enVVeno Medical Corp 10-K

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our consolidated financial statements and the related notes contained elsewhere in this Annual Report on Form 10-K and in our other Securities and Exchange Commission filings. The following discussion may contain predictions, estimates, and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors” and elsewhere in this Annual Report on Form 10-K. These risks could cause our actual results to differ materially from any future performance suggested below. Overview enVVeno Medical Corporation is a med-tech company focused on improving the standard of care in the treatment of venous disease. We are developing tissue-based solutions that are designed to be life sustaining or life enhancing for patients with deep venous Chronic Venous Insufficiency (CVI). CVI occurs when valves inside of the veins of the leg fail, resulting in insufficient blood being returned to the heart. Our 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 lead product is a porcine based device to be surgically implanted in the deep venous system of the leg, and is called the VenoValve®. The VenoValve is currently being evaluated in our SAVVE U.S. pivotal trial for the purpose of obtaining approval to market and sell the device from the U.S. Food and Drug Administration (“FDA”). Our team of officers and directors has been affiliated with numerous medical devices that have received FDA approval or CE marking and have been commercially successful. We currently lease a 14,507 sq. ft. manufacturing facility in Irvine, California, where we manufacture medical devices for our clinical trials, and which has capacity for commercial manufacturing. On September 21, 2021, we announced that we were changing our name from Hancock Jaffe to enVVeno Medical Corporation and that our development strategy is to focus on the treatment of venous disease. In addition to the VenoValve, we announced that we have begun development of a second device for the treatment of venous disease which we are calling enVVe. In connection with this change in strategy, we indicated that we are not pursuing further development of the CoreoGraft, which is now outside of our primary focus area. Results of Operations Comparison of the year ended December 31, 2021 to the year ended December 31, 2020 Net Loss We reported net losses of $16.5 million and $9.1 million for the years ended December 31, 2021 and 2020, respectively, representing an increase in net loss of $7.4 million or 81%, resulting from, as described in further detail below, an increase in operating expenses of $7.8 million, and an decrease in other expense (income) of $0.4 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 which is not expected in the near future. Selling, General and Administrative Expenses For the year ended December 31, 2021, selling, general and administrative expenses increased by $6.3 million or 129%, to $11.2 million from $4.9 million for the year ended December 31, 2020. Of this increase, $5.3 million was due to share based compensation from grants made during 2021, which increased share-based compensation cost to $6.0 million in 2021 from $0.7 million in 2020. The remaining $1.0 million increase reflects $0.3 million in higher compensation due to the elevation of our chief financial officer from interim, with the related costs included in consulting expenses, to full-time, with the related costs included in compensation, and directors’ cash compensation in 2021, an increase in insurance expense of $0.2 million primarily from the Company’s D&O insurance, $0.2 million from higher Delaware franchise taxes in 2021, $0.2 million from consulting for reimbursement codes for the Company’s product once commercially approved, $0.4 million from higher information technology and other office expense to support increases in staff, partially offset by a $0.3 million decrease in legal expenses which decreased because of the resolution of several matters in 2020. 31 Research and Development Expenses For the year ended December 31, 2021, research and development expenses increased by $1.4 million or 35%, to $5.7 million from $4.3 million for the year ended December 31, 2020. The increase is primarily due to an increase of $1.1 million in compensation from the increases in staffing to support the SAVVE trial and continued product development, $0.5 million in higher lab costs and supplies, also to support the SAVVE trial and product development, an increase of $0.4 million for lab quality testing to prepare for regulatory audits and the SAVVE trial, partially offset by a $0.6 million decrease in trial related consulting as the Columbian first in human trial wrapped up in 2020 and the SAVVE trial was not launched until late in 2021. We expect our research and development costs will continue at these levels with more moderate increases as we move through the SAVVE trial. Gain on Extinguishment of Note Payable For the year ended December 31, 2021 the Company recorded a one-time $0.3 million gain on extinguishment of note payable due to the forgiveness of the loan it had obtained under the PPP program authorized by the CARES act. Change in Fair Value of Derivative Liability For the year ended December 21, 2020, we recorded a loss 