As filed with the Securities and Exchange Commission on December 14, 2017.February 2, 2021
Registration No. 333-220372333- 251528
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
Amendment No. 2 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Hancock Jaffe Laboratories, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 3841 | 33-0936180 | ||
(State or incorporation or organization) | (Primary Standard Industrial Classification Code Number) | ( Identification No.) |
70 Doppler
Irvine, California 92618
(949) 261-2900
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Benedict Broennimann, M.D.Robert A. Berman
Co-ChiefChief Executive Officer
Hancock Jaffe Laboratories, Inc.
70 Doppler
Irvine, California 92618
(949) 261-2900
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Matthew Bernstein, Esq. Ellenoff Grossman & Schole LLP
|
New York, New York 10105 Phone: (212) Fax: (212) 370-7889 | Richard Friedman, Esq. Justin Anslow, Esq. Sheppard, Mullin, Richter & Hampton LLP 30 Rockefeller Plaza New York, NY 10112 Tel: (212) 653-8700 Fax: (212) 653-8701 |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement is declared effective.registration statement.
If any of the securities being registered on this formForm are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box:box. ☒
If this formForm is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this formForm is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this formForm is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.Act of 1934.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | Smaller reporting company | ☒ | ||
| Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuantprovided to Section 7(a)(2)(B) of the Securities Act. ☒
CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities to be Registered | Amount to be Registered | Proposed Maximum Offering Price per Share(2) | Proposed Maximum Aggregate Offering Price(2) | Amount of Registration Fee(6) | ||||||||||||
| Common Stock, $0.00001 par value per share | 2,156,250 | (1) | $ | 8.00 | $ | 17,250,000 | $ | 2,148 | ||||||||
| Underwriters’ Warrants(3)(4) | 107,813 | — | — | — | ||||||||||||
| Shares of Common Stock underlying Underwriters’ Warrants | 107,813 | $ | 10.00 | $ | 1,078,130 | $ | 135 | |||||||||
| Common Stock, $0.00001 par value per share(5) | 1,018,869 | $ | 8.00 | $ | 8,150,952 | $ | 1,015 | |||||||||
| Total: | 3,390,745 | — | $ | 26,479,082 | $ | 3,298 | ||||||||||
| Title of each class of securities to be registered | Proposed Maximum Aggregate Offering Price (1)(2) | Amount of Registration Fee (5) | ||||||
| Units consisting of common stock, par value $0.00001 per share, and warrants to purchase common stock: | $ | 34,500,000 | $ | 3,763.95 | ||||
| (i) Shares of common stock included in the units | ||||||||
| (ii) Warrants to purchase shares of common stock included in the units (3) | ||||||||
| Common Stock issuable upon exercise of warrants included in the units (4) | $ | 19,837,500 | $ | 2,164.27 | ||||
| Total | $ | 54,337,500 | $ | 5,928.22 | ||||
| (1) | Pursuant to Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”), the shares of common stock offered hereby also include an indeterminate number of shares of the registrant’s common stock as a result of stock splits, distributions, recapitalizations, or other similar transactions. Includes |
| (2) | |
| (3) | |
| No | |
| |
The Registrantregistrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrantregistrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until thethis Registration Statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectuses. The first appearing prospectus is for the initial public offering of our common stock, which we refer to as the Prospectus, consisting of an aggregate of (i) 2,156,250 shares of our common stock (including 281,250 shares of common stock , which may be sold upon exercise of the underwriters’ over-allotment option to cover over-allotments, if any) through the underwriters named on the cover page of this Prospectus, (ii) warrants to be granted to the underwriters, or designees, for an amount equal to 5% of the number of the shares of our common stock sold to the public, which we refer to as the Underwriters’ Warrants, and (iii) the shares of our common stock issuable upon exercise of the Underwriters’ Warrants.
The second appearing prospectus is to be used in connection with the resale by certain stockholders of our company, which we refer to as the Selling Stockholders, of an aggregate of 1,018,869 shares of our common stock, which we refer to as the Selling Stockholder Prospectus, consisting of (i) 561,336 shares of our common stock, which we refer to as the Note Shares, issuable upon conversion of our outstanding senior convertible notes, which we refer to as the Notes, (ii) 450,033 shares of our common stock, which we refer to as the Warrant Shares, issuable upon exercise of outstanding warrants, which we refer to as the Warrants, and (iii) 7,500 shares of our common stock held by COVA Capital Partners, LLC, in each case calculated using the midpoint of the price range listed on the cover page of this Prospectus.
The Prospectus and Selling Stockholder Prospectus are identical in all respects except for the alternate pages for the Selling Stockholder Prospectus included herein, which are labeled “Alternate Pages for Selling Stockholder Prospectus,” and are set forth below:
We have included in this Registration Statement, after the financial statements, the Alternate Pages for the Selling Stockholder Prospectus, which reflect the foregoing differences of the Selling Stockholder Prospectus as compared to the Prospectus.
The sales of the shares of our common stock registered in the Prospectus and the Selling Stockholder Prospectus may result in two offerings taking place concurrently , which could affect the price and liquidity of, and demand for, shares of our common stock. This risk and other risks are included in “Risk Factors” beginning on page 10 of the Prospectus.
The information in this preliminary prospectus is not complete and may be changed. WeThese securities may not sell these securitiesbe sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion, dated February 2, 2021
SUBJECT TO COMPLETION, DATED DECEMBER 14 , 2017Prospectus
3,222,341Units consisting of up to 3,222,341 Shares of Common Stock and
Warrants to Purchase 1,611,170 Shares of Common Stock
(and Shares of Common Stock issuable upon exercise of the Warrants)
PRELIMINARY PROSPECTUS
1,875,000 SharesWe are offering up to 3,222,341 units (the “Units”), with each Unit consisting of
Common Stock
This one (1) share of common stock, par value $0.00001 per share (the “Shares”), and one (1) warrant to purchase one-half (.5) of a share of common stock (the “Warrants”) at a price per Unit of $9.31, based on an assumed public offering price of $9.31, which is the initial public offeringclosing price of our common stock. Prior to this offering there has been no public market for our common stock. We are offering 1,875,000 shares of common stock. We currently expect the initial public offering price to be between $6.00 and $8.00 per share.
Our common stock has been approved for listing on the Nasdaq Capital Market on January 29, 2021. The Warrants will have an exercise price of $___ per whole share (____% of the per Unit offering price) and will be exercisable from the initial issuance date until they expire on the five year anniversary of the original issuance date.
This offering also relates to the shares of common stock issuable upon exercise of the Warrants sold in this offering. The shares of common stock can each be purchased in this offering only with the accompanying Warrants (other than pursuant to the underwriters’ option to purchase additional Shares and/or Warrants) as part of Units, but the components of the Units will immediately separate upon issuance.
Our common stock is currently traded on the Nasdaq Capital Market under the symbol “HJLI.“HJLI”. A class of our warrants is listed on the Nasdaq Capital Market under the symbol “HJLIW.” The closing price of our common stock and our listed warrants on the Nasdaq Capital Market on January 25, 2021 was $9.09 per share and $0.25 per warrant. There is no established trading market for the Warrants being offered and we do not expect a market to develop. In addition, we do not intend to apply for the listing of the Warrants on any national securities exchange or other trading market. Without an active trading market, the liquidity of the Warrants will be limited.
We have received an indication of interest from a strategic healthcare investor, Analytica Ventures LLC (“Analytica”), to purchase up to $10,000,000 of the Units in this offering at the public offering price. However, indications of interest are not binding agreements or commitments to purchase and Analytica may decide not to purchase any units in this offering. In addition, the underwriters could determine to sell fewer Units to Analytica than they indicated an interest in purchasing or could determine not to sell any units to Analytica.
We are an “emerging growth company” as that term is defined in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to take advantage of certain reduced public company reporting requirements.requirements for this prospectus and future filings.
Investing in our common stocksecurities is highly speculative and involves a highsignificant degree of risk. Please read “Risk Factors”See “Risk Factors” beginning on page 108 of this prospectus.prospectus for a discussion of information that should be considered before making a decision to purchase our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
| Per Unit | Total | |||||||
| Public Offering | $ | |||||||
| Underwriting discounts and commissions(1) | $ | $ | ||||||
| Proceeds to us, before expenses | $ | $ | ||||||
(1) See “Underwriting” beginning on page 70 of this prospectus for a description of |
We have granted to the underwriters an option for a period of 45 days from the date of this prospectus to purchase up to 281,250an additional 483,351 Shares and/or Warrants to purchase up to an aggregate of 241,675 shares of common stock at the public offering price, less the underwriting discountsdiscount.
We anticipate delivery of the Shares and commissions, for 45 days after the date of this prospectus.Warrants against payment will be made on our about ____________, 2021.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.Ladenburg Thalmann
Delivery of the shares of common stock is expected to be made on or about , 2017.
The date of this prospectus is , 20172021.
TABLE OF CONTENTS
Please read this prospectus carefully. It describes our business, our financial condition and our results of operations. We have not, andprepared this prospectus so that you will have the underwritersinformation necessary to make an informed investment decision. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with any information or to make any representations about us, the securities being offered pursuant to this prospectus or any other matter discussed in this prospectus, other than thosethe information and representations contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of,prospectus. If any other information that othersor representation is given or made, such information or representation may give you. This prospectus is an offer to sell only the shares offered hereby, but only under the circumstances and in the jurisdictions where it is lawful to do so. not be relied upon as having been authorized by us.
The information contained in this prospectus or in any applicable free writing prospectus is currentaccurate only as of itsthe date of this prospectus, regardless of itsthe time of delivery of this prospectus or of any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outsideNeither the United States: We have not, and the underwriters have not, done anything that would permit this offering or possession or distributiondelivery of this prospectus ornor any applicable free writing prospectusdistribution of securities in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession ofaccordance with this prospectus andshall, under any applicable free writing prospectus must inform themselves of , and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.
