Note
2 — Financial Condition, Going Concern and Management Plans
The
Company is subject to all of the risks and uncertainties typically faced by diagnostic and medical device companies that devote
substantially all of their efforts to the commercialization of their initial product and services and ongoing R&D and clinical
trials. The Company expects to continue incurring losses for the foreseeable future. The Company’s existing liquidity is
not sufficient to fund its operations, anticipated capital expenditures and working capital funding until the Company reaches
significant revenues. As such, the Company intends to rely on capital markets to obtain additional equity or debt financing, especially
if the Company experiences downturns in its business that are more severe or longer than anticipated, or if the Company experiences
significant increases in expense levels resulting from being a publicly-traded company or from expansion of operations. If the
Company attempts to obtain additional equity or debt financing, the Company cannot assume that such financing will be available
to the Company on favorable terms, or at all.
As
a result of recurring operating losses and net operating cash flow deficits there is substantial doubt about the Company’s
ability to continue as a going concern within one year from the date of this filing. The unaudited condensed consolidated financial
statements have been prepared assuming that the Company will continue as a going concern, and do not include any adjustments to
reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities
that may result from the outcome of this uncertainty.
Note
3 — Summary of Significant Accounting Policies
Significant
Accounting Policies
Other
than as described below, there have been no material changes in the Company’s significant accounting policies to those previously
disclosed in the Company’s annual report on Form 10-K, which was filed with the SEC on April 14, 2020.
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned and
majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company holds
a majority ownership interest and has controlling financial interest in Lucid Diagnostics Inc. and Solys Diagnostics Inc., with
the corresponding noncontrolling interest included as a separate component of consolidated stockholders’ equity, including
the recognition in the consolidated statement of the net loss attributable to the noncontrolling interest based on the respective
minority ownership interest of each respective entity.
The
condensed consolidated balance sheet as of December 31, 2019, which has been derived from audited consolidated financial statements,
and the unaudited condensed consolidated financial statements, have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”), and applicable rules and regulations of the United States
Securities and Exchange Commission (“SEC”) regarding interim financial reporting. As permitted under SEC rules, certain
footnotes or other financial information normally required by U.S. GAAP have been condensed or omitted, and accordingly the balance
sheet as of December 31, 2019 has been derived from audited consolidated financial statements at such date but does not include
all of the information required by U.S. GAAP for complete consolidated financial statements. These unaudited condensed consolidated
financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements, and
in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation
of the Company’s consolidated financial information.
The
results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected
for the year ending December 31, 2020 or for any other interim period or for any other future periods. The accompanying unaudited
condensed consolidated financial statements and related consolidated financial information should be read in conjunction with
the audited consolidated financial statements and related notes thereto as of and for the year ended December 31, 2019 included
in the Company’s Annual Report on Form 10-K filed with the SEC on April 14, 2020.
Use
of Estimates
In
preparing unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements, as well as the reported amounts of expenses during the reporting period.
Due to inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes
in these estimates. On an ongoing basis, the Company evaluates its estimates and assumptions. These estimates and assumptions
include valuing equity securities in share-based payment arrangements and estimating the fair value of financial instruments recorded
as liabilities. In addition, management’s assessment of the Company’s ability to continue as a going concern involves
the estimation of the amount and timing of future cash inflows and outflows.
Note
3 — Summary of Significant Accounting Policies - continued
Recent
Accounting Standards
Adoption
of new accounting Standard
On
January 1, 2020, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”)
2018-07, Improvements to Nonemployee Share-Based Payment Accounting, (“ASU 2018-07”), which aligns the accounting
for share-based payments to nonemployees for goods and services with the requirements for accounting for share-based payments
to employees under ASC 718 Compensation – Stock Compensation. ASU 2018-07 provides that nonemployee share-based payments
are measured at the grant date at the fair value of the equity instruments to be provided to the nonemployee when the goods or
services have been delivered. Prior to ASU 2018-07 nonemployee share-based payments were measured at the fair value of the consideration
received or the fair value of the equity instruments issued, whichever could be more reliably measured. The adoption of ASU 2018-07
had no effect on the Company’s consolidated financial statements.
On
January 1, 2020, the Company adopted ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to
the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurement.
The adoption of ASU 2018-07 had no effect on the Company’s consolidated financial statements.
In
November 2018, the FASB issued ASU No. 2018-18, “Collaborative Arrangements (Topic 808): Clarifying the Interaction Between
Topic 808 and Topic 606”, which requires transactions in collaborative arrangements to be accounted for under ASC 606
if the counterparty is a customer for a good or service (or bundle of goods and services) that is a distinct unit of account.
Additionally, ASU No. 2018-18 precludes entities from presenting consideration from transactions with a collaborator that is not
a customer together with revenue recognized from contracts with customers. The adoption of ASU 2018-18 on January 1, 2020 had
no effect on the Company’s consolidated financial statements.
In
August 2020, the FASB issued its Accounting Standards Update (“ASU”) 2020-06, Debt – Debt with Conversion
and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 –
40), (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics
of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU2020-06 amendments
are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early
adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those
fiscal years. The Company is evaluating the impact of this guidance on its unaudited condensed consolidated financial statements.
Note
4 — Prepaid Expenses and Other Current Assets
Prepaid
expenses and other current assets consisted of the following as of:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Advanced payments to service providers and suppliers
|
|
$
|
465
|
|
|
$
|
294
|
|
EsoCheck cell collection supplies
|
|
|
375
|
|
|
|
—
|
|
Deposits
|
|
|
234
|
|
|
|
34
|
|
Total prepaid expenses and other current assets
|
|
$
|
1,074
|
|
|
$
|
328
|
|
Note
5 — Accrued Expenses and Other Current Liabilities
Accrued
expenses and other current liabilities consisted of the following as of:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Compensation related expenses
|
|
$
|
1,088
|
|
|
$
|
1,075
|
|
EsoGuard License Agreement fee
|
|
|
223
|
|
|
|
223
|
|
Operating Expenses
|
|
|
230
|
|
|
|
88
|
|
Total accrued expenses and other current liabilities
|
|
$
|
1,541
|
|
|
$
|
1,386
|
|
Note
6 — Related Party Transactions
During
the three and six months ended June 30, 2020 and 2019 the Company incurred the following expenses with the minority shareholders
of Lucid Diagnostics Inc.:
|
|
For the three months ended
June 30,
|
|
|
For the six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
CWRU patent related fees
|
|
$
|
27
|
|
|
$
|
47
|
|
|
$
|
59
|
|
|
$
|
78
|
|
Clinical supplies – EsoCheck
|
|
|
—
|
|
|
|
—
|
|
|
|
15
|
|
|
|
—
|
|
EsoGuard Physician Inventors’ consulting agreements
|
|
|
15
|
|
|
|
36
|
|
|
|
53
|
|
|
|
74
|
|
Stock based compensation expense
|
|
|
6
|
|
|
|
24
|
|
|
|
12
|
|
|
|
48
|
|
Total
|
|
$
|
48
|
|
|
$
|
107
|
|
|
$
|
139
|
|
|
$
|
200
|
|
Note
7 — Commitment and Contingencies
Office
Leases
Total
rent expense incurred under office rental agreements was $49 and $33, for the three months ended June 30, 2020 and 2019, respectively,
and $98 and $65, for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, the Company’s
future minimum lease payments for such office rental agreements are estimated to be a total of approximately $135 for the
period July 1, 2020 to June 30, 2021.
Note
8 — Stock-Based Compensation
PAVmed
Inc. 2014 Long-Term Incentive Equity Plan - Stock Options
Stock
options issued and outstanding under the PAVmed Inc 2014 Long-Term Incentive Equity Plan (PAVmed Inc. 2014 Equity Plan”)
for the period noted is as follows:
|
|
Number
Stock
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Remaining
Contractual
Term
(Years)
|
|
Outstanding stock options at December 31, 2019
|
|
|
5,204
|
|
|
$
|
2.68
|
|
|
|
8.1
|
|
Granted
|
|
|
1,345
|
|
|
$
|
2.18
|
|
|
|
9.8
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Outstanding stock options at June 30, 2020
|
|
|
6,549
|
|
|
$
|
2.58
|
|
|
|
7.7
|
|
Vested and exercisable stock options at June 30, 2020
|
|
|
4,016
|
|
|
$
|
3.13
|
|
|
|
7.3
|
|
The
aggregate intrinsic value of stock options granted under the PAVmed Inc. 2014 Equity as of June 30, 2020 was $2,468 with respect
to stock options outstanding and $1,263 with respect to such stock options vested and exercisable. The intrinsic value is computed
as the difference between the quoted price of the PAVmed Inc. common stock on June 30, 2020 and the exercise price of the underlying
PAVmed Inc. stock options, to the extent such quoted price is greater than the exercise price.
