PAVmed(PAVM) - 2018 Q4 - Annual Report

PART I Item 1. Business The company is a capital-efficient medical device firm advancing a pipeline of innovative products to market - PAVmed Inc. is a highly-differentiated multi-product medical device company focused on commercializing innovative medical technologies to address unmet clinical needs[17][341] - The company's business model emphasizes capital efficiency and speed-to-market through an outsourced structure with low fixed costs[43][111] - Lead products under development include CarpX™, EsoCheck™, PortIO™, DisappEAR™, and NextFlo™[24][121][343] - The company repaid $5.0 million of its Senior Secured Note in December 2018 using proceeds from a new convertible note[18][53][60] - Key regulatory milestones include planned FDA 510(k) submissions for CarpX™ and EsoCheck™, and pursuit of de novo classification for PortIO™[26][28][30][50][51] 2018 Financing Activities (Net Proceeds) | Source | Net Proceeds (approx.) | | :----------------------------------- | :--------------------- | | Underwritten Public Offering (Jan 2018) | $4.3 million | | Equity Subscription Rights Offering (June 2018) | $9.2 million | | Senior Secured Convertible Note (Dec 2018) | $7.0 million | | Total Net Proceeds (2018) | $15.5 million | Item 1A. Risk Factors The company faces significant risks from its limited operating history, recurring losses, and need for additional funding - The company has a history of operating losses, with a net loss of approximately $18.8 million in 2018 and an accumulated deficit of $37.0 million[212][213] - There is substantial doubt about the company's ability to continue as a going concern, requiring additional funding[216][217] - The medical device market is highly competitive, with larger competitors possessing greater financial and technical resources[175][221] - Product commercialization success is uncertain due to regulatory hurdles, market acceptance, and potential product liability lawsuits[223][225][229][230][232] - The FDA regulatory approval process is expensive, time-consuming, and uncertain, with no guarantee of timely market entry[185][259][260][261] - Future issuances of common or preferred stock could significantly dilute existing equity interests[291][292][309] Item 1B. Unresolved Staff Comments The company has no unresolved staff comments from the SEC - There are no unresolved staff comments[321] Item 2. Property The company's principal corporate offices are leased on a month-to-month basis in New York, NY - The principal corporate offices are located at One Grand Central Place, 60 East 42nd Street, Suite 4600, New York, NY 10165[321] - The office space is leased on a month-to-month basis and is deemed adequate for current operations[321] Item 3. Legal Proceedings The company settled a breach of contract claim in December 2018 and acknowledges potential future legal actions - The company executed a settlement agreement in December 2018, resulting in a payment of $136,606 to a former financial advisor[322] - The company may be subject to other legal actions as it begins commercialization of its products[323] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the registrant[324] PART II Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock and certain warrants trade on Nasdaq, and no cash dividends are anticipated on common stock - The company's Common Stock and certain warrants are traded on the Nasdaq Capital Market under symbols PAVM, PAVMZ, and PAVMW[327] - The company has not paid cash dividends on its common stock and does not anticipate doing so, intending to retain earnings for growth[329] - Series B Convertible Preferred Stock provides for an 8% per annum dividend, payable-in-kind (PIK)[330] Common Stock Outstanding | Date | Shares Outstanding | | :--- | :--- | | March 29, 2019 | 27,893,023 | Item 6. Selected Financial Data This section is not applicable as selected financial data is not presented separately - Selected Financial Data is not applicable[335] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The company has no revenue, incurs significant losses, and requires future funding for product development and commercialization - PAVmed Inc is an early-stage medical device company with no product sales revenue to date[341][343][379] - The company incurred a net loss of $18.8 million in 2018, an increase from $10.4 million in 2017, with an accumulated deficit of $37.0 million[384][529] - Significant non-cash expenses in 2018 included a $1.4 million debt extinguishment loss and a $1.14 million warrant modification expense[404][409][414] - The company's ability to continue as a going concern is in substantial doubt due to recurring losses and negative cash flows[529][530][531][532] Operating Expenses Comparison (2018 vs. 2017) | Expense