PAVmed Inc. 10-K

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, references herein to “we”, “us”, and “our”, and to the “Company” or “PAVmed” are to PAVmed Inc. and Subsidiaries, including its majority-owned subsidiaries, including Lucid Diagnostics Inc. (“Lucid Diagnostics” or “LUCID”) and Veris Health Inc. (“Veris Health” or “VERIS”). Overview PAVmed is a highly differentiated, multi-product, commercial-stage medical technology company organized to advance a broad pipeline of innovative medical technologies from concept to commercialization, employing a business model focused on capital efficiency and speed to market. Our current central focus is predominantly on commercial expansion and execution including the acceleration of EsoGuard and Veris Cancer Care Platform commercialization. As resources permit, we will continue to explore internal and external innovations that fulfill our project selection criteria without limiting ourselves to any target specialty or condition. More broadly, we strive to maintain balance within our pipeline with shorter-term, lower-risk projects with the prospect for rapid commercialization and revenue generation supporting development of longer-term projects. At the same time, we are continuously re-assessing each project’s long-term commercial potential relative to other projects in our pipeline, accelerating or decelerating the project and reallocating resources accordingly. The Company operates in one segment as a medical technology company, with the following lines of business: Diagnostics, Medical Devices and Digital Health. Above in Part I, Item 1 - Business is a summary of each of our key products within these sectors, including in particular EsoGuard and the Veris Cancer Care Platform, currently our two leading products. We are also pursuing a number of research and development project and product opportunities across these three lines of business, which have either been developed internally or have been presented to us by clinician innovators and academic medical institutions for consideration.. Recent Developments Business Status of Lucid Clinical Trials Lucid is currently seeking to accelerate its collection of clinical utility data through a range of trials that can be efficiently executed. These efforts include a planned investigator-initiated, retrospective analysis of prospectively collected data on the approximately 400 San Antonio fire fighters who underwent testing as part of a community-sponsored cancer awareness event (in respect of which we expect to publish results in the first half of 2023) ; an ongoing investigator-initiated, retrospective, single-center, study with 500 patients (in respect of which we expect to publish results mid-2023), a virtual-patient randomized controlled trial with intended recruitment of 100-200 physician participants (in respect of which we expect to publish results this year) ; a Lucid-sponsored multi-center, prospective, observational study with 500 patients; and a Lucid-sponsored registry at existing Lucid Test Centers, whereby all patients undergoing EsoCheck testing will be given the opportunity to provide informed consent and contribute data about their risk factors, EsoGuard results, and subsequent diagnostic and/or therapeutic journey. Both Lucid-sponsored observational/registry studies expect to have preliminary results and/or interim analysis before the end of 2023. As previously disclosed, consequently, Lucid has decided to delay for the time being the two previously commenced clinical trials, the “EsoGuard screening study” (“BE-1”) and the “EsoGuard case-control study” (“BE-2”), as Lucid is devoting our clinical resources to the studies cited above, which we expect will more efficiently generate the clinical data Lucid is currently prioritzing to drive EsoGuard commercialization. LucidDx Labs Laboratory Operations Update On February 14, 2023, Lucid Diagnostics and LucidDx Labs Inc. 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 MSA-RDx, RDx had continued to provide certain testing and related services for the Laboratory in accordance with the terms of the MSA-RDx. Recently, however, Lucid accelerated the development of internal resources necessary to operate the Laboratory entirely on its own. Accordingly, the Company believes that termination of the MSA-RDx will improve the efficiency of the performance of the EsoGuard assay. Among other things, 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 $725,000 (from the $3,450,000 that would otherwise have been payable under the APA and MSA if the MSA had remained in effect through the balance of its stated term), resulting in a net savings to Lucid Diagnostics of $2,725,000. The payment was satisfied through the issuance of 553,436 shares of Lucid Diagnostics’ common stock on February 25, 2023. Lucid Diagnostics was not required to make any cash payments in connection with the termination. #CheckYourFoodTube Events In January 2023, Lucid successfully completed its first #CheckYourFoodTube Precancer Testing Event, in partnership with Rachelle Hamblin, M.D., M.P.H., and the San Antonio Fire Department (SAFD), to detect esophageal precancer in at-risk members of the department. The SAFD testing event was held over two weekends in January, which has been designated as Firefighter Cancer Awareness Month by the International Association of Fire Fighters (IAFF). A total of 391 members, nearly one-quarter of the department, who were deemed by Dr. Hamblin