Through and including , 2017 (25 days aftercircumstances, imply that there has been no change in our affairs since the date of this prospectus), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This prospectus will be updated and made available for delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.extent required by the federal securities laws.
This prospectus includes estimates, statistics and other industry data that we obtained from industry publications, research, surveys and studies conducted by third parties and publicly available information. Such data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty. This prospectus also includes data based on our own internal estimates. We caution you not to give undue weight to such projections, assumptions and estimates.
We use our registered trademarks and trade names, such as VenoValve® and CoreoGraft™CoreoGraft®, in this prospectus. This prospectus also includes trademarks, trade names and service marks that are the property of other organizations, such as ProCol Vascular Bioprosthesis®.organizations. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the®and ™ symbols, but those references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
This summary highlights selected information contained elsewhere in this prospectus, and does not contain all of the information thatprospectus. To understand this offering fully, you should consider before investing in our common stock. This summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. You should read this entire prospectus carefully, including the information set forth in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and oursection, the financial statements and relatedthe notes thereto contained in this prospectus, before making an investment decision.to the financial statements. Unless the context requires otherwise, references in this prospectus to “HJLI,” “we,” “us,” “our,” “our company,” or similar terminology refer to Hancock Jaffe Laboratories, Inc.
Overview
We areHancock Jaffe Laboratories, Inc. is a development stage medical device company developing biologic - based solutionstissue-based devices that are designed to be life-enhancinglife sustaining or life enhancing for patients with cardiovascular disease, and peripheral arterial and venous disease, and end stage renal disease,disease. The Company’s products are being developed to address large unmet medical needs by either offering treatments where none currently exist or ESRD. Each product candidate we are developing is designedby substantially increasing the current standards of care. Our two lead products are: the VenoValve®, a porcine based device to allow vascular and cardiothoracic surgeons to achieve effectiveness while improving current procedures and healthcare for a variety of patients. We arebe surgically implanted in the processdeep venous system of developingthe leg to treat a debilitating condition called chronic venous insufficiency (“CVI”); and obtainingthe CoreoGraft®, a bovine based conduit to be used to revascularize the heart during coronary artery bypass graft (“CABG”) surgeries. Both of our current products are being developed for approval by the U.S. Food and Drug Administration or(“FDA”). We currently receive tissue for our products from one domestic supplier and one international supplier. 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 the following three product candidates: the Bioprosthetic Heart Valve,our clinical trials and which we refer to as BHV, the Bioprosthetic Coronary Artery Bypass Graft, which we refer to as CoreoGraft, and the Bioprosthetic Venous Valve, which we refer to as the VenoValve. We havehas previously manufactured, developed and obtainedbeen FDA pre-market approvalcertified for the ProCol Vascular Bioprosthesis, a product for hemodialysis vascular access in patients with ESRD, which we sold to LeMaitre Vascular, Inc., or LMAT, in March 2016.commercial manufacturing of devices.
Each of our product candidatesproducts will be required to successfully complete significant clinical trials to demonstrate the safety and efficacy of the product candidate before it will be able to be approved by the FDA.
VenoValve
Background
Chronic venous disease (“CVD”) is the world’s most prevalent chronic disease. CVD is generally classified using a standardized system known as CEAP (clinical, etiological, anatomical, and pathophysiological). The completionCEAP system consists of theseseven clinical trials will requireclassifications (C0 to C6) with C5 to C6 being the most severe types of CVD.
Chronic Venous Insufficiency (“CVI”) is a subset of CVD and is generally used to describe patients with C4 to C6 CVD. CVI is a condition that affects the venous system of the leg causing pain, swelling, edema, skin changes, and ulcerations. In order for blood to return to the heart from the foot, ankle, and lower leg, the calf muscle pushes the blood up the veins of the leg and through a series of one-way valves. Each valve is supposed to open as blood passes through, and then close as blood moves up the leg to the next valve. CVI occurs when the one-way valves in the veins of the leg fail and become incompetent. When the valves fail, blood flows backwards and in the wrong direction (reflux). As blood pools in the lower leg, pressure inside the veins increases (venous hypertension). Reflux, and the resulting venous hypertension, cause the leg to swell, resulting in debilitating pain, and in the most severe cases, venous ulcers. The VenoValve is being developed to treat CVI in the deep venous system with a focus on severe patients with C5 to C6 CVI.
Estimates indicate that approximately 2.4 million people in the U.S. have severe C5 to C6 CVI in the deep venous system, including patients that develop venous leg ulcers (C6 patients). Over one million new severe cases of CVI occur each year in the U.S., mostly from patients who have experienced a deep vein thrombosis (blood clot). The average patient seeking treatment of a venous ulcer spends as much as $30,000 a year on wound care, and the total direct medical costs from venous ulcer sufferers in the U.S. has been estimated to exceed $38 billion a year. Aside from the direct medical costs, severe CVI sufferers experience a significantly reduced quality of life. Daily activities such as preparing meals, housework, and personal hygiene (washing and bathing) become difficult due to reduced mobility. For many severe CVI sufferers, intense pain, which frequently occurs at night, prevents patients from getting adequate sleep. Severe CVI sufferers are known to miss approximately 40% more work days than the average worker. A high percentage of venous ulcer patients also experience severe itching, leg swelling, and an odorous discharge. Wound dressing changes, which occur several times a week, can be extremely painful. Venous ulcers from deep venous CVI are very difficult to heal, and a significant amountpercentage of capital andvenous ulcers remain unhealed for more than a year. Even if healed, recurrence rates for venous ulcers are known to be high (20% to 40%) within the hiring of additional personnel.first year.
The Opportunity
Our Product Candidates
We areThe VenoValve is a porcine based valve developed at HJLI to be implanted in the processdeep venous system of developing the following bioprosthetic implantable devices for cardiovascular disease:
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In addition, we previously manufactured, developed and obtained FDA pre-market approval, or PMA, for the ProCol Vascular Bioprosthesis, a Class III product for hemodialysis vascular access in patients with ESRD. It is a biological graft derived from a bovine mesenteric vein. The ProCol Vascular Bioprosthesis received a PMA for commercial sale in the United States for use as a vascular access bridge graft in patients who require graft placement or repair subsequent to at least one failed prosthetic graft implant.
In March 2016, LMAT, a provider of peripheral vascular devices and implants, acquired our ProCol Vascular Bioprosthesis for its dialysis access line of products for an upfront payment and a three-year royalty of up to $5 million. We continue to provide manufacturing transition services to LMAT from our facility in Irvine, California , and are obligated to do so under an agreement with LMAT until 2019. Our ongoing revenue stream is derived from the sub-contract manufacturing services and royalties earned on LMAT sales pursuant to our agreement with LMAT.
Our Industry and Market
Our three product candidates currently under development are designed to address three different cardiovascular diseases. The BHV is designed to address diseases relating to the aortic and mitral valves. The CoreGraft is designed to address coronary artery bypass graft surgery, or CABG, and 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 lower limbvalvular 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.
There are approximately 2.4 million people in the U.S. that suffer from deep venous CVI due to valvular incompetence.
Aortic and Mitral Valve DiseasesVenoValve Clinical Status
Bioprosthetic heart valves are used for diseases relatingAfter consultation with the FDA, and as a precursor to the aortic and mitral valves. They have been shown to be effective, safe and durable. Heart valve replacement can be done with eitherU.S. pivotal trial, we are conducting a mechanical or bioprosthetic (tissue) prosthesis. Patients with mechanical heart valves are at increased risksmall first-in-human study for embolic stroke and thrombosisthe VenoValve in Colombia. The first phase of the valve itself,first-in-human Colombian trial included 11 patients. In addition to providing safety and therefore, require long-term anticoagulation. Even with anticoagulation,efficacy data, the riskpurpose of stroke or valve thrombosis is ~0.9% per year with mechanical mitral valves, ~0.5% per year for mechanical aortic valves, and ~1.2% per year in those with two mechanical valves.
We believe that pediatric patients requiring the smallest valve sizes, typically 19 to 21 mm in diameter, are not adequately treated by current market devices. The primary challenge for these patientsfirst-in-human study is to provide adequate blood flow during growthproof of concept, and development. Typically, this requires more complex procedures or multiple interventions 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 larger valve replacement. The patient outgrowsin Colombia. Between April of 2019 and December of 2019, we successfully implanted VenoValves in 10 additional patients, completing the valve size several times between ages twoimplantations for the first phase of the Colombian first-in-man study. Overall, VenoValves have been implanted in all 11 patients taking part in the first phase of the first-in-human trial. 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 twenty, requiring several surgeries before adulthood, also referreda VAS score used by the patient to as patient prosthetic mismatch.measure pain.
All 11 patients have now completed the one-year first-in-man trial. Across all 11 patients, reflux has improved an average of 54%, Venous Clinical Severity Scores (“VCSSs”) have improved an average of 56%, and VAS scores, which are used by patients to measure pain, have improved an average of 76% all when compared to pre-surgery levels. VCSS scores are commonly used 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 improvements in VCSS scores is significant and indicates that VenoValve patients who had severe CVI pre-surgery, now have mild CVI or the complete absence of disease at one-year post surgery.
Congenital heart defects are seriousVenoValve safety incidences have been minor with no reported material device related adverse events. Minor safety issues include one (1) fluid pocket (which was aspirated), intolerance from Coumadin anticoagulation therapy, three (3) minor wound infections (treated with antibiotics), and common conditions that have significant impactone 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 and met with the FDA on morbidity, mortality, and healthcare costs in children and adults. The most commonly reported incidence of congenital heart defectsJanuary 11, 2021. For more information on the January 11, 2021 Pre-IDE meeting with the FDA see the Recent Developments section herein An investigational device exemption or IDE form the FDA is required for a medical device company to proceed with a pivotal trial in the United States is between 4 and 10 per 1,000, clustering around 8 per 1,000 live births.U.S. for a class III medical device. We believe these patients would benefitexpect to file our IDE application with the FDA for the VenoValve U.S. pivotal trial in Q1 of 2021. As a precursor to the U.S. pivotal trial, we recently completed a 6-month GLP animal safety study which included the final, clinical version of the VenoValve that will be submitted to the FDA for IDE approval. We are waiting for the final pathology report from the GLP study, but the interim report showed no evidence of thrombus formation or other safety related abnormalities or morbidities. Next steps for the VenoValve include the the completion of a bioprosthetic heart valve that is safer, more cost effective, and more likely to reduce reoperations.series of additional functional tests mandated by the FDA, which are pre-requisites for the filing of an IDE application. We have begun discussions with several sites regarding their potential participation in the VenoValve U.S. pivotal.
