PAVmed Inc.: Form 10-Q for the period ended Sep 30, 2023

The following discussion and analysis of our unaudited condensed consolidated financial condition and results of operations should be read together with our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”).

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.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Form 10-Q”) including the following discussion and analysis of our unaudited condensed consolidated financial condition and results of operations, contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Form 10-Q, 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 plans, intentions, and/or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. You should read this Form 10-Q and the documents we have filed as exhibits to this Form 10-Q and the 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.

Overview

PAVmed is a diversified commercial-stage medical technology company operating in the medical device, diagnostics, and digital health sectors, including through its majority-owned subsidiaries Lucid Diagnostics, a publicly-traded commercial-stage cancer prevention diagnostics company, and Veris Health, a private digital health company focused on enhanced personalized cancer care through remote patient monitoring using implantable biologic sensors with wireless communication along with a custom suite of connected external devices. Our current central focus is on the commercialization of Lucid Diagnostics’s EsoGuard and Veris Health’s Veris Cancer Care Platform. As resources permit, we will continue to explore internal and external innovations that fulfill our project selection criteria without limiting ourselves to any target specialty or condition. 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.

See Part I, Item 1, “Business,” in the Form 10-K 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 Cancer Care Platform, which are currently our two leading products.

Recent Developments

Business

PAVmed Strategic Business Update

In January 2023, PAVmed launched a strategic initiative designed to maximize cash runway and protect long-term shareholder interests through adjustments in near-term strategic priorities and associated resource allocation. The Company is currently focusing substantially all of its resources and near-term efforts on the commercialization of Lucid’s and Veris’ products.

Status of Lucid Clinical Trials and Publications

Lucid continues to accelerate its collection and publication of clinical utility data through a range of trials. These efforts include an investigator-initiated, retrospective analysis of prospectively collected data on San Antonio firefighters who underwent testing as part of a community-sponsored cancer awareness event described below; a virtual-patient randomized controlled trial with intended recruitment of at least 100 physician participants; a Lucid-sponsored multi-center, prospective, observational study with 500 patients; and two Lucid-sponsored registries, in which Lucid collects real-world clinical utility and clinical validity data on EsoGuard Esophageal DNA testing for the detection of esophageal precancer in two distinct populations.

With regard to the two registries, the Prospective REView of Esophageal Precancer DetectioN in AT-Risk Patients (PREVENT) Registry collects data on EsoGuard testing in the commercial increased-risk population, while the PREVENT-Fire Fighters (PREVENT-FF) Registry focuses exclusively on increased-risk firefighters. Complete data for the San Antonio firefighter study has been accepted for peer review publication in Journal of Gastrointestinal & Digestive System (ISSN: 2161-069X). Combined early interim results from the PREVENT and PREVENT-FF registries focusing on provider decision impact has also been accepted for peer review publication in Journal of Gastroenterology & Digestive Systems (ISSN: 2640-7477).

Interim results for the Lucid-sponsored observational study have been posted in preprint on medRxiv and are undergoing journal peer review. Enrollment for the Lucid-sponsored observational study is expected to be completed by the end of the year. Similarly, results for the Lucid-sponsored virtual-patient study are expected to be ready for analysis before the end of 2023.

#CheckYourFoodTube Events

In January 2023, Lucid completed its 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. Firefighters with suspected esophageal precancer based on a positive EsoGuard result were identified, including some less than 40 years of age, and will undergo appropriate monitoring and treatment, as indicated by clinical practice guidelines, to prevent progression to esophageal cancer.

Since then, additional testing events have been hosted with the SAFD, and similar events have been held with fire departments throughout the country. These events are ongoing and are an extension of Lucid’s satellite Lucid Test Center (“sLTC”) program, which brings Lucid precancer testing directly to patients—at their physician’s office and now at testing day events.

Launch of Direct Contracting Strategic Initiative

In March 2023, Lucid 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 diagnostic companies that have deployed similar strategies. In August 2023, the company announced it had 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.

Business - continued

New Revenue Cycle Management Provider

In May 2023, Lucid began to transition claims submission responsibility to a new revenue cycle management provider that offered more robust capabilities for, among other things, claims processing and appeals. The provider upgrade has been completed and claim submissions resumed in June 2023. Since completing the transition, the upgrade has continued to demonstrate an improvement in speed of collections, turnaround time to claim submission, percentage of claims paid, and actionable data for appeals.

