NOTES
TO 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”).
PAVmed is a diversified commercial-stage
medical technology company operating in the medical device, diagnostics, and digital health sectors, including through its majority-owned
subsidiaries Lucid Diagnostics, a commercial-stage cancer prevention diagnostics company, and Veris Health, a private digital health company
focused on enhanced personalized cancer care. The Company’s current central focus is on the commercialization of Lucid’s EsoGuard
assay and Veris Health’s Veris Cancer Care Platform. As resources permit, we will continue to explore internal and external innovations
that fulfill our project selection criteria without limiting ourselves to any target specialty or condition.
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
for one year from the date of the issue of the Company’s consolidated financial statements included herein in the Company’s
Quarterly Report on Form 10-Q for the period ended March 31, 2023.
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, 2022 as filed with the SEC on March 14, 2023, except as otherwise noted herein below.
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements of PAVmed and its subsidiaries have been prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S. GAAP”), and applicable rules and regulations
of the United States Securities and Exchange Commission (“SEC”), and include the accounts of the Company and its wholly-owned
and majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company holds
a majority-ownership interest and has controlling financial interest in each of: Lucid Diagnostics and Veris Health, with the corresponding
noncontrolling interest included as a separate component of consolidated stockholders’ equity (deficit), including the recognition
in the unaudited condensed consolidated statement of operations of a net loss attributable to the noncontrolling interest based on the
respective minority-interest equity ownership of each majority-owned subsidiary. See Note 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, 2022 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.
Note
2 — Summary of Significant Accounting Policies - continued
The
consolidated results of operations for the three months ended March 31, 2023 are not necessarily indicative of the consolidated results
to be expected for the year ending December 31, 2023 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, 2022 included in the Company’s Annual Report on Form 10-K as filed with the SEC on March 14, 2023.
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.
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.
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.
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.
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 are 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 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, 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.
Recently
Adopted Accounting Pronouncements
In
June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic In June
2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments. The updated guidance requires companies to measure all expected credit losses for financial
instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This
replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets, including trade receivables.
The guidance was adopted by the Company on January 1, 2023. The adoption of the ASU did not have an impact on the Company’s unaudited
condensed consolidated financial statements.
Note
3 — Revenue from Contracts with Customers
EsoGuard
Commercialization Agreement
The
Company, through its majority-owned subsidiary, Lucid Diagnostics, 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) and
RDx, with such agreement further discussed in Note 5, Asset Purchase Agreement and Management Services Agreement.
Revenue
Recognized
In
the three months ended March 31, 2023 and March 31, 2022, the Company recognized total revenue of $446 and $189, respectively. In
the three months ended March 31, 2023 the Company recognized revenue of $446, resulting from the delivery of patient EsoGuard test
results. Revenue recognized from customer contracts deemed to include a variable consideration transaction price is limited to the unconstrained
portion of the variable consideration. The Company’s revenue for the three months ended March 31, 2022 was $189, which solely reflects
the 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.
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 March 31, 2023, the cost of revenue was $1,346 and was primarily related to costs for our laboratory operations
and EsoCheck device supplies. The Company’s cost of revenue for the three months ended March 31, 2022 was $369, which solely reflects
the costs attributable to delivering the services under the EsoGuard Commercialization Agreement for the period January 1, 2022 to February
25, 2022.
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 unaudited condensed consolidated
statement of operations for the periods indicated are summarized as follows:
Schedule
of Incurred Expenses of Minority Shareholders
| |
2023 | | |
2022 | |
| |
Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Cost of Revenue | |
| | | |
| | |
CWRU – Royalty Fees | |
$ | 24 | | |
$ | 9 | |
| |
| | | |
| | |
General and Administrative Expense | |
| | | |
| | |
Stock-based compensation expense – Physician Inventors’ restricted stock awards | |
| 180 | | |
| 272 | |
| |
| | | |
| | |
Research and Development Expense | |
| | | |
| | |
Amended CWRU – License Agreement - reimbursement of patent legal fees | |
| 389 | | |
| — | |
Fees - Physician Inventors’ consulting agreements | |
| 1 | | |
| 8 | |
Sponsored research agreement | |
| — | | |
| 3 | |
Stock-based compensation expense – Physician Inventors’ stock options | |
| 52 | | |
| 46 | |
Total Related Party Expenses | |
$ | 646 | | |
$ | 338 | |
Note
4 — Related Party Transactions - continued
See
Note 12, Stock-Based Compensation, for information regarding each of the “PAVmed Inc. 2014 Long-Term Incentive Equity Plan”
and the separate “Lucid Diagnostics Inc 2018 Long-Term Incentive Equity Plan”; and Note 15, Noncontrolling Interest,
for a discussion of Lucid Diagnostics Inc. and the corresponding noncontrolling interests.
Other
Related Party Transactions
Effective
June 2021, Veris Health entered into a consulting agreement with Andrew Thoreson, M.D. which provides for compensation on a contractual
rate per hour for consulting services provided. Dr. Thoreson holds a partial ownership interest in the legal entity which holds a minority
interest in Veris Health. Veris Health recognized general and administrative expense of $5 and $25 in the three months ended March 31,
2023 and 2022, respectively, in connection with the consulting agreement.
Note
5 — Asset Purchase Agreement and Management Services Agreement
Asset
Purchase Agreement and Management Services Agreement - ResearchDx Inc.
LucidDx
Labs, a wholly-owned subsidiary of Lucid Diagnostics, entered into an asset purchase agreement (“APA”) dated February
25, 2022, with ResearchDx, Inc. (“RDx”), an unrelated third-party (“APA-RDx”). Under the APA-RDx, LucidDx
Labs acquired certain assets from RDx which were combined with LucidDx Labs purchased and leased property and equipment to establish
a Company-owned Commercial Lab Improvements Act (“CLIA”) certified, College of American Pathologists (“CAP”)
accredited commercial clinical laboratory capable of performing the EsoGuard® Esophageal DNA assay, inclusive of DNA extraction,
next generation sequencing (“NGS”) and specimen storage. Prior to February 25, 2022, RDx provided such laboratory
services at its owned CLIA-certified, CAP-accredited clinical laboratory. In connection with the execution and delivery of the
APA-RDx, LucidDx Labs and RDx entered into a separate management services agreement (“MSA-RDx”), dated and
effective February 25, 2022, pursuant to which RDx provided certain testing and related services for the Laboratory.