Coronary Artery Bypass Graft SurgeryCoreoGraft
The current standard procedureBackground
Heart disease is the leading cause of death among men and women in the U.S. accounting for CABG employsabout 1 in every 4 deaths. Coronary heart disease is the usemost common type of heart disease, killing over 370,000 people each year. Coronary heart disease occurs when arteries around the patient’s saphenous vein internal mammary artery and/heart become blocked or radial artery as conduits to re-establish blood flow. Whileoccluded, in most cases by plaque. Although balloon angioplasty with or without stent placementcardiac stents have become the norm if one or two arteries are blocked, coronary artery bypass surgery remains the treatment of choice for patients with multiple blocked arteries on both sides of the heart. Approximately 200,000 coronary artery bypass graft (“CABG”) surgeries take place each year in the U.S. and are the most commonly performed cardiac procedure. CABG surgeries alone account for 55% of all cardiac surgeries, and CABG surgeries when combined with valve replacement surgeries account for approximately 62% of all cardiac surgeries. The next largest category accounts for 10% of cardiac surgeries. The number of CABG surgeries are expected to increase as the population continues to age. On average, three grafts are used for each CABG surgery.
Although CABG surgeries are invasive, improved surgical techniques over the years have lowered the fatality rate from CABG surgeries to between 1% and 3% prior to discharge from the hospital. Arteries around heart are accessed via an incision along the sternum known as a sternotomy. Once the incision is another optionmade, the sternum (chest) is divided (“cracked”) to access the heart and its surrounding arteries.
CABG surgery is relatively safe and effective. In most instances, doctors prefer to use the left internal mammary artery (“LIMA”), an artery running inside the ribcage and close to the sternum, to re-vascularize the left side of the heart. Use of the LIMA to revascularize the left descending coronary artery (known as the “widow maker”) has beenbecome the gold standard for revascularizing the left side of the heart during CABG surgeries. For the right side of the heart, and where additional grafts are needed on the left side, the current standard of care is to harvest the saphenous vein from the patient’s leg to be dissected into pieces and used as bypass grafts around the heart. Unfortunately, saphenous vein grafts (“SVGs”) are not nearly as effective as the LIMA for many patients, thisrevascularizing the heart. In fact, SVGs continue to be the weak link for CABG surgeries.
The saphenous vein harvest procedure is not always appropriate for multiple vessel disease. CABG remainsitself invasive. Either a long incision is made along the most effective procedure to re-vascularize cardiac muscle subsequent to a heart attack. By the endinner leg of the last decade, more than 160,000 CABG procedures requiring almost one hundred thousand harvested autologous grafts were performed annually inpatient to harvest the United States. In 2015, 150,000 CABG procedures were performed, which accounts for 375,000 bypass grafts.
We believe thatvein, or the recent trend toward off pump coronary graft surgery (surgical intervention on a beating heart as opposed to surgery on a stopped heart with extra-corporal circulation, which decreases the surgery time by one hour) and minimally invasive CABG procedures has had considerable bearing on both perioperative and procedural safety and efficacy and has had a significant impact on the futuresaphenous vein is extracted endoscopically. Regardless of the type of harvest procedure, and attendant utility of prosthetic bypass grafts. Bypass graft harvest remains the mostan invasive and complication prone aspect of the minimally invasive bypassCABG procedure. Present standard-of-care complications are described in recent published reports in major medical journals. The percentage of complications from the harvest procedure can be as high as 43%24%. This is mainly due to non-healing of the saphenous wound or development of infection in the area of the saphenous vein harvest site.
Saphenous vein graft obstructionWhile the LIMA is progressive, withknown for excellent short term and long term patency rates, studies indicate that between 10% and 40% percent of SVGs that are used as conduits for CABG surgeries fail within the first year after the CABG surgery. A significant percentage fail within the first 30 days. At 10 years, the SVGs failure rate can be as high as 50%75%. When a graft fails, it becomes blocked or occluded, depriving the heart of blood flow. Mortality during the first year after bypass graft failure is very high, between 5% and 9%. For purposes of comparison, a 3% threshold is considered to be a high cardiac risk. In fact, a relatively recent study in Denmark has reported that mortality rates at 8 to 10 years. Acute thrombosis, neointimal hyperplasia,years after CABG surgery are as high as 60% to 80%. While a life expectancy of 8 to 10 years following CABG surgery may have been acceptable in the past, expectations have changed and accelerated atherosclerosiswith people now generally living longer, additional focus is now being placed on extending life expectancies following CABG surgeries.
Researchers have determined that there are two main causes of SVGs failure: size mismatch, and a thickening of the three mechanismsinterior of the SVGs that leadbegins immediately following the harvest procedure. Size mismatch occurs because the diameter of SVGs is often significantly larger than the diameter of the coronary arteries around the heart. This size mismatch causes flow disturbances, leading to venousgraft thromboses and graft failure. Also,The thickening of the cell walls of SVGs occur when a significant costlayer of CABG procedures is associated with graft harvestendothelial cells on the inner surface of the SVGs are disturbed beginning at the harvesting procedure, starting a chain reaction which causes the cells to thicken and the extended recoveryinside of the graft to narrow, resulting in blood clots and complications related to the harvest procedure.graft failure.
Lower limb CVIThe Opportunity
Lower limb CVIThe CoreoGraft is a disease affecting 4.5 million people inbovine based off the United States, which includes over 600,000 people having ulcersshelf 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 wounds on their legs, which is generally consideredeliminate the most severe typeinner thickening that burdens and leads to failure of CVI. People with CVI are plagued with marked disability, either from leg swelling, development of non-healing leg ulcers and often the inability to ambulate. Approximately 1 million people in the United States each year develop blood clots in their legs and many of these patients will go on to develop symptoms of CVI.SVGs.
OnceIn addition to providing a potential alternative to SVGs, the venous valves are damaged from episodes of blood clots in the legs, the poor functioning of the valves prevents blood from returning to the heartCoreoGraft could be used when making grafts from the legspatients’ own arteries and the cascade of symptoms of CVI begins. Presently, no medical or nonsurgical treatmentveins is available other than compression “garments” or constant leg elevation. When the disease is isolated to the superficial veins, ablation or surgical excision of the affected saphenous vein isnot 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 deep system, valve transplantsLIMA 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 been used butinsufficient veins to harvest. While the CoreoGraft may start out as a product for patients with very - poor results. Additionally,no other options, if the creationCoreoGraft establishes good short term and long-term patency rates, it could become the graft of valves using fibrous tissue is only performedchoice for all CABG patients in few centers worldwide. Reestablishment of proper direction of venous flowaddition to the heart isLIMA.
Clinical Status
In January of 2020, we announced the only reasonable remedyresults 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 problemleft 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 CVI. Currently, however, there isthe 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 known device or medicine available that would restore venous flowsigns of thrombosis, infection, aneurysmal degeneration, changes in the deep venous system.
Our Strategylumen, or other problems that are known to plague and lead to failure of SVGs.
Our business strategyIn 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 focused primarilya layer of cells that naturally exist throughout healthy veins and arteries and that 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 trial for the CoreoGraft. Up to 5 patients that need coronary artery bypass graft surgery will 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 research, developmentCOVID-19 pandemic, and manufacturingin 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 biomedical device product candidatesfirst-in-human trial were successfully completed in October of 2020. A third bypass surgery using the CoreoGraft was successfully completed in November of 2020. Two CoreoGraft surgical patients have expired due to non-device related adverse events, one in October and one in November of 2020. Follow-up visits for useall CoreoGraft patients will occur at 30, 90, 180, and 365 days post-surgery. We will enroll the remaining patients in cardiovascular surgical procedures. We have targeted the relatively large device markets whereCoreoGraft first-in-human trial and will provide periodic updates on all of our biologic technological advances and achievements could provide an opportunity to address patient needs that are not currently being satisfied.CoreoGraft patients.
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Our Competitive Strengths
We believe we will offer the cardiovascular device market a compelling value proposition with the launch of our three product candidates,two products, if approved, for the following reasons:
| ● | We have extensive experience of proprietary processing and manufacturing methodology specifically applicable to the design, processing, manufacturing and sterilization of our biologic tissue devices. | |
| ● | We operate a 14,507 square foot manufacturing facility in Irvine, California. Our facility is designed expressly for the manufacture of Class III tissue based implantable medical devices and is equipped for research and development, prototype fabrication, current good manufacturing practices, or cGMP, and manufacturing and shipping for Class III medical devices, including biologic cardiovascular devices. | |
| ● | We have attracted senior executives who are experienced in research and development and who have |
Intellectual PropertyRecent Developments
On November 30, 2020, we effected a one-for-twenty five (1:25) reverse stock split (the “Reverse Stock Split”) of our common stock. As a result of the Reverse Stock Split, every twenty five (25) shares of issued and outstanding common stock was automatically combined into one (1) issued and outstanding share of common stock, without any change in the par value per share. Pursuant to their terms, proportional adjustments were also made to the Company’s outstanding stock options and warrants such that the number of shares of common stock underlying such securities were reduced by a factor of 25 and the exercise prices of such securities were increased by a factor of 25. The number of authorized shares of Common Stock under the Certificate of Incorporation remains unchanged at 250,000,000 shares. As a result of the Reverse Stock Split, following ten trading days of our common stock trading on a post-split basis, we received notice from Nasdaq that we regained compliance with the Nasdaq continued listing standards.
