Note
2 – Going Concern and Management’s Liquidity Plan
The
accompanying unaudited condensed financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
Although
we expect to continue incurring losses for the foreseeable future, may never earn revenues large enough to support operations, and may
need to raise additional capital to sustain operations, pursue product development initiatives, and penetrate markets for the sale of
products, Management believes that our capital resources at June 30, 2021, are sufficient to meet our obligations as they become
due within one year after the date of this interim filing, and sustain operations.
HANCOCK
JAFFE LABORATORIES, INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Note
3 – Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) for interim financial information and Article 8 of Regulation S-X. Accordingly,
they do not include all of the information and disclosures required by accounting principles generally accepted in the United States
of America for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only
of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed financial statements of
the Company as of June 30, 2021 and December 31, 2020, and for the three and six months ended June 30, 2021 and 2020. The results of
operations for the three and six months ended June 30, 2021 are not necessarily indicative of the operating results for the full year.
These unaudited condensed financial statements should be read in conjunction with the financial statements and notes thereto for the
year ended December 31, 2020 included in the Company’s Form 10-K filed with the SEC on March 31, 2021. The condensed balance sheet
as of December 31, 2020 has been derived from the Company’s audited financial statements.
HANCOCK
JAFFE LABORATORIES, INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Concentrations
The
Company maintains cash with major financial institutions. Cash held in United States bank institutions is currently insured by the Federal
Deposit Insurance Corporation (“FDIC”) up to $250,000
at each institution. There was an aggregate
uninsured cash balance of $40,789,182 as of June 30,
2021.
Net
Loss per Share
The
Company computes basic and diluted loss per share by dividing net loss attributable to common stockholders by the weighted average number
of common stock outstanding during the period. Basic and diluted net loss per common share are the same since the inclusion of common
stock issuable pursuant to the exercise of warrants and options, would have been anti-dilutive.
Subsequent
Events
The
Company evaluated events that have occurred after the balance sheet date through the date the financial statements were issued. Based
upon the evaluation and transactions, the Company did not identify any other subsequent events that would have required adjustment or
disclosure in the financial statements.
Recent
Accounting Standards
In
December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects
of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is
not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. ASU 2019-12
is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within those
fiscal years. There was not a significant impact to the financial statements from the adoption of this standard.
HANCOCK
JAFFE LABORATORIES, INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Note
4 – Property and Equipment
As
of June 30, 2021 and December 31, 2020, property and equipment consist of the following:
Schedule of Property and Equipment
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Laboratory
equipment
|
|
$
|
412,342
|
|
|
$
|
320,830
|
|
|
Furniture
and fixtures
|
|
|
124,093
|
|
|
|
98,392
|
|
|
Computer
software and equipment
|
|
|
91,624
|
|
|
|
65,078
|
|
|
Leasehold
improvements
|
|
|
164,842
|
|
|
|
158,092
|
|
|
Software
|
|
|
244,479
|
|
|
|
244,479
|
|
|
|
|
|
1,037,380
|
|
|
|
886,871
|
|
|
Less:
accumulated depreciation
|
|
|
(546,962
|
)
|
|
|
(487,904
|
)
|
|
Property
and equipment, net
|
|
$
|
490,418
|
|
|
$
|
398,967
|
|
Depreciation
expense amounted to $59,058 and $44,961 for the six months ended June 30, 2021 and 2020, respectively. Depreciation expense is reflected
in general and administrative expenses in the accompanying statements of operations.
Note
5 – Right-of-Use Assets and Lease Liability
On
September 20, 2017, the Company renewed its operating lease for its manufacturing facility in Irvine, California, effective October 1,
2017, for five years with an option to extend the lease for an additional five years at the end of the initial lease term. The initial
lease rate was $26,838 per month with escalating payments. In connection with the lease, the Company is obligated to pay $7,254 monthly
for operating expenses for building repairs and maintenance. The Company has no other operating or financing leases with terms greater
than 12 months.
The
Company accounts for this lease following the guidance in ASC Topic 842, Leases, and elected to adopt the short-term lease exception
and not apply Topic 842 to arrangements with lease terms of 12 months or less. The Company determined the lease liabilities using the
Company’s estimated incremental borrowing rate of 8.5% to estimate the present value of the monthly lease payments.