The
total purchase price consideration payable under the APA-RDx is a face value of $3,200 comprised of three contractually specified periodic
payments. The APA-RDx is being accounted for as an asset acquisition, with the recognition of an intangible asset of approximately $3,200,
which is included in “Intangible assets, net” on the accompanying unaudited condensed consolidated balance sheet, as further
discussed in Note 8, Intangible Assets, net.
Termination
of Management Services Agreement and Modification of Other Payment Obligations - ResearchDx Inc
On
February 14, 2023, Lucid Diagnostics and LucidDx Labs entered into an agreement (the “MSA Termination Agreement”) with RDx,
pursuant to which the parties mutually agreed to terminate the MSA-RDx without cause. The termination
was effective as February 10, 2023. Until the termination of the management service agreement with RDx, RDx had continued to provide
certain testing and related services for the Laboratory in accordance with the terms of the MSA-RDx.
The
MSA Termination Agreement reduces the remaining amounts of the earnout payments and management fees due under the APA-RDx and the MSA-RDx to $713. The payment was satisfied through the issuance of 553,436 shares of Lucid Diagnostics’ common
stock in February 2023. Lucid Diagnostics was not required to make any cash payments in connection with the termination.
Note
6 — Prepaid Expenses, Deposits, and Other Current Assets
Prepaid
expenses and other current assets consisted of the following as of:
Schedule
of Prepaid Expenses and Other Current Assets
| |
March 31, 2023 | | |
December 31, 2022 | |
Advanced payments to service providers and suppliers | |
$ | 582 | | |
$ | 599 | |
Prepaid insurance | |
| 233 | | |
| 300 | |
Deposits | |
| 3,530 | | |
| 3,005 | |
EsoCheck cell collection supplies | |
| 27 | | |
| 59 | |
EsoGuard mailer supplies | |
| 35 | | |
| 52 | |
Veris Box supplies | |
| 127 | | |
| 150 | |
Total prepaid expenses, deposits and other current assets | |
$ | 4,534 | | |
$ | 4,165 | |
Note
7 — Leases
During
the three months ended March 31, 2023, the Company entered into additional lease agreements that have commenced and are classified
as operating leases and short-term leases, including for each of: principal corporate offices and additional Lucid Test Centers.
The
Company’s future lease payments as of March 31, 2023, which are presented as operating lease liabilities, current portion
and operating lease liabilities, less current portion on the Company’s unaudited condensed consolidated balance sheets are as follows:
Schedule of Future Lease Payments
| |
| | |
2023 (remainder of year) | |
$ | 1,165 | |
2024 | |
| 1,762 | |
2025 | |
| 773 | |
2026 | |
| 724 | |
2027 | |
| 594 | |
Thereafter | |
| 1,319 | |
Total lease payments | |
$ | 6,337 | |
Less: imputed interest | |
| (1,137 | ) |
Present value of lease liabilities | |
$ | 5,200 | |
Supplemental
disclosure of cash flow information related to the Company’s cash and non-cash activities with its leases are as follows:
Schedule of Supplemental Cash Flow Information Related to Cash and Non-cash Activities with Leases
| |
2023 | | |
2022 | |
| |
Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Cash paid for amounts included in the measurement of lease liabilities | |
| | | |
| | |
Operating cash flows from operating leases | |
$ | 346 | | |
$ | 224 | |
Non-cash investing and financing activities | |
| | | |
| | |
Right-of-use assets obtained in exchange for new operating lease liabilities | |
$ | 2,473 | | |
$ | 3,151 | |
Weighted-average remaining lease term - operating leases (in years) | |
| 4.84 | | |
| 3.32 | |
Weighted-average discount rate - operating leases | |
| 7.875 | % | |
| 7.875 | % |
As
of March 31, 2023 and December 31, 2022, the Company’s right-of-use assets from operating leases were $5,171 and $3,037, respectively,
which are reported in operating lease right-of-use assets in the unaudited condensed consolidated balance sheets. As of March 31,
2023 and December 31, 2022, the Company had outstanding operating lease obligations of $5,200 and $2,987, respectively, of which $1,264
and $1,141, respectively, are reported in operating lease liabilities, current portion and $3,936 and $1,846, respectively, are reported
in operating lease liabilities less current portion in the Company’s unaudited condensed consolidated balance sheets. The Company
calculates its incremental borrowing rates for specific lease terms, used to discount future lease payments, as a function of the financing
terms the Company would likely receive on the open market.
In
September 2022, the Company entered into a lease agreement for its principal corporate offices, in New York, New York. The lease agreement
term is from the September 15, 2022 execution date to the date which is seven years and eight months from the lease commencement date,
with the rent abated for the first eight months of the lease term. The lease commenced on February 1, 2023. The aggregate (undiscounted)
rent payments are approximately $3.2 million over the lease term.
Note
8 — Intangible Assets, net
Intangible
assets, less accumulated amortization, consisted of the following as of:
Schedule
of Intangible Assets, Less Accumulated Amortization
| |
Estimated Useful Life | |
March 31,
2023 | | |
December 31,
2022 | |
Defensive asset | |
60 months | |
$ | 2,105 | | |
$ | 2,105 | |
Laboratory licenses and certifications and laboratory information management software | |
24 months | |
| 3,200 | | |
| 3,200 | |
Other | |
1 year | |
| 70 | | |
| 70 | |
Total Intangible assets | |
| |
| 5,375 | | |
| 5,375 | |
Less Accumulated Amortization | |
| |
| (2,435 | ) | |
| (1,930 | ) |
Intangible Assets, net | |
| |
$ | 2,940 | | |
$ | 3,445 | |
The
defensive technology intangible asset was recognized upon its acquisition of CapNostics, an unrelated third-party, for total purchase
consideration paid on the October 5, 2021 acquisition date of approximately $2.1 million in cash. The CapNostics transaction was accounted
for as an asset acquisition, resulting in the recognition of the defensive technology intangible asset. The defensive technology intangible
asset is being amortized on a straight-line basis over an expected useful life 60 months commencing on the acquisition date.
The
intangible assets recognized under the APA-RDx are the laboratory licenses and certifications, inclusive of a CLIA certification, CAP
accreditation, and clinical laboratory licenses for five (5) U.S. States transfer to the Company from RDx, and a laboratory information
management software perpetual-use royalty-free license granted under the APA-RDx, with such intangible asset having a useful life of
twenty-four months commencing on the APA-RDx February 25, 2022 transaction date.