to be at-risk for esophageal precancer, underwent a brief, on-site, noninvasive cell collection procedure, performed by Lucid clinical personnel using its EsoCheck ® Esophageal Cell Collection Device. Firefighters with suspected esophageal precancer based on a positive EsoGuard result were identified, including some less than forty years of age, and will undergo appropriate monitoring and treatment, as indicated by clinical practice guidelines, to prevent progression to esophageal cancer. These events, which Lucid looks to expand across the country, are an extension of Lucid’s recently introduced and expanding satellite Lucid Test Center (sLTC) program, which brings our precancer testing directly to patients—at their physician’s office and now at large testing day events. Lucid demonstrated that its nurse practitioners can each perform up to fifty EsoCheck procedures in a day, and its laboratory team handled over two hundred incoming samples in a day, while maintaining turnaround times at target. These successes provide an excellent foundation for future testing events as we continue to drive EsoGuard commercialization using all the tools at our disposal. 36 Veris Health Commercialization Update In December 2022, Veris Health signed a license agreement for the Veris CCP software with its first customer, New Jersey Cancer Care. Since, Veris Health onboarded the first cohort of patients of that practice onto the Veris CCP as well, and has signed license agreements with two additional cancer centers. These successes lay the groundwork for Veris Health’s expansion plans with respect to the Veris CCP software as it seeks to onboard cancer centers and patients across the country. NASDAQ Notice On December 29, 2022, the Company received a notice from the Listing Qualifications Department of Nasdaq stating that, for the prior 30 consecutive business days (through December 28, 2022), the closing bid price of the Company’s common stock had been below the minimum of $1 per share required for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). The notification letter stated that the Company would be afforded 180 calendar days (until June 27, 2023) to regain compliance. In order to regain compliance, the closing bid price of the Company’s common stock must be at least $1 for a minimum of ten consecutive business days. In February 2023, the Company distributed a proxy statement for a special meeting of shareholders to be held on March 31, 2023 (the “Special Meeting”), at which the Company will be seeking approval of an amendment to the Company’s Certificate of Incorporation, to effect, at any time prior to the one-year anniversary date of the Special Meeting, (i) a reverse split of the Company’s outstanding shares of common stock at a specific ratio, ranging from 1-for-5 to 1-for-15, to be determined by the board of directors of the Company in its sole discretion, and (ii) an associated reduction in the number of shares of common stock the Company is authorized to issue, from 250,000,000 shares to 50,000,000 shares. If the proposed reverse stock split is approved and implemented, the Company anticipates it will regain compliance with the Nasdaq requirements for continued listing. Payroll and Benefit Expense Reimbursement Agreement On November 30, 2022, PAVmed and Lucid entered into a payroll and benefit expense reimbursement agreement (the “PBERA”). Historically, PAVmed has paid for certain payroll and benefit-related expenses in respect of Lucid’’s personnel on behalf of Lucid, and Lucid has reimbursed PAVmed for the same. Pursuant to the PBERA, PAVmed will continue to pay such expenses, and Lucid will continue to reimburse PAVmed for the same. The PBERA now provides that the expenses will be reimbursed on a quarterly basis or at such other frequency as the parties may determine, in cash or, subject to approval by the board of directors of each of PAVmed and Lucid, in shares of Lucid’s common stock, with such shares valued at the volume weighted average price of such stock during the final ten trading days preceding the later of the two dates on which such stock issuance is approved by the board of directors of each of PAVmed and Lucid (subject to a floor price of $0.40 per share), or in a combination of cash and shares. However, in no event shall Lucid issue any shares of its common stock to PAVmed in satisfaction of all or any portion of the expenses if the issuance of such shares of its common stock would exceed the maximum number of shares of common stock that the Issuer may issue under the rules or regulations of The Nasdaq Stock Market LLC (“Nasdaq”), unless Lucid obtains the approval of its stockholders as required by the applicable rules of the Nasdaq for issuances of shares of its common stock in excess of such amount. 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 31, 2022, we entered into a Securities Purchase Agreement (“SPA”) with an accredited institutional investor (“Investor”, “Lender”, and /or “Holder”), 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 to the Investor of an initial Senior Secured Convertible Note with a face value principal of $27.5 million, which closed on April 4, 2022 (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 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 (the “September 2022 Senior Convertible Note”). The September 2022 Senior Convertible Note proceeds were $10.0 million after deducting a $1.0 million lender fee and the Company’s offering costs of approximately $0.2 million, inclusive primarily of placement agent fees. See Note 14, Debt , to the Financial Statements for further discussion of the SPA dated March 31, 2022 and the senior convertible notes. 