HANCOCK
JAFFE LABORATORIES, INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Our
operating lease cost is as follows:
Schedule of Operating Lease Cost
|
|
|
For
the Three Months Ended
June
30,
|
|
|
For
the Six
Months
Ended
June
30,
|
|
|
|
|
2021
|
|
|
2021
|
|
|
Operating
lease cost
|
|
$
|
85,492
|
|
|
$
|
170,983
|
|
Supplemental
cash flow information related to our operating lease is as follows:
Schedule of Supplemental Cash Flow Information Related to Operating Lease
|
|
|
For
the Three Months Ended
June
30,
|
|
|
For
the Six
Months
Ended
June
30,
|
|
|
|
|
2021
|
|
|
2021
|
|
|
Operating
Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
Cash
paid for amounts in the measurement of lease liabilities
|
|
$
|
87,981
|
|
|
$
|
175,962
|
|
Schedule of Operating Remaining Lease Term and Discount Rate
|
Remaining
lease term and discount rate for our operating lease is as follows:
|
|
June
30,
2021
|
|
|
Remaining
lease term
|
|
|
1.3 years
|
|
|
Discount
rate
|
|
|
8.5
|
%
|
Schedule of Maturity of Lease Liabilities
Maturity
of our lease liabilities by fiscal year for our operating lease is as follows:
|
|
|
|
June 30, 2021
|
|
|
Six
months ended December 31, 2021
|
|
$
|
178,599
|
|
|
Total
|
|
$
|
450,453
|
|
|
Less:
Imputed Interest
|
|
|
(13,422
|
)
|
|
Present
value of our lease liability
|
|
$
|
437,031
|
|
HANCOCK
JAFFE LABORATORIES, INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Note
6 – Accrued Expenses and Other Current Liabilities
As
of June 30, 2021, and December 31, 2020, accrued expenses consist of the following:
Schedule of Accrued Expenses and Other Current Liabilities
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Accrued
compensation costs
|
|
$
|
276,718
|
|
|
$
|
473,799
|
|
|
Accrued
professional fees
|
|
|
92,500
|
|
|
|
79,650
|
|
|
Accrued
franchise taxes
|
|
|
27,832
|
|
|
|
25,607
|
|
|
Accrued
research and development
|
|
|
15,416
|
|
|
|
368,809
|
|
|
Accrued
warrants
|
|
|
-
|
|
|
|
188,104
|
|
|
Total
|
|
$
|
412,466
|
|
|
$
|
1,135,969
|
|
Note
7 – Note Payable
The
note payable consists of the following at June 30, 2021 and December 31, 2020:
Schedule of Note Payable
|
Carrying
value
|
|
$
|
312,700
|
|
|
Stated
maturity date
|
|
|
April
22, 2022
|
|
|
Stated
interest rate
|
|
|
1%
per annum
|
|
Note
8 – Commitments and Contingencies
Litigations
Claims and Assessments
In
the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course
of business. The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable
settlements.
Robert
Rankin Complaints
On
July 9, 2020, the Company was served with a civil complaint filed in the Superior Court for the State of California, County of Orange
by a former employee, Robert Rankin, who resigned his employment on or about March 30, 2020. The case is entitled Rankin v. Hancock Jaffe
Laboratories, Inc. et al., Case No. 30-2020-01146555-CU-WR-CJC and was filed on May 27, 2020. On September 3, 2020 the Company and its
Chief Executive Officer were served with a second complaint filed in the Superior Court for the State of California, County of Orange
by Mr. Rankin. The case is entitled Rankin v. Hancock Jaffe Laboratories, Inc. et al., Case No. 30-2020-01157857 and was filed on August
31, 2020.
The complaints assert several causes of action including a cause of action for failure to timely pay Mr. Rankin’s accrued
and unused vacation and three months’ severance under his July 16, 2018 employment agreement, defamation, unlawful labor code violations,
sex-based discrimination, and unfair competition, and seeks damages for lost wages, emotional and mental distress, consequential damages,
punitive damages and attorney’s fees and costs.
The
Company intends to vigorously defend the claims, investigate the allegations, and assert counterclaims. As of the date of these financial
statements, the amount of loss associated with these complaints, if any, cannot be reasonably estimated. Accordingly, no amounts related
to these complaints are accrued as of June 30, 2021.