Amortization
expense of the intangible assets discussed above was $505 and $123 for the periods ended March 31, 2023 and 2022, respectively,
and is included in amortization of acquired intangible assets in the accompanying unaudited condensed consolidated statements of operations.
As of March 31, 2023, the estimated future amortization expense associated with the Company’s finite-lived intangible assets
for each of the five succeeding fiscal years is as follows:
Schedule of Estimated Amortization Expense for Intangible Assets
| |
| | |
2023 (remainder of year) | |
$ | 1,516 | |
2024 | |
| 688 | |
2025 | |
| 421 | |
2026 | |
| 315 | |
Total | |
$ | 2,940 | |
Note
9 — 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 does not believe it is currently a party to any pending legal proceedings. Notwithstanding, legal proceedings
are subject-to inherent uncertainties, and an unfavorable outcome could include monetary damages, and excessive verdicts can result from
litigation, and as such, could result in a material adverse impact on the Company’s business, financial position, results of operations,
and /or cash flows. Additionally, although the Company has specific insurance for certain potential risks, the Company may in the future
incur judgments or enter into settlements of claims which may have a material adverse impact on the Company’s business, financial
position, results of operations, and /or cash flows.
Note
10 — Financial Instruments Fair Value Measurements
Recurring
Fair Value Measurements
The
fair value hierarchy table for the periods indicated is as follows:
Schedule of Financial Liabilities Measured at Fair Value on Recurring Basis
| |
Fair Value Measurement on a Recurring Basis at Reporting
Date
Using1 | |
| |
Level-1 Inputs | | |
Level-2 Inputs | | |
Level-3 Inputs | | |
Total | |
March 31, 2023 | |
| | | |
| | | |
| | | |
| | |
Senior Secured Convertible Note - April 2022 | |
$ | — | | |
$ | — | | |
$ | 20,750 | | |
$ | 20,750 | |
Senior Secured Convertible Note - September 2022 | |
| — | | |
| — | | |
| 11,650 | | |
| 11,650 | |
Lucid Senior Secured Convertible Note - March 2023 | |
| — | | |
| — | | |
| 11,900 | | |
| 11,900 | |
Totals | |
$ | — | | |
$ | — | | |
$ | 44,300 | | |
$ | 44,300 | |
| |
Level-1 Inputs | | |
Level-2 Inputs | | |
Level-3 Inputs | | |
Total | |
December 31, 2022 | |
| | | |
| | | |
| | | |
| | |
Senior Secured Convertible Note - April 2022 | |
$ | — | | |
$ | — | | |
$ | 22,000 | | |
$ | 22,000 | |
Senior Secured Convertible Note - September 2022 | |
| — | | |
| — | | |
| 11,650 | | |
| 11,650 | |
Totals | |
$ | — | | |
$ | — | | |
$ | 33,650 | | |
$ | 33,650 | |
1 There were no transfers between the respective
Levels during the period ended March 31, 2023.
As
discussed in Note 11, Debt, the Company issued Senior Secured Convertible Notes dated April 4, 2022 and September 8, 2022, with
an initial $27.5 million face value principal (“April 2022 Senior Convertible Note”) and an initial $11.25 million face value
principal (“September 2022 Senior Convertible Note”), respectively. Both convertible notes are accounted for under the ASC
825-10-15-4 fair value option (“FVO”) election, wherein, the financial instrument is initially measured at its issue-date
estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date.
As
discussed in Note 11, Debt, Lucid Diagnostics issued a Senior Secured Convertible Note dated March 21, 2023, with an initial $11.1
million face value principal (“Lucid March 2023 Senior Convertible Note”). This convertible note is also accounted for under
the ASC 825-10-15-4 fair value option (“FVO”) election, wherein, the financial instrument is initially measured at its issue-date
estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date.
The
estimated fair value of the financial instruments classified within the Level 3 category was determined using both observable inputs
and unobservable inputs. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair
value attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-
dated volatilities) inputs.
The
estimated fair value of the Lucid March 2023 Senior Convertible Note as of each of March 21, 2023 and March 31, 2023, and the
estimated fair value of the April 2022 Senior Convertible Note and the September 2022 Senior Convertible Note as of March 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:
Schedule of Fair Value Assumption Used
| |
April 2022 Senior Convertible Note: March 31, 2023 | | |
September 2022 Senior Convertible Note: March 31, 2023 | | |
Lucid March 2023 Senior Convertible Note: March 21, 2023 | | |
Lucid March 2023 Senior Convertible Note: March 31, 2023 | |
Fair Value | |
$ | 20,750 | | |
$ | 11,650 | | |
$ | 11,900 | | |
$ | 11,900 | |
Face value principal payable | |
$ | 20,162 | | |
$ | 11,250 | | |
$ | 11,111 | | |
$ | 11,111 | |
Required rate of return | |
| 11.500 | % | |
| 11.000 | % | |
| 11.00 | % | |
| 11.00 | % |
Conversion Price | |
$ | 5.00 | | |
$ | 5.00 | | |
$ | 5.00 | | |
$ | 5.00 | |
Value of common stock | |
$ | 0.37 | | |
$ | 0.37 | | |
$ | 1.54 | | |
$ | 1.40 | |
Expected term (years) | |
| 0.62 | | |
| 1.44 | | |
| 2.00 | | |
| 1.98 | |
Volatility | |
| 180.00 | % | |
| 180.00 | % | |
| 75.00 | % | |
| 75.00 | % |
Risk free rate | |
| 4.75 | % | |
| 4.29 | % | |
| 4.09 | % | |
| 3.99 | % |
Dividend yield | |
| — | % | |
| — | % | |
| — | % | |
| — | % |
Note
10 — Financial Instruments Fair Value Measurements - continued
The
estimated fair values reported utilized the Company’s and Lucid’s common stock prices along with certain Level 3 inputs
(as discussed in the table 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 Company’s and Lucid’s common stock prices, the Company’s and Lucid’s
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 Company’s and Lucid’s common stock prices. Changes in these
assumptions can materially affect the estimated fair values.