Category | 2018 (USD) | 2017 (USD) | Change (USD) | % Change | | :--- | :--- | :--- | :--- | :--- | | General and administrative | $6,310,206 | $5,412,593 | $897,613 | 17% | | Research and development | $4,252,999 | $2,621,526 | $1,631,473 | 62% | | Total Operating Expenses | $10,563,205 | $8,034,119 | $2,529,086 | 31% | Cash Flows Summary (2018 vs. 2017) | Activity | 2018 (USD) | 2017 (USD) | | :--- | :--- | :--- | | Operating activities | $(8,787,907) | $(6,608,208) | | Investing activities | $(26,609) | $(5,301) | | Financing activities | $15,501,613 | $7,562,851 | | Net increase in cash | $6,687,097 | $949,342 | | Cash, end of period | $8,222,119 | $1,535,022 | Item 7A. Quantitative and Qualitative Disclosure About Market Risk This section is not applicable as no material market risk disclosures are provided - Quantitative and Qualitative Disclosure About Market Risk is not applicable[587] Item 8. Financial Statements and Supplementary Data This item refers to the consolidated financial statements commencing on page F-1 - The consolidated financial statements and supplementary data are incorporated by reference and appear commencing on page F-1[588] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants - There are no changes in and disagreements with accountants on accounting and financial disclosure[589] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective as of year-end 2018 - The company's disclosure controls and procedures were evaluated and concluded to be effective as of December 31, 2018[591] - Management's report on internal control over financial reporting concluded that the system was effective as of December 31, 2018[594] - There were no material changes in internal controls over financial reporting during the fourth quarter[596] Item 9B. Other Information The company reports no other information required by this item - There is no other information to report under this item[596] PART III Item 10. Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's proxy statement - Information regarding Directors, Executive Officers, and Corporate Governance is incorporated by reference to the Proxy Statement[598] Item 11. Executive Compensation Information for this item is incorporated by reference from the company's proxy statement - Information regarding Executive Compensation is incorporated by reference to the Proxy Statement[599] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's proxy statement - Information regarding Security Ownership is incorporated by reference to the Proxy Statement[600] Item 13. Certain Relationships and Related Transactions and Director Independence Information for this item is incorporated by reference from the company's proxy statement - Information regarding Certain Relationships and Related Transactions is incorporated by reference to the Proxy Statement[601] Item 14. Principal Accountant Fees and Services Information for this item is incorporated by reference from the company's proxy statement - Information regarding Principal Accountant Fees and Services is incorporated by reference to the Proxy Statement[602] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements and various exhibits filed as part of the annual report - The report includes the Report of Independent Registered Public Accounting Firm, consolidated financial statements, and notes[608] - Various exhibits are filed, including corporate documents, warrant agreements, and employment agreements[607][609][610][611] Consolidated Financial Statements Report of Independent Registered Public Accounting Firm The firm issued an unqualified opinion but highlighted substantial doubt about the company's ability to continue as a going concern - Citrin Cooperman & Company, LLP issued an unqualified opinion, stating the financial statements present fairly the company's financial position[621] - The report includes an explanatory paragraph expressing substantial doubt about the company's ability to continue as a going concern[622] Consolidated Balance Sheets The balance sheets show increased cash and total assets, alongside a significant rise in total liabilities in 2018 Consolidated Balance Sheet Highlights | Item | December 31, 2018 (USD) | December 31, 2017 (USD) | | :--- | :--- | :--- | | Cash | $8,222,119 | $1,535,022 | | Total assets | $8,496,430 | $1,639,680 | | Total current liabilities | $10,972,583 | $2,543,769 | | Total liabilities | $10,972,583 | $4,488,037 | | Total stockholders' deficit | $(2,476,153) | $(2,848,357) | Consolidated Statements of Operations The company generated no revenue and experienced a significantly higher net loss in 2018 driven by increased expenses Consolidated Statements of Operations Highlights | Item | Year Ended Dec 31, 2018 (USD) | Year Ended Dec 31, 2017 (USD) | | :--- | :--- | :--- | | Revenue | $— | $— | | Total operating expenses | $10,563,205 | $8,034,119 | | Loss from operations | $(10,563,205) | $(8,034,119) | | Debt extinguishment - Senior Secured Note | $(1,408,296) | — | | Net loss - attributable to PAVmed Inc. common stockholders | $(18,750,798) | $(10,398,134) | | Net loss per share - basic and diluted | $(0.84) | $(0.77) | Consolidated Statement of Changes in Series A Convertible Preferred Stock and Stockholders' Equity (Deficit) for the year ended December 31, 2018 Equity changes in 2018 were driven by capital raises, debt repayment, and the exchange of preferred stock series Changes in Stockholders' Equity (Deficit) - 2018 | Item | Common Stock (Shares) | Additional Paid-In Capital (USD) | Accumulated Deficit (USD) | Total Stockholders' Equity (Deficit) (USD) | | :--- | :--- | :--- | :--- | :--- | | Balance at December 31, 2017 | 14,551,234 | $14,012,053 | $(17,907,611) | $(2,848,357) | | Underwritten public offering, net | 2,649,818 | $4,272,011 | — | $4,274,661 | | Equity Subscription Rights Offering, net | 9,000,000 | $9,202,326 | — | $9,211,326 | | Net loss | — | — | $(17,968,750) | $(18,172,822) | | Balance at December 31, 2018 | 27,142,979 | $32,619,282 | $(36,992,911) | $(2,476,153) | Consolidated Statement of Changes in Series A Convertible Preferred Stock and Stockholders' Equity (Deficit) for the year ended December 31, 2017 Equity changes in 2017 were driven by preferred stock offerings, warrant issuances, and the net loss for the year Changes in Stockholders' Equity (Deficit) - 2017 | Item | Common Stock (Shares) | Additional Paid-In Capital (USD) | Accumulated Deficit (USD) | Total Stockholders' Equity (Deficit) (USD) | | :--- | :--- | :--- | :--- | :--- | | Balance at December 31, 2016 | 13,330,811 | $7,369,437 | $(7,701,835) | $(319,067) | | Series S Warrants issued | — | $3,434,452 | — | $3,434,452 | | Stock-based compensation | — | $1,048,127 | — | $1,048,127 | | Net loss | — | — | $(9,519,269) | $(9,519,269) | | Balance at December 31, 2017 | 14,551,234 | $14,012,053 | $(17,907,611) | $(2,848,357) | Consolidated Statements of Cash Flows Cash increased in 2018 due to significant financing activities that offset cash used in operations - Financing activities in 2018 included $7.0 million net proceeds from a convertible note and $13.8 million from equity offerings[538][539] - In 2018, $5.0 million was used for the repayment of the previously issued Senior Secured Note[539] Consolidated Statements of Cash Flows Summary | Cash Flow Activity | Year Ended Dec 31, 2018 (USD) | Year Ended Dec 31, 2017 (USD) | | :--- | :--- | :--- | | Net cash flows used in operating activities | $(8,787,907) | $(6,608,208) | | Net cash flows used in investing activities | $(26,609) | $(5,301) | | Net cash flows provided by financing activities | $15,501,613 | $7,562,851 | | Net increase in cash | $6,687,097 | $949,342 | | Cash, end of period | $8,222,119 | $1,535,022 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, financial instruments, debt, equity, and going concern uncertainty Note 1 — The Company and Description of the Business PAVmed is a pre-revenue medical device company focused on commercializing its pipeline of innovative technologies - PAVmed Inc was incorporated on June 26, 2014, and operates as a multi-product medical device company[641] - Lucid Diagnostics Inc, a majority-owned subsidiary, was incorporated in May 2018 to license the EsoCheck™ Technology[642] - The company has not recognized revenue to date and is focused on obtaining FDA clearance for its lead product candidates[643] Note 2 — Summary of Significant Accounting Policies This note details key accounting policies, use of estimates, and the substantial doubt about the company's going concern ability - The company is an 'emerging growth company' and has elected to delay adopting new accounting standards[649] - Management has concluded there is substantial doubt about the company's ability to continue as a going concern[654][655] - Research and development expenses are expensed as incurred[664][665] - Financial instruments, including warrants and the Senior Secured Convertible Note, are subject to fair value measurements[673][676] - The company applies a full valuation allowance against its net deferred tax assets, resulting in a 0% effective tax rate[678] Note 3 — Prepaid Expenses and Other Current Assets Prepaid expenses consist primarily of security deposits and advanced payments to service providers and suppliers Prepaid Expenses and Other Current Assets | Item | December 31, 2018 (USD) | December 31, 2017 (USD) | | :--- | :--- | :--- | | Security deposits | $14,250 | $14,250 | | Advanced payments to service providers and suppliers | $223,790 | $74,217 | | Total | $238,040 | $88,467 | Note 4 — Equipment, Net The company's net equipment value increased in 2018 due to purchases of R&D equipment Equipment, Net | Item | December 31, 2018 (USD) | December 31, 2017 (USD) | | :--- | :--- | :--- | | Equipment, gross | $56,964 | $27,094 | | Less: accumulated depreciation | $(20,693) | $(10,903) | | Equipment, net | $36,271 | $16,191 | Depreciation Expense | Year Ended | Depreciation Expense (USD) | | :--- | :--- | | Dec 31, 2018 | $9,790 | | Dec 31, 2017 | $7,110 | Note 5 — Accrued Expenses and Other Current Liabilities Accrued expenses increased significantly in 2018, driven by higher accrued bonuses, payroll, and license fees - The accrued CEO payroll of $145,937 as of December 31, 2018, was subsequently paid in January 2019[699] Accrued Expenses and Other Current Liabilities | Item | December 31, 2018 (USD) | December 31, 2017 (USD) | | :--- | :--- | :--- | | Bonus | $873,621 | $459,451 | | Payroll | $145,937 | $125,088 | | EsoCheck™ License Agreement fee | $222,553 | — | | Total | $1,330,746 | $706,964 | Note 6 — Income Taxes The company recognized no income tax benefit due to a full valuation allowance against its net deferred tax assets - The Tax Cuts and Jobs Act of 2017 reduced the U.S. federal corporate tax rate to 21%, but the effect was fully offset by the valuation allowance[704][705] - The company has estimated federal and state net operating loss (NOL) carryforwards of approximately $22.9 million as of 2018[707] Income Tax (Benefit) Expense | Item | Year Ended Dec 31, 2018 (USD) | Year Ended Dec 31, 2017 (USD) | | :--- | :--- | :--- | | Deferred: Federal, state, and local | $(4,816,641) | $(576,615) | | Less: Valuation allowance reserve | $4,816,641 | $576,616 | | Total Income Tax (Benefit) Expense | $— | $— | Deferred Tax Assets, Net (after valuation allowance) | Item | December 31, 2018 (USD) | December 31, 2017 (USD) | | :--- | :--- | :--- | | Net operating loss | $7,155,358 | $4,309,231 | | Deferred tax assets, net after valuation allowance | $— | $— | Note 7 — Agreements Related to Acquired Intellectual Property Rights This note details key intellectual property license agreements for the EsoCheck™ and DisappEAR™ technologies - Lucid Diagnostics Inc entered into an exclusive worldwide license agreement with CWRU for the EsoCheck™ Technology in May 2018[710][711] - The EsoCheck™ License Agreement incurred a payment obligation of approximately $273,000, with future payments contingent on financing[712] - The Tufts Patent License Agreement grants exclusive rights to develop DisappEAR™ based on proprietary aqueous silk technology[718][719] - Both license agreements provide for potential milestone payments and future royalties on net sales[714][720] Note 8 — Related Party Transactions This note discloses transactions with affiliates, including management services and consulting agreements - A management services agreement with HCP/Advisors LLC expired in October 2018, with expenses of $225,000 in 2018[722] - The company incurred $80,000 in expenses in 2017 related to consulting agreements with HCFP/Strategy Advisors LLC[724] - HCFP/Capital Markets received a $177,576 placement agent fee in 2017 for a private placement[725] - A consulting agreement with Michael J Glennon, Vice Chairman, was terminated in June 2017 with all compensation waived[726] Note 9 — Commitments and Contingencies This note outlines commitments including an office lease, a legal settlement, and executive employment agreements - The corporate office lease is on a month-to-month basis, with estimated future payments of approximately $131,500 for 2019[728] - A settlement payment of $136,606 was made in December 2018 to a former financial advisor[729] - Employment agreements for key executives include severance compensation provisions[731] - In March 2019, employment agreements for the CEO and President/CFO were amended, and they were granted restricted stock awards[732] Note 10 — Stock-Based Compensation This note details the company's equity incentive plans, stock option activity, and related compensation expense - As of December 31, 2018, total unrecognized stock-based compensation expense was approximately $1.55 million[751] - The Black-Scholes valuation model is used, with weighted-average assumptions for 2018 including volatility of 50-62%[752][753][754] PAVmed Inc. 2014 Equity Plan Stock Options Activity | Item | 2018 (Number of Stock Options) | 2017 (Number of Stock Options) | | :--- | :--- | :--- | | Outstanding at December 31 | 3,327,140 | 1,936,924 | | Granted | 1,585,324 | 380,000 | | Forfeited | (195,108) | (76,389) | Lucid Diagnostics Inc. 2018 Equity Plan Stock Options Activity | Item | 2018 (Number of Stock Options) | | :--- | :--- | | Outstanding at December 31 | 375,000 | | Granted | 375,000 | Consolidated Stock-Based