Pavmed Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Filed May 22, 2017. Pavmed is an early-stage medical-device company developing a portfolio of products; it had not generated revenue.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $2.156 million | $696,880; up 209% |
| General and administrative | $1.500 million | $517,739; up 190% |
| Research and development | $656,713 | $179,141; up 267% |
| Net loss | $4.270 million | $696,880 |
| Net loss attributable to common stockholders; basic and diluted loss per share | $4.297 million; $0.32 loss per share | $696,880; $0.06 loss per share |
| Cash used in operating activities | $1.825 million | $518,688 |
| Cash at quarter-end | $905,656 | $236,052 at March 31, 2016 |
No meaningful operating margin was reported because the company had no revenue. The filing reports no debt balance. At March 31, 2017, total assets were $1.094 million and total liabilities were $5.409 million, including $3.264 million of Series A warrant liabilities and a $997,898 embedded derivative liability. Stockholders’ deficit was $4.314 million. Management reported negative working capital of $73,867 excluding those warrant and derivative liabilities.
Material changes and unusual items
- Operating expenses increased as product-development activity broadened and public-company, investor-relations, professional-services, compensation, and stock-based compensation costs rose.
- The preferred-stock-unit financing generated approximately $2.5 million gross and $2.1 million net proceeds. Accounting for the units and offering costs produced a $3.124 million issuance loss, principally because the fair values assigned to warrants and the conversion derivative exceeded proceeds. Subsequent fair-value decreases in those liabilities generated gains of $786,397 and $224,065, respectively.
- Operating cash outflow increased year over year. Financing cash inflow of $2.150 million—mainly preferred-unit proceeds net of offering costs—exceeded operating and investing outflows, increasing cash by $319,976 during the quarter.
- Series A preferred shares carry an 8% cumulative dividend. $26,440 had accumulated by quarter-end; the board had not declared it payable, and the filing states no dividend payable liability was recorded.
Outlook, risks, and contingencies
- Going concern: Management stated that cash, absent additional funding, was expected to fund operations only through May 2017. The company said it needed additional capital and disclosed substantial doubt about its ability to continue as a going concern within one year. It expected ongoing losses while developing products and pursuing regulatory approvals.
- Financing and dilution: Management planned to seek further capital, including additional preferred stock units, but gave no assurance it would succeed. Preferred shares and warrants were subject to shareholder approval before conversion or exercise; the filing said approval was scheduled for May 21, 2017. The instruments include adjustment provisions and potential common-stock dilution. Series A warrants may be exchanged for four Series X warrants each.
- Product and regulatory progress: PortIO’s FDA 510(k) submission was under review. CarpX verification and validation work, and development work on other pipeline products, were ongoing. Commercialization depends on development, regulatory clearance, manufacturing, and market acceptance.
- Registration and other obligations: Registration-rights failures could trigger damages of 2% of each investor’s subscription amount on specified failure dates and at 30-day intervals until cured. The filing also describes lease commitments, executive employment and separation costs, and related-party advisory and placement-agent arrangements. Management reported no pending legal actions it believed it was party to.
- Valuation uncertainty: Warrant and derivative liabilities were valued using Level 3 inputs and Monte Carlo models; changes in assumptions can materially affect reported earnings and liabilities.
Most important facts for investors to verify
- Whether Pavmed raised additional funds after the quarter and whether financing extended its cash runway beyond May 2017.
- The status and terms of shareholder approval, registration-statement effectiveness, and any registration-rights damages.
- Updated cash burn, operating commitments, and progress toward regulatory clearance and commercialization, particularly for PortIO.
- The potential dilution and economic terms of the preferred shares, Series A and Series X warrants, and any further private placement or exchange offer.
- The assumptions underlying Level 3 derivative and warrant valuations, and the effect of any remeasurement on reported results.