HANCOCK
JAFFE LABORATORIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Note
9 –Stockholders’ Equity
Common
Stock
On
February 11, 2021, the Company raised $41,400,000 in gross proceeds, with cash offering costs of approximately $3,300,000, in a public
offering of 5,914,284 shares of its common stock for a purchase price of $7.00 per share and warrants to purchase 2,957,142 shares of
its common stock. The exercise price of the warrants is $7.00 per share, subject to customary adjustments and they expire on February
11, 2026. The warrants had grant date fair value of $4.84 per share for an aggregate grant date fair value of $14,312,567, using the
Black Scholes method with the following assumptions used: stock price of $7.53, risk-free interest rate of 0.11%, volatility of 113.1%,
annual rate of quarterly dividends of 0%, and a contractual term of 2.5 years. We determined that equity classification of the warrants
was appropriate. Accordingly, their value is included in additional paid-in capital.
On
April 26, 2021, the Company issued 5,772 shares with a value of $6.51 per share, or $37,576, in satisfaction of a trade payable.
Warrants
In
November 2020 the Company’s Board of Directors approved the issuance of warrants to purchase 6,400 shares of common stock to an
advisor and warrants to purchase 20,000 shares of common stock to certain participants in the preferred share exchange. Separately the
Company agreed to re-price warrants issued to the placement agent for the Company’s February 25, 2020 private placement. These
warrants and the re-priced warrant were issued in February 2021. The value of these warrants when they were issued $211,976. The Company
determined their value using the Black-Scholes method with the following assumptions: stock price of $8.91 - $9.31, risk-free interest
rate of 0.47%, volatility of 113%, annual rate of quarterly dividends of 0%, and an expected term of 2.5 to 3.5 years.
Stock
Options
From
time to time, the Company issues options for the purchase of its common stock to employees and others. Share-based compensation related
to stock options is included in selling, general and administrative expenses on the accompanying statement of operations, and was
$0.3
and $0.2
million of during the six months ended June 30, 2021 and 2020, respectively.
As
of June 30, 2021, there was $1.5 million of unrecognized stock-based compensation expense related to outstanding stock options that will
be recognized over the weighted average remaining vesting period of 2.2 years.
Note 10 – Net Loss per Share
The following table summarizes
the number of potentially dilutive common stock equivalents excluded from the calculation of diluted net loss per common share as of
June 30, 2021 and 2020:
Schedule of Diluted Net Loss Per Common Share
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Shares of common stock issuable upon exercise of warrants
|
|
|
4,402,032
|
|
|
|
438,072
|
|
|
Shares of common stock issuable upon exercise of options
|
|
|
386,096
|
|
|
|
96,689
|
|
|
Potentially dilutive common stock equivalents excluded from
diluted net loss per share
|
|
|
4,788,128
|
|
|
|
534,761
|
|
HANCOCK
JAFFE LABORATORIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Note
11 – Related Party Transactions
On
June 8, 2021, the Company updated its agreement with the vendor affiliated by common ownership and control with a shareholder holding
approximately 10% of the Company’s outstanding common stock. The Company engaged this vendor to provide support in the VenoValve
U.S. pivotal trial. Expenditures to that vendor were approximately $0.4 million during the six months ending June 30, 2021, and are included
in in Research and Development expenses in the accompanying statement of operations.
Item
2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion should be read in conjunction with our unaudited condensed financial statements and notes thereto included herein.
In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995, we caution readers regarding certain forward-looking statements in the following discussion and elsewhere in this
report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission.
Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial
results or other developments. Such forward-looking statements involve significant risks and uncertainties. Forward looking statements
are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties
and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to
change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those
expressed in any forward-looking statements made by, or on our behalf. Words such as “anticipate,” “estimate,”
“plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,”
“may,” “will,” “should,” “could,” and similar expressions are used to identify forward-looking
statements. Such forward-looking statements also involve other factors which may cause our actual results, performance or achievements
to materially differ from any future results, performance, or achievements expressed or implied by such forward-looking statements and
to vary significantly from reporting period to reporting period. Although management believes that the assumptions made and expectations
reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove
to be correct or that actual future results will not be different from the expectations expressed in this Quarterly Report. We undertake
no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise,
except as required by applicable law.