In the six months ended June 30, 2020, a total
of 1,345 stock options were granted under the PAVmed Inc. 2014 Equity Plan, with each such stock option grant having a ten year
contractual term from date-of-grant, vesting ratably over twelve quarters commencing with the grant date quarter, with a weighted
average exercise price of $2.18 per share of common stock of PAVmed Inc.
Subsequent to June 30,
2020, in July 2020, the Company issued 100 common stock options, with each such stock option grant having a ten year contractual
term from date-of-grant, vesting ratably over twelve quarters commencing with the grant date quarter, with a weighted average exercise price of $2.04 per share of common stock of PAVmed Inc.
Note
8 — Stock-Based Compensation - continued
PAVmed
Inc 2014 Long-Term Incentive Equity Plan - Restricted Stock Awards
On March 15, 2019, a total
of 700 restricted stock awards were granted to employees under the PAVmed Inc. 2014 Equity Plan, with such restricted stock awards
vesting ratably on an annual basis over a three year period with an initial annual vesting date of March 15, 2020. The
restricted stock awards are subject to forfeiture if the requisite service period is not completed. On March 15, 2020, approximately
234 of such restricted stock awards vested.
On May 1, 2020, a total of 950 restricted
stock awards were granted to employees under the PAVmed Inc. 2014 Equity Plan, with such restricted stock awards vesting ratably
on an annual basis over a three year period with an initial annual vesting date of May 1, 2021. The restricted stock awards are
subject to forfeiture if the requisite service period is not completed.
Subsequent
to June 30, 2020, at the Company’s annual meeting of stockholders on July 24, 2020, the Company’s stockholders approved
an increase to the share reservation of the PAVmed Inc 2014 Equity Plan of an additional 2,000 shares of common stock of
the Company, from 8,000 shares to 10,000 shares.
PAVmed
Inc Employee Stock Purchase Plan (“ESPP”)
The
PAVmed Inc. Employee Stock Purchase Plan (“ESPP”) provides eligible employees the opportunity to purchase shares of
PAVmed Inc. common stock through payroll deductions during six month periods, wherein the purchase price per share of common stock
is the lower of 85% of the quoted closing price per share of PAVmed Inc. common stock at the beginning or end of each six month
share purchase period. The PAVmed Inc. ESPP share purchase dates are March 31 and September 30. On the March 31, 2020 ESPP purchase
date, 154 shares of PAVmed Inc. common stock were issued for proceeds of approximately $0.1 million.
Subsequent
to June 30, 2020, at the Company’s annual meeting of stockholders on July 24, 2020, the Company’s stockholders approved
an increase to the share reservation of the PAVmed Inc ESPP of an additional 500 shares of common stock of the Company, from
250 shares to 750 shares.
Lucid Diagnostics
Inc. 2018 Long-Term Incentive Equity Plan - Stock Options
The Lucid Diagnostics
Inc. 2018 Long-Term Incentive Equity Plan (“Lucid Diagnostics Inc. 2018 Equity Plan”) is separate and apart from the
PAVmed Inc. 2014 Equity Plan discussed above. Stock options issued and outstanding under the Lucid Diagnostics Inc. 2018 Equity
Plan for the period noted is as follows:
|
|
Number
Stock
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Remaining
Contractual
Term
(Years)
|
|
Outstanding stock options at December 31, 2019
|
|
|
995
|
|
|
$
|
0.86
|
|
|
|
9.0
|
|
Granted
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Exercised
|
|
|
3
|
|
|
$
|
1.50
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Outstanding stock options at June 30, 2020
|
|
|
992
|
|
|
$
|
0.86
|
|
|
|
8.5
|
|
Vested and exercisable stock options at June 30, 2020
|
|
|
574
|
|
|
$
|
0.83
|
|
|
|
8.4
|
|
Stock options granted
under the Lucid Diagnostics Inc. 2018 Equity Plan, have a ten year contractual term from date of grant, and vest ratably over
twelve successive calendar quarters, with first vesting date in the quarter of the date of grant.
During the six months
ended June 30, 2020, 3 stock options issued under the Lucid Diagnostics Inc. 2018 Equity Plan were exercised for cash proceeds
of $5, resulting in the issue of a corresponding number of shares of common stock of Lucid Diagnostics Inc.
Note
8 — Stock-Based Compensation - continued
Stock-Based
Compensation Expense
Consolidated
stock-based compensation expense recognized for both the PAVmed Inc. 2014 Equity Plan and the Lucid Diagnostics Inc. 2018 Equity
Plan, with respect to stock options and restricted stock awards as discussed above, for the periods indicated, was as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
General and administrative expenses
|
|
$
|
407
|
|
|
$
|
299
|
|
|
$
|
684
|
|
|
$
|
584
|
|
Research and development expenses
|
|
|
122
|
|
|
|
89
|
|
|
|
188
|
|
|
|
263
|
|
Total
|
|
$
|
529
|
|
|
$
|
388
|
|
|
$
|
872
|
|
|
$
|
847
|
|
As
of June 30, 2020, unrecognized stock-based compensation expense and weighted average remaining requisite service period with respect
to stock options and restricted stock awards issued under each of the PAVmed Inc. 2014 Equity Plan and the Lucid Diagnostics Inc
2018 Equity Plan, as discussed above, is as follows:
|
|
Unrecognized
Expense
|
|
|
Weighted Average
Remaining
Service
Period
|
|
PAVmed Inc. 2014 Equity Plan
|
|
|
|
|
|
|
|
|
Stock Options
|
|
$
|
2,269
|
|
|
|
1.2 years
|
|
Restricted Stock Awards
|
|
$
|
2,243
|
|
|
|
2.6 years
|
|
|
|
|
|
|
|
|
|
|
Lucid Diagnostics Inc. 2018 Equity Plan
|
|
|
|
|
|
|
|
|
Stock Options
|
|
$
|
75
|
|
|
|
1.3 years
|
|
Stock-based compensation
expense recognized with respect to stock options granted under the PAVmed Inc. 2014 Equity Plan was based on a weighted average
estimated fair value of such stock options of $0.92 per share and $0.93 per share during the six months ended June 30, 2020 and
2019, respectively, calculated using the following weighted average Black-Scholes valuation model assumptions:
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Expected term of stock options (in years)
|
|
|
5.7
|
|
|
|
5.7
|
|
Expected stock price volatility
|
|
|
56
|
%
|
|
|
50
|
%
|
Risk free interest rate
|
|
|
2.0
|
%
|
|
|
2.3
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Stock-based compensation
expense recognized with respect to stock options granted under the PAVmed Inc. 2014 Equity Plan to non-employees under the previous
provisions FASB ASC 505-50 in the prior year six months ended June 30, 2019, was based on a weighted average estimated fair value
of such stock options of $1.90 per share, calculated using Black-Scholes valuation model weighted-average assumptions of 8.7 year
contractual term, a 60% expected stock price volatility, a 2.3% risk free interest rate, and a 0% expected dividend rate.
The restricted stock
awards granted to employees under the PAVmed Inc. 2014 Equity Plan are measured at their grant date estimated fair value based
on the date-of-grant quoted price per share of PAVmed Inc. common stock. The 700 restricted stock awards granted on March 15,
2019 had an aggregate fair value of approximately $742 with such stock-based compensation expense recognized ratably over the
requisite service period, which is the three year vesting period as discussed above. The 950 restricted stock awards granted on
May 1, 2020 had an aggregate fair value of approximately $1,938 with such stock-based compensation expense recognized ratably
over the requisite service period, which is the three year vesting period as discussed above. The stock-based compensation expense
recognized with respect to these restricted stock awards was approximately $144 and $62 in the three months ended June 30, 2020
and 2019, respectively, and $206 and $82 in the six months ended June 30, 2020 and 2019, respectively, classified in general and
administrative expenses; and $25 in the three and six months ended June 30, 2020 classified in research and development expenses,
as presented above.