Compensation Expense | Expense Category | Year Ended Dec 31, 2018 (USD) | Year Ended Dec 31, 2017 (USD) | | :--- | :--- | :--- | | General and administrative expenses | $948,143 | $925,534 | | Research and development expenses | $280,556 | $122,593 | | Total | $1,228,699 | $1,048,127 | Note 11 — Financial Instruments Fair Value Measurements This note details the fair value of financial instruments, primarily the Senior Secured Convertible Note and derivative liabilities - The Senior Secured Convertible Note is measured at fair value, with an estimated value of $7,903,000 as of December 31, 2018[759][760] - The Series A Warrants and preferred stock derivative liabilities were fully extinguished upon the March 2018 Exchange Offer[756][766] - The March 2018 Exchange Offer resulted in a $726,531 deemed dividend charged to accumulated deficit[776] - The March 2018 Exchange Offer also resulted in a $349,796 modification expense from the exchange of warrants[780] Fair Value Measurement Hierarchy (December 31, 2018) | Item | Level-1 Inputs (USD) | Level-2 Inputs (USD) | Level-3 Inputs (USD) | Total (USD) | | :--- | :--- | :--- | :--- | :--- | | Senior Secured Convertible Note | $— | $— | $7,903,000 | $7,903,000 | Note 12 — Debt This note details the company's debt, including a new Senior Secured Convertible Note and the repayment of a prior note - A Senior Secured Convertible Note with a face value of $7.75 million was issued in December 2018, yielding $7.0 million in net proceeds[794][795] - The Senior Convertible Note is convertible into common stock at an initial price of $1.60 per share[796][797] - The previously issued Senior Secured Note of $5.0 million was fully repaid in December 2018, resulting in a $1.4 million debt extinguishment loss[814][819] - The Senior Convertible Note is guaranteed by PAVmed Inc and its subsidiary, Lucid Diagnostics Inc, and secured by all of their assets[807][808] Note 13 — Preferred Stock This note details the company's preferred stock, primarily the outstanding Series B Convertible Preferred Stock - As of December 31, 2018, 1,069,941 shares of Series B Convertible Preferred Stock were issued and outstanding[832] - Series B Convertible Preferred Stock has a stated value of $3.00 per share and is convertible into common stock at a 1:1 ratio[833] - Series B Convertible Preferred Stock provides for an 8% annual dividend, compounded quarterly and payable-in-kind (PIK)[834] - The Series A and Series A-1 Convertible Preferred Stock were fully exchanged for Series B in the March 2018 Exchange Offer[831] - The Series A Preferred Stock Units private placement in 2017 resulted in a $3.12 million loss due to associated derivative liabilities[839][842] Note 14 — Stockholders' Equity and Common Stock Purchase Warrants This note details common stock and various warrants, including issuances, exchanges, and modifications - Common stock issuances in 2018 included 9.0 million shares from a rights offering and 2.65 million shares from a public offering[866][867] - The exercise price of Series Z Warrants was adjusted from $3.00 to $1.60 per share in June 2018, resulting in a $1.14 million modification expense[873][878] - A warrant exchange offer in April 2018 resulted in 10.2 million Series W Warrants being exchanged for 5.1 million Series Z Warrants[881] - Lucid Diagnostics Inc has a noncontrolling interest (NCI) of $(161,512) as of December 31, 2018, representing 18.125% minority ownership[905][906] Common Stock Issued and Outstanding | Date | Shares Issued and Outstanding | | :--- | :--- | | Dec 31, 2017 | 14,551,234 | | Dec 31, 2018 | 27,142,979 | Common Stock Purchase Warrants Outstanding (December 31, 2018) | Warrant Type | Number Outstanding | Exercise Price/Share | | :--- | :--- | :--- | | Series Z Warrants | 16,815,039 | $1.60 | | Series W Warrants | 381,818 | $5.00 | | Series S Warrants | 1,199,383 | $0.01 | | UPO - Series Z | 53,000 | $1.60 | Note 15 — Loss Per Share This note presents the net loss per share, which increased in 2018, with dilutive securities excluded due to the net loss - Common stock equivalents were excluded from the diluted weighted average shares outstanding calculation because their inclusion would be anti-dilutive[909][911] Net Loss Per Share (Basic and Diluted) | Item | Year Ended Dec 31, 2018 | Year Ended Dec 31, 2017 | | :--- | :--- | :--- | | Net loss attributable to PAVmed Inc. common stockholders | $(0.84) | $(0.77) | | Weighted-average common shares outstanding - basic and diluted | 22,276,347 | 13,495,951 | Note 16 — Subsequent Events The company evaluated subsequent events and found none requiring adjustments or disclosures - The company has evaluated subsequent events through the filing date and found no further events requiring adjustments or disclosures[920]