Note
11 — Debt
The
fair value and face value principal outstanding of the Senior Convertible Notes as of the dates indicated are as follows:
Summary of Outstanding Debt
| |
Contractual Maturity Date | |
Stated Interest Rate | | |
Conversion Price per Share | | |
Face Value Principal Outstanding | | |
Fair Value | |
April 2022 Senior Convertible Note | |
April 4, 2024 | |
| 7.875 | % | |
$ | 5.00 | | |
$ | 20,162 | | |
$ | 20,750 | |
September 2022 Senior Convertible Note | |
September 6, 2024 | |
| 7.875 | % | |
$ | 5.00 | | |
$ | 11,250 | | |
$ | 11,650 | |
Lucid March 2023 Senior Convertible Note | |
March 21, 2025 | |
| 7.875 | % | |
$ | 5.00 | | |
$ | 11,111 | | |
$ | 11,900 | |
Balance as of March 31, 2023 | |
| |
| | | |
| | | |
$ | 42,523 | | |
$ | 44,300 | |
| |
Contractual Maturity Date | |
Stated Interest Rate | | |
Conversion Price per Share | | |
Face Value Principal Outstanding | | |
Fair Value | |
April 2022 Senior Convertible Note | |
April 4, 2024 | |
| 7.875 | % | |
$ | 5.00 | | |
$ | 21,497 | | |
$ | 22,000 | |
September 2022 Senior Convertible Note | |
September 6, 2024 | |
| 7.875 | % | |
$ | 5.00 | | |
$ | 11,250 | | |
$ | 11,650 | |
Balance as of December 31, 2022 | |
| |
| | | |
| | | |
$ | 32,747 | | |
$ | 33,650 | |
The
changes in the fair value of debt during the three months ended March 31, 2023 is as follows:
Schedule of Changes in Fair Value Of Debt
| |
April 2022 Senior Convertible Note | | |
September 2022 Senior Convertible Note | | |
Lucid March 2023 Senior Convertible Note | | |
Sum of Balance Sheet Fair Value Components | | |
Other Income (expense) | |
Fair Value - December 31, 2022 | |
$ | 22,000 | | |
$ | 11,650 | | |
$ | — | | |
$ | 33,650 | | |
$ | — | |
Fair Value Beginning Balance | |
$ | 22,000 | | |
$ | 11,650 | | |
$ | — | | |
$ | 33,650 | | |
$ | — | |
Face value principal – issue date | |
| — | | |
| — | | |
| 11,111 | | |
| 11,111 | | |
| — | |
Fair value adjustment – issue date | |
| — | | |
| — | | |
| 789 | | |
| 789 | | |
| (789 | ) |
Installment repayments – common stock | |
| (1,335 | ) | |
| — | | |
| — | | |
| (1,335 | ) | |
| — | |
Non-installment payments – common stock | |
| (166 | ) | |
| — | | |
| — | | |
| (166 | ) | |
| — | |
Change in fair value | |
| 251 | | |
| — | | |
| — | | |
| 251 | | |
| (251 | ) |
Fair Value at March 31, 2023 | |
$ | 20,750 | | |
$ | 11,650 | | |
$ | 11,900 | | |
$ | 44,300 | | |
| - | |
Fair Value Ending Balance | |
$ | 20,750 | | |
$ | 11,650 | | |
$ | 11,900 | | |
$ | 44,300 | | |
| - | |
Other Income (Expense) - Change in fair value – three months ended March 31, 2023 | |
| | | |
| | | |
| | | |
| | | |
$ | (1,040 | ) |
PAVmed
- Senior Secured Convertible Notes
The
Company entered into a Securities Purchase Agreement (“SPA”) dated March 31, 2022, with an accredited institutional investor
(“Investor”, “Lender”, and /or “Holder”), wherein, the Company agreed to sell, and the Investor agreed
to purchase an aggregate of $50.0 million face value principal of debt - comprised of: an initial issuance of $27.5 million face value
principal; and up to an additional $22.5 million of face value principal (upon the satisfaction of certain conditions). The debt was
issued in a registered direct offering under the Company’s effective shelf registration statement.
Under
the SPA, the Company issued a Senior Secured Convertible Note dated April 4, 2022, referred to herein as the “April 2022 Senior
Convertible Note”, with such note having a $27.5 million face value principal, a 7.875% annual stated interest rate, a contractual
conversion price of $5.00 per share of the Company’s common stock (subject to standard adjustments in the event of any stock split,
stock dividend, stock combination, recapitalization or other similar transaction), and a contractual maturity date of April 4, 2024.
The April 2022 Senior Convertible Note may be converted into shares of common stock of the Company at the Holder’s election.
Note 11 —
Debt - continued
Under
the same SPA, the Company issued an additional Senior Secured Convertible Note dated September 8, 2022, referred to herein as the “September
2022 Senior Convertible Note”, with such note having a $11.25 million face value principal, a 7.875% annual stated interest rate,
a contractual conversion price of $5.00 per share of the Company’s common stock (subject to standard adjustments in the event of
any stock split, stock dividend, stock combination, recapitalization or other similar transaction), and a contractual maturity date of
September 6, 2024. The September 2022 Senior Convertible Note may be converted into shares of common stock of the Company at the Holder’s
election.
The
Company is subject to financial covenants requiring: (i) a minimum of $8.0 million of available cash at all times; (ii) the ratio of
(a) the outstanding principal amount of the total senior convertible notes outstanding, accrued and unpaid interest thereon and accrued
and unpaid late charges to (b) the Company’s average market capitalization over the prior ten trading days, to not exceed 30% (except
that such maximum percentage was 50% for the period from September 8, 2022 through March 5, 2023) (the “Debt to Market Cap Ratio
Test”); and (iii) the Company’s market capitalization to at no time be less than $75 million. (the “Market Cap Test”
and, together with the Debt to Market Cap Ratio Test, the “Financial Tests”). From time to time from and after September
8, 2022 through March 12, 2023, the Company was not in compliance with the Financial Tests. As of March 12, 2023, the Investor agreed
to waive any such non-compliance during such time period and thereafter through May 31, 2023.
In
the three months ended March 31, 2023, approximately $1,501 of principal repayments along with approximately $15 of interest expense thereon,
were settled through the issuance of 4,330,643 shares of common stock of the Company, with such shares having a fair value of approximately
$2,027 (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 $0.5 million in the three months ended March 31, 2023. Subsequent to March 31,
2023, as of May 11, 2023, approximately $649 of principal repayments along with approximately $13 of interest expense
thereon, were settled through the issuance of 2,183,089 shares of common stock of the Company, with such shares having a fair value of
approximately $1,081 (with such fair value measured as the respective conversion date quoted closing price of the common stock of
the Company).