Note 8 — Stock-Based
Compensation - continued
Stock-based
compensation expense recognized with respect to stock options granted under the Lucid Diagnostics Inc. 2018 Equity Plan was based
on a weighted average estimated fair value of such stock options of $0.30 per share
and $0.39 per share during the six months ended June 30, 2020 and 2019, respectively, and was calculated using the following weighted
average Black-Scholes valuation model assumptions:
|
|
Six
Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Expected term of stock options
(in years)
|
|
|
5.2
|
|
|
|
5.7
|
|
Expected stock price volatility
|
|
|
60
|
%
|
|
|
63
|
%
|
Risk free interest rate
|
|
|
1.9
|
%
|
|
|
2.5
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Stock-based
compensation expense recognized with respect to stock options granted under the Lucid Diagnostics Inc. 2018 Equity Plan to non-employees
under the previous provisions FASB ASC 505-50 in the prior year three and six months ended June 30, 2019, was based on a weighted
average estimated fair value of such stock options of $0.61 per share, calculated using Black-Scholes valuation model weighted-average
assumptions of 9.1 year contractual term, a 62% expected stock price volatility, a 2.2% risk free interest rate, and a 0% expected
dividend rate.
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 estimates and assumptions, with the
weighted-average valuation assumptions for stock-based awards, principally as follows:
|
●
|
The
expected term of stock options represents the period of time stock options are expected to be outstanding, which is the expected
term derived using the simplified method and, through December 31, 2019 for non-employees (under the previous provisions FASB
ASC 505-50), was the remaining contractual term;
|
|
|
|
|
●
|
With
respect to stock options granted under the PAVmed Inc. 2014 Equity Plan, the expected stock price volatility is based on the
historical stock price volatility of PAVmed Inc. common stock (“PAVM”) and the volatilities of similar entities
within the medical device industry over the period commensurate with the expected term, and through December 31, 2019 for
non-employees (under the previous provisions FASB ASC 505-50), was the remaining contractual term of the respective stock
option; and, with respect to stock options granted under the Lucid Diagnostics Inc. 2018 Equity Plan, the expected stock price
volatility is based on the historical stock price volatilities of similar entities within the medical device industry over
the period commensurate with the expected term, and through December 31, 2019 for non-employees (under the previous provisions
FASB ASC 505-50), was the remaining contractual term of the respective stock option;
|
|
|
|
|
●
|
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 the expected term of the stock option; and,
|
|
|
|
|
●
|
The
expected dividend yield is based on annual dividends of $0.00 as there has not been a dividend 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 granted under the PAVmed Inc. 2014 Equity
Plan is its quoted closing price per share. The price per share of Lucid Diagnostics Inc. common stock used in the computation
of estimated fair value of stock options granted under the Lucid Diagnostics Inc. 2018 Equity Plan was estimated using a discounted
cash flow method applied to a multi-year forecast of its future cash flows.
Note
9 — Financial Instruments Fair Value Measurements
Recurring
Fair Value Measurements
The
fair value hierarchy table for the periods indicated is as follows:
|
|
Fair
Value Measurement on a Recurring Basis at Reporting Date Using(1)
|
|
|
Level-1
|
|
|
Level-2
|
|
|
Level-3
|
|
|
|
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Secured Convertible Note - November 2019
|
|
|
|
|
|
|
|
|
|
$
|
12,300
|
|
|
$
|
12,300
|
|
Senior
Secured Convertible Note - April 2020
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,900
|
|
|
$
|
3,900
|
|
Totals
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,200
|
|
|
$
|
16,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Convertible
Note - December 2018
|
|
|
|
|
|
|
|
|
|
$
|
1,700
|
|
|
$
|
1,700
|
|
Senior
Secured Convertible Note - November 2019
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,439
|
|
|
$
|
6,439
|
|
Totals
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,139
|
|
|
$
|
8,139
|
|
(1)
|
As
noted above, as presented in the fair value hierarchy table, Level-1 represents quoted prices in active markets for identical
items, Level-2 represents significant other observable inputs, and Level-3 represents significant unobservable inputs. There
were no transfers between the respective Levels during the six-month period ended June 30, 2020.
|
The
April 2020 Senior Convertible Note, the November 2019 Senior Secured Convertible Notes and the December 2018 Senior Secured Convertible
Note are each accounted for under the ASC 825-10-15-4 fair value option (“FVO”) election. Under the FVO election the
financial instrument is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair
value on a recurring basis at each reporting period date. As provided for by ASC 825-10-50-30(b), the estimated fair value adjustment
is presented as a single line item within other income (expense) in the accompanying unaudited condensed consolidated statement
of operations.
The
following table presents changes in Level 3 liabilities measured at fair value for the six-month period ended June 30, 2020 and
2019. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified
within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes
in fair value attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable
long- dated volatilities) inputs:
Note 9
— Financial Instruments Fair Value Measurements - continued
Fair
Value Assumptions – June 30, 2020:
|
|
November
2019
Senior
Secured
Convertible
Note
Series
A & Series B
|
|
|
April
2020
Senior
Convertible
Note
|
|
Required rate of return
|
|
|
29
|
%
|
|
|
68
|
%
|
Conversion Price
|
|
$
|
1.60
|
|
|
$
|
5.00
|
|
Expected term (years)
|
|
|
1.25
|
|
|
|
1.83
|
|
Volatility
|
|
|
79
|
%
|
|
|
65
|
%
|
Risk free rate
|
|
|
0.16
|
%
|
|
|
0.16
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Fair
Value Assumptions – June 30, 2019:
|
|
December
2018
Senior
Secured
Convertible
Note
|
|
Required rate of return
|
|
|
11.1
|
%
|
Conversion Price
|
|
$
|
1.60
|
|
Expected term (years)
|
|
|
1.51
|
|
Volatility
|
|
|
53
|
%
|
Risk free rate
|
|
|
1.8
|
%
|
Dividend yield
|
|
|
0
|
%
|
Note
10 — Outstanding Debt
The
fair value and face value principal of outstanding debt as of the dates indicated is as follows:
|
|
|
|
Contractual
Maturity Date
|
|
Stated Interest Rate
|
|
|
Conversion Price
per Share
|
|
|
Face Value
Principal
Outstanding
|
|
|
Fair Value
|
|
December 2018 Senior Secured Convertible Note
|
|
(1)
|
|
December 31, 2020
|
|
|
7.875
|
%
|
|
$
|
1.60
|
|
|
$
|
—
|
|
|
$
|
—
|
|
November 2019 Senior Secured Convertible Note
|
(2)
|
(3)
|
|
September 30, 2021
|
|
|
7.875
|
%
|
|
$
|
1.60
|
|
|
$
|
8,305
|
|
|
$
|
12,300
|
|
April 2020 Senior Convertible Note
|
|
(4)
|
|
April 30, 2022
|
|
|
7.875
|
%
|
|
$
|
5.00
|
|
|
|
4,111
|
|
|
|
3,900
|
|
Balance as of June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,416
|
|
|
$
|
16,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2018 Senior Secured Convertible Note
|
|
(1)
|
|
December 31, 2020
|
|
|
7.875
|
%
|
|
$
|
1.60
|
|
|
$
|
1,692
|
|
|
$
|
1,700
|
|
November 2019 Senior Secured Convertible Note
|
|
(2)
|
|
September 30, 2021
|
|
|
7.875
|
%
|
|
$
|
1.60
|
|
|
|
7,000
|
|
|
$
|
6,439
|
|
Balance as of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,692
|
|
|
$
|
8,139
|
|
Note 10 — Outstanding Debt - continued
The changes in the fair value of debt during the three and six
months ended June 30, 2020 is as follows:
|
|
December 2018
Senior Secured
Convertible Note
|
|
|
November 2019
Senior Secured Convertible Note
Series A
& Series B
|
|
|
April 2020 Senior
Convertible Note
|
|
|
Sum of Balance
Sheet
Fair Value Components
|
|
|
Other Income
(Expense)
|
|
Fair Value - December 31, 2019
|
|
$
|
1,700
|
|
|
$
|
6,439
|
|
|
$
|
—
|
|
|
$
|
8,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face value principal – issue date
|
|
|
—
|
|
|
|
7,000
|
|
|
|
—
|
|
|
|
7,000
|
|
|
|
|
|
Fair value adjustment – issue date
|
|
|
—
|
|
|
|
2,600
|
|
|
|
—
|
|
|
|
2,600
|
|
|
|
(2,600
|
)
|
Installment repayments – common stock
|
|
|
(1,642
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,642
|
)
|
|
|
|
|
Non-installment payments – common stock
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
|
|
Non-installment payments – cash
|
|
|
—
|
|
|
|
(138
|
)
|
|
|
—
|
|
|
|
(138
|
)
|
|
|
|
|
Change in fair value
|
|
|
9
|
|
|
|
4,699
|
|
|
|
—
|
|
|
|
4,708
|
|
|
|
(4,708
|
)
|
Lender Fee - November 2019 Senior Secured Convertible Note
- Series B
