UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
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
(State or Other Jurisdiction of
Incorporation or Organization)
360 Madison Avenue
25th Floor
New York, NY
(Address of Principal Executive Offices)
47-1214177
(IRS Employer
Identification No.)
10017
(Zip Code)
(917) 813-1828
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each Class
Common Stock, $0.001 par value per share
Series Z Warrants, each to purchase 1/15th of one share of
Common Stock
Trading Symbol(s)
PAVM
Name of each Exchange on which Registered
The NASDAQ Stock Market LLC
PAVMZ
The NASDAQ Stock Market LLC
Securities registered under Section 12(g) of the Exchange Act:
None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
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
Non-accelerated filer
☐
☒
Accelerated filed
Smaller reporting company
Emerging growth company
☐
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to section 13(c) of the Exchange Act ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 2023, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s
voting stock held by non-affiliates was approximately $38.6 million, based on 6,312,137 shares of common stock held by non-affiliates and a last reported
sales price per share of the registrant’s common stock of $6.12 on such date.
As of March 21, 2024, there were 9,172,331 shares of the registrant’s Common Stock, par value $0.001 per share, issued and outstanding (with such
number of shares inclusive of shares of common stock underlying unvested restricted stock awards granted under the PAVmed Inc. 2014 Long-Term
Incentive Equity Plan as of such date).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 2024 annual meeting of stockholders are incorporated by reference into Part III of this Form
10-K where indicated. Such definitive proxy statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the year
ended December 31, 2023.
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A Risk Factors
Item 1B. Unresolved Staff Comments
Item 1C. Cybersecurity
Item 2. Property
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
[Reserved]
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.Quantitative and Qualitative Disclosure About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Item 10. Directors, Executive Officers, and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accountant Fees and Services
PART III
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
PART IV
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Form 10-K”), including the discussion and analysis of our consolidated financial condition and results of
operations set forth under Item 7 of this Form 10-K, contains forward-looking statements that involve substantial risks and uncertainties. All statements,
other than statements of historical facts, contained in this Form 10-K, including statements regarding our future results of operations and financial position,
business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “may,” “will,” “should,”
“expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or
the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements
contain these identifying words. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ
significantly from those expressed or implied in the forward-looking statements. Factors that might cause such differences include, but are not limited to,
those discussed in Item 1A of Part I of the Form 10-K under the heading “Risk Factors.”
Important factors that may affect our actual results include:
● our limited operating history;
● our financial performance, including our ability to generate revenue;
● our ability to obtain regulatory approval for the commercialization of our products;
● the risk that the FDA will cease to exercise enforcement discretion with respect to LDTs, like EsoGuard;
● the ability of our products to achieve market acceptance;
● our success in retaining or recruiting, or changes required in, our officers, key employees or directors;
● our potential ability to obtain additional financing when and if needed;
● our ability to protect our intellectual property;
● our ability to complete strategic acquisitions;
● our ability to manage growth and integrate acquired operations;
● the potential liquidity and trading of our securities;
● our regulatory and operational risks;
● cybersecurity risks;
● risks related to the COVID-19 pandemic and other health-related emergencies; and
● our estimates regarding expenses, future revenue, capital requirements and needs for additional financing.
In addition, our forward-looking statements do not reflect the potential impact of any future financings, acquisitions, mergers, dispositions, joint
ventures or investments we may make.
We may not actually achieve the results, plans, and/or objectives disclosed in our forward-looking statements, and the intended or expected
developments and/or other events disclosed in our forward-looking statements may not actually occur, and accordingly you should not place undue reliance
on our forward-looking statements. You should read this Annual Report on Form 10-K and the documents we have filed as exhibits to this Form 10-K
completely and with the understanding our actual future results may be materially different from what we expect. We do not assume any obligation to
update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
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Part I
Item 1. Business
Background and Overview
PAVmed is structured to be a multi-product life sciences company organized to advance a pipeline of innovative healthcare technologies. Led by a
team of highly skilled personnel with a track record of bringing innovative products to market, PAVmed is focused on innovating, developing, acquiring,
and commercializing novel products that target unmet needs with large addressable market opportunities. Leveraging our corporate structure—a parent
company that will establish distinct subsidiaries for each financed asset—we have the flexibility to raise capital at the PAVmed level to fund product
development, or to structure financing directly into each subsidiary in a manner tailored to the applicable product, the latter of which is our current strategy
given prevailing market conditions.
Our current focus is multi-fold. We continue to pursue commercial expansion and execution of EsoGuard, which is the flagship product of our
majority-owned subsidiary Lucid Diagnostics Inc. (Nasdaq: LUCD) (“Lucid” or “Lucid Diagnostics”). In addition, through a separate majority-owned
subsidiary, Veris Health Inc. (“Veris” or “Veris Health”), we are focused on entering into strategic partnership opportunities with leading academic
oncology systems to expand access to the Veris Platform. In terms of other existing products and technologies, we have created an incubator-type platform
where we are looking to obtain financing on a product-by-product basis as necessary to advance each asset to a meaningful inflection point along its path to
commercialization. Finally, as resources permit, we will continue to explore external innovations that fulfill our project selection criteria without limiting
ourselves to any target sector, specialty or condition.
EsoGuard and EsoCheck
We believe that the flagship product of our majority-owned subsidiary Lucid, the EsoGuard Esophageal DNA Test, performed on samples collected
with the EsoCheck Esophageal Cell Collection Device, constitutes the first and only commercially available diagnostic test capable of serving as a
widespread testing tool with the goal of preventing esophageal adenocarcinoma (“EAC”) deaths, through early detection of esophageal precancer in at-risk
gastroesophageal reflux disease (“GERD,” also commonly known as chronic heartburn, acid reflux or simply reflux) patients.
EsoGuard is a bisulfite-converted next-generation sequencing (NGS) DNA assay performed on surface esophageal cells collected with EsoCheck. It
quantifies methylation at 31 sites on two genes, Vimentin (VIM) and Cyclin A1 (CCNA1). The assay was evaluated in a 408-patient multicenter case-
control study published in Science Translational Medicine and showed greater than 90% sensitivity and specificity at detecting esophageal precancer and
all conditions along the BE-EAC spectrum, including on samples collected with EsoCheck (Moinova, et al. Sci Transl Med. 2018 Jan 17;10(424):
eaao5848). EsoGuard is commercially available in the U.S. as a Laboratory Developed Test (LDT) performed at our CLIA-certified laboratory. Cell
samples, including those collected with EsoCheck, as discussed below, are sent to our laboratory for testing and analyses using our proprietary EsoGuard
NGS DNA assay.
EsoCheck is an FDA 510(k) and CE Mark cleared noninvasive swallowable balloon capsule catheter device capable of sampling surface esophageal
cells in a less than five-minute office procedure. It consists of a vitamin pill-sized rigid plastic capsule tethered to a thin silicone catheter from which a soft
silicone balloon with textured ridges emerges to gently swab surface esophageal cells. When vacuum suction is applied, the balloon and sampled cells are
pulled into the capsule, protecting them from contamination and dilution by cells outside of the targeted region during device withdrawal. We believe this
proprietary Collect+Protect™ technology makes EsoCheck the only noninvasive esophageal cell collection device capable of such anatomically targeted
and protected sampling.
EsoGuard and EsoCheck are based on patented technology licensed by Lucid from Case Western Reserve University (“CWRU”). EsoGuard and
EsoCheck have been developed to provide accurate, non-invasive, patient-friendly testing for the early detection of EAC and Barrett’s Esophagus (“BE”),
including dysplastic BE and related pre-cursors to EAC in patients with chronic GERD.
Market Opportunity
In 2023, approximately 20,000 U.S. GERD patients are projected to be diagnosed with EAC and approximately 16,000 will die from it. Over 80% of
EAC patients will die within five years of diagnosis, making it the second most lethal cancer in the U.S. The U.S. incidence of EAC has increased 500%
over the past four decades, while the incidences of other common cancers have declined or remained flat. In nearly all cases, EAC silently progresses until
it manifests itself with new symptoms of advanced disease. EAC is nearly always invasive at diagnosis, and, unlike other common cancers, mortality rates
are high even in its earlier stages.
As discussed below under the heading “Clinical Guidelines for At-Risk Population”, in July 2022, the American Gastroenterology Association
(“AGA”) significantly expanded the target population for esophageal precancer screening, recommending screening in at-risk patients without symptoms of
GERD. Based on this revision, we believe the cohort recommended for screening consists of an estimated 30 million U.S. individuals with at least 3
established risk factors for BE. Accordingly, we believe EsoGuard’s total addressable U.S. market opportunity approximates $60 billion based on an
effective Medicare payment of $1,938 and the estimated 30 million U.S. patients recommended for screening by clinical practice guidelines. (In December
2019, we secured “gapfill” determination for EsoGuard’s PLA code 0114U through the CMS CLFS process. This allowed us to engage directly with
Medicare contractor Palmetto GBA and its MolDx Program on CMS payment and coverage. As discussed below under the heading “Reimbursement and
Market Access”, in October 2020, CMS granted EsoGuard final Medicare payment determination of $1,938.01, effective January 1, 2021.)
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Unfortunately, for a variety of reasons, less than 10% of at-risk patients who are recommended for screening undergo traditional invasive upper
gastrointestinal endoscopy (EGD). We believe that the profound tragedy of an EAC diagnosis is that likely death could have been prevented if the at-risk
patient had been screened and then undergone surveillance and curative endoscopic esophageal ablation of dysplastic BE.
Since mortality rates are high even in early stage EAC, preventing EAC deaths requires detection and intervention at the precancer stage. Most of the
necessary elements for such an early detection program are already well established—an at-risk population (at-risk GERD patients), a precancer (BE), and
an intervention which can halt progression to EAC (endoscopic esophageal ablation). Until recently, the only missing element for such an early detection
program is a widespread screening tool that can detect BE prior to EAC.
We believe EsoGuard, used with EsoCheck, constitutes that missing element—the first and only commercially available diagnostic test capable of
serving as a widespread testing tool with the goal of preventing EAC deaths through early detection of esophageal precancer and cancer in patients with 3
or more risk factors.
Clinical Guidelines for At-Risk Population
The subgroup of long-standing or severe GERD patients at-risk for BE and progression to EAC is well defined in clinical practice guidelines, including
the American College of Gastroenterology (“ACG”) BE Guidelines. In its Recommendation 5, the ACG suggests a single screening endoscopy in patients
with chronic GERD symptoms and 3 or more additional risk factors for BE, including male sex, age greater than 50 years, White race, tobacco smoking,
obesity, and family history of BE or EAC in a first-degree relative.
An ACG clinical guideline entitled “Diagnosis and Management of Barrett’s Esophagus: An Updated ACG Guideline,” the first such update since
2016, was published online in April 2022 in the American Journal of Gastroenterology. The clinical guideline reiterates the ACG’s long-standing
recommendation for esophageal precancer screening in at-risk patients with GERD. For the first time, however, the clinical guideline also endorses
nonendoscopic biomarker screening as an acceptable alternative to costly and invasive endoscopy stating that “a swallowable nonendoscopic capsule
device combined with a biomarker is an acceptable alternative to endoscopy for BE.” The clinical guideline specifically mentions EsoCheck, along with
Lucid’s EsophaCap® device, as such swallowable, nonendoscopic esophageal cell collection devices, as well as methylated DNA biomarkers such as
EsoGuard. The summary of evidence for this recommendation includes a reference to the seminal NIH-funded, multicenter, case-control study published in
2018 in Science Translational Medicine, which demonstrated that EsoGuard is highly accurate at detecting esophageal precancer and cancer, including on
samples collected with EsoCheck.
In July 2022, the American Gastroenterology Association (“AGA”) published in their “Clinical Practice Update on New Technology and Innovation
for Surveillance and Screening in Barrett’s Esophagus” updated clinical guidance that mirrors the same furnished by the ACG as described above,
endorsing the use of non-endoscopic cell collection tools to screen for BE like our EsoCheck Cell Collection Device, which is cited in the update, as an
acceptable alternative to endoscopy to directly address the need for noninvasive screening tools that are easy to administer, patient friendly, and cost-
effective for the detection of BE. The clinical practice update by the AGA also significantly expands the target population for esophageal precancer
screening, including for EsoGuard and EsoCheck, by recommending, for the first time, screening in at-risk patients without symptoms of GERD. The AGA
does so by adding a history of chronic GERD as merely an additional, seventh risk factor to the six risk factors for BE and EAC that have traditionally
identified at-risk symptomatic patients recommended for screening.
Commercialization
Our EsoGuard commercialization efforts span multiple channels including targeting primary care and GI physicians, who have generally embraced our
message that EsoGuard has the potential to expand the funnel of BE-EAC patients who will need long term EGD surveillance and, potentially, treatment
with endoscopic esophageal ablation.
To assure sufficient testing capacity and geographic coverage, we have undertaken multiple ways for patients have access to our test. Initially, we built
a limited network of our own physical Lucid Test Centers, staffed by Lucid-employed clinical personnel, where patients can undergo the EsoCheck
procedure and have the sample sent for EsoGuard testing at Lucid’s CLIA-certified laboratory. Our current test center network currently includes locations
in metropolitan areas in Arizona, California, Colorado, Florida, Idaho, Illinois, Nevada, Ohio, Oregon, Texas and Utah.
In addition to our own test center locations, we have broadened patient access to our test by establishing a satellite test center program, whereby we are
making our personnel available to perform cell collection services inside physician offices or in certain geographies, closely nearby physician offices (in
Florida, for the time being) by way of our Lucid Mobile Testing Unit.
Also, in January 2023, we completed our first #CheckYourFoodTube Precancer Testing Event, with the San Antonio Fire Department (the “SAFD”)
during Firefighter Cancer Awareness Month as designated by the International Association of Fire Fighters (IAFF). A total of 391 members who were
deemed to be at-risk for esophageal precancer, underwent a brief, on-site, noninvasive cell collection procedure, performed by our clinical personnel using
EsoCheck. Since then, additional testing events have been hosted with the SAFD, and many similar events have been held with fire departments throughout
the country. These events are ongoing and are an extension of Lucid’s satellite test center program, which brings our precancer testing directly to patients—
at their physician’s office and now at testing day events.
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In March 2023, we launched a Direct Contracting Strategic Initiative (“DCSI”) to engage directly with large Administrative Services Only (“ASO”)
self-insured employers, unions and other entities, seeking to replicate the successes of other cancer screening diagnostic companies that have deployed
similar strategies. In August 2023, we contracted with the Ancira Automotive Group as a result of this initiative, providing access to esophageal precancer
testing for its employees at all 12 San Antonio locations.
We have also established an EsoGuard Telemedicine Program, in partnership with UpScript, LLC, an independent third-party telemedicine provider,
that accommodates EsoGuard self-referrals from direct-to-consumer marketing.
Reimbursement and Market Access
As noted above, in December 2019, we secured “gapfill” determination for EsoGuard’s PLA code 0114U through the CMS CLFS process. This
allowed us to engage directly with Medicare contractor Palmetto GBA and its MolDx Program on CMS payment and coverage. In October 2020, CMS
granted EsoGuard final Medicare payment determination of $1,938.01, effective January 1, 2021.
A final Local Coverage Determination (“LCD”) L39256, entitled “Molecular Testing for Detection of Upper Gastrointestinal Metaplasia, Dysplasia,
and Neoplasia” became effective in May 2023 on the Center for Medicare and Medicaid Services (“CMS”) website by MAC Palmetto GBA. (A
substantially identical LCD was published by Noridian Healthcare Solutions, the MAC whose geographic jurisdiction covers our CLIA laboratory in Lake
Forest, CA.) The LCD outlines criteria for future coverage that MolDX expects upper gastrointestinal precancer and cancer molecular diagnostic tests to
meet. These criteria include active GERD with at least two risk factors, as well as evidence of analytic validity, clinical validity, and clinical utility.
Although the LCD indicated that it found that no currently existing test has fulfilled all these criteria, it indicated that it will “monitor the evidence and may
revise this determination based on the pertinent literature and society recommendations.” We expect to submit EsoGuard for Technical Assessment under
this foundational LCD later this year.
In parallel with preparing to submit EsoGuard for Technical Assessment with MolDX, Lucid is aggressively pursuing EsoGuard commercial insurer
payment and coverage. Although the claim adjudication cycle can be prolonged during the early commercialization of a new test, Lucid has received and
continues to receive out-of-network commercial insurance payments for the EsoGuard test, which accounts for the vast majority of our revenue to date.
Additionally, the legislatures in a number of states have passed laws mandating coverage of comprehensive biomarker testing over the past several
years. We believe that EsoGuard falls within the definition of a biomarker test and thus we are reviewing how to leverage legislation in those states to
expand access to EsoGuard.
Clinical Utility and Clinical Trials
Demonstrating EsoGuard’s clinical utility, which requires providing evidence that the test has a meaningful impact on clinical practice, is very
important for a variety of purposes, including, importantly, for Medicare and private payor payment and coverage. It has been established that one of the
most important factors to private payors in deciding whether to grant payment and coverage will be demonstration that the EsoGuard test, when ordered by
physicians, provides information that can be used to identify or exclude patients who would benefit from additional management and/or treatment. Clinical
utility studies are also important for general EsoGuard commercialization by facilitating physician understanding of test indications and potential benefit to
the patients.
Lucid continues to expand the EsoGuard and EsoCheck evidence portfolio with additional clinical utility, clinical validity, and analytical validity data
from a range of ongoing studies and those that have recently completed or will be completed in the upcoming year. These efforts include planned
publication of the results from the previously discussed “Multi-center, Single-arm EsoGuard clinical validation study” (“BE-1”) which will also be
presented at Digestive Disease Week (DDW) 2024; this third clinical validation study evaluated EsoGuard performance in the intended-use population.
Publication of real-world experience of EsoCheck as a nonendoscopic cell collection device is also planned (previously presented as a poster at DDW
2023), in addition to results from EsoGuard analytical validation studies performed by LucidDx Labs, and a summary of real-world outcomes from several
hundred patients who tested positive with EsoGuard and underwent confirmatory endoscopic evaluation. These four manuscripts will be submitted for peer
review in the first half of 2024.
The Lucid-sponsored multi-center, prospective, observational CLinical Utility of EsoGuard study (CLUE) with >500 subjects completed enrollment
in late 2023, and full results are expected to be published in mid-2024; results from an additional data snapshot of the Lucid-sponsored PREVENT and
PREVENT-Firefighter (FF) registries with a combined enrollment of >1,000 subjects are expected to be published in a similar timeframe. Both studies
capture information on the diagnostic and/or therapeutic journey of subjects following EsoGuard testing, and in addition to provider decision impact, will
contribute differing levels of clinical outcomes data to the Lucid evidence portfolio.
Similarly, results for the Lucid-sponsored virtual-patient study are expected to be ready for analysis in mid-2024.
Finally, the “EsoGuard case-control study” (“BE-2”), a Lucid-sponsored clinical validation study, resumed enrollment in 2023 and is expected to
continue through 2024. This data will further supplement what has previously been produced by the two NCI-funded studies (Moinova, et al. Sci Transl
Med. 2018; BETRNet).
Manufacturing
EsoCheck is currently manufactured for us by our partners Coastline International (“Coastline”), a high-volume device manufacturer, and Sage Product
Development. Our current line at Coastline can produce up to 25,000 units per year. With Coastline’s improvement and expansion, there is capacity to scale
exponentially. Our EsoGuard Specimen Kits are currently manufactured for us by our partner Path-Tec. The warehousing, logistics, fulfillment and
customer support of our products is managed for us by our partners HealthLink International (a leading third-party logistics company) and Path-Tec.
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License Agreement
Under the terms of Lucid’s license agreement with CWRU (as amended to date, the “Amended CWRU License Agreement”), Lucid acquired an
exclusive worldwide right to use the intellectual property rights to the EsoGuard and EsoCheck technology for the detection of changes in the esophagus
and on sample preservation. Lucid is required to pay CWRU royalties on net sales of licensed products as follows: 5% of net sales of less than $100 million
per year; and 8% of net sales greater than $100 million per year. Lucid is also required to pay CWRU minimum annual royalty payments as follows:
$50,000 per year, beginning January 1 following the first anniversary of a commercial sale of a licensed product; $150,000 per year, if net sales of a
licensed product exceed $25 million in a year; $300,000 per year, if net sales of a licensed product exceed $50 million in a year; and $600,000 per year, if
net sales of a licensed product exceed $100 million in a year. Minimum yearly royalty amounts are subject to increase based on the percentage change in
the CPI-W Consumer Price Index and are credited against the royalties otherwise due. The license agreement was subject to four regulatory and
commercialization milestones, of which one remains unachieved and unpaid. The remaining milestone is the FDA PMA submission of a licensed product,
upon the achievement of which we will pay CWRU a milestone payment of $200,000. The license agreement terminates upon the expiration of the last-to-
expire licensed patent, or on May 12, 2038, in countries where no such patents exist, or upon expiration of any exclusive marketing rights for a licensed
product that have been granted by FDA or other U.S. government agency, whichever comes later.
Regulatory
In June 2019, we received FDA 510(k) clearance to market EsoCheck in the U.S. as a device indicated for use in the collection and retrieval of surface
cells of the esophagus in adults followed by FDA 510(k) clearance in 2022, expanding the use of EsoCheck in adults and pediatric populations in the U.S.
In December 2019, our CLIA-certified then-laboratory partner, completed documentation of EsoGuard analytical validity allowing us to commercialize it
as a LDT.
In February 2020, we received FDA “Breakthrough Device Designation” for EsoGuard as an in-vitro diagnostic (“IVD”) medical device. The FDA
Breakthrough Device Program was created to offer patients more timely access to breakthrough technologies which provide for more effective treatment or
diagnosis of life-threatening or irreversibly debilitating human disease or conditions by expediting their development, assessment and review through
enhanced communications and more efficient and flexible clinical study design, including more favorable pre/post market data collection balance. The
Centers for Medicare and Medicaid Services and the United States Congress continue to work to provide an expedited coverage pathway for emerging
technologies.
In May 2021, we received CE Mark certification for EsoCheck (under the Medical Devices Directive 93/42/EEC), and in June 2021, we completed CE
Mark self-certification for EsoGuard (under the European In-Vitro Diagnostic Devices Directive (IVDD 98/79/EC)), indicating both may be marketed in
CE Mark European countries.
In October 2023, FDA proposed a policy under which FDA intends to phase out its general enforcement discretion approach for LDTs so that IVDs
manufactured by a laboratory would generally fall under the same enforcement approach as other IVDs. If finalized, FDA believes that this phaseout may
also foster the manufacturing of innovative IVDs for which FDA has determined there is a reasonable assurance of safety and effectiveness. As such, FDA
has structured the proposed phaseout policy to contain five key stages:
● Stage 1: End the general enforcement discretion approach with respect to Medical Device Regulation (MDR) requirements and correction and
removal reporting requirements 1 year after FDA publishes a final phaseout policy, which FDA intends to issue in the preamble of the final rule.
● Stage 2: End the general enforcement discretion approach with respect to requirements other than MDR, correction and removal reporting, Quality
System (QS), and premarket review requirements 2 years after FDA publishes a final phaseout policy.
● Stage 3: End the general enforcement discretion approach with respect to QS requirements 3 years after FDA publishes a final phaseout policy.
● Stage 4: End the general enforcement discretion approach with respect to premarket review requirements for high-risk IVDs 3.5 years after FDA
publishes a final phaseout policy, but not before October 1, 2027.
● Stage 5: End the general enforcement discretion approach with respect to premarket review requirements for moderate risk and low risk IVDs
(that require premarket submissions) 4 years after FDA publishes a final phaseout policy, but not before April 1, 2028.
It is currently anticipated that FDA will finalize the proposed policy by April 2024. Once the final policy is released, we will implement the QS
requirements in the recommended staged approach and conduct pre-submission meetings with FDA to seek agreement on regulatory pathway for EsoGuard
premarket submission. As required by the final policy, we will submit the regulatory premarket submission to the FDA as per the timeframe defined in the
final policy. We are confident that the proposed policy will not have a commercial impact as the Company already has a robust QS management platform
for medical devices and EsoGuard will be able to transition to the platform to fulfill the QS requirements, if and when required by the FDA.
Our longer-term strategy is to secure a specific indication, based on published guidelines, for BE testing in certain at-risk populations using EsoGuard
on samples collected with EsoCheck. This use of EsoGuard together with EsoCheck as a testing system must be cleared or approved by the FDA as an IVD
device.
Laboratory Operations
On February 25, 2022, our new, wholly owned subsidiary, LucidDx Labs Inc. (“LucidDx Labs”), acquired from ResearchDx Inc. (“RDx”), certain
licenses and other related assets necessary for LucidDx Labs to operate its own new CLIA-certified, CAP-accredited clinical laboratory located in Lake
Forest, CA. Since March 2022, we have conducted EsoGuard testing at our own laboratory with, until February 10, 2023, the assistance of RDx, which had
continued to provide certain testing and related services for the laboratory in accordance with the terms of a management services agreement (“MSA
RDx”). LucidDx Labs and RDx agreed to terminate the MSA RDx effective as of February 10, 2023, such that LucidDx Labs now operates the laboratory
itself, which the Company believes has improved the efficiency of the performance of the EsoGuard assay.
In November 2023, LucidDx Labs launched EsoGuard 2.0, which uses multiplexing thereby allowing both genes to be interrogated on a single DNA
sample. The next-generation assay underwent rigorous analytical and clinical validation studies, including head-to-head comparisons of multiplexed
triplicate consensus versus singleplex techniques, consistent with CLIA standards. Clinical validation analysis demonstrated improved sensitivity and
specificity for the detection of esophageal precancer, having demonstrated enhanced assay performance and lower costs in extensive validation studies.
4
Competition
The U.S. market for esophageal cancer (i.e., EAC) and pre-cancer (i.e., BE, with or without dysplasia) testing is large, consisting of more than 30
million at-risk individuals over the age of 50. Given the large market for pre-cancer testing, we likely will face numerous competitors, some of which
possess significantly greater financial and other resources and development capabilities than us. Our EsoGuard test faces competition from procedure-based
detection technologies such as upper endoscopy, and other testing technologies such as multi-cancer early detection products. Our EsoCheck device faces
competition from other manufactures with devices designed to collect cell samples from targeted regions of the esophagus. For example, EndoSign,
commercialized by Cyted, and much like Cytosponge and our own EsophaCap before it, is a small mesh sponge within a soluble gelatin capsule that needs
to reside in the stomach and then is pulled thru the targeted region brushing the lining of the esophagus and then later retrieved, although, unlike EsoCheck,
it is unprotected from sample contamination as the brush later passes regions of the upper esophagus and mouth. Our competitors may also be developing
additional methods of detecting esophageal cancer and pre-cancer that have not yet been announced.
Most of our existing and potential competitors have substantially greater financial, marketing, sales, distribution, manufacturing and technological
resources. We may be unable to compete effectively against our competitors either because their products and services are superior or more cost efficient,
or because they have access to greater resources than us. These competitors may have greater name recognition than we do. Many of these competitors
have obtained all desirable FDA or other regulatory approvals, and superior patent protection, for their products. Certain of our competitors have already
commercialized their products, and others may commercialize their products in advance of our products. In addition, our competitors may make technical
advances that render our products obsolete. We may be unable to respond to such technical advances.
Veris Platform
Overview
In May 2021, we formed Veris Health, a majority-owned subsidiary, focused on digital health technology. In connection with its formation, Veris
Health acquired Oncodisc, a digital health company with groundbreaking tools to improve personalized cancer care through remote patient monitoring.
Oncodisc’s core technologies include designs and patents that would be the foundation for the first intelligent implantable vascular access port with
biologic sensors and wireless communication, combined with an oncologist-designed remote digital healthcare platform that provides patients and
physicians with new tools to improve outcomes and optimize the delivery of cost-effective care through remote monitoring and data analytics.
Oncodisc was founded in 2018 by experienced physician entrepreneurs, James Mitchell, M.D., who joined Veris Health as its full-time Chief Medical
Officer, and Andrew Thoreson, M.D., who serves as a Veris Health consultant. They previously co-founded Redsmith, Inc., an interventional catheter
company whose technology was acquired by C.R. Bard Inc., now BD Inc. (NYSE: BDX). Oncodisc received a National Science Foundation (“NSF”)
Small Business Innovation Research (“SBIR”) grant award to support its early work and completed both the MedTech Innovator Accelerator and UCSF
Rosenman Institute Accelerator programs.
The Veris Platform is a digital cancer care platform with physiologic data collection, symptom reporting and telehealth functions, designed to improve
personalized cancer care through remote patient monitoring. Cancer patients enrolled in the Veris Platform receive a VerisBox™ with Veris-branded
Bluetooth enabled connected health care devices. The devices transmit clinical data to cancer care teams to detect early signs of common cancer-related
complications, provide longitudinal trends of physiologic and clinical data, and offer data-driven risk management tools for precision oncology. The Veris
Platform integrates directly with practices’ and systems’ Electronic Health Record (“EHR”) systems, allowing care teams to easily view and interact with
this data. We have also been developing a groundbreaking implantable physiologic monitor containing biologic sensors capable of generating continuous
data on key physiologic parameters known to predict adverse outcomes in cancer patients undergoing treatment and as resources permit, we will resume
further development activities for the implantable to bring it to market. The implantable will seamlessly interact with the Veris Platform. These
technologies are the subject of multiple patent applications and one issued patent.
Market Opportunity
In 2023, approximately 1.9 million people in the U.S. were newly diagnosed with cancer, and cancer incidence in the U.S. is expected to continue to
increase. Cancer patients face high rates of complications during the courses of their treatment which drive poor patient outcomes and healthcare costs. One
driver of these issues is avoidable hospitalizations. We believe Veris Health’s offerings can help drive costs down and improve outcomes through providing
care teams with better, more continuous data.
Based on the aforementioned cancer prevalence in the U.S. and our current business model, we believe Veris Health’s total addressable U.S. market
opportunity exceeds $2 billion. In the future, we believe this opportunity will only expand through the implantable physiologic monitor, data
commercialization, and the expansion into other markets aside from oncology.
5
Commercialization/Sales
We are currently pursuing strategic partnerships with leading academic oncology systems, whereby we would become the exclusive digital health
solution for these institutions’ oncology departments. More broadly, in terms of our commercialization strategy, we have a software-as-a-service recurring-
revenue business model where we seek to generate recurring revenue through oncology practice and hospital-based subscriptions. These entities pay
monthly fees for each patient on the platform, through which they are able to derive revenues from remote physiologic monitoring (and, in the future,
device implantation) under existing CPT codes. Veris also plans to build a commercialization model around the oncology data it is collecting, as resources
permit. We have identified multiple potential use cases across a number of verticals, including clinical trials, commercial use cases, and as a means to
improve patient care.
Manufacturing
The components comprising the Veris Platform are currently supplied to us by our partners TransTek and their U.S.-based subsidiary, Mio Labs. Each
has passed a SOC-2 audit by an outside auditor. The final packaging of the overall box and order fulfillment is managed by PAVmed at its Foxborough,
MA location. Customer support is currently managed internally, while partnering with Zendesk for customer service management.
Regulatory
The Veris Platform software is considered a non-device Medical Device Data System (“MDDS”) that is excluded from the statutory definition of a
medical device under the FDC Act and as confirmed in the FDA’s MDDS Guidance: Medical Device Data Systems, Medical Image Storage Devices, and
Medical Image Communications Devices. Therefore, the Veris Platform is not subject to the FDA’s regulatory requirements for devices.
Veris Health is also developing an implantable cardiac monitor and is currently interacting with the FDA via pre-submission process, seeking
agreement on regulatory strategy and required testing to seek clearance of the monitor. We plan to make our 510(k) submission for the implantable monitor,
which could happen as early as late 2024, if and to the extent resources permit us to do so.
Competition
The U.S. market for cancer patient care is large. There are many existing competitors in the remote physiological monitoring space, some of which
possess significantly greater financial and other resources and development capabilities than us. Our Veris Platform faces competition from other digital
care platforms providing many of the same features, including EHR integration and remote patient monitoring capabilities. While we are not aware of other
implantable physiologic monitors containing biologic sensors, our competitors may also be developing similar devices that have not yet been announced.
Incubator Program
On March 21, 2024, the Company announced that it has launched a wholly owned incubator, PMX, to complete development and commercialization
of existing portfolio technologies, including PortIO, EsoCure and CarpX. PMX and Hatch Medical, L.L.C. (“Hatch Medical”), a medical device incubator
and technology brokerage firm, have executed a joint venture agreement to advance the technologies.
Pursuant to the joint venture agreement, PAVmed will assign PortIO, EsoCure and CarpX to its wholly owned incubator, PMX. Starting with PortIO,
the Company will seek to independently finance a separate subsidiary of the incubator to develop and commercialize each technology. Hatch Medical will
provide strategic advisory and brokerage services to the subsidiary to advance the technology through key milestones and, subsequently, seek to engage a
strategic partner to acquire, license or distribute the commercial product.
Although the incubator, PMX, may seek to expand its portfolio with internal or externally sourced technologies in the future, its initial assets, as noted,
will include the following products:
PortIO
Our PortIO implantable intraosseous vascular access device is being developed as a means for infusing fluids, medications and other substances
directly into the bone marrow cavity and from there into the central venous circulation. The intraosseous route provides a means for infusing fluids,
medications and other substances directly into the bone marrow cavity which communicates with the central venous circulation via nutrient and emissary
veins. This route is well established, having been used for decades in a variety of settings including trauma, especially military trauma, and pediatric
emergencies. It has been shown to be bioequivalent to the intravenous route. Complication rates are low and there are few contraindications. Currently
available intraosseous devices pass through the skin into the bone and are therefore limited to short term use. PortIO is a novel, implantable intraosseous
vascular access device which does not require accessing the central venous system and does not have an indwelling intravascular component. It is designed
to be highly resistant to occlusion and, we believe, may not require regular flushing. It features simplified, near-percutaneous insertion and removal,
without the need for surgical dissection or radiographic confirmation.
Esocure
In connection with our efforts to expand our presence in the EAC diagnostic market, we were developing the EsoCure Esophageal Ablation Device,
with the intent to allow a clinician to treat dysplastic BE before it can progress to EAC, a highly lethal esophageal cancer, and to do so without the need for
complex and expensive capital equipment. We have successfully completed a pre-clinical feasibility animal study of EsoCure demonstrating excellent,
controlled circumferential ablation of the esophageal mucosal lining. An acute and survival animal study of EsoCure Esophageal Ablation Device has also
been completed, demonstrating successful direct thermal balloon catheter ablation of esophageal lining through the working channel of a standard
endoscope. When resources permit, we plan to conduct additional development work and animal testing of EsoCure to support a future FDA 510(k)
submission.
6
CarpX
CarpX is a patented, single-use, disposable, minimally invasive surgical device for use in the treatment of carpal tunnel syndrome. We believe CarpX
is designed to allow the physician to relieve the compression on the median nerve without an open incision or the need for endoscopic or other imaging
equipment, and therefore will be significantly less invasive than existing treatments. To use CarpX, the operator first advances a guidewire through the
carpal tunnel under the ligament, and then advanced over the wire and positioned in the carpal tunnel under ultrasonic and/or fluoroscopic guidance. When
the CarpX balloon is inflated it creates tension in the ligament positioning the cutting electrodes underneath it and creates space within the tunnel,
providing anatomic separation between the target ligament and critical structures such as the median nerve. Radiofrequency energy is briefly delivered to
the electrodes, rapidly cutting the ligament, and relieving the pressure on the nerve. We believe CarpX will be significantly less invasive than existing
treatments.
CarpX received FDA 510(k) marketing clearance in April 2020, with the first commercial procedure successfully performed in December 2020. In
May 2021 European CE Mark Certification was received for CarpX. Our limited-release commercialization efforts through 2022 were focused on engaging
key opinion hand surgeons designed to solicit input for ergonomic improvements to the device, procedure development and surgical-time optimization, and
ease of use. As a result of this clinical input, we have initiated a product development project to incorporate intraluminal ultrasound into the device to
include real time imaging of the ligament to be cut together with critical anatomic structures, and will continue to pursue that project, as resources permit.
Recent Developments
Business
Series Z Warrant Modification
On December 4, 2023, the Company announced the extension of the Company’s Series Z Warrants, by 12 months, to April 30, 2025.
In addition, as a result of the reverse stock split, described below, the Series Z Warrants became exercisable to purchase one whole share of common
stock of the Company at an exercise price of $24.00, which exercise price per whole share was further reduced to $23.48 as described below under the
heading “PAVmed Distribution of Lucid Diagnostics Common Stock to Shareholders”. The Company recognized the incremental value associated with the
Series Z Warrants modification for the term extension as a deemed dividend charge of $1.8 million and as an increase of net loss available to common
stockholders on the consolidated statements of operations in 2023.
Reverse Stock Split
On December 7, 2023, the Company implemented a 1-for-15 reverse stock split of its common stock and reduced its authorized shares from
250,000,000 to 50,000,000, each in accordance with shareholder approval granted at a March 31, 2023 special meeting of the Company’s stockholders. The
Company filed an amended Certificate of Incorporation reflecting the reduction in authorized shares.
The purpose of the reverse stock split was to regain compliance with the $1 minimum bid price requirement for continued listing on the Nasdaq
Capital Market. Indeed, on January 7, 2024, the Company received a letter from the Listing Qualifications Department of Nasdaq, stating the Company had
regained compliance with such requirement.
Management Services Agreement/Payroll Benefits and Expense Reimbursement Agreement with Lucid Diagnostics
On March 22, 2024, PAVmed and Lucid entered into an eighth amendment to the management services agreement between PAVmed and Lucid
(“MSA”) to increase the monthly fee thereunder from $0.75 million per month to $0.83 million per month, effective as of January 1, 2024. The amendment
also reset the maximum number of shares issuable under the agreement to 19.99% of the shares outstanding as of the date of the amendment.
On January 26, 2024, in accordance with the MSA and the payroll, benefits and expense reimbursement agreement between PAVmed and Lucid
(“PBERA”), PAVmed elected to receive payment of approximately $4.7 million of fees and reimbursements accrued under the MSA and the PBERA
through the issuance of 3,331,771 shares of Lucid’s common stock.
PAVmed Distribution of Lucid Diagnostics Common Stock to Shareholders
On February 15, 2024, the Company distributed by special dividend to the Company stockholders 3,331,747 shares of Lucid Diagnostics common
stock held by the Company. On such date, each PAVmed shareholder as of the January 15, 2024 record date received a stock dividend of approximately 38
shares of Lucid common stock for every 100 shares of PAVmed common stock they held as of such date. The shares distributed were approximately equal
to the number of shares of common stock that Lucid issued to PAVmed on or about January 26, 2024 in satisfaction of certain intercompany obligations due
to Lucid from PAVmed, as discussed above.
7
This distribution constituted an “Extraordinary Dividend” as defined in the warrant agreement that governs the Company’s Series Z Warrants. As a
result, pursuant to the warrant agreement, the exercise price under the Series Z Warrants per full share of PAVmed common stock was automatically
decreased by $0.52 (the fair market value of 0.37709668 of a share of Lucid Diagnostics’ common stock) to $23.48 per share.
Nasdaq Notice
On March 7, 2024, the Company received a notice from the Nasdaq Listing Qualifications Department stating that, for the preceding 30 consecutive
business days (through March 6, 2024), the market value of the Company’s listed securities (“MVLS”) had been below the minimum of $35 million
required for continued inclusion on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(2). The notification letter stated that the Company
would be afforded 180 calendar days (until September 3, 2024) to regain compliance. In order to regain compliance, the Company’s MVLS must close at
$35 million or more for a minimum of ten consecutive business days. The notification letter also states that in the event the Company does not regain
compliance prior to the expiration of the 180-day period, the Company will receive written notification that its securities are subject to delisting. The
Nasdaq notification has no effect at this time on the listing of the Company’s common stock or Series Z warrants, and the stock and warrants will continue
to trade uninterrupted under the symbol “PAVM” and “PAVMZ”, respectively.