As previously disclosed, on May 22, 2020, we executed a non-binding letter of intent to merge the Company with Catheter Precision, Inc., a private medical device company focused on cardiovascular diseases, including heart arrythmias. We have subsequently elected to not pursue this proposed merger.
From October 1, 2020 and through the date of filing this prospectus, warrants to purchase 290,924 shares of common stock were exercised resulting in net proceeds to the Company of approximately $2,354,000, excluding the warrants discussed below.
In January 2021, we entered into warrant exercise agreements with certain purchasers of our warrants to purchase common stock issued in February 2020. In accordance with the terms of such agreements, warrant holders agreed to exercise warrants to purchase an aggregate of 48,000 shares of common stock for total gross proceeds of $240,000 to the company.
On January 12, 2021 we completed our Pre-IDE meeting with the FDA. Topics presented at the meeting included the background and clinical need for the VenoValve, proposed U.S. pivotal study design, patient monitoring for safety and efficacy, bench testing protocols, and the VenoValve first-in-human results. Based in part on FDA feedback during the meeting, HJLI expects to propose a single-arm, multi-center study of an estimated seventy-five (75) patients for the U.S. pivotal trial. Depending on the results of the proposed pivotal study, which is subject to receipt of IDE approval and patient enrollment, among other factors, HJLI could be eligible to apply for pre-market approval to market the VenoValve as early as six (6) months after the last patient in the pivotal trial receives their VenoValve implant. Feedback from the FDA indicated that a six (6) month study period prior to filing for PMA approval could be sufficient. The proposed study will also include a multi-year follow-up observation period. Pre-market approval is the FDA process of scientific and regulatory review to evaluate the safety and effectiveness of a Class III medical device before the device can be marketed to the public. We expect to file our IDE application with the FDA, seeking approval to proceed with the VenoValve U.S. pivotal trial, in Q1 of 2021.
Our preliminary unaudited cash used in operations for the quarter ending December 31, 2020 was approximately $2,800,000. As of January 25, 2021, we had a cash balance of $8,708,000.
Risks Associated with Our Business
Our business is subject to many significant risks, as more fully described in the section entitled “Risk Factors” immediately following this prospectus summary. You should read and carefully consider these risks, together with the risks set forth under the section entitled “Risk Factors” and all of the other information in this prospectus, including the financial statements and the related notes included elsewhere in this prospectus, before deciding whether to invest in our common stock. If any of the risks discussed in this prospectus actually occur, our business, financial condition or operating results could be materially and adversely affected. In particular, our risks include, but are not limited to, the following:
| ● | Failure to obtain approval from the FDA to commercially sell our product candidates in a timely manner or at all; | |
| ● | Whether surgeons and patients in our target markets accept our product candidates, if approved; | |
| ● | The expected growth of our business and our operations, and the capital resources needed to progress our business plan; | |
| ● | Failure to scale up of the manufacturing process of our product candidates in a timely manner, or at all; |
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| ● | Our ability to retain and recruit key personnel, including the development of a sales and marketing infrastructure; | |
| ● | Reliance on third party suppliers for certain components of our product candidates; | |
| ● | Reliance on third parties to commercialize and distribute our product candidates in the United States and internationally; | |
| ● | Changes in external competitive market factors; | |
| ● | Uncertainties in generating sustained revenue or achieving profitability; | |
| ● | Unanticipated working capital or other cash requirements; | |
| ● | Changes in FDA regulations, including testing procedures, for medical devices and related promotional and marketing activities; | |
| ● | Our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for, or ability to obtain, additional financing; | |
| ● | Our ability to obtain and maintain intellectual property protection for our product candidates; | |
| ● | Our ability to consummate future acquisitions or strategic transactions; | |
| ● | Our ability to maintain the listing of our securities on the Nasdaq Capital Market; and | |
| ● | Changes in our business strategy or an inability to execute our strategy due to unanticipated changes in the medical device industry. |
Intellectual Property
We possess an extensive proprietary processing and manufacturing methodology specifically applicable to the design, processing, manufacturing and sterilization of biologic devices. This includes FDA compliant quality control and assurance programs, proprietary tissue processing technologies demonstrated to eliminate recipient immune responses, decades long and trusted relationship with abattoir suppliers, and a combination of tissue preservation and gamma irradiation that enhances device functions and guarantees sterility. Our patents pertaining to the unique design advantages and processing methods of valvular tissue as a bioprosthetic device provide further intellectual advantage over potential competitors. The critical design components and function relationships unique to the BHV are protected by U.S. Patent No. 7,815,677, issued on October 19, 2010 and expiring on July 9, 2027. TwoWe have filed patent applications have been filed for theour VenoValve product and Implantable Vein Frame with the U.S. Patent and Trademark Office.Office though there is no assurance that patents will be issued. We have several proprietary processes for manufacturing our CoreoGraft product and are also are working on intellectual property protection.
Implications of Being an Emerging Growth Company
We qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 or the JOBS Act.(the “JOBS Act”). For as long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies. These provisions include, but are not limited to:
| ● | being permitted to have only two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis of financial condition and results of operations disclosure; | |
| ● | an exemption from compliance with the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act; | |
| ● | reduced disclosure about executive compensation arrangements in our periodic reports, registration statements and proxy statements; and | |
| ● | exemptions from the requirements to seek non-binding advisory votes on executive compensation or golden parachute arrangements. |
In addition, the JOBS Act permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are not choosingchose to “opt out” of this provision. We will remain an emerging growth company until the earliest of (i) the end of the fiscal year following the fifth anniversary of the completion of thisour initial public offering, (ii) the first fiscal year after our annual gross revenues exceed $1.07 billion, (iii) the date on which we have, during the immediately preceding three-year period, issued more than $1.0 billion in non-convertible debt securities or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeds $700 million as of the end of the second quarter of that fiscal year.
Summary Risks Related to Our Business
Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows and prospects that you should consider before making a decision to invest in our common stock. These risks are discussed more fully in “Risk Factors” beginning on page 10 of this prospectus. These risks include, but are not limited to, the following:
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Corporate Information
We were incorporated in Delaware inon December 22, 1999. Our principal executive offices are located at 70 Doppler, Irvine, California, 92618, and our telephone number is (949) 261-2900. Our corporate website address is www.hancockjaffe.com. The information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.
The Offering
THE OFFERING
3,222,341 Units, with each Unit consisting of one (1) Share and one Warrant to purchase one-half (.5) of a share of common stock (assuming a public offering price of $9.31 per Unit, the last reported sale price of our common stock on The Nasdaq Capital Market on January 29, 2021). Each Warrant will have an exercise price of $___ per whole share (___% of the per Unit offering price), will be exercisable beginning on the original issuance date and will expire on the five year anniversary of the original issuance date. | ||
| We have granted the underwriters an option for a period of 45 days from the date of this prospectus to purchase up to an additional | ||
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| Use of proceeds: | Based on an assumed public offering price of $9.31 per Unit (the last reported sale price of our common stock on The Nasdaq Capital Market | |
| Strategic healthcare investor indication of interest: | We have received an indication of interest from a strategic healthcare investor, Analytica Ventures LLC, to purchase up to $10,000,000 Units in this offering at the public offering price. However, indications of interest are not binding agreements or commitments to purchase and Analytica may decide not to purchase any Units in this offering. In addition, the underwriters could determine to sell fewer Units to Analytica than they indicated an interest in purchasing or could determine not to sell any Units to Analytica. | |
| Risk Factors: | An investment in our company is highly speculative and involves a significant degree of risk. See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our securities. | |
| Market and Trading Symbol: | Our shares of common stock are traded on the Nasdaq Capital Market under the symbol “HJLI” and certain of our warrants are traded on the Nasdaq Capital Market under the symbol “HJLIW.” There is no established trading market for the Warrants being offered and we do not expect a market to develop. In addition, we do not intend to apply for the listing of the Warrants on any national securities exchange or other trading market. Without an active trading market, the liquidity of the Warrants will be limited. |
(1) The number of shares of our common stock to be outstanding after this offering is based on 7,817,2902,589,352 shares of our common stock outstanding as of December 11, 2017,January 25, 2021 and excludes:excludes as of such date:
| ● | 211,888 shares of our common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $31.48 per share; | |
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| ● | ||
Unless otherwise indicated, all information contained in this prospectus assumes:
| ● | no exercise | |
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SUMMARY FINANCIAL DATA
The following tables set forth a summary of our historical financial data as of, and for the periods ended on, the dates indicated. The statements of operations data for the years ended December 31, 2016 and 2015 and balance sheet data as of December 31, 2016 and December 31, 2015 are derived from our audited financial statements included elsewhere in this prospectus. The statements of operations data for the nine month periods ended September 30, 2017 and 2016 and the balance sheet data as of September 30, 2017 are derived from our unaudited financial statements included elsewhere in this prospectus. The unaudited financial statements were prepared on the same basis as the audited financial statements. Our management believes that the unaudited financial statements reflect all adjustments necessary for the fair presentation of the financial condition and results of operations for such periods.
The following summary financial information should be read in connection with, and is qualified by reference to, our financial statements and related notes thereto and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. Our historical results are not necessarily indicative of results to be expected in any future period.