37 Lucid Diagnostics Inc. - Committed Equity Facility and ATM Facility In March 2022, our majority-owned subsidiary, Lucid Diagnostics, entered into a committed equity facility with an affiliate of Cantor Fitzgerald (“Cantor”). Under the terms of the facility, Cantor committed to purchase up to $50 million of Lucid Diagnostics common stock from time to time upon the request of Lucid Diagnostics. While there are distinct differences, the facility is structured similarly to a traditional at-the-market equity facility, insofar as it allows Lucid Diagnostics to raise primary capital on a periodic basis at prices based on the existing market price. Through December 31, 2022, 680,263 shares of common stock of Lucid Diagnostics were issued under this facility for total proceeds of approximately $1.8 million. 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 Fitzgerald & Co. In the year ended December 31, 2022, there were no Lucid Diagnostics shares sold through their at-the-market equity facility. Subsequent to December 31, 2022, through March 9, 2023, Lucid Diagnostics sold 230,068 shares through its at-the-market equity facility for approximately $0.3 million. Lucid Diagnostics - Series A Preferred Stock Offering On March 7, 2023, Lucid entered into subscription agreements for the sale of 13,625 shares (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 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. Lucid Diagnostics - Private Placement - Securities Purchase Agreement Effective as of March 13, 2023, Lucid entered into a Securities Purchase Agreement (“Lucid SPA”) with an accredited institutional investor (“Lucid Investor”, “Lucid Lender”, and /or “Lucid Holder”), pursuant to which Lucid agreed to sell, and the Lucid Investor agreed to purchase a Senior Secured Convertible Note with a face value principal of up to $11.1 million (the “March 2023 Lucid Senior Convertible Note”). The issuance of the March 2023 Lucid Senior Convertible Note is subject to customary closing conditions. The March 2023 Lucid Senior Secured Convertible Note would have 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 the two-year anniversary of the date of issuance. The March 2023 Lucid Senior Convertible Note would be convertible into or otherwise paid in shares of Lucid’s common stock. Under the March 2023 Lucid Senior Convertible Note, Lucid is and would be 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 March 2023 Lucid Senior Convertible Note, Lucid would also be subject to financial covenants requiring that (i) the amount of Lucid’s 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 to (b) Lucid’s average market capitalization over the prior ten trading days, not exceed 30%, and (iii) that Lucid’s market capitalization shall at no time be less than an amount to be agreed upon. 38 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, revenue was recognized with respect to the EsoGuard Commercialization Agreement, dated August 1, 2021, between the Lucid Diagnostics Inc. and ResearchDx Inc. (“RDx”), a CLIA certified commercial laboratory service provider. On February 25, 2022, the EsoGuard Commercialization Agreement was terminated upon the execution of an Asset Purchase Agreement between the Company’s wholly-owned subsidiary of LucidDx Labs Inc. and RDx. 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, payor mix, the levels of reimbursement, and payment patterns of payors and patients. The cost of revenue recognized with respect to the revenue recognized under the EsoGuard Commercialization Agreement is inclusive of: a royalty fee incurred under the Amended CWRU License Agreement; employee related costs of employees engaged in the administration to patients of the EsoCheck cell sample collection procedure (principally at the Lucid Test Centers); the EsoCheck devices and EsoGuard mailers (cell sample shipping costs) distributed to medical practitioners locations and the Lucid Test Centers; 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 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. General and administrative expenses General and administrative expenses consist primarily of salaries and related costs for personnel, travel expenses, facility-related costs, professional fees, accounting and legal services, employees involved in third-party payor reimbursement contract negotiations and consultants and expenses associated with obtaining and maintaining patents within our intellectual property portfolio. We anticipate our general and administrative expenses will increase in the future as and to the extent our business operations grow. We also anticipate continued expenses related to being a public company, including audit, legal, regulatory, and tax-related services associated with maintaining compliance as a public company, insurance premiums and investor relations costs. 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 research and development of our products, including: ● consulting costs charged to us by various external contract research organizations we contract with to conduct clinical and preclinical studies and engineering design and development; ● salary and benefit costs associated with our chief medical officer 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 ● rental expense 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 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. 