Incubator Program
On March 21, 2024, the Company announced that it has launched a wholly owned incubator, PMX, to complete development and commercialization
of existing portfolio technologies, including PortIO, EsoCure and CarpX. PMX and Hatch Medical, L.L.C. (“Hatch Medical”), a medical device incubator
and technology brokerage firm, have executed a joint venture agreement to advance the technologies.
Pursuant to the joint venture agreement, PAVmed will assign PortIO, EsoCure and CarpX to its wholly owned incubator, PMX. Starting with PortIO,
the Company will seek to independently finance a separate subsidiary of the incubator to develop and commercialize each technology. Hatch Medical will
provide strategic advisory and brokerage services to the subsidiary to advance the technology through key milestones and, subsequently, seek to engage a
strategic partner to acquire, license or distribute the commercial product.
Financing
Securities Purchase Agreement - March 31, 2022 - Senior Secured Convertible Note - April 4, 2022 and Senior Secured Convertible Note - September 8,
2022
Effective as of March 12, 2024, the Company entered into an amendment and waiver (the “Note Amendment and Waiver”) with the holder of the April
2022 Senior Convertible Note and the September 2022 Senior Convertible Note (each such term as defined below). Pursuant to the Note Amendment and
Waiver, the maturity date of the April 2022 Senior Convertible Note was extended to April 4, 2025 and the maturity date of the September 2022 Senior
Convertible Note was extended to September 8, 2025, in each case subject to further extension in certain circumstances. The holder of the such note also
waived, for the period commencing on December 1, 2023 and ending on August 31, 2024, the financial covenant contained in such notes requiring that the
ratio of (a) the outstanding principal amount of the notes, accrued and unpaid interest thereon and accrued and unpaid late charges to (b) the Company’s
average market capitalization over the prior ten trading days, not exceed 30%, and that the Company’s market capitalization not be less than $75 million. In
consideration of the Note Amendment and Waiver, the Company agreed to pay the holder of the notes $2,000,000 in cash (or in such other form as may be
mutually agreed in writing) by April 25, 2024.
See our accompanying consolidated financial statements Note 13, Debt, for further discussion of the SPA dated March 31, 2022 and the senior
convertible notes.
Lucid Diagnostics - Preferred Stock Offerings
On March 13, 2024, Lucid entered into subscription agreements (each, a “Series B Subscription Agreement”) and exchange agreements (each, an
“Exchange Agreement”) with certain accredited investors (collectively, the “Series B Investors”), which agreements provided for (i) the sale to the Series B
Investors of 12,495 shares of Lucid’s newly designated Series B Convertible Preferred Stock, par value $0.001 per share (the “Lucid Series B Preferred
Stock”), at a purchase price of $1,000 per share, and (ii) the exchange by the Series B Investors of 13,625 shares of Lucid’s Series A Convertible Preferred
Stock, par value $0.001 per share (the “Lucid Series A Preferred Stock”), and 10,670 shares of Lucid’s Series A-1 Convertible Preferred Stock, par value
$0.001 per share (the “Lucid Series A-1 Preferred Stock”), held by them for 31,790 shares of Lucid Series B Preferred Stock (collectively, the “Lucid
Series B Offering and Exchange”). Prior to the execution of the Series B Subscription Agreements and the Exchange Agreements, Lucid entered into
subscription agreements with certain of the Series B Investors providing for the sale to such investors of 5,670 shares of Lucid Series A-1 Preferred Stock,
at a purchase price of $1,000 per share, which shares the investors immediately agreed to exchange for shares of Lucid Series B Preferred Stock pursuant to
the Exchange Agreements (and are included in the 10,670 shares of Lucid Series A-1 Preferred Stock set forth above). Each share of the Lucid Series B
Preferred Stock has a stated value of $1,000 and a conversion price of $1.2444. The terms of the Lucid Series B Preferred Stock also include a one times
preference on liquidation and a right to receive dividends equal to 20% of the number of shares of Lucid common stock into which such Lucid Series B
Preferred Stock is convertible, payable on the one-year and two-year anniversary of the issuance date. The Lucid Series B Preferred Stock is a voting
security. The aggregate gross proceeds to Lucid of these transactions was $18.16 million (inclusive of $5.67 million of aggregate gross proceeds from the
sale of the Lucid Series A-1 Preferred Stock that was immediately exchanged for Lucid Series B Preferred Stock in the transactions).
As a result of 100% of the then-outstanding shares of Lucid Series A Preferred Stock and Lucid Series A-1 Preferred Stock being exchanged for shares
of Lucid Series B Preferred Stock in the Lucid Series B Offering and Exchange, no shares of Lucid Series A Preferred Stock or Lucid Series A-1 Preferred
Stock remain outstanding.
On October 17, 2023, Lucid sold 5,000 shares of Lucid Series A-1 Preferred Stock, solely to accredited investors (all of which were including in the
10,670 shares of Lucid Series A-1 Preferred exchanged for Lucid Series B Preferred Stock in the Lucid Series B Offering and Exchange). The aggregate
gross proceeds to Lucid of this offering was $5.0 million.
PAVmed Inc. ATM Facility
In December 2021, we entered into an “at-the-market offering” for up to $50 million of our common stock that may be offered and sold under a
Controlled Equity Offering Agreement between us and Cantor. In March 2023, the “at-the-market offering” became subject to General Instruction I.B.6 of
Form S-3, which limits sales of our securities under this instruction in any 12-month period to one-third of the aggregate market value of our public float
(unless our public float rises to $75 million or more, in which case the instruction will cease to apply). As a result of this limitation and our then-current
public float, in May 2023, we amended our “at-the-market offering” to cover up to an additional $18 million of our common stock. In the year ended
December 31, 2023, the Company sold 321,288 shares through its at-the-market equity facility for net proceeds of approximately $1.8 million, after
payment of 3% commissions.
8
Intellectual Property
Our business will depend proprietary medical device and diagnostic technologies to commercialize. We own or have the right to use intellectual
property rights, such as patents, trademarks, copyrights, trade secrets and know-how, pertaining to our EsoCheck and EsoGuard technology, our Veris
technology and our EsoCure, CarpX and PortIO products, among other technologies and products.
We intend to vigorously protect our proprietary technologies’ intellectual property rights in patents, trademarks and copyrights, as available through
registration in the United States and internationally. Patent protection and other proprietary rights are thus essential to our business. We currently have
applied for, license or own 55 domestic and foreign patents across 11 families of products, including patents protecting our EsoCheck, EsoGuard and Veris
technology. Each of the technologies noted below is protected by multiple families, and only the earliest expiration for the first of the families is listed. The
date the patents protecting certain of our owned and licensed technology will first begin to expire is as set forth in the table below (although currently
pending patent applications, both foreign and domestic, are positioned to provide protection beyond such date in each instance). For EsoGuard, families are
pending that, when granted, will offer additional protections until at least 2037.
Technology
EsoCheck
EsoGuard
Veris Health
EsoCure
CarpX
PortIO
Year
May 2034
August 2024
November 2038
March 2036
November 2037
November 2035
Our policy is to aggressively file patent applications to protect our proprietary technologies including inventions and improvements to inventions. We
seek patent protection, as appropriate, on:
● the product itself including all embodiments with future commercial potential;
● the methods of using the product; and
● the methods of manufacturing the product.
In addition to filing and prosecuting patent applications in the United States, we intend to file counterpart patent applications in other countries
worldwide where there is a value in doing so. Foreign filings can be cumbersome and expensive, and we will pursue such filings when we believe they are
warranted as we try to balance our international commercialization plans with our desire to protect the global value of the technology.
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we
file, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, a patent’s term may be shortened if
a patent is terminally disclaimed over another patent or as a result of delays in patent prosecution by the patentee, and a patent’s term may be lengthened by
patent term adjustment (PTA), which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office (“USPTO”) in granting a
patent, or patent term extension, which restores time lost due to regulatory delays.
We intend to continuously reassess and fine-tune our intellectual property strategy in order to fortify our position in the United States and
internationally. Prior to acquiring or licensing a technology from a third party, we will evaluate the existing proprietary rights, our ability to adequately
obtain and protect these rights and the likelihood or possibility of infringement upon competing rights of others.
We also rely upon trade secrets, know-how, continuing technological innovation, and upon licensing opportunities, to develop and maintain our
competitive position. We intend to protect our proprietary rights through a variety of methods, including confidentiality agreements and/or proprietary
information agreements with suppliers, employees, consultants, independent contractors and other entities who may have access to proprietary information.
We will generally require employees to assign patents and other intellectual property to us as a condition of employment with us. All of our consulting
agreements will pre-emptively assign to us all new and improved intellectual property that arise during the term of the agreement.
PAVmed also has (directly or through its subsidiaries) proprietary rights to a range of trademarks, including, among others, PAVmed™, Lucid
Diagnostics™, LUCID™, VERIS™, Oncodisc™, CarpX®, EsoCheck®, EsoGuard®, EsoCheck Cell Collection Device®, Collect + Protect®, EsoCure
Esophageal Ablation Device™, and PortIO™. (Solely as a matter of convenience, trademarks and trade names referred to herein may or may not be
accompanied with the requisite marks of “™” or “®”. However, the absence of such marks is not intended to indicate, in any way, PAVmed Inc. or its
subsidiaries will not assert, to the fullest extent possible under applicable law, their respective rights to such trademarks and trade names.)
9
Health Insurance Coverage and Reimbursement
Our ability to successfully commercialize our products will depend in part on the extent to which governmental authorities, private health insurers and
other third-party payors provide coverage for and establish adequate reimbursement levels for the procedures during which our products are used.
In the United States, third-party payors continue to implement initiatives that restrict the use of certain technologies to those that meet certain clinical
evidentiary requirements. In addition to uncertainties surrounding coverage policies, there are periodic changes to reimbursement. Third-party payors
regularly update reimbursement amounts and also from time to time revise the methodologies used to determine reimbursement amounts. This includes
annual updates to payments to physicians, hospitals and ambulatory surgery centers for procedures during which our products are used. An example of
payment updates is the Medicare program’s updates to hospital and physician payments, which are done on an annual basis using a prescribed statutory
formula. In the past, when the application of the formula resulted in lower payment, Congress has passed interim legislation to prevent the reductions.
A product’s reimbursement profile, both in the U.S. and internationally, is an important component of the product’s commercial opportunity. We prefer
projects with existing reimbursement codes, the opportunity to seek reimbursement under higher-value surgical procedure codes or the potential to seek
reimbursement under narrow, product-specific codes as opposed to bundled procedure codes. For those products that have high strategic value, but with
less defined reimbursement, we have engaged reimbursement experts and support from industry associations to accelerate the acquisition of satisfactory
reimbursement levels.
See “EsoGuard and EsoCheck—Reimbursement and Market Access” above for a fuller discussion of the reimbursement status for EsoCheck and
EsoGuard.
Competition for New Medical Device Innovation
Developing and commercializing new products is highly competitive. The market is characterized by extensive research and clinical efforts and rapid
technological change. We face intense competition worldwide from medical device, biomedical technology and medical products and combination products
companies, including major medical products companies. We may be unable to respond to technological advances through the development and
introduction of new products. Most of our existing and potential competitors have substantially greater financial, marketing, sales, distribution,
manufacturing and technological resources. These competitors may also be in the process of seeking FDA or other regulatory approvals, or patent
protection, for new products. Our competitors may commercialize new products in advance of our products. Our products also face competition from
numerous existing products and procedures, some of which currently are considered part of the standard of care. We believe the principal competitive
factors in our markets are:
● the quality of outcomes for medical conditions;
● acceptance by surgeons and the medical device market generally;
● ease of use and reliability;
● technical leadership and superiority;
● effective marketing and distribution;
● speed to market; and
● product price and qualification for coverage and reimbursement.
We will also compete in the marketplace to recruit and retain qualified scientific, management and sales personnel, as well as in acquiring technologies
and licenses complementary to our products or advantageous to our business. We are aware of several companies that compete or are developing
technologies in our current and future products areas. In order to compete effectively, our products will have to achieve market acceptance, receive
adequate insurance coverage and reimbursement, be cost effective and be simultaneously safe and effective.
See “EsoGuard and EsoCheck—Competition” and “Veris Cancer Care Platform—Competition” above for a fuller discussion of the competitive
environment for our key products, EsoCheck, EsoGuard and the Veris Cancer Care Platform.
10
Government Regulation
Key U.S. Regulation
FDA Regulation
Before and after approval or clearance in the United States, our products are subject to extensive regulation by the FDA under the FDCA and/or the
Public Health Service Act, as well as by other regulatory bodies. FDA regulations govern, among other things, the development, testing, manufacturing,
labeling, safety, storage, recordkeeping, market clearance or approval, advertising and promotion, import and export, marketing and sales, and distribution
of medical devices and products.
In the United States, medical devices are subject to varying degrees of regulatory control and are classified in one of three classes depending on the
extent of controls the FDA determines are necessary to reasonably ensure their safety and efficacy:
● Class I: general controls, such as labeling and adherence to quality system regulations;
● Class II: special controls, pre-market notification (often referred to as a 510(k) application), specific controls such as performance standards,
patient registries, post-market surveillance, additional controls such as labeling and adherence to quality system regulations; and
● Class III: special controls and approval of a de novo request or PMA application, likely with clinical data requirements.
In general, the higher the classification, the greater the time and cost to obtain approval to market. There are no “standardized” requirements for
approval, even within each class. For example, FDA could grant 510(k) status, but require a human clinical trial, a typical requirement of a PMA. They
could also initially assign a device Class III status but end up clearing a device as a 510(k) device or under a de novo classification pathway if certain
requirements are met. The range of the number and expense of the various requirements is significant. The quickest and least expensive pathway would be
510(k) clearance with a review of existing bench and animal data. A de novo classification pathway would have a similar cost to seeking 510(k) clearance,
but with a slightly longer review timeline. The longest and most expensive path would be a PMA with extensive randomized human clinical trials. We
cannot predict fully how FDA will classify our products, nor predict what requirements will be placed upon us to obtain market clearance or approve our
products at all.
To request marketing authorization by means of a 510(k) clearance, we must submit a pre-market notification demonstrating the proposed device is
substantially equivalent to another currently legally marketed medical device, has the same intended use, and is as safe and effective as a currently legally
marketed device and does not raise different questions of safety and effectiveness than does a currently legally marketed device. 510(k) submissions
generally include, among other things, a description of the device and its manufacturing, device labeling, medical devices to which the device is
substantially equivalent, safety and biocompatibility information, and the results of performance testing. In some cases, a 510(k) submission must include
data from human clinical studies. Marketing may commence only when the FDA issues a clearance letter finding substantial equivalence. After a device
receives 510(k) clearance, any product modification that could significantly affect the safety or effectiveness of the product, or would constitute a
significant change in intended use, requires a new 510(k) clearance or, if the device would no longer be substantially equivalent, would require PMA, or
possibly, a de novo pathway under section 513(f)2 of the FDCA. In addition, any additional claims the Company wished to make at a later date may require
a PMA. If the FDA determines the product does not qualify for 510(k) clearance, they will issue a Not Substantially Equivalent letter, at which point the
Company must submit and the FDA must approve a PMA or issue premarket clearance using the de novo before marketing can begin.
In 1997, the Food and Drug Administration Modernization Act (FDAMA) added the de novo classification pathway under section 513(f)(2) of the
FDCA, establishing an alternate pathway to classify new devices into Class I or II that had automatically been placed in Class III after receiving a Not
Substantially Equivalent (NSE) determination in response to a 510(k) submission. In this process, a sponsor who receives an NSE determination may,
within 30 days of receiving notice of the NSE determination, request FDA to make a risk-based classification of the device under section 513(a)(1) of the
Act.
In 2012, section 513(f)(2) of the FDCA was amended by section 607 of the Food and Drug Administration Safety and Innovation Act (FDASIA), to
provide a second option for de novo classification. In this second pathway, a sponsor who determines there is no legally marketed device upon which to
base a determination of substantial equivalence may request FDA to make a risk-based classification of the device under section 513(a)(1) of the Act
without first submitting a 510(k).
During the review of a 510(k) submission, the FDA may request more information or additional studies and may decide the indications for which we
seek approval or clearance should be limited. In addition, laws and regulations and the interpretation of those laws and regulations by the FDA may change
in the future. We cannot foresee what effect, if any, such changes may have on us.
Clinical Trials of Medical Technology
One or more clinical trials may be necessary to support an FDA submission. Clinical studies of unapproved or uncleared medical devices or devices
being studied for uses for which they are not approved or cleared (investigational devices) must be conducted in compliance with FDA requirements. If an
investigational device could pose a significant risk to patients, the sponsor company must submit an Investigational Device Exemption, or IDE application
to the FDA prior to initiation of the clinical study. An IDE application must be supported by appropriate data, such as animal and laboratory test results,
showing it is safe to test the device on humans and the testing protocol is scientifically sound. The IDE will automatically become effective 30 days after
receipt by the FDA unless the FDA notifies the company the investigation may not begin. Clinical studies of investigational devices may not begin until an
institutional review board (“IRB”) has approved the study.
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During any study, the sponsor must comply with the FDA’s IDE requirements. These requirements include investigator selection, trial monitoring,
adverse event reporting, and record keeping. The investigators must obtain patient informed consent, rigorously follow the investigational plan and study
protocol, control the disposition of investigational devices, and comply with reporting and record keeping requirements. We, the FDA, or the IRB at each
institution at which a clinical trial is being conducted may suspend a clinical trial at any time for various reasons, including a belief the subjects are being
exposed to an unacceptable risk. During the approval or clearance process, the FDA typically inspects the records relating to the conduct of one or more
investigational sites participating in the study supporting the application.
Post-Approval Regulation of Medical Devices and Diagnostic Tests
After a device is cleared or approved for marketing, numerous regulatory requirements continue to apply. These include:
● the FDA Quality Systems Regulation (QSR), which governs, among other things, how manufacturers design, test manufacture, exercise quality
control over, and document manufacturing of their products;
● labeling and claims regulations, which prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on
labeling; and,
● the Medical Device Reporting regulation, which requires reporting to FDA of certain adverse experience associated with use of the product.
We will continue to be subject to inspection by FDA to determine our compliance with regulatory requirements.
Manufacturing cGMP Requirements
Manufacturers of medical devices are required to comply with FDA manufacturing requirements contained in the FDA’s current Good Manufacturing
Practices (cGMP) set forth in the quality system regulations promulgated under section 520 of the FDCA. cGMP regulations require, among other things,
quality control and quality assurance as well as the corresponding maintenance of records and documentation. Failure to comply with statutory and
regulatory requirements subjects a manufacturer to possible legal or regulatory action, including the seizure or recall of products, injunctions, consent
decrees placing significant restrictions on or suspending manufacturing operations, and civil and criminal penalties. Adverse experiences with the product
must be reported to the FDA and could result in the imposition of marketing restrictions through labeling changes or in product withdrawal. Product
approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur
following the approval. We expect to use contract manufacturers to manufacture our products for the foreseeable future we will therefore be dependent on
their compliance with these requirements to market our products. We work closely with our contract manufacturers to assure our products are in strict
compliance with these regulations.
Laboratory Certification, Accreditation and Licensing
Lucid’s CLIA-certified laboratory is subject to U.S. and state laws and regulations regarding the operation of clinical laboratories. CLIA requirements
and laws of certain states, including those of California, New York, Maryland, Pennsylvania, Rhode Island and Florida, impose certification requirements
for clinical laboratories, and establish standards for quality assurance and quality control, among other things. CLIA provides that a state may adopt
different or more stringent regulations than federal law and permits states to apply for exemption from CLIA if the state’s laboratory laws are equivalent to,
or more stringent than, CLIA. For example, the State of New York’s clinical laboratory regulations, which have received an exemption from CLIA, contain
provisions that are in certain respects more stringent than federal law. Therefore, as long as New York maintains a licensure program that is CLIA-exempt,
Lucid will need to comply with New York’s clinical laboratory regulations in order to offer Lucid clinical laboratory products and services in New York.
Lucid has current certificates to perform clinical laboratory testing. Clinical laboratories are subject to inspection by regulators and to sanctions for
failing to comply with applicable requirements. Sanctions available under CLIA and certain state laws include prohibiting a laboratory from running tests,
requiring a laboratory to implement a corrective plan, and imposing civil monetary penalties. If Lucid’s CLIA-certified laboratory fails to meet any
applicable requirements of CLIA or state law, that failure could adversely affect any future CMS consideration of its technologies, prevent their approval
entirely, and/or interrupt the commercial sale of any products and services and otherwise cause Lucid to incur significant expense.
Other U.S. Healthcare Regulation
In addition to FDA restrictions on marketing and promotion of drugs and devices, other federal and state laws restrict our business practices. These
laws include, without limitation, anti-kickback and false claims laws, data privacy and security laws, as well as transparency laws regarding payments or
other items of value provided to healthcare providers.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some
of our business activities, including certain sales and marketing practices and the provision of certain items and services to our customers, could be subject
to challenge under one or more of such laws. If our operations are found to be in violation of any of the health regulatory laws described above or any other
laws that apply to us, we may be subject to penalties, including potentially significant criminal and civil and administrative penalties, damages, fines,
disgorgement, imprisonment, exclusion from participation in government healthcare programs, contractual damages, reputational harm, administrative
burdens, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to
operate our business and our results of operations. To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign
laws, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and
implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.
In any event, we have established a substantial regulatory and compliance infrastructure that is designed to ensure compliance with these regulations.
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Physician Payment Sunshine Act
On February 8, 2013, the Centers for Medicare & Medicaid Services, or CMS, released its final rule implementing section 6002 of the Affordable Care
Act known as the Physician Payment Sunshine Act that imposes annual reporting requirements on device manufacturers for payments and other transfers of
value provided by them, directly or indirectly, to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and
their family members. A manufacturer’s failure to submit timely, accurately and completely the required information for all payments, transfers of value or
ownership or investment interests may result in civil monetary penalties of up to an aggregate of $150,000 per year, and up to an aggregate of $1 million
per year for “knowing failures.” Manufacturers that produce at least one product reimbursed by Medicare, Medicaid, or Children’s Health Insurance
Program and (i) if the product is a drug or biological, and it requires a prescription (or physician’s authorization) to administer; or (ii) if the product is a
device or medical supply, and it requires premarket approval or premarket notification by the FDA are required to comply with the Open Payments
(commonly referred to as the Sunshine Act) filing requirements under CMS. We currently do not have any products covered by Medicare, Medicaid, or
Children’s Health Insurance Program as none of our products have premarket approval or clearance notification. We expect once our products receive
regulatory clearance, we will be required to comply with the Sunshine Act provisions.
Certain states, also mandate implementation of commercial compliance programs, and other states impose restrictions on device manufacturer
marketing practices and require tracking and reporting of gifts, compensation and other remuneration to healthcare professionals and entities. The shifting
commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance or reporting
requirements in multiple jurisdictions increase the possibility a healthcare company may fail to comply fully with one or more of these requirements.
Federal Anti-Kickback Statute
The Federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving any remuneration
(including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering or arranging for
or recommending the purchase, lease or order of any good, facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid or other
federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value. Although there are a number of statutory
exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices
that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not
qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does
not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis
based on a cumulative review of all its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one
purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the Anti-Kickback Statute has been
violated.
Additionally, the intent standard under the Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act of 2010, as amended
by the Health Care and Education Reconciliation Act of 2010, collectively the Affordable Care Act, to a stricter standard such that a person or entity no
longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the Affordable Care
Act codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or
fraudulent claim for purposes of the federal civil False Claims Act.
Federal False Claims Act
The False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent
claim for payment or approval to the federal government or knowingly making, using or causing to be made or used a false record or statement material to
a false or fraudulent claim to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government.
The False Claims Act also applies to false submissions that cause the government to be paid less than the amount to which it is entitled, such as a rebate.
Intent to deceive is not required to establish liability under the False Claims Act. Several pharmaceutical, device and other healthcare companies have been
prosecuted under these laws for, among other things, allegedly providing free product to customers with the expectation that the customers would bill
federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of
products for unapproved, and thus noncovered uses.
The government may further prosecute, as a crime, conduct constituting a false claim under the False Claims Act. The False Claims Act prohibits the
making or presenting of a claim to the government knowing such claim to be false, fictitious, or fraudulent and, unlike civil claims under the False Claims
Act, requires proof of intent to submit a false claim.
The Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act, or the FCPA, prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of
anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign
entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the
United States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions
of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international
operations. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil fines, imprisonment,
disgorgement, oversight, and debarment from government contracts.
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Healthcare Reform
Current and future legislative proposals to further reform healthcare or reduce healthcare costs may result in lower reimbursement for our products, or
for the procedures associated with the use of our products, or limit coverage of our products. The cost containment measures that payors and providers are
instituting and the effect of any healthcare reform initiative implemented in the future could significantly reduce our revenues from the sale of our products.
Alternatively, the shift away from fee-for-service agreements to capitated payment models may support the value of our products which can be shown to
decrease resource utilization and lead to cost savings for both payors and providers.
HIPAA and Other Privacy Laws
The Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health
Act (“HIPAA”) established comprehensive protection for the privacy and security of health information. The HIPAA standards apply to three types of
organizations, or “Covered Entities”: health plans, healthcare clearinghouses, and healthcare providers that conduct certain healthcare transactions
electronically. Covered Entities and their business associates must have in place administrative, physical, and technical standards to guard against the
misuse of individually identifiable health information. Some of our activities, including at our Lucid Test Centers and within our clinical trials, involve
interactions with patients and their health information which implicate HIPAA. Our activities also involve us entering into specific kinds of relationships
with Covered Entities and business associates of Covered Entities, which also implicate HIPAA. Penalties for violations of HIPAA include civil money and
criminal penalties.
Our activities must also comply with other applicable privacy laws, which impose restrictions on the access, use and disclosure of personal
information. More state and international privacy laws are being adopted. Many state laws are not preempted by HIPAA because they are more stringent or
are broader in scope than HIPAA. Since 2020 we have also had to comply with the California Consumer Privacy Act of 2018, which protects personal
information other than health information covered by HIPAA. In the E.U., the General Data Protection Regulation (“GDPR”) took effect in May 2018 and
imposes increasingly stringent data protection and privacy rules. All of these laws may impact our business and may change periodically, which could have
an effect on our business operations if compliance becomes substantially costlier than under current requirements. Our failure to comply with these privacy
laws or significant changes in the laws restricting our ability to obtain stool, blood and other patient samples and associated patient information could
significantly impact our business and our future business plans.
Self-Referral Law
The federal “self-referral” law, commonly referred to as the “Stark” law, provides that physicians who, personally or through a family member, have
ownership interests in or compensation arrangements with a laboratory are prohibited from making a referral to that laboratory for laboratory tests
reimbursable by Medicare, and also prohibits laboratories from submitting a claim for Medicare payments for laboratory tests referred by physicians who,
personally or through a family member, have ownership interests in or compensation arrangements with the testing laboratory. The Stark law contains a
number of specific exceptions which, if met, permit physicians who have ownership or compensation arrangements with a testing laboratory to make
referrals to that laboratory and permit the laboratory to submit claims for Medicare payments for laboratory tests performed pursuant to such referrals. We
are subject to comparable state laws, some of which apply to all payors regardless of source of payment, and do not contain identical exceptions to the
Stark law.
International Regulation
In order to market any of our products outside of the United States, we would need to comply with numerous and varying regulatory requirements of
other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization,
commercial sales and distribution of our products. We may be subject to regulations and product registration requirements in the areas of product standards,
packaging requirements, labeling requirements, import and export restrictions and tariff regulations, duties and tax requirements. Whether or not we obtain
FDA approval for a product, we would need to obtain the necessary approvals by the comparable foreign regulatory authorities before we can commence
clinical trials or marketing of the product in foreign countries and jurisdictions. The time required to obtain clearance required by foreign countries may be
longer or shorter than that required for FDA clearance, and requirements for licensing a product in a foreign country may differ significantly from FDA
requirements.
European Union
The European Union (“EU”) will require a CE mark certification or approval in order to market our products in the various countries of the European
Union or other countries outside the United States. To obtain CE mark certification of our products, we will be required to work with an accredited
European notified body organization to determine the appropriate documents required to support certification in accordance with existing medical device
directive. The predictability of the length of time and cost associated with such a CE mark may vary or may include lengthy clinical trials to support such a
marking. Once the CE mark is obtained, we may market our product in the countries of the EU.
European Good Manufacturing Practices
In the European Union, the manufacture of medical devices is subject to good manufacturing practice (“GMP”), as set forth in the relevant laws and
guidelines of the European Union and its member states. Compliance with GMP is generally assessed by the competent regulatory authorities. Typically,
quality system evaluation is performed by a Notified Body, which also recommends to the relevant competent authority for the European Community CE
Marking of a device. The Competent Authority may conduct inspections of relevant facilities, and review manufacturing procedures, operating systems and
personnel qualifications. In addition to obtaining approval for each product, in many cases each device manufacturing facility must be audited on a periodic
basis by the Notified Body. Further inspections may occur over the life of the product.
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Other Laws
Occupational Safety and Health
In addition to its comprehensive regulation of health and safety in the workplace in general, the Occupational Safety and Health Administration has
established extensive requirements aimed specifically at laboratories and other healthcare-related facilities. In addition, because Lucid’s operations may
require employees to use certain hazardous chemicals, Lucid also must comply with regulations on hazard communication and hazardous chemicals in
laboratories. These regulations require Lucid, among other things, to develop written programs and plans, which must address methods for preventing and
mitigating employee exposure, the use of personal protective equipment, and training.
Specimen Transportation
Our commercialization activities for EsoGuard subject Lucid to regulations of the Department of Transportation, the United States Postal Service, and
the Centers for Disease Control and Prevention that apply to the surface and air transportation of clinical laboratory specimens.
Environmental
The cost of compliance with federal, state and local provisions related to the protection of the environment has had no material effect on our business.
There were no material capital expenditures for environmental control facilities in the years ended December 31, 2023 and 2022.
Employees
As of March 21, 2024 we had 107 employees (all of whom were full-time employees), inclusive of our executive officers — our Chairman of the
Board of Directors and Chief Executive Officer (“CEO”), our President and Chief Financial Officer (“CFO”), our Chief Operating Officer (“COO”), our
Chief Medical Officer (“CMO”) and our General Counsel and Secretary (“General Counsel”). No employees are covered by a collective bargaining
agreement. We consider our relationship with our employees to be good.
Corporate Information
We were incorporated in Delaware on June 26, 2014. Our corporate headquarters address is 360 Madison Avenue, 25th Floor, New York, NY 10017,
and our main telephone number is (917) 813-1828.
Available Information
We make available free of charge through our website (www.pavmed.com) our periodic reports and registration statements filed with the United States
Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-
K, and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the
“Exchange Act.” We make these reports available through our website as soon as reasonably practicable after we electronically file such reports with, or
furnish such reports to the SEC.
We also make available, free of charge on our website, the reports filed with the SEC by our named executive officers, directors, and 10% stockholders
pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after those filings are provided to us by those persons. The public also
may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE., Washington, DC 20549, on official
business days during the hours of 10 a.m. to 3 p.m. The public may obtain information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The SEC also maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and
other information regarding us that we file electronically with the SEC.
Our website address is www.pavmed.com. The content of our website is not incorporated by reference into this Annual Report on Form 10-K, nor in
any other report or document we file or furnish with and /or submit to the SEC, and any reference to our website are intended to be inactive textual
references only.
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Item 1A. Risk Factors
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and
uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or we presently deem less
significant may also impair our business operations. If any of the following risks occur, our business, financial condition, results of operations and future
growth prospects could be materially and adversely affected.
Risk Factor Summary
Our business is subject to numerous risks and uncertainties that you should consider before investing in our common stock. These risks are described
more fully below and include, but are not limited to, risks relating to the following:
Risks Related to Financial Position and Capital Resources
● We have incurred operating losses since our inception and may not be able to achieve profitability.
● We have concluded there is substantial doubt of our ability to continue as a going concern and our independent registered public accounting firm’s
report on our financial statements contains an explanatory paragraph describing our ability to continue as a going concern.
● We have faced significant challenges raising capital under the current market conditions, and therefore are highly dependent on the ability of each
of our subsidiaries to raise capital to fund its own and our operations.
● There can be no assurance that our common stock will continue to trade on the Nasdaq Capital Market or another national securities exchange.
● Our subsidiary Lucid may issue shares of its common and/or preferred stock in the future which could reduce the equity interest of PAVmed in
Lucid and might cause us to cease to control a majority of the voting stock of Lucid.
● Servicing our indebtedness may require a significant amount of cash, and the restrictive covenants contained in our indebtedness could adversely
affect our business plan, liquidity, financial condition, and results of operations.
● The accounting method for convertible debt securities that may be settled in cash, such as the Senior Convertible Notes, could have a material
effect on our reported financial results.
Risks Associated with Our Business
● We will need substantial additional funding and may be unable to raise capital when needed, which could force us to delay, reduce, eliminate or
abandon growth initiatives or product development programs.
● The markets in which we operate are highly competitive, and we may not be able to effectively compete against other providers of medical
devices, particularly those with greater resources.
● We have finite resources, which may restrict our success in commercializing our current products and other products we may develop, and we may
be unsuccessful in entering into or maintaining third-party arrangements to support our internal efforts.
● If we are unable to deploy and maintain effective sales, marketing and medical affairs capabilities, we will have difficulty achieving market
awareness and selling our tests and other products.
● Our products may never achieve market acceptance.
● Recommendations, guidelines and quality metrics issued by various organizations may significantly affect payors’ willingness to cover, and
healthcare providers’ willingness to prescribe, our products.
● We or our third-party manufacturers may not have the manufacturing and processing capacity to meet the production requirements of clinical
testing or consumer demand in a timely manner.
● We currently perform our EsoGuard test in one laboratory facility. If demand for our EsoGuard test grows, we may lack adequate facility space
and capabilities to meet increased processing requirements. Moreover, if these or any future facilities or our equipment were damaged or
destroyed, or if we experience a significant disruption in our operations for any reason, our ability to continue to operate our business could be
materially harmed.
● We may make investments in products we have not yet developed, and those investments may not be realized.
● We may not obtain the expected benefits of the incubator financing structure and may incur additional costs.
● Our products and services may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform
initiatives, thereby harming our business.
● Our products and services may cause serious adverse side effects or even death or have other properties that could delay or prevent their regulatory
approval, limit the commercial desirability of an approved label or result in significant negative consequences following any marketing approval.
● Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may
develop.
● We may not be able to protect or enforce our intellectual property rights, which could impair our competitive position.
● We may be subject to intellectual property infringement claims by third parties which could be costly to defend, divert management’s attention and
resources, and may result in liability.
● Competitors may violate our intellectual property rights, and we may bring litigation to protect and enforce our intellectual property rights, which
may result in substantial expense and may divert our attention from implementing our business strategy.
● Our business may suffer if we are unable to manage our growth.
● Our officers may allocate their time to other businesses thereby potentially limiting the amount of time they devote to our affairs. This conflict of
interest could have a negative impact on our operations.
● Our ability to be successful will be totally dependent upon the efforts of our key personnel.
● Our officers and directors have fiduciary obligations to other companies and, accordingly, may have conflicts of interest in determining to which
entity a particular business opportunity should be presented.
● Our business, financial condition and results of operations could be adversely affected by the political and economic conditions of the countries in
which we conduct business.
● Failure in our information technology or storage systems could significantly disrupt our operations and our research and development efforts,
which could adversely impact our revenues, as well as our research, development and commercialization efforts.
● We may become the subject of various claims, threats of litigation, litigation or investigations which could have a material adverse effect on our
business, financial condition, results of operations or price of our common stock.
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Risks Associated with Healthcare Regulation, Billing and Reimbursement, and Product Safety and Effectiveness
● If private or governmental third-party payors do not maintain reimbursement for our products at adequate reimbursement rates, we may be unable
to successfully commercialize our products which would limit or slow our revenue generation and likely have a material adverse effect on our
business.
● FDA has proposed a policy under which it would phase out its general enforcement discretion approach for LDTs so that IVDs manufactured at a
laboratory would generally fall under the same enforcement approach as other IVDs. While we are confident that the proposed policy will not
have a material impact on our business, there can be no assurance that will be the case.
● Any future products or services we may develop may not be approved for sale in the U.S. or in any other country. In order to obtain approval, we
may need to conduct clinical trials necessary to support a FDA 510(k) notice or PMA application will be expensive and will require the enrollment
of large numbers of patients, and suitable patients may be difficult to identify and recruit.
● The results of the Company’s clinical trials may not support our product candidate claims or may result in the discovery of adverse side effects.
● Even if we receive regulatory approval for any product we may develop, we will be subject to ongoing regulatory obligations and continued
regulatory review, which may result in significant additional expense and subject us to penalties if we fail to comply with applicable regulatory
requirements.
● Healthcare reform measures could hinder or prevent our products’ commercial success.
● If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be
adversely affected.
● The Company’s medical products may in the future be subject to product recalls that could harm its reputation, business and financial results.
● If the Company’s medical products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical
device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.
● If the Company is found to be promoting the use of its devices for unapproved or “off-label” uses or engaging in other noncompliant activities, the
Company may be subject to recalls, seizures, fines, penalties, injunctions, adverse publicity, prosecution, or other adverse actions, resulting in
damage to its reputation and business.
Risks Associated with Ownership of Our Common Stock
● We may issue shares of our common and /or preferred stock in the future which could reduce the equity interest of our stockholders and might
cause a change in control of our ownership.
● Our management and their affiliates control a substantial interest in us and thus may influence certain actions requiring a stockholder vote.
● A robust public market for our common stock may not be sustained, which could affect your ability to sell our common stock or depress the
market price of our common stock.
● Our stock price may be volatile, and purchasers of our securities could incur substantial losses.
● Our outstanding warrants and other convertible securities may have an adverse effect on the market price of our common stock.
● We do not intend to pay any cash dividends on our common stock at this time.
● We have made distributions of shares of Lucid common stock to our shareholders in the past, but there is no assurance we will do so in the future.
● We are subject to evolving corporate governance and public disclosure expectations and regulations that impact compliance costs and risks of
noncompliance.
● We incur significant costs as a result of our and Lucid Diagnostics operating as a public company, and our management will be required to devote
substantial time to compliance initiatives.
● If we experience material weaknesses in our internal control over financial reporting in the future, our business may be harmed.
● If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and
trading volume could decline.
● Provisions in our corporate charter documents and under Delaware law could make an acquisition of us more difficult and may prevent attempts
by our stockholders to replace or remove our current management.
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Risks Related to Financial Position and Capital Resources
We have incurred operating losses since our inception and may not be able to achieve profitability.
We have incurred net losses since our inception.
To date, since our inception in June 2014, we have financed our operations principally through issuances of common stock, preferred stock, warrants,
and debt, in both private placements and public offerings of our securities. Our ability to generate sufficient revenue from any of our products in
development, and to transition to profitability and generate consistent positive cash flows is dependent upon factors that may be outside of our control.
While we have taken steps to reduce operating expenses, we expect to continue to incur operating expenses in excess of our revenues as we continue to
maintain our commercial infrastructure, develop, enhance and commercialize products and incur additional operational and reporting costs associated with
being a public company. As a result, we expect to continue to incur operating losses for the foreseeable future.
We have concluded there is substantial doubt of our ability to continue as a going concern and our independent registered public accounting firm’s
report on our financial statements contains an explanatory paragraph describing our ability to continue as a going concern.
In our December 31, 2023 consolidated financial statements, we have concluded and stated that our recurring losses from operations, recurring cash
flows used in operations and the requirement that we will need to raise additional capital in order to fund our ongoing operations beyond March 2025 raise
substantial doubt regarding our ability to continue as a going concern. Additionally, our independent registered public accounting firm’s report on our
consolidated financial statements includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. Our
plans to address this going concern risk include pursuing further financings at Lucid in addition to the recently completed offering of Lucid Series B
Preferred Stock (Lucid has recently raised over $18 million in such offering), seeking to restructure our and Lucid Diagnostics’ outstanding indebtedness
and pursuing additional offerings of debt and/or equity securities. The consolidated financial statements do not include any adjustments that might result
from our inability to consummate such offerings or our ability to continue as a going concern. Moreover, there is no assurance if we consummate additional
offerings, we will raise sufficient proceeds in such offerings to pay our financial obligations as they become due. These factors raise substantial doubt about
our ability to continue as a going concern.