A one-for-two reverse stock split of our common stock was effected on December 14, 2017, or the reverse stock split . With the exception of the securities that are not affected by the reverse stock split, all share and per share information has been retroactively adjusted to give effect to the reverse stock split for all periods presented, unless otherwise indicated.
| For The Years Ended | For The Nine Months Ended | |||||||||||||||
| December 31, | September 30, | |||||||||||||||
| 2016 | 2015 | 2017 | 2016 | |||||||||||||
| Statement of Operations Data: | (unaudited) | |||||||||||||||
| Revenues | 785,912 | — | 246,988 | 481,053 | ||||||||||||
| Cost of goods sold | 810,294 | — | 321,675 | 598,295 | ||||||||||||
| Gross Loss | (24,382 | ) | — | (74,687 | ) | (117,242 | ) | |||||||||
| Selling, general and administrative expenses | 4,634,801 | 1,289,851 | 3,799,211 | 3,406,367 | ||||||||||||
| Research and development expenses | — | — | 300,648 | — | ||||||||||||
| Loss from Operations | (4,659,183 | ) | (1,289,851 | ) | (4,174,546 | ) | (3,523,609 | ) | ||||||||
| Other Expense (Income): | 929,075 | 88,347 | 492,884 | 524,395 | ||||||||||||
| Loss from Continuing Operations | (5,588,258 | ) | (1,378,198 | ) | (4,667,430 | ) | (4,048,004 | ) | ||||||||
| Discontinued Operations: | ||||||||||||||||
| Loss from discontinued operations, net of tax | (298,286 | ) | (225,815 | ) | — | (298,286 | ) | |||||||||
| Gain on sale of discontinued operations, net of tax | 2,499,054 | — | — | 2,499,054 | ||||||||||||
| Income (Loss) from Discontinued Operations, net of tax | 2,200,768 | (225,815 | ) | — | 2,200,768 | |||||||||||
| Net Loss | (3,387,490 | ) | (1,604,013 | ) | (4,667,430 | ) | (1,847,236 | ) | ||||||||
| Deemed dividend to preferred stockholders | (342,859 | ) | (4,352 | ) | (331,607 | ) | (243,938 | ) | ||||||||
| Net Loss Attributable to Common Stockholders | (3,730,349 | ) | (1,608,365 | ) | (4,999,037 | ) | (2,091,174 | ) | ||||||||
| As of September 30, 2017 | ||||||||||||
| Actual | Pro Forma(1) | Pro Forma as Adjusted(2)(3) | ||||||||||
| (unaudited) | ||||||||||||
| Balance Sheet Data: | ||||||||||||
| Cash | $ | 311,483 | $ | 851,947 | $ | 12,178,505 | ||||||
| Working capital deficit | $ | (4,976,567 | ) | $ | (4,166,065 | ) | $ | (4,166,065 | ) | |||
| Total assets | $ | 1,931,225 | $ | 2,471,689 | $ | 2,471,689 | ||||||
| Total liabilities | $ | 5,525,525 | $ | 5,405,487 | $ | 5,405,487 | ||||||
| Accumulated deficit | $ | (32,395,780 | ) | $ | (33,925,424 | ) | $ | (33,925,424 | ) | |||
| Total stockholders’ deficiency | $ | (8,160,708 | ) | $ | (2,933,798 | ) | $ | 8,392,760 | ||||
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Except as otherwise indicated herein, all information in this prospectus, including the number of shares that will be outstanding after this offering, assumes no exercise by the underwriters of their option to purchase additional securities.
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Investing in our common stocksecurities involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this prospectus, including our financial statements, the notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in our common stock.securities. The occurrence of any of the following risks could have a material and adverse effect on our business, reputation, financial condition, results of operations and future growth prospects, as well as our ability to accomplish our strategic objectives. As a result, the trading price of our common stock could decline and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations and stock price.
Certain Risks Related to Ourour Business and Strategy
We have incurred significant losses since our inception, expect to incur significant losses in the future and may never achieve or sustain profitability.
We have historically incurred substantial net losses, including net losses of $4,667,430 for the nine months ended September 30, 2017,$7,625,397, $13,042,709, $7,791,469 and $3,387,490 for the yearyears ended December 31, 2019, 2018, 2017 and 2016, and $1,604,013 for the year ended December 31, 2015.respectively. As a result of our historical losses, we had an accumulated deficit of $32,395,780$56,187,925 as of December 31, 2019 and $60,949,408 as of September 30, 2017.2020. Our losses have resulted primarily from costs related to general and administrative expenses relating to our operations, as well as our research programs and the development of our product candidates, as well as general and administrative expenses relating to our operations.candidates. Currently, we are not generating significant revenue from operations, and we expect to incur losses for the foreseeable future as we seek to obtain regulatory approval for our product candidates. Additionally, we expect that our general and administrative expenses will increase due to the additional operational and reporting costs associated with being a public company as well as the projected expansion of our operations. We do not expect to generate significant revenue until any of our product candidates are approved,licensed or sold, if ever. We may never generate significant revenue or become profitable. Even if we do achieve profitability, we may be unable to sustain or increase profitability on a quarterly or annual basis. Our failure to achieve and subsequently sustain profitability could harm our business, financial condition, results of operations and cash flows.
We currently depend entirely on the successful and timely regulatory approval and commercialization of our threetwo product candidates, which may not receive regulatory approval or, if any of our product candidates do receive regulatory approval, we may not be able to successfully commercialize them.
We currently have threetwo lead product candidates the Bioprosthetic Heart Valve, the(the CoreoGraft and the VenoValve,VenoValve) and our business presently depends entirely on our ability to obtain regulatory approvallicense and/or sell our products to larger medical device companies. In order for and to successfully commercialize each of our product candidates in a timely manner.to succeed the products need to be approved by regulatory authorities, which may never happen. Our product candidates are based on technologies that have not been used previously in the manner we propose and must compete with more established treatments currently accepted as the standards of care.propose. Market acceptance of our product candidates will largely depend on our ability to demonstrate their relative safety, efficacy, cost-effectiveness and ease of use. We may not be able to successfully develop and commercialize our product candidates. If we fail to do so, we will not be able to generate substantial revenues, if any.
We are subject to rigorous and extensive regulation by the FDA in the United States and by comparable agencies in other jurisdictions, including the European Medicines Agency, or EMA, in the European Union, or EU. Our product candidates are currently in development and we have not received FDA approval for our product candidates. Our product candidates may not be marketed in the United States until they have been approved by the FDA and may not be marketed in other jurisdictions until they have received approval from the appropriate foreign regulatory agencies. Each product candidate requires significant research, development, , preclinical testing and extensive clinical investigation before submission of any regulatory application for marketing approval.
Obtaining regulatory approval requires substantial time, effort and financial resources, and we may not be able to obtain approval of any of our product candidates on a timely basis, or at all. The number, size, design and focus of preclinical and clinical trials that will be required for approval by the FDA, the EMA or any other foreign regulatory agency varies depending on the device, the disease or condition that the product candidates are designed to address and the regulations applicable to any particular products. Preclinical and clinical data can be interpreted in different ways, which could delay, limit or preclude regulatory approval. The FDA, the EMA and other foreign regulatory agencies can delay, limit or deny approval of a product for many reasons, including, but not limited to:
| ● | a product candidate may not be shown to be safe or effective; | |
| ● | the clinical and other benefits of a product candidate may not outweigh its safety risks; | |
| ● | clinical trial results may be negative or inconclusive, or adverse medical events may occur during a clinical trial; | |
| ● | the results of clinical trials may not meet the level of statistical significance required by regulatory agencies for approval; | |
| ● | regulatory agencies may interpret data from pre-clinical and clinical trials in different ways than we do; | |
| ● | regulatory agencies may not approve the manufacturing process or determine that the manufacturing is not in accordance with current good manufacturing practices, or cGMPs; | |
| ● | a product candidate may fail to comply with regulatory requirements; | |
| and/or | ||
| ● | regulatory agencies might change their approval policies or adopt new regulations. |
If our product candidates are not approved at all or quickly enough to provide net revenues to defray our operating expenses, our business, financial condition, operating results and prospects could be harmed.
If we are unable to successfully raise additional capital, our future clinical trials and product development could be limited and our long-term viability may be threatened.
We have experienced negative operating cash flows since our inception and have funded our operations primarily from proceeds received from sales of our capital stock, the issuance of the Notes,convertible and non-convertible notes, and the sale of our ProCol Vascular Bioprosthesis, a product for hemodialysis vascular access in patients with ESRD, which we soldproducts to LMAT in March 2016.larger medical device companies. We will seekneed to obtainseek additional funds in the future through equity or debt financings, or strategic alliances with third parties, either alone or in combination with equity financings.financings to complete our product development initiatives. These financings could result in substantial dilution to the holders of our common stock, or require contractual or other restrictions on our operations or on alternatives that may be available to us. If we raise additional funds by issuing debt securities, these debt securities could impose significant restrictions on our operations. Any such required financing may not be available in amounts or on terms acceptable to us, and the failure to procure such required financing could have a material and adverse effect on our business, financial condition and results of operations, or threaten our ability to continue as a going concern.
Our present and future capital requirements will be significant and will depend on many factors, including:
| ● | the progress and results of our development efforts for our product candidates; | |
| ● | the costs, timing and outcome of regulatory review of our product candidates; | |
| ● | the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; | |
| ● | the effect of competing technological and market developments; | |
| ● | market acceptance of our product candidates; |
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| ● | the extent to which we acquire or in-license other products and technologies; and | |
| ● | legal, accounting, insurance and other professional and business-related costs. |
We may not be able to acquire additional funds on acceptable terms, or at all. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets or delay, reduce the scope of or eliminate some or all of our development programs.
If we do not have, or are not able to obtain, sufficient funds, we may be required to delay development or commercialization of our product candidates or license to third parties the rights to commercialize our product candidates or technologies that we would otherwise seek to commercialize ourselves.candidates. We also may have to reduce marketing, customer support or otherthe resources devoted to our product candidates or cease operations. Any of these factors could harm our operating results.
The COVID-19 pandemic has significantly negatively impacted our business.
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 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. At this time, we have identified the following COVID-19 related risks that we believe have a greater likelihood of negatively impacting our company specific, including, but not limited to:
| ● | Federal, State and local shelter-in-place directives which limit our employees from accessing our facility to manufacture, develop and test our product candidates; | |
| ● | Travel restrictions and quarantine requirements which prevent us from initiating and continuing animal studies and patient trials both inside and outside of the United States; | |
| ● | The burden on hospitals and medical personnel resulting in the cancellation of non-essential medical procedures such as surgical procedures needed to implant our product candidates for pre-clinical and clinical trials; | |
| ● | Delays in the procurement of certain supplies and equipment that are needed to develop and test our product candidates; | |
| ● | Erosion of the capital markets which make it more difficult to obtain the financing that we need to fund and continue our operations; and | |
| ● | Potential back-log at regulatory agencies such as the FDA which may result in delays in obtaining regulatory approvals. | |
| ● | Travel restrictions which prevent patients from participating and continuing the participation in clinical trials. |
We may engage in future acquisitions or strategic transactions which may require us to seek additional financing or financial commitments, increase our expenses and/or present significant distractions to our management.