39 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 per share amounts. The year ended December 31, 2022 as compared to the year ended December 31, 2021 Revenue In the year ended December 31, 2022, revenue was $0.4 million as compared to $0.5 million in the prior year. The $0.1 million decrease principally relates to the termination of the EsoGuard Commercialization Agreement with RDx, as the Company transitioned to its own laboratory operations effective February 25, 2022. The decrease was partially offset by revenue for our EsoGuard Esophageal DNA Test performed in our own CLIA laboratory for the year ended December 31, 2022. Cost of revenue In the year ended December 31, 2022, cost of revenue was approximately $3.6 million as compared to $0.6 million in the prior year. The $3.0 million increase principally related to: ● approximately $0.5 million increase in compensation related costs as a result of an increase in headcount; ● approximately $0.8 million increase in EsoCheck and EsoGuard supplies usage costs; and ● approximately $1.7 million increase in laboratory operations costs. Sales and marketing expenses In the year ended December 31, 2022, sales and marketing costs were approximately $19.3 million, compared to $8.9 million in the prior year. The net increase of $10.4 million was principally related to: ● approximately $7.4 million increase in compensation related costs principally as a result of an increase in headcount; ● approximately $1.2 million increase in stock based compensation from RSA grants to Lucid Diagnostics and PAVmed employees and non-employees, and an increase in stock options granted corresponding with the increase in headcount; ● approximately $1.6 million increase in consulting and outside professional services; and ● approximately $0.2 million increase general business expenses. General and administrative expenses In the year ended December 31, 2022, general and administrative costs were approximately $41.0 million, compared to $25.4 million in the prior year. The net increase of $15.6 million was principally related to: ● approximately $3.5 million increase in compensation related costs principally as a result of an increase in headcount; ● approximately $1.3 million increase in stock based compensation from RSA grants to Lucid and PAVmed employees and non-employees, and an increase in stock options granted corresponding with the increase in the number of employees; ● approximately $9.2 million increase in consulting services related to patents, regulatory compliance, legal processes for contract review, transition of public relations and investor relations firms, and public company expenses; and ● approximately $1.6 million increase in general business expenses. Research and development expenses In the year ended December 31, 2022, research and development costs were approximately $25.5 million as compared to $19.8 million in the prior year. The net increase $5.7 million was principally related to: ● approximately $3.2 million increase in development costs, particularly in clinical trial activities and outside professional and consulting fees with respect to EsoCheck, Veris Cancer Care Platform, CarpX, EsoCure and PortIO; and ● approximately $2.5 million increase in compensation related costs and related to expanded clinical and engineering staff. As mentioned above, above we have paused research and development with respect to CarpX, EsoCure and PortIO. Until such time as resources permit, we expect to devote our research and development efforts to EsoGuard, EsoCheck and the Veris Cancer Care Platform. Amortization of Acquired Intangible Assets In the year ended December 31, 2022, the amortization of acquired intangible assets was approximately $1.8 million as compared to $0.1 million in the prior year. The net increase was principally related to the purchase of a defensive asset in Q4 2021 and the purchase of laboratory licenses and certifications and laboratory information management software in Q1 2022. 40 Results of Operations - continued The year ended December 31, 2022 as compared to the year ended December 31, 2021 - continued Other Income and Expense Change in fair value of convertible debt In the year ended December 31, 2022, the non-cash expense recognized for the change in the fair value of our convertible notes was approximately $1.3 million, related to both the April 2022 and September 2022 Senior Convertible Notes. The April 2022 and September 2022 Senior Convertible Notes were initially measured at their issue-date estimated fair value and subsequently remeasured at estimated fair value as of the reporting period date. The Company initially recognized a $3.5 million fair value non-cash expense on the issue-dates. This initial recognition was partially offset by $2.2 million of decreases in fair value upon remeasurements through December 31, 2022. In the year ended December 31, 2021, the non-cash income (expense) recognized for the change in the fair value of our convertible notes was approximately $1.7 million of other income. The change in the fair value adjustment of the convertible notes is principally related to each of the convertible notes being repaid-in-full during the year ended December 31, 2021, as discussed herein below under “Loss from Extinguishment of Debt.” Loss on Issue and Offering Costs - Senior Secured