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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 JUNE 30, 2021

 

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

Incorporation or Organization)

 

(IRS Employer

Identification No.)

 

One Grand Central Place

Suite 4600

New York, NY

  10165
(Address of Principal Executive Offices)   (Zip Code)

 

(212) 949-4319

(Registrant’s Telephone Number, Including Area Code)

 

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

 

Title of each class   Trading Symbols   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
Series W Warrants, each to purchase one share of Common Stock   PAVMW   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 filer
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(a) 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 August 12, 2021, there were 84,767,593 shares of the registrant’s Common Stock, par value $0.001 per share, outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
PART I FINANCIAL INFORMATION  
     
Item 1 Unaudited Condensed Consolidated Financial Statements  
     
  Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 1
     
  Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020 2
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three months ended June 30, 2021 3
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the six months ended June 30, 2021 4
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2020 5
     
  Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 6
     
  Notes to Unaudited Condensed Consolidated Financial Statements 7
     
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
     
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)

 

   June 30, 2021   December 31, 2020 
Assets:          
Current assets:          
Cash  $43,210   $17,256 
Prepaid expenses, deposits, and other current assets   3,126    1,685 
Total current assets   46,336    18,941 
Other assets   1,035    837 
Total assets  $47,371   $19,778 
Liabilities, Preferred Stock and Stockholders’ Deficit          
Current liabilities:          
Accounts payable  $3,766   $2,966 
Accrued expenses and other current liabilities   1,565    2,325 
CARES Act Paycheck Protection Program note payable       300 
Senior Secured Convertible Notes - at fair value       10,060 
Senior Convertible Note - at fair value       4,600 
Total liabilities   5,331    20,251 
Commitments and contingencies (Note 5)        
Stockholders’ Equity (Deficit):          
Preferred stock, $0.001 par value. Authorized, 20,000,000 shares; Series B Convertible Preferred Stock, par value $0.001, issued and outstanding 1,185,685 at June 30, 2021 and 1,228,075 shares at December 31, 2020   2,499    2,537 
Common stock, $0.001 par value. Authorized, 150,000,000 shares;
82,576,816 and 63,819,935 shares outstanding as of June 30, 2021 and
December 31, 2020, respectively
   83    64 
Additional paid-in capital   149,694    87,570 
Accumulated deficit   (109,325)   (88,275)
Total PAVmed Inc. Stockholders’ Equity   42,951    1,896 
Noncontrolling interests   (911)   (2,369)
Total Stockholders’ Equity (Deficit)   42,040    (473)
Total Liabilities and Stockholders’ Equity  $47,371   $19,778 

 

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 amounts)

(unaudited)

 

  2021   2020   2021   2020 
   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
  2021   2020   2021   2020 
Revenue  $   $   $   $ 
Operating expenses:                    
Commercial operations   1,973    460    3,360    845 
General and administrative   6,739    2,421    10,113    4,721 
Research and development   4,258    2,133    7,573    4,702 
Total operating expenses   12,970    5,014    21,046    10,268 
Loss from operations   (12,970)   (5,014)   (21,046)   (10,268)
Other income (expense):                    
Interest expense               (52)
Change in fair value - Senior Secured Convertible Notes and Senior Convertible Note       2,120    1,682    (5,888)
Offering costs - Senior Secured Convertible Note and Senior Convertible Note       (200)       (610)
Debt extinguishments loss - Senior Secured Convertible Notes       (2,750)   (3,715)   (3,937)
Debt forgiveness   300        300     
Other income (expense), net   300    (830)   (1,733)   (10,487)
Loss before provision for income tax   (12,670)   (5,844)   (22,779)   (20,755)
Provision for income taxes                
Net loss before noncontrolling interests   (12,670)   (5,844)   (22,779)   (20,755)
Net loss attributable to the noncontrolling interests   1,199    266    1,877    702 
Net loss attributable to PAVmed Inc.   (11,471)   (5,578)   (20,902)   (20,053)
Less: Series B Convertible Preferred Stock dividends earned   (74)   (71)   (149)   (141)
Net loss attributable to PAVmed Inc. common stockholders  $(11,545)  $(5,649)  $(21,051)  $(20,194)
Per share information:                    
Net loss per share attributable to PAVmed Inc. - basic and diluted  $(0.14)  $(0.12)  $(0.27)  $(0.45)
Net loss per share attributable to PAVmed Inc. common stockholders – basic and diluted  $(0.14)  $(0.13)  $(0.27)  $(0.46)
Weighted average common shares outstanding,
basic and diluted
   82,235,397    44,780,538    78,117,637    44,140,126 