Lucid
Diagnostics - Senior Secured Convertible Notes
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 $11.1 million face value principal of debt. The debt was issued in a registered direct offering under
the Lucid’s effective shelf registration statement.
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 $11.1 million face value principal, a 7.875% annual stated interest
rate, a contractual conversion price of $5.00 per share of Lucid’s common stock (subject to standard adjustments in the event
of any stock split, stock dividend, stock combination, recapitalization or other similar transaction), and a contractual maturity date
of March 21, 2025. The Lucid March 2023 Senior Convertible Note may be converted into shares of common stock of Lucid at the Holder’s
election.
The
Lucid March 2023 Senior Convertible Note proceeds were $9.925 million after deducting a $1.186 million lender fee and offering costs.
The lender fee and offering costs were recognized as of the March 21, 2023 issue date as a current period expense in other income (expense)
in the Company’s unaudited condensed consolidated statement of operations.
During
the period from March 21, 2023 to September 20, 2023, Lucid is required to pay interest expense only (on the $11.1 million face value
principal), at 7.875% per annum, computed on a 360 day year. Lucid paid in cash interest expense of $24 for the three months ended
March 31, 2023.
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 March 21, 2025 maturity date, Lucid will be
required to make a principal repayment of $292 together with accrued interest thereon, with such 38 payments referred to herein as the
“Installment Amount”, settled in shares of common stock of Lucid, subject to customary equity conditions, including
minimum share price and volume thresholds, or at the election of Lucid, in cash, in whole or in part.
In
addition to the Installment Amount repayments, the Holder may elect to accelerate the conversion of future Installment Amount repayments,
and interest thereon, subject to certain restrictions, as defined, utilizing the then current conversion price of the most recent Installment
Date conversion price.
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: (i) a minimum of $5.0 million of available cash at all times; (ii) the ratio of (a) the
outstanding principal amount of the total senior convertible notes outstanding, accrued and unpaid interest thereon and accrued and unpaid
late charges to (b) Lucid’s average market capitalization over the prior ten trading days, as of the last day of any fiscal
quarter commencing with September 30, 2023, to not exceed 30%; and (iii) Lucid’s market capitalization to at no time be less
than $30 million.
During
the three months ended March 31, 2023, the Company recognized debt extinguishment losses of approximately $525, in connection with issuing
common stock for principal repayments on convertible debt mentioned above. During the three months ended March 31, 2022, the Company
did not recognize debt extinguishment losses.
See
Note 10, Financial Instruments Fair Value Measurements, for a further discussion of fair value assumptions.
Note
12 — 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 board of directors.
A
total of 21,052,807 shares of common stock of PAVmed are reserved for issuance under the PAVmed 2014 Equity Plan, with 751,778 shares
available for grant as of March 31, 2023. The share reservation is not diminished by a total of 600,854 PAVmed Inc. stock options
and restricted stock awards granted outside the PAVmed 2014 Equity Plan as of March 31, 2023. In January 2023, the number of shares
available for grant was increased by 4,700,000 in accordance with the evergreen provisions of the plan.
Note
12 — Stock-Based Compensation - continued
PAVmed
Stock Options
PAVmed
stock options granted under the PAVmed 2014 Equity Plan and stock options granted outside such plan are summarized as follows:
Schedule of Summarizes Information About Stock Options
| |
Number of Stock Options | | |
Weighted Average Exercise Price | | |
Remaining Contractual Term (Years) | | |
Intrinsic Value(2) | |
Outstanding stock options at December 31, 2022 | |
| 11,568,655 | | |
$ | 2.71 | | |
| 7.4 | | |
$ | — | |
Granted(1) | |
| 7,280,000 | | |
$ | 0.48 | | |
| | | |
| | |
Exercised | |
| — | | |
$ | — | | |
| | | |
| | |
Forfeited | |
| (767,935 | ) | |
$ | 1.77 | | |
| | | |
| | |
Outstanding stock options at March 31, 2023(3) | |
| 18,080,720 | | |
$ | 1.85 | | |
| 8.1 | | |
$ | — | |
Vested and exercisable stock options at March 31, 2023 | |
| 7,768,903 | | |
$ | 2.94 | | |
| 6.1 | | |
$ | — | |
(1) | Stock
options granted under the PAVmed 2014 Equity Plan and those granted outside such plan generally
vest one-third in one year then ratably over the next eight quarters, and have a ten-year
contractual term from date-of-grant. |
(2) | The
intrinsic value is computed as the difference between the quoted price of the PAVmed common
stock on each of March 31, 2023 and December 31, 2022 and the exercise price of the
underlying PAVmed stock options, to the extent such quoted price is greater than the exercise
price. |
(3) | The
outstanding stock options presented in the table above, are inclusive of 500,854 stock options
granted outside the PAVmed 2014 Equity Plan, as of March 31, 2023 and December 31, 2022. |
PAVmed
Restricted Stock Awards
PAVmed
restricted stock awards granted under the PAVmed 2014 Equity Plan and restricted stock awards granted outside such plan are summarized
as follows:
Schedule of Restricted Stock Award Activity
| |
Number of Restricted Stock Awards | | |
Weighted Average Grant Date Fair Value | |
Unvested restricted stock awards as of December 31, 2022(1) | |
| 975,000 | | |
$ | 3.05 | |
Granted | |
| — | | |
| — | |
Vested | |
| (100,000 | ) | |
| 3.10 | |
Forfeited | |
| — | | |
| — | |
Unvested restricted stock awards as of March 31, 2023 | |
| 875,000 | | |
$ | 3.04 | |
(1) | The
unvested restricted stock awards presented in the table above, are inclusive of 100,000 restricted
stock awards granted outside the PAVmed 2014 Equity Plan as of December 31, 2022. These 100,000
restricted stock awards were fully vested during the period ended March 31, 2023. |
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 board of directors.
A
total of 11,644,000 shares of common stock of Lucid Diagnostics are reserved for issuance under the Lucid Diagnostics 2018 Equity Plan,
with 3,834,058 shares available for grant as of March 31, 2023. The share reservation is not diminished by a total of 423,300 stock
options and 50,000 restricted stock awards granted outside the Lucid Diagnostics 2018 Equity Plan, as of March 31, 2023. In January
2023, the number of shares available for grant was increased by 2,500,000 in accordance with the evergreen provisions of the plan.