In the event we engage in an acquisition or strategic transaction, we may need to acquire additional financing (particularly, if the acquired entity is not cash flow positive or does not have significant cash on hand). Obtaining financing through the issuance or sale of additional equity and/or debt securities, if possible, may not be at favorable terms and may result in additional dilution to our current stockholders. Additionally, any such transaction may require us to incur non-recurring or other charges, may increase our near and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results. For example, an acquisition or strategic transaction may entail numerous operational and financial risks, including the risks outlined above and additionally:
| ● | exposure to unknown liabilities; | |
| ● | disruption of our business and diversion of our management’s time and attention in order to develop acquired products or technologies; | |
| ● | higher than expected acquisition and integration costs; | |
| ● | write-downs of assets or goodwill or impairment charges; | |
| ● | increased amortization expenses; | |
| ● | difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel; | |
| ● | impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and | |
| ● | inability to retain key employees of any acquired businesses. |
Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, and any transactions that we do complete could have a material adverse effect on our business, results of operations, financial condition and prospects.
As a result of our current lack of financial liquidity, our independent registered accounting firmthe Company has expressedconcluded there is substantial doubt regarding our ability to continue as a going concern.
As a result of our current lack of financial liquidity, the report of our independent registered accounting firm that accompanies our audited financial statements for the years ended December 31, 2016 and 2015, which are included as part of this prospectus, contains going concern qualifications, and our independent registered public accounting firm expressed substantial doubt regarding our ability to continue as a going concern, meaning that we may be unable to continue in operation for the foreseeable future or realize assets and discharge liabilities in the ordinary course of operations. Our lack of sufficient liquidity could make it more difficult for us to secure additional financing or enter into strategic relationships on terms acceptable to us, if at all, and may materially and adversely affect the terms of any financing that we may obtain and our public stock price generally. As a result of this, the Company has concluded there is substantial doubt regarding our ability to continue as a going concern. Accordingly, the report of our independent registered accounting firm that accompanies our audited financial statements for the year ended December 31, 2019 contains going concern qualifications, which discuss substantial doubt regarding our ability to continue as a going concern over the next twelve months from the issuance of our Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 18, 2020 (the “Form 10-K”), meaning that we may be unable to continue in operation for the foreseeable future or realize assets and discharge liabilities in the ordinary course of operations.
In order to continue as a going concern, we will need to, among other things, achieve positive cash flow from operations and, if necessary, seek additional capital resources to satisfy our cash needs. Our plans to achieve positive cash flow include engaging in offerings of equity and debt securities and negotiating up-front and milestone payments on our product candidates and royalties from sales of our product candidates that secure regulatory approval and any milestone payments associated with such approved product candidates .candidates. Our failure to obtain additional capital would have an adverse effect on our financial position, results of operations, cash flows, and business prospects, and ultimately on our ability to continue as a going concern.
We are subject to certain covenants set forth in the Notes. In addition, upon an event of default of the Notes, including a breach of a covenant, the principal amount of the Notes will increase by 20% and the Warrant Shares will increase from 50% to 75% coverage. We may not be able to make such accelerated payments. In addition, if we do not consummate our initial public offering prior to January 11, 2018, the Warrant Shares will increase from 50% to 75% coverage.
Under the Notes, so long as at least 33%If we fail to maintain an effective system of the principal amount of the Notes remains outstanding, we are subject to the following covenants, which we refer to as the covenants: we cannot amend our organizational documents in a manner that materially and adversely affects any rights of the holders, pay cash dividends or distributions upon any of our equity securities, enter into a transaction with an affiliate of our company, or enter into an agreement with respect to any of the foregoing. These covenants could limit the operation of our business.
In addition, under the Notes, an event of default occurs upon any of the following: (i) any default in the payment of the principal amount of any Note or of interest or other amounts owed to such holder when due and not cured within 15 trading days, (ii) our failure to perform a covenant or agreement, which failure is not cured in 15 trading days, (iii) a material representation or warranty made in the Note or related transaction document is untrue in any material respect when made, that would cause a material adverse effect, (iv) we become subject to a bankruptcy event, or (v) the Note Shares become ineligible for listing on a trading market.
Upon an event of default under the Notes, the outstanding principal amount of the Notes plus any other amounts owed to such holder will become immediately due and payable. Within 15 trading days after an event of default, the aggregate principal amount of the Notes will increase by 20% and the Warrant Shares will increase from 50% to 75% coverage. If an event of default occurs and the holders accelerate the amounts due,internal controls, we may not be able to make accelerated payments. Further,accurately report financial results or prevent fraud. If we mayidentify a material weakness in our internal control over financial reporting, our ability to meet our reporting obligations and the trading price of our stock could be negatively affected.
As described in our Quarterly Report on Form 10-Q filed with the SEC on August 14, 2020, in connection with our issuance of warrants in a private placement offering in February 2020, we identified a material weakness in our internal control over financial reporting with regard to our failure to record an associated derivative liability on a timely basis. This deficiency did not result in the revision of any of our issued financial statements. If we are unable to arrangeremediate this material weakness, or if we do not have these controls operating effectively for additional financinga sufficient amount of time, management may conclude that we did not maintain effective internal control over financial reporting as of December 31, 2020.
Effective internal controls are necessary to makeprovide reliable financial reports and to assist in the accelerated payments. The occurrenceeffective prevention of any onefraud. Any inability to provide reliable financial reports or prevent fraud could harm our business. We regularly review and update our internal controls, disclosure controls and procedures, and corporate governance policies. In addition, we are required under the Sarbanes-Oxley Act of these events2002 to report annually on our internal control over financial reporting. Any system of internal controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Accordingly, a material weakness increases the risk that the financial information we report contains material errors.
While we are in the process of developing a detailed plan for remediation of the material weakness, including developing and maintaining a transition process for new finance executives to review existing critical accounting policies and judgments, we can offer no assurance that our remediation plan will ultimately have the intended effects. Any failure to maintain such internal controls could adversely impact our business,ability to report our financial condition or results of operations.
In addition to an event of default under the Notes, under the securities purchase agreement pursuant to which we issuedon a timely and sold the Notes and Warrants, if we doaccurate basis. If our financial statements are not consummate our initial public offering prior to January 11, 2018, the coverage of each Warrant shall increase from 50% to 75%. If this were to occur, existing holders of our common stock will be further diluted.
We will need to increase the size of our organization, and we may experience difficulties in managing this growth.
As of December 11, 2017, we had nine full-time employees and three independent contractors. We will need to continue to expand our managerial, operational, finance and other resources to manage our operations, commence clinical trials, obtain approval for and commercialize our product candidates, and continue our development activities. Our management and personnel, systems and facilities currently in placeaccurate, investors may not be adequate to support this future growth. Our need to effectively execute our growth strategy requires that we:
Due to our limited financial resources and our limited experience in managinghave a company with such anticipated growth, we may not be able to effectively manage the expansioncomplete understanding of our operations or recruitmay lose confidence in our reported financial information. Likewise, if our financial statements are not filed on a timely basis as required by the SEC and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growthNasdaq Stock Market, we could delay the execution of our development and strategic objectives, or disrupt our operations.
We presently rely on our supply agreement with LMAT for substantially all of our revenue, and once the supply agreement is terminated,face severe consequences from those authorities. In either case, it could result in a material and adverse effect on our revenuebusiness or have a negative effect on the trading price of our common stock. Further, if we fail to remedy this deficiency (or any other future deficiencies) or maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties or shareholder litigation. We can give no assurance that the measures we have taken and resultsplan to take in the future will remediate the material weakness identified or that any additional material weaknesses will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of operationsthose controls.
Further, in the future, if we cannot conclude that we have effective internal control over our financial reporting, investors could result.lose confidence in the reliability of our financial statements, which could lead to a decline in our stock price. Failure to comply with reporting requirements could also subject us to sanctions and/or investigations by the SEC, The Nasdaq Stock Market or other regulatory authorities.
In March 2016, we entered into a post-acquisition supply agreement with LMAT, or the supply agreement, to be the contract manufacturer of the ProCol Vascular Bioprosthesis for Hemodialysis Vascular Access concomitant with ESRD. We have generated almost all of our total revenue since March 2016 pursuant to the supply agreement. The supply agreement will terminate upon the earlier of (i) March 18, 2019 and (ii)(A) upon seven days written notice of LMAT to our company for any reason, or (B) upon thirty-five days written notice of our company to LMAT if LMAT is in material breach of any of its representations, warranties or covenants under the supply agreement, and the breach cannot be cured or is not cured by LMAT within thirty calendar days of receipt of such notice of breach. When the supply agreement is terminated, or if either party becomes unable to perform their respective obligations under the supply agreement, we will no longer be able to generate revenue until one of our product candidates is approved, if ever. As a result, once the supply agreement is terminated, a material and adverse effect on our revenue and results of operations could result.
We may never be able to generate sufficient revenue from the commercialization of our product candidates to achieve and maintain profitability.
Our ability to operate profitably in the future will depend upon, among other items, our ability to (i) fully develop our product candidates, (ii) scale up our business and operational structure, (iii) obtain regulatory approval of our product candidates from the FDA, (iv) market and sell our product candidates ,to larger medical device companies, (v) successfully gain market acceptance of our product candidates, , and (vi) obtain sufficient and on-time supply of components from our third-party suppliers. If we fail to successfully commercialize any of our product candidates are never successfully commercialized, we may never receive a return on our investments in product development, sales and marketing, regulatory compliance, manufacturing and quality assurance, which may cause us to fail to generate revenue and gain economies of scale from such investments.