Unless
the context requires otherwise, references in this document to “HJLI”, “we”, “our”, “us”
or the “Company” are to Hancock Jaffe Laboratories, Inc.
Overview
Hancock
Jaffe Laboratories, Inc. is a medical device company developing tissue-based devices that are designed to be life sustaining or life
enhancing for patients with cardiovascular disease, and peripheral arterial and venous disease. The Company’s products are being
developed to address large unmet medical needs by either offering treatments where none currently exist or by substantially increasing
the current standards of care. Our products which we are developing include: the VenoValve®, a porcine based device to be surgically
implanted in the deep venous system of the leg to treat a debilitating condition called chronic venous insufficiency (“CVI”);
and the CoreoGraft®, a bovine based conduit to be used to revascularize the heart during coronary artery bypass graft (“CABG”)
surgeries. Both of these products are currently being developed for approval by the U.S. Food and Drug Administration (“FDA”).
Our current senior management team has been affiliated with more than 50 products that have received FDA approval or CE marking. We currently
lease a 14,507 sq. ft. manufacturing facility in Irvine, California, where we manufacture products for our clinical trials and which
has previously been FDA certified for commercial manufacturing of devices.
Each
of our products will be required to successfully complete significant clinical trials to demonstrate the safety and efficacy of the product
before it will be able to be approved by the FDA.
We
are in the process of developing the following bioprosthetic implantable devices for peripheral vascular and cardiovascular disease:
VenoValve
The
VenoValve is a porcine based valve developed at HJLI to be implanted in the deep venous system of the leg to treat severe CVI. By reducing
reflux, and lowering venous hypertension, the VenoValve has the potential to reduce or eliminate the symptoms of deep venous, severe
CVI, including venous leg ulcers. The current version of the VenoValve is designed to be surgically implanted into the patient via a
5 to 6 inch incision in the upper thigh.
There
are presently no FDA approved medical devices to address valvular incompetence, or effective treatments for deep venous CVI. Current
treatment options include compression garments, or constant leg elevation. These treatments are generally ineffective, as they attempt
to alleviate the symptoms of CVI without addressing the underlying causes of the disease. In addition, we believe that compliance with
compression garments and leg elevation is extremely low, especially among the elderly. Valve transplants from other parts of the body
have been attempted, but with very-poor results. Many attempts to create substitute valves have also failed, usually resulting in early
thromboses. The premise behind the VenoValve is that by reducing the underlying causes of CVI, reflux and venous hypertension, the debilitating
symptoms of CVI will decrease, resulting in improvement in the quality of the lives of CVI sufferers.
We
estimate that there are approximately 2.4 million people in the U.S. that suffer from deep venous CVI due to valvular incompetence.
VenoValve
Clinical Status
After
consultation with the FDA, and as a precursor to the U.S. pivotal trial, we conducted a small first-in-human study for the VenoValve
in Colombia. The first-in-human Colombian trial included 11 patients. In addition to providing safety and efficacy data, the purpose
of the first-in-human study was to provide proof of concept, and to provide valuable feedback to make any necessary product modifications
or adjustments to our surgical implantation procedures for the VenoValve prior to conducting the U.S. pivotal trial. In December of 2018,
we received regulatory approval from Instituto Nacional de Vigilancia de Medicamentos y Alimentos (“INVIMA”), the Colombian
equivalent of the FDA. On February 19, 2019, we announced that the first VenoValve was successfully implanted in a patient in Colombia.
Between April of 2019 and December of 2019, we successfully implanted VenoValves in 10 additional patients, completing the implantations
for the Colombian first-in-human study. Overall, VenoValves have been implanted in all 11 patients. Endpoints for the VenoValve first-in-human
study include safety (device related adverse events), reflux, measured by doppler, a VCSS score used by the clinician to measure disease
severity, and a VAS score used by the patient to measure pain, and a quality of life measurement.