We have faced significant challenges raising capital under the current market conditions, and therefore are highly dependent on the ability of each of
our subsidiaries to raise capital to fund its own and our operations.
Due to challenging market conditions, we have found it difficult to raise capital directly into PAVmed. As a result, we have become highly dependent
on the ability of each of our subsidiaries to raise capital to fund their own operations. There is no assurance that our subsidiaries will be able to raise capital
as needed to fund its operations, or that any of them will be able to do so on commercially reasonable terms. Accordingly, the failure of any of our
subsidiaries to raise the capital it needs to fund its operations, could have a material adverse effect on the portion of our business related to such subsidiary.
In addition, because of the challenges PAVmed has faced in terms of raising capital, we are highly dependent on our subsidiaries, including Lucid
Diagnostics, as resources for funding our operations (notably, PAVmed may elect that Lucid Diagnostics satisfy its obligations under our management
services agreement through cash payment). If Lucid Diagnostics is unable to continue to make any such cash payments we elect to receive, or determines to
terminate the management services agreement (i.e., because it retains its own management team to oversee its operations), and PAVmed is unable to raise
sufficient capital itself, it may not have sufficient capital to fund its operations, which in turn could have a material adverse effect on our business. All
intercompany obligations between PAVmed, on the one hand, and any of its subsidiaries (including Lucid Diagnostics), on the other hand, are subject to
approval by the PAVmed board and the board of the applicable subsidiary (including, in the case of Lucid Diagnostics, their independent directors).
There can be no assurance that our common stock will continue to trade on the Nasdaq Capital Market or another national securities exchange.
There can be no assurance that we will be able to continue to meet Nasdaq Capital Market listing standards. If we are unable to maintain compliance
with all applicable listing standards, our common stock may no longer be listed on the Nasdaq Capital Market or another national securities exchange and
the liquidity and market price of our common stock may be adversely affected.
On March 7, 2024, the Company received a notice from the Nasdaq Listing Qualifications Department stating that, for the preceding 30 consecutive
business days (through March 6, 2024), the market value of the Company’s listed securities (“MVLS”) had been below the minimum of $35 million
required for continued inclusion on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(2). The notification letter stated that the Company
would be afforded 180 calendar days (until September 3, 2024) to regain compliance. In order to regain compliance, the Company’s MVLS must close at
$35 million or more for a minimum of ten consecutive business days. The notification letter also states that in the event the Company does not regain
compliance prior to the expiration of the 180-day period, the Company will receive written notification that its securities are subject to delisting. There can
be no assurance that the Company will be able to regain compliance by such deadline, in which case, unless the Company is able to obtain an extension for
regaining compliance, the Company’s stock would be delisted. If we were so delisted, that could have a material adverse effect on your investment in the
Company, including without limitation by substantially reducing the liquidity of our common stock, and by further limiting our access to capital markets
for fundraising.
Our subsidiary Lucid may issue shares of its common and/or preferred stock in the future which could reduce the equity interest of PAVmed in Lucid
and might cause us to cease to control a majority of the voting stock of Lucid.
As of the date hereof, our subsidiary Lucid has issued 44,285 shares of Lucid Series B Preferred Stock. If the maximum amount of common stock
underlying such securities were issued (including shares of Lucid common stock issued as a dividend thereon), the percentage of shares of Lucid common
stock held by PAVmed would be reduced from approximately [●]% to approximately [●]%. This reduced percentage would be further diluted in the event
of future convertible debt or stock issuances by Lucid or by issuances under Lucid’s long-term incentive plan and employee stock purchase plan. While
PAVmed would still retain a large ownership interest in Lucid in such event, it may cease to control the vote on matters requiring shareholder approval,
including the election of Lucid’s board of directors.
Servicing our indebtedness may require a significant amount of cash, and the restrictive covenants contained in our indebtedness could adversely affect
our business plan, liquidity, financial condition, and results of operations.
We and our subsidiaries may be required to repay or redeem, or to pay interest on, the April 2022 Senior Convertible Note, the September 2022 Senior
Convertible Note and the March 2023 Lucid Senior Convertible Note (collectively, the “Senior Convertible Notes”) or any future permitted indebtedness
incurred by us or our subsidiaries, in cash. Despite our right to pay the interest and principal balance of the Senior Convertible Notes by issuing shares of
our common stock, we may be required to repay such indebtedness in cash, if we do not meet certain customary equity conditions (including minimum
price and volume thresholds) or in certain other circumstances. For example, we may be required to repay the outstanding principal balance and accrued
but unpaid interest, along with a premium, upon the occurrence of certain changes of control or an event of default.
Our ability to make payments of the principal of, to pay interest on, or to redeem our indebtedness in cash, depends on our future performance, which
is subject to economic, financial, competitive and other factors beyond our control. We have not generated material revenue from operations to date, and
our business may not generate cash flow from operations in the future sufficient to service our indebtedness and make necessary capital expenditures. In
addition, the Senior Convertible Notes contain, and any future indebtedness may contain, restrictive covenants, including financial covenants. These
payment obligations and covenants could have important consequences on our business. In particular, they could:
● require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness;
● limit, among other things, our ability to borrow additional funds and otherwise raise additional capital, and our ability to conduct acquisitions,
joint ventures or similar arrangements, as a result of our obligations to make such payments and comply with the restrictive covenants in the
indebtedness;
● limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate;
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● increase our vulnerability to general adverse economic and industry conditions; and
● place us at a competitive disadvantage compared to our competitors that have lower fixed costs.
The debt service requirements of any other permitted indebtedness we incur or issue in the future, as well as the restrictive covenants contained in the
governing documents for any such indebtedness, could intensify these risks. For example, while the Company is currently in compliance with the financial
covenants under the Senior Convertible Notes it has issued, from time to time since the date of issuance of such notes (including, in the case of the
indebtedness to market capitalization ratio test under such notes, as of December 31, 2023), the Company was not in compliance with certain financial
covenants thereunder. The holders of such notes agreed to waive any such non-compliance through August 31, 2024 in consideration of our agreement to
pay a $2,000,000 consent fee in cash (or in such other form as may be mutually agreed in writing) by April 25, 2024. However, there can be no assurance
that we will have the cash to make such payment or that the holders will be willing to accept payment in another form of consideration, or if they are
willing to do so, that it will be on terms and conditions agreeable to us. There is also no assurance that the holders will be willing to waive any future non-
compliance with this or any other provision under the Senior Convertible Notes, or if they are willing to do so, if the terms on which they are so willing
will be acceptable to us.
If we are unable to make the required cash payments, there could be a default under one or more of the instruments governing our indebtedness. Any
such default or acceleration may further result in an event of default and acceleration of our other indebtedness. In such event, or if a default otherwise
occurs under our indebtedness, including as a result of our failure to comply with the financial or other covenants contained therein, the holders of our
indebtedness could require us to immediately repay the outstanding principal and interest on such indebtedness in cash, in some cases subject to a premium.
Furthermore, the holders of our secured indebtedness could foreclose on their security interests in our assets.
If we are required to make payments under our indebtedness in cash and are unable to generate sufficient cash flow from operations, we may be
required to sell assets, or we may seek to refinance the remaining balance, by either refinancing with the holder of the indebtedness, by raising sufficient
funds through a sale of equity or debt securities or by obtaining a credit facility. No assurances can be given that we will be successful in making the
required payments under our indebtedness, or in refinancing our obligations on favorable terms, or at all. Our ability to refinance our indebtedness will
depend on the capital markets and our financial condition at such time. A failure to refinance could have a material adverse effect on our liquidity, financial
position, and results of operations. Should we refinance, it could be dilutive to shareholders or impose onerous terms on us.
The accounting method for convertible debt securities that may be settled in cash, such as the Senior Convertible Notes, could have a material effect on
our reported financial results.
In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement), which has subsequently been codified as Accounting
Standards Codification 470-20, Debt with Conversion and Other Options, or “ASC 470-20.” Under ASC 470-20, an entity must separately account for the
liability and equity components of the convertible debt instruments (such as the Senior Convertible Notes) that may be settled entirely or partially in cash in
a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the Senior Convertible Notes is that the equity
component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet and the value of the
equity component would be treated as original issue discount for purposes of accounting for the debt component of the Senior Convertible Notes. As a
result, we will be required to record a greater amount of non-cash interest expense in current periods presented as a result of the amortization of the
discounted carrying value of the Senior Convertible Notes to their face amount over the term of the Senior Convertible Notes. We will report lower net
income in our financial results because ASC 470-20 will require interest to include both the current period’s amortization of the debt discount and the
instrument’s coupon interest, which could adversely affect our reported or future financial results, and the market price of our common stock.
In addition, under certain circumstances, convertible debt instruments (such as the Senior Convertible Notes) that may be settled entirely or partially in
cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the Senior
Convertible Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the Senior Convertible
Notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the
number of shares of our common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be
sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable to use the treasury stock
method in accounting for the shares issuable upon conversion of the Senior Convertible Notes, then our diluted earnings per share would be adversely
affected.
Risks Associated with Our Business
We will need substantial additional funding and may be unable to raise capital when needed, which could force us to delay, reduce, eliminate or
abandon growth initiatives or product development programs.
We intend to continue to try to raise capital through each of our subsidiaries to support our business growth. Because we have not generated substantial
revenue or cash flow to date, unless we are able to generate substantial revenue in the near-term (which we do not anticipate being able to do), we will
require additional funds to:
● Continue our research and development;
● Pursue clinical trials;
● Commercialize our new products and services;
● Achieve market acceptance of our products and services;
● Establish and expand our sales, marketing, and distribution capabilities for our products and services;
● Protect our intellectual property rights or defend, in litigation or otherwise, any claims we infringe third-party patents or other intellectual property
rights;
● Invest in businesses, products and technologies, although we currently have no commitments or agreements relating to do so;
● Otherwise fund our operations.
If we do not have, or are not able to obtain, sufficient funds, we may have to delay product development initiatives or license to third parties the rights
to commercialize products or technologies we would otherwise seek to market. We also may have to reduce marketing, customer support or other resources
devoted to our products.
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The markets in which we operate are highly competitive, and we may not be able to effectively compete against other providers of medical devices,
particularly those with greater resources.
We face intense competition from companies with dominant market positions in the medical device industry. These competitors have significantly
greater financial, technical, marketing and other resources than we have and may be better able to:
● respond to new technologies or technical standards;
● react to changing customer requirements and expectations;
● acquire other companies to gain new technologies or products may displace our products;
● manufacture, market and sell products;
● acquire, prosecute, enforce and defend patents and other intellectual property;
● devote resources to the development, production, promotion, support and sale of products; and
● deliver a broad range of competitive products at lower prices.
We expect competition in the markets in which we participate to continue to increase as existing competitors improve or expand their product
offerings.
We have finite resources, which may restrict our success in commercializing our current products and other products we may develop, and we may be
unsuccessful in entering into or maintaining third-party arrangements to support our internal efforts.
To grow our business as planned, we must expand our sales, marketing and customer support capabilities, which will involve developing and
administering our commercial infrastructure and/or collaborative commercial arrangements and partnerships. We must also maintain satisfactory
arrangements for the manufacture and distribution of our tests and other products.
The only two products, EsoGuard and the Veris Cancer Care Platform, that we are actively seeking to commercialize have not generated substantial
revenue from product sales to date. Accordingly, we will need to find other sources of capital to fund their activities, and there can be no assurance that we
will be able to do so. We may also encounter difficulties retaining and managing the specialized workforce our activities require. We may seek to partner
with others to assist us with any or all of these functions, although we may be unable to find appropriate third parties with whom to enter into these
arrangements.
If we are unable to deploy and maintain effective sales, marketing and medical affairs capabilities, we will have difficulty achieving market awareness
and selling our tests and other products.
To achieve commercial success for our EsoGuard test and the Veris Cancer Care Platform, as well as any products we commercialize in the future, we
must continue to develop and grow our sales, marketing and medical affairs organizations to effectively explain to healthcare providers the reliability,
effectiveness and benefits of our current and future tests and other products as compared to alternatives. We may not be able to successfully manage our
dispersed or inside sales forces or our sales force may not be effective. Because of the competition for their services, we may be unable to hire, partner with
or retain additional qualified sales representatives or marketing or medical affairs personnel, either as our employees or independent contractors or through
independent sales or other third-party organizations. Market competition for commercial, marketing and medical affairs talent is significant, and we may
not be able to hire or retain such talent on commercially reasonable terms, if at all.
Establishing and maintaining sales, marketing and medical affairs capabilities will be expensive and time-consuming. Our expenses associated with
maintaining our sales force may be disproportional compared to the revenues we may be able to generate on sales of our EsoGuard test and the Veris
Cancer Care Platform or any future tests or other products. Establishing and maintaining these capabilities may require our raising additional capital, which
we may be unable to do.
Our products may never achieve market acceptance.
To date, we have not generated significant sales revenues from our products and services. Our ability to generate sales revenues from product and
services, and to achieve profitability will depend upon our ability to successfully commercialize our products and services. As we only relatively recently
began to market our two products and services for sale, we have no basis to predict whether our current products and services (or potential future products
and services) will achieve market acceptance. A number of factors may limit the market acceptance of any of our products, including:
● the timing of regulatory approvals of our products and services and market entry compared to competitive products;
● the effectiveness of our products and services, including any potential side effects, as compared to alternative treatments;
● the rate of adoption of our products and services by hospitals, doctors and nurses and acceptance by the health care community;
● the labeling and /or inserts required by regulatory authorities for each of our products and services;
● the competitive features of our products and services, including price, as compared to other similar products and services;
● the availability of insurance or other third-party reimbursement, such as Medicare, for patients using our products and services;
● the extent and success of our marketing efforts and those of our collaborators; and
● unfavorable publicity concerning our products and services or similar products and services.
Recommendations, guidelines and quality metrics issued by various organizations may significantly affect payors’ willingness to cover, and healthcare
providers’ willingness to prescribe, our products.
Securing influential recommendations, inclusion in healthcare guidelines and inclusion in quality measures are keys to our healthcare provider and
payor engagement strategies. These guidelines, recommendations and quality metrics may shape payors’ coverage decisions and healthcare providers’
cancer screening procedures. There can be no assurance that we will be able to secure such recommendations or inclusion in healthcare guidelines and
inclusion in quality measures. Any such failures could have a material impact on our ability to commercialize our products.
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We or our third-party manufacturers may not have the manufacturing and processing capacity to meet the production requirements of clinical testing
or consumer demand in a timely manner.
Our capacity to conduct clinical trials and commercialize our products will depend in part on our ability to manufacture or provide our products on a
large scale, at a competitive cost and in accordance with regulatory requirements. We must establish and maintain a commercial scale manufacturing
process for all of our products to complete clinical trials. We or our third-party manufacturers may encounter difficulties with these processes at any time
that could result in delays in clinical trials, regulatory submissions or the commercialization of products.
Initially, we will not directly manufacture our products and will rely on third parties to do so for us. If our manufacturing and distribution agreements
are not satisfactory, we may not be able to develop or commercialize products as planned. In addition, we may not be able to contract with third parties to
manufacture our products in an economical manner. Furthermore, third-party manufacturers may not adequately perform their obligations, may delay
clinical development or submission of products for regulatory approval or otherwise may impair our competitive position. We may not be able to enter into
or maintain relationships with manufacturers that comply with good manufacturing practices. If a product manufacturer fails to comply with good
manufacturing practices, we could experience significant time delays or we may be unable to commercialize or continue to market the products. Changes in
our manufacturers could require costly new product testing and facility compliance inspections. In the United States, failure to comply with good
manufacturing practices or other applicable legal requirements can lead to federal seizure of violative products, injunctive actions brought by the federal
government, and potential criminal and civil liability on the part of a company and its officers and employees. Because of these and other factors, we may
not be able to replace our manufacturing capacity quickly or efficiently in the event that our manufacturers are unable to manufacture our products at one or
more of their facilities. As a result, the sales and marketing of our products could be delayed or we could be forced to develop our own manufacturing
capacity, which could require substantial additional funds and personnel and compliance with extensive regulations.
The manufacturing processes for our products have not yet been tested at commercial levels, and it may not be possible to manufacture or process
these materials in a cost-effective manner.
We currently perform our EsoGuard test in one laboratory facility. If demand for our EsoGuard test grows, we may lack adequate facility space and
capabilities to meet increased processing requirements. Moreover, if these or any future facilities or our equipment were damaged or destroyed, or if we
experience a significant disruption in our operations for any reason, our ability to continue to operate our business could be materially harmed.
We currently perform the EsoGuard test in a single laboratory facility in Lake Forest, CA. The laboratory facility, without purchasing additional lab
equipment applicable to our test, is expected to have an annual capacity of approximately 50,000 tests per year. If demand for the EsoGuard test outstrips
this capacity, and we fail to add additional equipment and staff, or complete, or timely complete, an expansion of its available laboratory facilities, it may
significantly delay our EsoGuard processing times and limit the volume of EsoGuard tests we can process, which may adversely affect our business,
financial condition and results of operation. In addition, our financial condition may be adversely affected if they are unable to complete these expansion
projects on budget and otherwise on terms and conditions acceptable to us. Finally, our financial condition will be adversely affected if demand for our
products and services does not materialize in line with our current expectations and if, as a result, we end up building excess capacity that does not yield a
reasonable return on our investment.
If our present, or any future, laboratory facilities were to be damaged, destroyed or otherwise unable to operate, whether due to fire, floods, storms,
tornadoes, other inclement weather events or natural disasters, employee malfeasance, terrorist acts, power outages, or otherwise, our business could be
severely disrupted. We may not be able to perform our EsoGuard test or generate test reports as promptly as patients and healthcare providers require or
expect, or possibly not at all. If we are unable to perform our EsoGuard test or generate test reports within a timeframe that meets patient and healthcare
provider expectations, our business, financial results and reputation could be materially harmed.
We currently maintain insurance against damage to our property and equipment and against business interruption, subject to deductibles and other
limitations. If we have underestimated our insurance needs with respect to an interruption, or if an interruption is not subject to coverage under our
insurance policies, we may not be able to cover our losses.
We may make investments in products we have not yet developed, and those investments may not be realized.
We may expend considerable funds and other resources on the development of new and existing products without any guarantee these products will be
successful. If we are not successful in bringing one or more products to market, whether because we fail to address marketplace demand, fail to develop
viable technologies or otherwise, we may not generate any revenues and our results of operations could be seriously harmed.
We may not obtain the expected benefits of the incubator financing structure and may incur additional costs.
We believe that the incubator financing structure will provide us with future benefits. These expected benefits are not guaranteed and may not be
obtained if market conditions or other circumstances prevent us from taking advantage of the investment, financing and structuring flexibility we expect to
gain as a result of the incubator financing structure. If we fail to achieve some or all of the expected benefits of our incubator financing structure, it could
have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows. The implementation of our
incubator financing structure also may result in substantial direct costs, which are expected to consist primarily of attorneys’ fees and accountants’ fees, as
well as loss of certain efficiencies. Moreover, the incubator financing structure may be not fully insulate the liabilities of our subsidiaries from each other or
from PAVmed, especially if we do not observe the requisite corporate formalities or adequately capitalize PAVmed or its subsidiaries.
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Our products and services may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives,
thereby harming our business.
The regulations that govern marketing approvals, pricing and reimbursement for new products vary widely from country to country. Some countries
require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing approval is
granted. In some foreign markets, pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might
obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product and
negatively impact the revenue we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to
recoup our investment in one or more other products we may develop, even if our other products we may develop obtain regulatory approval.
Our ability to commercialize any products we may develop successfully also will depend in part on the extent to which reimbursement for these
products and related treatments becomes available from government health administration authorities, private health insurers and other organizations.
Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which treatments they will pay
for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and
these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular treatments. We cannot be sure
reimbursement will be available for any product we commercialize and, if reimbursement is available, what the level of reimbursement will be.
Reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval. If reimbursement is not available or is
available only to limited levels, we may not be able to successfully commercialize any product we successfully develop.
Moreover, eligibility for reimbursement does not imply any product will be paid for in all cases or at a rate that covers our costs, including research,
development, manufacture, sale and distribution. Payment rates may vary according to the use of the product and the clinical setting in which it is used,
may be based on payments allowed for lower cost products that are already reimbursed and may be incorporated into existing payments for other services.
Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future
relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the U.S. Third-party payors
often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage
and profitable payment rates from both government funded and private payors could have a material adverse effect on our operating results, our ability to
raise capital needed to commercialize products and our overall financial condition. To obtain reimbursement or pricing approval in some countries, we may
be required to conduct a clinical trial that compares the cost-effectiveness of our product to other available therapies. Our business could be materially
harmed if reimbursement of any products we may develop, if any, is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels.
Our products and services may cause serious adverse side effects or even death or have other properties that could delay or prevent their regulatory
approval, limit the commercial desirability of an approved label or result in significant negative consequences following any marketing approval.
The risk of failure of clinical development is high. It is impossible to predict when or if our current products and services or any we may develop will
prove safe enough to receive regulatory approval. Undesirable side effects caused by our products and services or we may develop could cause us or
regulatory authorities to interrupt, delay or halt clinical trials. They could also result in a more restrictive label or the delay or denial of regulatory approval
by the FDA or other comparable foreign regulatory authority.
Additionally, even after receipt of marketing approval of our products and services, if we or others later identify undesirable side effects or even deaths
caused by such product, a number of potentially significant negative consequences could result, including:
● we may be forced to recall such product and suspend the marketing of such product;
● regulatory authorities may withdraw their approvals of such product;
● regulatory authorities may require additional warnings on the label that could diminish the usage or otherwise limit the commercial success of
such products;
● the FDA or other regulatory bodies may issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing
warnings about such product;
● the FDA may require the establishment or modification of Risk Evaluation Mitigation Strategies or a comparable foreign regulatory authority may
require the establishment or modification of a similar strategy that may, for instance, restrict distribution of our products and impose burdensome
implementation requirements on us;
● we may be required to change the way the product is administered or conduct additional clinical trials;
● we could be sued and held liable for harm caused to subjects or patients;
● we may be subject to litigation or product liability claims; and
● our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product.
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Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related to the sale of any products we may develop. The marketing, sale and use of our current
products and services and any we may additionally develop could lead to the filing of product liability claims against us if someone alleges product
failures, product malfunctions, manufacturing flaws, or design defects, resulted in injury to patients. We may also be subject to liability for a
misunderstanding of, or inappropriate reliance upon, the information we provide. If we cannot successfully defend ourselves against claims that any
product, we may develop caused injuries, we may incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
● decreased demand for our products;
● injury to our reputation and significant negative media attention;
● withdrawal of patients from clinical studies or cancellation of studies;
● significant costs to defend the related litigation and distraction to our management team;
● substantial monetary awards to patients;
● loss of revenue; and
● the inability to commercialize any products that we may develop.
In addition, insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount
adequate to satisfy any liability that may arise.
We may not be able to protect or enforce our intellectual property rights, which could impair our competitive position.
Our success depends significantly on our ability to protect our rights to the patents, trademarks, trade secrets, copyrights and all the other intellectual
property rights used, or expected to be used, in our products. Protecting intellectual property rights is costly and time consuming. We rely primarily on
patent protection and trade secrets, as well as a combination of copyright and trademark laws and nondisclosure and confidentiality agreements to protect
our technology and intellectual property rights. However, these legal means afford only limited protection and may not adequately protect our rights or
permit us to gain or maintain any competitive advantage. Despite our intellectual property rights practices, it may be possible for a third party to copy or
otherwise obtain and use our technology without authorization, develop similar technology independently or design around our patents.
We cannot be assured that any of our pending patent applications will result in the issuance of a patent to us. The U.S. Patent and Trademark Office
(the “PTO”), or the applicable authorized in other countries in which we may seek to protect our intellectual property rights, may deny or require
significant narrowing of claims in our pending patent applications, and patents issued as a result of the pending patent applications, if any, may not provide
us with significant commercial protection or be issued in a form that is advantageous to us. We could also incur substantial costs in proceedings before the
PTO, or foreign patent offices. Patents that may be issued to or licensed by us in the future may expire or may be challenged, invalidated or circumvented,
which could limit our ability to stop competitors from marketing related technologies. Upon expiration of our issued or licensed patents, we may lose some
of our rights to exclude others from making, using, selling or importing products using the technology based on the expired patents. There is no assurance
that competitors will not be able to design around our patents.
We also rely on unpatented proprietary technology. We cannot assure you that we can meaningfully protect all our rights in our unpatented proprietary
technology or that others will not independently develop substantially equivalent proprietary products or processes or otherwise gain access to our
unpatented proprietary technology. We seek to protect our know-how and other unpatented proprietary technology, as trade secrets or otherwise, with
confidentiality agreements and/or intellectual property assignment agreements with our team members, independent distributors and consultants. However,
such agreements may not be enforceable or may not provide meaningful protection for our proprietary information in the event of unauthorized use or
disclosure or other breaches of the agreements or in the event that our competitors discover or independently develop similar or identical designs or other
proprietary information. Our trade secrets may be vulnerable to disclosure or misappropriation by employees, contractors and other persons.
We may be subject to intellectual property infringement claims by third parties which could be costly to defend, divert management’s attention and
resources, and may result in liability.
The medical device industry is characterized by vigorous protection and pursuit of intellectual property rights. Companies in the medical device
industry have used intellectual property litigation to gain a competitive advantage in the marketplace. From time to time, third parties may assert against us
their patent, copyright, trademark and other intellectual property rights relating to technologies that are important to our business. Searching for existing
intellectual property rights may not reveal important intellectual property and our competitors may also have filed for patent protection, which is not
publicly-available information, or claimed trademark rights that have not been revealed through our availability searches. We may be subject to claims that
our team members have disclosed, or that we have used, trade secrets or other proprietary information of our team members’ former employers. Our efforts
to identify and avoid infringing on third parties’ intellectual property rights may not always be successful. Any claims that our products or processes
infringe these rights, regardless of their merit or resolution, could be costly, time consuming and may divert the efforts and attention of our management
and technical personnel. In addition, we may not prevail in such proceedings given the complex technical issues and inherent uncertainties in intellectual
property litigation.
23
Any claims of patent or other intellectual property infringement against us, even those without merit, could:
● increase the cost of our products;
● be expensive and/or time consuming to defend;
● result in our being required to pay significant damages to third parties;
● force us to cease making or selling products that incorporate the challenged intellectual property;
● require us to redesign, reengineer or rebrand our products and technologies;
● require us to enter into royalty or licensing agreements in order to obtain the right to use a third party’s intellectual property on terms that may not
be favorable or acceptable to us;
● require us to develop alternative non-infringing technology, which could require significant effort and expense;
● require us to indemnify third parties pursuant to contracts in which we have agreed to provide indemnification for intellectual property
infringement claims; and,
● result in our customers or potential customers deferring or limiting their purchase or use of the affected products impacted by the claims until the
claims are resolved.
Any of the foregoing could affect our ability to compete or have a material adverse effect on our business, financial condition and results of operations.
Competitors may violate our intellectual property rights, and we may bring litigation to protect and enforce our intellectual property rights, which may
result in substantial expense and may divert our attention from implementing our business strategy.
We believe that the success of our business depends, in significant part, on obtaining patent protection for our products and technologies, defending our
patents and preserving our trade secrets. Our failure to pursue any potential claim could result in the loss of our proprietary rights and harm our position in
the marketplace. Therefore, we may be forced to pursue litigation to enforce our rights. Future litigation could result in significant costs and divert the
attention of our management and key personnel from our business operations and the implementation of our business strategy.
Our business may suffer if we are unable to manage our growth.
If we fail to effectively manage our growth, our ability to execute our business strategy could be impaired. Any unanticipated rapid growth of our
business may place a strain on our management, operations and financial systems. We need to ensure our existing systems and controls are adequate to
support our business and its anticipated growth.
Our officers may allocate their time to other businesses thereby potentially limiting the amount of time they devote to our affairs. This conflict of
interest could have a negative impact on our operations.
Our officers are not required to commit their full time to our affairs, which could create a conflict of interest when allocating their time between our
operations and their other commitments. We presently expect each of our employees to devote such amount of time as they reasonably believe is necessary
to our business. Certain of our officers are engaged in other business endeavors. If our officers’ other business affairs require them to devote more
substantial amounts of time to such affairs, it could limit their ability to devote time to our affairs and could have a negative impact on our operations. We
cannot assure you these conflicts will be resolved in our favor.
Our ability to be successful will be totally dependent upon the efforts of our key personnel.
Our ability to successfully carry out our business plan is dependent upon the efforts of our key personnel. We cannot assure you that any of our key
personnel will remain with us for the immediate or foreseeable future. The unexpected loss of the services of our key personnel could have a detrimental
effect on us. We may also be unable to attract and retain additional key personnel in the future. We are limited in shares available for issuance under our
long-term incentive plan, which could limit our ability to attract and retain key personnel, until such amount is increased. An inability to attract and retain
key personnel may impact our ability to continue and grow our operations.
Our officers and directors have fiduciary obligations to other companies and, accordingly, may have conflicts of interest in determining to which entity
a particular business opportunity should be presented.
Certain of our officers and directors have fiduciary obligations to other companies engaged in medical device business activities. Accordingly, they
may participate in transactions and have obligations that may be in conflict or competition with our business. As a result, a potential business opportunity
may be presented by certain members of our board or management team to another entity prior to its presentation to us and we may not be afforded the
opportunity to engage in such a transaction.
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Our business, financial condition and results of operations could be adversely affected by the political and economic conditions of the countries in
which we conduct business.
Our business, financial condition and results of operations could be adversely affected by the political and economic conditions of the countries in
which we conduct business. These factors include:
● challenges associated with cultural differences, languages and distance;
● differences in clinical practices, needs, products, modalities and preferences;
● longer payment cycles in some countries;
● credit risks of many kinds;
● legal and regulatory differences and restrictions;
● currency exchange fluctuations;
● foreign exchange controls that might prevent us from repatriating cash earned in certain countries;
● political and economic instability and export restrictions;
● variability in sterilization requirements for multi-usage surgical devices;
● potential adverse tax consequences;
● higher cost associated with doing business internationally;
● challenges in implementing educational programs required by our approach to doing business;
● negative economic developments in economies around the world and the instability of governments, including the threat of war, terrorist attacks,
epidemic or civil unrest;
● adverse changes in laws and governmental policies, especially those affecting trade and investment;
● health epidemics and /or pandemics, such as the COVID-19 pandemic, epidemics resulting from the Ebola virus, or the enterovirus, or the avian
influenza virus, or the pandemic resulting from a novel strain of a coronavirus designated “Severe Acute Respiratory Syndrome Coronavirus 2” -
or “SARS-CoV-2”, which may adversely affect our workforce as well as our local suppliers and customers;
● import or export licensing requirements imposed by governments;
● differing labor standards;
● differing levels of protection of intellectual property;
● the threat that our operations or property could be subject to nationalization and expropriation;
● varying practices of the regulatory, tax, judicial and administrative bodies in the jurisdictions where we operate; and
● potentially burdensome taxation and changes in foreign tax.
Failure in our information technology or storage systems could significantly disrupt our operations and our research and development efforts, which
could adversely impact our revenues, as well as our research, development and commercialization efforts.
Our ability to execute our business strategy depends, in part, on the continued and uninterrupted performance of our information technology (“IT”)
systems that support our operations and our research and development efforts, and those IT systems within the control of our contract manufacturers and
contract laboratories. The integrity and protection of our own data, and that of our customers and employees, is critical to our business. The regulatory
environment governing information, security and privacy laws is increasingly demanding and continues to evolve. IT systems are vulnerable to damage
from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network
security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive
problems. Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our IT systems, and the precautionary
measures taken by our contract parties, sustained or repeated system failures that interrupt our ability to generate and maintain data, could adversely affect
our ability to operate our business. Furthermore, any breach in our IT systems could lead to the unauthorized access, disclosure and use of non-public
information, including protected health information, which is protected by HIPAA and other laws. Any such access, disclosure, or other loss of information
could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and damage to our reputation.
System upgrades, enhancements and replacements, as well as new systems, are required from time to time, and require significant expenditures and
allocation of valuable employee resources. Delays in integration or disruptions to our business from implementation of these new or upgraded systems
could have a material adverse impact on our financial condition and operating results. There can be no assurance that our process of improving existing
systems, developing new systems to support our expanding operations, integrating new systems, protecting confidential patient information, and improving
service levels will not be delayed or that additional systems issues will not arise in the future. Failure to adequately protect and maintain the integrity of our
information systems issues and data may result in a material adverse effect on our financial position, results of operations and cash flows.
We may become the subject of various claims, threats of litigation, litigation or investigations which could have a material adverse effect on our
business, financial condition, results of operations or price of our common stock.
We may become subject to various claims, threats of litigation, litigation or investigations, including commercial disputes and employee claims, and
from time to time may be involved in governmental or regulatory investigations or similar matters. Any claims asserted against us or our management,
regardless of merit or eventual outcome, could harm our reputation and have an adverse impact on our relationship with our clients, distribution partners
and other third parties and could lead to additional related claims. Furthermore, there is no guarantee that we will be successful in defending ourselves in
pending or future litigation or similar matters under various laws. Any judgments or settlements in any pending litigation or future claims, litigation or
investigation could have a material adverse effect on our business, financial condition, results of operations and price of our common stock.
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Risks Associated with Healthcare Regulation, Billing and Reimbursement, and Product Safety and Effectiveness If private or governmental third-
party payors do not maintain reimbursement for our products at adequate reimbursement rates, we may be unable to successfully commercialize
our products which would limit or slow our revenue generation and likely have a material adverse effect on our business.
Successful commercialization of Lucid’s EsoGuard test and EsoCheck device, and of any other product or service we develop, license or acquire
depends, in large part, on the availability of adequate reimbursement from private or governmental third-party payors.
EsoGuard’s PLA code 0114U has been granted “gapfill” determination through the CMS CLFS process, allowing us to engage directly with Medicare
Administrative Contractor (“MAC”) Palmetto GBA, whose Molecular Diagnostics Program (“MolDx”) performs technical assessment of molecular
diagnostic tests on behalf of itself and other MACs. Although CMS granted EsoGuard final Medicare payment determination of $1,938.01, effective
January 1, 2021, we have not received a final Medicare local coverage determination from MolDx. Most recently, in May 2023, a final Local Coverage
Determination (“LCD”) L39256, entitled “Molecular Testing for Detection of Upper Gastrointestinal Metaplasia, Dysplasia, and Neoplasia” became
effective on the CMS website by MAC Palmetto GBA. (A substantially identical LCD was published by Noridian Healthcare Solutions, the MAC whose
geographic jurisdiction covers our CLIA laboratory in Lake Forest, CA.) The LCD outlines criteria for future coverage that MolDX expects upper
gastrointestinal precancer and cancer molecular diagnostic tests to meet. These criteria include active GERD with at least two risk factors, as well as
evidence of analytic validity, clinical validity, and clinical utility. Although the LCD indicated that it found that no currently existing test has fulfilled all
these criteria, it indicated that it will “monitor the evidence and may revise this determination based on the pertinent literature and society
recommendations.” Lucid expects to submit EsoGuard for Technical Assessment under this foundational LCD later this year. However, even if Lucid does
submit EsoGuard for Technical Assessment as currently planned, there can be no assurance that MolDx will determine that EsoGuard meets the criteria for
coverage as specified in the LCD. If Lucid is not granted coverage, or if a determination is substantially delayed, that could have a material adverse effect
on Lucid’s ability to commercialize EsoGuard.
Commercial third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Third-
party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for new healthcare products.
As a result, there is uncertainty surrounding whether EsoGuard or EsoCheck, or any other product or service we develop, will be eligible for coverage by
third-party payors or, if eligible for coverage, what the reimbursement rates will be. For example, with respect to EsoGuard and EsoCheck, reimbursement
of esophageal precancer and cancer screening by a third-party payor may depend on a number of factors, including a payor’s determination that tests using
these technologies are sufficiently sensitive and specific for esophageal cancer and precancer; not experimental or investigational; approved or
recommended by the major guidelines organizations; reliable, safe and effective; medically necessary; appropriate for the specific patient; and cost-
effective.
Coverage determinations and reimbursement rates are also subject to the effects of federal and state coverage mandates and other healthcare
regulations and reform initiatives as described below. As noted below, federal and state coverage mandates may be deemed not to apply to EsoGuard and
EsoCheck (or any other product or service we develop), may be interpreted in a manner unfavorable to us, may be difficult to enforce and are subject to
repeal or modification.
In addition to the risk of adverse reimbursement decisions, we also may experience material delays in obtaining such reimbursement decisions and
payment that are beyond our control. Further, there can be no assurance that CMS and other third-party payors who initially decide to cover our products
will continue to do so. Coverage determinations and reimbursement rates are subject to change, including as a result of reimbursement rate adjustments
under the Protecting Access to Medicare Act of 2014, (“PAMA”) as described below, and we cannot guarantee that even if we initially achieve coverage
and adequate reimbursement rates, they will continue to be applicable to our products in the future. Furthermore, it is possible that Medicare or other
federal payors that provide reimbursement for our tests may suspend, revoke or discontinue coverage at any time, may require co-payments from patients,
or may reduce the reimbursement rates payable to us.
If we are unable to obtain favorable decisions from third-party payors, including CMS and managed care organizations, approving reimbursement at
adequate levels for our EsoGuard test and EsoCheck device, and any other product or service we may develop, or if coverage is later revoked or
reimbursement levels are reduced, our commercial success will be compromised, our ability to raise capital may be restricted and our revenues would be
significantly limited. Healthcare providers may be reluctant to prescribe our products if they believe that reimbursement for the test will not be available for
a significant number of their patients.
Even where a third-party payor agrees to cover EsoGuard and EsoCheck or any other product or service we develop at an adequate reimbursement
rate, other factors may have a significant impact on the actual reimbursement we receive from that payor. For example, if we do not have a contract with a
given payor, we may be deemed an “out-of-network” provider by that payor, which could result in the payor allocating a portion of the cost of the product
or service to the patient, notwithstanding any applicable coverage mandate. We may be unsuccessful in our efforts to enter into, or maintain, a network
contract with a given payor, and we expect that our network status with a given payor may change from time to time for a variety of reasons, many of
which may be outside our control. To the extent a product or service is out of network for a given payor, physicians may be less likely to prescribe such
product or service for their patients and their patients may be less likely to comply with those prescriptions that are written. Also, some payors may require
that they give prior authorization for a product or service before they are willing to pay for it or review claims post-service to ensure the service was
medically appropriate for specific patients. Prior authorization and other medical management practices may require that we, patients or physicians provide
the payor with extensive medical records and other information. Prior authorization and other medical management practices impose a significant
additional cost on us, may be difficult to comply with given our position as a laboratory that generally does not have direct access to patient medical
records, may make physicians less likely to prescribe our product or service for their patients, and may make patients less likely to comply with physician
orders for the same, all or any of which may have an adverse effect on our revenues. Payment rates also may vary according to the use of the product and
the clinical setting in which it is used, may be based on payments allowed for lower cost products that are already reimbursed and may be incorporated into
existing payments for other services.
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FDA has proposed a policy under which it would phase out its general enforcement discretion approach for LDTs so that IVDs manufactured at a
laboratory would generally fall under the same enforcement approach as other IVDs. While we are confident that the proposed policy will not have a
material impact on our business, there can be no assurance that will be the case.
In October 2023, FDA proposed a policy under which FDA intends to phase out its general enforcement discretion approach for LDTs so that IVDs
(like EsoGuard) manufactured by a laboratory would generally fall under the same enforcement approach as other IVDs. If finalized, FDA believes that this
phaseout may also foster the manufacturing of innovative IVDs for which FDA has determined there is a reasonable assurance of safety and effectiveness.
As such, FDA has structured the proposed phaseout policy to contain five key stages:
● Stage 1: End the general enforcement discretion approach with respect to Medical Device Regulation (MDR) requirements and correction and
removal reporting requirements 1 year after FDA publishes a final phaseout policy, which FDA intends to issue in the preamble of the final rule.
● Stage 2: End the general enforcement discretion approach with respect to requirements other than MDR, correction and removal reporting, Quality
System (QS), and premarket review requirements 2 years after FDA publishes a final phaseout policy.
