Hancock Jaffe Laboratories, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet comparisons are with December 31, 2019. The filing identifies the registrant as Hancock Jaffe Laboratories, Inc. (HJLI), a development-stage medical-device company—not Envveno Medical Corp. The report was filed late, citing COVID-19-related remote-work disruption.
Business context
HJLI is developing the VenoValve, a porcine-tissue implant for chronic venous insufficiency, and the CoreoGraft, a bovine-tissue coronary bypass conduit. Both require clinical testing and FDA approval. The company reported no Q1 2020 revenue and said future revenue depends on successful commercialization; its strategy includes potential licensing, sales, or strategic alliances.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $0 | $31,243, all royalty income |
| Operating expenses | $1.509 million | $1.614 million; down $73,821 |
| Operating loss | $1.509 million | $1.582 million |
| Net loss | $1.160 million | $1.574 million |
| Basic and diluted loss per share | $0.06 | $0.13 |
| Cash used in operations | $1.152 million | $1.494 million |
There was no gross margin from revenue in Q1 2020 because revenue was zero. The lower net loss included a $346,129 noncash gain from remeasuring warrant-related derivative liabilities; operating expenses remained substantial. SG&A declined 23% to $997,896, while R&D rose 63% to $510,624.
At March 31, cash and cash equivalents were $720,131, with another $810,055 restricted; working capital was negative $1.413 million, versus negative $452,434 at year-end 2019. Total liabilities were $2.784 million, including $790,323 of operating lease liabilities and $199,907 of derivative liabilities. The filing reports substantial doubt about the company’s ability to continue as a going concern and says additional capital is necessary. Accumulated deficit was $57.348 million.
Changes, financing, and outlook
- Q1 2019 royalty revenue ended after the three-year LeMaitre agreement expired in March 2019.
- February 2020 private placement raised $650,000 gross, issuing 1.3 million shares and warrants for 1.3 million shares. Net cash proceeds reported for the quarter were $570,341.
- After quarter-end, the company obtained a $312,700 CARES Act loan at 1% interest, due April 2022. April and June 2020 offerings produced reported net proceeds of $825,786 and $1,161,667, respectively. The company reported aggregate gross proceeds of $2.983 million from three 2020 financings and cash of $1,991,973 as of June 5, excluding restricted cash.
- No formal financial guidance was provided. Management expects continued losses and says further financing will be needed; it cautioned that financing may not be available on acceptable terms and that equity issuance may dilute existing shareholders.
Development, risks, and unusual items
- VenoValve: The Colombian first-in-human study had implanted 11 patients. The filing cites reported average improvements across all 11 patients in reflux, VCSS, and pain scores of 51%, 61%, and 65%, respectively; one device was occluded. The next steps included continued monitoring, FDA-mandated functional testing, and seeking an IDE to begin a U.S. pivotal trial. These are early-stage results, not FDA approval or definitive evidence of efficacy.
- CoreoGraft: A nine-sheep, six-month feasibility study reported graft patency and functionality through 180 days. The company planned to explore a first-in-human study outside the U.S.
- COVID-19: Risks included facility access limits, travel and trial delays, canceled procedures, supply delays, regulatory backlogs, and more difficult access to capital. COVID-related court closures also delayed the ATSCO litigation.
- Litigation: ATSCO amended its disputed claim to $1.607 million plus damages and interest; $810,055 was under court attachment and held as restricted cash. The company disputed the claim, said it had accrued the outstanding amount, and was pursuing informal settlement discussions. A separate disputed law-firm claim sought $178,926 plus interest and costs; the company said the claim was accrued.
- Controls: Management concluded disclosure controls were ineffective due to a material weakness in accounting for warrants, which delayed recognition of a derivative liability. The company was developing a remediation plan.
- Other: The warrant remeasurement gain, financing-related dilution potential, and substantial going-concern uncertainty are important to interpreting results. The filing says no off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Cash runway, operating cash burn, and whether subsequent financing is sufficient to meet obligations and fund planned development.
- Status and terms of the CARES Act loan, April and June offerings, warrant exercises, and any further capital raises.
- Restricted-cash status and outcome of the ATSCO attachment and litigation, including whether the recorded accrual is adequate.
- VenoValve patient follow-up, FDA-required testing and IDE timing; CoreoGraft clinical plans and supporting data.
- Progress and effectiveness of remediation of the material weakness and whether subsequent filings report effective controls.
- The statements report weighted-average 2020 shares of 18,431,857, while MD&A gives 18,431,537; confirm the correct figure in the company’s filed financial data.