 

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 June 30, 2021

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

(unaudited)

 

                           
   PAVmed Inc. Stockholders’ Deficit         
   Series B                         
   Convertible           Additional       Non     
   Preferred Stock   Common Stock   Paid-In   Accumulated   controlling     
   Shares   Amount   Shares   Amount   Capital   Deficit   Interest   Total 
                                 
Balance at March 31, 2021   1,241,438   $2,587    81,424,744   $81   $145,396   $(97,778)  $(2,246)  $48,040 
Series B Convertible Preferred Stock dividends declared   25,046    76                (76)        
Issue common stock – conversion Series B Convertible Preferred Stock   (80,799)   (164)   80,799        164             
Issue common stock – vesting of restricted stock awards           150,000                     
Issue common stock – exercise Series Z warrants           880,441    2    1,409            1,411 
Issue common stock – PAVmed Inc. 2014 Equity Plan stock option exercises           40,832        51            51 
Investment in Veris Health Inc. subsidiary                           6    6 
Stock-based compensation – PAVmed Inc.                   2,622            2,622 
Stock-based compensation – majority-owned subsidiary                   52        2,528    2,580 
Loss                       (11,471)   (1,199)   (12,670)
Balance at June 30, 2021   1,185,685   $2,499    82,576,816   $83   $149,694   $(109,325)  $(911)  $42,040 

 

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 SIX MONTHS ENDED June 30, 2021

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

(unaudited)

 

   PAVmed Inc. Stockholders’ Deficit         
   Series B                         
   Convertible           Additional       Non     
   Preferred Stock   Common Stock   Paid-In   Accumulated   controlling     
   Shares   Amount   Shares   Amount   Capital   Deficit   Interest   Total 
                                 
Balance at December 31, 2020   1,228,075   $2,537    63,819,935   $64   $87,570   $(88,275)  $(2,369)  $(473)
Series B Convertible Preferred Stock dividends declared   49,244    148                (148)        
Issue common stock – conversion Series B Convertible Preferred Stock   (91,634)   (186)   91,634        186             
Issue common stock – registered offerings, net           15,782,609    16    53,688            53,704 
Issue common stock – restricted stock awards vests           150,000                     
Issue common stock – exercise Series Z warrants           1,740,658    2    2,783            2,785 
Issue common stock upon partial conversions of Senior Secured Convertible Note           667,668    1    1,722            1,723 
Issue common stock – PAVmed Inc. 2014 Equity Plan stock option exercises           120,832        131            131 
Issue common stock – Employee Stock Purchase Plan           203,480        304            304 
Investment in Veris Health Inc. subsidiary                           6    6 
Stock-based compensation - PAVmed Inc.                   3,254            3,254 
Stock-based compensation - majority-owned subsidiary                   56        3,329    3,385 
Loss                       (20,902)   (1,877)   (22,779)
Balance at June 30, 2021   1,185,685   $2,499    82,576,816   $83   $149,694   $(109,325)  $(911)  $42,040 

 

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 and SIX MONTHS ENDED June 30, 2020

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

(unaudited)

 

   PAVmed Inc. Stockholders’ Deficit         
   Series B                         
   Convertible           Additional       Non     
   Preferred Stock   Common Stock   Paid-In   Accumulated   controlling     
   Shares   Amount   Shares   Amount   Capital   Deficit   Interest   Total 
                                 