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 Bridge Offering in February 2020. There were no similar instruments outstanding during the year ended December 31, 2021. Other Expenses Other expenses in 2020 primarily consisted of and $0.1 million in charges for warrants to purchase 6,400 shares of common stock issued to a consultant and for repricing of warrants issued to the placement agent in the Company’s February 2020 private placement, and a $0.1 million expense for warrants issued to certain participants in the exchange of preferred stock for common stock. Liquidity and Capital Resources For the twelve-months ended December 31, 2021, the Company incurred losses from operations of $16.9 million and used $11.8 million cash in operating activities. The net cash used in operating activities during 2021 increased by $4.1 from $7.7 million for the year ended December 31, 2020. The losses and the uses of cash are primarily due to the Company’s administrative and product research and development activities. Administrative functions relate to costs to support the Company’s public reporting and investor relations activities as well as internal administrative functions. Research and development activities are for continued product development and clinical trials for the VenoValve. The Company will continue to incur these costs to complete its clinical trials, enhance products, develop new products, and operate as a public company. Although we have discretion in how we use the Company’s cash resources, we expect to continue these activities for the foreseeable future as we seek to obtain regulatory approval for our lead product candidate. We are not currently generating revenue. Our cash flows from investing activity have historically consisted of purchases of property and equipment for our lab and offices. In the year ended December 31, 2021 we purchased $0.4 million of property and equipment consisting of $0.2 million for lab and test equipment, and $0.2 million for other computer equipment and software. In the year ended December 31, 2020 we purchased $0.2 million of property and equipment consisting of $0.1 million for lab and test equipment and $0.1 million for other computer equipment and software. We do not currently have material commitments for capital expenditures or other expenditures with the exception of our facility lease commitment of $0.4 million per year. However, we expect a modest increase in cash used in investment activities as we continue SAVVE and plan for commercialization of the VenoValve. The Company has historically funded its operations through financing activities such as the capital raises completed in 2020 and 2021. During 2021, the Company raised an aggregate of $57.4 million in net proceeds in private and public placements of its securities. During 2020, the Company raised an aggregate of $14.7 million in net proceeds in private and public placements of its common stock and of its preferred stock. Our cash balance as of December 31, 2021, is $54.7 million. Our future capital requirements will remain dependent upon a variety of factors, especially including the success of our clinical trials and related product development costs and our ability to successfully bring products to market. At our existing cash burn rate of approximately $4 million per quarter, we should have sufficient cash to fund operations through the end of 2024 and into 2025. With primary endpoints following full enrollment in the SAVVE pivotal trial of thirty (30) days for safety, and six (6) months for effectiveness, we expect to have primary endpoint data well in advance of the need to raise additional capital. Any inability to raise additional financing would have a material adverse effect on us. Based upon our cash and working capital as of December 31, 2021, we have sufficient capital resources to meet our obligations as they become due within one year after the date of this Annual Report and sustain operations. 32 Off-Balance Sheet Arrangements None. Contractual Obligations As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information requested by paragraph (a)(5) of this Item. Critical Accounting Policies and Estimates Basis of Presentation The accompanying audited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Significant estimates and assumptions include the valuation allowance related to the Company’s deferred tax assets, and the valuation of warrants and derivative liabilities. Stock-Based Compensation The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. The fair value of the award is measured on the grant date and recognized over the period services are required to be provided in exchange for the award, usually the vesting period. Forfeitures of unvested stock options are recorded when they occur. 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 were aggregate uninsured cash balances of $54.5 million and $9.1 million as of December 31, 2021 and 2020, respectively. ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item. ITEM 8. Financial Statements and Supplementary Data Please see the financial statements beginning on page F-1 following the signature pages in this Annual Report on Form 10-K and incorporated herein by reference. 33 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not Applicable.