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(700
|
)
|
Fair Value at March 31, 2020
|
|
$
|
63
|
|
|
$
|
20,600
|
|
|
$
|
—
|
|
|
$
|
20,663
|
|
|
|
|
|
Other Income (Expense) - Change in fair value - three months
ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(8,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face value principal – issue date
|
|
|
—
|
|
|
|
—
|
|
|
|
4,111
|
|
|
|
4,111
|
|
|
|
|
|
Fair value adjustment – issue date
|
|
|
—
|
|
|
|
—
|
|
|
|
(411
|
)
|
|
|
(411
|
)
|
|
|
411
|
|
Installment repayments – common stock
|
|
|
(50
|
)
|
|
|
(5,695
|
)
|
|
|
—
|
|
|
|
(5,745
|
)
|
|
|
|
|
Non-installment payments – common stock
|
|
|
(2
|
)
|
|
|
(242
|
)
|
|
|
—
|
|
|
|
(244
|
)
|
|
|
|
|
Non-installment payments – cash
|
|
|
—
|
|
|
|
—
|
|
|
|
(54
|
)
|
|
|
(54
|
)
|
|
|
|
|
Change in fair value
|
|
|
(11
|
)
|
|
|
(2,363
|
)
|
|
|
254
|
|
|
|
(2,120
|
)
|
|
|
2,120
|
|
Lender Fee - April 2020 Senior Convertible Note
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(411
|
)
|
Fair Value at June 30, 2020
|
|
$
|
—
|
|
|
$
|
12,300
|
|
|
$
|
3,900
|
|
|
$
|
16,200
|
|
|
|
|
|
Other Income (Expense) - Change in fair value - three months
ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,120
|
|
Other Income (Expense) - Change in fair value - six months
ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,888
|
)
|
Note 10 — Outstanding Debt - continued
The changes in the fair value of debt during the three six months
ended June 30, 2019 is as follows:
|
|
December 2018 Senior Secured Convertible Note
|
|
|
Other Income (Expense)
|
|
Fair Value - December 31, 2018
|
|
$
|
7,903
|
|
|
$
|
|
|
Installment repayments - common stock
|
|
|
(52
|
)
|
|
|
|
|
Non-installment payments - common stock
|
|
|
|
|
|
|
|
|
Non-installment payments - cash
|
|
|
(159
|
)
|
|
|
|
|
Change in fair value
|
|
|
559
|
|
|
|
(559
|
)
|
Fair Value - March 31, 2019
|
|
|
8,251
|
|
|
|
|
|
Other Income (Expense) - Change in fair value
- three months ended March 31,
2019
|
|
|
|
|
|
|
(559
|
)
|
Installment repayments - common stock
|
|
|
(1,480
|
)
|
|
|
|
|
Non-installment payments - common stock
|
|
|
(22
|
)
|
|
|
|
|
Non-installment payments - cash
|
|
|
(120
|
)
|
|
|
|
|
Change in fair value
|
|
|
161
|
|
|
|
(161
|
)
|
Fair Value - June 30, 2019
|
|
$
|
6,790
|
|
|
|
|
|
Other Income (Expense) - Change in fair value
- three months ended June 30,
2020
|
|
|
|
|
|
|
(161
|
)
|
Other Income (Expense) - Change in fair value
- six months
ended June 30, 2020
|
|
|
|
|
|
$
|
(720
|
)
|
Note
10 — Outstanding Debt - continued
(1)
|
With
respect to the December 2018 Senior Secured Convertible Note, in the six months ended June 30, 2020, approximately $1,692
of principal repayments and approximately $6 of non-installment payments were settled through the issuance of approximately
2,075 shares of common stock of the Company with a fair value of approximately $2,901 (with such fair value measured as the
respective conversion date quoted closing price of the common stock of the Company). As of June 30, 2020, the December 2018
Senior Secured Debt balance was paid in full.
|
|
|
(2)
|
With
respect to the November 2019 Senior Secured Convertible Note - Series A and Series B
- in the six months ended June 30, 2020, approximately $5,695 of Accelerated and Bi-Monthly
Installment principal repayments and approximately $242 of non-installment payments were
settled through the issuance of approximately 3,753 shares of common stock of the Company
with a fair value of approximately $8,671 (with such fair value measured as the respective
conversion date quoted closing price of the common stock of the Company). Additionally,
non-installment payments of approximately $138 were paid in cash in the same period.
There were no such installment repayments nor non-installment payments in the corresponding
prior year period. Subsequent to June 30, 2020, through August 11, 2020, approximately
$480 of Accelerated and Bi-Monthly Installment principal repayments and approximately
$4 of non-installment payments were settled through the issuance of approximately
303 shares of common stock of the Company with a fair value of approximately $618 (with such fair value measured as the respective conversion date quoted closing price
of the common stock of the Company).
|
|
|
(3)
|
The
November 2019 Senior Secured Convertible Note - Series B has a face value principal of
approximately $7,000 and lender fees of approximately $700 (recognized as a current period
other expense), resulting in cash proceeds of approximately $6,300 received by
the Company, with such cash proceeds delivered to the Company by the investors on March
30, 2020, at their election under the prepayment provisions of the Series B note of the
November 2019 Senior Secured Convertible Note. Additionally, under a separate agreement,
the Company incurred an expense of approximately $410 with respect to the placement agent
advisory fee. The November 2019 Senior Secured Convertible Note - Series B has a contractual
maturity date of September 30, 2021 and a stated interest rate of 7.875% per annum.
The
November 2019 Senior Secured Convertible Notes - Series A and Series B - have a stated interest rate of 7.875% per annum
to the extent the investor has funded the cash proceeds of each such respective Series A and Series B. During the period
November 4, 2019 to March 29, 2020, during which period the Series B was not funded by the investor, the Company incurred
interest expense of 3.0% per annum on the Series B $7.0 million face value principal. The (cash) payment of such 3.0%
interest on the $7.0 million face value principal resulted in the recognition of approximately $53 of interest expense during the period January 1, 2020 through March 29, 2020, with such interest expense included in other income (expense)
in the accompanying (unaudited) condensed consolidated statement of operations. There was no such interest expense in
the corresponding prior year period.
|
|
|
(4)
|
On
April 30, 2020, the Company entered into a Security Purchase Agreement for the issue of a Senior Convertible Note with a face
value principal of approximately $4,111 and lender fees of approximately $411 (recognized as a current period other
expense), resulting in $3,700 cash proceeds received by the Company. - referred to as the April 2020 Senior Convertible Note.
Additionally, under a separate agreement, the Company incurred a current period expense of approximately $120 with respect
to the placement agent advisory fee. The April 2020 Senior Convertible Note has a 24 month maturity, a 7.875% interest rate
per annum, and a conversion price of $5.00 per share of the Company’s common stock. On the maturity date, the Company
will pay the holder in cash all remaining outstanding principal and unpaid interest thereon. In the six months ended June
30, 2020 non-installment payments in cash at the stated interest rate were made in the amount of approximately $54.
|
Subsequent
to June 30, 2020, on August 5, 2020, the Company entered into a Securities Purchase Agreement (“SPA”) with an
institutional investor (the “Investor”), and pursuant to the SPA, on August 6, 2020, the Company issued to the
Investor a Senior Secured Convertible Note (the “August 2020 Senior Secured Convertible Note”) with a face value
principal amount of $7,750 and $750 lender fee (recognized as a current period other expense), resulting in $7,000
cash proceeds received by the Company. The August 2020 Senior Secured Convertible Note has a 24 month maturity, a 7.875%
interest rate per annum, and a conversion price of $5.00 per share of the Company’s common stock. On the maturity date,
the Company will pay the holder in cash all remaining outstanding principal and unpaid interest thereon.
The
August 2020 Senior Secured Convertible Note investor and its affiliates also hold the Company’s November 2019 Senior
Secured Convertible Notes the April 2020 Senior Convertible Note. The August 2020 Senior Secured Convertible Note contains certain
representations and warranties, covenants and indemnities for similar transactions as well as the past transactions entered into
with the investor. The August 2020 Senior Secured Convertible Note contains certain redemption rights similar to the April 2020
Senior Convertible Note and security interest with a first priority line in all of our assets, including all of the Company’
current and future significant subsidiaries, similar to the November 2019 Senior Secured Convertible Notes.
Note
11 — Cares Act Paycheck Protection Program Loan
On
April 8, 2020 the Company entered into a loan agreement with JP Morgan Chase, N.A., and received approximately $300 of proceeds,
pursuant to the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) Paycheck Protection Program (“PPP”)
- the “PPP Loan”. The PPP Loan matures on April 8, 2022 and bears interest at a rate of approximately 1.0% per annum.