Final
results from the first-in-human study were released in December of 2020. Among the 11 patients, reflux improved an average of 54%, Venous
Clinical Severity Scores (“VCSSs”) improved an average of 56%, and visual analog scale (VAS) scores, which are used by patients
to measure pain, improved an average of 76%, when compared to pre-surgery levels. VCSS scores are commonly used by clinicians in practice
and in clinical trials to objectively assess outcomes in the treatment of venous disease, and include ten characteristics including pain,
inflammation, skin changes such as pigmentation and induration, the number of active ulcers, and ulcer duration. The improvement in VCSS
scores is significant and indicates that almost all of the VenoValve patients who had severe CVI pre-surgery, had mild CVI or the complete
absence of disease at one-year post surgery. Quality of life measured by a VEINES score showed statistically significant improvement.
VenoValve
safety incidences were minor with no reported device related adverse events. Minor non-device related adverse safety issues included
one (1) fluid pocket (which was aspirated), intolerance from Coumadin anticoagulation therapy, three (3) minor wound infections (treated
with antibiotics), and one occlusion due to patient non-compliance with anti-coagulation therapy.
In
preparation for the VenoValve U.S. pivotal trial, we submitted a Pre-IDE filing with the FDA in October of 2020 and had a pre IDE meeting
with the FDA on January 11, 2021. Topics presented at the meeting included the background and clinical need for the VenoValve, proposed
U.S. pivotal study design, patient monitoring protocols for safety and efficacy, bench testing protocols used to develop the device,
and the VenoValve first-in-human results. We received valuable feedback from the FDA in several areas during the Pre-IDE meeting and
believe we reached consensus on many important issues.
An
investigational device exemption or IDE from the FDA is required before a medical device company can proceed with a pivotal trial for
a class III medical device. On March 5, 2021 we filed an IDE application with the FDA for the VenoValve U.S. pivotal trial. On April
1, 2021, twenty-seven days after filing the IDE application, we received notification from the FDA that our IDE application was approved.
The U.S. pivotal for the VenoValve will be known at the SAVVE (Surgical Anti-reflux Veno Valve Endoprosthesis) study and is a prospective,
non-blinded, single arm, multi-center study of seventy-five (75) CVI patients enrolled at up to 20 U.S. sites.
Endpoints
for the SAVVE trial mirror those endpoints used for the first-in-human trial, and include the absence of material adverse safety events
(mortality, deep wound infection, major bleeding, ipsilateral deep vein thrombosis, pulmonary embolism) at thirty (30) days post implantation,
reductions of reflux at one hundred and eighty days (180) days post VenoValve implantation, VCSS scoring to measure disease manifestations,
VAS scores to measure pain, and quality of life measurements. We have significant interest from key opinion leaders and several of the
top vascular clinicians in the U.S. who would like to participate in the VenoValve U.S. pivotal trial. We are in the process of qualifying
the sites, seeking investigational review board (“IRB”) and other necessary approvals, negotiating clinical trial agreements,
and preparing for site training and initiations. At this point we expect the first implantation for the SAVVE study to occur during
the third quarter of 2021.
On August 3, 2020, we announced
that the FDA granted Breakthrough Device Designation status to the VenoValve. The FDA’s Breakthrough Devices Program was established
to enable priority review for devices that provide more effective treatment or diagnosis of life threatening or irreversibly debilitating
diseases or conditions. The goal of the FDA’s Breakthrough Devices Program is to provide patients and health care providers with
timely access to medical devices by speeding up their development, assessment, and review, while preserving the FDA’s mission to protect
and promote public health.
CoreoGraft
The
CoreoGraft is a bovine based off the shelf conduit that could potentially be used to revascularize the heart, instead of harvesting the
saphenous vein from the patient’s leg. In addition to avoiding the invasive and painful SVG harvest process, HJLI’s CoreoGraft
closely matches the size of the coronary arteries, eliminating graft failures that occur due to size mismatch. In addition, with no graft
harvest needed, the CoreoGraft could also reduce or eliminate the inner thickening that burdens and leads to failure of the SVGs.
In
addition to providing a potential alternative to SVGs, the CoreoGraft could be used when making grafts from the patients’ own arteries
and veins is not an option. For example, patients with significant arterial and vascular disease often do not have suitable vessels to
be used as grafts. For other patients, such as women who have undergone radiation treatment for breast cancer and have a higher incidence
of heart disease, using the LIMA may not be an option if it was damaged by the radiation. Another example are patients undergoing a second
CABG surgery. Due in large part to early SVG failures, patients may need a second CABG surgery. If the SVG was used for the first CABG
surgery, the patient may have insufficient veins to harvest. While the CoreoGraft may start out as a product for patients with no other
options, if the CoreoGraft establishes good short term and long term patency rates, it could become the graft of choice for all CABG
patients in addition to the LIMA.