● Stage 3: End the general enforcement discretion approach with respect to QS requirements 3 years after FDA publishes a final phaseout policy.
● Stage 4: End the general enforcement discretion approach with respect to premarket review requirements for high-risk IVDs 3.5 years after FDA
publishes a final phaseout policy, but not before October 1, 2027.
● Stage 5: End the general enforcement discretion approach with respect to premarket review requirements for moderate risk and low risk IVDs
(that require premarket submissions) 4 years after FDA publishes a final phaseout policy, but not before April 1, 2028.
It is currently anticipated that FDA will finalize the proposed policy by April 2024. Once the final policy is released, we will implement the QS
requirements in the recommended staged approach and conduct pre-submission meetings with FDA to seek agreement on regulatory pathway for EsoGuard
premarket submission. As required by the final policy, Lucid will submit the regulatory premarket submission to the FDA as per the timeframe defined in
the final policy. We are confident that the proposed policy will not have a commercial impact as Lucid already has a robust QS management platform for
medical devices and EsoGuard will be able to transition to the platform to fulfill the QS requirements, if and when required by FDA. However, there can be
no assurance that Lucid will be able to successfully transition the platform to fulfill the QS requirements, if and when required by FDA, and its failure to do
so could have a material impact on Lucid’s ability to commercialize EsoGuard and on our business as a whole.
Any future products or services we may develop may not be approved for sale in the U.S. or in any other country. In order to obtain approval, we may
need to conduct clinical trials necessary to support a FDA 510(k) notice or PMA application will be expensive and will require the enrollment of large
numbers of patients, and suitable patients may be difficult to identify and recruit.
Our only products for which we have obtained approval or clearance from the FDA or a comparable foreign regulatory authority is our EsoCheck cell
sample collection device and our CarpX minimally invasive surgical device. In certain limited circumstances, we also may market our products without
such approval or clearance, as is the case for the EsoGuard LDT. Generally, however, neither we nor any future collaboration partner can commercialize
any products we may develop in the U.S. or in any foreign country without first obtaining regulatory approval for the product, where applicable, from the
FDA or comparable foreign regulatory authorities. The approval route in the U.S. for any products we may develop may be either via the PMA process, a
de novo 510(k) pathway, or traditional 510(k). The PMA approval process is more complex, costly and time consuming than the 510(k) process. Additional
randomized, controlled clinical trials may be necessary to obtain approval. The approval process may take several years to complete and may never be
obtained. Before obtaining regulatory approvals for the commercial sale of any product we may develop in the U.S., we must demonstrate with substantial
evidence, gathered in preclinical and well-controlled clinical studies, that the planned products are safe and effective for use for that target indication. We
may not conduct such a trial or may not successfully enroll or complete any such trial. Any products we may develop may not achieve the required primary
endpoint in the clinical trial and may not receive regulatory approval. We must also demonstrate that the manufacturing facilities, processes and controls for
any products we may develop are adequate. Moreover, obtaining regulatory approval in one country for marketing of any products we may develop does
not ensure we will be able to obtain regulatory approval in other countries, while a failure or delay in obtaining regulatory approval in one country may
have a negative effect on the regulatory process in other countries. Failure to obtain regulatory approvals in foreign jurisdictions will prevent us from
marketing our products internationally.
Even if we or any future collaboration partner were to successfully obtain a regulatory approval for any product we may develop, any approval might
contain significant limitations related to use restrictions for specified age groups, warnings, precautions or contraindications, or may be subject to
burdensome post-approval study or risk management requirements. If we are unable to obtain regulatory approval for any products, we may develop in one
or more jurisdictions, or any approval contains significant limitations, we may not be able to obtain sufficient revenue to justify commercial launch. Also,
any regulatory approval of a product, once obtained, may be withdrawn. If we are unable to successfully obtain regulatory approval to sell any products we
may develop in the U.S. or other countries, our business, financial condition, results of operations and growth prospects could be adversely affected.
Initiating and completing clinical trials necessary to support a FDA 510(k) notice or a PMA application will be time-consuming and expensive and the
outcome uncertain. Moreover, the results of early clinical trials are not necessarily predictive of future results, and any product the Company advances into
clinical trials may not have favorable results in early or later clinical trials. Conducting successful clinical studies will require the enrollment of large
numbers of patients, and suitable patients may be difficult to identify and recruit. Patient enrollment in clinical trials and completion of patient participation
and follow-up depend on many factors, including the size of the patient population, the nature of the trial protocol, the attractiveness of, or the discomforts
and risks associated with, the treatments received by patients enrolled as subjects, the availability of appropriate clinical trial investigators, support staff,
and proximity of patients to clinical sites and ability to comply with the eligibility and exclusion criteria for participation in the clinical trial and patient
compliance. For example, patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-
treatment procedures or follow-up to assess the safety and effectiveness of our products or if they determine that the treatments received under the trial
protocols are not attractive or involve unacceptable risks or discomforts. Patients may also not participate in our clinical trials if they choose to participate
in contemporaneous clinical trials of competitive products. In addition, patients participating in clinical trials may die before completion of the trial or
suffer adverse medical events unrelated to investigational products. Further, the FDA may require the Company to submit data on a greater number of
patients than it originally anticipated and/or for a longer follow-up period or change the data collection requirements or data analysis for any clinical trials.
Delays in patient enrollment or failure of patients to continue to participate in a clinical trial may cause an increase in costs and delays in the approval and
attempted commercialization of our products or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect
our business, operating results and prospects.
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The results of the Company’s clinical trials may not support our product candidate claims or may result in the discovery of adverse side effects.
As the Company’s clinical trials are completed as planned, it cannot be certain that study results will support product candidate claims or that the FDA
or foreign regulatory authorities will agree with our conclusions regarding them. Success in pre-clinical evaluation and early clinical trials does not ensure
that later clinical trials will be successful, and we cannot be sure that the later trials will replicate the results of prior trials and pre-clinical studies. The
clinical trial process may fail to demonstrate that our product candidates are safe and effective for the proposed indicated uses or otherwise influence
medical decisions in the manner we need to show to evidence the clinical utility of our product candidates, which could cause us to abandon a product
candidate and may delay development of others. In addition, if clinical data does not support our product candidate claims, the FDA could then bring legal
or regulatory enforcement actions against the Company and/or its products including, but not limited to, recalls or requirements for pre-market 510(k)
authorizations. The Company can give no assurance that its data will be substantiated in studies involving more patients. In such a case, the Company may
never achieve significant revenues or profitability. Any delay or termination of our clinical trials will delay the filing of any related product submissions
and, ultimately, our ability to commercialize our product candidates and generate revenues (in particular where evidence of clinical utility is a critical factor
to payor’s decisions around reimbursement). It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not
currently part of the product candidate’s profile.
Our principal ongoing clinical trials are those that relate to EsoGuard. For a summary of the status and certain information concerning the results of
those trials, please see above under “Background and Overview—EsoGuard and EsoCheck—Clinical Utility and Clinical Trials”.
Even if we receive regulatory approval for any product we may develop, we will be subject to ongoing regulatory obligations and continued regulatory
review, which may result in significant additional expense and subject us to penalties if we fail to comply with applicable regulatory requirements.
Once regulatory approval has been obtained, the approved product and its manufacturer are subject to continual review by the FDA or non-U.S.
regulatory authorities. Our regulatory approval for any products we may develop may be subject to limitations on the indicated uses for which the product
may be marketed. Future approvals may contain requirements for potentially costly post-marketing follow-up studies to monitor the safety and efficacy of
the approved product. In addition, we are subject to extensive and ongoing regulatory requirements by the FDA and other regulatory authorities with regard
to the labeling, packaging, adverse event reporting, storage, advertising, promotion and recordkeeping for our products. In addition, we are required to
comply with cGMP regulations regarding the manufacture of any products we may develop, which include requirements related to quality control and
quality assurance as well as the corresponding maintenance of records and documentation. Further, regulatory authorities must approve these
manufacturing facilities before they can be used to manufacture drug products, and these facilities are subject to continual review and periodic inspections
by the FDA and other regulatory authorities for compliance with cGMP regulations. If we or a third party discover previously unknown problems with a
product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory
authority may impose restrictions on that product, the manufacturer or us, including requiring withdrawal of the product from the market or suspension of
manufacturing.
Healthcare reform measures could hinder or prevent our products’ commercial success.
There likely will be legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of health care. We
cannot predict the initiatives that may be adopted in the future or their full impact. The continuing efforts of the government, insurance companies,
managed care organizations and other payors of healthcare services to contain or reduce costs of health care may adversely affect:
● our ability to set a price that we believe is fair for our products;
● our ability to generate revenue and achieve or maintain profitability; and
● the availability of capital.
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Further, changes in regulatory requirements and guidance may occur, both in the United States and in foreign countries, and we may need to amend
clinical study protocols to reflect these changes. Amendments may require us to resubmit our clinical study protocols to IRB’s for reexamination, which
may impact the costs, timing or successful completion of a clinical study. In light of widely publicized events concerning the safety risk of certain drug and
medical device products, regulatory authorities, members of Congress, the Governmental Accounting Office, medical professionals and the general public
have raised concerns about potential safety issues. These events have resulted in the recall and withdrawal of medical device products, revisions to product
labeling that further limit use of products and establishment of risk management programs that may, for instance, restrict distribution of certain products or
require safety surveillance or patient education. The increased attention to safety issues may result in a more cautious approach by the FDA or other
regulatory authorities to clinical studies and the drug approval process. Data from clinical studies may receive greater scrutiny with respect to safety, which
may make the FDA or other regulatory authorities more likely to terminate or suspend clinical studies before completion or require longer or additional
clinical studies that may result in substantial additional expense and a delay or failure in obtaining approval or approval for a more limited indication than
originally sought.
Given the serious public health risks of high profile adverse safety events with certain products, the FDA or other regulatory authorities may require, as
a condition of approval, costly risk evaluation and mitigation strategies, which may include safety surveillance, restricted distribution and use, patient
education, enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events, preapproval of promotional materials and
restrictions on direct-to-consumer advertising.
If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be
adversely affected.
Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, certain
federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We could be
subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. The
regulations that may affect our ability to operate include, without limitation:
● the federal healthcare program Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully offering,
soliciting, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the
purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as the
Medicare and Medicaid programs;
● the U.S. Foreign Corrupt Practices Act, or FCPA, which prohibits payments or the provision of anything of value to foreign officials for the
purpose of obtaining or keeping business;
● the federal False Claims Act, or FCA, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be
presented, false claims, or knowingly using false statements, to obtain payment from the federal government, and which may apply to entities like
us which provide coding and billing advice to customers;
● federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare
matters;
● the federal transparency requirements under the Health Care Reform Law requires manufacturers of drugs, devices, biologics and medical supplies
to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician
ownership and investment interests;
● the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and
Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected
health information; and
● state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services
reimbursed by any third-party payor, including commercial insurers.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be
subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages,
fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Any action against
us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s
attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud
laws may prove costly.
The Company’s medical products may in the future be subject to product recalls that could harm its reputation, business and financial results.
The FDA has the authority to require the recall of commercialized medical device products in the event of material deficiencies or defects in design or
manufacture. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is a reasonable probability that the device
would cause serious injury or death. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found. A
government-mandated or voluntary recall by the Company or one of its distributors could occur as a result of component failures, manufacturing errors,
design or labeling defects or other deficiencies and issues. Recalls of any of the Company’s products would divert managerial and financial resources and
have an adverse effect on its financial condition and results of operations. The FDA requires that certain classifications of recalls be reported to the FDA
within ten (10) working days after the recall is initiated. Companies are required to maintain certain records of recalls, even if they are not reportable to the
FDA. The Company may initiate voluntary recalls involving its products in the future that the Company determines do not require notification of the FDA.
If the FDA disagrees with the Company’s determinations, they could require the Company to report those actions as recalls. A future recall announcement
could harm the Company’s reputation with customers and negatively affect its sales. In addition, the FDA could take enforcement action for failing to
report the recalls when they were conducted. No recalls of the Company’s medical products have been reported to the FDA.
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If the Company’s medical products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical
device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.
Under the FDA medical device reporting regulations, medical device manufacturers are required to report to the FDA information that a device has or
may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury if
the malfunction of the device or one of our similar devices were to recur. If the Company fails to report these events to the FDA within the required
timeframes, or at all, the FDA could take enforcement action against the Company. Any such adverse event involving its products also could result in
future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement action. Any corrective
action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of the Company’s time and capital, distract
management from operating our business, and may harm its reputation and financial results.
If the Company is found to be promoting the use of its devices for unapproved or “off-label” uses or engaging in other noncompliant activities, the
Company may be subject to recalls, seizures, fines, penalties, injunctions, adverse publicity, prosecution, or other adverse actions, resulting in damage
to its reputation and business.
The Company’s labeling, advertising, promotional materials and user training materials must comply with the FDA and other applicable laws and
regulations, including the prohibition of the promotion of a medical device for a use that has not been cleared or approved by the FDA. Obtaining 510(k)
clearance or PMA approval only permits the Company to promote its products for the uses specifically cleared by the FDA. Use of a device outside its
cleared or approved indications is known as “off-label” use. Physicians and consumers may use the Company’s products off-label because the FDA does
not restrict or regulate a physician’s choice of treatment within the practice of medicine nor is there oversight on patient use of over-the-counter devices.
Although the Company may request additional cleared indications for our current products, the FDA may deny those requests, require additional expensive
clinical data to support any additional indications or impose limitations on the intended use of any cleared product as a condition of clearance. Even if
regulatory clearance or approval of a product is granted, such clearance or approval may be subject to limitations on the intended uses for which the
product may be marketed and reduce our potential to successfully commercialize the product and generate revenue from the product.
If the FDA determines that the Company’s labeling, advertising, promotional materials, or user training materials, or representations made by
Company personnel, include the promotion of an off-label use for the device, or that the Company has made false or misleading or inadequately
substantiated promotional claims, or claims that could potentially change the regulatory status of the product, the agency could take the position that these
materials have misbranded the Company’s devices and request that the Company modifies its labeling, advertising, or user training or promotional
materials and/or subject the Company to regulatory or legal enforcement actions, including the issuance of an Untitled Letter or a Warning Letter,
injunction, seizure, recall, adverse publicity, civil penalties, criminal penalties, or other adverse actions. It is also possible that other federal, state, or
foreign enforcement authorities might take action if they consider the Company’s labeling, advertising, promotional, or user training materials to constitute
promotion of an unapproved use, which could result in significant fines, penalties, or other adverse actions under other statutory authorities, such as laws
prohibiting false claims for reimbursement. In that event, we would be subject to extensive fines and penalties and the Company’s reputation could be
damaged and adoption of the products would be impaired. Although the Company intends to refrain from statements that could be considered off-label
promotion of its products, the FDA or another regulatory agency could disagree and conclude that the Company has engaged in off-label promotion. For
example, the Company has made statements regarding some of its devices that the FDA may view as off-label promotion. In addition, any such off-label
use of the Company’s products may increase the risk of injury to patients, and, in turn, the risk of product liability claims, and such claims are expensive to
defend and could divert the Company’s management’s attention and result in substantial damage awards against the Company.
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Risks Associated with Ownership of Our Common Stock
We may issue shares of our common and /or preferred stock in the future which could reduce the equity interest of our stockholders and might cause a
change in control of our ownership.
Our certificate of incorporation authorizes the issuance of up to 50,000,000 shares of common stock, par value $.001 per share, and 20,000,000 shares
of preferred stock, par value $.001 per share. We may issue a substantial number of additional shares of our common stock or preferred stock, or a
combination of common and preferred stock, to raise additional funds or in connection with any strategic acquisition. The issuance of additional shares of
our common stock or any number of shares of our preferred stock:
● may significantly reduce the equity interest of investors;
● may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded to our common
stockholders;
● may cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability
to use our net operating loss carryforwards, if any, and most likely also result in the resignation or removal of some or all of our present officers
and directors; and
● may adversely affect prevailing market prices for our common stock.
Our management and their affiliates control a substantial interest in us and thus may influence certain actions requiring a stockholder vote.
As of December 31, 2023, our management and their affiliates collectively owned approximately 11% of our issued and outstanding shares of common
stock. Accordingly, these individuals would have considerable influence regarding the outcome of any transaction that requires stockholder approval.
Furthermore, our Board of Directors is and will be divided into three classes, each of which will generally serve for a term of three years with only one
class of directors being elected in each year. As a consequence of our “staggered” Board of Directors, only a minority of the Board of Directors will be
considered for election in any given year and our initial stockholders, because of their ownership position, will have considerable influence regarding the
outcome.
A robust public market for our common stock may not be sustained, which could affect your ability to sell our common stock or depress the market
price of our common stock.
We are unable to predict whether an active trading market for our common stock will be sustained. If an active market is not sustained for any reason,
it may be difficult for you to sell your securities at the time you wish to sell them, at a price that is attractive to you, or at all.
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Our stock price may be volatile, and purchasers of our securities could incur substantial losses.
Our stock price is likely to be volatile. The stock market in general, and the market for life science companies, and medical device companies in
particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for our
common stock may be influenced by many factors, including the following:
● factors in the public trading market for our stock that may produce price movements that may or may not comport with macro, industry or
company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as may be expressed on financial trading
and other social media sites and online forums), the direct access by retail investors to broadly available trading platforms, the amount and status
of short interest in our securities, access to margin debt, trading in options and other derivatives on our common stock and any related hedging and
other trading factors;
● speculation in the press or investment community about our company or industry;
● our ability to successfully commercialize, and realize revenues from sales of, any products we may develop;
● the performance, safety and side effects of any products we may develop;
● the success of competitive products or technologies;
● results of clinical studies of any products we may develop or those of our competitors;
● regulatory or legal developments in the U.S. and other countries, especially changes in laws or regulations applicable to any products we may
develop;
● introductions and announcements of new products by us, our commercialization partners, or our competitors, and the timing of these introductions
or announcements;
● actions taken by regulatory agencies with respect to our products, clinical studies, manufacturing process or sales and marketing terms;
● variations in our financial results or those of companies that are perceived to be similar to us;
● the success of our efforts to acquire or in-license additional products or other products we may develop;
● developments concerning our collaborations, including but not limited to those with our sources of manufacturing supply and our
commercialization partners;
● developments concerning our ability to bring our manufacturing processes to scale in a cost-effective manner;
● announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
● developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtain patent
protection for our products;
● our ability or inability to raise additional capital and the terms on which we raise it;
● the recruitment or departure of key personnel;
● changes in the structure of healthcare payment systems;
● market conditions in the medical device, pharmaceutical and biotechnology sectors;
● actual or anticipated changes in earnings estimates or changes in stock market analyst recommendations regarding our common stock, other
comparable companies or our industry generally;
● trading volume of our common stock;
● sales of our common stock by us or our stockholders;
● general economic, industry and market conditions; and
● the other risks described in this “Risk Factors” section.
These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the
past, following periods of volatility in the market, securities class action litigation has often been instituted against companies. Such litigation, if instituted
against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our
business, financial condition, results of operations and growth prospects.
Our outstanding warrants and other convertible securities may have an adverse effect on the market price of our common stock.
As of December 31, 2023, there were 8,578,505 shares of our common stock issued and outstanding, and, as of such date, we also had issued and
outstanding:
(i) stock options to purchase 1,192,458 shares of our common stock at a weighted average exercise price of $26.18 per share, with such total
number inclusive of both stock options granted under the PAVmed Inc. 2014 Long-Term Incentive Equity Plan (“PAVmed 2014 Equity Plan”); 77,518
shares of our common stock reserved for issuance, but not subject to outstanding stock-based equity awards under the PAVmed 2014 Equity Plan; and
7,528 shares of our common stock reserved for issuance under the PAVmed Inc. Employee Stock Purchase Plan (“PAVmed ESPP”)
(ii) 11,937,450 Series Z Warrants, representing the right to purchase 795,830 shares of the Company’s common stock at an exercise price of
$23.48 per whole share; and
(iii) 1,305,213 shares of Series B Convertible Preferred Stock, convertible into 87,015 shares of our common stock.
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In addition, the Senior Convertible Notes have a current outstanding principal amount of $26.7 million, which are convertible into 355,520 shares of
our common stock (assuming the Senior Convertible Notes were converted in full on such date at the initial fixed conversion price of $75.00 per share).
The number of shares of common stock to be issued under the Senior Convertible Notes may be substantially greater than the estimate set forth in this
paragraph, if we pay the interest and the installments of principal in shares of our common stock, because in such cases (and in certain other cases as
described elsewhere in this Annual Report on Form 10-K) the number of shares issued will be determined based on the then current market price (but in
any event not more than fixed conversion price per share or less than a floor price specified in the notes). We cannot predict the market price of our
common stock at any future date, and therefore, we are unable to accurately forecast or predict the total amount of shares that ultimately may be issued
under these notes. In addition, the number of shares issued under these notes may be substantially greater if we voluntarily lower the conversion price,
which we are permitted to do pursuant to the terms thereof.
The issuance of these shares will dilute our other equity holders, which could cause the price of our common stock to decline.
We do not intend to pay any cash dividends on our common stock at this time.
We have not paid any cash dividends on our shares of common stock to date. The payment of cash dividends on our common stock in the future will be
dependent upon our revenues and earnings, if any, capital requirements and general financial condition and will be within the discretion of our Board of
Directors. It is the present intention of our Board of Directors to retain all earnings, if any, for use in our business operations and, accordingly, our Board of
Directors does not anticipate declaring any dividends on our common stock in the foreseeable future. As a result, any gain you will realize on our common
stock (including common stock obtained upon exercise of our warrants) will result solely from the appreciation of such shares.
We have made distributions of shares of Lucid common stock to our shareholders in the past, but there is no assurance we will do so in the future.
On February 15, 2024, the Company distributed by special dividend to the Company stockholders 3,331,747 shares of Lucid Diagnostics common
stock held by the Company. On such date, each PAVmed shareholder as of the January 15, 2024 record date received a stock dividend of approximately 38
shares of Lucid common stock for every 100 shares of PAVmed common stock they held as of such date. However, our Board of Directors has no intention
to make any further distributions of shares of Lucid common stock or other assets at this time.
We are subject to evolving corporate governance and public disclosure expectations and regulations that impact compliance costs and risks of
noncompliance.
We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory organizations, including the SEC and
Nasdaq, as well as evolving investor expectations around corporate governance and environmental and social practices and disclosures. These rules and
regulations continue to evolve in scope and complexity, and many new requirements have been created in response to laws enacted by the U.S. and foreign
governments, making compliance more difficult and uncertain. The increase in costs to comply with such evolving expectations, rules and regulations, as
well as any risk of noncompliance, could adversely impact us.
We incur significant costs as a result of our and Lucid Diagnostics operating as a public company, and our management will be required to devote
substantial time to compliance initiatives.
As a public company, with a majority-owned subsidiary that is also a public company, we incur significant legal, accounting and other expenses. We
are subject to the reporting requirements of the Exchange Act, the other rules and regulations of the Securities and Exchange Commission, or SEC, and the
rules and regulations of Nasdaq or any other national securities exchange on which our securities are then trading. Compliance with the various reporting
and other requirements applicable to public companies requires considerable time and attention of management. For example, the Sarbanes-Oxley Act and
the rules of the SEC and Nasdaq have imposed various requirements on public companies, including requiring establishment and maintenance of effective
disclosure and financial controls. Our management and other personnel devote a substantial amount of time to these compliance initiatives. These rules and
regulations result in significant legal and financial compliance costs and make some activities more time-consuming and costlier.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and
procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management
to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. In addition, we will be
required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting beginning with
our annual report on Form 10-K following the date on which we are no longer a smaller reporting company. Our compliance with Section 404 of the
Sarbanes-Oxley Act requires that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal
audit group, and as our business expands, we will need to hire additional accounting and financial staff with appropriate public company experience and
technical accounting knowledge. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent
registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market
price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require
additional financial and management resources.
Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial
statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to
manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls,
may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an
unqualified report on internal controls from our auditors if required under Section 404 of the Sarbanes-Oxley Act. This, in turn, could have an adverse
impact on trading prices for our common stock, and could adversely affect our ability to access the capital markets.
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Under our management services agreement with Lucid Diagnostics, many of our personnel and other resources are devoted to ensuring Lucid
Diagnostics complies with the above requirements applicable to public companies. This further exhausts management and other personnel resources that
could be used for other revenue-generating activities.
If we experience material weaknesses in our internal control over financial reporting in the future, our business may be harmed.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating and reporting on
the effectiveness of our system of internal control. Our internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. GAAP. As
a public company, we are required to comply with the Sarbanes-Oxley Act and other rules that govern public companies. In particular, we are required to
certify our compliance with Section 404 of the Sarbanes-Oxley Act, which requires us to furnish annually a report by management on the effectiveness of
our internal control over financial reporting.
Although our management determined that our internal control over financial reporting was effective as of December 31, 2023, we may experience
material weaknesses in our internal control over financial reporting in the future. Any necessary remediation efforts would place a significant burden on
management and add increased pressure to our financial resources and processes. If we were are unable to successfully remediate any material weaknesses
in our internal control over financial reporting that may be identified in the future in a timely manner, the accuracy and timing of our financial reporting
may be adversely affected; our liquidity, our access to capital markets, the perceptions of our creditworthiness may be adversely affected; we may be
unable to maintain or regain compliance with applicable securities laws, the listing requirements of the Nasdaq Stock Market; we may be subject to
regulatory investigations and penalties; investors may lose confidence in our financial reporting; our reputation may be harmed; and our stock price may
decline.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and
trading volume could decline.
The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us or our
business. If any analyst who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would
likely decline. In addition, if our operating results fail to meet the forecast of analysts, our stock price would likely decline. If one or more of these analysts
cease coverage of our company or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our stock price
and trading volume to decline.
Provisions in our corporate charter documents and under Delaware law could make an acquisition of us more difficult and may prevent attempts by
our stockholders to replace or remove our current management.
Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that
stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions
could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our
common stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by
making it more difficult for stockholders to replace members of our Board of Directors. Because our Board of Directors is responsible for appointing the
members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management
team. Among others, these provisions include the following.
● our Board of Directors is divided into three classes with staggered three-year terms which may delay or prevent a change of our management or a
change in control;
● our Board of Directors has the right to elect directors to fill a vacancy created by the expansion of our Board of Directors or the resignation, death
or removal of a director, which will prevent stockholders from being able to fill vacancies on our Board of Directors;
● our certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect
director candidates;
● our stockholders are required to provide advance notice and additional disclosures in order to nominate individuals for election to our Board of
Directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from
conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company; and
● our Board of Directors is able to issue, without stockholder approval, shares of undesignated preferred stock, which makes it possible for our
Board of Directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law
(“DGCL”), which prohibits a person who owns in excess of 15.0% of our outstanding voting stock from merging or combining with us for a period of three
years after the date of the transaction in which the person acquired in excess of 15.0% of our outstanding voting stock, unless the merger or combination is
approved in a prescribed manner.
Item 1B. Unresolved Staff Comments
Not applicable.
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Item 1C. Cybersecurity
Governance
Our board administers its cybersecurity risk oversight function directly through our audit committee. Our audit committee has primary responsibility for
overseeing our risk assessment and risk management policies (including with respect to cybersecurity matters). Our audit committee regularly discusses
with management, counsel, and auditors the Company’s major risk exposures. This includes potential financial impact on the Company and the steps taken
to monitor and control those risks. Additionally, our board is informed regarding the risks facing the Company and coordinates with management and our
cybersecurity team to ensure our board receives regular risk assessment updates from management.
We retain Techneto, Inc. d/b/a CyberTeam (“CyberTeam”), a third party vendor that reports directly to our Chief Operating Officer, to be responsible for
identifying, assessing and managing the Company’s risks from cybersecurity threats. CyberTeam has been with the Company since its inception and has
over 25 years of experience in cybersecurity.
CyberTeam provides our board and executive leadership team with periodic updates about our cybersecurity program and material risks. This includes
updates on cybersecurity practices, programs, and the status of projects designed to strengthen internal cybersecurity and data protection.
Risk Management and Strategy
Processes for identifying and assessing cybersecurity risks
Senior management, with the support of CyberTeam, monitors current events and trends related to cybersecurity and assesses any potential impact on
current systems and operations. Third-party partners who are in possession of our confidential information are generally required to notify us in the event of
a cybersecurity incident within their systems that have, or are reasonably likely to, compromise the security of such information. When appropriate, we
enlist CyberTeam to perform a risk and security assessment of the cybersecurity protocols and procedures of critical third-party partners.
Processes for managing cybersecurity risks
CyberTeam tracks risks and incidents related to cybersecurity until the risk is mitigated to an acceptable level or fully remediated. When risks are
identified, CyberTeam oversees mitigation plans with the risk owner which are communicated to necessary teams and remediation steps are taken.
Processes for incorporating cybersecurity risks into the overall risk management process
Our process for identifying, assessing, and managing risks related to cybersecurity generally involves CyberTeam regularly meeting with our executive
leadership team, and when appropriate, our board and/or audit committee to discuss cybersecurity related risks identified and the potential likelihood and
severity of each risk.
Currently, we are not aware of any risks from cybersecurity threats, or from previous cybersecurity incidents, that have materially affected or are
reasonably likely to materially affect the Company.
Item 2. Property
Our corporate offices are located at 360 Madison Avenue, 25th Floor, New York, NY 10017. The lease for this space is for seven years and eight
months, starting on February 1, 2023, and may not be terminated prior to expiration of its stated term, except in limited circumstances due to misconduct by
our landlord. The Company or its subsidiaries also have entered into leases for a research and development facility in Massachusetts with 7,375 square feet,
which has a remaining term expiring April 30, 2027, a CLIA laboratory in California with 21,019 square feet, which has a remaining term expiring
December 31, 2024, and an office space in Pennsylvania with 4,300 square feet, which has a remaining term expiring October 31, 2027. We also have lease
agreements for our Lucid Test Centers in various locations in Arizona, California, Colorado, Florida, Idaho, Illinois, Nevada, Ohio, Oregon, Texas and
Utah that in the aggregate approximate 15,048 square feet. At this time, we consider our facility space to be commensurate with our current operations.
Notwithstanding, we may obtain additional space in the future, as warranted by our business operations.
Item 3. Legal Proceedings
In the ordinary course of PAVmed business, particularly as it begins commercialization of its products, the Company may be subject to legal actions
and claims, including product liability, consumer, commercial, tax and governmental matters, which may arise from time to time. The Company is not
aware of any such pending legal or other proceedings that are reasonably likely to have a material impact on the Company. Notwithstanding, legal
proceedings are subject-to inherent uncertainties, and an unfavorable outcome could include monetary damages, and excessive verdicts can result from
litigation, and as such, could result in a material adverse impact on the Company’s business, financial position, results of operations, and /or cash flows.
Additionally, although the Company has specific insurance for certain potential risks, the Company may in the future incur judgments or enter into
settlements of claims which may have a material adverse impact on the Company’s business, financial position, results of operations, and /or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
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Part II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Common Equity
Our common stock is traded on the Nasdaq Capital Market under the symbol “PAVM” and our Series Z Warrants are traded on the Nasdaq Capital
Market under the symbol “PAVMZ.” On March 7, 2024, the Company received a notice from the Nasdaq Listing Qualifications Department stating that,
for the preceding 30 consecutive business days (through March 6, 2024), the market value of the Company’s listed securities had been below the minimum
of $35 million required for continued inclusion on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(2). The notification letter stated that the
Company would be afforded 180 calendar days (until September 3, 2024) to regain compliance. See “Recent Developments—Business—Nasdaq Notice” in
Item 7 below for more information.
Holders
As of March 21, 2024, there were 9,172,331 shares of our common stock outstanding. Our shares of common stock are held by an estimated 225
holders of record and we believe our shares of common stock are held by significantly more beneficial owners.
Dividends
Common Stock
We have not paid any cash dividends on our common stock to date.
Any future decisions regarding cash dividends will be made by our board of directors. We do not anticipate paying cash dividends in the foreseeable
future but expect to retain earnings to finance the growth of our business. Subject to the restrictions described below and applicable law, our board of
directors has complete discretion on whether to pay cash dividends. Even if our board of directors decides to pay cash dividends, the form, frequency and
amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions, amongst
and other factors deemed relevant.
As long as the Senior Convertible Notes (see “Liquidity and Capital Resources” in Item 7 below) are outstanding, we may not, directly or indirectly,
redeem, or declare or pay any cash dividend or cash distribution on, any of our securities without the prior express written consent of the purchasers of the
Senior Convertible Notes (other than as required by the Series B Convertible Preferred Stock). Furthermore, our common stock is junior to the Series B
Convertible Preferred Stock with respect to dividends.
We have paid one in-kind dividend on our common stock to date. On February 15, 2024, we distributed by special dividend to our stockholders
3,331,747 shares of Lucid common stock held by us. On such date, each of our stockholders as of the January 15, 2024 record date received a stock
dividend of approximately 38 shares of Lucid common stock for every 100 shares of PAVmed common stock they held as of such date. Our board of
directors has no present intention to pay any further in-kind dividends.
Series B Convertible Preferred Stock
The Series B Convertible Preferred Stock has a par value of $0.001 per share, no voting rights, a stated value of $3.00 per share, and at the holders’
election, every fifteen shares of Series B Convertible Preferred Stock is convertible into one whole share of our common stock .
The Series B Convertible Preferred Stock accrues dividends at a rate of 8% per annum based on the $3.00 per share stated value. Dividends are
payable in arrears on January 1, April 1, July 1, and October 1, 2023. Dividends accrue and cumulate whether or not declared by our board of directors. All
accumulated and unpaid dividends compound quarterly at the rate of 8% of the stated value per annum. Dividends are payable at our election in any
combination of shares of Series B Convertible Preferred Stock, cash or shares of our common stock.
During the period ended December 31, 2022 at each of the respective holders’ election, a total of 45 shares of Series B Convertible Preferred Stock
were converted into 3 shares of common stock of PAVmed Inc, adjusted for the 1-for-15 reverse stock split effective December 7, 2023, as disclosed in
Note 3, Summary of Significant Accounting Policies. There were no Series B Convertible Preferred Stock converted during the year ended December 31,
2023.
During the year ended December 31, 2023, the Company’s board of directors declared an aggregate of approximately $298 of Series B Convertible
Preferred Stock dividends, earned as of December 31, 2022; March 31, 2023; June 30, 2023; and September 30, 2023, which have been settled by the issue
of an additional aggregate 99,454 shares of Series B Convertible Preferred Stock.
During the year ended December 31, 2022, the Company’s board of directors declared an aggregate of approximately $276 of Series B Convertible
Preferred Stock dividends, earned as of December 31, 2021; March 31, 2022; June 30, 2022; and September 30, 2022, which have been settled by the issue
of an additional aggregate 91,885 shares of Series B Convertible Preferred Stock.
Subsequent to December 31, 2023, the Company’s board of directors declared a Series B Convertible Preferred Stock dividend, earned as of December
31, 2023, of $78, to be settled by the issue of 26,123 additional shares of Series B Convertible Preferred Stock.
Recent Sales of Unregistered Securities
Except as previously disclosed in our current reports on Form 8-K and quarterly reports on Form 10-Q or as described under the heading “Recent
Developments—Financing” in Item 7 below, we did not sell any unregistered securities or repurchase any of our securities during the fiscal year ended
December 31, 2023.
Item 6. [Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our consolidated financial condition and results of operations should be read together with our consolidated
financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K (the “Financial Statements”). Some of the information
contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and
strategy for our business and related financing, includes forward-looking statements involving risks and uncertainties and should be read together with the
“Forward-Looking Statements” and “Risk Factors” sections of this Annual Report on Form 10-K for a discussion of important factors which could cause
actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and
analysis.
Unless the context otherwise requires, (i) “we”, “us”, and “our”, and the “Company” and “PAVmed” refer to PAVmed Inc. and its subsidiaries,
including its majority-owned subsidiary Lucid Diagnostics Inc. (“Lucid Diagnostics” or “Lucid”) and its majority-owned subsidiary Veris Health Inc.
(“Veris Health” or “Veris”), (ii) “FDA” refers to the Food and Drug Administration, (iii) “510(k)” refers to a premarket notification, submitted to the FDA
by a manufacturer pursuant to § 510(k) of the Food, Drug and Cosmetic Act and 21 CFR § 807 subpart E, (iv) “CLIA” refers to the Clinical Laboratory
Improvement Amendments of 1988 and associated regulations set forth in 42 CFR § 493, and (v) “LDT” refers to a diagnostic test, defined by the FDA as
“an IVD that is intended for clinical use and designed, manufactured and used within a single laboratory,” which is generally subject only to self-
certification of analytical validity under the CMS CLIA program.
Overview
PAVmed is structured to be a multi-product life sciences company organized to advance a pipeline of innovative healthcare technologies. Led by a
team of highly skilled personnel with a track record of bringing innovative products to market, PAVmed is focused on innovating, developing, acquiring,
and commercializing novel products that target unmet needs with large addressable market opportunities. Leveraging our corporate structure—a parent
company that will establish distinct subsidiaries for each financed asset—we have the flexibility to raise capital at the PAVmed level to fund product
development, or to structure financing directly into each subsidiary in a manner tailored to the applicable product, the latter of which is our current strategy
given prevailing market conditions.
Our current focus is multi-fold. We continue to pursue commercial expansion and execution of EsoGuard, which is the flagship product of our
majority-owned subsidiary Lucid Diagnostics Inc. (Nasdaq: LUCD) (“Lucid” or “Lucid Diagnostics”). In addition, through a separate majority-owned
subsidiary, Veris Health Inc. (“Veris” or “Veris Health”), we are focused on entering into strategic partnership opportunities with leading academic
oncology systems to expand access to the Veris Platform. In terms of other existing products and technologies, we have created an incubator-type platform
where we are looking to obtain financing on a product-by-product basis as necessary to advance each asset to a meaningful inflection point along its path to
commercialization. Finally, as resources permit, we will continue to explore external innovations that fulfill our project selection criteria without limiting
ourselves to any target sector, specialty or condition.
See Part I, Item 1, Business above for a more detailed summary of the medical device, diagnostics, and digital health sectors and our key products,
including in particular EsoGuard and the Veris Platform, which are currently our two leading products.
Recent Developments
Business
Series Z Warrant Modification
On December 4, 2023, the Company announced the extension of the Company’s Series Z Warrants, by 12 months, to April 30, 2025.
In addition, as a result of the reverse stock split, described below, the Series Z Warrants became exercisable to purchase one whole share of common
stock of the Company at an exercise price of $24.00, which exercise price per whole share was further reduced to $23.48 as described below under the
heading “PAVmed Distribution of Lucid Diagnostics Common Stock to Shareholders”. The Company recognized the incremental value associated with the
Series Z Warrants modification for the term extension as a deemed dividend charge of $1.8 million and as an increase of net loss available to common
stockholders on the consolidated statements of operations in 2023.
Reverse Stock Split
On December 7, 2023, the Company implemented a 1-for-15 reverse stock split of its common stock and reduced its authorized shares from
250,000,000 to 50,000,000, each in accordance with shareholder approval granted at a March 31, 2023 special meeting of the Company’s stockholders. The
Company filed an amended Certificate of Incorporation reflecting the reduction in authorized shares.
The purpose of the reverse stock split was to regain compliance with the $1 minimum bid price requirement for continued listing on the Nasdaq
Capital Market. Indeed, on January 7, 2024, the Company received a letter from the Listing Qualifications Department of Nasdaq, stating the Company had
regained compliance with such requirement.
37
Management Services Agreement/Payroll Benefits and Expense Reimbursement Agreement with Lucid Diagnostics
On March 22, 2024, PAVmed and Lucid entered into an eighth amendment to the the management services agreement between PAVmed and Lucid
(“MSA”) to increase the monthly fee thereunder from $0.75 million per month to $0.83 million per month, effective as of January 1, 2024. The amendment
also reset the maximum number of shares issuable under the agreement to 19.99% of the shares outstanding as of the date of the amendment.