Monthly amortized principle and interest payments are deferred for six months after the PPP Loan date-of-disbursement after which
time each month following the deferral period, the Company will make equal monthly payments on principal and interest balances
to fully amortize the loan balances by the maturity date. As such, $150 is presented as a current liability and $150 is presented
as a non-current liability in the accompanying unaudited condensed consolidated balance sheet as of June 30, 2020. The PPP Loan
funds were received on April 8, 2020. The PPP Loan contains events of default and other provisions customary for a loan of this
type. The Paycheck Protection Program provides that (1) the use of PPP Loan amount shall be limited to certain qualifying
expenses, (2) 100 per cent of the principal amount of the loan is guaranteed by the Small Business Administration and (3) an amount
up to the full principal amount may qualify for loan forgiveness in accordance with the terms of CARES Act. Under the CARES
Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and
covered utilities during either, at our discretion, the eight-week period or twenty-four week period beginning on the date of
disbursement of proceeds from the PPP loan. In the event the PPP loan, or any portion thereof, is forgiven pursuant to the PPP,
the amount forgiven is applied to outstanding principal. The Company is not yet able to determine the amount potentially to
be forgiven, if any. As of June 30, 2020 and the date of this filing, the Company was in full compliance with the provisions
of the PPP Loan.
Note
12 — Preferred Stock
During
the six months ended June 30, 2020, the Company’s board-of-directors declared the payment of Series B Convertible Preferred
Stock dividends, earned as of December 31, 2019 and March 31, 2020, totaling approximately $140, which have been settled
by the issue of an additional 47 shares of Series B Convertible Preferred Stock. Subsequent to June 30, 2020, in July 2020,
the Company’s board-of-directors declared the payment of Series B Convertible Preferred Stock dividend payment earned as
of June 30, 2020, payable as of July 1, 2020 of approximately $71 to be settled by the issue of an additional 24 shares of Series
B Convertible Preferred Stock. The Series B Convertible Preferred Stock dividend payment earned as of June 30, 2020 and payable
July 1, 2020, was not recognized as a dividend payable liability in the accompanying unaudited condensed consolidated balance
sheet as the Company’s board of directors had not declared such dividends payable as of June 30, 2020.
Note
13 — Stockholders’ Equity, Common Stock Purchase Warrants, and Noncontrolling Interest
As of June 30, 2020, a total
of 17,250 common stock purchase warrants were issued and outstanding, with a weighted average exercise price of $1.68 per
share of common stock of the Company; and, as of June 30, 2019, a total of 18,449 common stock purchase warrants were issued
and outstanding with a weighted average exercise price of $1.57 per share of common stock of the Company. During
the six months ended June 30, 2020, 1,199 Series S Warrants were exercised for cash proceeds of $12, resulting in the issuance
of a corresponding number of shares of the Company’s common stock.
Subsequent to June 30, 2020,
at the annual meeting of stockholders held on July 24, 2020the Company’s stockholders approved an increase
of authorized shares of common stock of the Company by 50,000 shares, from 100,000 shares to
150,000 shares.
The
noncontrolling interest (“NCI”) included as a component of consolidated total stockholders’ equity for the periods
indicated is as follows:
|
|
Six
Months
Ended
June 30, 2020
|
|
|
Year
Ended
December 31, 2019
|
|
NCI - equity (deficit) -
beginning of period
|
|
$
|
(814
|
)
|
|
$
|
(162
|
)
|
Minority Interest investment in Solys
Diagnostics Inc
|
|
|
—
|
|
|
|
889
|
|
Minority Interest share subscription
receivable - Solys Diagnostics Inc.
|
|
|
—
|
|
|
|
(889
|
)
|
Minority Interest Lucid Diagnostics
Inc. 2018 Equity Plan stock option exercise
|
|
|
5
|
|
|
|
—
|
|
Net loss attributable to NCI - Lucid
Diagnostics Inc.
|
|
|
(640
|
)
|
|
|
(801
|
)
|
Net loss attributable to NCI - Solys
Diagnostics Inc.
|
|
|
(62
|
)
|
|
|
(10
|
)
|
Stock-based compensation
expense - Lucid Diagnostics Inc. 2018 Equity Plan
|
|
|
26
|
|
|
|
159
|
|
NCI - equity
(deficit) - end of period
|
|
$
|
(1,485
|
)
|
|
$
|
(814
|
)
|
Note
14 —Loss Per Share
Basic
earnings (loss) per common share is computed by dividing net loss by the weighted average number of common shares outstanding
during the reporting period. Diluted earnings (loss) per common share is computed similar to basic earnings (loss) per common
share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common
stock were exercised or converted into common stock. Diluted weighted average common shares include common stock potentially issuable
under the Company’s convertible notes, preferred stock, warrants and vested and unvested stock options.
The
following table sets forth the computation of earnings (loss) per share attributable to PAVmed Inc. and loss per share attributable
to PAVmed Inc. common stockholders for the respective periods indicated:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss - before noncontrolling
interest
|
|
$
|
(5,844
|
)
|
|
$
|
(3,739
|
)
|
|
$
|
(20,755
|
)
|
|
$
|
(7,443
|
)
|
Net loss attributable
to noncontrolling interest
|
|
|
266
|
|
|
|
145
|
|
|
|
702
|
|
|
|
314
|
|
Net loss - as
reported, attributable to PAVmed Inc.
|
|
$
|
(5,578
|
)
|
|
$
|
(3,594
|
)
|
|
$
|
(20,053
|
)
|
|
$
|
(7,129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Convertible
Preferred Stock dividends:
|
|
$
|
(71
|
)
|
|
$
|
(66
|
)
|
|
$
|
(141
|
)
|
|
$
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable
to PAVmed Inc. common stockholders
|
|
$
|
(5,649
|
)
|
|
$
|
(3,660
|
)
|
|
$
|
(20,194
|
)
|
|
$
|
(7,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding, basic and diluted
|
|
|
44,781
|
|
|
|
27,606
|
|
|
|
44,140
|
|
|
|
27,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss - as
reported, attributable to PAVmed Inc.
|
|
$
|
(0.12
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.26
|
)
|
Net loss attributable
to PAVmed Inc. common stockholders
|
|
$
|
(0.13
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(0.27
|
)
|
The
following common stock equivalents have been excluded from the computation of diluted weighted average shares outstanding as their
inclusion would be anti-dilutive:
|
|
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
PAVmed Inc. 2014 Equity
Plan stock options and restricted stock awards
|
|
|
7,965
|
|
|
|
5,804
|
|
Unit purchase options - as to shares
of common stock
|
|
|
53
|
|
|
|
53
|
|
Unit purchase options - as to shares
underlying Series Z Warrants
|
|
|
53
|
|
|
|
53
|
|
Series Z Warrants
|
|
|
16,815
|
|
|
|
16,815
|
|
Series W Warrants
|
|
|
382
|
|
|
|
382
|
|
Series B Convertible
Preferred Stock
|
|
|
1,180
|
|
|
|
1,113
|
|
Total
|
|
|
26,448
|
|
|
|
24,220
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 2019 (the “Form 10-K”) as filed
with the Securities and Exchange Commission (the “SEC”). Unless the context otherwise requires, references herein
to “we”, “us”, and “our”, and to the “Company” or “PAVmed” are to
PAVmed Inc. and its subsidiaries, including its majority-owned subsidiary, Lucid Diagnostics Inc. (“Lucid Diagnostics”
or “LUCID”) and Solys Diagnostics, Inc. (“Solys Diagnostics” or “SOLYS”).
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
consolidated results of operations and consolidated financial position, our estimates regarding expenses, future revenue, capital
and operating expenditure requirements and needs for additional financing, our business strategy and plans and the 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 our actual results may differ significantly from the results discussed 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 commercialization of our products;
|
|
●
|
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 sustain status as a going concern;
|
|
●
|
our
ability to protect our intellectual property;
|
|
●
|
our
ability to complete strategic acquisitions;
|
|
●
|
our
ability to manage growth and integrate acquired operations;
|
|
●
|
the
liquidity and trading of our securities;
|
|
●
|
our
regulatory or operational risks;
|
|
●
|
cybersecurity
risks;
|
|
●
|
risks
related to the COVID-19 pandemic;
|
|
●
|
the
impact of the material weakness identified by our management;
|
|
●
|
our
estimates regarding expenses, future revenue, capital requirements, and needs for additional financing; and
|
|
●
|
our
status as an “emerging growth company” under the JOBS Act.
|
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 rely on our forward-looking statements. You should read this Form 10-Q and the Form 10-K, 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 highly-differentiated multi-product technology medical device 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. Since inception on June 26, 2014, our activities have focused on advancing our lead products towards regulatory approval
and commercialization, protecting our intellectual property, and building our corporate infrastructure and management team. We
operate in one segment as a medical device company with four operating divisions, which include GI Health, Minimally Invasive
Interventions, Infusion Therapy, and Emerging Innovations. 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. We have
ongoing operations conducted in two active majority owned subsidiaries: Lucid Diagnostics Inc. (“Lucid Diagnostics”
or “LUCID”), which was incorporated in May 2018, and Solys Diagnostics Inc. (“Solys Diagnostics” or “SOLYS”),
which was incorporated in October 2019.