Balance at March 31, 2020   1,156,391   $2,322    44,133,745   $44   $50,896   $(68,259)  $(1,232)  $(16,229)
Issue common stock – upon partial conversions of Senior Secured Convertible Note           3,785,641    4    8,735            8,739 
Series B Convertible Preferred Stock dividends declared   23,481    71                (71)        
Stock-based compensation - PAVmed Inc. 2014 Equity Plan                   513            513 
Stock-based compensation – majority-owned subsidiary                   3        13    16 
Loss                       (5,578)   (266)   (5,844)
Balance at June 30, 2020   1,179,872   $2,393    47,919,386   $48   $60,147   $(73,908)  $(1,485)  $(12,805)

 

   PAVmed Inc. Stockholders’ Deficit         
   Series B                         
   Convertible           Additional       Non     
   Preferred Stock   Common Stock   Paid-In   Accumulated   controlling     
   Shares   Amount   Shares   Amount   Capital   Deficit   Interest   Total 
                                 
Balance at December 31, 2019   1,158,209   $2,296    40,478,861   $41   $47,554   $(53,715)  $(814)  $(4,638)
Issue common stock – upon partial conversions of Senior Secured Convertible Note           5,828,542    6    11,567            11,573 
Issue common stock – Employee Stock Purchase Plan           154,266        126            126 
Issue common stock – exercise Series S warrants           1,199,383    1    11            12 
Issue common stock – conversion Series B Convertible Preferred Stock   (25,000)   (43)   25,000        43             
Series B Convertible Preferred Stock dividends declared   46,663    140                (140)        
Vesting of restricted stock awards           233,334                     
Stock-based compensation - PAVmed Inc. 2014 Equity Plan                   840            840 
Issue common stock – majority-owned subsidiary exercise of stock options                           5    5 
Stock-based compensation - majority-owned subsidiary                   6        26    32 
Loss                       (20,053)   (702)   (20,755)
Balance at June 30, 2020   1,179,872   $2,393    47,919,386   $48   $60,147   $(73,908)  $(1,485)  $(12,805)

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

5
 

 

PAVMED INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(unaudited)

 

         
   Six Months Ended June 30, 
   2021   2020 
Cash flows from operating activities          
Net loss - before noncontrolling interest (“NCI”)  $(22,779)  $(20,755)
           
Adjustments to reconcile net loss - before NCI to net cash used in operating activities          
Depreciation expense   22    9 
Stock-based compensation   6,639    872 
Amortization expense   6     
In-process R&D charge   133     
Change in fair value - Senior Secured Convertible Notes and Senior Convertible Note   (1,682)   5,888 
Debt extinguishment loss - Senior Secured Convertible Notes and Senior Convertible Note   3,715    3,937 
Debt forgiveness   (300)    
           
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   (1,441)   (747)
Accounts payable   650    1,295 
Accrued expenses and other current liabilities   (759)   155 
Net cash flows used in operating activities   (15,796)   (9,346)
           
Cash flows from investing activities          
Purchase of equipment   (157)   (44)
Acquisition, net of cash acquired   (47)    
Net cash flows used in investing activities   (204)   (44)
           
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 Notes       6,300 
Proceeds – issue of Senior Convertible Note       3,700 
Proceeds – Cares Act Paycheck Protection Program Loan       300 
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)   (192)
Proceeds – exercise of Series Z warrants   2,785     
Proceeds – exercise of Series S Warrants       12 
Proceeds – issue common stock – Employee Stock Purchase Plan   304    126 
Proceeds – exercise of stock options   131     
Proceeds – exercise of stock options issued under equity incentive plan of majority owned subsidiary       5 
Net cash flows provided by financing activities   41,954    10,251 
Net increase (decrease) in cash   25,954    861 
Cash, beginning of period   17,256    6,219 
Cash, end of period  $43,210   $7,080 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

6
 

 

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

 

PAVmed Inc. (“PAVmed” or the “Company”) together with its majority owned subsidiaries, Lucid Diagnostics, Inc. (“Lucid Diagnostics” or “LUCID”), Solys Diagnostics, Inc. (“Solys Diagnostics” or “SOLYS”) and Veris Health, Inc. (“Veris Health” or “VERIS”) were 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 operates in one segment as a medical technology company.