Lucid Personnel Update

Effective on November 6, 2023, the Lucid board of directors appointed Shaun M. O’Neil as the President of Lucid. Mr. O’Neil, who is 41 years old, also continues to serve as the Chief Operating Officer of PAVmed and as the Chief Operating Officer of Lucid. For additional biographical information about Mr. O’Neil, please refer to PAVmed’s definitive proxy statement on Schedule 14A filed on May 1, 2023, which information is incorporated herein by reference. Other than in connection with his service as an officer of PAVmed and Lucid, Mr. O’Neil has not engaged in any transactions with PAVmed that are required to be reported pursuant to Item 404(a) of Regulation S-K.

Veris Health Commercialization Update

In December 2022 Veris Health, PAVmed’s digital health subsidiary, commercially launched its Veris Cancer Care Platform by executing its first commercial contract with New Jersey Cancer Care, PA (“NJCC”), an oncology practice and member of the prestigious Quality Cancer Care Alliance. In February 2023, the Veris Cancer Care Platform went live following successful onboarding of the first cohort of cancer patients and their clinicians at NJCC. Enrolled patients received a VerisBox and began connecting their Bluetooth-enabled health care devices to transmit real-time physiologic data to the cloud-based Veris Cancer Care Platform clinician portal. The patients also began reporting symptoms and quality-of-life parameters through the Veris Cancer Care Platform patient smartphone app, which is now available for patients on the Apple App Store and Google Play. The cloud-based clinician portal was concurrently integrated into the oncology practice and the cancer care team began using it to review physiologic and clinical data and other remote patient monitoring (“RPM”) services. Since the Veris Cancer Care Platform went “live” in February, Veris added two additional accounts, expanding utilization of the product to a total of six locations across three oncology practices while continuing to seek to build a pipeline of prospective customers.

Under the leadership of its new President, Veris is actively restructuring and expanding its commercial team seeking to accelerate patient enrollment and subscription revenue, while also launching two strategic initiatives which expand its long-term commercial potential. These include:

• Building a Biopharma Companion Digital Platform module to extend the Veris Cancer Care Platform as a companion solution for biopharmaceutical companies developing novel cancer therapeutics. The module will provide these companies with a long-term patient monitoring solution tightly linked to their cancer therapeutic—from clinical-stage through full commercialization. This includes support for clinical trials and post-marketing surveillance to enhance safety by reducing adverse events, expedite regulatory filings, lower regulatory hurdles, and accelerate speed to market. The business model seeks to replicate the widespread success of companion diagnostics tightly linked to therapeutics.
• Upgrading the Veris Cancer Care Platform from an FDA-designated Medical Device Data System (“MDDS”), limited to displaying medical data for clinicians without modification, to a Software-as-a-Medical-Device (“SaMD”). As a SaMD, the platform will have unlimited potential to grow into a full-bore clinical decision support tool that includes threshold alarms for faster provider response, analytical algorithms for effective triage, and digital biomarkers based on artificial intelligence and machine learning that will provide a risk assessment for cancer patients. The first step will be to incorporate the key features in the next generation product and initiate validation testing to support FDA 510(k) submission as a SaMD next year.

Veris also has continued to make progress toward regulatory submission of its implantable cardiac and physiologic monitor, The device, which is designed to be implanted in conjunction with a vascular access port, is targeted for FDA submission and commercial launch in 2024 and will further the power of the Veris Cancer Care Platform by better assuring patient compliance with RPM data reporting requirements. Veris recently completed an animal study which demonstrated intended device performance, consistent with its design and clinical specifications, over an extended implant period and pre-submission meetings seeking feedback on various design features have been ongoing.

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, and that the Company could be eligible for additional time. Although the Company did not regain compliance within the initial 180 calendar day period, Nasdaq determined that the Company was eligible for an additional 180 calendar day period to regain compliance (until December 26, 2023). In order to regain compliance, the closing bid price of the Company’s common stock must be at least $1 for a minimum of ten consecutive business days during the additional 180 calendar day period. The Company intends to consider all available options to regain compliance with the Nasdaq listing standards. On March 31, 2023, the Company’s stockholders approved an amendment to its certificate of incorporation, authorizing the Company to effect, at any time prior to March 31, 2024, (i) a reverse split of the Company’s outstanding shares of common stock at a specific ratio, ranging from 1-for-5 to 1-for-15, to be determined by the board of directors of the Company in its sole discretion, and (ii) an associated reduction in the number of shares of common stock the Company is authorized to issue, from 250,000,000 shares to 50,000,000 shares. If the Company’s board of directors authorizes the Company to consummate the reverse stock split, the Company anticipates it will regain compliance with the Nasdaq requirements for continued listing through such transaction.