CoreoGraft
Clinical Status
In
January of 2020, we announced the results of a six-month, nine sheep, animal feasibility study for the CoreoGraft. Bypasses were accomplished
by attaching the CoreoGrafts from the ascending aorta to the left anterior descending artery, and surgeries were preformed both on-pump
and off-pump. Partners for the feasibility study included the Texas Heart Institute, and American Preclinical Services.
Test
subjects were evaluated via angiograms and flow monitors during the study, and a full pathology examination of the CoreoGrafts and the
surrounding tissue was performed post necropsy.
The
results from the feasibility study demonstrated that the CoreoGrafts remained patent (open) and fully functional at 30, 90, and 180 day
intervals after implantation. In addition, pathology examinations of the grafts and surrounding tissue at the conclusion of the study
showed no signs of thrombosis, infection, aneurysmal degeneration, changes in the lumen, or other problems that are known to plague and
lead to failure of SVGs.
In
addition to exceptional patency, pathology examinations indicated full endothelialization for grafts implanted for 180 days both throughout
the CoreoGrafts and into the left anterior descending arteries. Endothelium is a layer of cells that naturally exist throughout healthy
veins and arteries and that act as a barrier between blood and the surrounding tissue, which helps promote the smooth passage of blood.
Endothelium are known to produce a variety anti-clotting and other positive characteristics that are essential to healthy veins and arteries.
The presence of full endothelialization within the longer term CoreoGrafts indicates that the graft is being accepted and assimilated
in a manner similar to natural healthy veins and arteries that exist throughout the vascular system and is an indication of long-term
biocompatibility.
In
May of 2020, we announced that we had received approval from the Superintendent of Health of the National Health Counsel for the Republic
of Paraguay to conduct a first-in-human, feasibility trial for the CoreoGraft. Up to 5 patients that need coronary artery bypass graft
surgery were to receive CoreoGraft implants as part of the first-in-human study. In July of 2020, we announced that we had received permission
to proceed with the first-in-human study, which had been put on hold due to the COVID-19 pandemic, and in August of 2020 we announced
that the first two patients had been enrolled for the first-in-human CoreoGraft trial. Heart bypass surgeries for the first two patients
to receive CoreoGraft implants as part of our first-in-human trial were successfully completed in October of 2020. A third bypass surgery
using the CoreoGraft was successfully completed in November of 2020 and another surgery was completed in December of 2020. Two CoreoGraft
surgical patients have expired due to non-device related adverse events, one in October and one in November of 2020. As a result of these
deaths, the feasibility study was put on hold, pending a review by an ethics committee that oversees the feasibility trial. Although
the committee has given approval to resume with the feasibility study, due to the recent resurgence of COVID-19 in South America (including
in Paraguay), the first-in-human CoreoGraft feasibility trial remains on hold. At this time we have no further information as to when
the study might resume.
Comparison
of the three months ended June 30, 2021 and 2020
Overview
We
reported net losses of $2.4 million and $1.6 million for the three months ended June 30, 2021 and 2020, respectively, representing an
increase in net loss of $0.8 million or 50%, due to an increase in operating expenses of $0.9 million, and a decrease in other income
and expense of $0.1 million.
Revenues
As
a developmental stage Company, our revenue, if any, is expected to be diminutive and dependent on our ability to commercialize our product
candidates.
Selling,
General and Administrative Expenses
For
the three months ended June 30, 2021, selling, general and administrative expenses increased by $0.5 million or 54%, to $1.3 million
from $0.8 million for the three months ended June 30, 2020. The increase is primarily due to $0.3 million in higher compensation costs
due mainly from share based compensation, $0.1 million in higher Delaware franchise taxes, which increased due to changes in
our capital structure, $0.1 million in higher outside services due to recruiting fees and $0.1 million in higher D&O insurance premiums,
partially offset by $0.1 million in lower legal fees.
