PAVmed Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Unaudited financial statements. PAVmed is an early-stage medical-device company developing a multi-product pipeline; it reported no revenue in the periods presented.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Formation and operating costs | $1.350 million | $274,371 | $2.828 million | $697,866 |
| Research and development costs | $578,474 | $264,532 | $1.113 million | $347,982 |
| Net loss | $1.929 million | $538,903 | $3.940 million | $1.046 million |
| Basic and diluted loss per share | $0.14 | $0.05 | $0.31 | $0.10 |
At September 30, 2016, cash was $1.789 million, working capital was $1.124 million, total assets were $1.986 million, current liabilities were $842,236, and stockholders’ equity was $1.144 million. The balance sheet reports no debt. Gross and operating margins are not meaningful because the company had no revenue.
For the nine months, operating cash outflow was $3.252 million, investing cash outflow was $21,793, and financing cash inflow was $4.295 million, primarily reflecting the IPO. Cash increased by $1.021 million from year-end 2015. Management said existing cash was expected to fund operations into early 2017, absent additional funding.
Changes versus prior comparable periods
- Net loss increased from $539,000 to $1.929 million in Q3 and from $1.046 million to $3.940 million for the nine-month period.
- Operating and R&D spending rose as the company expanded operations and advanced its product pipeline. Management also cited public-company costs, professional services, personnel, facilities, travel, board fees, and stock-based compensation.
- The company completed its IPO on April 28, 2016, issuing 1.06 million units at $5 each for $5.3 million gross proceeds and approximately $4.2 million net cash proceeds. Its shares and warrants began trading separately on Nasdaq in July.
Outlook, risks, and notable items
- Management expects losses for the foreseeable future and does not expect near-term positive cash flow. It anticipates needing additional capital in early 2017 or sooner; there is no assurance financing can be obtained. Failure to raise funds could require substantial curtailment of planned operations. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern.
- Development and regulatory milestones remain uncertain. Management reported PortIO design completion and verification/validation testing underway, with FDA submission targeted by year-end 2016; CarpX and NextCath testing and submissions were anticipated in 2016–2017. Caldus remained in design optimization and testing, while NextFlo development continued. These were forward-looking targets, not assured outcomes.
- On November 2, 2016, after quarter-end, PAVmed signed an exclusive license with Tufts University and co-owners for antibiotic-eluting resorbable ear-tube technology. It paid $20,000 upfront and $30,000 for patent-cost reimbursement; future milestone and royalty payments may apply.
- Related-party advisory and consulting arrangements generated reported Q3 costs, including $75,000 under HCP/Advisors, $30,000 under HCFP/Strategy Advisors, $15,000 under Swartwood Hesse, and $37,500 for Vice Chairman Michael Glennon’s initial consulting payment. Investors should assess the terms and oversight of these arrangements.
- Potential dilution is significant: at quarter-end, 10.62 million warrants and 1.59 million stock options were outstanding, in addition to unit purchase options. The IPO warrants have a $5 exercise price; the registration statement for the IPO warrant shares had not yet been declared effective as of the filing.
- The company disclosed no pending legal actions and no off-balance-sheet arrangements. It reported that disclosure controls were effective, while noting its independent auditor had not evaluated internal control over financial reporting.
Important facts for investors to verify
- Whether PAVmed secured financing after the stated cash runway into early 2017, and the resulting dilution, debt terms, or operating reductions.
- Actual cash burn and remaining liquidity relative to the reported $1.789 million cash balance and $3.252 million nine-month operating cash use.
- Progress against product development, FDA submission, and clearance timelines, and the capital needed to reach commercialization.
- Current status and potential dilution from warrants, options, and other equity-linked awards.
- Terms and subsequent payments under related-party advisory agreements and the Tufts University patent license.