Convertible Note In the year ended December 31, 2022, in connection with the issue of both the April 2022 and the September 2022 Senior Convertible Notes, we recognized a total of approximately $4.3 million of other expense, inclusive of approximately $3.5 million of lender fee non-cash expense, and approximately $0.8 million of offering costs paid by us. Loss on Debt Extinguishment 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 2022, approximately $6.0 million of principal repayments along with $0.4 million of interest expense thereon, were settled through the issuance of 7,189,358 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. In the prior year ended December 31, 2021, a debt extinguishment loss in the aggregate of approximately $3.7 million was recognized in connection with the (previous) convertible notes, as discussed below. ● On January 5, 2021, the repayment of the remaining face value principal of the November 2019 Senior Convertible Note, along with the payment of interest thereon of approximately $1.0 million, were settled with the issuance of 667,668 shares of our common stock, with a fair value of approximately $1.7 million (with such fair value measured as the respective conversion date quoted closing price of our common stock), resulting in the recognition of a loss from extinguishment of debt of approximately $0.8 million in the year ended December 31, 2021; and, ● On January 30, 2021, we paid in cash a $350 partial principal repayment of the Senior Convertible Note dated April 30, 2020 (“April 2020 Senior Convertible Note”); and on March 2, 2021, we made a cash payment of approximately $14.5 million, resulting in the repayment-in-full on such date of both the April 2020 Senior Convertible Note and the Senior Secured Convertible Note dated August 6, 2021, resulting in the recognition of a loss from extinguishment of debt of approximately $3.0 million in the year ended December 31, 2021. See Note 14 , Debt , to the Financial Statements, for additional information with respect to the April 2022 and the September 2022 Senior Convertible Note. 41 Liquidity and Capital Resources Our current operational activities are principally focused on the commercialization of EsoGuard and the Veris Cancer Care Platform, and, as resource permit, our development activities would be focused on pursuing FDA approval and clearance of other lead products in our product portfolio pipeline. Our ability to generate revenue depends upon successfully advancing the commercialization of EsoGuard and the Veris Cancer Care Platform while, as resources permit, also completing the development and the necessary regulatory approvals of our other products and services. 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 its 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 expect to continue to experience recurring losses from operations, and will continue to fund our operations with debt and/or equity financing transactions. Notwithstanding, however, with the cash on-hand as of the date hereof and other debt and equity committed sources of financing, we expect to be able to fund our future operations for one year from the date of the issue of the Financial Statements. Issue of Shares of Our Common Stock During the year ended December 31, 2022 ● We issued 299,999 shares of our common stock for cash proceeds of approximately $0.3 million upon exercise of stock options granted under the PAVmed 2014 Equity Plan, as such equity plan is discussed in Note 15, Stock-Based Compensation , to the Financial Statements. ● We issued 385,938 shares of our common stock for proceeds of approximately $0.4 million under the PAVmed Employee Stock Purchase Plan (“ESPP”), as such plan is discussed in Note 15, Stock-Based Compensation, to the Financial Statements. ● We issued 106,225 shares of our common stock for proceeds of approximately $0.1 million from the sale of shares through PAVmed’s at-the-market equity facility through Cantor Fitzgerald & Co. 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 the 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 of $5.00 per share of the Company’s common stock (subject to standard adjustments in the event of any stock split, stock dividend, stock combination, recapitalization or other similar transaction), and a contractual maturity date of April 4, 2024. The April 2022 Senior Convertible Note may be converted into or otherwise paid in shares of our common stock as described in Note 14, 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 of $5.00 per share of the Company’s common stock (subject to standard adjustments in the event of any stock split, stock dividend, stock combination, recapitalization or other similar transaction), and a contractual maturity date of September 6, 2024. The September 2022 Senior Convertible Note may be converted into or otherwise paid in shares of our common stock as described in Note 14, 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. 