In addition, potential customers may decide not to purchaseWe only utilize a few suppliers for porcine and bovine tissue for our two product candidates and, even if we succeed in increasing adoption of our product candidates by physicians, hospitals and other healthcare providers, creating and maintaining relationships with customers and developing and commercializing new features or indications for our products, we may not be able to generate sufficient revenue to achieve or maintain profitability.
We utilize a third-party, single-source supplier for some components and materials used in the ProCol Vascular Bioprosthesis and the loss of thisa supplier could have an adverse impact on our business.
We rely on aone domestic and one international third-party single source suppliervendors to supply the cow tissue used in the ProCol Vascular Bioprosthesis to fulfill our sub-manufacturing requirement, pursuant to that certain Servicesporcine and Material Supply Agreement, dated as of March 4, 2016, or the s upply a greement, by and between us and ATSCO, Inc., or ATSCO. We intend to use ATSCO to supply pig and cowbovine tissue for our threetwo product candidates. Our ability to supply the ProCol Vascular Bioprosthesis to LMATour current and our future product candidates, if approved, commercially depends, in part, on our ability to obtain this pigporcine and cowbovine tissue in accordance with our specifications and with regulatory requirements and in sufficient quantities to meet demand. Our ability to obtain pigporcine and cowbovine tissue may be affected by matters outside our control, including that ATSCOthese suppliers may cancel our arrangements on short notice we may be relatively less important as a customer to ATSCO and ATSCO mayor have disruptions to itstheir operations.
Pursuant to the s upply a greement, ATSCO exclusively provides us with bovine veins, a key component for the manufacturing of ProCol Vascular Bioprosthesis. ATSCO trains its staff to collect materials from audited abattoirs under our specifications and procedures. In exchange, we agreed to purchase at least 700 units every month. The s upply a greement terminates on March 3, 2019, but may be extended upon mutual agreement between us and ATSCO. The s upply a greement may be terminated by either party with reasonable cause upon 90 days written notice if (i) we fail to pay without cure in limited situations, (ii) ATSCO willfully fails to follow procedures set forth therein, (iii) upon our mutual agreement with ATSCO without penalty, and (iv) if we cease manufacturing the ProCol Vascular Bioprosthesis for LMAT.
If we are required to establish additional or replacement suppliers for the pigporcine and cowbovine tissue, it may not be accomplished quickly and our operations could be disrupted. Even if we are able to find replacement suppliers, the replacement suppliers wouldmay need to be qualified and may require additional regulatory authority approval, which could result in further delay. In the event of a supply disruption, our product inventories may be insufficient to supply our customers. If ATSCO fails to deliver the required commercial quantities of pig tissue on a timely basis and at commercially reasonable prices, and we are unable to find one or more replacement suppliers capable of production at a substantially equivalent cost in substantially equivalent volumes and quality on a timely basis, the continued commercialization of the ProCol Vascular Bioprosthesis and any of our product candidates, if approved, the supply of ProCol Vascular Bioprosthesis to customers and the development of any future product candidates would be delayed, limited or prevented, which could have an adverse impact on our business.
We depend upon third-party suppliers for certain components of our product candidates, making us vulnerable to supply problems and price fluctuations, which could harm our business.
We rely on a number of third-party suppliers to provide certain components of our product candidates. We do not have long-term supply agreements with most of our suppliers, and, in many cases, we purchase finished goods on a purchase order basis. Our suppliers may encounter problems during manufacturing for a variety of reasons, including unanticipated demand from larger customers, failure to follow specific protocols and procedures, failure to comply with applicable regulations, equipment malfunction, quality or yield problems and environmental factors, any of which could delay or impede their ability to meet our demand. Our reliance on these third-party suppliers also subjects us to other risks that could harm our business, including:
| ● | interruption of supply resulting from modifications to, or discontinuation of, a supplier’s operations; | |
| ● | delays in product shipments resulting from defects, reliability issues or changes in components from suppliers; | |
| ● | price fluctuations due to a lack of long-term supply arrangements for key components with our suppliers; | |
| ● | errors in manufacturing components, which could negatively impact the effectiveness or safety of our product candidates or cause delays in shipment of our product candidates; | |
| ● | discontinued production of components, which could significantly delay our production and sales and impair operating margins; | |
| ● | inability to obtain adequate supplies in a timely manner or on commercially reasonable terms; | |
| ● | difficulty locating and qualifying alternative suppliers, especially with respect to our sole-source supplies; | |
| ● | delays in production and sales caused by switching components, which may require product redesign and/or new regulatory submissions; | |
| ● | delays due to evaluation and testing of devices from alternative suppliers and corresponding regulatory qualifications; | |
| ● | non-timely delivery of components due to our suppliers | |
| ● | the failure of our suppliers to comply with strictly enforced regulatory requirements, which could result in disruption of supply or increased expenses; and | |
| ● | inability of suppliers to fulfill orders and meet requirements due to financial hardships. |
In addition, there are a limited number of suppliers and third-party manufacturers that operate under the FDA’s Quality System Regulation, or QSR, requirements, maintain certifications from the International Organization for Standardization that are recognized as harmonized standards in the European Economic Area, or EEA, and that have the necessary expertise and capacity to manufacturesupply components for our product candidates. As a result, it may be difficult for us to locate manufacturers for our anticipated future needs, and our anticipated growth may strain the ability of our current suppliers to deliver products, materials and components to us. If we are unable to arrange for third-party manufacturing of components for our product candidates, or to do so on commercially reasonable terms, we may not be able to complete development of, market and sell our current or new product candidates .candidates. Further, any supply interruption from our suppliers or failure to obtain additional suppliers for any of the components used in our product candidates would limit our ability to manufacture our product candidates. Failure to meet these commitments could result in legal action by our customers, loss of customers or harm to our ability to attract new customers, any of which could have a material and adverse effect on our business, financial condition, results of operations and growth.
We must demonstrate to surgeons and hospitals the merits ofIf we successfully develop our product candidates and are unable to facilitate adoptionsell or license them to larger medical device companies, we may have to commercialize our products on our own, in which case we would have to demonstrate the efficacy and financial viability of our product candidates .products to doctors, hospitals, insurance companies, and other stakeholders.
Surgeons continue to playThere are multiple stakeholders that determine the success of a significant role in determining the devices used in the operating roommedical device, including doctors, hospitals, medical insurance companies, and in assisting in obtaining approval by the relevant value analysis committee, or VAC.others. Educating surgeonsthese stakeholders on the benefits of our product candidates will require a significant commitment by oura marketing team and sales organization. Surgeons and hospitals may be slow to change their practices because of familiarity with existing devices and/or treatments, perceived risks arising from the use of new devices, lack of experience using new devices, lack of clinical data supporting the benefits of such devices or the cost of new devices. There may never be widespread adoption of our product candidates by surgeons and hospitals. If we are unableIn addition, medical insurance companies would need to educate surgeonsunderstand the costs and hospitals about the advantagesbenefits of our product candidates incorporating our technology, as compared to surgical methods which do not incorporate such technology, we may face challenges in obtaining approval by the relevant VAC, and we will not achieve significantly greater market acceptanceexisting standards of care, if they are to provide reimbursement for the cost of our product candidates gain momentum inand the procedures to implant our sales activities, significantly grow ourproduct candidates. We may have difficulty and may never achieve the market share or grow our revenueacceptance that we need from doctors, hospitals, medical insurance companies and our business and financial condition will be adversely affected.others that are necessary for a successful product.
We operate in a very competitive business environmentIf larger medical device companies purchase or license any of our product candidates and if wethey are unable to compete successfully against our existing or potential competitors, our sales and operating results may be negatively affected.
The medical device industry is intensely competitive and subjectconvince hospital facilities to rapid and significant technological change, as well asapprove the introductionuse of new products or other market activities of industry participants. Our ability to compete successfully will depend on our ability to develop future product candidates that reach the market in a timely manner, are well adopted by customers and receive adequate coverage and reimbursement from third-party payors.
We have numerous competitors, many of whom have substantially greater name recognition, commercial infrastructure and financial, technical and personnel resources than us. Our competitors develop and patent competing products or processes earlier than we can or obtain regulatory clearance or approvals for competing products more rapidly than we can, which could impair our ability to develop and commercialize similar products or processes. Additionally, our competitors may, in the future, develop medical devices that render our product candidates, obsolete or uneconomical.
Many of our current and potential competitors are publicly traded, or are divisions of publicly-traded, major medical device or technology companies that enjoy several competitive advantages. We face a challenge overcoming the long-standing preferences of some specialists for using the products of our larger, more established competitors. Specialists who have completed many successful procedures using the products made by these competitors may be reluctant to try new products from a source with which they are less familiar. If these specialists do not try and subsequently adopt our product candidates , we may be unable to generate sufficient revenue or growth. In addition, many ofa substantial royalty income from our competitors enjoy other advantages such as:products.
As a resultIn the United States, in order for surgeons to use our product candidates, the hospital facilities where these surgeons treat patients will typically require that the product candidates receive approval from the facility’s VAC. VACs typically review the comparative effectiveness and cost of this increased competition, we believe there will be increased pricing pressuremedical devices used in the future.facility. The entry of multiple new productsmakeup and competitors may lead some of our competitorsevaluation processes for VACs vary considerably, and it can be a lengthy, costly and time-consuming effort to employ pricing strategies that could adversely affectobtain approval by the pricingrelevant VAC. For example, even if the purchasers or licensees of our product candidates and pricinghave an agreement with a hospital system for purchase of our products, in our markets generally.most cases, they must obtain VAC approval by each hospital within the system to sell at that particular hospital. Additionally, because we expect that potential hospital and other healthcare provider customers will bill various third-party payors to cover all or a portion of the costs and fees associated with the procedureshospitals typically require separate VAC approval for each specialty in which our product candidates willis used, which may result in multiple VAC approval processes within the same hospital even if such product has already been approved for use by a different specialty group. VAC approval is often needed for each different product to be used includingby the costsurgeons in that specialty. In addition, hospital facilities and group purchasing organizations, or GPOs, which manage purchasing for multiple facilities, may also require the purchasers of the purchaselicensees of our product candidates , changesproducts to enter into a purchasing agreement and satisfy numerous elements of their administrative procurement process, which can also be a lengthy, costly and time-consuming effort. If our purchasers/licensees do not receive access to hospital facilities in the amount such payorsa timely manner, or at all, via these VAC and purchasing contract processes, or otherwise, or if they are willingunable to reimburse our customers for procedures using our product candidates could create pricing pressure for us. If competitive forces drive down the prices we are able to charge for our product candidates , our profit marginssecure contracts on commercially reasonable terms in a timely manner, or at all, their operating costs will shrink, which will adversely affect our ability to invest inincrease, their sales may decrease and grow our business.their operating results may be harmed.