PAVmed
and its subsidiaries have proprietary rights to the trademarks used herein, including, among others, PAVmed™, Lucid Diagnostics™,
Caldus™, CarpX™, DisappEAR™, EsoCheck™, EsoGuard™, EsoCheck Cell Collection Device™, EsoCure
Esophageal Ablation Device™, NextCath™, NextFlo™, PortIO™, and “Innovating at the Speed of Life”™.
Solely as a matter of convenience, trademarks and trade names referred to herein may or may not be accompanied with the requisite
marks of “™” or “®”; however, the absence of such marks is not intended to indicate, in any
way, PAVmed or its subsidiaries will not assert, to the fullest extent possible under applicable law, their respective rights
to such trademarks and trade names.
Our
multiple products are in various phases of development, regulatory clearances, approvals, and commercialization.
|
●
|
EsoCheck
has received 510(k) marketing clearance from the U.S. Food and Drug Administration (“FDA”) as an esophageal cell
collection device. EsoGuard has been established as a Laboratory Developed Test (“LDT”) and was launched commercially
in December 2019 after Clinical Laboratory Improvement Amendment (“CLIA”) and College of American Pathologists
(“CAP”) accreditation of the test at LUCID’s commercial diagnostic laboratory partner ResearchDx Inc. (“ResearchDx”),
headquartered in Irvine, CA.
|
|
|
|
|
●
|
Our
CarpX device is a patented, single-use, disposable, minimally invasive device designed as a precision cutting tool to treat
carpal tunnel syndrome while reducing recovery times that was cleared by the FDA under section 510(k) on April 20, 2020.
|
|
|
|
|
●
|
Our
other products in development have not yet received clearance or approval to be marketed or sold in the U.S. or elsewhere.
We have been granted patents by the U.S. Patent and Trademark Office (“USPTO”) for CarpX, PortIO, and Caldus and
have acquired licenses to certain patents and intellectual property for DisappEAR from Tufts University and a group of academic
centers, for EsoGuard and EsoCheck from Case Western Reserve University (“CWRU”) and more recently for patents
covering infrared technology to non-invasively detect glucose in tissue within the in-patient field of use from Liquid Sensing,
Inc.
|
A
brief description of our key divisions and products is as follows:
GI
Health
EsoGuard,
EsoCheck, and EsoCure
This
product family consists of a patented platform technology (EsoGuard and EsoCheck) licensed from CWRU to Lucid Diagnostics that
was developed to provide an accurate, non-invasive, patient-friendly screening test for the early detection of adenocarcinoma
of the esophagus (“EAC”) and of Barrett’s Esophagus (“BE”), including dysplasia, pre-cursors to
EAC in patients with chronic gastroesophageal reflux (“GERD”). This product family also consists of a technology (EsoCure)
developed by PAVmed to treat BE. EsoGuard is a molecular diagnostic esophageal DNA test shown in a published human study to be
highly accurate at detecting BE, as well as EAC. EsoCheck is a non-invasive cell collection device designed to sample cells from
a targeted region of the esophagus in a five-minute office-based procedure, without the need for endoscopy. Both EsoGuard and
EsoCheck are commercially available, as separately marketed products, for physicians to prescribe for U.S. patients. EsoCure is
in development to provide an Esophageal Ablation Device using Caldus Technology to allow a clinician to treat dysplastic BE before
it can progress to EAC, a highly lethal esophageal cancer, and to do so without the need for complex and expensive capital equipment.
Our
near-term strategy, as gastroenterology clinics resume doing elective procedures post COVID-19 related shutdowns, is to market
EsoGuard LDT through a network of independent representatives working with our in-house sales management. On June 9, 2020, the
U.S. Center for Medicare and Medicare Services (“CMS”) published its preliminary gapfill payment recommendations for
the current review cycle. Medicare Administrative Contractor (“MAC”) Palmetto GBA recommended for EsoGuard a payment
of $1,938.01 in 38 states and $2,690.00 in 12 states (including Florida, New Jersey and Pennsylvania) and two U.S. territories.
This preliminary payment determination will be subject to public comments until August 10, 2020, after which the final MAC-specific
gapfill payment determination will be posted. CMS will accept reconsideration requests for 30 days before finalizing the payment
amount, which will apply for the period January 1, 2021 through December 31, 2023.
Our
longer-term strategy is to secure a specific indication, based on published guidelines, for BE screening in certain at-risk populations
using EsoGuard on samples collected with EsoCheck. This use of EsoGuard together with EsoCheck as a screening system must be cleared
or approved by the FDA as an IVD device (“EsoGuard IVD”). In September 2019, we entered into an agreement with a clinical
research organization (“CRO”) in connection with EsoGuard IVD clinical trials. The CRO will assist us with conducting
two concurrent clinical trials, an EsoGuard IVD screening study and an EsoGuard IVD case control study. Although we enrolled our
first patients in the trial, the COVID-19 outbreak curtailed all elective clinic procedures until the clinics are cleared to resume
activities.
In
February 2020, we received Breakthrough Device designation for the EsoGuard IVD. The FDA Breakthrough Device Program was
created to offer patients more timely access to breakthrough technologies which provide for more effective treatment or diagnosis
of life-threatening or irreversibly debilitating human disease or conditions by expediting their development, assessment and review
through enhanced communications and more efficient and flexible clinical study design, including more favorable pre/post market
data collection balance. Breakthrough Devices receive priority FDA review, and a bipartisan bill before Congress (H.R. 5333) seeks
to require Medicare to temporarily cover all Breakthrough Devices for three years while determining permanent coverage.
Minimally
Invasive Interventions
CarpX
We
received FDA market clearance under section 510(k) in April 2020 for our CarpX minimally invasive surgical device for use in the
treatment of carpal tunnel syndrome. We believe CarpX will allow the physician to relieve the compression on the median nerve
without an open incision or the need for endoscopic or other imaging equipment. To use CarpX, the operator first advances a guidewire
through the carpal tunnel under the ligament, and then advanced over the wire and positioned in the carpal tunnel under ultrasonic
and/or fluoroscopic guidance. When the CarpX balloon is inflated it creates tension in the ligament positioning the cutting electrodes
underneath it and creates space within the tunnel, providing anatomic separation between the target ligament and critical structures
such as the median nerve. Radiofrequency energy is briefly delivered to the electrodes, rapidly cutting the ligament, and relieving
the pressure on the nerve. We believe CarpX will be significantly less invasive than existing treatments.
We
plan to commercialize our products through a network of independent U.S. sales representatives and/or inventory-stocking medical
distributors together with our in-house sales management and marketing teams, including a national sales manager with over 20
years of commercial experience in orthopedics. Our focus on CarpX, and other high margin products and services, is particularly
suitable to this mode of distribution. A high gross margin allows us to properly incentivize our distributors, which in turn allows
us to attract the top distributors with the most robust networks in our targeted specialties. Independent distributors play an
even larger role in many parts of Europe, most of Asia and emerging markets worldwide.
We
may eventually choose to build (or obtain through a strategic acquisition) our own sales and marketing team to commercialize CarpX,
along with some or all of our products, if it is in our long-term interests. We may also choose to enter into distribution agreements
with larger strategic partners whereby we take full responsibility for the manufacturing of CarpX but outsource some or all of
its distribution to a partner, particularly outside the United States, with its own robust distribution channels.
Infusion
Therapy
PortIO
This
product is a novel, patented, implantable, intraosseous vascular medical device which does not require accessing the central venous
system and does not have an indwelling intravascular component. It is designed to be highly resistant to occlusion and may not
require regular flushing. It features simplified, near-percutaneous insertion and removal, without the need for surgical dissection
or radiographic confirmation. It provides a near limitless number of potential access sites and can be used in patients with chronic
total occlusion of their central veins. We believe the absence of an intravascular component will likely result in a very low
infection rate.