Financing

Lucid Diagnostics - Series A Preferred Stock Offering

On March 7, 2023, Lucid sold 13,625 shares of newly designated Lucid Series A Convertible Preferred Stock (the “Lucid Series A Preferred Stock”), solely to accredited investors. 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’s common stock at any time at the option of the holder from and after the six-month anniversary of its issuance (or, if later, the effective date of an increase in Lucid Diagnostics’ authorized share capital or the effective date of a registration statement covering the resale of the underlying shares), and automatically converts into shares of Lucid’s common stock on the second anniversary of its issuance. The terms of the Lucid Series A Preferred Stock also include a 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 each of 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 sale of the Lucid Series A Preferred Stock generated $13.625 million in aggregate gross proceeds.

Lucid Diagnostics - Series A-1 Preferred Stock Offering

On October 17, 2023, Lucid sold 5,000 shares of Lucid Series A-1 Convertible Preferred Stock (the “Lucid Series A-1 Preferred Stock”), solely to accredited investors. 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 sale of the Lucid Series A-1 Preferred Stock generated $5.0 million in aggregate gross proceeds.

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 a Securities Purchase Agreement (“Lucid SPA”) with an accredited institutional investor, pursuant to which Lucid Diagnostics agreed to sell, and the investor agreed to purchase a Senior Secured Convertible Note with a face value principal of $11.1 million (the “Lucid March 2023 Senior Convertible Note”). Lucid Diagnostics issued the Lucid March 2023 Senior Convertible Note on March 21, 2023 pursuant to the Lucid SPA. The sale of the Lucid March 2023 Senior Convertible Note generated $9.925 million in proceeds, after deducting a $1.186 million lender fee and offering costs.

The Lucid March 2023 Senior Convertible Note has a 7.875% annual stated interest rate, a contractual conversion price of $5.00 per share of Lucid Diagnostics’ 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 principal of the Lucid March 2023 Senior Convertible Note and accrued interest thereon is convertible at the option of the holder into Lucid Diagnostics’ common stock at the contractual conversion price. In addition, the principal of the Lucid March 2023 Senior Convertible Note amortizes over 18 months commencing six months after its issuance. The amortization payments and accrued interest on the Lucid March 2023 Senior Convertible Note are payable in shares of Lucid Diagnostics’ common stock (subject to the satisfaction of certain customary equity conditions and except for interest payable prior to September 21, 2023), at prices based on the then current market price.

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 nine months ended September 30, 2023, the Company sold 2,330,747 shares through its at-the-market equity facility for net proceeds of approximately $1.2 million, after payment of 3% commissions. No shares were sold through the Company’s at-the-market equity facility during the three months ended September 30, 2023.

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 September 30, 2023. No shares were sold through this facility during the three months ended September 30, 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 nine months ended September 30, 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. No shares were sold through Lucid’s at-the-market equity facility during the three months ended September 30, 2023.

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 unaudited condensed 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, 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 (as defined in Note 4, Related Party Transactions, to our accompanying unaudited condensed consolidated financial statements); the cost of 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 for accounting and legal services, salaries and related costs for employees involved in third-party payor reimbursement contract negotiations and consulting 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 as and to the extent our business operations grow. We also anticipate continued expenses related to being a public company, including fees and expenses for 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 for 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 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.

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 three months ended September 30, 2023 as compared to three months ended September 30, 2022

Revenue

In the three months ended September 30, 2023, revenue was $0.8 million as compared to $0.1 million for the corresponding period in the prior year. The $0.7 million increase principally relates to the increase in volume of our EsoGuard Esophageal DNA Tests performed in our own CLIA laboratory for the period and the consideration received for the performance of the EsoGuard Esophageal DNA Tests.