Note
12 — Stock-Based Compensation - continued
Lucid
Diagnostics Stock Options
Lucid
Diagnostics stock options granted under the Lucid Diagnostics 2018 Equity Plan and stock options granted outside such plan are summarized
as follows:
Schedule of Summarizes Information About Stock Options
| |
Number of Stock Options | | |
Weighted Average Exercise Price | | |
Remaining Contractual Term (Years) | | |
Intrinsic Value(2) | |
Outstanding stock options at December 31, 2022 | |
| 2,565,377 | | |
$ | 3.14 | | |
| 8.3 | | |
$ | 428 | |
Granted(1) | |
| 2,697,500 | | |
$ | 1.31 | | |
| | | |
| | |
Exercised | |
| — | | |
$ | — | | |
| | | |
| | |
Forfeited | |
| (210,419 | ) | |
$ | 2.46 | | |
| | | |
| | |
Outstanding stock options at March 31, 2023(3) | |
| 5,052,458 | | |
$ | 2.19 | | |
| 8.9 | | |
$ | 676 | |
Vested and exercisable stock options at March 31, 2023 | |
| 1,254,494 | | |
$ | 2.67 | | |
| 7.0 | | |
$ | 444 | |
(1) | Stock
options granted under the Lucid Diagnostics 2018 Equity Plan and those granted outside such
plan generally vest one-third in one year then ratably over the next eight quarters, and
have a ten-year contractual term from date-of-grant. |
(2) | The
intrinsic value is computed as the difference between the quoted price of the Lucid Diagnostics
common stock on each of March 31, 2023 and December 31, 2022 and the exercise price
of the underlying Lucid Diagnostics stock options, to the extent such quoted price is greater
than the exercise price. |
(3) | The
outstanding stock options presented in the table above, are inclusive of 423,300 stock options
granted outside the Lucid Diagnostics 2018 Equity Plan, as of March 31, 2023 and December
31, 2022. |
Lucid
Diagnostics Restricted Stock Awards
Lucid
Diagnostics restricted stock awards granted under the Lucid Diagnostics 2018 Equity Plan and restricted stock awards granted outside
such plan are summarized as follows:
Schedule of Restricted Stock Award Activity
| |
Number of Restricted Stock Awards | | |
Weighted Average Grant Date Fair Value | |
Unvested restricted stock awards as of December 31, 2022(1) | |
| 2,091,420 | | |
$ | 11.44 | |
Granted | |
| — | | |
| — | |
Vested | |
| (219,320 | ) | |
| 11.27 | |
Forfeited | |
| — | | |
| — | |
Unvested restricted stock awards as of March 31, 2023 | |
| 1,872,100 | | |
$ | 11.46 | |
(1) | The
unvested restricted stock awards presented in the table above, are inclusive of 50,000 restricted
stock awards granted outside the Lucid Diagnostics 2018 Equity Plan as of December 31, 2022.
These 50,000 restricted stock awards were fully vested during the period ended March 31,
2023. |
Note
12 — Stock-Based Compensation - continued
Consolidated
Stock-Based Compensation Expense
The
consolidated stock-based compensation expense recognized by each of PAVmed and 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:
Schedule
of Stock-Based Compensation Expense
| |
2023 | | |
2022 | |
| |
Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Cost of revenue | |
$ | 23 | | |
$ | — | |
Sales and marketing expenses | |
| 444 | | |
| 625 | |
General and administrative expenses | |
| 3,588 | | |
| 4,002 | |
Research and development expenses | |
| 364 | | |
| 187 | |
Total stock-based compensation expense | |
$ | 4,419 | | |
$ | 4,814 | |
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 CWRU License Agreement (“Physician Inventors”) (as discussed above in Note 4,
Related Party Transactions); and stock options and restricted stock awards granted to employees of PAVmed 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:
Schedule
of Stock-Based Compensation Expense Recognized by Lucid Diagnostics
| |
2023 | | |
2022 | |
| |
Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Lucid Diagnostics 2018 Equity Plan – cost of revenue | |
$ | 12 | | |
$ | — | |
Lucid Diagnostics 2018 Equity Plan – sales and marketing expenses | |
| 223 | | |
| 265 | |
Lucid Diagnostics 2018 Equity Plan – general and administrative expenses | |
| 2,512 | | |
| 3,201 | |
Lucid Diagnostics 2018 Equity Plan – research and development expenses | |
| 70 | | |
| 71 | |
PAVmed 2014 Equity Plan - cost of revenue | |
| 7 | | |
| — | |
PAVmed 2014 Equity Plan - sales and marketing expenses | |
| 133 | | |
| 175 | |
PAVmed 2014 Equity Plan - general and administrative expenses | |
| 156 | | |
| 68 | |
PAVmed 2014 Equity Plan - research and development expenses | |
| 95 | | |
| 55 | |
Total stock-based compensation expense – recognized by Lucid Diagnostics | |
$ | 3,208 | | |
$ | 3,835 | |
Total
stock-based compensation expense | |
$ | 3,208 | | |
$ | 3,835 | |
Note
12 — Stock-Based Compensation - continued
The
consolidated unrecognized stock-based compensation expense and weighted average remaining requisite service period with respect to stock
options and restricted stock awards issued under each of the PAVmed 2014 Equity Plan and the Lucid Diagnostics 2018 Equity Plan, as discussed
above, is as follows:
Schedule of Unrecognized Compensation Expense
| |
Unrecognized Expense | | |
Weighted Average Remaining Service Period (Years) | |
PAVmed 2014 Equity Plan | |
| | | |
| | |
Stock Options | |
$ | 7,612 | | |
| 2.4 | |
Restricted Stock Awards | |
$ | 541 | | |
| 0.4 | |
| |
| | | |
| | |
Lucid Diagnostics 2018 Equity Plan | |
| | | |
| | |
Stock Options | |
$ | 4,806 | | |
| 2.5 | |
Restricted Stock Awards | |
$ | 1,706 | | |
| 1.1 | |
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 $0.35 per share and $1.22 per share during the periods ended March 31, 2023 and 2022,
respectively, calculated using the following weighted average Black-Scholes valuation model assumptions:
Schedule of Fair Values of Stock Options Granted Using Black-scholes Valuation Model Assumptions
| |
Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Expected term of stock options (in years) | |
| 5.7 | | |
| 5.8 | |
Expected stock price volatility | |
| 88 | % | |
| 88 | % |
Risk free interest rate | |
| 3.7 | % | |
| 1.8 | % |
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 $0.87 per share and $2.95 per share during the periods ended March 31, 2023
and 2022, respectively, calculated using the following weighted average Black-Scholes valuation model assumptions:
Schedule
of Fair Values of Stock Options Granted Using Black-scholes Valuation Model Assumptions
| |
Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Expected term of stock options (in years) | |
| 5.6 | | |
| 5.6 | |
Expected stock price volatility | |
| 75 | % | |
| 86 | % |
Risk free interest rate | |
| 3.7 | % | |
| 1.7 | % |
Expected dividend yield | |
| — | % | |
| — | % |
PAVmed
Inc. Employee Stock Purchase Plan (“PAVmed ESPP”)
A
total of 573,229 shares and 194,240 shares of common stock of the Company were purchased for proceeds of approximately $182 and $218,
on March 31, 2023 and 2022, respectively under the PAVmed ESPP. The March 31, 2023 purchase was partially settled through the redeployment
of 188,846 shares of treasury stock. The PAVmed ESPP
has a total reserve of 2,000,000 shares of common stock of PAVmed of which 416,914 shares are available for issue as of March 31,
2023. In January 2023, the number of shares available-for-issue was increased by 250,000 in accordance with the evergreen provisions
of the plan.