On January 26, 2024, in accordance with the MSA and the payroll, benefits and expense reimbursement agreement between PAVmed and Lucid
(“PBERA”), PAVmed elected to receive payment of approximately $4.7 million of fees and reimbursements accrued under the MSA and the PBERA
through the issuance of 3,331,771 shares of Lucid’s common stock.
PAVmed Distribution of Lucid Diagnostics Common Stock to Shareholders
On February 15, 2024, the Company distributed by special dividend to the Company stockholders 3,331,747 shares of Lucid Diagnostics common
stock held by the Company. On such date, each PAVmed shareholder as of the January 15, 2024 record date received a stock dividend of approximately 38
shares of Lucid common stock for every 100 shares of PAVmed common stock they held as of such date. The shares distributed were approximately equal
to the number of shares of common stock that Lucid issued to PAVmed on or about January 26, 2024 in satisfaction of certain intercompany obligations due
to Lucid from PAVmed, as discussed above.
This distribution constituted an “Extraordinary Dividend” as defined in the warrant agreement that governs the Company’s Series Z Warrants. As a
result, pursuant to the warrant agreement, the exercise price under the Series Z Warrants per full share of PAVmed common stock was automatically
decreased by $0.52 (the fair market value of 0.37709668 of a share of Lucid Diagnostics’ common stock) to $23.48 per share.
Nasdaq Notice
On March 7, 2024, the Company received a notice from the Nasdaq Listing Qualifications Department stating that, for the preceding 30 consecutive
business days (through March 6, 2024), the market value of the Company’s listed securities (“MVLS”) had been below the minimum of $35 million
required for continued inclusion on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(2). The notification letter stated that the Company
would be afforded 180 calendar days (until September 3, 2024) to regain compliance. In order to regain compliance, the Company’s MVLS must close at
$35 million or more for a minimum of ten consecutive business days. The notification letter also states that in the event the Company does not regain
compliance prior to the expiration of the 180-day period, the Company will receive written notification that its securities are subject to delisting. The
Nasdaq notification has no effect at this time on the listing of the Company’s common stock or Series Z warrants, and the stock and warrants will continue
to trade uninterrupted under the symbol “PAVM” and “PAVMZ”, respectively.
Incubator Program
On March 21, 2024, the Company announced that it has launched a wholly owned incubator, PMX, to complete development and commercialization
of existing portfolio technologies, including PortIO, EsoCure and CarpX. PMX and Hatch Medical, L.L.C. (“Hatch Medical”), a medical device incubator
and technology brokerage firm, have executed a joint venture agreement to advance the technologies.
Pursuant to the joint venture agreement, PAVmed will assign PortIO, EsoCure and CarpX to its wholly owned incubator, PMX. Starting with PortIO,
the Company will seek to independently finance a separate subsidiary of the incubator to develop and commercialize each technology. Hatch Medical will
provide strategic advisory and brokerage services to the subsidiary to advance the technology through key milestones and, subsequently, seek to engage a
strategic partner to acquire, license or distribute the commercial product.
Financing
Securities Purchase Agreement - March 31, 2022 - Senior Secured Convertible Note - April 4, 2022 and Senior Secured Convertible Note - September 8,
2022
Effective as of March 12, 2024, the Company entered into an amendment and waiver (the “Note Amendment and Waiver”) with the holder of the April
2022 Senior Convertible Note and the September 2022 Senior Convertible Note (each such term as defined below). Pursuant to the Note Amendment and
Waiver, the maturity date of the April 2022 Senior Convertible Note was extended to April 4, 2025 and the maturity date of the September 2022 Senior
Convertible Note was extended to September 8, 2025, in each case subject to further extension in certain circumstances. The holder of the such note also
waived, for the period commencing on December 1, 2023 and ending on August 31, 2024, the financial covenant contained in such notes requiring that the
ratio of (a) the outstanding principal amount of the notes, accrued and unpaid interest thereon and accrued and unpaid late charges to (b) the Company’s
average market capitalization over the prior ten trading days, not exceed 30%, and that the Company’s market capitalization not be less than $75 million. In
consideration of the Note Amendment and Waiver, the Company agreed to pay the holder of the notes $2,000,000 in cash (or in such other form as may be
mutually agreed in writing) by April 25, 2024.
See our accompanying consolidated financial statements Note 13, Debt, for further discussion of the SPA dated March 31, 2022 and the senior
convertible notes.
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Financing - continued
Lucid Diagnostics - Preferred Stock Offerings
On March 13, 2024, Lucid entered into subscription agreements (each, a “Series B Subscription Agreement”) and exchange agreements (each, an
“Exchange Agreement”) with certain accredited investors (collectively, the “Series B Investors”), which agreements provided for (i) the sale to the Series B
Investors of 12,495 shares of Lucid’s newly designated Series B Convertible Preferred Stock, par value $0.001 per share (the “Lucid Series B Preferred
Stock”), at a purchase price of $1,000 per share, and (ii) the exchange by the Series B Investors of 13,625 shares of Lucid’s Series A Convertible Preferred
Stock, par value $0.001 per share (the “Lucid Series A Preferred Stock”), and 10,670 shares of Lucid’s Series A-1 Convertible Preferred Stock, par value
$0.001 per share (the “Lucid Series A-1 Preferred Stock”), held by them for 31,790 shares of Lucid Series B Preferred Stock (collectively, the “Lucid
Series B Offering and Exchange”). Prior to the execution of the Series B Subscription Agreements and the Exchange Agreements, Lucid entered into
subscription agreements with certain of the Series B Investors providing for the sale to such investors of 5,670 shares of Lucid Series A-1 Preferred Stock,
at a purchase price of $1,000 per share, which shares the investors immediately agreed to exchange for shares of Lucid Series B Preferred Stock pursuant to
the Exchange Agreements (and are included in the 10,670 shares of Lucid Series A-1 Preferred Stock set forth above). Each share of the Lucid Series B
Preferred Stock has a stated value of $1,000 and a conversion price of $1.2444. The terms of the Lucid Series B Preferred Stock also include a one times
preference on liquidation and a right to receive dividends equal to 20% of the number of shares of Lucid common stock into which such Lucid Series B
Preferred Stock is convertible, payable on the one-year and two-year anniversary of the issuance date. The Lucid Series B Preferred Stock is a voting
security. The aggregate gross proceeds to Lucid of these transactions was $18.16 million (inclusive of $5.67 million of aggregate gross proceeds from the
sale of the Lucid Series A-1 Preferred Stock that was immediately exchanged for Lucid Series B Preferred Stock in the transactions).
As a result of 100% of the then-outstanding shares of Lucid Series A Preferred Stock and Lucid Series A-1 Preferred Stock being exchanged for shares
of Lucid Series B Preferred Stock in the Lucid Series B Offering and Exchange, no shares of Lucid Series A Preferred Stock or Lucid Series A-1 Preferred
Stock remain outstanding.
On October 17, 2023, Lucid sold 5,000 shares of Lucid Series A-1 Preferred Stock, solely to accredited investors (all of which were including in the
10,670 shares of Lucid Series A-1 Preferred exchanged for Lucid Series B Preferred Stock in the Lucid Series B Offering and Exchange). The aggregate
gross proceeds to Lucid of this offering was $5.0 million.
PAVmed Inc. ATM Facility
In December 2021, we entered into an “at-the-market offering” for up to $50 million of our common stock that may be offered and sold under a
Controlled Equity Offering Agreement between us and Cantor. In March 2023, the “at-the-market offering” became subject to General Instruction I.B.6 of
Form S-3, which limits sales of our securities under this instruction in any 12-month period to one-third of the aggregate market value of our public float
(unless our public float rises to $75 million or more, in which case the instruction will cease to apply). As a result of this limitation and our then-current
public float, in May 2023, we amended our “at-the-market offering” to cover up to an additional $18 million of our common stock. In the year ended
December 31, 2023, the Company sold 321,288 shares through its at-the-market equity facility for net proceeds of approximately $1.8 million, after
payment of 3% commissions.
Lucid Diagnostics Inc. - Committed Equity Facility and ATM Facility
In March 2022, Lucid Diagnostics entered into a committed equity facility with a Cantor affiliate. Under the terms of the committed equity facility, the
Cantor affiliate has committed to purchase up to $50 million of Lucid Diagnostics’ common stock from time to time at Lucid Diagnostics’ request. While
there are distinct differences, the committed equity facility is structured similarly to a traditional at-the-market equity facility, insofar as it allows Lucid
Diagnostics to raise primary equity capital on a periodic basis at prices based on the existing market price. Cumulatively a total of 680,263 shares of Lucid
Diagnostics’ common stock were issued for net proceeds of approximately $1.8 million, after a 4% discount, as of December 31, 2023.
In November 2022, Lucid Diagnostics also entered into an “at-the-market offering” for up to $6.5 million of its common stock that may be offered and
sold under a Controlled Equity Offering Agreement between Lucid Diagnostics and Cantor. In the year ended December 31, 2023, Lucid Diagnostics sold
230,068 shares through its at-the-market equity facility for net proceeds of approximately $0.3 million, after payment of 3% commissions.
39
Results of Operations
Overview
Revenue
The Company recognized revenue resulting from the delivery of patient EsoGuard test results when the Company considered the collection of such
consideration to be probable to the extent that it is unconstrained. Additionally, in the three months ended March 31, 2022, revenue was recognized with
respect to the EsoGuard Commercialization Agreement, dated August 1, 2021, between the Lucid Diagnostics and ResearchDx Inc. (“RDx”), a CLIA
certified commercial laboratory service provider. On February 25, 2022, the EsoGuard Commercialization Agreement was terminated upon Lucid’s
acquisition, pursuant to the APA-RDx, of certain assets necessary to operate its own CLIA certified laboratory. For a fuller description of the APA-RDx,
see Note 5, Asset Purchase Agreement and Management Services Agreement, to our accompanying consolidated financial statements.
Cost of revenue
Cost of revenues recognized from the delivery of patient EsoGuard test results includes costs related to EsoCheck device usage, shipment of test
collection kits, royalties and the cost of services to process tests and provide results to physicians. We incur expenses for tests in the period in which the
activities occur, therefore, gross margin as a percentage of revenue may vary from quarter to quarter due to costs being incurred in one period that relate to
revenues recognized in a later period.
We expect that gross margin for our services will continue to fluctuate and be affected by EsoGuard test volume, our operating efficiencies, patient
compliance rates, payer mix, the levels of reimbursement, and payment patterns of payers and patients.
For the previously terminated EsoGuard Commercialization Agreement in February 2022, the cost of revenue recognized is inclusive of: a royalty fee
incurred under our license agreement with CWRU; the cost of EsoCheck devices and EsoGuard mailers (cell sample shipping costs); and Lucid Test
Centers operating expenses, including rent expense and supplies.
Sales and marketing expenses
Sales and marketing expenses consist primarily of salaries and related costs for employees engaged in sales, sales support and marketing activities, as
well as advertising and promotion expenses. We anticipate our sales and marketing expenses will increase in the future, to the extent we expand our
commercial sales and marketing operations as resources permit and insurance reimbursement coverage for our EsoGuard test expands.
General and administrative expenses
General and administrative expenses consist primarily of salaries and related costs for personnel, travel expenses, facility-related costs, professional
fees for accounting, tax, audit and legal services, salaries and related costs for employees involved in third-party payor reimbursement contract negotiations
and consulting fees and other expenses associated with obtaining and maintaining patents within our intellectual property portfolio.
We anticipate our general and administrative expenses will increase in the future to the extent our business operations grow. Furthermore, we anticipate
continued expenses related to being a public company, including fees and expenses for audit, legal, regulatory, tax-related services, insurance premiums
and investor relations costs associated with maintaining compliance as a public company.
Research and development expenses
Research and development expenses are recognized in the period they are incurred and consist principally of internal and external expenses incurred
for the development of our products, including:
● consulting costs for engineering design and development;
● salary and benefit costs associated with our medical research personnel and engineering personnel;
● costs associated with regulatory filings;
● patent license fees;
● cost of laboratory supplies and acquiring, developing, and manufacturing preclinical prototypes;
● product design engineering studies; and
● expenses for facilities maintained solely for research and development purposes.
Our current research and development activities, including our clinical trials, are focused principally on the acceleration of EsoGuard and Veris Cancer
Care Platform commercialization. We will resume research and development activities with respect to other products in our pipeline as well as applicable
new technologies, as resources permit.
Other Income and Expense, net
Other income and expense, net, consists principally of changes in fair value of our convertible notes and losses on extinguishment of debt upon
repayment of such convertible notes.
40
Results of Operations - continued
Presentation of Dollar Amounts
All dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented as dollars in
millions, except for share and per share amounts.
The year ended December 31, 2023 as compared to year ended December 31, 2022
Revenue
In the year ended December 31, 2023, revenue was $2.5 million as compared to $0.4 million in the prior year. The $2.1 million increase principally
relates to the revenue for our EsoGuard Esophageal DNA Test performed in our own CLIA laboratory. During the year ended December 31, 2022, there
was revenue from the EsoGuard Commercialization Agreement with RDx recognized in first two months of the year. The EsoGuard Commercialization
Agreement was terminated on February 25, 2022 when Lucid Diagnostics transitioned to its own laboratory operations.
Cost of revenue
In the year ended December 31, 2023, cost of revenue was approximately $6.4 million as compared to $3.6 million in the prior year. The $2.8 million
increase was principally related to:
● approximately $1.6 million increase in EsoCheck and EsoGuard supplies costs; and
● approximately $1.2 million increase in compensation related costs, including stock-based compensation at Lucid and Veris.
Sales and marketing expenses
In the year ended December 31, 2023, sales and marketing costs were approximately $17.6 million as compared to $19.3 million in the prior year. The
net decrease of $1.7 million was principally related to:
● approximately $1.9 million decrease in third party marketing expenses; and
● approximately $0.2 million increase in facility-related costs.
General and administrative expenses
In the year ended December 31, 2023, general and administrative costs were approximately $30.9 million as compared to $41.4 million in the prior
year. The net decrease of $10.5 million was principally related to:
● approximately $8.1 million decrease in stock-based compensation, primarily related to decreases at Lucid, partially offset by increases at PAVmed;
● approximately $3.5 million decrease in third-party professional fees and expenses related to legal services, consulting fees and professional
recruiting services;
● approximately $1.3 million increase in compensation related costs; and
● approximately $0.2 million decrease related to facility related costs at Lucid, partially offset by an increase in facility related costs at PAVmed.
Research and development expenses
In the year ended December 31, 2023, research and development costs were approximately $14.3 million as compared to $25.3 million in the prior
year. The net decrease of $11.0 million was principally related to:
● approximately $10.1 million decrease in development costs, particularly in clinical trial activities and outside professional and consulting fees; and
● approximately $0.9 million decrease in third party professional fees and expenses related to consulting.
Amortization of Acquired Intangible Assets
The amortization of acquired intangible assets increased to $2.0 million in the year ended December 31, 2023, as compared to $1.8 million in the prior
year. The increase of $0.2 million in the current period was due to the timing of the acquired intangible assets in 2022.
41
Results of Operations - continued
The year ended December 31, 2023 as compared to year ended December 31, 2022 - continued
Other Income and Expense
Change in fair value of convertible debt
In the year ended December 31, 2023, the change in the fair value of our convertible notes was approximately $6.0 million of expense, related to the
April 2022 Senior Convertible Note, the September 2022 Senior Convertible Note, and the Lucid March 2023 Senior Convertible Note. The April 2022
Senior Convertible Note, the September 2022 Senior Convertible Note, and the Lucid March 2023 Senior Convertible Note were initially measured at their
issue-date estimated fair value and subsequently remeasured at estimated fair value as of each reporting period date. The Company initially recognized an
aggregate of $4.3 million of fair value non-cash expense on the issue dates.
Loss on Issue and Offering Costs - Senior Secured Convertible Note
In the year ended December 31, 2023, in connection with the issue of the Lucid March 2023 Senior Convertible Note, we recognized a total of
approximately $1.2 million of lender fees and offering costs paid by us. In the year ended December 31, 2022, in connection with the issue of the April
2022 Senior Convertible Note and the September 2022 Senior Convertible Note, we recognized a total of approximately $4.3 million of lender fees and
offering costs.
Loss on Debt Extinguishment
In the year ended December 31, 2023, a debt extinguishment loss in the aggregate of approximately $3.8 million was recognized in connection with
our April 2022 Senior Convertible Note and September 2022 Senior Convertible Note as discussed below.
● In the year ended December 31, 2023, approximately $6.1 million of principal repayments along with $0.4 million of interest expense thereon,
were settled through the issuance of 1,745,824 shares of common stock of the Company, with such shares having a fair value of approximately
$10.0 million (with such fair value measured as the respective conversion date quoted closing price of the common stock of the Company). In
addition, the Company paid $0.2 million in cash related to acceleration floor payments on these notes related to the conversion price being below
$2.70, recorded as debt extinguishment loss. The conversions resulted in a debt extinguishment loss of $3.8 million in the year ended December
31, 2023.
In comparison, in the year ended December 31, 2022, a debt extinguishment loss in the aggregate of approximately $5.4 million was recognized in
connection with our April 2022 Senior Convertible Note as discussed below.
● In August 2022, approximately $6.0 million of principal repayments along with $0.4 million of interest expense thereon, were settled through the
issuance of 479,291 shares of common stock of the Company, with such shares having a fair value of approximately $11.8 million (with such fair
value measured as the respective conversion date quoted closing price of the common stock of the Company). The conversions resulted in a debt
extinguishment loss of $5.4 million in the year ended December 31, 2022.
See Note 13, Debt, to the Financial Statements, for additional information with respect to the April 2022 Senior Convertible Note, the September 2022
Senior Convertible Note, and the Lucid March 2023 Senior Convertible Note.
Liquidity and Capital Resources
Our current financing strategy is to obtain capital directly into Lucid, Veris and other subsidiaries to fund any product development or other related
activities. There are no assurances, however, we will be able to obtain an adequate level of financial resources required for the short-term or long-term
commercialization and development of our products and services.
We have financed our operations principally through the public and private issuances of our common stock, preferred stock, common stock purchase
warrants, and debt. We are subject to all of the risks and uncertainties typically faced by medical device and diagnostic and medical device companies that
devote substantially all of their efforts to the commercialization of their initial product and services and ongoing R&D and clinical trials. We experienced a
net loss before noncontrolling interests of approximately $79.3 million and used approximately $52.0 million of cash in operations for the year ended
December 31, 2023. Financing activities provided $31.2 million of cash during the year ended December 31, 2023. We ended the year with cash on-hand of
$19.6 million as of December 31, 2023. We expect to continue to experience recurring losses and negative cash flows from operations, and will continue to
fund our operations with debt and/or equity financing transactions, including current obligations on the Company’s existing convertible debt which in
accordance with management’s plans may include conversions to equity and refinancing our existing debt obligations to extend the maturity date. The
Company’s ability to continue operations beyond March 2025 will depend upon generating substantial revenue that is conditioned on obtaining positive
third-party reimbursement coverage for its EsoGuard Esophageal DNA Test from both government and private health insurance providers, increasing
revenue through contracting directly with self-insured employers, and on its ability to raise additional capital through various potential sources including
equity and/or debt financings or refinancing existing debt obligations. These factors raise substantial doubt about the Company’s ability to continue as a
going concern within one year after the date the accompanying consolidated financial statements are issued.
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Liquidity and Capital Resources - continued
Issue of Shares of Our Common Stock
During the year ended December 31, 2023
● We issued 58,483 shares of our common stock for proceeds of approximately $0.3 million under the PAVmed Employee Stock Purchase Plan
(“ESPP”), as such plan is discussed in Note 14, Stock-Based Compensation, to the Financial Statements.
● We issued 321,288 shares of our common stock for net proceeds of approximately $1.8 million, after payment of 3% commissions, from the sale
of shares through PAVmed’s at-the-market equity facility through Cantor. See below for more information.
● We issued 100,000 shares of our common stock to a service provider as the consideration for services rendered. The issued shares of common
stock had a fair value of approximately $0.6 million. See Note 16, Common Stock and Common Stock Purchase Warrants for additional
discussion.
● We issued 1,745,824 shares of our common stock in satisfaction of approximately $6.1 million of principal repayments along with approximately
$0.4 million of interest expense thereon under the April 2022 Senior Convertible Note and September 2022 Senior Convertible Note.
Securities Purchase Agreement - March 31, 2022 - Senior Secured Convertible Notes - April 4, 2022 and September 8, 2022
Effective as of March 31, 2022, we entered into the SPA with an accredited investor, pursuant to which we agreed to sell, and the investor agreed to
purchase an aggregate of $50.0 million face value principal of Senior Secured Convertible Notes. The SPA provided for the sale of the initial Senior
Secured Convertible Note with a face value principal of $27.5 million, which closed on April 4, 2022 (referred to as the “April 2022 Senior Convertible
Note”). The SPA also provided for sales of additional Senior Secured Convertible Notes in one or more additional closings (upon the satisfaction of certain
conditions), with an aggregate face value principal of up to an additional $22.5 million. The April 2022 Senior Secured Convertible Note has a 7.875%
annual stated interest rate, a contractual conversion price (adjusted for the December 2023 1-for-15 reverse stock split) of $75.00 per share of the
Company’s common stock (subject to standard adjustments in the event of any stock split, stock dividend, stock combination, recapitalization or other
similar transaction), and an initial contractual maturity date of April 4, 2024, which maturity date the investor agreed to extend by one year, to April 4,
2025. The April 2022 Senior Convertible Note may be converted into or otherwise paid in shares of our common stock as described in Note 13, Debt. The
April 2022 Senior Convertible Note proceeds were $24.4 million after deducting a $2.5 million lender fee and the Company’s offering costs of
approximately $0.6 million, inclusive primarily of $0.5 million placement agent fees.
On September 8, 2022, we completed an additional closing under the SPA, in which we sold to the investor an additional Senior Secured Convertible
Note with a face value principal of $11.25 million (referred to as the “September 2022 Senior Convertible Note”). The September 2022 Senior Secured
Convertible Note has a 7.875% annual stated interest rate, a contractual conversion price (adjusted for the December 2023 1-for-15 reverse stock split) of
$75.00 per share of the Company’s common stock (subject to standard adjustments in the event of any stock split, stock dividend, stock combination,
recapitalization or other similar transaction), and a contractual maturity date of September 8, 2024 which maturity date the investor agreed to extend by one
year, to September 8, 2025. The September 2022 Senior Convertible Note may be converted into or otherwise paid in shares of our common stock as
described in Note 13, Debt. The September 2022 Senior Convertible Note proceeds were $10.0 million after deducting a $1.0 million lender fee and the
Company’s total offering costs of approximately $0.2 million, inclusive primarily of placement agent fees.
Under the April 2022 Senior Convertible Note, the September 2022 Senior Convertible Note and the SPA, we are subject to certain customary
affirmative and negative covenants regarding the incurrence of indebtedness, the existence of liens, the repayment of indebtedness and the making of
investments, the payment of cash in respect of dividends, distributions or redemptions, the transfer of assets, the maturity of other indebtedness, and
transactions with affiliates, among other customary matters. We also are subject to financial covenants requiring that (i) the amount of our available cash
equal or exceed $8.0 million at all times, (ii) the ratio of (a) the outstanding principal amount of the notes issued under the SPA, accrued and unpaid interest
thereon and accrued and unpaid late charges to (b) our average market capitalization over the prior ten trading days, not exceed 30% (the “Debt to Market
Cap Ratio Test”), and (iii) that our market capitalization shall at no time be less than $75 million (the “Market Cap Test” and, together with the Debt to
Market Cap Ratio Test, the “Financial Tests”). From time to time from and after December 1, 2023 through March 12, 2024, the Company was not in
compliance with the Financial Tests. As of March 12, 2024, the investor agreed to waive any such non-compliance during such time period and thereafter
through August 31, 2024. Based on the waiver, as of December 31, 2023, the Company was in compliance with the Financial Tests. In addition, based on
the waiver, the Company presently is in compliance with the Financial Tests.
In consideration of the covenant waiver and maturity extensions discussed above, the Company agreed to pay the holder of the notes $2,000,000 in cash
(or in such other form as may be mutually agreed in writing) by April 25, 2024.
See Note 13, Debt, to the Financial Statements for additional information about the SPA, the April 2022 Senior Convertible Note, and the September
2022 Senior Convertible Note.
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Liquidity and Capital Resources - continued
Lucid Diagnostics - Preferred Stock Offerings
On March 13, 2024, Lucid entered into subscription agreements (each, a “Series B Subscription Agreement”) and exchange agreements (each, an
“Exchange Agreement”) with certain accredited investors (collectively, the “Series B Investors”), which agreements provided for (i) the sale to the Series B
Investors of 12,495 shares of Lucid’s newly designated Series B Convertible Preferred Stock, par value $0.001 per share (the “Lucid Series B Preferred
Stock”), at a purchase price of $1,000 per share, and (ii) the exchange by the Series B Investors of 13,625 shares of Lucid’s Series A Convertible Preferred
Stock, par value $0.001 per share (the “Lucid Series A Preferred Stock”), and 10,670 shares of Lucid’s Series A-1 Convertible Preferred Stock, par value
$0.001 per share (the “Lucid Series A-1 Preferred Stock”), held by them for 31,790 shares of Lucid Series B Preferred Stock (collectively, the “Lucid
Series B Offering and Exchange”). Prior to the execution of the Series B Subscription Agreements and the Exchange Agreements, Lucid entered into
subscription agreements with certain of the Series B Investors providing for the sale to such investors of 5,670 shares of Lucid Series A-1 Preferred Stock,
at a purchase price of $1,000 per share, which shares the investors immediately agreed to exchange for shares of Lucid Series B Preferred Stock pursuant to
the Exchange Agreements (and are included in the 10,670 shares of Lucid Series A-1 Preferred Stock set forth above). Each share of the Lucid Series B
Preferred Stock has a stated value of $1,000 and a conversion price of $1.2444. The terms of the Lucid Series B Preferred Stock also include a one times
preference on liquidation and a right to receive dividends equal to 20% of the number of shares of Lucid common stock into which such Lucid Series B
Preferred Stock is convertible, payable on the one-year and two-year anniversary of the issuance date. The Lucid Series B Preferred Stock is a voting
security. The aggregate gross proceeds to Lucid of these transactions was $18.16 million (inclusive of $5.67 million of aggregate gross proceeds from the
sale of the Lucid Series A-1 Preferred Stock that was immediately exchanged for Lucid Series B Preferred Stock in the transactions).
As a result of 100% of the then-outstanding shares of Lucid Series A Preferred Stock and Lucid Series A-1 Preferred Stock being exchanged for shares
of Lucid Series B Preferred Stock in the Lucid Series B Offering and Exchange, no shares of Lucid Series A Preferred Stock or Lucid Series A-1 Preferred
Stock remain outstanding.
On October 17, 2023, Lucid sold 5,000 shares of Lucid Series A-1 Preferred Stock, solely to accredited investors (all of which were including in the
10,670 shares of Lucid Series A-1 Preferred exchanged for Lucid Series B Preferred Stock in the Lucid Series B Offering and Exchange). The aggregate
gross proceeds to Lucid of this offering was $5.0 million.
Lucid Diagnostics - Securities Purchase Agreement - March 13, 2023 - Senior Secured Convertible Note - March 21, 2023
Effective as of March 13, 2023, Lucid Diagnostics entered into the Lucid SPA with an accredited institutional investor, pursuant to which Lucid
Diagnostics agreed to sell, and the investor agreed to purchase the Lucid March 2023 Senior Convertible Note with a face value principal of $11.1 million.
Lucid Diagnostics issued the Lucid March 2023 Senior Convertible Note on March 21, 2023 pursuant to the Lucid SPA. The Lucid March 2023 Senior
Convertible Note proceeds were $9.925 million after deducting a $1.186 million lender fee and offering costs as described under the heading “Recent
Developments—Financing” in Item 7 above,
Under the Lucid March 2023 Senior Convertible Note, Lucid Diagnostics is subject to certain customary affirmative and negative covenants regarding
the incurrence of indebtedness, the existence of liens, the repayment of indebtedness and the making of investments, the payment of cash in respect of
dividends, distributions or redemptions, the transfer of assets, the maturity of other indebtedness, and transactions with affiliates, among other customary
matters. Under the Lucid March 2023 Senior Convertible Note, Lucid Diagnostics is also subject to financial covenants requiring that (i) the amount of its
available cash equal or exceed $5.0 million at all times, (ii) the ratio of (a) the outstanding principal amount of the notes issued under the Lucid SPA,
accrued and unpaid interest thereon and accrued and unpaid late charges, as of the last day of any fiscal quarter commencing with September 30, 2023, to
(b) Lucid Diagnostics’ average market capitalization over the prior ten trading days, not exceed 30%, and (iii) that Lucid Diagnostics’ market capitalization
shall at no time be less than $30 million (the “Lucid Financial Tests”). As of December 31, 2023, Lucid Diagnostics was in compliance with the Lucid
Financial Tests. In addition, Lucid Diagnostics presently is in compliance with the Lucid Financial Tests.
PAVmed Inc. ATM Facility
In December 2021, we entered into an “at-the-market offering” for up to $50 million of our common stock that may be offered and sold under a
Controlled Equity Offering Agreement between us and Cantor as described under the heading “Recent Developments—Financing” in Item 7 above. In the
year ended December 31, 2023, the Company sold 321,288 shares through its at-the-market equity facility for net proceeds of approximately $1.8 million,
after payment of 3% commissions.
Lucid Diagnostics Inc. - Committed Equity Facility and ATM Facility
In March 2022, Lucid Diagnostics entered into a committed equity facility with a Cantor affiliate. Cumulatively a total of 680,263 shares of Lucid
Diagnostics’ common stock were issued for net proceeds of approximately $1.8 million, after a 4% discount, as of December 31, 2023.
In November 2022, Lucid Diagnostics also entered into an “at-the-market offering” for up to $6.5 million of its common stock that may be offered and
sold under a Controlled Equity Offering Agreement between Lucid Diagnostics and Cantor. In the year ended December 31, 2023, Lucid Diagnostics sold
230,068 shares through its at-the-market equity facility for net proceeds of approximately $0.3 million, after payment of 3% commissions.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. The preparation of these
consolidated financial statements requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, and equity, along with
the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the
corresponding periods. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions we believe are
reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. While our significant
accounting policies are described in more detail in our consolidated financial notes, we believe the following accounting policies to be critical to the
judgments and estimates used in the preparation of our consolidated financial statements.
44
Revenue Recognition
Revenues are recognized when the satisfaction of the performance obligation occurs, in an amount that reflects the consideration we expect to collect
in exchange for those services. Our 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 we determine are within the
scope of ASC 606, Revenue from Contracts with Customers, we perform 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 we consider include the following:
Contracts—Our customer is primarily the patient, but we do not enter into a formal reimbursement contract with a patient. We establish 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 us and payers. However,
when a patient is considered self-pay, we require payment from the patient prior to the commencement of our performance obligations. Our consideration
can be deemed variable or fixed depending on the structure of specific payer contracts, and we consider 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. Our 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. We elected the practical expedient related to the disclosure of unsatisfied performance obligations,
as the duration of time between providing testing supplies, the receipt of a sample, and the release of a test result to the ordering healthcare provider is far
less than one year.
Transaction price—The transaction price is the amount of consideration that we 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, we estimate the amount of consideration to which it will be entitled in
exchange for the promised goods or services. We limit the amount of variable consideration included in the transaction price to the unconstrained portion of
such consideration. In other words, we recognize 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 we do 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, we
recognize 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—We do not adjust the transaction price for the effects of a significant financing component, as at contract inception, we expect
the collection cycle to be one year or less.
45
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 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).
The estimated fair values recognized utilized PAVmed and Lucid’s common stock prices, along with certain Level 3 inputs, in the development of
Monte Carlo simulation models, discounted cash flow analyses, and /or Black-Scholes valuation models. The estimated fair values are subjective and are
affected by changes in inputs to the valuation models and analyses, including the respective common stock prices, the dividend yields, the risk-free rates
based on U.S. Treasury security yields, and certain other Level-3 inputs including, assumptions regarding the estimated volatility in the value of the
respective common stock prices. Changes in these assumptions can materially affect the recognized estimated fair values.
See Note 12, Financial Instruments Fair Value Measurements, with respect to the FVO election; and Note 13, 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.
46
Stock-Based Compensation
Stock-based awards are made to members of the board of directors of the Company, the Company’s employees and nonemployees, under each of the
PAVmed 2014 Equity Plan and the Lucid Diagnostics 2018 Equity Plan. The Company accounts for stock-based compensation in accordance with the
provisions of FASB ASC Topic 718, Stock Compensation (“ASC 718”).
The grant date estimated fair value of the stock-based award is recognized on a straight-line basis over the requisite service period, which is generally
the vesting period of the respective stock-based award, with such straight-line recognition adjusted, as applicable, so the cumulative expense recognized is
at least equal to or greater than the estimated fair value of the vested portion of the respective stock-based award as of the reporting date.
The Company uses the Black-Scholes valuation model to estimate the fair value of stock options granted under both the PAVmed 2014 Equity Plan and
the Lucid Diagnostics 2018 Equity Plan, which requires the Company to make certain weighted average valuation estimates and assumptions for stock-
based awards, principally as follows:
● With respect to the PAVmed 2014 Equity Plan, the expected stock price volatility is based on the historical stock price volatility of PAVmed Inc.
common stock over the period commensurate with the expected term with respect to stock options granted to the board of directors and employees
in the years ended December 31, 2023 and 2022;
● With respect to stock options granted under the Lucid Diagnostics 2018 Equity Plan, the expected stock price volatility is based on the historical
stock price volatility of Lucid Diagnostics common stock and the volatilities of similar entities within the medical device industry over the period
commensurate with the expected term with respect to stock options granted to employees in the years ended December 31, 2023 and 2022;
● The risk-free interest rate is based on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period commensurate
with either the expected term or the remaining contractual term, as applicable, of the stock option; and,
● The expected dividend yield is based on annual dividends of $0.00 as there have not been dividends paid to-date, and there is no plan to pay
dividends for the foreseeable future.
The price per share of PAVmed Inc. common stock used in the computation of estimated fair value of stock options and restricted stock awards granted
under the PAVmed 2014 Equity Plan is its quoted closing price per share.
The price per share of Lucid Diagnostics common stock used in the computation of estimated fair value of stock options and restricted stock awards
granted under the Lucid Diagnostics 2018 Equity Plan is its quoted closing price per share.
Recent Accounting Standards Updates Adopted
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 consolidated financial statements.
Recent Accounting Standards Updates Not Yet Adopted
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures (“ASU 2023-09”),
which is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 provide for enhanced
income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for the Company
prospectively to all annual periods beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact this update will
have on our consolidated financial statements and disclosures.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures (“ASU
2023-07”), which require public companies disclose significant segment expenses and other segment items on an annual and interim basis and to provide in
interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. The guidance is effective for public
entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is
permitted. The guidance is applied retrospectively to all periods presented in the financial statements, unless it is impracticable. We are currently evaluating
the impact this update will have on our consolidated financial statements and disclosures.
In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure
Update and Simplification Initiative. This update modifies the disclosure or presentation requirements of a variety of topics in the Accounting Standards
Codification to conform with certain SEC amendments in Release No. 33-10532, Disclosure Update and Simplification. The amendments in this update
should be applied prospectively, and the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from
Regulation S-X or S-K becomes effective. However, if the SEC has not removed the related disclosure from its regulations by June 30, 2027, the
amendments will be removed from the Codification and not become effective. Early adoption is prohibited. We are currently evaluating the potential
impact of this guidance on its consolidated financial statements.
Off-Balance sheet arrangements
We do not have any off-balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
47
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements, together with the report of our independent registered public accounting firm, appear herein commencing on
page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our
disclosure controls and procedures as of December 31, 2023. Based on such evaluation, our principal executive officer and principal financial officer
concluded our disclosure controls and procedures (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) were effective as of such date to
provide reasonable assurance the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure information required to be disclosed by us in the reports we file or submit under the Exchange Act is
accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as such term is
defined in Exchange Act Rules 13(a)-15(f). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally
accepted in the U.S.
Our internal control over financial reporting includes those policies and procedures that:
● pertain to the maintenance of records, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;
● provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with
accounting principles generally accepted in the U.S., and our receipts and expenditures are being made only in accordance with authorizations of
our management and our directors; and;
● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets could have a
material effect on the financial statements.
Due to its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or
detect all misstatements. Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time. Our
system contains self-monitoring mechanisms, so actions will be taken to correct deficiencies as they are identified.
Our management conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the framework in
Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, our management concluded our system of internal control over financial reporting was effective as of December 31, 2023.
This Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the SEC to permit us to
provide only management’s report in this Form 10-K.
Changes to Internal Controls Over Financial Reporting
There has been no change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that
occurred during the quarter ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal controls over
financial reporting.
Item 9B. Other Information
Material Modification to Rights of Security Holders
On December 4, 2023, the Company announced the extension of the Company’s Series Z Warrants, by 12 months, to April 30, 2025. Such extension
became effective as of December 31, 2023.
Rule 10b5-1 Trading Plans
During the fiscal quarter ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1 under the Exchange Act) adopted or
terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as those terms are defined in Item 408 of Regulation S-K).
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
48
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this Item 10 is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2023.
Item 11. Executive Compensation
The information required by this Item 11 is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2023.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2023.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2023.
Item 14. Principal Accounting Fees and Services
The information required by this Item 14 is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2023.
49
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
(1)
The following documents filed as a part of the report:
The following financial statements:
Report of Independent Registered Public Accounting Firm (PCAOB ID#688)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2)
The financial statement schedules:
Schedules other than those listed above are omitted for the reason they are not required or are not applicable, or the required information is
shown in the financial statements or notes thereto. Columns omitted from schedules filed have been omitted because the information is not
applicable.
(3)
The following exhibits:
Exhibit No.
2.1
Description
Asset Purchase Agreement, dated as of February 25, 2022, by and among LucidDx Labs Inc., Lucid
Diagnostics Inc. and ResearchDx, Inc.
3.1.1
3.1.2
3.1.3
3.1.4
3.1.5
3.1.6
3.1.7
3.2
4.1
4.2
4.6
4.7
4.8
4.9
10.1
10.2.1
10.2.2
10.3.1
10.3.2
Certificate of Incorporation
Certificate of Amendment to Certificate of Incorporation
Certificate of Amendment to Certificate of Incorporation, dated October 1, 2018
Certificate of Amendment to Certificate of Incorporation, dated June 26, 2019
Certificate of Amendment to Certificate of Incorporation, dated July 24, 2020
Certificate of Amendment to Certificate of Incorporation, dated June 21, 2022
Form of Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible
Preferred Stock
Amended and Restated Bylaws
Description of Registrant’s Securities
Specimen Common Stock Certificate
Specimen Series Z Warrant Certificate
Amended and Restated Series Z Warrant Agreement, dated as of June 8, 2018, by and between PAVmed
Inc. and Continental Stock Transfer & Trust Company, as Warrant Agent
Form of PAVmed Inc. Senior Secured Convertible Note
Form of Lucid Diagnostics Senior Secured Convertible Note
Patent Option Agreement
Form of Letter Agreement with HCFP Capital Partners III LLC
Form of Letter Agreement with Pavilion Venture Partners LLC
Letter agreement regarding corporate opportunities executed by Lishan Aklog, M.D.
Letter agreement regarding corporate opportunities executed by Michael Glennon
Incorporation by Reference
Form
Exhibit
No.
Date
8-K (LUCD)
S-1
S-1
8-K
8-K
8-K
8-K
8-K/A
8-K
†
S-1/A
8-K
2.1
3.1
3.2
3.1
3.1
3.1
3.1
3.1
3.1
4.2
4.1
3/3/22
4/22/15
4/22/15
10/2/18
6/27/19
7/27/20
6/22/22
4/20/18
1/15/21
9/29/15
4/5/18
8-K
8-K
8-K (LUCD)
S-1
S-1
S-1
S-1
S-1
10.1 6/8/18
4.1
4/4/22
3/14/23
4.1
10.1 4/22/15
10.4.1 4/22/15
10.4.2 4/22/15
10.5.1 4/22/15
10.5.2 4/22/15
50
10.3.3
10.4*
10.5*
10.6*
Letter agreement regarding corporate opportunities executed by Brian deGuzman, M.D.