Cost of revenue

In the three months ended September 30, 2023, cost of revenue was approximately $1.8 million as compared to $1.6 million for the corresponding period in the prior year. The $0.2 million increase principally related to:

• approximately $0.4 million increase in compensation costs at Lucid and Veris;
• approximately $0.3 million decrease in laboratory facility and operations costs; and
• approximately $0.1 million increase in EsoCheck and EsoGuard supplies costs.

Sales and marketing expenses

In the three months ended September 30, 2023, sales and marketing costs were approximately $4.0 million as compared to $4.7 million for the corresponding period in the prior year. The net decrease of $0.7 million was principally related to:

• approximately $0.3 million decrease related to a reduction of third party marketing and corporate information technology expenses;
• approximately $0.2 million decrease in stock based compensation from RSA and stock option grants to Lucid and PAVmed employees and non-employees; and
• approximately $0.2 million decrease in compensation costs primarily related to a reduction in headcount in the first quarter of 2023. This decrease is inclusive of an increase in compensation related costs at Lucid.

General and administrative expenses

In the three months ended September 30, 2023, general and administrative costs were approximately $6.9 million as compared to $10.4 million for the corresponding period in the prior year. The net decrease of $3.5 million was principally related to:

• approximately $2.4 million decrease in stock based compensation from RSA and stock option grants to Lucid and PAVmed employees and non-employees; and
• approximately $1.1 million decrease in third-party professional fees and expenses related to legal services and professional recruiting services.

Research and development expenses

In the three months ended September 30, 2023, research and development costs were approximately $3.2 million as compared to $6.2 million for the corresponding period in the prior year. The net decrease of $3.0 million was principally related to:

• approximately $2.6 million decrease in development costs, particularly in clinical trial activities and outside professional and consulting fees; and
• approximately $0.4 million decrease in compensation related costs related to a reduction in headcount in the first quarter of 2023. This decrease is inclusive of an increase in compensation related costs at Lucid.

As mentioned above, above we have paused research and development with respect to CarpX, EsoCure, NextFlo and PortIO. Until such time as resources permit, we expect to devote substantially all of our research and development efforts to EsoGuard, EsoCheck and the Veris Cancer Care Platform.

Amortization of Acquired Intangible Assets

The amortization of acquired intangible assets remained relatively level, at approximately $0.5 million, in the three months ended September 30, 2023, as compared to the corresponding period in the prior year.

Results of Operations - continued

The three months ended September 30, 2023 as compared to the three months ended September 30, 2022 - continued

Other Income and Expense

Change in fair value of convertible debt

In the three months ended September 30, 2023, the change in the fair value of our convertible notes was approximately $4.4 million of expense, related to the April 2022 Senior Convertible Note (as defined in “Liquidity and Capital Resources” below), the September 2022 Senior Convertible Note (as defined in “Liquidity and Capital Resources” below), 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 Debt Extinguishment

In the three months ended September 30, 2023, a debt extinguishment loss in the aggregate of approximately $1.8 million was recognized in connection with our April 2022 Senior Convertible Note and September 2022 Senior Convertible Note as discussed below.

• In the three months ended September 30, 2023, approximately $2.2 million of principal repayments, along with less than $0.1 million of interest expense thereon, were settled through the issuance of 10,859,964 shares of common stock of the Company, with such shares having a fair value of approximately $4.0 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 $1.8 million in the three months ended September 30, 2023.

In comparison, in the three months ended September 30, 2022, a debt extinguishment loss in the aggregate of approximately $5.1 million was recognized in connection with our April 2022 Senior Convertible Note as discussed below.

• In August 2022, approximately $5.0 million of principal repayments along with less than $0.1 million of interest expense thereon, were settled through the issuance of 5,013,908 shares of common stock of the Company, with such shares having a fair value of approximately $10.1 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 $5.1 million in the three months ended September 30, 2022.

See Note 11*, 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.

The nine months ended September 30, 2023 as compared to nine months ended September 30, 2022

Revenue

In the nine months ended September 30, 2023, revenue was $1.4 million as compared to $0.3 million for the corresponding period in the prior year. The $1.1 million increase principally relates to the revenue for our EsoGuard Esophageal DNA Test performed in our own CLIA laboratory, as compared to revenue from the EsoGuard Commercialization Agreement with RDx, recognized in first two months of the prior year period, which was terminated on February 25, 2022 when Lucid Diagnostics transitioned to its own laboratory operations.