42 Liquidity and Capital Resources - continued On August 9, 2022, the Company and the Investor also agreed, in connection with the waiver described in Note 14, Debt , to the Financial Statements, that the Investor may convert up to $5.0 million of the principal amount of the April 2022 Senior Convertible Note at the then current conversion price as if the date of conversion were an Installment Date, i.e. a price per share of common stock equal to the lower of (i) the fixed conversion price then in effect (currently $5.00) and (ii) 82.5% of the average VWAP of the Company’s common stock for each of the two trading days with the lowest VWAP of the Company’s common stock during the ten consecutive trading day period ending and including the trading day immediately prior to the applicable conversion date, but in the case of clause (ii), not less than $0.18 per share. As contemplated by such amendment, in the year ended December 31, 2022, approximately $6.0 million of principal repayments along with $0.4 million of interest expense thereon, were settled through the issuance of 7,189,358 shares of our common stock. Under the Senior Convertible Notes 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% (except that such maximum percentage is 50% for the period from September 8, 2022 through March 5, 2023) (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 September 8, 2022, including as of December 31, 2022, the Company was not in compliance with the Financial Tests. As of March 12, 2023, the Investor agreed to waive any such non-compliance during such aforementioned time periods, under the Senior Convertible Notes and the SPA. Accordingly, as of the date of this Form 10-K, the Company is in compliance with the Financial Tests. See Note 14 , Debt , to the Financial Statements for additional information about the SPA and the Senior Secured Convertible Notes. Lucid Diagnostics - Series A Preferred Stock Offering On March 7, 2023, Lucid entered into subscription agreements for the sale of 13,625 shares (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 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. Lucid Diagnostics - Private Placement - Securities Purchase Agreement Effective as of March 13, 2023, Lucid entered into a Securities Purchase Agreement (“Lucid SPA”) with an accredited institutional investor (“Lucid Investor”, “Lucid Lender”, and/or “Lucid Holder”), pursuant to which Lucid agreed to sell, and the Lucid Investor agreed to purchase a Senior Secured Convertible Note with a face value principal of up to $11.1 million (the “March 2023 Lucid Senior Convertible Note”). The issuance of the March 2023 Lucid Senior Convertible Note is subject to customary closing conditions. The March 2023 Lucid Senior Secured Convertible Note would have 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 the two-year anniversary of the date of issuance. The March 2023 Lucid Senior Convertible Note would be convertible into or otherwise paid in shares of Lucid’s common stock. Under the March 2023 Lucid Senior Convertible Note, Lucid is and would be 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 March 2023 Lucid Senior Convertible Note, Lucid would also be subject to financial covenants requiring that (i) the amount of Lucid’s 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 to (b) Lucid’s average market capitalization over the prior ten trading days, not exceed 30%, and (iii) that Lucid’s market capitalization shall at no time be less than an amount to be agreed upon. 43 Liquidity and Capital Resources - continued 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 Fitzgerald & Co. In the year ended December 31, 2022, the Company sold 106,225 shares through their at-the-market equity facility for approximately $79. Subsequent to December 31, 2022, through March 9, 2023, we sold 1,081,997 shares through their at-the-market equity facility for approximately $0.5 million. Lucid Diagnostics Inc. - Committed Equity Facility and ATM Facility In March 2022, our majority-owned subsidiary, Lucid Diagnostics, entered into a committed equity facility with Cantor. Under the terms of the committed equity facility, Cantor has committed to purchase up to $50 million of Lucid Diagnostics common stock from time to time at the request of Lucid Diagnostics. While there are distinct differences, the 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. As of December 31, 2022, under the committed equity facility, a total of 680,263 shares of common stock of Lucid Diagnostics were issued for proceeds of approximately $1.8 million. 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 Fitzgerald & Co. In the year ended December 31, 2022, there were no Lucid Diagnostics shares sold through their at-the-market equity facility. Subsequent to December 31, 2022, through March 9, 2023, Lucid Diagnostics sold 230,068 shares through its at-the-market equity facility for approximately $0.3 million. 44 Critical Accounting Policies and Significant Judgments 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. 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. Fair Value Option (“FVO”) Election Under a Securities Purchase Agreement dated March 31, 2022, the Company issued a Senior Secured Convertible Note dated April 4, 2022, referred to herein as the “April 2022 Senior Convertible Note”, and a Senior Secured Convertible Note dated September 8, 2022, referred to herein as the “September 2022 Senior Convertible Note”, which are accounted under the “fair value option election” as discussed below. Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, Derivative and Hedging , (“ASC 815”), a financial instrument containing embedded features and /or options may be required to be bifurcated from the financial instrument host and recognized as separate derivative asset or liability, with the bifurcated derivative asset or liability initially measured at estimated fair value as of the transaction issue date and then subsequently remeasured at estimated fair value as of each reporting period balance sheet date. Alternatively, FASB ASC Topic 825, Financial Instruments , (“ASC 825”) provides for the “fair value option” (“FVO”) election. In this regard, ASC 825-10-15-4 provides for the FVO election (to the extent not otherwise prohibited by ASC 825-10-15-5) to be afforded to financial instruments, wherein the financial instrument is initially measured at estimated fair value as of the transaction issue date and then subsequently remeasured at estimated fair value as of each reporting period balance sheet date, with changes in the estimated fair value recognized as other income (expense) in the statement of operations. The estimated fair value adjustment of the April 2022 Senior Convertible Note is presented in a single line item within other income (expense) in the accompanying consolidated statement of operations (as provided for by ASC 825-10-50-30(b)). Further, as required by ASC 825-10-45-5, to the extent a portion of the fair value adjustment is attributed to a change in the instrument-specific credit risk, such portion would be recognized as a component of other comprehensive income (“OCI”) (for which there was no such adjustment with respect to the April 2022 Senior Convertible Note or the September 2022 Senior Convertible Note). See Note 13, Financial Instruments Fair Value Measurements , with respect to the FVO election; and Note 14, Debt , for a discussion of the April 2022 Senior Convertible Note and the September 2022 Senior Convertible Note. Stock-Based Compensation Stock-based awards are made to members of the board of directors of the Company, the Company’s employees and non-employees, under each of the PAVmed Inc. 2014 Equity Plan and the Lucid Diagnostics Inc. 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 Inc. 2014 Equity Plan and the Lucid Diagnostics Inc. 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 Inc. 2014 Equity Plan, the expected stock price volatility is based on the historical stock price volatility of PAVmed Inc. 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 the board of directors and employees in the years ended December 31, 2022 and 2021; 45 ● With respect to stock options granted under the Lucid Diagnostics Inc. 2018 Equity Plan, the expected stock price volatility was based on the historical stock price volatility 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, 2022 and 2021; ● 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 Inc. 2014 Equity Plan is its quoted closing price per share. On October 14, 2021, Lucid Diagnostics Inc. completed an initial public offering (“IPO”) of its common stock under an effective registration statement on Form S-1 (SEC File No. 333-259721), wherein a total of 5.0 million IPO shares of common stock of Lucid Diagnostics Inc. were issued, with such total IPO shares inclusive of 571,428 shares issued to PAVmed Inc. The price per share of Lucid Diagnostics Inc. common stock used in the computation of estimated fair value of stock options and restricted stock awards granted under the Lucid Diagnostics Inc. 2018 Equity Plan is as follows: (i) for the period October 14, 2021 to December 31, 2022 it is its quoted closing price per share; and (ii) for the period January 1, 2021 to October 14, 2021, it was estimated using a probability-weighted average expected return methodology (“PWERM”), which involves the determination of equity value under various exit scenarios and an estimation of the return to the common stockholders under each scenario. Recent Accounting Standards Updates Adopted In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, by eliminating the beneficial conversion and cash conversion accounting models previously contained in ASC 470-20 that required separate accounting for embedded conversion features. ASU 2020-06 also simplified the assessment of a financial instrument settlement to determine whether a contract is an entity’s own equity qualifies for equity classification by removing certain conditions from ASC 815-4-25. The ASU 2020-06 amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company’s adoption of the ASU 2020-06 guidance as of January 1, 2021 did not have an effect on the Company’s consolidated financial statements. In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes: Simplifying the Accounting for Income Taxes”, (“ASU 2019-12”). The guidance of ASU 2019-12 removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation, and calculating income taxes in interim periods, and adds revised guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. Adoption of the guidance of ASU 2019-12 is required for annual and interim financial statements beginning after December 15, 2020. The Company’s adoption of the ASU 2019-12 guidance as of January 1, 2021 did not have an effect on the Company’s consolidated financial statements. Effective December 31, 2021, the Company adopted FASB ASC Topic 842, Leases, (“ASC 842”). ASC 842 established a right-of-use (“ROU”) model requiring a lessee to recognize a ROU asset and a lease liability for all leases with terms greater-than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company’s adoption of ASC 842 did not have an effect on the Company’s consolidated financial statements. See Note 9, Leases . Off-Balance sheet arrangements We do not have any off-balance sheet arrangements. Item 7A. Quantitative and Qualitative Disclosure About Market Risk Not applicable.