Amended and Restated Employment Agreement between PAVmed Inc. and Lishan Aklog, M.D.
Amended and Restated Employment Agreement between PAVmed Inc. and Dennis M. McGrath
Employment Agreement between PAVmed Inc. and Brian J. deGuzman, M.D.
S-1
10.5.3 4/22/15
8-K 10.1 3/20/19
8-K 10.2 3/20/19
8-K 10.1 7/19/16
Annex
10.7
PAVmed Inc. Fifth Amended and Restated 2014 Long-Term Incentive Equity Plan
DEF 14A
A 4/30/21
10.8
10.9*
10.10*
PAVmed Inc. Employee Stock Purchase Plan
Employment Agreement between PAVmed Inc. and Michael A. Gordon
Employment Agreement between PAVmed Inc. and Shaun M. O’Neil
10.11
10.12
10.13
10.14
10.15.1
10.15.2
10.15.3
10.16.1
10.16.2
10.17
Amended and Restated License Agreement, dated as of August 23, 2021, by and between Case Western
Reserve University and Lucid Diagnostics Inc.
Form of Stock Option Agreement
Form of Indemnification Agreement
Controlled Equity OfferingSM, dated as of December 21, 2021, by and between Cantor Fitzgerald & Co. and
PAVmed Inc.
Form of Securities Purchase Agreement
Form of Security Agreement
Form of Voting Agreement
Common Stock Purchase Agreement, dated as of March 28, 2022, by and between CF Principal Investments
LLC and Lucid Diagnostics Inc.
Registration Rights Agreement, dated as of March 28, 2022, by and between CF Principal Investments LLC
and Lucid Diagnostics Inc.
Controlled Equity OfferingSM, dated as of November 23, 2022, by and between Cantor Fitzgerald & Co. and
Lucid Diagnostics Inc.
10.18.1
Form of Securities Purchase Agreement (LUCD)
10.18.2
Form of Guaranty (LUCD)
10.18.3
Form of Registration Rights Agreement (LUCD)
10.19.1
10.9.2
14.1
21.1
23.1
31.1
31.2
32.1
32.2
97.1
Management Services Agreement, dated as of May 12, 2018, by and between PAVmed Inc. and Lucid
Diagnostics Inc.
Eighth Amendment to Management Services Agreement, dated as of March 22, 2024, by and between
PAVmed Inc. and Lucid Diagnostics Inc.
Form of Code of Ethics
List of Subsidiaries †
Consent of Marcum LLP †
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.†
Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. †
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. †
Certification of Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †
Form of Compensation Clawback Policy
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
*
†
Management contract or compensatory plan or arrangement.
Filed herewith
LUCD Lucid Diagnostics Inc.
Item 16. Form 10-K Summary
None
51
Annex
DEF 14A
B 4/30/21
10-K 10.9 3/14/23
8-K 10.1 2/24/22
S-1/A
(LUCD) 10.2 10/1/21
10-K 10.12 3/14/23
10-K 10.13 3/14/23
1.2 12/21/21
S-3
8-K 10.1 4/4/22
8-K 10.2 4/4/22
8-K 10.3 4/4/22
8-K
(LUCD) 10.1 4/1/22
8-K
(LUCD) 10.2 4/1/22
8-K
(LUCD)
8-K
1.2 11/25/22
(LUCD) 10.1 3/14/23
8-K
(LUCD) 10.3 3/14/23
8-K
(LUCD) 10.1 3/24/23
S-1/A
(LUCD) 10.4.1 10/7/21
10-K
(LUCD) 10.4.9 3/25/24
10-K 14.1 3/14/23
†
†
†
†
†
†
†
†
†
†
†
†
†
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SIGNATURES
March 25, 2024
PAVmed Inc.
By: /s/ Dennis M. McGrath
Dennis M. McGrath
President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes both Lishan Aklog, M.D. and
Dennis M. McGrath or either of them acting in the absence of the others, as his or her true and lawful attorney-in-fact and agent, with full power of
substitution and re-substitution for him or her and in his or her name, place and stead, in any and all capacities to sign any and all amendments to this
report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the United States Securities and Exchange
Commission.
Signature
/s/ Lishan Aklog, M.D.
Lishan Aklog, M.D.
/s/ Dennis M. McGrath
Dennis M. McGrath
/s/ Michael J. Glennon
Michael J. Glennon
/s/ Debra J. White
Debra J. White
/s/ James L. Cox, M.D.
James L. Cox, M.D.
/s/ Ronald M. Sparks
Ronald M. Sparks
/s/ Timothy Baxter
Timothy Baxter
/s/ Joan Harvey
Joan Harvey
Title
Chairman of the Board of Directors
Chief Executive Officer
(Principal Executive Officer)
President
Chief Financial Officer
(Principal Financial and Accounting Officer)
Vice Chairman
Director
Director
Director
Director
Director
Director
52
Date
March 25, 2024
March 25, 2024
March 25, 2024
March 25, 2024
March 25, 2024
March 25, 2024
March 25, 2024
March 25, 2024
PAVMED INC.
and SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID 688)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations for the years ended December 31, 2023 and 2022
Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the year ended December 31, 2023
Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the year ended December 31, 2022
Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022
Notes to Consolidated Financial Statements
F-1
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
PAVmed Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of PAVmed Inc. and Subsidiaries (the “Company”) as of December 31, 2023 and 2022, the
related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for each of the two years in the period ended
December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully
described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its
obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on
the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(continued)
Valuation of Convertible Notes
Critical Audit Matter Description
As described in Notes 12 and 13 to the consolidated financial statements, the Company’s aggregate principal balance of the Senior Secured Convertible
Notes amounted to $37.68 million as of December 31, 2023. The Senior Secured Convertible Notes contain conversion and redemption features. The
Company elected to account for the Senior Secured Convertible Notes under the fair value option in accordance with ASC 825. The fair value of the Senior
Secured Convertible Notes was $44.2 million as of December 31, 2023.
We identified the valuation of convertible notes as a critical audit matter as auditing the Company’s fair value of the Senior Secured Convertible Notes was
complex and involved a high degree of subjectivity because the Company used a complex valuation methodology that incorporated significant management
assumptions including discount rate and expected volatility. Also, this matter caused us to use increased effort including involvement of professionals with
specialized skill and knowledge.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the valuation of convertible notes included the following, among others:
● We obtained an understanding of the design of the Company’s controls over the valuation of the convertible notes, including controls over
management’s review of the valuation model and the significant assumptions used in determining the fair value of the convertible notes.
● With assistance of our valuation specialists, we audited the fair value of the Senior Secured Convertible Notes, valuation methodology and key
assumptions used in determining the fair value of the Senior Secured Convertible Notes by:
a. Evaluating the appropriateness of the valuation model and techniques used in determining the fair value;
b. Assessing whether significant valuation assumption inputs, including discount rate and expected volatility are consistent with those that
would be used by market participants through the testing of source information, checking the mathematical accuracy of the calculation,
and developing independent estimates and comparing to those selected by management, where applicable; and
c. Recalculating the fair value that management arrived to verify it was reasonable.
● We tested the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2019.
New York, NY
March 25, 2024
F-3
PAVMED INC.
and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except number of shares and per share data)
December 31, 2023
December 31, 2022
Assets:
Current assets:
Cash
Accounts receivable
Inventory
Prepaid expenses, deposits, and other current assets
Total current assets
Fixed assets, net
Operating lease right-of-use assets
Intangible assets, net
Other assets
Total assets
Liabilities, Preferred Stock and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Operating lease liabilities, current portion
Senior Secured Convertible Notes - at fair value
Total current liabilities
Operating lease liabilities, less current portion
Total liabilities
Commitments and contingencies (Note 11)
Stockholders’ Equity:
Preferred stock, $0.001 par value. Authorized, 20,000,000 shares; Series B Convertible
Preferred Stock, par value $0.001, issued and outstanding 1,305,213 at December 31, 2023
and 1,205,759 shares at December 31, 2022
Common stock, $0.001 par value. Authorized, 50,000,000 shares; 8,578,505 and 6,300,703
shares outstanding as of December 31, 2023 and December 31, 2022, respectively
Additional paid-in capital
Accumulated deficit
Treasury stock
Total PAVmed Inc. Stockholders’ Equity (Deficit)
Noncontrolling interests
Total Stockholders’ Equity (Deficit)
Total Liabilities and Stockholders’ Equity (Deficit)
$
$
$
$
19,639 $
61
278
4,520
24,498
1,783
4,267
1,424
1,147
33,119 $
1,786 $
6,626
1,565
44,200
54,177
2,960
57,137
2,993
9
237,600
(294,433)
—
(53,831)
29,813
(24,018)
33,119 $
39,744
17
111
4,054
43,926
2,451
3,037
3,445
1,121
53,980
2,704
3,705
1,141
33,650
41,200
1,846
43,046
2,695
6
216,195
(228,169)
(408)
(9,681)
20,615
10,934
53,980
See accompanying notes to the consolidated financial statements.
F-4
PAVMED INC.
and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except number of shares and per share data)
Years Ended December 31,
2023
2022
$
2,452 $
Revenue
Operating expenses:
Cost of revenue
Sales and marketing
General and administrative
Amortization of acquired intangible assets
Research and development
Total operating expenses
Operating loss
Other income (expense):
Interest income
Interest expense
Change in fair value - Senior Secured Convertible Notes
Loss on issue and offering costs - Senior Secured Convertible Note
Debt extinguishments loss - Senior Secured Convertible Notes
Change in fair value - derivative liability
Gain on sale of intellectual property
Other income (expense), net
Loss before provision for income tax
Provision for income taxes
Net loss before noncontrolling interests
Net loss attributable to the noncontrolling interests
Net loss attributable to PAVmed Inc.
Less: Deemed dividend on Series Z warrant modification
Less: Series B Convertible Preferred Stock dividends earned
Net loss attributable to PAVmed Inc. common stockholders
Per share information(1):
Net loss per share attributable to PAVmed Inc. common stockholders – basic and diluted
Weighted average common shares outstanding, basic and diluted
$
$
6,420
17,583
30,947
2,021
14,276
71,247
(68,795)
505
(589)
(6,026)
(1,186)
(3,782)
(390)
1,000
(10,468)
(79,263)
—
(79,263)
15,088
(64,175)
(1,791)
(304)
(66,270) $
377
3,614
19,318
41,410
1,784
25,338
91,464
(91,087)
169
(1,281)
(1,273)
(4,332)
(5,434)
—
—
(12,151)
(103,238)
—
(103,238)
14,255
(88,983)
—
(281)
(89,264)
(1) Reflects the Company’s 1-for-15 reverse stock split that became effective December 7, 2023. Refer to Note 3 - Summary of Significant Accounting
Policies for further information.
See accompanying notes to the consolidated financial statements.
F-5
(9.16) $
7,231,546
(15.03)
5,938,406
PAVMED INC.
and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
for the YEAR ENDED December 31, 2023
(in thousands, except number of shares and per share data)
Balance - December 31, 2022
Dividends declared - Series B
Convertible Preferred Stock
Issue common stock - PAVM ATM
Facility
Vest - restricted stock awards
Conversions - Senior Secured
Convertible Note
Conversions - majority-owned
subsidiary common stock - Senior
Secured Convertible Note
Purchase - Employee Stock Purchase
Plan
Purchase - majority-owned subsidiary
common stock - Employee Stock
Purchase Plan
Issuance - majority-owned subsidiary
common stock - At-The-Market
Facility, net of financing charges
Impact of subsidiary equity
transactions
Issuance - majority-owned subsidiary
common stock - Settlement APA-RDx
- Termination Payment
Issuance - vendor service agreement
Issuance - majority-owned subsidiary
preferred stock
Issuance of shares related to reverse
stock split
Incremental value from Z Warrant
modification
Stock-based compensation - PAVmed
Inc.
Stock-based compensation - majority-
owned subsidiaries
Treasury stock
Net loss
Balance - December 31, 2023
PAVmed Inc. Stockholders’ Equity (Deficit)
Series B Convertible
Preferred Stock
Common Stock
Paid-In Accumulated Treasury
Additional
Non
controlling
Shares
Amount Shares
Amount Capital
Deficit
Stock Interest
Total
1,205,759 $ 2,695 6,300,703 $
6 $ 216,195 $
(228,169) $
(408) $
20,615 $ 10,934
99,454
298
—
—
—
(298)
—
—
—
—
—
—
—
321,288
6,666
1
—
1,823
—
—
—
—
—
—
—
1,824
—
—
— 1,745,824
2
10,000
—
—
— 10,002
—
—
—
—
—
—
—
167
167
—
—
45,893
—
198
—
60
—
258
—
—
—
—
—
—
—
551
551
—
—
—
—
—
—
—
284
284
—
—
—
—
1,983
—
—
(1,983)
—
—
—
—
—
—
100,000
—
—
—
—
—
—
—
—
45,541
—
—
601
—
—
—
—
—
—
713
147
713
748
—
—
18,625 18,625
—
—
—
—
—
—
—
—
—
—
1,791
(1,791)
—
—
—
—
—
4,255
—
—
—
4,255
—
—
—
—
12,590
—
1,305,213 $ 2,993 8,578,505 $
—
—
—
1,102
—
(348)
—
—
—
9 $ 237,600 $
—
—
(64,175)
(294,433) $
—
348
—
— $
5,782
—
6,884
—
(15,088) (79,263)
29,813 $ (24,018)
See accompanying notes to the consolidated financial statements.
F-6
PAVMED INC.
and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
for the YEAR ENDED December 31, 2022
(in thousands, except number of shares and per share data)
PAVmed Inc. Stockholders’ Equity (Deficit)
Series B Convertible
Preferred Stock
Shares
Amount
Additional
Common Stock
Shares
Amount Capital
Paid-In Accumulated Treasury
Stock
Deficit
Non
controlling
Interest
Total
Balance - December 31,
2021
Dividends declared - Series
B Convertible Preferred
Stock
Conversions - Series B
Convertible Preferred Stock
Issue common stock -
PAVM ATM Facility
Vest - restricted stock
awards
Exercise - Series Z warrants
Conversions - Senior
Secured Convertible Note
Exercise - stock options
Exercise - stock options of
majority-owned subsidiary
Purchase - Employee Stock
Purchase Plan
Purchase - majority-owned
subsidiary common stock -
Employee Stock Purchase
Plan
Issuance - majority-owned
subsidiary common stock -
Committed Equity Facility,
net of financing charges
Impact of subsidiary equity
transactions
Issuance - majority-owned
subsidiary common stock -
Settlement APA-RDx -
Installment Payment
Stock-based compensation -
PAVmed Inc.
Stock-based compensation -
majority-owned subsidiaries
Treasury stock
Net Loss
Balance - December 31,
2022
1,113,919 $ 2,419
5,757,856 $
5 $ 198,152 $
(138,910) $
— $
17,752 $ 79,418
91,885
276
—
3
7,082
36,112
1
479,291
20,000
—
—
—
—
—
—
—
—
—
12,950
—
—
—
1
—
—
—
—
—
—
—
79
(1)
—
11,807
302
—
218
(276)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
140
—
—
—
—
—
—
—
695
—
—
—
79
—
—
11,807
302
695
358
(45)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
109
109
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(12,592)
—
—
—
—
—
—
—
—
—
(28)
—
5,666
—
—
—
—
—
—
—
—
—
(88,983)
—
—
1,767
1,767
28
—
—
—
—
(548)
—
653
653
—
5,666
13,866
—
(14,255)
13,866
(548)
(103,238)
1,205,759 $ 2,695
6,300,703 $
6 $ 216,195 $
(228,169) $
(408) $
20,615 $ 10,934
See accompanying notes to the consolidated financial statements.
F-7
PAVMED INC.
and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except number of shares and per share data)
Years Ended December 31,
2023
2022
$
(79,263) $
(103,238)
Cash flows from operating activities
Net loss - before noncontrolling interest (“NCI”)
Adjustments to reconcile net loss - before NCI to net cash used in operating activities
Depreciation and amortization expense
Stock-based compensation
Gain on sale of intellectual property
APA-RDx: Issue common stock of majority-owned subsidiary - termination payment
Issue common stock - vendor service agreement
Change in fair value - Senior Secured Convertible Notes
Loss on issue - Senior Secured Convertible Note
Debt extinguishment loss - Senior Secured Convertible Note
Non-cash lease expense
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses, deposits and current and other assets
Accounts payable
Accrued expenses and other current liabilities
Net cash flows used in operating activities
Cash flows from investing activities
Purchase of equipment
Proceeds from sale of intellectual property
Asset acquisitions
Net cash flows provided by (used in) investing activities
Cash flows from financing activities
Proceeds – issue of preferred stock - majority-owned subsidiary
Proceeds – issue of Senior Secured Convertible Note
Payment – Senior Secured Convertible Note – acceleration floor payments
Proceeds – issue of common stock - At-The-Market Facility
Proceeds – majority-owned subsidiary common stock - Committed Equity Facility and At-
The-Market Facility
Proceeds – exercise of stock options
Proceeds – issue common stock – Employee Stock Purchase Plan
Proceeds – majority-owned subsidiary common stock – Employee Stock Purchase Plan
Proceeds – exercise of stock options issued under equity plan of majority owned subsidiary
Purchase Treasury Stock – payment of employee payroll tax obligation in connection with
stock-based compensation
Net cash flows provided by financing activities
Net increase (decrease) in cash
Cash, beginning of period
Cash, end of period
$
See accompanying notes to the consolidated financial statements.
F-8
2,932
11,139
(1,000)
713
625
6,026
1,111
3,782
308
(44)
(246)
(918)
2,799
(52,036)
(242)
1,000
—
758
18,625
10,000
(79)
1,533
284
—
259
551
—
—
31,173
(20,105)
39,744
19,639 $
2,457
19,532
—
653
—
1,273
3,523
5,434
97
183
397
(742)
(554)
(70,985)
(1,540)
—
(3,200)
(4,740)
—
35,227
—
79
1,807
302
358
109
695
(366)
38,211
(37,514)
77,258
39,744
PAVMED INC.
and SUBSIDIARIES
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 is structured to be a multi-product life sciences company organized to advance a pipeline of innovative healthcare technologies. Led by a
team of highly skilled personnel with a track record of bringing innovative products to market, PAVmed is focused on innovating, developing, acquiring,
and commercializing novel products that target unmet needs with large addressable market opportunities. Leveraging our corporate structure—a parent
company that will establish distinct subsidiaries for each financed asset—we have the flexibility to raise capital at the PAVmed level to fund product
development, or to structure financing directly into each subsidiary in a manner tailored to the applicable product, the latter of which is our current strategy
given prevailing market conditions.
Our current focus is multi-fold. We continue to pursue commercial expansion and execution of EsoGuard, which is the flagship product of our
majority-owned subsidiary Lucid Diagnostics Inc. (Nasdaq: LUCD) (“Lucid”). In addition, through a separate majority-owned subsidiary, Veris Health
(“Veris”), we are focused on entering into strategic partnership opportunities with leading academic oncology systems to expand access to the Veris
Platform. In terms of other existing products and technologies, we have adopted an incubator-type platform where we are looking to obtain financing on a
product-by-product basis as necessary to advance each asset to a meaningful inflection point along its path to commercialization. Finally, as resources
permit, we will continue to explore external innovations that fulfill our project selection criteria without limiting ourselves to any target sector, specialty or
condition.
Note 2 — Liquidity and Going Concern
The Company’s management is required to assess the Company’s ability to continue as a going concern for the one year period following the date of
the financial statements being issued. In each reporting period, including interim periods, an entity is required to assess conditions known and reasonably
knowable as of the financial statement issuance date to determine whether it is probable an entity will not meet its financial obligations within one year
from the financial statement issuance date. Substantial doubt about an entity’s ability to continue as a going concern exists when conditions and events,
considered in the aggregate, indicate it is probable the entity will be unable to meet its financial obligations as they become due within one year after the
date the financial statements are issued.
The Company has financed its operations principally through public and private issuances of its common stock, preferred stock, common stock
purchase warrants, and debt. The Company is subject to all of the risks and uncertainties typically faced by medical device and diagnostic companies that
devote substantially all of their efforts to the commercialization of their initial product and services and ongoing research and development activities and
conducting clinical trials. The Company generated $2.5 million of revenues for the year ended December 31, 2023, however the Company does not expect
to generate positive cash flows from operating activities in the near future.
The Company incurred a net loss attributable to PAVmed Inc. common stockholders of approximately $66.3 million and had net cash flows used in
operating activities of approximately $52.0 million for the year ended December 31, 2023. As of December 31, 2023, the Company had negative working
capital of approximately $29.7 million, with such working capital inclusive of the Senior Secured Convertible Notes classified as a current liability of an
aggregate of approximately $44.2 million and approximately $19.6 million of cash.
The Company’s ability to continue operations beyond March 2025, will depend upon generating substantial revenue that is conditioned upon obtaining
positive third-party reimbursement coverage for its EsoGuard Esophageal DNA Test from both government and private health insurance providers,
increasing revenue through contracting directly with self-insured employers, and on its ability to raise additional capital through various potential sources
including equity and/or debt financings or refinancing existing debt obligations. These factors raise substantial doubt about the Company’s ability to
continue as a going concern within one year after the date the accompanying consolidated financial statements are issued.
Note 3 — Summary of Significant Accounting Policies
Significant Accounting Policies
Basis of Presentation
The accompanying 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”), and include the
accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant 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. and
Veris Health Inc., with the corresponding noncontrolling interest included as a separate component of consolidated stockholders’ equity (deficit), including
the recognition in the 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 17, 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.
All amounts in the accompanying 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.
F-9
Note 3 — Summary of Significant Accounting Policies - continued
Reverse Stock Split
In February 2023, the Company distributed a proxy statement for a special meeting of shareholders that was held on March 31, 2023 (the “Special
Meeting”), at which the Company sought approval of an amendment to the Company’s Certificate of Incorporation, to effect, (i) a reverse split of the
Company’s outstanding shares of common stock at a specific ratio, ranging from 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. On March 31, 2023, the shareholders approved the above 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. On November 28, 2023 the Company’s board of
directors, unanimously authorized management to effect the reverse split at the ratio of 1-for-15. The reverse stock split became effective on December 7,
2023. At the effective date, every 15 shares of the Company’s common stock that were issued and outstanding were automatically combined into one
issued and outstanding share, without any change in par value of such shares. No fractional shares were issued in connection with the reverse stock split.
Instead, each fractional share remaining after completion of the reverse stock split that was less than a whole share was rounded up to one whole share. The
reverse stock split also correspondingly affected all outstanding PAVmed equity awards and outstanding convertible securities.
All authorized, issued and outstanding stock and per share amounts contained in the accompanying consolidated financial statements have been
adjusted to reflect this reverse stock split for all prior periods presented.
Use of Estimates
In preparing the consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that
affect the reported amounts of assets, inclusive of acquired intangible 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 consolidated financial statements include those related to the estimated fair value of
stock-based equity awards, intangible assets, estimated fair value of debt obligations, 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.
Cash
The Company maintains its cash at a major financial institution with high credit quality. At times, the balance of its cash deposits may exceed federally
insured limits. The Company has not experienced losses on deposits with commercial banks and financial institutions which exceed federally insured
limits.
F-10
Note 3 — Summary of Significant Accounting Policies - continued
Offering Costs
Offering costs consist of certain legal, accounting, and other advisory fees incurred related to the Company’s efforts to raise debt and equity capital.
Offering costs in connection with equity financing are recognized as either an offset against the financing proceeds to extent the underlying security is
equity classified or a current period expense to extent the underlying security is liability classified or for which the fair value option is elected. Offering
costs, lender fees, and warrants issued in connection with debt financing, to the extent the fair value option is not elected, are recognized as debt discount,
which reduces the reported carrying value of the debt, with the debt discount amortized as interest expense, generally over the contractual term of the debt
agreement, to result in a constant rate of interest. Offering costs associated with in-process capital financing are accounted for as deferred offering costs.
Revenue Recognition
Revenues are recognized when the satisfaction of the performance obligation occurs, in an amount that reflects the consideration the Company expects
to collect in exchange for those services. The Company’s revenue is primarily generated by its laboratory testing services utilizing its EsoGuard Esophageal
DNA tests. The services are completed upon release of a patient’s test result to the ordering healthcare provider. Revenue recognized is inclusive of both
variable consideration in connection with an individual patient’s third-party insurance coverage policy and fixed consideration in connection with a
contracted services arrangement with an unrelated third party legal entity. To determine revenue recognition for the arrangements that the Company
determines are within the scope of ASC 606, Revenue from Contracts with Customers, the Company performs the following five steps: (1) identify the
contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to
the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
The key aspects considered by the Company include the following:
Contracts—The Company’s customer is primarily the patient, but the Company does not enter into a formal reimbursement contract with a patient.
The Company establishes a contract with a patient in accordance with other customary business practices, which is the point in time an order is received
from a provider and a patient specimen has been returned to the laboratory for testing. Payment terms are a function of a patient’s existing insurance
benefits, including the impact of coverage decisions with Center for Medicare & Medicaid Services (“CMS”) and applicable reimbursement contracts
established between the Company and payers. However, when a patient is considered self-pay, the Company requires payment from the patient prior to the
commencement of the Company’s performance obligations. The Company’s consideration can be deemed variable or fixed depending on the structure of
specific payer contracts, and the Company considers collection of such consideration to be probable to the extent that it is unconstrained.
Performance obligations—A performance obligation is a promise in a contract to transfer a distinct good or service (or a bundle of goods or services)
to the customer. The Company’s contracts have a single performance obligation, which is satisfied upon rendering of services, which culminates in the
release of a patient’s test result to the ordering healthcare provider. The Company elects the practical expedient related to the disclosure of unsatisfied
performance obligations, as the duration of time between providing testing supplies, the receipt of a sample, and the release of a test result to the ordering
healthcare provider is far less than one year.
Transaction price—The transaction price is the amount of consideration that the Company expects to collect in exchange for transferring promised
goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration expected to be
collected from a contract with a customer may include fixed amounts, variable amounts, or both.
If the consideration derived from the contracts is deemed to be variable, the Company estimates the amount of consideration to which it will be entitled
in exchange for the promised goods or services. The Company limits the amount of variable consideration included in the transaction price to the
unconstrained portion of such consideration. In other words, the Company recognizes revenue up to the amount of variable consideration that is not subject
to a significant reversal until additional information is obtained or the uncertainty associated with the additional payments or refunds is subsequently
resolved.
When the Company does not have significant historical experience or that experience has limited predictive value, the constraint over estimates of
variable consideration may result in no revenue being recognized upon delivery of patient EsoGuard test results to the ordering healthcare provider. As
such, the Company recognizes revenue up to the amount of variable consideration not subject to a significant reversal until additional information is
obtained or the uncertainty associated with additional payments or refunds, if any, is subsequently resolved. Differences between original estimates and
subsequent revisions, including final settlements, represent changes in estimated expected variable consideration, with the change in estimate recognized in
the period of such revised estimate. With respect to a contracted service arrangement, the fixed consideration revenue is recognized on an as-billed basis
upon delivery of the laboratory test report with realization of such fixed consideration deemed probable based upon actual historical experience.
Allocate transaction price—The transaction price is allocated entirely to the performance obligation contained within the contract with a customer on
the basis of the relative standalone selling prices of each distinct good or service.
Practical Expedients—The Company does not adjust the transaction price for the effects of a significant financing component, as at contract inception,
the Company expects the collection cycle to be one year or less.
F-11
Note 3 — Summary of Significant Accounting Policies - continued
Inventory
The Company carries test supply inventories to support our laboratory activities. The inventories are carried at the lower of weighted average cost and
net realizable value and expensed through cost of sales as the supplies are used.
Fixed Assets
Fixed assets are stated at cost and depreciated using the straight-line method over the assets’ estimated useful lives. Additions and improvements are
capitalized, including direct and indirect costs incurred to validate equipment and bring to working conditions. The costs for maintenance and repairs are
expensed as incurred.
Leases
The Company adopted FASB ASC Topic 842, Leases, (“ASC 842”) effective December 31, 2021. All significant lease agreements and contractual
agreements with embedded lease agreements are accounted for under the provisions of ASC 842, wherein, if the contractual arrangement: involves the use
of a distinct identified asset; provides for the right to substantially all the economic benefits from the use of the asset throughout the contractual period; and
provides for the right to direct the use of the asset. A lease agreement is accounted for as either a finance lease or an operating lease. Under both a finance
lease and an operating lease, the Company recognizes as of the lease commencement date a lease right-of-use (“ROU”) asset and a corresponding lease
payment liability.
A lease ROU asset represents the Company’s right to use an underlying asset for the lease term, and the lease liability represents its contractual
obligation to make lease payments. The lease ROU asset is measured at the lease commencement date as the present value of the future lease payments plus
initial direct costs incurred. The Company recognizes lease expense of the amortization of the lease ROU asset for an operating lease on a straight-line
basis over the lease term; and for financing leases on a straight-line basis unless another basis is more representative of the pattern of economic benefit. The
operating ROU asset also includes any lease incentives received for improvements to leased property, when the improvements are lessee-owned. For
improvements to leased property that are lessor-owned, the Company includes amounts the Company incurred for the improvements as ROU assets which
are amortized on a straight-line basis over the life of the lease.
The lease liability is measured at the lease commencement date with the discount rate generally based on the Company’s incremental borrowing rate
(to the extent the lease implicit rate is not known nor determinable), with interest expense recognized using the interest method for financing leases.
Certain leases may include options to extend or terminate the agreement. The Company does not assume renewals in determination of the lease term
unless the renewals are deemed to be reasonably certain at lease commencement. As well, an option to terminate is considered unless it is reasonably
certain the Company will not exercise the option. The Company elected the practical expedient to not recognize a lease ROU asset and lease payment
liability for leases with a term of twelve months or less (“short-term leases”), resulting in the aggregate lease payments being recognized on a straight line
basis over the lease term. The Company’s leases with a commencement date prior to January 1, 2022 were short-term leases and therefore did not require
recording a ROU asset or lease liability at December 31, 2021. Additionally, the Company elected the practical expedient to not separate lease and non-
lease components.
Intangible Assets
Purchased intangible assets are recorded at cost and depreciated using the straight-line method over the assets’ estimated useful life. See Note 9,
Intangible Assets, net, for further information with respect to purchased intangible assets.
Impairment - Long Lived Assets
The Company reviews its long-lived assets, including intangible assets with finite lives, for recoverability whenever events or changes in
circumstances indicate the carrying amount of the assets may not be fully recoverable. The Company evaluates assets for potential impairment by
comparing estimated future undiscounted net cash flows to the carrying amount of the asset. If the carrying amount of the assets exceeds the estimated
future undiscounted cash flows, impairment is measured based on the difference between the carrying amount of the assets and fair value which is
generally an expected present value cash flow technique. The assessment and determination of the existence of an impairment indicator comprises
measurable operating performance criteria as well as qualitative factors deemed relevant and appropriate to such evaluation.
F-12
Note 3 — Summary of Significant Accounting Policies - continued
Stock-Based Compensation
Stock-based awards are made to members of the board of directors of the Company, the Company’s employees and nonemployees, under each of the
PAVmed 2014 Equity Plan and the Lucid Diagnostics 2018 Equity Plan. The Company accounts for stock-based compensation in accordance with the
provisions of FASB ASC Topic 718, Stock Compensation (“ASC 718”).
The grant date estimated fair value of the stock-based award is recognized on a straight-line basis over the requisite service period, which is generally the
vesting period of the respective stock-based award, with such straight-line recognition adjusted, as applicable, so the cumulative expense recognized is at
least equal to or greater than the estimated fair value of the vested portion of the respective stock-based award as of the reporting date.
The Company uses the Black-Scholes valuation model to estimate the fair value of stock options granted under both the PAVmed 2014 Equity Plan and
the Lucid Diagnostics 2018 Equity Plan, which requires the Company to make certain weighted average valuation estimates and assumptions for stock-
based awards, principally as follows:
● With respect to the PAVmed 2014 Equity Plan, the expected stock price volatility is based on the historical stock price volatility of PAVmed Inc.
common stock over the period commensurate with the expected term with respect to stock options granted to the board of directors and employees
in the years ended December 31, 2023 and 2022;
● With respect to stock options granted under the Lucid Diagnostics 2018 Equity Plan, the expected stock price volatility is based on the historical
stock price volatility of Lucid Diagnostics common stock and the volatilities of similar entities within the medical device industry over the period
commensurate with the expected term with respect to stock options granted to employees in the years ended December 31, 2023 and 2022;
● The risk-free interest rate is based on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period commensurate
with either the expected term or the remaining contractual term, as applicable, of the stock option; and,
● The expected dividend yield is based on annual dividends of $0.00 as there have not been dividends paid to-date, and there is no plan to pay
dividends for the foreseeable future.
The price per share of PAVmed Inc. common stock used in the computation of estimated fair value of stock options and restricted stock awards granted
under the PAVmed 2014 Equity Plan is its quoted closing price per share.
The price per share of Lucid Diagnostics common stock used in the computation of estimated fair value of stock options and restricted stock awards
granted under the Lucid Diagnostics 2018 Equity Plan is its quoted closing price per share.
Financial Instruments Fair Value Measurements
FASB ASC Topic 820, Fair Value Measurement, (ASC 820) defines fair value as the price which would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at a transaction measurement date. The ASC 820 three-tier fair value hierarchy prioritizes the
inputs used in the valuation methodologies, as follows:
Level 1
Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2
Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets which are not active, or other inputs
observable or can be corroborated by observable market data.
Level 3
Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available
assumptions made by other market participants. These valuations require significant judgment.
F-13
Note 3 — Summary of Significant Accounting Policies - continued
The Company evaluates its financial instruments to determine if those instruments or any embedded components of those instruments potentially
qualify as derivatives required to be separately accounted for in accordance with FASB ASC Topic 815, Derivatives and Hedging (ASC 815). The
accounting for warrants issued to purchase shares of common stock of the Company is based on the specific terms of the respective warrant agreement, and
are generally classified as equity, but may be classified as a derivative liability if the warrant agreement provides required or potential full or partial cash
settlement. A warrant classified as a derivative liability, or a bifurcated embedded conversion or settlement option classified as a derivative liability, is
initially measured at its issue-date fair value, with such fair value subsequently adjusted at each reporting period, with the resulting fair value adjustment
recognized as other income or expense. If upon the occurrence of an event resulting in the warrant liability or the embedded derivative liability being
subsequently classified as equity, or the exercise of the warrant or the conversion option, the fair value of the derivative liability will be adjusted on such
date-of-occurrence, with such date-of-occurrence fair value adjustment recognized as other income or expense, and then the derivative liability will be
derecognized at such date-of-occurrence fair value.
The recurring and non-recurring estimated fair value measurements are subjective and are affected by changes in inputs to the valuation models,
including the Company’s common stock price, and certain Level 3 inputs, including, the assumptions regarding the estimated volatility in the value of the
Company’s common stock price; the Company’s dividend yield; the likelihood and timing of future dilutive transactions, as applicable, along with the risk-
free rates based on U.S. Treasury security yields. Changes in these assumptions can materially affect the estimated fair values.
As of December 31, 2023 and 2022, the carrying values of cash, and accounts payable, approximate their respective fair value due to the short-term
nature of these financial instruments.
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 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 12, Financial Instruments Fair Value Measurements, with respect to the FVO election; and Note 13, 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.
Financial Instruments - Derivatives
The Company evaluates its financial instruments to determine if the financial instrument itself or if any embedded components of a financial
instrument potentially qualify as derivatives required to be separately accounted for in accordance with FASB ASC Topic 815, Derivatives and Hedging
(ASC 815). The accounting for warrants issued to purchase shares of common stock of the Company is based on the specific terms of the respective
warrant agreement, and are generally classified as equity, but may be classified as a derivative liability if the warrant agreement provides required or
potential full or partial cash settlement. A warrant classified as a derivative liability, or a bifurcated embedded conversion or settlement option classified as
a derivative liability, is initially measured at its issue-date fair value, with such fair value subsequently adjusted at each reporting period, with the resulting
fair value adjustment recognized as other income or expense. If upon the occurrence of an event resulting in the warrant liability or the embedded
derivative liability being subsequently classified as equity, or the exercise of the warrant or the conversion option, the fair value of the derivative liability
will be adjusted on such date-of-occurrence, with such date-of-occurrence fair value adjustment recognized as other income or expense, and then the
derivative liability will be derecognized at such date-of-occurrence fair value.
F-14
Note 3 — Summary of Significant Accounting Policies - continued
Research and Development Expenses
Research and development expenses are recognized as incurred and include the salary and stock-based compensation of employees engaged in product
research and development activities, and the costs related to the Company’s various contract research service providers, suppliers, engineering studies,
supplies, and outsourced testing and consulting fees, as well as depreciation expense and rental costs for equipment used in research and development
activities, and fees incurred for access to certain facilities of contract research service providers.
Patent Costs and Purchased Patent License Rights
Patent related costs in connection with filing and prosecuting patent applications and patents filed by the Company are expensed as incurred and are
included in the line item captioned “general and administrative expenses” in the accompanying consolidated statements of operations. Patent fee
reimbursement expense incurred under the patent license agreement agreements are included in the line item captioned “research and development
expenses” in the accompanying consolidated statements of operations.
The Company has entered into agreements with third parties to acquire technologies for potential commercial development. Such agreements generally
require an initial payment by the Company when the contract is executed. The purchase of patent license rights for use in research and development
activities, including product development, are expensed as incurred and are classified as research and development expense. Additionally, the Company
may be obligated to make future royalty payments in the event the Company commercializes the technology and achieves a certain sales volume. In
accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 730, “Research and Development”,
(“ASC 730”), expenditures for research and development, including upfront licensing fees and milestone payments associated with products not yet been
approved by the United States Food and Drug Administration (“FDA”), are charged to research and development expense as incurred. Future contract
milestone and /or royalty payments will be recognized as expense when achievement of the milestone is determined to be probable and the amount of the
corresponding milestone can be objectively estimated.
Income Taxes
The Company accounts for income taxes using the asset and liability method, as required by FASB ASC Topic 740, Income Taxes, (ASC 740). Current
tax liabilities or receivables are recognized for estimated income tax payable and/or refundable for the current year. Deferred tax assets and deferred tax
liabilities are recognized for estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis, along with net operating loss and tax credit carryforwards. Deferred tax assets and deferred tax liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. Changes in deferred tax assets and deferred tax liabilities are recorded in the provision for income taxes.
Under ASC 740, a “more-likely-than-not” criterion is applied when assessing the estimated realization of deferred tax assets through their utilization to
reduce future taxable income, or with respect to a deferred tax asset for tax credit carryforward, to reduce future tax expense. A valuation allowance is
established, when necessary, to reduce deferred tax assets, net of deferred tax liabilities, when the assessment indicates it is more-likely-than-not, the full or
partial amount of the net deferred tax asset will not be realized. As a result of the evaluation of the positive and negative evidence bearing upon the
estimated realizability of net deferred tax assets, and based on a history of operating losses, it is more-likely-than-not the deferred tax assets will not be
realized, and therefore a valuation allowance reserve equal to the full amount of the deferred tax assets, net of deferred tax liabilities, has been recognized
as a charge to income tax expense as of December 31, 2023 and 2022.
The Company recognizes the benefit of an uncertain tax position it has taken or expects to take on its income tax return if such a position is more-
likely-than-not to be sustained upon examination by the taxing authorities, with the tax benefit recognized being the largest amount having a greater than
50% likelihood of being realized upon ultimate settlement. As of December 31, 2023, the Company does not have any unrecognized tax benefits resulting
from uncertain tax positions.
The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision. There were no amounts accrued for
penalties or interest as of December 31, 2023 and December 31, 2022 or recognized during the years ended December 31, 2023 and 2022. The Company is
not aware of any issues under review to potentially result in significant payments, accruals, or material deviations from its position.