Lucid
Diagnostics Inc. Employee Stock Purchase Plan (“Lucid ESPP”)
A
total of 231,987 shares of common stock of Lucid Diagnostics were purchased for proceeds of approximately $276 on March 31, 2023 under
the Lucid ESPP. The Lucid ESPP has a total reserve of 1,000,000 shares of common stock of Lucid Diagnostics of which 683,983 shares are
available-for-issue as of March 31, 2023. In January 2023, the number of shares available for issue was increased by 500,000 in
accordance with the evergreen provisions of the plan.
Note
13 — Preferred Stock
As
of March 31, 2023 and December 31, 2022, there were 1,229,887 and 1,205,759 shares of PAVmed Series B Convertible Preferred
Stock (classified in permanent equity) issued and outstanding, respectively.
Series
B Convertible Preferred Stock Dividends
The
PAVmed Series B Convertible Preferred Stock dividends are 8.0% per annum based on the $3.00 per share stated value of the Series B Convertible
Preferred Stock, with such dividends compounded quarterly, accumulate, and are payable in arrears upon being declared by the Company’s
board of directors. Such dividends may be settled, at the discretion of the board of directors, through any combination of the issue
of additional shares of Series B Convertible Preferred Stock, the issue shares of common stock of the Company, and/or cash payment.
Series
B Convertible Preferred Stock Dividends Earned
The
Series B Convertible Preferred Stock dividends earned are included in the calculation of basic and diluted net loss attributable to PAVmed
common stockholders for each of the respective corresponding periods presented in the accompanying unaudited condensed consolidated statement
of operations, inclusive of approximately $74 of dividends earned in the three months ended March 31, 2023; and approximately $68
of dividends earned in the three months ended March 31, 2022.
Series
B Convertible Preferred Stock Dividends Declared
The
Series B Convertible Preferred Stock dividends are recognized as a dividend payable only upon the dividend being declared payable by
the Company’s board of directors. In this regard, in the three months ended March 31, 2023, the Company’s board-of-directors
declared Series B Convertible Preferred Stock dividends of $72, earned as of December 31, 2022 with such dividends settled by the issue
of 24,128 additional shares of Series B Convertible Preferred Stock.
In
the three months ended March 31, 2022, the Company’s board-of-directors declared Series B Convertible Preferred Stock dividends
of $67, earned as of December 31, 2021, with such dividends settled by the issue of 22,291 additional shares of Series B Convertible
Preferred Stock.
Subsequent
to March 31, 2023, in May 2023, the Company’s board of directors declared a Series B Convertible Preferred Stock dividend
earned as of March 31, 2023 and payable as of April 1, 2023, of approximately $74, to be settled by the issue of 24,610 additional
shares of Series B Convertible Preferred Stock (with such dividend not recognized as a dividend payable as of March 31, 2023, as
the Company’s board of directors had not declared the dividends payable as of such date).
Note
14 — Common Stock and Common Stock Purchase Warrants
Common
Stock
On
December 29, 2022, the Company received a notice from the Listing Qualifications Department of Nasdaq stating that, for the prior 30
consecutive business days (through December 28, 2022), the closing bid price of the Company’s common stock had been below the minimum
of $1 per share required for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). The notification letter
stated that the Company would be afforded 180 calendar days (until June 27, 2023) to regain compliance. In order to regain compliance,
the closing bid price of the Company’s common stock must be at least $1 for a minimum of ten consecutive business days. During
the special meeting (“Special Meeting”) of shareholders held on March 31, 2023, the shareholders approved a proposal to amend
the Company’s Certificate of Incorporation, to effect, at any time prior to the one-year anniversary date of the Special Meeting,
(i) a reverse split of the Company’s outstanding shares of common stock at a specific ratio, ranging from 1-for-5 to 1-for-15,
to be determined by the board of directors of the Company in its sole discretion, and (ii) an associated reduction in the number of shares
of common stock the Company is authorized to issue, from 250,000,000 shares to 50,000,000 shares. If the Company’s board of directors
authorizes the Company to consummate the reverse stock split, the Company anticipates it will regain compliance with the Nasdaq requirements
for continued listing through such transaction.
During
the three months ended March 31, 2023 a total of 573,229 shares of common stock of the Company were issued under the PAVmed ESPP.
See Note 12, Stock-Based Compensation, for a discussion of each of the PAVmed 2014 Equity Plan and the PAVmed ESPP.
In
the three months ended March 31, 2023, 4,330,643
shares of the Company’s common stock were
issued upon conversion, at the election of the holder, of the April 2022 Senior Convertible Note, for $1,501
face value principal repayments, as discussed
in Note 11, Debt.
In
the three months ended March 31, 2023, the Company sold 1,081,997 shares
through their at-the-market equity facility for net proceeds of approximately $557,
after payment of 3% commissions. Subsequent
to March 31, 2023, through May 11, 2023, the Company sold 878,634 shares through the at-the-market equity facility for net
proceeds of approximately $444, after payment of 3% commissions.
Common
Stock Purchase Warrants
As
of March 31, 2023 and December 31, 2022, Series Z Warrants outstanding totaled 11,937,450 and 11,937,450, respectively. A Series
Z Warrant is exercisable to purchase one share of common stock of the Company at an exercise price of $1.60 per share, and expire April
30, 2024. There were no Series Z Warrants exercised during the three months ended March 31, 2023.