Cost of revenue

In the nine months ended September 30, 2023, cost of revenue was approximately $4.8 million as compared to $2.0 million for the corresponding period in the prior year. The $2.8 million increase principally related to:

• approximately $1.1 million increase in EsoCheck and EsoGuard supplies costs;
• approximately $1.0 million increase in compensation related costs, including stock-based compensation at Lucid and Veris; and
• approximately $0.7 million increase in laboratory facility and operations costs.

Sales and marketing expenses

In the nine months ended September 30, 2023, sales and marketing costs were approximately $12.9 million as compared to $13.6 million for the corresponding period in the prior year. The net decrease of $0.7 million was principally related to:

• approximately $1.4 million decrease in third party marketing expenses;
• approximately $0.5 million increase in compensation related costs, including stock-based compensation, primarily related to an increase in headcount at Lucid. The increase is inclusive of a decrease related to a reduction in headcount in first quarter of 2023 at PAVmed and Veris; and
• approximately $0.2 million increase in facility-related costs.

33

Results of Operations - continued

The nine months ended September 30, 2023 as compared to nine months ended September 30, 2022 - continued

General and administrative expenses

In the nine months ended September 30, 2023, general and administrative costs were approximately $23.9 million as compared to $31.3 million for the corresponding period in the prior year. The net decrease of $7.3 million was principally related to:

• approximately $5.3 million decrease in stock-based compensation, primarily related to decreases at Lucid, partially offset by increases at PAVmed;
• approximately $2.7 million decrease in third-party professional fees and expenses related to legal services, consulting fees and professional recruiting services;
• approximately $0.9 million increase in compensation related costs; and
• approximately $0.2 million decrease related to facility related costs, partially offset by an increase in facility related costs at PAVmed.

Research and development expenses

In the nine months ended September 30, 2023, research and development costs were approximately $10.7 million as compared to $18.7 million for the corresponding period in the prior year. The net decrease of $8.0 million was principally related to:

• approximately $8.8 million decrease in development costs, particularly in clinical trial activities and outside professional and consulting fees; and
• approximately $0.8 million increase in compensation related costs, including stock-based compensation.

As mentioned above, we have paused research and development with respect to CarpX, EsoCure, NextFlo and PortIO. Until such time as resources permit, we expect to devote substantially all of our research and development efforts to EsoGuard, EsoCheck and the Veris Cancer Care Platform.

Amortization of Acquired Intangible Assets

The amortization of acquired intangible assets increased to $1.5 million in the nine months ended September 30, 2023, as compared to $1.3 million in the corresponding period 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.

Other Income and Expense

Change in fair value of convertible debt

In the nine months ended September 30, 2023, the change in the fair value of our convertible notes was approximately $5.8 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 nine months ended September 30, 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 nine months ended September 30, 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 nine months ended September 30, 2023, a debt extinguishment loss in the aggregate of approximately $3.0 million was recognized in connection with our April 2022 Senior Convertible Note and September 2022 Senior Convertible Note as discussed below.

• In the nine months ended September 30, 2023, approximately $5.1 million of principal repayments along with $0.3 million of interest expense thereon, were settled through the issuance of 20,383,445 shares of common stock of the Company, with such shares having a fair value of approximately $8.4 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 $3.0 million in the nine months ended September 30, 2023.

Results of Operations - continued

The nine months ended September 30, 2023 as compared to nine months ended September 30, 2022 - continued

In comparison, in the nine months ended September 30, 2022, a debt extinguishment loss in the aggregate of approximately $5.1 million was recognized in connection with our April 2022 Senior Convertible Note as discussed below.

• In August 2022, approximately $5.0 million of principal repayments along with less than $0.1 million of interest expense thereon, were settled through the issuance of 5,013,908 shares of common stock of the Company, with such shares having a fair value of approximately $10.1 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 $5.1 million in the nine months ended September 30, 2022.

See Note 11*, 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 operational activities are principally focused on the commercialization of EsoGuard and the Veris Cancer Care Platform, and, as resources 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 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 $61.9 million and used approximately $40.2 million of cash in operations for the nine months ended September 30, 2023. Financing activities provided $25.9 million of cash during the nine months ended September 30, 2023. We ended the quarter with cash on-hand of $26.4 million as of September 30, 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. Notwithstanding, however, with the cash on-hand as of the date hereof and the other debt and equity committed sources of financing, described below, and conversion and refinancing of existing convertible notes, we expect to be able to fund our future operations for the one year period from the date of the issue of the our unaudited condensed consolidated Financial Statements, as included herein this Form 10-Q.

Issue of Shares of Our Common Stock

During the nine months ended September 30, 2023

• We issued 877,230 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 12, Stock-Based Compensation, to the Financial Statements.
• We issued 2,330,747 shares of our common stock for net proceeds of approximately $1.2 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 1,500,000 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 14, Common Stock and Common Stock Purchase Warrants for additional discussion. On the six-month anniversary of the issuance of the shares, the then-current market value of the shares will be determined based on the volume weighted average price per share of the common stock during the last ten trading days of such six-month period. If the aggregate market value of the shares as so determined is less than $750,000, the Company shall, at its election, either pay to the service provider an amount in cash equal to the shortfall or issue to the service provider a number of additional shares equal to the shortfall divided by the greater of the market value and $0.10. In no event will the number of shares issued exceed 9.99% of the Company’s outstanding common stock as of May 31, 2023.
• We issued 20,383,445 shares of our common stock in satisfaction of approximately $5.1 million of principal repayments along with approximately $0.3 million of interest expense thereon under the April 2022 Senior Convertible Note and September 2022 Senior Convertible Note.

35

Liquidity and Capital Resources - continued

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 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 11, 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 11, 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% (except that such maximum percentage was 50% for the period from September 8, 2022 through March 5, 2023) (the “Debt to Market Cap Ratio Test”), and (iii) 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 June 1, 2023 through August 14, 2023, the Company was not in compliance with the Financial Tests. As of August 14, 2023, the investor agreed to waive any such non-compliance during such time period and thereafter through November 30, 2023. Based on the waiver, as of September 30, 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.

See Note 11*, Debt*, to the Financial Statements for additional information about the SPA, the April 2022 Senior Convertible Note, and the September 2022 Senior Convertible Note.

Lucid Diagnostics - Series A Preferred Stock and Series A-1 Preferred Stock Offerings

On March 7, 2023, Lucid Diagnostics sold 13,625 shares of 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 (or, if later, the effective date of an increase in Lucid Diagnostics’ authorized share capital or the effective date of a registration statement covering the resale of the underlying shares), 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 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 each of 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 Diagnostics sold 5,000 shares of 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.

Liquidity and Capital Resources - continued

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.

The Lucid March 2023 Senior Convertible Note has a 7.875% annual stated interest rate, a contractual conversion price of $5.00 per share of Lucid Diagnostics’ 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 principal of the Lucid March 2023 Senior Convertible Note and accrued interest thereon is convertible at the option of the holder into Lucid Diagnostics’ common stock at the contractual conversion price. In addition, the principal of the Lucid March 2023 Senior Convertible Note amortizes over 18 months commencing six months after its issuance. The amortization payments and accrued interest on the Lucid March 2023 Senior Convertible Note are payable in shares of Lucid Diagnostics’ common stock (subject to the satisfaction of certain customary equity conditions and except for interest payable prior to September 21, 2023), at prices based on the then current market price.

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 September 30, 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. 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 nine months ended September 30, 2023, the Company sold 2,330,747 shares through its at-the-market equity facility for net proceeds of approximately $1.2 million, after payment of 3% commissions. No shares were sold through the Company’s at-the-market equity facility during the three months ended September 30, 2023.

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 September 30, 2023. No shares were sold through this facility during the three months ended September 30, 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 nine months ended September 30, 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. No shares were sold through Lucid’s at-the-market equity facility during the three months ended September 30, 2023.

Critical Accounting Policies and Significant Judgments and Estimates

The discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the amounts reporting in our unaudited condensed consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgements. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other factors that are believed to be appropriate under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 14, 2023. There have been no material changes to our critical accounting policies and estimates in the nine months ended September 30, 2023.

The information set forth in Part I, Item 2 under the caption “Liquidity and Capital Resources — Securities Purchase Agreement - March 31, 2022 - Senior Secured Convertible Notes - April 4, 2022 and September 8, 2022” is incorporated herein by reference.

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 September 30, 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.

Changes to Internal Controls Over Financial Reporting

There has been no change in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our fiscal quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.