F-15
Note 3 — Summary of Significant Accounting Policies - continued
Net Loss Per Share
The net loss per share is computed by dividing each of the respective net loss by the number of “basic weighted average common shares outstanding”
and diluted weighted average shares outstanding” for the reporting period indicated. The basic weighted-average shares common shares outstanding are
computed on a weighted average based on the number of days the shares of common stock of the Company are issued and outstanding during the
respective reporting period indicated. The diluted weighted average common shares outstanding are the sum of the basic weighted-average common shares
outstanding plus the number of common stock equivalents’ incremental shares on an if-converted basis, computed using the treasury stock method,
computed on a weighted average based on the number of days the incremental shares would potentially be issued and outstanding during the periods
indicated, if dilutive. The Company’s common stock equivalents include convertible preferred stock, common stock purchase warrants, and stock options.
Notwithstanding, as the Company has a net loss for each reporting period presented, only the basic weighted average common shares outstanding are
used to compute the basic and diluted net loss per share attributable to PAVmed Inc. and the basic and diluted net loss per share attributable to PAVmed Inc.
common stockholders, for each reporting period presented.
The Series B Convertible Preferred Stock dividends earned as of the each of the respective periods are included in the calculation of basic and diluted
net loss attributable to PAVmed Inc. common stockholders for each respective period presented. Further, the Series B Convertible Preferred Stock has the
right to receive common stock dividends. As such, the Series B Convertible Preferred Stock would potentially be considered participating securities under
the two-class method of calculating net loss per share. However, the Company has incurred net losses to-date, and as such holders are not contractually
obligated to share in the losses, there is no impact on the Company’s net loss per share calculation for the periods presented.
Reclassifications
Certain prior-year amounts have been reclassified to conform to the current year presentation, which includes presenting interest income and
classification of certain general and administrative expenses and research and development expenses within operating expenses on the statements of
operations, in the consolidated financial statements and accompanying notes to the 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 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 consolidated financial statements.
Recent Accounting Standards Updates Not Yet Adopted
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures (“ASU 2023-09”),
which is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 provide for enhanced
income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for the Company
prospectively to all annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact this
update will have on our consolidated financial statements and disclosures.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures (“ASU
2023-07”), which require public companies disclose significant segment expenses and other segment items on an annual and interim basis and to provide in
interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. The guidance is effective for public
entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is
permitted. The guidance is applied retrospectively to all periods presented in the financial statements, unless it is impracticable. The Company is currently
evaluating the impact this update will have on our consolidated financial statements and disclosures.
In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure
Update and Simplification Initiative. This update modifies the disclosure or presentation requirements of a variety of topics in the Accounting Standards
Codification to conform with certain SEC amendments in Release No. 33-10532, Disclosure Update and Simplification. The amendments in this update
should be applied prospectively, and the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from
Regulation S-X or S-K becomes effective. However, if the SEC has not removed the related disclosure from its regulations by June 30, 2027, the
amendments will be removed from the Codification and not become effective. Early adoption is prohibited. The Company is currently evaluating the
impact this update will have on its consolidated financial statements and disclosures.
F-16
Note 4 — 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 year ended December 31, 2023, the Company recognized total revenue of $2,452, primarily resulting from the delivery of patient EsoGuard test
results. Revenue recognized from customer contracts deemed to include a variable consideration transaction price is limited to the unconstrained portion of
the variable consideration. The Company’s revenue for the year ended December 31, 2022 was $377, primarily resulting from the delivery of patient
EsoGuard test results, along with 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 year ended December 31, 2023, the cost of revenue was $6,420, primarily related to costs for our laboratory operations and EsoCheck device
supplies. The Company’s cost of revenue for the year ended December 31, 2022 was $3,614, primarily related to costs for our laboratory operations and
EsoCheck device supplies, along with the costs attributable to delivering the services under the EsoGuard Commercialization Agreement for the period
January 1, 2022 thru its termination on February 25, 2022.
F-17
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 consolidated balance sheet, as further discussed in Note 9, 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.
F-18
Note 6 — Prepaid Expenses, Deposits, and Other Current Assets
Prepaid expenses and other current assets consisted of the following as of:
Advanced payments to service providers and suppliers
Prepaid insurance
Deposits
Veris Box supplies
Total prepaid expenses, deposits and other current assets
Note 7 — Fixed Assets
Fixed assets, less accumulated depreciation, consisted of the following as of:
December 31, 2023
December 31, 2022
$
$
739 $
848
2,672
261
4,520 $
599
300
3,005
150
4,054
Computer and office equipment
Laboratory equipment
Furniture and fixtures
Leasehold improvements
Assets under construction
Total Fixed Assets
Less Accumulated Depreciation
Total Fixed Assets, net
Estimated Useful Life
2-5 years
3-7 years
3-5 years
(1)
n/a
$
$
December 31, 2023
December 31, 2022
835 $
2,255
394
2
16
3,502
(1,719)
1,783 $
784
2,064
379
2
30
3,259
(808)
2,451
(1) Lesser of remaining lease term or estimated useful life.
Depreciation expense of $911 and $673 for the years ended December 31, 2023 and 2022, respectively, is included in general and administrative
expenses in the accompanying consolidated statements of operations.
F-19
Note 8 — Leases
During the year ended December 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 components of lease expense were as follows:
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
Years Ended December 31,
2023
2022
1,871 $
89
113
2,073 $
1,174
191
52
1,417
$
$
The Company’s future lease payments as of December 31, 2023, which are presented as operating lease liabilities, current portion and operating lease
liabilities, less current portion on the Company’s consolidated balance sheets are as follows:
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less: imputed interest
Present value of lease liabilities
$
$
$
Supplemental disclosure of cash flow information related to the Company’s cash and non-cash activities with its leases are as follows:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
Non-cash investing and financing activities
Right-of-use assets obtained in exchange for new operating lease liabilities
Weighted-average remaining lease term - operating leases (in years)
Weighted-average discount rate - operating leases
$
$
1,563
$
$
2,728
4.62
7.875%
Years Ended December 31,
2023
2022
1,854
835
787
617
471
848
5,412
(887)
4,525
1,078
3,949
2.84
7.875%
As of December 31, 2023 and 2022, the Company’s right-of-use assets from operating leases were $4,267 and $3,037, respectively, which are reported
in operating lease right-of-use assets in the consolidated balance sheets. As of December 31, 2023 and December 31, 2022, the Company had outstanding
operating lease obligations of $4,525 and $2,987, respectively, of which $1,565 and $1,141, respectively, are reported in operating lease liabilities, current
portion and $2,960 and $1,846, respectively, are reported in operating lease liabilities less current portion in the Company’s 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.
F-20
Note 9 — Intangible Assets, net
Intangible assets, less accumulated amortization, consisted of the following as of:
Defensive asset
Laboratory licenses and certifications and laboratory information
management software
Other
Total Intangible assets
Less Accumulated Amortization
Intangible Assets, net
Estimated Useful Life
60 months
$
24 months
1 year
$
December 31, 2023
2,105 $
3,200
70
5,375
(3,951)
1,424 $
December 31, 2022
2,105
3,200
70
5,375
(1,930)
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 $2,021 and $1,784 for the years ended December 31, 2023 and 2022, respectively,
and is included in amortization of acquired intangible assets in the accompanying consolidated statements of operations. As of December 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:
2024
2025
2026
Total
$
$
688
421
315
1,424
Note 10 — Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following items as of:
Compensation and Employee Benefits
CWRU Amended License Agreement - Royalty fee
Operating expenses
Other current liabilities
Total accrued expenses and other current liabilities
December 31, 2023
December 31, 2022
$
$
2,507 $
96
3,246
777
6,626 $
1,940
10
1,755
—
3,705
The “Compensation and Employee Benefits” includes: discretionary bonus payments to employees; unused employee vacation time; and employee
payroll deductions related to the PAVmed Inc. Employee Stock Purchase Plan (“PAVmed Inc. ESPP”). See Note 14, Stock-Based Compensation, for
additional information on the PAVmed Inc. ESPP.
Note 11 — Commitment and Contingencies
Other Matters
In the ordinary course of PAVmed business, particularly as it begins commercialization of its products, the Company may be subject to certain other
legal actions and claims, including product liability, consumer, commercial, tax and governmental matters, which may arise from time to time. The
Company is not aware of any such pending legal or other proceedings that are reasonably likely to have a material impact on the Company.
Notwithstanding, legal proceedings are subject-to inherent uncertainties, and an unfavorable outcome could include monetary damages, and excessive
verdicts can result from litigation, and as such, could result in a material adverse impact on the Company’s business, financial position, results of
operations, and /or cash flows. Additionally, although the Company has specific insurance for certain potential risks, the Company may in the future incur
judgments or enter into settlements of claims which may have a material adverse impact on the Company’s business, financial position, results of
operations, and /or cash flows.
F-21
Note 12 — Financial Instruments Fair Value Measurements
Recurring Fair Value Measurements
The fair value hierarchy table for the periods indicated is as follows:
Fair Value Measurement on a Recurring Basis at Reporting Date Using1
Level-1 Inputs
Level-2 Inputs
Level-3 Inputs
Total
December 31, 2023
Senior Secured Convertible Note - April 2022
Senior Secured Convertible Note - September 2022
Lucid Senior Secured Convertible Note - March
2023
Totals
December 31, 2022
Senior Secured Convertible Note - April 2022
Senior Secured Convertible Note - September 2022
Totals
$
$
$
$
—
—
—
—
—
—
—
$
$
$
$
Level-1 Inputs
— $
—
—
— $
19,000 $
11,250
13,950
44,200 $
Level-2 Inputs
Level-3 Inputs
Total
— $
—
— $
22,000 $
11,650
33,650 $
19,000
11,250
13,950
44,200
22,000
11,650
33,650
1 There were no transfers between the respective Levels during the year ended December 31, 2023.
As discussed in Note 13, 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 13, 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 December 31, 2023, and the estimated
fair value of the April 2022 Senior Convertible Note and the September 2022 Senior Convertible Note as of December 31, 2023, were computed using a
Monte Carlo simulation of the present value of its cash flows using a synthetic credit rating analysis and a required rate-of-return, using the following
assumptions:
Fair Value
Face value principal payable
Required rate of return
Conversion Price
Value of common stock
Expected term (years)
Volatility
Risk free rate
Dividend yield
April 2022 Senior
Convertible Note:
December 31, 2023
19,000
17,602
$
$
September 2022
Senior Convertible
Note:
December 31, 2023
11,250
9,062
$
$
$
$
$
$
10.00% - 10.50%
10.00% - 10.20%
75.00
4.12
0.26 - 1.26
$
$
85.00%
4.54% - 5.25%
—%
75.00
4.12
0.69 - 1.69
$
$
85.00%
4.31% - 4.96%
—%
Lucid March 2023
Senior Convertible
Note:
$
$
$
$
March 21, 2023
11,900
11,111
11.00%
5.00
1.54
2.00
75.00%
4.09%
—%
Lucid March 2023
Senior Convertible
Note:
December 31, 2023
13,950
11,019
10.00%
5.00
1.41
1.22
60.00%
4.56%
—%
The estimated fair values recognized utilized PAVmed and Lucid’s common stock prices, along with certain Level 3 inputs (as presented in the respective
tables above), in the development of Monte Carlo simulation models, discounted cash flow analyses, and /or Black-Scholes valuation models. The
estimated fair values are subjective and are affected by changes in inputs to the valuation models and analyses, including the respective common stock
prices, the dividend yields, the risk-free rates based on U.S. Treasury security yields, and certain other Level-3 inputs including, assumptions regarding the
estimated volatility in the value of the respective common stock prices. Changes in these assumptions can materially affect the recognized estimated fair
values.
F-22
Note 13 — Debt
The fair value and face value principal outstanding of the Senior Convertible Notes as of the dates indicated are as follows:
April 2022 Senior Convertible Note
September 2022 Senior Convertible Note
Lucid March 2023 Senior Convertible Note
Balance as of December 31, 2023
Contractual
Maturity Date
April 4, 2025
September 8,
2025
March 21, 2025
Stated Interest
Rate
Conversion
Face Value
Principal
Price per Share
Outstanding
Fair Value
7.875% $
75.00 $
17,602 $
19,000
7.875% $
7.875% $
75.00 $
5.00 $
$
9,062 $
11,019 $
37,683 $
11,250
13,950
44,200
April 2022 Senior Convertible Note
September 2022 Senior Convertible Note
Balance as of December 31, 2022
Contractual
Maturity Date
April 4, 2025
September 6,
2025
Stated Interest
Rate
Conversion
Face Value
Principal
Price per Share
Outstanding
Fair Value
7.875% $
75.00 $
21,497 $
22,000
7.875% $
75.00 $
$
11,250 $
32,747 $
11,650
33,650
The changes in the fair value of debt during the year ended December 31, 2023 is as follows:
Fair Value - December 31, 2022
Face value principal – issue date
Fair value adjustment – issue date
Installment repayments – common stock
Non-installment payments – common stock
Change in fair value
Fair Value at December 31, 2023
Other Income (Expense) - Change in fair value – year
ended December 31, 2023
$
$
April 2022
Senior
Convertible
Note
September
2022 Senior
Convertible
Note
Lucid March
2023 Senior
Convertible
Note
Sum of
Balance Sheet
Fair Value
Components
Other Income
(expense)
22,000
—
—
(3,895)
(249)
1,144
19,000
$
$
11,650
—
—
(2,188)
(114)
1,902
11,250
$
$
— $
11,111
789
(92)
(49)
2,191
13,950 $
33,650 $
11,111
789
(6,175)
(412)
5,237
44,200
—
—
(789)
—
—
(5,237)
$
(6,026)
The changes in the fair value of debt during the year ended December 31, 2022 is as follows:
Fair Value - December 31, 2021
Face value principal – issue date
Fair value adjustment – issue date
Installment repayments – common stock
Non-installment payments – common stock
Change in fair value
Fair Value at December 31, 2022
Other Income (Expense) - Change in fair value – year
ended December 31, 2022
September 2022
Senior Convertible
Note
Sum of Balance
Sheet Fair Value
Components
Other Income
(expense)
$
$
— $
11,250
950
—
—
(550)
11,650 $
— $
38,750
3,550
(6,003)
(370)
(2,277)
33,650
—
—
(3,550)
—
—
2,277
$
(1,273)
April 2022 Senior
Convertible Note
—
27,500
2,600
(6,003)
(370)
(1,727)
22,000
$
$
F-23
Note 13 — Debt - continued
PAVmed - Senior Secured Convertible Notes
The Company entered into a Securities Purchase Agreement (“SPA”) dated March 31, 2022, with an accredited institutional investor (“Investor”,
“Lender”, and /or “Holder”), wherein, the Company agreed to sell, and the Investor agreed to purchase an aggregate of $50.0 million face value principal of
debt - comprised of: an initial issuance of $27.5 million face value principal; and up to an additional $22.5 million of face value principal (upon the
satisfaction of certain conditions). The debt was issued in a registered direct offering under the Company’s effective shelf registration statement.
Under the SPA, the Company issued a Senior Secured Convertible Note dated April 4, 2022, referred to herein as the “April 2022 Senior Convertible
Note”, with such note having a $27.5 million face value principal, a 7.875% annual stated interest rate, a contractual conversion price of $75.00 per share
of the Company’s common stock (subject to standard adjustments in the event of any stock split, stock dividend, stock combination, recapitalization or
other similar transaction), and a contractual maturity date of April 4, 2024, which maturity date the investor agreed to extend by one year, to April 4, 2025.
The April 2022 Senior Convertible Note may be converted into shares of common stock of the Company at the Holder’s election.
Under the same SPA, the Company issued an additional Senior Secured Convertible Note dated September 8, 2022, referred to herein as the
“September 2022 Senior Convertible Note”, with such note having a $11.25 million face value principal, a 7.875% annual stated interest rate, a contractual
conversion price of $75.00 per share of the Company’s common stock (subject to standard adjustments in the event of any stock split, stock dividend, stock
combination, recapitalization or other similar transaction), and a contractual maturity date of September 6, 2024, which maturity date the investor agreed to
extend by one year, to September 8, 2025. The September 2022 Senior Convertible Note may be converted into shares of common stock of the Company at
the Holder’s election.
The Company is subject to financial covenants requiring: (i) a minimum of $8.0 million of available cash at all times; (ii) the ratio of (a) the
outstanding principal amount of the total senior convertible notes outstanding, accrued and unpaid interest thereon and accrued and unpaid late charges to
(b) the Company’s average market capitalization over the prior ten trading days, to not exceed 30% (the “Debt to Market Cap Ratio Test”); and (iii) the
Company’s market capitalization to at no time be less than $75 million (the “Market Cap Test” and, together with the Debt to Market Cap Ratio Test, the
“Financial Tests”). From time to time from and after December 1, 2023 through March 12, 2024, the Company was not in compliance with the Financial
Tests. As of March 12, 2024, the Investor agreed to waive any such non-compliance during such time period and thereafter through August 31, 2024.
In consideration of the covenant waiver and maturity extensions discussed above, the Company agreed to pay the holder of the notes $2,000,000 in
cash (or in such other form as may be mutually agreed in writing) by April 25, 2024.
The April 2022 Senior Convertible Note and September 2022 Senior Convertible Note installment payments may be made in shares of PAVmed common
stock at a conversion price that is the lower of the contractual conversion price and 82.5% of the two lowest VWAPs during the last 10 trading days
preceding the date of conversion, subject to a conversion price floor of $2.70. The notes are also subject to certain provisions that may require redemption
upon the occurrence of certain events, including an event of default, a change of control, or certain equity issuances.
In the year ended December 31, 2023, approximately $6,083 of principal repayments along with approximately $364 of interest expense thereon, were
settled through the issuance of 1,745,824 shares of common stock of the Company, with such shares having a fair value of approximately $10,001 (with
such fair value measured as the respective conversion date quoted closing price of the common stock of the Company). In addition the Company paid $202
in cash related to acceleration floor payments on these notes related to the conversion price being below $2.70, which is included in debt extinguishment
loss on the Company’s consolidated statements of operations. The conversions and cash paid resulted in a debt extinguishment loss of $3,756 in the year
ended December 31, 2023.
Lucid Diagnostics - Senior Secured Convertible Note
Lucid Diagnostics entered into a Securities Purchase Agreement (“Lucid SPA”) dated March 13, 2023, with an accredited institutional investor
(“Investor”, “Lender”, and /or “Holder”), wherein, Lucid agreed to sell, and the Investor agreed to purchase an aggregate of $11.1 million face value
principal of debt. The debt was issued in a registered direct offering under 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
consolidated statement of operations.
During the period from March 21, 2023 to September 20, 2023, Lucid was 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 $391 for the year ended December 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.
F-24
Note 13 — Debt - continued
In addition to the Installment Amount repayments, the Holder may elect to accelerate the conversion of future Installment Amount repayments, and
interest thereon, subject to certain restrictions, as defined, utilizing the then current conversion price of the most recent Installment Date conversion price.
The payment of all amounts due and payable under this senior convertible note is guaranteed by Lucid’s subsidiaries; and the obligations under this
senior convertible note are secured by all of the assets of Lucid and its subsidiaries.
Lucid is subject to certain customary affirmative and negative covenants regarding the rank of the note, along with the incurrence of further
indebtedness, the existence of liens, the repayment of indebtedness and the making of investments, the payment of cash in respect of dividends,
distributions or redemptions, the transfer of assets, the maturity of other indebtedness, and transactions with affiliates, among other customary matters.
Lucid is subject to financial covenants requiring: (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. As of December 31, 2023, the Company was in compliance, and as of
the date hereof, the Company is in compliance, with these financial covenants.
The Lucid March 2023 Senior Convertible Note installment payments may be made in shares of Lucid Diagnostics common stock at a conversion
price that is the lower of the contractual conversion price and 82.5% of the two lowest VWAPs during the last 10 trading days preceding the date of
conversion, subject to a conversion price floor of $0.30. The notes are also subject to certain provisions that may require redemption upon the occurrence of
an event of default, a change of control, or certain equity issuances.
In the year ended December 31, 2023, approximately $92 of principal repayments along with approximately $48 of interest expense thereon, were
settled through the issuance of 115,388 shares of common stock of Lucid, with such shares having a fair value of approximately $166 (with such fair value
measured as the respective conversion date quoted closing price of the common stock of Lucid). The conversions resulted in a debt extinguishment loss of
$26 in the year ended December 31, 2023. Subsequent to December 31, 2023, as of March 21, 2024, approximately $260 of interest expense thereon, was
settled through the issuance of 242,390 shares of common stock of the Lucid, with such shares having a fair value of approximately $359 (with such fair
value measured as the respective conversion date quoted closing price of the common stock of Lucid).
During the years ended December 31, 2023 and 2022, the Company recognized debt extinguishment losses in total of approximately $3,782 and
$5,434, respectively, in connection with issuing common stock for principal repayments on convertible debt mentioned above.
See Note 12, Financial Instruments Fair Value Measurements, for a further discussion of fair value assumptions.
Note 14 — Stock-Based Compensation
PAVmed Inc. 2014 Long-Term Incentive Equity Plan
The PAVmed Inc. 2014 Long-Term Incentive Equity Plan (the “PAVmed 2014 Equity Plan”) is designed to enable PAVmed to offer employees,
officers, directors, and consultants, as defined, an opportunity to acquire shares of common stock of PAVmed. The types of awards that may be granted
under the PAVmed 2014 Equity Plan include stock options, stock appreciation rights, restricted stock, and other stock-based awards subject to limitations
under applicable law. All awards are subject to approval by the PAVmed compensation committee.
A total of 1,403,518 shares of common stock of PAVmed are reserved for issuance under the PAVmed 2014 Equity Plan, with 77,518 shares available
for grant as of December 31, 2023. The share reservation is not diminished by a total of 66,723 PAVmed Inc. stock options and restricted stock awards
granted outside the PAVmed 2014 Equity Plan as of December 31, 2023. In January 2024, the number of shares available for grant was increased by
432,452 in accordance with the evergreen provisions of the plan.
F-25
Note 14 — 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:
Outstanding stock options at December 31, 2021(4)
Granted(1)
Exercised
Forfeited
Outstanding stock options at December 31, 2022(4)
Granted(1)
Exercised
Forfeited
Outstanding stock options at December 31, 2023(3)
Vested and exercisable stock options at December 31,
2023
Number of Stock
Options
Weighted Average
Exercise Price
581,833
320,252
(19,998)
(110,934)
771,153
576,975
—
(155,670)
1,192,458
722,039
$
$
$
$
$
$
$
$
$
$
50.86
22.87
15.11
47.15
40.70
6.87
—
26.51
26.18
35.82
Remaining
Contractual Term
(Years)
Intrinsic Value(2)
6.8 $
3,516
7.4 $
7.3 $
6.4 $
—
—
—
(1)
(2)
(3)
(4)
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.
The intrinsic value is computed as the difference between the quoted price of the PAVmed common stock on each of December 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.
The outstanding stock options presented in the table above, are inclusive of 60,057 and 33,391, stock options granted outside the PAVmed 2014
Equity Plan, as of December 31, 2023 and December 31, 2022, respectively.
Share activity and weighted average grant date fair values include immaterial rounding due to the Company’s 1-for-15 reverse stock split.
Subsequent to December 31, 2023, on February 22, 2024, the Company granted 59,500 stock options under the PAVmed Inc 2014 Equity Plan with a
weighted average exercise price of $1.85 for which will generally vest one-third after one year then ratably over the next eight quarters. In addition, on
February 22, 2024, a total of 390,000 restricted stock awards were granted to the Board of Directors under the PAVmed 2014 Equity Plan, with such
restricted stock awards having an aggregate fair value of approximately $0.7 million, which was measured using the respective grant date quoted closing
price per share of PAVmed Inc. common stock, with the fair value recognized as stock-based compensation expense ratably on a straight-line basis over the
vesting period, which is commensurate with the service period. The vesting of the restricted stock awards vest ratably on an annual basis over a three year
period with the initial annual vesting date of November 30, 2024. The restricted stock awards are subject to forfeiture if the requisite service period is not
completed.
PAVmed Restricted Stock Awards
PAVmed restricted stock awards granted under the PAVmed 2014 Equity Plan and restricted stock awards granted outside such plan are summarized as
follows:
Outstanding restricted stock awards as of December 31, 2021(2)
Granted
Vested
Forfeited
Unvested restricted stock awards as of December 31, 2022(1)
Granted
Vested
Forfeited
Unvested restricted stock awards as of December 31, 2023
Number of Restricted
Stock Awards
Weighted Average Grant
Date Fair Value
111,109 $
— $
(36,111) $
(10,000) $
64,998 $
12,195
(6,666)
—
70,527 $
35.40
—
17.94
30.60
45.76
5.79
46.50
—
38.77
(1) The unvested restricted stock awards presented in the table above, are inclusive of 6,666 restricted stock awards granted outside the PAVmed 2014
Equity Plan as of December 31, 2022. These 6,666 restricted stock awards were fully vested during the period ended December 31, 2023.
(2) Share activity and weighted average grant date fair values include immaterial rounding due to the Company’s 1-for-15 reverse stock split.
F-26
Note 14 — Stock-Based Compensation - continued
Lucid Diagnostics Inc. 2018 Long-Term Incentive Equity Plan
The Lucid Diagnostics Inc. 2018 Long-Term Incentive Equity Plan (“Lucid Diagnostics 2018 Equity Plan”) is separate and apart from the PAVmed
2014 Equity Plan discussed above. The Lucid Diagnostics 2018 Equity Plan is designed to enable Lucid Diagnostics to offer employees, officers, directors,
and consultants, an opportunity to acquire shares of common stock of Lucid Diagnostics. The types of awards that may be granted under the Lucid
Diagnostics 2018 Equity Plan include stock options, stock appreciation rights, restricted stock, and other stock-based awards subject to limitations under
applicable law. All awards are subject to approval by the Lucid Diagnostics compensation committee.
A total of 11,644,000 shares of common stock of Lucid Diagnostics are reserved for issuance under the Lucid Diagnostics 2018 Equity Plan, with
2,832,133 shares available for grant as of December 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 December 31, 2023. In January 2024, the number of shares available
for grant was increased by 2,680,038 in accordance with the evergreen provisions of the plan.
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:
Outstanding stock options at December 31, 2021
Granted(1)
Exercised
Forfeited
Outstanding stock options at December 31, 2022
Granted(1)
Exercised
Forfeited
Outstanding stock options at December 31, 2023(3)
Vested and exercisable stock options at December 31,
2023
Number of Stock
Options
Weighted Average
Exercise Price
1,419,242
2,365,000
(965,342)
(253,523)
2,565,377
3,618,000
—
(678,994)
5,504,383
2,339,527
$
$
$
$
$
$
$
$
$
$
0.73
3.68
0.72
3.83
3.14
1.32
—
2.75
2.00
2.30
Remaining
Contractual Term
(Years)
7.0
Intrinsic
Value(2)
8.3 $
428
8.5 $
7.8 $
765
529
(1)
(2)
(3)
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.
The intrinsic value is computed as the difference between the quoted price of the Lucid Diagnostics common stock on each of December 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.
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 December 31, 2023 and December 31, 2022.
Subsequent to December 31, 2023, on February 22, 2024, Lucid granted 2,895,000 stock options under the Lucid Diagnostics Inc 2018 Equity Plan
with a weighted average exercise price of $1.25 for which will generally vest one-third after one year then ratably over the next eight quarters.
F-27
Note 14 — Stock-Based Compensation - continued
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:
Unvested restricted stock awards as of December 31, 2021
Granted
Vested
Forfeited
Unvested restricted stock awards as of December 31, 2022(1)
Granted
Vested
Forfeited
Unvested restricted stock awards as of December 31, 2023
Number of Restricted
Stock Awards
Weighted Average Grant
Date Fair Value
1,940,740 $
320,000
(169,320)
—
2,091,420 $
550,000
(303,980)
—
2,337,440 $
12.76
4.53
13.48
—
11.44
1.29
11.95
—
8.99
(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 December
31, 2023.
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:
Cost of revenue
Sales and marketing expenses
General and administrative expenses
Research and development expenses
Total stock-based compensation expense
Years Ended
December 31,
2023
2022
$
$
122 $
1,715
7,935
1,367
11,139 $
16
2,464
16,001
1,051
19,532
F-28
Note 14 — Stock-Based Compensation - continued
Stock-Based Compensation Expense Recognized by Lucid Diagnostics
As noted, the consolidated stock-based compensation expense presented above is inclusive of stock-based compensation expense recognized by Lucid
Diagnostics, inclusive of each of: stock options granted under the PAVmed 2014 Equity Plan to the three physician inventors of the intellectual property
underlying the Amended CWRU License Agreement; and stock options and restricted stock awards granted to employees of PAVmed and non-employee
consultants under the Lucid Diagnostics 2018 Equity Plan. The stock-based compensation expense recognized by Lucid Diagnostics for both the PAVmed
2014 Equity Plan and the Lucid Diagnostics 2018 Equity Plan, with respect to stock options and restricted stock awards as discussed above, for the periods
indicated, was as follows:
Lucid Diagnostics 2018 Equity Plan – cost of revenue
Lucid Diagnostics 2018 Equity Plan – sales and marketing
Lucid Diagnostics 2018 Equity Plan – general and administrative
Lucid Diagnostics 2018 Equity Plan – research and development
PAVmed 2014 Equity Plan - cost of revenue
PAVmed 2014 Equity Plan - sales and marketing
PAVmed 2014 Equity Plan - general and administrative
PAVmed 2014 Equity Plan - research and development
Total stock-based compensation expense – recognized by Lucid Diagnostics
Years Ended December 31,
2023
2022
63 $
948
4,455
296
37
463
173
387
6,822 $
13
968
12,691
187
3
654
262
213
14,991
$
$
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:
PAVmed 2014 Equity Plan
Stock Options
Restricted Stock Awards
Lucid Diagnostics 2018 Equity Plan
Stock Options
Restricted Stock Awards
Unrecognized Expense
Weighted Average
Remaining Service
Period (Years)
$
$
$
$
3,799
185
3,566
1,167
1.8
1.1
2.0
2.2
F-29
Note 14 — Stock-Based Compensation - continued
Stock-based compensation expense recognized with respect to stock options granted under the PAVmed 2014 Equity Plan was based on a weighted
average estimated fair value of such stock options of $4.90 per share and $16.50 per share during the years ended December 31, 2023 and 2022,
respectively, calculated using the following weighted average Black-Scholes valuation model assumptions:
Expected term of stock options (in years)
Expected stock price volatility
Risk free interest rate
Expected dividend yield
Years Ended December 31,
2023
2022
5.6
88%
3.8%
—%
5.8
88%
2.2%
—%
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 $0.88 per share and $2.30 per share during the years ended December 31, 2023 and 2022,
respectively, calculated using the following weighted average Black-Scholes valuation model assumptions:
Expected term of stock options (in years)
Expected stock price volatility
Risk free interest rate
Expected dividend yield
PAVmed Inc. Employee Stock Purchase Plan (“PAVmed ESPP”)
Years Ended December 31,
2023
2022
5.6
74%
3.9%
—%
5.6
71%
2.1%
—%
A total of 38,216 shares and 12,950 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. A total of 20,267 shares and 12,780 shares of common stock of the Company were purchased
for proceeds of approximately $76 and $140, on September 30, 2023 and 2022, respectively, under the PAVmed ESPP. The March 31, 2023 purchase was
partially settled through the redeployment of 12,590 shares of treasury stock. The September 30, 2022 purchase was settled through the redeployment of
treasury stock. The PAVmed ESPP has a total reserve of 133,334 shares of common stock of PAVmed of which 7,528 shares are available for issue as of
December 31, 2023. In January 2024, the number of shares available-for-issue was increased by 166,667 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. A total of 276,213 and 84,030 shares of common stock of Lucid Diagnostics were purchased for proceeds of approximately $275 and $109 on
September 30, 2023 and 2022, respectively, under the Lucid ESPP.The Lucid ESPP has a total reserve of 1,000,000 shares of common stock of Lucid
Diagnostics of which 407,770 shares are available for issue as of December 31, 2023. In January 2024, the Lucid board authorized an increase in the
number of shares available for issue by 500,000.
F-30
Note 15 — Preferred Stock
As of December 31, 2023 and December 31, 2022, there were 1,305,213 and 1,205,759 shares of PAVmed Series B Convertible Preferred Stock,
classified in permanent equity, issued and outstanding, respectively.
PAVmed Series B Convertible Preferred Stock Dividends
The Series B Convertible Preferred Stock is issued pursuant to the PAVmed Inc. Certificate of Designation of Preferences, Rights, and Limitations of
Series B Convertible Preferred Stock (“Series B Convertible Preferred Stock Certificate of Designation”), has a par value of $0.001 per share, no voting
rights, a stated value of $3.00 per share, and was immediately convertible upon its issuance. At the holders’ election, fifteen shares of Series B Convertible
Preferred Stock are currently convertible into one share of common stock of the Company, subject to further adjustment for the effect of future stock
dividends, stock splits or similar events affecting the Company’s common stock. The Series B Convertible Preferred Stock shall not be redeemed for cash
and under no circumstances shall the Company be required to net cash settle the Series B Convertible Preferred Stock.
The PAVmed Inc. Series B Convertible Preferred Stock dividends are 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.
PAVmed Series B Convertible Preferred Stock Dividends Earned
The Series B Convertible Preferred Stock dividends earned are included in the calculation of basic and diluted net loss attributable to PAVmed
common stockholders for each of the respective corresponding periods presented in the accompanying consolidated statement of operations, inclusive of
$304 of such dividends earned in the year ended December 31, 2023; and $281 of such dividends earned in the year ended December 31, 2022.
PAVmed Series B Convertible Preferred Stock Dividends Declared
During the year ended December 31, 2023, the Company’s board of directors declared an aggregate of approximately $298 of Series B Convertible
Preferred Stock dividends, earned as of December 31, 2022; March 31, 2023; June 30, 2023; and September 30, 2023, which have been settled by the issue
of an additional aggregate 99,454 shares of Series B Convertible Preferred Stock.
During the year ended December 31, 2022, the Company’s board of directors declared an aggregate of approximately $276 of Series B Convertible
Preferred Stock dividends, earned as of December 31, 2021; March 31, 2022; June 30, 2022; and September 30, 2022, which have been settled by the issue
of an additional aggregate 91,885 shares of Series B Convertible Preferred Stock.
Subsequent to December 31, 2023, in January 2024, the Company’s board of directors declared a PAVmed Series B Convertible Preferred Stock
dividend, earned as of December 31, 2023, of $78, to be settled by the issue of 26,123 additional shares of Series B Convertible Preferred Stock.
The PAVmed Series B Convertible Preferred Stock dividends are recognized as a dividend payable liability only upon the dividend being declared
payable by the Company’s board of directors. Accordingly, the dividends declared payable subsequent to the date of the accompanying consolidated
balance sheet were not recognized as a dividend payable liability as the Company’s board of directors had not declared the dividends payable as of each
such date.
F-31
Note 16 — Common Stock and Common Stock Purchase Warrants
Common Stock
In February 2023, the Company distributed a proxy statement for a special meeting of shareholders that was held on March 31, 2023 (the “Special
Meeting”), at which the Company sought approval of an amendment to the Company’s Certificate of Incorporation, to effect, (i) a reverse split of the
Company’s outstanding shares of common stock at a specific ratio, ranging from 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. On March 31, 2023, the shareholders approved the above 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. On November 28, 2023 the Company’s board of
directors, unanimously authorized management to effect the reverse split at the ratio of 1-for-15. The reverse stock split became effective on December 7,
2023. At the effective date, every 15 shares of the Company’s common stock that were issued and outstanding were automatically combined into one
issued and outstanding share, without any change in par value of such shares. No fractional shares were issued in connection with the reverse stock split.
Instead, each fractional share remaining after completion of the reverse stock split that was less than a whole share was rounded up to one whole share. The
reverse stock split also correspondingly affected all outstanding PAVmed equity awards and outstanding convertible securities.
A total of 100,000 shares of PAVmed common stock were issued to an unrelated service provider as the consideration for the services rendered under a
research and development agreement dated May 31, 2023 (“May 31, 2023 R&D Agreement”). The shares were issued as consideration for a contractual
minimum fair market value of $750, with such derived fair market value computed using a contractual formula based on the PAVmed Inc. common stock
volume weighted average price per share (“VWAP”) during the last ten days of the six month anniversary of the May 31, 2023 R&D Agreement. If the
such fair market value was less than $750, then, the Company would incur an additional contractual consideration obligation in amount equal to the
difference between the required minimum fair market value of $750 and the contractual formula based computed fair market value. On the six month
anniversary, November 30, 2023, the contingent reconciliation payment was calculated to be $390, based on the prior 10 day VWAP calculation, with the
change in the estimated fair value recognized as other income (expense).
During the year ended December 31, 2023 a total of 58,483 shares of common stock of the Company were issued under the PAVmed ESPP. See Note
14, Stock-Based Compensation, for a discussion of each of the PAVmed 2014 Equity Plan and the PAVmed ESPP.
In the year ended December 31, 2023, 1,745,824 shares of the Company’s common stock were issued upon conversion, at the election of the holder, of
the April 2022 Senior Convertible Note and the September 2022 Senior Convertible Note, for $6,083 face value principal repayments, as discussed in Note
13, Debt.
In the year ended December 31, 2023, the Company sold 321,288 shares through their at-the-market equity facility for net proceeds of approximately
$1,823, after payment of 3% commissions. As of December 31, 2023, the Company had $291 of net proceeds due from broker. Subsequent to December
31, 2023, as of March 21, 2024, the Company sold 133,299 shares through their at-market equity facility for net proceeds of approximately $495, after
payment of 3% commissions.
PAVmed Distribution of Lucid Diagnostics Common Stock to Shareholders
On February 15, 2024, the Company distributed by special dividend to the Company stockholders 3,331,747 shares of Lucid Diagnostics common
stock held by the Company. On such date, each PAVmed shareholder as of the January 15, 2024 record date received a stock dividend of approximately 38
shares of Lucid common stock for every 100 shares of PAVmed common stock they held as of such date. The shares distributed were approximately equal
to the number of shares of common stock that Lucid issued to PAVmed on or about January 26, 2024 in satisfaction of certain intercompany obligations due
to Lucid from PAVmed.
Common Stock Purchase Warrants
As of December 31, 2023 and December 31, 2022, Series Z Warrants outstanding totaled 11,937,450 representing the right to purchase 795,830 shares
of the Company’s common stock. The Series Z Warrants are now exercisable to purchase one whole share of common stock of the Company at an exercise
price of $23.48 ($24.00 post reverse-split, decreased by $0.52 due to distribution of Lucid common stock to PAVmed stockholders, discussed further
below). On December 4, 2023, the Company announced the extension of the Company’s Series Z Warrants, by 12 months, to April 30, 2025. The Company
recognized the incremental value associated with the Z Warrants modification for the term extension as a deemed dividend charge of $1,791 and as an
increase of net loss available to common stockholders on the consolidated statements of operations in 2023. The incremental value associated with the Z
Warrants modification was determined using a Black-Scholes pricing model using the modified terms of the Z Warrants with the following assumptions:
expected term of 1.41 years, dividend yield of 0%, volatility of 233%, and a risk-free rate of 4.79%, compared to the publicly traded closing price of
PAVMZ on the date immediately preceding the modification. There were no Series Z Warrants exercised during the year ended December 31, 2023.
The Company’s distribution of Lucid common stock to PAVmed stockholders, described above, constituted an “Extraordinary Dividend” as defined in
the Warrant Agreement. Accordingly, as a result of the distribution, pursuant to Section 4.3 of the Warrant Agreement, the Warrant Price has been
decreased by $0.52 (the fair market value of 0.37709668 of a share of Lucid Diagnostics’ common stock) to $23.48 per share.