Note
15 — Noncontrolling Interest
The
noncontrolling interest (“NCI”) included as a component of consolidated total stockholders’ equity is summarized for
the periods indicated as follows:
Schedule of Noncontrolling Interest of Stockholders' Equity
| |
March 31, 2023 | |
NCI – equity – December 31, 2022 | |
$ | 20,615 | |
Net loss attributable to NCI | |
| (4,283 | ) |
Impact of subsidiary equity transactions | |
| (1,189 | ) |
Lucid Diagnostics Inc. proceeds from issuance of preferred stock | |
| 13,625 | |
Lucid Diagnostics Inc. proceeds from At-The-Market Facilities, net of deferred financing charges | |
| 284 | |
Lucid Diagnostics Inc. issuance of common stock for settlement of APA-RDx installment and termination payment | |
| 713 | |
Lucid Diagnostics Inc. Employee Stock Purchase Plan Purchase | |
| 276 | |
Stock-based compensation expense - Lucid Diagnostics Inc. 2018 Equity Plan | |
| 2,817 | |
Stock-based compensation expense - Veris Health Inc. 2021 Equity Plan | |
| 3 | |
NCI – equity – March 31, 2023 | |
$ | 32,861 | |
The
consolidated NCI presented above is with respect to the Company’s consolidated majority-owned subsidiaries as a component of consolidated
total stockholders’ equity as of March 31, 2023 and December 31, 2022; 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
majority-owned subsidiaries.
Lucid
Diagnostics
As
of March 31, 2023, there were 41,753,603 shares of common stock of Lucid Diagnostics issued and outstanding, of which, PAVmed holds 31,302,420 shares, representing a majority ownership equity interest and PAVmed has a controlling financial interest in Lucid Diagnostics,
and accordingly, Lucid Diagnostics is a consolidated majority-owned subsidiary of PAVmed.
On
March 7, 2023, Lucid issued 13,625 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 $1,000 and a conversion price of $1.394. The Lucid
Series A Preferred Stock is convertible into shares of our common stock at any time at the option of the holder from and after the six-month
anniversary of its issuance, and automatically converts into shares of our common stock on the second anniversary of its issuance. The
terms of the Lucid Series A 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 A Preferred Stock is convertible, payable on the one-year
and two-year anniversary of the issuance date. The Lucid Series A Preferred Stock is a non-voting security, other than with respect to
limited matters related to changes in terms of the Lucid Series A Preferred Stock. The aggregate gross proceeds from the sale of shares
in such offering were $13.625 million.
In
November 2022, Lucid Diagnostics 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 Fitzgerald & Co. In the three months ended March 31, 2023, Lucid Diagnostics sold 230,068
shares through their at-the-market equity facility for net proceeds of approximately $0.3
million, after payment of 3%
commissions.
Veris
Health
As
of March 31, 2023, there were 8,000,000 shares of common stock of Veris Health issued and outstanding, of which PAVmed
holds an 80.44% majority-interest ownership and PAVmed has a controlling financial interest, with the remaining 19.56% minority-interest
ownership held by an unrelated third-party. Accordingly, Veris Health is a consolidated majority-owned subsidiary of the Company, for
which a provision of a noncontrolling interest (NCI) is included as a separate component of consolidated stockholders’ equity in
the accompanying unaudited condensed consolidated balance sheets.
Note
16 — Net Loss Per Share
The
“Net loss per share - attributable to PAVmed Inc. - basic and diluted” and “Net loss per share - attributable to PAVmed
Inc. common stockholders - basic and diluted” - for the respective periods indicated - is as follows:
Schedule of Comparison of Basic and Fully Diluted Net Loss Per Share
| |
2023 | | |
2022 | |
| |
Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Numerator | |
| | |
| |
Net loss - before noncontrolling interest | |
$ | (22,214 | ) | |
$ | (19,633 | ) |
Net loss attributable to noncontrolling interest | |
| 4,283 | | |
| 2,761 | |
Net loss - as reported, attributable to PAVmed Inc. | |
$ | (17,931 | ) | |
$ | (16,872 | ) |
| |
| | | |
| | |
Series B Convertible Preferred Stock dividends – earned | |
$ | (74 | ) | |
$ | (68 | ) |
| |
| | | |
| | |
Net loss attributable to PAVmed Inc. common stockholders | |
$ | (18,005 | ) | |
$ | (16,940 | ) |
| |
| | | |
| | |
Denominator | |
| | | |
| | |
Weighted average common shares outstanding, basic and diluted | |
| 97,095,156 | | |
| 86,336,427 | |
| |
| | | |
| | |
Net loss per share | |
| | | |
| | |
Basic and diluted | |
| | | |
| | |
Net loss - as reported, attributable to PAVmed Inc. | |
$ | (0.18 | ) | |
$ | (0.20 | ) |
Net loss attributable to PAVmed Inc. common stockholders | |
$ | (0.19 | ) | |
$ | (0.20 | ) |
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 periods 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.
Basic
weighted-average number of shares of common stock outstanding for the three months ended March 31, 2023 and 2022 include the shares
of the Company issued and outstanding during such periods, each on a weighted average basis. The basic weighted average number of shares
of common stock outstanding excludes common stock equivalent incremental shares, while diluted weighted average number of shares outstanding
includes such incremental shares. However, as the Company was in a loss position for all periods presented, basic and diluted weighted
average shares outstanding are the same, as the inclusion of the incremental shares would be anti-dilutive. The common stock equivalents
excluded from the computation of diluted weighted average shares outstanding are as follows:
Schedule of Antidilutive Securities Excluded from Computation of Diluted Earnings Per Share
| |
2023 | | |
2022 | |
| |
March 31, | |
| |
2023 | | |
2022 | |
Stock options and restricted stock awards | |
| 18,955,720 | | |
| 12,368,292 | |
Series Z Warrants | |
| 11,937,450 | | |
| 11,937,450 | |
Series B Convertible Preferred Stock | |
| 1,229,887 | | |
| 1,136,210 | |
Total | |
| 32,123,057 | | |
| 25,441,952 | |
The
total stock options and restricted stock awards are inclusive of 500,854 stock options as of March 31, 2023 and 2022; and 100,000
restricted stock awards as of March 31, 2022 granted outside the PAVmed 2014 Equity Plan. These 100,000 restricted stock awards were
fully vested during the period ended March 31, 2023.