Research
and Development Expenses
For
the three months ended June 30, 2021, research and development expenses increased by $0.4 million or 54%, to $1.1 million from $0.7 million
for the three months ended June 30, 2020. This increase results from our efforts to apply and prepare for the IDE submission and pivotal
trial of the VenoValve, and related lab and personnel costs to support those activities, and is primarily due to $0.3 million in compensation
due to a larger team, and $0.1 million in other lab costs to support preparation for our pivotal trial.
Change
in Fair Value of Derivative Liability
For
the quarter ended June 30, 2020, we recorded a gain on the change in fair value of derivative liabilities of $0.1 million. Our derivative
liabilities were related to warrants issued in connection with our February 25, 2020 private placement. There were no similar instruments
outstanding during the quarter ending June 30, 2021.
Comparison
of the six months ended June 30, 2021 and 2020
Overview
We
reported net losses of $5.2 million and $2.8 million for the six months ended June 30, 2021 and 2020, respectively, representing an increase
in net loss of $2.4 million or 85%, due to an increase in operating expenses of $2.2 million, and a decrease in other income and expense
of $0.2 million.
Revenues
As
a developmental stage Company, our revenue, if any, is expected to be diminutive and dependent on our ability to commercialize our product
candidates.
Selling,
General and Administrative Expenses
For
the six months ended June 30, 2021, selling, general and administrative expenses increased $0.7 million or 35%, to $2.5 million from
$1.8 million for the six months ended June 30, 2020. The increase is primarily due to $0.3 million in higher compensation cost $0.2 million
in higher Delaware franchise taxes, which increased due to changes in our capital structure, $0.1 million in higher D&O insurance
premiums, and $0.1 million in higher outside services due to recruiting fees.
Research
and Development Expenses
For
the six months ended June 30, 2021, research and development expenses increased by $1.5 million or 124%, to $2.7 million from $1.2 million
for the six months ended June 30, 2020. This increase results from our efforts to apply and prepare for the IDE submission and pivotal
trial of the VenoValve, and related lab and personnel costs to support those activities, and is primarily due to $0.5 million in compensation
due to a larger team, $0.7 million in costs related to the preparing for VenoValve pivotal trial including regulatory submissions other
preparatory work, $0.2 million in costs related to product testing and production, and $0.1 million in other lab costs to support preparation
for our pivotal trial.
Change
in Fair Value of Derivative Liability
For
the six months ended June 30, 2020, we recorded a gain on the change in fair value of derivative liabilities of $0.3 million. Our derivative
liabilities were related to warrants issued in connection with our February 25, 2020 private placement. There were no similar instruments
outstanding during the period ending June 30, 2021.
Liquidity
and Capital Resources
We
have incurred losses since inception and negative cash flows from operating activities for the six months ended June 30, 2021. Since
inception, we have funded our operations primarily through our IPO, private and public offerings of equity and private placement of convertible
debt securities as well as modest revenues from royalties, contract research and sales of the ProCol Vascular Bioprosthesis.
As
of August 6, 2021, we had a cash balance of $40.1 million.
We
measure our liquidity in a variety of ways, including the following:
|
|
|
June
30
2021
|
|
|
December
31,
2020
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Cash
|
|
$
|
41,039,182
|
|
|
$
|
9,334,584
|
|
|
Working
capital
|
|
|
40,045,555
|
|
|
|
6,382,818
|
|
Based
upon our cash and working capital as of June 30, 2021, we have sufficient cash to sustain the Company’s operations at least one
year after the date of this Report.
The
COVID-19 pandemic has disrupted the global economy and has negatively impacted large populations including people and businesses that
may be directly or indirectly involved with the operation of our Company and the manufacturing, development, and testing of our product
candidates. The full scope and economic impact of COVID-19 is still unknown and there are many risks from the COVID-19 that could generally
and negatively impact economies and healthcare providers in the countries where we do business, the medical device industry as a whole,
and development stage, pre-revenue companies such as HJLI.
Off-Balance
Sheet Arrangements
None.
Contractual
Obligations
As
a smaller reporting company, we are not required to provide the information requested by paragraph (a)(5) of this Item.
Critical
Accounting Policies and Estimates
For
a description of our critical accounting policies, see Note 3 – Significant Accounting Policies in Part 1, Item 1 of this Quarterly
Report on Form 10-Q.