 

The ability of the Company to generate revenue depends upon the Company’s ability to successfully advance the commercialization of EsoGuard and CarpX while also completing the development and the necessary regulatory approvals of its other products and services. In this regard:

 

  EsoCheck has received 510(k) marketing clearance from the FDA as an esophageal cell collection device in June 2019;
     
  EsoGuard completed the certification required by the Clinical Laboratory Improvement Amendment (“CLIA”) and accreditation of the College of American Pathologists (“CAP”) making it commercially available as a Laboratory Developed Test (“LDT”) at LUCID’s contract diagnostic laboratory service provider in California in December 2019; and,
     
  CarpX, developed as a patented, single-use, disposable, minimally invasive device designed as a precision cutting tool to treat carpal tunnel syndrome while reducing recovery times, received 510(k) marketing clearance from the FDA in April 2020 with the first commercial procedure successfully performed in December 2020.

 

Although the Company’s current operational activities are principally focused on the commercialization of EsoGuard and CarpX its development activities are focused on pursuing FDA approval and clearance of other lead products in our product portfolio pipeline, including EsoGuard IVD, PortIO, DisappEAR, NextFlo, EsoCure and digital health technologies acquired by the Company’s majority-owned subsidiary Veris Health Inc. (as discussed in Note 4, Acquisition of Oncodisc Inc.).

 

Financial Condition

 

The Company has financed its operations principally through the 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 and medical device companies that devote substantially all of their efforts to the commercialization of their initial product and services and ongoing R&D and clinical trials. 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, together with the cash on-hand as of June 30, 2021, the Company expects to be able to fund its future operations for one year from the date of the issue of the Company’s unaudited condensed consolidated financial statements, as included in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2021.

 

7
 

 

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, 2020 as filed with the SEC on March 15, 2021, except as otherwise noted herein below.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements 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., Solys Diagnostics Inc. and Veris Health 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 the net loss attributable to the noncontrolling interest based on the respective minority interest equity ownership of each majority-owned subsidiary.

 

The accompanying unaudited condensed consolidated financial statements 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”) regarding interim financial reporting. 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, 2020 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.

 

The results of operations for the three and six months ended June 301, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 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 audited consolidated financial statements and related notes thereto as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K as filed with the SEC on March 15, 2021.

 

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

 

Use of Estimates

 

In preparing 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 liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as the reported amounts of expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in these estimates. On an ongoing basis, the Company evaluates its estimates and assumptions. These estimates and assumptions include the estimated fair value of stock-based equity awards, and the estimated fair value of financial instruments recognized as liabilities. In addition, 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.

 

8
 

 

Note 2 — Summary of Significant Accounting Policies - continued

 

Recently Adopted Accounting Standards

 

In August 2020, the FASB issued its Accounting Standards Update (“ASU”) 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU2020-06 amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company’s adoption of the ASU 2020-06 guidance as of January 1, 2021, had no effect on its unaudited condensed consolidated financial statements.

 

In December 2019, the FASB issued ASU No. 2019-12,“Income Taxes: Simplifying the Accounting for Income Taxes”, (“ASU 2019-12”). The guidance of ASU 2019-12 removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation, and calculating income taxes in interim periods, and adds revised guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. Adoption of the guidance of ASU 2019-12 is required for annual and interim financial statements beginning after December 15, 2020. The Company’s adoption of the ASU 2019-12 guidance as of January 1, 2021 had no effect on the Company’s unaudited condensed consolidated financial statements.