Based
on encouraging animal data, once the COVID-19 outbreak allows for resumption of clinical trial activities, we are planning a long-term
(60-day implant duration) first-in-human clinical study in dialysis patients or those with poor venous access in Colombia, South
America and intend to fulfill the likely FDA request for human clinical data with a clinical safety study in the United States
following FDA clearance of our Investigational Device Exemption (IDE) submission to begin clinical testing. In addition, we plan
to file for FDA Breakthrough Device Designation for PortIO.
NextFlo
This
product is a patented, disposable, and highly accurate infusion platform technology including intravenous (“IV”)
infusion sets and disposable infusion pumps (DIP) designed to eliminate the need for complex and expensive electronic infusion
pumps for most of the estimated one million infusions of fluids, medications and other substances delivered each day in hospitals
and outpatient settings in the United States. NextFlo is designed to deliver highly accurate gravity-driven infusions independent
of the height of the IV bag. It maintains constant flow by incorporating a proprietary, passive, pressure-dependent variable flow-resistor
consisting entirely of inexpensive, easy-to-manufacture disposable mechanical parts. NextFlo testing has demonstrated constant
flow rates across a wide range of IV bag heights, with accuracy rates comparable to electronic infusion pumps.
We
are seeking a long-term strategic partnership or acquiror. We have been running a formal M&A process for NextFlo targeting
strategic and financial partners. The process is active with ongoing discussion with multiple parties and we are simultaneously
progressing toward an initial FDA 510(k) submission.
Emerging
Innovations
Emerging
innovations refers to a diversified and expanding portfolio of innovative products designed to address unmet clinical needs across
a broad range of clinical conditions. We are evaluating a number of these product opportunities and intellectual property covering
a spectrum of clinical conditions, which have either been developed internally or have been presented to us by clinician innovators
and academic medical centers for consideration of a partnership to develop and commercialize these products. This collection of
products includes, without limitation, initiatives in noninvasive glucose monitoring, mechanical circulatory support, and pediatric
ear tubes. In June 2020, we announced the execution of a letter of intent to consummate a series of agreements to develop and
utilize Canon Virginia’s commercial grade and scalable aqueous silk fibroin molding process to manufacture PAVmed’s
DisappEAR molded pediatric ear tubes for commercialization. Furthermore, we are exploring other opportunities to grow our business
and enhance shareholder value through the acquisition of pre-commercial or commercial stage products and/or companies with potential
strategic corporate and commercial synergies.
Impact
of SARS-CoV-2 - COVID-19 Pandemic
We
continue to monitor the ongoing impact on the national economy and our business of the pandemic resulting from “SARS-CoV-2”
(severe acute respiratory syndrome coronavirus 2), commonly referred to by its resulting illness as “COVID-19” (coronavirus
disease-2019). We expect the significance of the pandemic, including the extent of its effect on our consolidated financial condition
and consolidated operational results and cash flows, to be dictated by the success of efforts to mitigate the spread or containment
of the virus and the impact of actions taken in response. The SARS-CoV-2 virus (and resulting COVID-19 illness) and the corresponding
mitigation and containment efforts may have an adverse impact on our operations, supply chains and distribution systems and /or
those of our contractors and laboratory partner and increase our and their operating expenses. In this regard, the ability of
our employees or our contractors, laboratory partner, and other service providers, to perform their work may be adversely affected.
In addition, the spread of the SARS-CoV-2 virus has disrupted the United States’ healthcare and healthcare regulatory systems
which could divert healthcare resources away from, or materially delay FDA approval with respect to our products. Furthermore,
our clinical trials have been and may be further affected by the pandemic, as site initiation and patient enrollment may
be delayed, for example, due to prioritization of hospital resources toward the virus /illness response, as well as travel restrictions
imposed by governments, and the inability to access clinical test sites for initiation and monitoring. The pandemic may have an
adverse impact on the economies and financial markets of many countries, including the United States of America, resulting in
an economic downturn that could adversely affect demand for our products and services and /or our product candidates. While we
are not able at this time to estimate the impact of the pandemic on our consolidated financial condition, consolidated results
of operations, and /or consolidated cash flows, the adverse impact could be material.
Results
of Operations
Overview
General
and administrative expenses
General
and administrative expenses consist primarily of salaries and related costs for personnel, including travel expenses for our employees
in executive functions, facility-related costs, professional fees, accounting and legal services, 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 we anticipate an increase in payroll and related
expenses related to the roll-out of our commercial sales and marketing operations. 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, director and officer 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 preclinical studies and
engineering studies;
|
|
●
|
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.
|
We
plan to incur research and development expenses for the foreseeable future as we continue the development of our products. Our
research and development activities are focused principally on obtaining FDA approvals and developing product improvements or
extending the utility of the lead products in our pipeline, including CarpX, EsoCheck and EsoGuard, along with advancing our DisappEAR,
PortIO, NextFlo, and noninvasive glucose monitoring products through their respective development phase.
Other
Income and Expense, net
Other
income and expense, net, consists principally of changes in fair value of our senior secured convertible notes and our senior
convertible note; losses on extinguishment of debt upon repayment of such convertible notes; and interest expense recognized in
connection with one of our senior secured convertible notes.
Three months ended June 30, 2020 versus June 30, 2019
General and administrative expenses
In the three months ended
June 30, 2020, general and administrative costs were approximately $2.9 million, compared to $1.9 million for the three months
ended June 30, 2019. The net increase of $1.0 million was principally related to:
|
●
|
approximately $0.5 million increase in compensation related
costs principally related to sales staffing levels and other costs related to our commercial launch of EsoGuard;
|
|
●
|
approximately $0.4 million in consulting services related
to patents, regulatory compliance, legal processes for contract review, and public company expenses; and
|
|
●
|
approximately $0.1 million in general business expenses.
|
Research
and development expenses
In the three months ended
June 30, 2020, research and development costs were approximately $2.1 million, compared to $1.4 million for the corresponding
period in the prior year, with the $0.7 million increase principally resulting from increased clinical trial costs with
respect to CarpX, NextFlo, Port IO, EsoGuard and a glucose monitoring project at SOLYS.
Other
Income and Expense
Change
in fair value of convertible debt
In the three months ended
June 30, 2020, the non-cash expense recognized for the change in the fair value of our senior secured convertible notes and our
senior convertible note was approximately $2.1 million of other income, inclusive of the recognition of current period other expense
of approximately $0.4 million of lender fees incurred with respect to convertible notes as discussed below, as compared to $0.2
million of other expense for the three months ended June 30, 2019, resulting in an increase of approximately $2.3 million
principally related to:
|
●
|
an
increase in the face principal amount of our senior secured convertible notes of approximately $4.1 million, inclusive of
$0.4 million in lender fees; and
|
|
●
|
among
other fair value input assumptions, a substantive increase in the Company’s common stock price between the periods resulting
in a higher estimated fair value of the senior secured convertible notes and the senior convertible note.
|
|
●
|
approximately $0.4 million of lender fees
recognized as other expense with respect to our Senior Convertible Note issued April 30, 2020. There were no such fees
incurred in the corresponding prior year period.
|
See
Note 9 and Note 10 of our unaudited condensed consolidated financial statements for a further discussion of the change in fair
value of our convertible debt, and “—Going Concern, Liquidity, and Capital Resources”, below.
Loss
from Extinguishment of Debt
In the three months ended
June 30, 2020, we recognized a debt extinguishment loss of approximately $2.8 million resulting from the difference between the
face value principal repayments and corresponding non-installment payments of the interest thereon, of the respective convertible
notes, and the fair value of the shares of our common stock issued upon conversion of such convertible notes, with such fair value
measured as the respective issue date closing quoted price per share of our common stock. In the corresponding prior year period,
during the three months ended June 30, 2019, we recognized a debt extinguishment loss of approximately $0.3 million, resulting
from the difference between the face value principal repayments and corresponding non-installment payments of the interest thereon,
with respect to our Senior Secured Convertible Note issued December 27, 2018, and the fair value of the shares of our common stock
issued upon conversion of such convertible note, with such fair value measured as the respective issue date closing quoted price
per share of our common stock. See Note 10 of our unaudited condensed consolidated financial statements for a further discussion
of our convertible notes.
Six
months ended June 30, 2020 versus June 30, 2019
General
and administrative expenses
In
the six months ended June 30, 2020, general and administrative costs were approximately $5.6 million, compared to $3.6 million
for the six months ended June 30, 2019. The net increase of $2.0 million was principally related to:
|
●
|
approximately
$0.7 million increase in compensation related costs principally related to sales staffing levels and other costs related to
our commercial launch of EsoGuard;
|
|
●
|
approximately
$1.1 million in consulting services related to patents, regulatory compliance, legal processes for contract review, and public
company expenses; and
|
|
●
|
approximately
$0.2 million in general business expenses.
|
Research
and development expenses
In the six months ended
June 30, 2020, research and development costs were approximately $4.7 million as compared to $2.9 million for the corresponding
period in the prior year, with the $1.8 increase principally resulting from increased clinical trial costs with respect
to CarpX, NextFlo, Port IO, EsoGuard and a glucose monitoring project at SOLYS.
Other
Income and Expense
Change
in fair value of convertible debt
In the six months ended
June 30, 2020, the (non-cash) expense recognized for the change in the fair value of our senior secured convertible notes and
our senior convertible note was approximately $5.9 million, inclusive of the recognition of current period other expense of approximately
$1.1 million of lender fees incurred with respect to convertible notes as discussed below, as compared to $0.7 million for the
six months ended June 30, 2019, resulting in an increase of approximately $5.2 million principally related to:
|
●
|
an
increase in the face principal amount of our senior secured convertible notes and our senior convertible note of approximately
$11.1 million, inclusive of $1.1 million in lender fees; and
|
|
●
|
among
other fair value input assumptions, an increase in the Company’s common stock price between the periods resulting
in a higher estimated fair value of the senior secured convertible notes and the senior convertible note.
|
|
●
|
a
total of approximately $1.1 million of lender fees recognized as other expense, inclusive
of approximately $0.7 million with respect to our Senior Secured Convertible Note - Series
B issued March 30, 2020; and approximately $0.4 million with respect to our Senior Convertible
Note issued April 30, 2020. There were no such fees incurred in the corresponding prior
year period.
|
See
Note 9 and Note 10 of our unaudited condensed consolidated financial statements for a further discussion of the change in fair
value of our convertible debt, and “—Going Concern, Liquidity, and Capital Resources”, below.
Loss
from Extinguishment of Debt
In the six months ended
June 30, 2020, we recognized a debt extinguishment loss of approximately $3.9 million resulting from the difference between the
face value principal repayments and corresponding non-installment payments of the interest thereon, of the respective convertible
notes, and the fair value of the shares of our common stock issued upon conversion of such convertible notes, with such fair
value measured as the respective issue date closing quoted price per share of our common stock. In the corresponding prior
year period, during the six months ended June 30, 2019, we recognized a debt extinguishment loss of approximately $0.3
million, resulting from the difference between the face value principal repayments and corresponding non-installment payments
of the interest thereon, with respect to our Senior Secured Convertible Note issued December 27, 2018, and
the fair value of the shares of our common stock issued upon conversion of such convertible note, with such fair value measured
as the respective issue date closing quoted price per share of our common stock. See Note 10 of our unaudited condensed consolidated
financial statements for a further discussion of our convertible notes.
Interest
Expense
In
the six months ended June 30, 2020, interest expense of approximately $0.1 million is with respect to the November 2019 Senior
Secured Convertible Notes - Series B, when such convertible note was unfunded through March 29, 2020. There was no such
interest expense incurred during the corresponding period in the prior year. See Note 10 of our unaudited condensed consolidated
financial statements for a further discussion of the November 2019 Senior Secured Convertible Notes - Series B interest expense;
and “—Going Concern, Liquidity, and Capital Resources” below.
Going
Concern, Liquidity, and Capital Resources
We
have experienced recurring losses from operations since inception. We have not yet established an ongoing source of revenues and
must fund our operating expenses through debt and equity financings to allow us to continue as a going concern. Our ability to
continue as a going concern depends on the ability to obtain adequate capital to fund operating losses until we generate adequate
cash flows from operations to fund our operating costs and obligations. If we are unable to obtain adequate capital, we could
be forced to cease operations.
We
depend upon our ability, and will continue to attempt, to secure equity and/or debt financing. We cannot be certain that additional
funding will be available on acceptable terms, or at all. Our management determined that there was substantial doubt about our
ability to continue as a going concern within one year after the unaudited condensed consolidated financial statements were issued,
and management’s concerns about our ability to continue as a going concern within the year following this report persist.
As
at June 30, 2020 and December 31, 2019, we had cash in the aggregate amount of $7.1 million and $6.2 million, respectively.
In
November 2019, we issued Senior Secured Convertible Notes with a total face value principal amount of $14.0 million (the
“November 2019 Senior Secured Convertible Notes”) to certain accredited investors in a private placement,
generating cash proceeds of approximately $12.6 million. The November 2019 Senior Secured Convertible Notes were sold in two
series, Series A (for which the cash proceeds were delivered by the investors at the closing in November 2019) and Series B
(for which the cash proceeds were delivered in March 2020). The November 2019 Senior Secured Convertible Notes mature on
September 30, 2021, subject to extension, and accrue interest at 7.875% per annum, upon the respective Series A and Series B
being funded by the investor. During the period from November 2019 to its funding in March 2020, the November 2019 Senior
Secured Convertible Notes - Series B incurred interest expense at 3.0% per annum based on its $7.0 million face value
principal. At the election of the holder, the November 2019 Senior Secured Convertible Notes may be converted into shares of
common stock of the Company at a contractual conversion price of $1.60 per share. Installment repayments of principal
totaling approximately $0.4 million, along with any accrued and unpaid interest and any late charges, were initially due on
March 31, 2020, and then, thereafter, on the 15th day of each month and the last trading day of each month, and on
the maturity date. We may settle the installment repayment of principal and interest expense thereon, upon the conversion of
the holder, through the issue of shares of our common stock, subject to customary equity conditions (including minimum price
and volume thresholds), at 100% of the installment principal repayment and corresponding non-installment interest expense, or
otherwise (or at our election, in whole or in part) in cash at 115% of the installment principal repayment and corresponding
non-installment interest expense. The November 2019 Senior Secured Convertible Notes are secured by substantially all of our
assets.
In April 2020, in a private
placement with an accredited investor, we issued a Senior Convertible Note with a face value principal of $4.1 million,
resulting in cash proceeds of approximately $3.7 million, after a lender fee of approximately $0.4 million.
- (the “April 2020 Senior Convertible Note”). The April 2020 Senior Convertible Note has a contractual
maturity date of April 30, 2022, and an annual interest rate of 7.875%, payable in cash on a monthly basis. At the election of
the holder, the April 2020 Senior Convertible Note may be converted into shares of our common stock at a contractual conversion
price of $5.00 per share.
Subsequent to June 30, 2020,
in August 2020, in a private placement with an accredited investor, we issued a Senior Secured Convertible Note with a
face value principal of $7.75 million, resulting in cash proceeds of approximately $7.0 million, after a lender fee
of approximately $0.750 million. - (the “August 2020 Senior Secured Convertible Note”). The
August 2020 Senior Secured Convertible Note has a contractual maturity date of August 5, 2022, and an annual interest rate of
7.875%, payable in cash on a monthly basis. At the election of the holder, the April 2020 Senior Convertible Note may be converted
into shares of our common stock at a contractual conversion price of $5.00 per share. The August 2020 Senior Secured Convertible
Notes are secured by substantially all of our assets.
Under the November 2019
Senior Secured Convertible Notes and the April 2020 Senior Convertible Note, we are subject to certain customary affirmative and
negative covenants regarding the incurrence of indebtedness, the existence of liens, the repayment of indebtedness, the payment
of cash in respect of dividends, distributions or redemptions, and the transfer of assets, among other matters as well as a financial
covenant requiring us to maintain available cash in the amount of approximately $1.8 million at the end of each fiscal
quarter. As of June 30, 2020, we were in compliance with this financial covenant. The August 2020Senior Secured Convertible
Note contains substantively similar customary affirmative and negative covenants as those described above, as well as increasing
to $2.0 million the minimum available cash at the end of each quarter.
Critical
Accounting Policies and Significant Judgments and Estimates
The
discussion and analysis of our consolidated financial condition and consolidated 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 affecting the reported amounts of assets, liabilities, and equity, along
with the disclosure of contingent assets and liabilities at the date of the unaudited condensed 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. Please see Note 3, Summary of Significant Accounting Policies,
of our unaudited condensed consolidated financial statements included in this Form 10-Q, for a summary of significant accounting
policies. In addition, reference is made to Part I, Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operation” in the Form 10-K, for a summary of our critical accounting policies and significant
judgments and estimates. There have been no other material changes to our critical accounting policies or significant judgments
and estimates since the Form 10-K.