F-32
Note 17 — Noncontrolling Interest
The noncontrolling interest (“NCI”) included as a component of consolidated total stockholders’ equity is summarized for the periods indicated as
follows:
NCI – equity
Net loss attributable to NCI
Impact of subsidiary equity transactions
Lucid Diagnostics proceeds from issuance of preferred stock
Lucid Diagnostics proceeds from At-The-Market Facilities, net of deferred financing charges
Lucid Diagnostics issuance of common stock for settlement of APA-RDx installment and
termination payment
Lucid Diagnostics issuance of common stock for settlement of vendor service agreement
Lucid Diagnostics 2018 Equity Plan stock option exercise
Lucid Diagnostics Employee Stock Purchase Plan Purchase
Conversion of Lucid Diagnostics common stock for Senior Secured Convertible Debt
Stock-based compensation expense - Lucid Diagnostics 2018 Equity Plan
Stock-based compensation expense - Veris Health 2021 Equity Plan
NCI – equity
$
$
December 31, 2023
December 31, 2022
20,615 $
(15,088)
(1,983)
18,625
284
713
147
—
551
167
5,762
20
29,813 $
17,752
(14,255)
28
—
1,767
653
—
695
109
—
13,859
7
20,615
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 December 31, 2023 and December 31, 2022; and the recognition of a net loss attributable to the NCI in the consolidated
statement of operations for the periods beginning on the acquisition date of the respective majority-owned subsidiaries.
Lucid Diagnostics
As of December 31, 2023, there were 42,329,864 shares of common stock of Lucid Diagnostics issued and outstanding, of which, PAVmed held
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 Lucid Diagnostics’ 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 Lucid Diagnostics’ 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.
On October 17, 2023, Lucid issued 5,000 shares of newly designated Lucid Series A-1 Convertible Preferred Stock (the “Lucid Series A-1 Preferred
Stock”). The terms of the Lucid Series A-1 Preferred Stock are substantially identical to the terms of the Lucid Series A Preferred Stock, except that the
Lucid Series A-1 Preferred Stock has a conversion price of $1.2592. The aggregate gross proceeds from the sale of shares in such offering were $5.0
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 year ended December 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.
F-33
Note 17 — Noncontrolling Interest - continued
Subsequent to December 31, 2023, on January 26, 2024 PAVmed elected to receive payment of $4,675 of fees and reimbursements due from Lucid,
through the issuance of 3,331,771 shares of Lucid Diagnostics common stock. On February 15, 2024, the Company distributed by special dividend to the
Company stockholders, as of the record date noted above, 3,331,747 shares of Lucid Diagnostics common stock held by the Company.
On March 13, 2024, Lucid issued an additional 5,670 shares of Lucid Series A-1 Preferred Stock, for aggregate gross proceeds of $5.67 million.
On March 13, 2024, Lucid issued 44,285 shares of newly designated Lucid Series B Convertible Preferred Stock (the “Lucid Series B Preferred
Stock”). The terms of the Lucid Series B Preferred Stock are substantially identical to the terms of the Lucid Series A Preferred Stock and the Lucid Series
A-1 Preferred Stock, except that the Lucid Series B Preferred Stock has a conversion price of $1.2444, and the holders of the Lucid Series B Preferred
Stock vote with the common stock on an as-converted basis (subject to any applicable ownership limitations). On the same day, Lucid issued an additional
5,670 shares of Lucid Series A-1 Preferred Stock, for aggregate gross proceeds of $5.67 million (all of which shares were immediately exchange for shares
of Lucid Series B Preferred Stock). The aggregate gross proceeds from the sale of shares in such offering were $18.1 million.
As a result of 100% of the then-outstanding shares of Lucid Series A Preferred Stock and Lucid Series A-1 Preferred Stock being exchanged for shares
of Lucid Series B Preferred Stock in the Lucid Series B Offering and Exchange, no shares of Lucid Series A Preferred Stock or Lucid Series A-1 Preferred
Stock remain outstanding.
Veris Health
As of December 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 consolidated balance sheets.
Note 18 — Income Taxes
Income tax (benefit) expense for respective periods noted is as follows:
Current
Federal, State and Local
Deferred
Federal
State and Local
Current and Deferred tax (benefit) expense
Less: Valuation allowance reserve
Income tax expense (benefit)
Years Ended December 31,
2023
2022
$
$
— $
(16,789)
(19,323)
(36,112)
36,112
— $
The reconciliation of the federal statutory income tax rate to the effective income tax rate for the respective period noted is as follows:
Years Ended December 31,
2023
2022
U.S. federal statutory rate
U.S. state and local income taxes, net of federal benefit
Permanent differences
Tax credits
Revaluation of state deferred taxes
Federal deferred true-up
State deferred true-up
Valuation allowance
Effective tax rate
F-34
21.0%
6.1%
(2.7)%
2.2%
—%
5.8%
13.2%
(45.6)%
—%
—
(24,265)
11,124
(13,141)
13,141
—
21.0%
6.6%
(1.0)%
1.3%
(15.2)%
—%
—%
(12.7)%
—%
Note 18 — Income Taxes - continued
The tax effects of temporary differences which give rise to the net deferred tax assets for the respective period noted is as follows:
Years Ended December 31,
2023
2022
Deferred Tax Assets
Net operating loss
Debt issue costs
Stock-based compensation expense
Lease liabilities
Research and development expenditures
Research and development tax credit carryforwards
Accrued expenses
Section 195 deferred start-up costs
Depreciation & amortization
Deferred tax assets
Deferred Tax Liabilities
Operating lease right-of-use assets
Depreciation
Patent licenses
Deferred Tax Liabilities
Deferred tax assets, net of deferred tax liabilities
Less: valuation allowance
Deferred tax assets, net after valuation allowance
$
$
$
$
$
67,786 $
537
12,304
1,266
8,234
3,481
385
17
800 $
94,810 $
(1,194)
—
—
(1,194) $
93,616
(93,616)
— $
37,032
922
11,105
836
6,193
1,719
311
15
221
58,354
(850)
—
—
(850)
57,504
(57,504)
—
F-35
Note 18 — Income Taxes - continued
Deferred tax assets and deferred tax liabilities resulting from temporary differences are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect of the change in the tax rate is recognized as
income or expense in the period the change in tax rate is enacted.
As required by FASB ASC Topic 740, Income Taxes, (“ASC 740), a “more-likely-than-not” criterion is applied when assessing the estimated
realization of deferred tax assets through their utilization to reduce future taxable income, or with respect to a deferred tax asset for tax credit carryforward,
to reduce future tax expense. A valuation allowance is established, when necessary, to reduce deferred tax assets, net of deferred tax liabilities, when the
assessment indicates it is more-likely-than-not, the full or partial amount of the net deferred tax asset will not be realized. Accordingly, the Company
evaluated the positive and negative evidence bearing upon the estimated realizability of the net deferred tax assets, and based on the Company’s history of
operating losses, concluded it is more-likely-than-not the deferred tax assets will not be realized, and therefore recognized a valuation allowance reserve
equal to the full amount of the deferred tax assets, net of deferred tax liabilities, as of December 31, 2023 and 2022. As of December 31, 2023 and 2022,
the deferred tax asset valuation allowance increased by $36,112 and $13,141, respectively.
The Company has total estimated federal net operating loss (“NOL”) carryforward of approximately $236.3 million and $158.4 million as of
December 31, 2023 and 2022, respectively, which is available to reduce future taxable income, of which approximately $13.8 million have statutory
expiration dates commencing in 2037, and approximately $222.5 million which do not have a statutory expiration date. The Company has not yet
conducted a formal analysis and the NOL carryforward and general business credits may be subject-to limitation under U.S. Internal Revenue Code
(“IRC”) Section 382 (provided there was a greater than 50% ownership change, as computed under such IRC Section 382). The State and Local NOL
carryforwards of approximately $260.0 million have statutory expiration dates commencing in 2037. The Company has total estimated research and
development (“R&D”) tax credit carryforward of approximately $3.4 million as of December 31, 2023 which are available to reduce future tax expense and
have statutory expiration dates commencing in 2037.
The Company files income tax returns in the United States in federal and applicable state and local jurisdictions. The Company’s tax filings for the
years 2017 and thereafter each remain subject to examination by taxing authorities. The Company’s policy is to record interest and penalties related to
income taxes as part of its income tax provision. The Company has not recognized any penalties or interest related to its income tax provision.
In August 2022, the U.S. Congress passed the Inflation Reduction Act, which included a corporate minimum tax on book earnings of 15%, an excise
tax on corporate share repurchases of 1%, and certain climate change and energy tax credit incentives. The adoption of a corporate minimum tax of 15% is
not expected to impact PAVmed’s effective tax rate. The excise tax of 1% on corporate share buybacks will not have an impact on the Company’s effective
tax rate.
F-36
Note 19 — 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:
Numerator
Net loss - before noncontrolling interest
Net loss attributable to noncontrolling interest
Net loss - as reported, attributable to PAVmed Inc.
Deemed dividend on Series Z warrant modification
Series B Convertible Preferred Stock dividends – earned
Net loss attributable to PAVmed Inc. common stockholders
Denominator
Weighted average common shares outstanding, basic and diluted
Net loss per share (1)
Basic and diluted
Net loss attributable to PAVmed Inc. common stockholders
Years Ended December 31,
2023
2022
(79,263) $
15,088
(64,175) $
(1,791) $
(304) $
(103,238)
14,255
(88,983)
—
(281)
(66,270) $
(89,264)
7,231,546
5,938,406
(9.16) $
(15.03)
$
$
$
$
$
$
(1)- Convertible Preferred Stock would potentially be considered a participating security under the two-class method of calculating net loss per share.
However, the Company has incurred net losses to-date, and as such holders are not contractually obligated to share in the losses, there is no impact on
the Company’s net loss per share calculation for the periods indicated.
The common stock equivalents have been excluded from the computation of diluted weighted average shares outstanding as their inclusion would be
anti-dilutive, are as follows:
The Series B Convertible Preferred Stock dividends earned as of each of the respective years noted, are included in the calculation of basic and diluted
net loss attributable to PAVmed common stockholders for each respective period presented. Notwithstanding, the Series B Convertible Preferred Stock
dividends are recognized as a dividend payable only upon the dividend being declared payable by the Company’s board of directors.
Basic weighted-average number of shares of common stock outstanding for the years ended December 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 years presented, basic and diluted weighted average shares outstanding are the same, as the
inclusion of the incremental shares would be anti-dilutive. The common stock equivalents excluded from the computation of diluted weighted average
shares outstanding are as follows:
Stock options and restricted stock awards
Series Z Warrants
Series B Convertible Preferred Stock
Total
December 31,
2023
2022
1,262,985
795,830
87,015
2,145,830
836,151
795,830
80,384
1,712,365
The total stock options and restricted stock awards are inclusive of 60,057 and 33,391 stock options as of December 31, 2023 and 2022, respectively;
and 6,666 restricted stock awards as of December 31, 2022 granted outside the PAVmed 2014 Equity Plan. These 6,666 restricted stock awards were fully
vested during the year ended December 31, 2023.
F-37
Exhibit 4.1
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
As of December 31, 2023, PAVmed Inc. (“PAVmed,” the “Company” or “we,” “us” or “our”) had two classes of securities registered under Section 12 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”): (i) common stock, $0.001 par value per share; and (ii) Series Z warrants to
purchase our common stock (“Series Z Warrants”). Each of the Company’s securities registered under Section 12 of the Exchange Act are listed on The
Nasdaq Stock Market LLC.
DESCRIPTION OF COMMON STOCK
In the discussion that follows, we have summarized selected provisions of our certificate of incorporation, bylaws, and the Delaware General Corporation
Law (the “DGCL”) relating to our common stock. This summary discussion is not complete, and is subject to the relevant provisions of Delaware law and
is qualified in its entirety by reference to our certificate of incorporation and our bylaws. You should read the provisions of our certificate of incorporation
and our bylaws as currently in effect for provisions that may be important to you.
Authorized Capital Stock
We are authorized to issue 20,000,000 shares of preferred stock, par value $0.001, and 50,000,000 shares of common stock, par value $0.001.
Common Stock
As of December 31, 2023, there were 8,578,505 shares of our common stock issued and outstanding, and, as of such date, we also had issued and
outstanding:
(i) Stock Options to purchase 1,192,458 shares of our common stock at a weighted average exercise price of $26.18 per share, with such total number
inclusive of both stock options granted under the PAVmed Inc. 2014 Long-Term Incentive Equity Plan (“PAVmed Inc. 2014 Equity Plan”) and
stock options granted outside such plan; 77,518 shares of our common stock reserved for issuance, but not subject to outstanding awards under the
PAVmed Inc. 2014 Equity Plan; and 7,528 shares of our common stock reserved for issuance under the PAVmed Inc. Employee Stock Purchase
Plan (“PAVmed Inc. ESPP”);
(ii) 11,937,450 Series Z Warrants representing the right to purchase 795,830 shares of the Company’s common stock at an exercise price of $23.48 per
whole share;
(iii) 1,305,213 shares of Series B Convertible Preferred Stock convertible into 87,015 shares of our common stock; and
(iv) Senior Secured Convertible Notes, issued pursuant to that certain securities purchase agreement dated as of March 31, 2022 (the “Convertible
Notes”), convertible into 355,520 shares of our common stock, assuming for the purposes hereof that the principal and interest thereon is
converted into shares of our common stock at the fixed conversion price of $75.00 per share. The number of shares of common stock to be issued
under the Convertible Notes may be substantially greater than this amount, because the principal and interest thereon may be settled in shares of
common stock, at a price per share based on the then current market price, but in any event at a price per share not less than floor price specified in
the Convertible Notes.
In February 2023, the Company distributed a proxy statement for a special meeting of shareholders that was held on March 31, 2023 (the “Special
Meeting”), at which the Company sought approval of an amendment to the Company’s Certificate of Incorporation, to effect, (i) a reverse split of the
Company’s outstanding shares of common stock at a specific ratio, ranging from 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. On March 31, 2023, the shareholders approved the above 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. On November 28, 2023 the Company’s board of
directors, unanimously authorized management to effect the reverse split at the ratio of 1-for-15. The reverse stock split became effective on December 7,
2023. At the effective date, every 15 shares of the Company’s common stock that were issued and outstanding were automatically combined into one
issued and outstanding share, without any change in par value of such shares. No fractional shares were issued in connection with the reverse stock split.
Instead, each fractional share remaining after completion of the reverse stock split that was less than a whole share was rounded up to one whole share. The
reverse stock split also correspondingly affected all outstanding PAVmed equity awards and outstanding convertible securities.
Series B Convertible Preferred Stock
On March 23, 2018, we filed the PAVmed Inc. Certificate of Designation of Preferences, Rights, and Limitations of Series B Convertible Preferred Stock
(“PAVmed Inc. Series B Convertible Preferred Stock Certificate of Designation”). As of March 21, 2024, there were 1,331,336 shares of Series B
Convertible Preferred Stock issued and outstanding.
1
Exhibit 4.1
(continued)
Common Stock
Holders of common stock are entitled to one vote per share on matters on which our stockholders vote. There are no cumulative voting rights. Subject to
any preferential dividend rights of any outstanding shares of preferred stock, holders of common stock are entitled to receive dividends, if declared by our
board of directors, out of funds that we may legally use to pay dividends. If we liquidate or dissolve, holders of common stock are entitled to share ratably
in our assets once our debts and any liquidation preference owed to any then-outstanding preferred stockholders is paid. Our certificate of incorporation
does not provide the common stock with any redemption, conversion or preemptive rights, and there are no sinking fund provisions with respect to our
common stock. All shares of common stock that are outstanding are fully-paid and non-assessable.
Preferred Stock
Our certificate of incorporation authorizes the issuance of blank check preferred stock. Accordingly, our board of directors is empowered, without
stockholder approval, to issue shares of preferred stock with dividend, liquidation, redemption, voting or other rights which could adversely affect the
voting power or other rights of the holders of shares of our common stock. In addition, shares of preferred stock could be utilized as a method of
discouraging, delaying or preventing a change in control of us.
PAVmed Series B Convertible Preferred Stock
The Series B Convertible Preferred Stock is issued pursuant to the PAVmed Inc. Series B Convertible Preferred Stock Certificate of Designation, has a
par value of $0.001 per share, no voting rights, a stated value of $3.00 per share, and is immediately convertible upon its issuance, as discussed herein
below.
The Series B Convertible Preferred stock is senior to our common stock with respect to dividends and assets distributed in liquidation. In this regard, in
the event of any voluntary or involuntary liquidation, dissolution or winding up of our company or Deemed Liquidation Event (as defined in the certificate
of designations for the Series B Convertible Preferred Stock), the holders of shares of Series B Convertible Preferred Stock then outstanding shall be
entitled to be paid out of our assets available for distribution to our stockholders, before any payment shall be made to the holders of our common stock by
reason of their ownership thereof, an amount per share equal to the greater of (i) the stated value of the Series B Convertible Preferred Stock, plus any
dividends accrued but unpaid thereon, or (ii) such amount per share as would have been payable had all shares of Series B Convertible Preferred Stock
been converted into our common stock immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event.
At the holders’ election, 15 shares of Series B Convertible Preferred Stock are convertible into one share of common stock of PAVmed Inc. at a common
stock conversion exchange factor equal to a numerator of $3.00 and a denominator of $45.00, with each such numerator and denominator not subject to
further adjustment, except for the effect of stock dividends, stock splits or similar events affecting the Company’s common stock. The Series B Convertible
Preferred Stock shall not be redeemed for cash and under no circumstances shall the Company be required to net cash settle the Series B Convertible
Preferred Stock.
The Series B Convertible Preferred Stock provides for dividends at a rate of 8% per annum of the $3.00 stated value per share of the Series B
Convertible Preferred Stock. Dividends are payable in arrears on January 1, April 1, July 1, and October 1, 2023. Dividends accrue and cumulate whether
or not declared by our board of directors. All accumulated and unpaid dividends compound quarterly at the rate of 8% of the stated value per annum.
Dividends are payable at our election in any combination of shares of Series B Convertible Preferred Stock, cash or shares of our common stock.
2
Exhibit 4.1
(continued)
Dividends
We have not paid any cash dividends on our common stock to date.
Any future decisions regarding cash dividends will be made by our board of directors. We do not anticipate paying cash dividends in the foreseeable
future but expect to retain earnings to finance the growth of our business. Our board of directors has complete discretion on whether to pay cash dividends.
Even if our board of directors decides to pay cash dividends, the form, frequency and amount will depend upon our future operations and earnings, capital
requirements and surplus, general financial condition, contractual restrictions and other factors the board of directors may deem relevant.
We have paid one in-kind dividend on our common stock to date. On February 15, 2024, the Company distributed by special dividend to the Company
stockholders 3,331,747 shares of Lucid Diagnostics common stock held by the Company. On such date, each PAVmed shareholder as of the January 15,
2024 record date received a stock dividend of approximately 38 shares of Lucid common stock for every 100 shares of PAVmed common stock they held as
of such date.
Anti-Takeover Provisions
Provisions of the DGCL and our certificate of incorporation and bylaws could make it more difficult to acquire us by means of a tender offer, a proxy
contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, are expected to discourage certain types of
coercive takeover practices and takeover bids that our board of directors may consider inadequate and to encourage persons seeking to acquire control of us
to first negotiate with our board of directors. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals because,
among other things, negotiation of these proposals could result in improved terms for our stockholders.
Delaware Anti-Takeover Statute. We are subject to Section 203 of the DGCL, an anti-takeover statute. In general, Section 203 of the DGCL prohibits a
publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the
time the person became an interested stockholder, unless the business combination or the acquisition of shares that resulted in a stockholder becoming an
interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates,
owns (or within three years prior to the determination of interested stockholder status did own) 15% or more of a corporation’s voting stock. The existence
of this provision would be expected to have an anti-takeover effect with respect to transactions not approved in advance by the board of directors, including
discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
3
Exhibit 4.1
(continued)
Classified Board. Our board of directors is divided into three classes. The number of directors in each class is as nearly equal as possible. Directors
elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders
after their election. The existence of a classified board may extend the time required to make any change in control of the board when compared to a
corporation with an unclassified board. It may take two annual meetings for our stockholders to effect a change in control of the board, because in general
less than a majority of the members of the board will be elected at a given annual meeting. Because our board is classified and our certificate of
incorporation does not otherwise provide, under Delaware law, our directors may only be removed for cause.
Vacancies in the Board of Directors. Our certificate of incorporation and bylaws provide that, subject to limitations, any vacancy occurring in our board
of directors for any reason may be filled by a majority of the remaining members of our board of directors then in office, even if such majority is less than a
quorum. Each director elected to fill a vacancy resulting from the death, resignation or removal of a director shall hold office until the expiration of the
term of the director whose death, resignation or removal created the vacancy.
Advance Notice of Nominations and Shareholder Proposals. Our stockholders are required to provide advance notice and additional disclosures in order
to nominate individuals for election to our board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage
or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control
of our company.
Special Meetings of Stockholders. Under our bylaws, special meetings of stockholders may be called by the directors, or the president or the chairman,
and shall be called by the secretary at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation
issued and outstanding and entitled to vote.
No Cumulative Voting. The DGCL provides that stockholders are denied the right to cumulate votes in the election of directors unless our certificate of
incorporation provides otherwise. Our certificate of incorporation does not provide for cumulative voting.
Listing
Our common stock is traded on the NASDAQ Capital Market under the symbols “PAVM.”
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Continental Stock Transfer & Trust Company located at 1 State Street, 30th Floor, New York,
NY 10004.
4
Exhibit 4.1
(continued)
DESCRIPTION OF SERIES Z WARRANTS
The Series Z Warrants are issued under an amended and restated warrant agreement, dated June 8, 2018, between Continental Stock Transfer & Trust
Company, as warrant agent, and us. In the discussion that follows, we have summarized selected provisions of the amended and restated warrant
agreement. This summary is not complete. This discussion is subject to the provisions the amended and restated warrant agreement and is qualified in its
entirety by reference to the amended and restated warrant agreement. You should read the amended and restated warrant agreement as currently in effect for
provisions that may be important to you.
General
We currently have 11,937,450 Series Z Warrants outstanding, as of December 31, 2023. The Series Z Warrants entitle the registered holder to purchase
one whole share of our common stock at an exercise price of $23.48, subject to adjustment as discussed below. Each warrant is currently exercisable and
expires on April 30, 2025 at 5:00 p.m., New York City time.
Notwithstanding the foregoing, no Series Z Warrants will be exercisable for cash unless we have an effective and current registration statement covering
the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to such shares of common stock. If a registration
statement covering the shares of common stock issuable upon exercise of the Series Z Warrants is not effective when the warrants become exercisable,
warrant holders may, until such time as there is an effective registration statement and during any period when we shall have failed to maintain an effective
registration statement, exercise the Series Z Warrants on a cashless basis in the same manner as if we called the warrants for redemption and required all
holders to exercise their warrants on a “cashless basis.” In such event, each holder would pay the exercise price by surrendering the warrants for that
number of shares of common stock equal to the quotient obtained by dividing (x) the product of the number of shares of common stock underlying the
warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value.
The “fair market value” for this purpose will mean the average daily volume weighted average price for our common stock for the 10 trading days ending
on the trading day prior to the date of exercise.
Redemption
We may redeem the outstanding Series Z Warrants (other than those outstanding prior to this offering held by certain of our senior managers, our
founders and members thereof), at our option, in whole or in part, at a price of $0.01 per warrant:
● at any time while the warrants are exercisable,
● upon a minimum of 30 days’ prior written notice of redemption,
● if, and only if, the volume weighted average closing price of our common stock equals or exceeds $134.48 (subject to adjustment) for any 20 out
of 30 consecutive trading days ending three business days before we send the notice of redemption, provided that the average daily trading volume
in the stock during such 30-day period is at least 20,000 shares per day, and
● if, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying such warrants.
The right to exercise will be forfeited unless the Series Z Warrants are exercised prior to the date specified in the notice of redemption. On and after the
redemption date, a record holder of a Series Z Warrant will have no further rights except to receive the redemption price for such holder’s warrant upon
surrender of such warrant.
5
Exhibit 4.1
(continued)
If we call the Series Z Warrants for redemption as described above, we will have the option to require all holders that wish to exercise warrants to do so
on a “cashless basis.” In such event, each holder would pay the exercise price by surrendering warrants for that number of shares of common stock equal to
the quotient obtained by dividing (x) the product of the number of shares of common stock underlying the warrants, multiplied by the difference between
the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. In this case, the “fair market value” shall mean
the average daily volume weighted average price the shares of common stock for the 10 trading days ending on the third trading day prior to the date on
which the notice of redemption is sent to the holders of warrants.
Exercise
The exercise price and number of shares of common stock issuable on exercise of the Series Z Warrants may be adjusted in certain circumstances
including in the event of a share dividend, extraordinary dividend or our recapitalization, reorganization, merger or consolidation. However, the Series Z
Warrants will not be adjusted for issuances of shares of common stock at a price below their respective exercise prices.
If a Fundamental Transaction (as defined in the amended and restated warrant agreement for the Series Z Warrants) is completed, then, upon any
subsequent exercise of a Series Z Warrant, the holders of the Series Z Warrants shall have the right to receive, for each share of our common stock that
would have been issuable upon exercise of a Series Z Warrant immediately prior to the occurrence of such Fundamental Transaction, at the option of each
holder (without regard to the beneficial ownership limitation described below), the number of shares of common stock of the successor or acquiring
corporation or of us, if we are the surviving corporation, and any additional consideration receivable as a result of such Fundamental Transaction by a
holder of the number of shares of our common stock for which the Series Z Warrant is exercisable immediately prior to such Fundamental Transaction
(without regard to the beneficial ownership limitation described below).
The Series Z Warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent,
with the exercise form on the reverse side of the warrant certificate completed and executed as indicated. Within two trading days following the exercise,
the holder will pay in full the exercise price, by certified or official bank check payable to us, for the number of warrants being exercised. The warrant
holders do not have the rights or privileges of holders of shares of common stock and any voting rights until they exercise their warrants.
Except as described above, no Series Z Warrants will be exercisable and we will not be obligated to issue shares of common stock unless at the time a
holder seeks to exercise such warrant, a prospectus relating to the shares of common stock issuable upon exercise of the Series Z Warrants is current and
the shares of common stock have been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the
warrants. Under the terms of the amended and restated warrant agreement, we have agreed to use our commercially reasonable best efforts to meet these
conditions and to maintain a current prospectus relating to the shares of common stock issuable upon exercise of the warrants until the expiration of the
warrants.
No fractional shares will be issued upon exercise of the Series Z Warrants. If, upon exercise of the warrants, a holder would be entitled to receive a
fractional interest in a share, we will, upon exercise, round up to the nearest whole number the number of shares of common stock to be issued to the
warrant holder.
We will not effect any exercise of a Series Z Warrant, and a holder shall not have the right to exercise any portion of a Series Z Warrant, to the extent that
after giving effect to such issuance after exercise as set forth on the applicable subscription form, the holder (together with the holder’s affiliates, and any
other persons acting as a group together with the holder or any of the holder’s affiliates), would beneficially own in excess of 4.99% or 9.99% (at the
election of the holder) of our common stock outstanding.
6
Warrant Agreement
The Series Z Warrants are issued in registered form under an amended and restated warrant agreement between Continental Stock Transfer & Trust
Company, as warrant agent, and us. The amended and restated warrant agreement provides that the terms of the Series Z Warrants may be amended without
the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval, by written consent or vote, of the holders of
two-thirds of the then outstanding warrants in order to make any change that adversely affects the interests of the registered holders. Notwithstanding the
foregoing, we may lower the exercise price or extend the duration of the Series Z Warrants without the consent of the holders.
Exhibit 4.1
(continued)
Listing
Our Series Z Warrants are traded on the NASDAQ Capital Market under the symbols “PAVMZ.”
Warrant Agent and Registrar
The warrant agent and registrar for our Series Z Warrants is Continental Stock Transfer & Trust Company located at 1 State Street, 30th Floor, New
York, NY 10004.
7
List of Subsidiaries of the Registrant
(PAVmed Inc. DE - 47-1214177)
Exhibit 21.1
Subsidiary Legal Entity Name
Lucid Diagnostics Inc. (82-5488042)
- Majority-Owned Subsidiary of PAVmed Inc.
LucidDx Labs Inc. (87-41661458)
- Wholly-Owned Subsidiary of Lucid Diagnostics Inc.
Veris Health Inc. (87-0983820)
- Majority-Owned Subsidiary of PAVmed Inc.
Oncodisc Inc (82-4885133)
Wholly-Owned Subsidiary of Veris Health Inc.
PAVmed Subsidiary Corp Inc. (81-1637646)
Wholly-owned Subsidiary of PAVmed Inc.
CapNostics LLC (84-4876240)
Wholly-owned Subsidiary of Lucid Diagnostics Inc.
State of Incorporation
Delaware
(Incorporated May 8, 2018)
Delaware
(Incorporated November 10, 2021)
Delaware
(Incorporated April 7, 2021)
Delaware
(Incorporated February 22, 2018)
Delaware
(Incorporated January 23, 2015)
North Carolina
(Established January 20, 2020)
Independent Registered Public Accounting Firm’s Consent
Exhibit 23.1
We consent to the incorporation by reference in the Registration Statement of PAVmed Inc. on Form S-1 [Files No. 333-222581, 333-222234, 333-216963,
and 333-214288], Form S-3 [Files No. 333-261814, 333-235335, 333-229372, 333-227718, and 333-221406] and Form S-8 [Files No. 333-276904, 333-
276903, 333-269701, 333-269700, 333-264272, 333-264271, 333-258459, 333-258458, 333-256343, 333-248529, and 333-231674] of our report dated
March 25, 2024, which includes an explanatory paragraph as to the Company’s ability to continue as a going concern, with respect to our audits of the
consolidated financial statements of PAVmed Inc. and Subsidiaries as of December 31, 2023 and 2022 and for each of the two years in the period ended
December 31, 2023, which report is included in this Annual Report on Form 10-K of PAVmed Inc. for the year ended December 31, 2023.
/s/ Marcum LLP
Marcum LLP
New York, NY
March 25, 2024
Exhibit 31.1
CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER
I, Lishan Aklog, M.D., certify that:
1
I have reviewed this Annual Report on Form 10-K of PAVmed Inc. and Subsidiaries;
2 Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3 Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 25, 2024
By: /s/ Lishan Aklog, M.D.
Lishan Aklog, M.D.,
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER
I, Dennis M. McGrath, certify that:
1
I have reviewed this Annual Report on Form 10-K of PAVmed Inc. and Subsidiaries;
2 Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3 Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 25, 2024
By: /s/ Dennis M. McGrath
Dennis M. McGrath
President & Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of PAVmed Inc. and Subsidiaries (the “Company”) for the year ended December 31, 2023 as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Lishan Aklog, M.D., Chief Executive Officer of the
Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 25, 2024
By: /s/ Lishan Aklog, M.D.
Lishan Aklog, M.D.
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report on Form 10-K of PAVmed Inc. and Subsidiaries (the “Company”) for the year ended December 31, 2023 as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Dennis M. McGrath, President & Chief Financial Officer
of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 25, 2024
By: /s/ Dennis M. McGrath
Dennis M. McGrath
President & Chief Financial Officer
(Principal Financial and Accounting Officer)
PAVMED INC.
COMPENSATION CLAWBACK POLICY
Effective as of January 30, 2024
Exhibit 97.1
Introduction
The Board of Directors (the “Board”) of PAVmed Inc. (the “Company”) believes that it is in the best interests of the Company and its shareholders to
create and maintain a culture that emphasizes integrity and accountability and that reinforces the Company’s pay-for-performance compensation
philosophy. The Board has therefore adopted this policy, which provides for the recoupment (or “clawback”) of certain executive compensation in the event
of an accounting restatement resulting from material noncompliance with financial reporting requirements under the federal securities laws of the United
States (the “Policy”). This Policy is designed to comply with Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rule
10D-1 promulgated under the Exchange Act (“Rule 10D-1”) and the listing standards of the national securities exchange on which the Company’s
securities are listed (the “Exchange”), which is, as of the effective date hereof, the Capital Market of The Nasdaq Stock Market LLC (“Nasdaq”).
Administration
This Policy shall be administered by the Board or, if so designated by the Board, the Compensation Committee of the Board, in which case references
herein to the Board shall be deemed references to the Compensation Committee. Any determinations made by the Board shall be final and binding on all
affected individuals. Subject to any limitation under applicable law, the Board may authorize and empower any officer or employee of the Company to take
any and all actions necessary or appropriate to carry out the purpose and intent of this Policy (other than with respect to any recovery under this Policy
involving such officer or employee).
Covered Executives
This Policy applies to the Company’s current and former executive officers, as determined by the Board in accordance with Section 10D of the Exchange
Act and the Exchange, and such other senior executives and employees who may from time to time be deemed subject to the Policy by the Board
(“Covered Executives”). The Company shall seek to have all Covered Executives sign an acknowledgement of the terms of this Policy, which may be in
the form of Exhibit A; provided that this Policy shall apply to each Covered Executive whether or not they have signed any such acknowledgement.
Recoupment; Accounting Restatement
In the event the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material noncompliance with
any financial reporting requirement under the securities laws, the Board will require reasonably prompt reimbursement or forfeiture of any excess Incentive
Compensation (as defined below) received by any Covered Executive during the three completed fiscal years immediately preceding the date on which the
Company is required to prepare an accounting restatement. In addition to these last three completed fiscal years, this Policy applies to any transition period
(that results from a change in the Company’s fiscal year) within or immediately following those three completed fiscal years. However, a transition period
between the last day of the Company’s previous fiscal year end and the first day of its new fiscal year that comprises a period of nine to 12 months is
deemed a completed fiscal year. The Company’s obligation to recover excess Incentive Compensation under this Policy is not dependent on if or when the
restated financial statements are filed. This Policy applies to all Incentive Compensation received after beginning service as a Covered Executive, by an
individual who served as a Covered Executive at any time during the performance period for that Incentive Compensation, while the Company had a class
of securities listed on a national securities exchange or a national securities association.
1
Material Noncompliance. Without limiting the generality of the foregoing, reimbursement is required in the event of any restatement that either: (i) corrects
an error in previously issued financial statements that is material to the previously issued financial statements, or (ii) would result in a material
misstatement if the error were corrected in the current period or left uncorrected in the current period.
Date of Restatement. For purposes of determining the relevant recovery period, the date that the Company is required to prepare an accounting restatement
as described above is the earlier to occur of: (A) the date the Board, a committee of the Board, or the officer or officers of the Company authorized to take
such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare an accounting
restatement as described above; or (B) the date a court, regulator, or other legally authorized body directs the Company to prepare an accounting
restatement as described above.
Fiscal Period of Receipt. Incentive Compensation is deemed received in the Company’s fiscal period during which the financial reporting measure
specified in the Incentive Compensation award is attained, even if the payment or grant of the Incentive Compensation occurs after the end of that period.
Incentive Compensation
For purposes of this Policy, “Incentive Compensation” means any of the following:
● Annual bonuses and other short- and long-term cash incentives;
● Stock options;
● Stock appreciation rights;
● Restricted stock;
● Restricted stock units;
● Performance shares; or
● Performance units,
provided, that such compensation is granted, earned or vested based wholly or in part on the attainment of a financial reporting measure.
Financial reporting measures are measures that are determined and presented in accordance with the accounting principles used in preparing the Company’s
financial statements, and any measures that are derived wholly or in part from such measures. Stock price and total shareholder return are also financial
reporting measures. A financial reporting measure need not be presented within the financial statements or included in a filing with the U.S. Securities and
Exchange Commission (the “Commission”). Financial reporting measures may include, but are not limited to, the following:
● Company stock price;
● Total shareholder return;
2
● Revenues;
● Net income;
● Earnings before interest, taxes, depreciation, and amortization (EBITDA);
● Funds from operations;
● Liquidity measures such as working capital or operating cash flow;
● Return measures such as return on invested capital or return on assets; and
● Earnings measures such as earnings per share.
Excess Incentive Compensation: Amount Subject to Recovery
The amount to be recovered will be the excess of the Incentive Compensation paid to the Covered Executive based on the erroneous data over the Incentive
Compensation that would have been paid to the Covered Executive had it been based on the restated results, as determined by the Board, and without
regard to any taxes paid by or withheld from the Covered Executive.
If the Board cannot determine the amount of excess Incentive Compensation received by the Covered Executive directly from the information in the
accounting restatement, then it will make its determination based on a reasonable estimate of the effect of the accounting restatement. For Incentive
Compensation based on stock price or total shareholder return, where the amount of erroneously awarded compensation is not subject to mathematical
recalculation directly from the information in an accounting restatement, the amount will be based on a reasonable estimate of the effect of the accounting
restatement on the stock price or total shareholder return upon which the Incentive Compensation was received. In such case, the Company shall maintain
documentation of the determination of that reasonable estimate and provide such documentation to Nasdaq.
Method of Recoupment
The Board will determine, in its sole discretion, the method for recouping Incentive Compensation hereunder which may include, without limitation:
(a)
requiring reimbursement of cash Incentive Compensation previously paid;
(b) seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based awards;
(c) offsetting the recouped amount from any compensation otherwise owed by the Company to the Covered Executive in accordance with applicable
law;];
(d) cancelling outstanding vested or unvested equity awards; and/or
(e)
taking any other remedial and recovery action permitted by law, as determined by the Board.
No Indemnification
The Company shall not indemnify any Covered Executives against the loss of any Incentive Compensation recovered under this Policy or from any
consequence arising therefrom.
3
Interpretation
The Board is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the administration of
this Policy. Any determination of the Board shall be conclusive and binding on the Company and the applicable Covered Executives. The determination of
the Board need not be uniform with respect to one or more Covered Executives.
It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of the Exchange Act, Rule 10D-1 and any
applicable rules or standards adopted by the Securities and Exchange Commission or any national securities exchange on which the Company’s securities
are listed.
Effective Date
This Policy shall be effective as of the date it is adopted by the Board (the “Effective Date”) but shall apply to Incentive Compensation that is received by
any Covered Executives on or after October 2, 2023.
Amendment; Termination
The Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to comply with regulations adopted
by the Securities and Exchange Commission under Section 10D of the Exchange Act, any rules or standards adopted by any national securities exchange
on which the Company’s securities are listed and any other “clawback” provision required by law. The Board may terminate this Policy at any time.
Other Recoupment Rights
The Board intends that this Policy will be applied to the fullest extent of the law. The Board may require that any employment agreement, equity award
agreement, or similar agreement entered into on or after the Effective Date shall, as a condition to the grant of any benefit thereunder, require a Covered
Executive to agree to abide by the terms of this Policy. Any right of recoupment under this Policy is in addition to, and not in lieu of: (a) any other remedies
or rights of recoupment that may be available to the Company pursuant to the terms of any similar policy in any employment agreement, equity award
agreement, or similar agreement and any other legal remedies available to the Company, including termination of employment, the initiation of civil or
criminal proceedings, and any right to repayment under applicable law, including Section 304 of the Sarbanes-Oxley Act of 2022. For the avoidance of
doubt, any amounts paid to the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2022 shall be considered (and may be credited) in
determining any amounts recovered under this Policy.
Impracticability
The Board shall recover any excess Incentive Compensation in accordance with this Policy unless one of the following conditions is met and such recovery
would be impracticable, as determined by the Board in accordance with Rule 10D-1 of the Exchange Act and the listing standards of the national securities
exchange on which the Company’s securities are listed:
● The direct expense paid to a third party to assist in enforcing this Policy would exceed the amount to be recovered after making a reasonable
attempt to recover such Incentive Compensation. Note that the attempt(s) to recover must be documented by the Company and such
documentation provided to the Exchange;
● Recovery would violate home country law where that law was adopted prior to November 28, 2022. Note that the Company must obtain a legal
opinion of home country counsel that such recovery would result in a violation of local law and provide such opinion to the Exchange; or
● Recovery would likely cause an otherwise tax-qualified retirement plan under which benefits are broadly available to Company employees to fail
to meet the requirements for qualified pension, profit-sharing and stock bonus plans under Section 401(a)(13) of the U.S. Internal Revenue Code
or the minimum vesting standards under Section 411(a) of the U.S. Internal Revenue Code.
Successors
This Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators or other legal
representatives.
4
ATTESTATION AND ACKNOWLEDGEMENT OF CLAWBACK POLICY
FOR
PAVMED INC. (the “Company”)
Exhibit A
By my signature below, I acknowledge and agree that:
● I have received and read the attached Clawback Policy (this “Policy”) of the Company.
● I hereby agree to abide by all of the terms of this Policy both during and after my employment with the Company, including, without limitation, by
promptly repaying or returning any incorrectly awarded Incentive Compensation to the Company as determined in accordance with this Policy.
Signature:
Printed Name:
Date: