmed Inc. CENTRAL INDEX KEY: 0001624326 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 471214177 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-37685 FILM NUMBER: 221385341 BUSINESS ADDRESS: STREET 1: ONE GRAND CENTRAL PLACE STREET 2: SUITE 4600 CITY: NEW YORK STATE: NY ZIP: 10165 BUSINESS PHONE: 212-949-4319 MAIL ADDRESS: STREET 1: ONE GRAND CENTRAL PLACE STREET 2: SUITE 4600 CITY: NEW YORK STATE: NY ZIP: 10165 FORMER COMPANY: FORMER CONFORMED NAME: PAXmed Inc. DATE OF NAME CHANGE: 20141105 10-Q 1 form10-q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2022

 

OR

 

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

 

For the transition period from _____ to _____

 

Commission File Number: 001-37685

 

PAVMED INC.

(Exact Name of Registrant as Specified in Its Charter)

 

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

 

(212) 949-4319

(Registrant’s Telephone Number, Including Area Code)

 

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

 

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

 

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

 

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

 

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

 

Large Accelerated filer Accelerated filed
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

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

 

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

 

As of November 10, 2022, there were 93,704,719 shares of the registrant’s Common Stock, par value $0.001 per share, issued and outstanding (with such number of shares inclusive of shares of common stock underlying unvested restricted stock awards granted under the PAVmed Inc. 2014 Long-Term Incentive Equity Plan as of such date).

 

 

 

 
 

 

TABLE OF CONTENTS

 

  Page
  Part I - Financial Information  
     
Item 1. Financial Statements  
  Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2022 and December 31, 2021 1
  Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2022 and 2021 2
  Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (unaudited) for the three and nine months ended September 30, 2022 and 2021 3
  Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2022 and 2021 7
  Notes to Unaudited Condensed Consolidated Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29
Item 4. Controls and Procedures 40
     
  Part II - Other Information  
     
Item 1. Legal Proceedings 41
Item 5. Other Information 41
Item 6. Exhibits 41
  Signature 42
  Exhibit Index 43

 

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)

 

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

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

1

 

 

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

                 
   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2022   2021   2022   2021 
Revenue  $76   $200   $265   $200 
Operating expenses:                    
Cost of revenue   1,626    144    1,996    144 
Sales and marketing   4,736    2,293    13,559    5,555 
General and administrative   10,320    6,109    30,982    16,314 
Amortization of acquired intangible assets   505    17    1,278    23 
Research and development   6,202    5,305    18,873    12,878 
Total operating expenses   23,389    13,868    66,688    34,914 
Net loss from operations   (23,313)   (13,668)   (66,423)   (34,714)
Other income (expense):                    
Interest expense   (525)       (1,049)    
Change in fair value - Senior Secured Convertible Notes and Senior Convertible Note   261        (1,739)   1,682 
Loss on issue and offering costs - Senior Secured Convertible Note   (1,232)       (4,332)    
Debt extinguishments loss - Senior Secured Convertible Notes   (5,123)       (5,123)   (3,715)
Debt forgiveness               300 
Other income (expense), net   (6,619)       (12,243)   (1,733)
Loss before provision for income tax   (29,932)   (13,668)   (78,666)   (36,447)
Provision for income taxes                
Net loss before noncontrolling interests   (29,932)   (13,668)   (78,666)   (36,447)
Net loss attributable to the noncontrolling interests   3,806    1,441    10,143    3,318 
Net loss attributable to PAVmed Inc.   (26,126)   (12,227)   (68,523)   (33,129)
Less: Series B Convertible Preferred Stock dividends earned   (71)   (67)   (209)   (216)
Net loss attributable to PAVmed Inc. common stockholders  $(26,197)  $(12,294)  $(68,732)  $(33,345)
Per share information:                    
Net loss per share attributable to PAVmed Inc. - basic and diluted  $(0.29)  $(0.15)  $(0.78)  $(0.41)
Net loss per share attributable to PAVmed Inc. common stockholders – basic and diluted  $(0.29)  $(0.15)  $(0.78)  $(0.42)
Weighted average common shares outstanding, basic and diluted   89,758,927    83,307,170    87,724,124    79,873,583 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

2

 

 

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIT)

for the THREE MONTHS ENDED September 30, 2022

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

 

                                     
   PAVmed Inc. Stockholders’ Equity (Deficit)         
   Series B Convertible Preferred Stock   Common Stock   Additional Paid-In   Accumulated   Treasury   Non controlling    
   Shares   Amount   Shares   Amount   Capital   Deficit   Stock   Interest   Total 
                                     
Balance - June 30, 2022   1,158,950   $2,554    87,023,211   $87   $201,327   $(181,442)  $(548)  $19,426   $41,404 
Dividends declared - Series B Convertible Preferred Stock   23,196    70                (70)            
Conversions - Series B Convertible Preferred Stock   (45)       45                         
Conversions - Senior Secured Convertible Note           5,013,908    5    10,107                10,112 
Exercise - stock options of majority-owned subsidiary                               6    6 
Purchase - Employee Stock Purchase Plan                           140        140 
Purchase - majority-owned subsidiary common stock - Employee Stock Purchase Plan                               109    109 
Issuance - majority-owned subsidiary common stock - Committed Equity Facility, net of deferred financing charges                               1,767    1,767 
Impact of subsidiary equity transactions                   1,363            (1,363)    
Issuance - majority-owned subsidiary common stock - Settlement APA-RDx - Installment Payment                               186    186 
Stock-based compensation - PAVmed Inc.                   1,481                1,481 
Stock-based compensation - majority-owned subsidiary                               3,283    3,283 
Treasury stock           191,698                         
Net loss                       (26,126)       (3,806)   (29,932)
Balance - September 30, 2022   1,182,101   $2,624    92,228,862   $92   $214,278   $(207,638)  $(408)  $19,608   $28,556 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

3

 

 

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIT)

for the NINE MONTHS ENDED September 30, 2022

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

 

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

1

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

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

4

 

 

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIT)

for the THREE MONTHS ENDED September 30, 2021

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

 

                                 
   PAVmed Inc. Stockholders’ Equity (Deficit)         
   Series B Convertible Preferred Stock   Common Stock   Additional Paid-In   Accumulated   Non controlling     
   Shares   Amount   Shares   Amount   Capital   Deficit   Interest   Total 
                                 
Balance - June 30, 2021   1,185,685   $2,499    82,576,816   $83   $149,694   $(109,325)  $(911)  $42,040 
Dividends declared - Series B Convertible Preferred Stock   24,577    73                (73)        
Conversions - Series B Convertible Preferred Stock   (118,814)   (220)   118,814        220             
Exercise - Series Z warrants           1,186,467    1    1,897            1,898 
Exercise - Series W warrants           3,945        20            20 
Exercise - stock options           483,668        823            823 
Purchase - Employee Stock Purchase Plan           31,112        131            131 
Stock-based compensation - PAVmed Inc.                   1,218            1,218 
Stock-based compensation - majority-owned subsidiary                   56        2,716    2,772 
Net loss                       (12,227)   (1,441)   (13,668)
Balance - September 30, 2021   1,091,448   $2,352    84,400,822   $84   $154,059   $(121,625)  $364   $35,234 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

5

 

 

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIT)

for the NINE MONTHS ENDED September 30, 2021

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

 

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

 

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)

 

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

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

7

 

 

PAVMED INC.

and SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in these accompanying notes are presented in thousands, except number of shares and per-share amounts.)

 

Note 1 — The Company

 

Description of the Business

 

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

 

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

 

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

 

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

 

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

 

Note 2 — 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, 2021 as filed with the SEC on April 6, 2022, except as otherwise noted herein below.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of PAVmed Inc. and Subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and applicable rules and regulations of the United States Securities and Exchange Commission (“SEC”), and include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company holds a majority-ownership interest and has controlling financial interest in each of: Lucid Diagnostics Inc., Veris Health Inc., and Solys Diagnostics Inc., with the corresponding noncontrolling interest included as a separate component of consolidated stockholders’ equity (deficit), including the recognition in the unaudited condensed consolidated statement of operations of a net loss attributable to the noncontrolling interest based on the respective minority-interest equity ownership of each majority-owned subsidiary. See Note 15, Noncontrolling Interest, for a discussion of each of the majority-owned subsidiaries noted above. The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions.

 

As permitted under SEC rules, certain footnotes or other financial information normally required by U.S. GAAP have been condensed or omitted. The balance sheet as of December 31, 2021 has been derived from audited consolidated financial statements at such date. The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements, and in the opinion of management, include all adjustments, consisting only of routine recurring adjustments, necessary for a fair presentation of the Company’s unaudited condensed consolidated financial information.

 

8

 

 

Note 2 — Summary of Significant Accounting Policies - continued

 

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

 

All amounts in the accompanying unaudited condensed consolidated financial statements and these notes thereto are presented in thousands of dollars, if not otherwise noted as being presented in millions of dollars, except for shares and per share amounts.

 

Reclassifications

 

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

 

Use of Estimates

 

In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and the determination of corresponding carrying value reserve, if any, and liabilities and the disclosure of contingent losses, as of the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Significant estimates in these unaudited 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.

 

Leases

 

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

 

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

 

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

 

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

 

Certain leases may include options to extend or terminate the agreement. The Company does not assume renewals in determination of the lease term unless the renewals are deemed to be reasonably certain at lease commencement. As well, an option to terminate is considered unless it is reasonably certain the Company will not exercise the option. The Company elected the practical expedient to not recognize a lease ROU asset and lease payment liability for leases with a term of twelve months or less (“short-term leases”), resulting in the aggregate lease payments being recognized on a straight line basis over the lease term. The Company’s leases with a commencement date prior to January 1, 2022 were short-term leases and therefore did not require recording a ROU asset or lease liability at December 31, 2021. Additionally, the Company elected the practical expedient to not separate lease and non-lease components.

 

9

 

 

Note 2 — 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, Derivative and Hedging, (“ASC 815”), a financial instrument containing embedded features and /or options may be required to be bifurcated from the financial instrument host and recognized as separate derivative asset or liability, with the bifurcated derivative asset or liability initially measured at estimated fair value as of the transaction issue date and then subsequently remeasured at estimated fair value as of each reporting period balance sheet date.

 

Alternatively, FASB ASC Topic 825, Financial Instruments, (“ASC 825”) provides for the “fair value option” (“FVO”) election. In this regard, ASC 825-10-15-4 provides for the FVO election (to the extent not otherwise prohibited by ASC 825-10-15-5) to be afforded to financial instruments, wherein the financial instrument is initially measured at estimated fair value as of the transaction issue date and then subsequently remeasured at estimated fair value as of each reporting period balance sheet date, with changes in the estimated fair value recognized as other income (expense) in the statement of operations. The estimated fair value adjustment of the April 2022 Senior Convertible Note is presented in a single line item within other income (expense) in the accompanying unaudited condensed consolidated statement of operations (as provided for by ASC 825-10-50-30(b)). Further, as required by ASC 825-10-45-5, to the extent a portion of the fair value adjustment is attributed to a change in the instrument-specific credit risk, such portion would be recognized as a component of other comprehensive income (“OCI”) (for which there was no such adjustment with respect to the April 2022 Senior Convertible Note or the September 2022 Senior Convertible Note).

 

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

 

Revenue Recognition

 

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

 

The key aspects considered by the Company include the following:

 

Contracts—The Company’s customer is primarily the patient, but the Company does not enter into a formal reimbursement contract with a patient. The Company establishes a contract with a patient in accordance with other customary business practices, which is the point in time an order is received from a provider and a patient specimen has been returned to the laboratory for testing. Payment terms are a function of a patient’s existing insurance benefits, including the impact of coverage decisions with Center for Medicare & Medicaid Services (“CMS”) and applicable reimbursement contracts established between the Company and payers. However, when a patient is considered self-pay, the Company requires payment from the patient prior to the commencement of the Company’s performance obligations. The Company’s consideration can be deemed variable or fixed depending on the structure of specific payer contracts, and the Company considers collection of such consideration to be probable to the extent that it is unconstrained.

 

Performance obligations—A performance obligation is a promise in a contract to transfer a distinct good or service (or a bundle of goods or services) to the customer. The Company’s contracts have a single performance obligation, which is satisfied upon rendering of services, which culminates in the release of a patient’s test result to the ordering healthcare provider. The Company elects the practical expedient related to the disclosure of unsatisfied performance obligations, as the duration of time between providing testing supplies, the receipt of a sample, and the release of a test result to the ordering healthcare provider is far less than one year.

 

10

 

 

Note 2 — Summary of Significant Accounting Policies - continued

 

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

 

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

 

When the Company does not have significant historical experience or that experience has limited predictive value, the constraint over estimates of variable consideration may result in no revenue being recognized upon delivery of patient EsoGuard test results to the ordering healthcare provider. As such, the Company recognizes revenue up to the amount of variable consideration not subject to a significant reversal until additional information is obtained or the uncertainty associated with additional payments or refunds, if any, is subsequently resolved. Differences between original estimates and subsequent revisions, including final settlements, represent changes in estimated expected variable consideration, with the change in estimate recognized in the period of such revised estimate. With respect to a contracted service arrangement, the fixed consideration revenue is recognized on an as-billed basis upon delivery of the laboratory test report with realization of such fixed consideration deemed probable based upon actual historical experience.

 

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

 

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

 

Note 3 — Revenue from Contracts with Customers

 

EsoGuard Commercialization Agreement

 

The Company, through its majority-owned subsidiary, Lucid Diagnostics Inc., entered into the EsoGuard Commercialization Agreement, dated August 1, 2021, with its former commercial laboratory service provider, ResearchDx Inc. (“RDx”), an unrelated third-party. The EsoGuard Commercialization Agreement was on a month-to-month basis, and was terminated on February 25, 2022 upon the execution of an asset purchase agreement (“APA”) dated February 25, 2022, between LucidDx Labs Inc. (a wholly-owned subsidiary of Lucid Diagnostics Inc.) and RDx, with such agreement further discussed in Note 5, Asset Purchase Agreement and Management Services Agreement.

 

Revenue Recognized

 

In the three months and nine months ended September 30, 2022, the Company recognized total revenue of $76 and $265, respectively. For the three month period ended September 30, 2022, the Company recognized revenue resulting from the delivery of patient EsoGuard test results .. Revenue recognized from customer contracts deemed to include a variable consideration transaction price is limited to the unconstrained portion of the variable consideration as the Company did not estimate expected variable consideration given the lack of historical experience and objective reliable actual reimbursement data. In addition to the revenue recognized during the three month period ended September 30, 2022, the Company’s revenue for the nine month period ended September 30, 2022 includes $189 of revenue recognized under the EsoGuard Commercialization Agreement, which represented the minimum fixed monthly fee of $100 for the period January 1, 2022 to the February 25, 2022 termination date as discussed above. The monthly fee was deemed to be collectible for such period as RDx has timely paid the applicable respective monthly fee. In the three and nine months ended September 30, 2021, the Company recognized total revenue of $200 and $200, respectively, under the EsoGuard Commercialization Agreement.

 

Cost of Revenue

 

The cost of 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 months ended September 30, 2022, the cost of revenue was $1,626 and was primarily related to costs for our laboratory operations and EsoCheck device supplies. For the nine months ended September 30, 2022, the cost of revenue was $1,996, including $369 reflecting costs attributable to delivering the services under the EsoGuard Commercialization Agreement for the period January 1, 2022 to February 25, 2022. In the three and nine months ended September 30, 2021, the cost of revenue was $144 and $144, respectively, which solely related to the EsoGuard Commercialization Agreement.

 

11

 

 

Note 4 — Related Party Transactions

 

Case Western Reserve University and Physician Inventors - Amended CWRU License Agreement

 

Case Western Reserve University (“CWRU”) and each of the three physician inventors (“Physician Inventors”) of the intellectual property licensed under the amended and restated patent license agreement with CWRU, dated August 23, 2021 (the “Amended CWRU License Agreement”), each hold a minority equity ownership interest in Lucid Diagnostics Inc. The expenses incurred with respect to the Amended CWRU License Agreement and the three Physician Inventors, as classified in the accompanying consolidated statement of operations for the periods indicated are summarized as follows:

 

                     
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

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

 

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