 

9
 

  

Note 3 —Related Party Transactions

 

Case Western Reserve University and Physician Inventors - CWRU License Agreement

 

Case Western Reserve University (“CWRU”) and each of the three physician inventors of the intellectual property licensed under the CWRU License Agreement (“Physician Inventors”) each hold equity ownership minority interests in Lucid Diagnostics Inc. The expenses incurred with respect to the 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:

 

                 
  

For the three months ended

June 30,

  

For the six months ended

June 30,

 
   2021   2020   2021   2020 
General and Administrative Expense                    
Stock-based compensation expense – Physician Inventors’ restricted stock awards   273         364      
                     
Research and Development Expense                    
CWRU License Agreement - reimbursement of patent legal fees  $113   $27   $113   $59 
EsoCheck devices provided to CWRU               15 
Fees - Physician Inventors’ consulting agreements   1    15    14    53 
Stock-based compensation expense – Physician Inventors’ stock options   52    6    58    12 
Total Related Party Expenses  $439   $48   $549   $139 

 

Lucid Diagnostics Inc. entered into consulting agreements with each of the three Physician Inventors, with each such consulting agreement providing for compensation on a contractual rate per hour for consulting services provided, and an expiration date of May 12, 2024, upon the agreements’ renewal effective May 12, 2021. Additionally, as discussed below, each of the Physician Inventors have been granted stock options under the PAVmed Inc. 2014 Long-Term Incentive Equity Plan, and stock options and restricted stock awards under the Lucid Diagnostics Inc. 2018 Long-Term Incentive Equity Plan.

 

Under each of their respective (initial) consulting agreements with Lucid Diagnostics Inc., the three Physician Inventors were each granted 25,000 stock options under the PAVmed Inc. 2014 Equity Plan, with a grant date of May 12, 2018, an exercise price of $1.59 per share of common stock of PAVmed Inc., vesting ratably on a quarterly basis commencing June 30, 2018 and ending March 31, 2021, and a contractual period of ten years from the date of grant. As of March 31, 2021, such stock options were fully vested and exercisable. Subsequent to March 31, 2021, each of the Physician Inventors were granted 50,000 stock options under the PAVmed Inc. 2014 Equity Plan, with a grant date of June 21, 2021, an exercise price of $6.41 per share of common stock of PAVmed Inc., vesting ratably on a quarterly basis commencing June 30, 2021 and ending March 31, 2024, and a contractual period of ten years from the date of grant.

 

On March 1, 2021, restricted stock awards were granted under the Lucid Diagnostics Inc. 2018 Equity Plan to each of the three Physician Inventors, with such restricted stock awards having a single vesting date of March 1, 2023, with the fair value of such restricted stock awards recognized as stock-based compensation expense ratably on a straight-line basis over the vesting period, which is commensurate with the service period. The restricted stock awards are subject to forfeiture if the requisite service period is not completed.

 

See Note 8, 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 11, Noncontrolling Interest, for a discussion of Lucid Diagnostics Inc. and the corresponding noncontrolling interests.

 

Other Related Party Transactions

 

Lucid Diagnostics Inc. previously entered into a consulting agreement with Stanley N. Lapidus, effective July 1, 2020 with such consulting agreement providing for compensation on a contractual rate per hour for consulting services provided. In July 2021, Mr. Lapidus was appointed as Vice Chairman of the Board of Directors of Lucid Diagnostics Inc. Lucid Diagnostics Inc. recognized as general and administrative expense $8 and $14 in the three and six months ended June 30, 2021, respectively, in connection with the consulting agreement.

 

10
 

 

Note 4 — Acquisition of Oncodisc Inc

 

On May 28, 2021, Veris Health Inc., a majority-owned subsidiary of PAVmed Inc., acquired all of the outstanding common stock of Oncodisc Inc. (“Oncodisc”) for total (gross) purchase consideration of approximately $261, consisting of: the issue of 1,564,514 shares of common stock of Veris Health Inc., with such shares having an estimated fair value of approximately $6; and cash paid of approximately $255, inclusive of approximately $155 paid at the time of the transaction closing and the remaining balance paid subsequent to June 30, 2021. Additionally, the cash acquired was approximately $108 and liabilities assumed were approximately $50. The acquisition of Oncodisc was accounted for by Veris Health Inc as an asset acquisition. Veris Health Inc. has allocated the preliminary purchase price based upon the respective fair values as of the date of acquisition as follows:

