Business context and reporting period
The filing is Hancock Jaffe Laboratories, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2018. This differs from the request metadata, which names Envveno Medical Corp. Hancock Jaffe develops biological medical devices; its candidates include VenoValve, CoreoGraft and a bioprosthetic heart valve. Its FDA-approved ProCol product generates royalties, but the company reported no product sales in 2018.
Financial performance and position
| Metric | Three months ended September 30, 2018 | Nine months ended September 30, 2018 |
|---|---|---|
| Revenue | $41,662 | $156,090 |
| Operating loss | $1,487,647 | $6,055,862 |
| Net loss | $1,468,166 | $11,261,066 |
| Net loss attributable to common stockholders | $1,468,166 | $14,571,067 |
| Basic and diluted loss per share | $0.13 | $1.70 |
At September 30, cash was $4.19 million, working capital was $2.47 million, total assets were $5.44 million and stockholders’ equity was $3.54 million. The company reported no notes or convertible debt outstanding at quarter-end; its IPO-related conversions and repayments eliminated the prior-period debt balances. Nine-month operating cash outflow was $4.91 million, compared with $2.93 million in 2017. Financing activities provided $9.03 million, primarily from the IPO. Cash was $3.49 million as of November 7, 2018.
Gross profit was $41,662 in the quarter and $156,090 for nine months because no cost of revenue was reported in 2018; these figures should not be read as evidence of established commercial margins. The filing does not provide a meaningful recurring-product margin measure.
Material changes versus prior comparable periods
- Quarterly revenue rose to $41,662 from $27,880, including $13,600 of related-party contract research revenue; royalty income was approximately flat. Nine-month revenue fell to $156,090 from $246,988, principally because there were no 2018 product sales, versus $152,400 in 2017, and royalties declined.
- Quarterly net loss narrowed 35% from $2.25 million, while nine-month net loss increased 141% from $4.67 million. Nine-month operating expenses rose $2.11 million, including higher SG&A and R&D, and noncash debt-discount amortization rose to $6.56 million from $394,789.
- The 2018 nine-month results include a $1.48 million reported gain on extinguishment of convertible notes and a $3.31 million deemed preferred-stock dividend. These financing and accounting items materially affect the comparison; the deemed dividend increases the loss attributable to common shareholders but is not an operating expense.
- The June 2018 IPO and over-allotment raised $8.63 million gross; the company reported $7.66 million in net IPO proceeds in its cash-flow statement. Preferred shares and much of the convertible debt converted into common stock, increasing shares outstanding to 11,717,307 from 6,133,678 at year-end 2017.
Outlook, risks, contingencies and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance. It expects continuing losses and says additional capital is required; future financing may not be available on acceptable terms, and equity or convertible financing could dilute existing shareholders.
- Development and regulatory risk: Product candidates require significant clinical trials and FDA approval. Management cited a VenoValve first-in-human trial scheduled for December 2018 in Colombia. After quarter-end, the company entered an agreement with Texas Heart Institute for CoreoGraft development, estimating an initial feasibility study cost of approximately $200,000.
- Claims: ATSCO sued seeking $809,520 plus costs; the company disputes the amount but recorded the invoices in accounts payable and says the claim is fully accrued. A law firm separately sued after quarter-end seeking $178,926 plus interest and costs; the company disputes the billing and says it is fully accrued. Outcomes remain uncertain.
- Revenue dependence: Revenue is small and dependent on royalties from LeMaitre and research services for HJLA, a company in which Hancock Jaffe holds a minority interest. Management said future revenue may remain minimal until product candidates are approved.
- Share-based compensation and potential dilution: At quarter-end, the filing reports 3.78 million warrants outstanding and 2.72 million options outstanding, in addition to 11.72 million common shares outstanding. Potential exercise or issuance could dilute shareholders.
- Liquidity concentration: $3.94 million of the September 30 cash balance was above FDIC-insured limits. Management reported disclosure controls were effective and no material internal-control changes during the quarter.
Most important facts for investors to verify
- Confirm the issuer identity: the supplied metadata says Envveno Medical Corp, while the filing identifies Hancock Jaffe Laboratories, Inc.
- Assess available cash and financing needs against the disclosed operating cash burn, subsequent cash balance, and explicit going-concern warning.
- Verify progress and timing for the VenoValve trial, CoreoGraft feasibility work, and regulatory plans; the filing provides no quantified commercial revenue guidance.
- Review the status and potential exposure of both disputed lawsuits, notwithstanding the company’s accruals.
- Reconcile the filing’s figures for options and potential dilution: the loss-per-share note lists 1,940,715 option equivalents, while the option activity table reports 2,717,558 options outstanding.
- Note that the company checked “No” to having filed all required reports during the preceding 12 months; investors may wish to verify the filing history and any compliance implications.