 

     
Cash acquired  $108 
Intangible asset - in-process research and development   133 
Intangible asset - assembled workforce   70 
Liabilities assumed   (50)
Total net assets acquired  $261 

 

The intangible asset recognized for the in-process research and development (“IPRD”) of $133 was determined to have no alternative future use and was recognized as a current period research and development expense. The intangible asset recognized for the assembled workforce of approximately $70, which is included in “Other assets” on the accompanying unaudited condensed consolidated balance sheet, has an expected useful life of one year, and is being recognized as a research and development expense on a ratable basis over such period, commencing in June 2021. See Note 11, Noncontrolling Interest, for a discussion of Veris Health Inc. and the corresponding noncontrolling interests.

 

11
 

 

Note 5 — Commitment and Contingencies

 

Legal Proceedings

 

In November 2020, a stockholder of the Company, on behalf of himself and other similarly situated stockholders, filed a complaint in the Delaware Court of Chancery alleging broker non-votes were not properly counted in accordance with the Company’s bylaws at the Company’s Annual Meeting of Stockholders on July 24, 2020, and, as a result, asserted certain matters deemed to have been approved were not so approved (including matters relating to the increase in the size of the 2014 Equity Plan and the ESPP). The relief sought under the complaint includes certain corrective actions by the Company, but does not seek any specific monetary damages. The Company does not believe it is clear the prior approval of these matters is invalid or otherwise ineffective. However, to avoid any uncertainty and the expense of further litigation, on January 5, 2021, the Company’s Board of Directors determined it would be advisable and in the best interests of the Company and its stockholders to re-submit these proposals to the Company’s stockholders for ratification and/or approval. In this regard, the Company held a special meeting of stockholders on March 4, 2021, at which such matters were ratified and approved. The parties have reached agreement on a proposed term sheet to settle the complaint, the terms of which do not contemplate payment of monetary damages to the putative class in the proceeding. The settlement of the complaint is pending and is subject to court approval.

 

On December 23, 2020, Benchmark Investments, Inc. filed a complaint against the Company in the U.S. District Court of the Southern District of New York alleging the registered direct offerings of shares of common stock of the Company completed in December 2020 were in violation of provisions set forth in an engagement letter between the Company and the plaintiff. The plaintiff is seeking monetary damages of up to $1.3 million. The Company disagrees with the allegations set forth in the complaint and intends to vigorously contest the complaint.

 

In the ordinary course of our business, particularly as it begins commercialization of its products, the Company may be subject to certain other legal actions and claims, including product liability, consumer, commercial, tax and governmental matters, which may arise from time to time. Except as otherwise noted herein, the Company does not believe it is currently a party to any other pending legal proceedings. Notwithstanding, legal proceedings are subject-to inherent uncertainties, and an unfavorable outcome could include monetary damages, and excessive verdicts can result from litigation, and as such, could result in a material adverse impact on the Company’s business, financial position, results of operations, and /or cash flows. Additionally, although the Company has specific insurance for certain potential risks, the Company may in the future incur judgments or enter into settlements of claims which may have a material adverse impact on the Company’s business, financial position, results of operations, and /or cash flows.

 

Patent License Agreement – Case Western Reserve University

 

The patent license agreement between the Company’s majority-owned subsidiary Lucid Diagnostics Inc. and Case Western Reserve University - the “CWRU License Agreement” - requires Lucid Diagnostics Inc. to pay a minimum annual royalty of a percentage of recognized net sales revenue resulting from the commercialization of the products and /or services developed using the CWRU License Agreement licensed intellectual property, with the minimum amount of royalty payments based on net sales of such products and services, if any. To-date, no such contractual minimum annual royalty payment has been required.

 

Additionally, the CWRU License Agreement contains each of: certain regulatory milestones with respect to FDA submissions and clearances; and a commercialization milestone with respect to a first sale of a product or service, each within a contractually proscribed period of time from the May 12, 2018 effective date of the CWRU License Agreement. If Lucid Diagnostics Inc. did not achieve one of the regulatory milestones and the commercialization milestone, then CWRU had the right, in its sole discretion, to require PAVmed Inc. to transfer to CWRU 80% of the shares of common stock of Lucid Diagnostics Inc. then held by PAVmed Inc. Lucid diagnostics Inc. has achieved the requisite milestones in accordance with the timing specified by the CWRU License Agreement.

 

Lucid Diagnostics Inc. entered into the EsoGuard Commercialization Agreement with ResearchDX Inc. (“RDx”), effective August 1, 2021, providing for RDx to license from Lucid Diagnostics Inc. its proprietary EsoGuard assay. The EsoGuard Commercialization Agreement provides for RDx to pay a minimum monthly fee to Lucid Diagnostics Inc., with such fee payment subject-to the royalty payment requirements of the CWRU License Agreement. The EsoGuard Commercial Agreement initial term is on a month-to-month basis, and may be terminated by either party thereto, with or without cause, upon forty-five (45) days prior written notice.

 

12
 

 

Note 6 — Financial Instruments Fair Value Measurements

 

Recurring Fair Value Measurements

 

The fair value hierarchy table for the reporting dates noted is as follows:

 

  

Fair Value Measurement on a Recurring Basis at

Reporting Date Using(1)

 
   Level-1   Level-2   Level-3     
   Inputs   Inputs   Inputs   Total 
                 
December 31, 2020                    
Senior Secured Convertible Note - November 2019  $   $   $1,270   $1,270 
Senior Convertible Note - April 2020  $   $   $4,600   $4,600 
Senior Secured Convertible Note – August 2020  $   $   $8,790   $8,790 
Totals  $   $   $14,660   $14,660 

 

(1) As noted above, as presented in the fair value hierarchy table, Level-1 represents quoted prices in active markets for identical items, Level-2 represents significant other observable inputs, and Level-3 represents significant unobservable inputs.

 

The Senior Secured Convertible Note dated August 6, 2020, the Senior Convertible Note dated April 30, 2020, the Senior Secured Convertible Note (Series-A and Series-B), dated November 19, 2019, and the Senior Secured Convertible Note dated December 27, 2018, were each accounted for under the fair value option (“FVO”) election, wherein, each of the convertible notes were initially measured at their respective issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date, with the resulting fair value adjustment recognized as other income (expense) in the unaudited condensed consolidated statement of operations.

 

There were no fair value measurements as of June 30, 2021 as each of the convertible notes were previously repaid-in-full in the three months ended March 31, 2021, as discussed herein below in Note 7, Debt. The estimated fair value of each of the convertible notes as of December 31, 2020, 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, and were therefore classified within the Level 3 category, as the fair value 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 values reported utilized the Company’s common stock price along with certain Level 3 inputs, as discussed above, in the development of Monte Carlo simulation models, discounted cash flow analyses, and /or Black-Scholes valuation models. The estimated fair values are subjective and are affected by changes in inputs to the valuation models /analyses, including the Company’s common stock price, the Company’s dividend yield, the risk-free rates based on U.S. Treasury security yields, and certain other Level-3 inputs including, assumptions regarding the estimated volatility in the value of the Company’s common stock price. Changes in these assumptions can materially affect the estimated fair values.

 

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Note 7 — Debt

 

Convertible Notes

 

All of the convertible notes, as such convertible notes are discussed below, were repaid-in-full during the three months ended March 31, 2021. The fair value and face value principal of outstanding convertible notes at December 31, 2020 were as follows:

 

   Contractual
Maturity Date
  Stated Interest Rate   Conversion Price per Share   Face Value Principal Outstanding   Fair Value 
November 2019 Senior Secured Convertible Note  September 30, 2021   7.875%  $1.60   $956   $1,270 
April 2020 Senior Convertible Note  April 30, 2022   7.875%  $5