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Our competitors may not seek to obtain agreements, exclusive or otherwise, with the same partners or licensees that we intend to approach in order to develop and market our product candidates. In addition, our competitors may be able to meet these requirements and develop products that are comparable or superior to our product candidates or that would render our product candidates obsolete or non-competitive.
Our long-term growth depends on our ability to develop and commercialize additional product candidates.
The medical device industry is highly competitive and subject to rapid change and technological advancements. Therefore, it is important to our business that we continue to enhance our product candidate offerings and introduce new product candidates. Developing new product candidates is expensive and time-consuming. Even if we are successful in developing additional product candidates, the success of any new product candidates or enhancements to existing product candidates will depend on several factors, including our ability to:
| ● | properly identify and anticipate surgeon and patient needs; | |
| ● | develop and introduce new product candidates or enhancements in a timely manner; | |
| ● | develop an effective and dedicated sales and marketing team; | |
| ● | avoid infringing upon the intellectual property rights of third-parties; |
| ● | demonstrate, if required, the safety and efficacy of new product candidates with data from preclinical studies and clinical trials; | |
| ● | obtain the necessary regulatory clearances or approvals for new product candidates or enhancements; | |
| ● | be fully FDA-compliant with marketing of new product candidates or modified product candidates; | |
| ● | provide adequate training to potential users of our product candidates; and | |
| ● | receive adequate coverage and reimbursement for procedures performed with our product candidates. |
If we are unsuccessful in developing and commercializing additional devices in other areas, our ability to increase our revenue may be impaired.
New technologies, techniques or products could emerge that might offer better combinations of price and performance than the products and services that we plan to offer. Existing markets for surgical devices are characterized by rapid technological change and innovation. It is critical to our success that we anticipate changes in technology and customer requirements and physician, hospital and healthcare provider practices. It is also important that we successfully introduce new, enhanced and competitive product candidates to meet our prospective customers’ needs on a timely and cost-effective basis. At the same time, however, we must carefully manage our introduction of new product candidates .candidates. If potential customers believe that such product candidates will offer enhanced features or be sold for a more attractive price, they may delay purchases until such product candidates are available. We may also continue to offer older obsolete products as we transition to new product candidates, , and we may not have sufficient experience managing transitions. If we do not successfully innovate and introduce new technology into our anticipated product lines or successfully manage the transitions of our technology to new product offerings, our revenue, results of operations and business could be adversely impacted.
Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, industry standards, distribution reach or customer requirements. We anticipate that we will face strong competition in the future as current or future competitors develop new or improved product candidates and as new companies enter the market with novel technologies.
If we are unable to convince hospital facilities to approve the use of our product candidates, we may be unable to generate a substantial volume of sales of our products.
In the United States, in order for surgeons to use our product candidates, the hospital facilities where these surgeons treat patients will typically require us to receive approval from the facility’s VAC. VACs typically review the comparative effectiveness and cost of medical devices used in the facility. The makeup and evaluation processes for VACs vary considerably, and it can be a lengthy, costly and time-consuming effort to obtain approval by the relevant VAC. For example, even if we have an agreement with a hospital system for purchase of our products, in most cases, we must obtain VAC approval by each hospital within the system to sell at that particular hospital. Additionally, hospitals typically require separate VAC approval for each specialty in which our product is used, which may result in multiple VAC approval processes within the same hospital even if such product has already been approved for use by a different specialty group. We often need VAC approval for each different product to be used by the surgeons in that specialty. In addition, hospital facilities and group purchasing organizations, or GPOs, which manage purchasing for multiple facilities, may also require us to enter into a purchasing agreement and satisfy numerous elements of their administrative procurement process, which can also be a lengthy, costly and time-consuming effort. If we do not receive access to hospital facilities in a timely manner, or at all, via these VAC and purchasing contract processes, or otherwise, or if we are unable to secure contracts on commercially reasonable terms in a timely manner, or at all, our operating costs will increase, our sales may decrease and our operating results may be harmed. Furthermore, we may expend significant effort in these costly and time-consuming processes and still may not obtain VAC approval or a purchase contract from such hospitals or GPOs.
Our manufacturing resources are limited and if
If we are unable to produce an adequate supply of our product candidates for use in our current and planned clinical trials or for commercialization because of our limited manufacturing resources or our facility is damaged or becomes inoperable, our regulatory, development and commercialization efforts may be delayed.
Our manufacturing resources for our product candidates are limited. We currently manufacture our product candidates for our research and development purposes at our manufacturing facility in Irvine, California. If our existing manufacturing facility experiences a disruption, we would have no other means of manufacturing our product candidates until we are able to restore the manufacturing capability at our current facility or develop alternative manufacturing facilities. Additionally, any damage to or destruction of our facilities or our equipment, prolonged power outage or contamination at our facilities would significantly impair our ability to produce our product candidates and prepare our product candidates for clinical trials.
Additionally, in order to produce our product candidate scandidates in the quantities that will be required for commercialization, we will have to increase or “scale up” our production process over the current level of production. We may encounter difficulties in scaling up our production, including issues involving yields, controlling and anticipating costs, quality control and assurance, supply and shortages of qualified personnel. If our scaled-up production process is not efficient or results in a product that does not meet quality or other standards, we may be unable to meet market demand and our revenues, business and financial prospects would be adversely affected. Further, third parties with whom we may develop relationships may not have the ability to produce the quantities of the materials we may require for clinical trials or commercial sales or may be unable to do so at prices that allow us to price our products competitively.
If our facilities are damaged or become inoperable, we will be unable to continue to research, develop and manufacture our product candidates and, as a result, there will be an adverse impact on our business until we are able to secure a new facility.
Our facility and equipment would be costly to replace and could require substantial lead time to repair or replace. The facility may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, flooding, fire, vandalism and power outages, which may render it difficult to operate our business for some period of time. While we have taken precautions to safeguard our facilities, any inability to operate our business during such periods could lead to the loss of customers or harm to our reputation. We also possess insurance for damage to our property and the disruption of our business, but this insurance may not be sufficient to cover all of our potential losses and this insurance may not continue to be available to us on acceptable terms, or at all.
Our future international operations could subject us to regulatory and legal risks and certain operating risks, which could adversely impact our business, results of operations and financial condition.
The sale and shipment of our product candidates, if approved, across international borders and the purchase of components from international sources subject us to U.S. and foreign governmental trade, import and export and customs regulations and laws. Compliance with these regulations and laws is costly and could expose us to penalties for non-compliance. We expect that our international activities will be dynamic over the foreseeable future as we continue to pursue to identify opportunities in international markets. Our future international business operations are subject to a variety of risks, including:
We expect each international market we enter will pose particular regulatory and other hurdles to overcome and future developments in these markets, including the uncertainty relating to governmental policies and regulations, could harm our business. If we expend significant time and resources on expansion plans that fail or are delayed, our reputation, business and financial condition may be harmed.
We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.
We expect to expand our business operations to meet anticipated growth in demand for our product candidates . This future growth could strain our organizational, administrative and operational infrastructure, including manufacturing operations, quality control, technical support and customer service, sales force management and general and financial administration. Our ability to effectively manage our growth properly will require us to continue to improve our operational, financial and management controls, as well as our reporting systems and procedures.
As our commercial operations and sales volume grow, we will need to continue to increase our workflow capacity for manufacturing, customer service, billing and general process improvements and expand our internal quality assurance program, among other things. We will also need to purchase additional equipment, some of which can take several months or more to procure, set up and validate, and increase our manufacturing, maintenance, software and computing capacity to meet increased demand. These increases in scale, expansion of personnel, purchase of equipment or process enhancements may not be successfully implemented.
We must also successfully increase production output to meet expected customer demand. In the future, we may experience difficulties with production yields, quality control, component supply and shortages of qualified personnel, among other problems. These problems could result in delays in product availability and increases in expenses. Any such delay or increased expense could adversely affect our ability to generate revenues.
We currently have no sales and marketing infrastructure and if we are unable to successfully secure a sales and marketing partner sell and/or establish a sales and marketing infrastructure,license our product candidates to larger medical device companies, we may be unableneed to commercialize our product candidates on our own, if approved, and may never generate sufficient revenue to achieve or sustain profitability.
In order to commercialize products that are approved by regulatory agencies, we must either collaborate with third parties that have such commercial infrastructure, engage third party distributors,may seek to license or developsell our own sales and marketing infrastructure. At present, we have no sales or marketing personnel.product candidates to large medical device companies. We may not be able to enter into collaborationslicense or sale agreements on acceptable terms or at all, which would leave us unable to progress our current business plan. We will face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. If we are unable to maintain or reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of our product candidates, reduce or delay development programs, delay potential commercialization of our product candidates or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense.
Moreover, even if we are able to maintain and/or enter into such collaborations, such collaborations may pose a number of risks, including the following:
| ● | collaborators may not perform their obligations as expected; | |
| ● | disagreements with collaborators | |
| ● | collaborators could independently develop or be associated with products that compete directly or indirectly with our product candidates; | |
| ● | collaborators could have significant discretion in determining the efforts and resources that they will apply to our arrangements with them, and thus we may have limited or no control over the sales, marketing and distribution activities; | |
| ● | should any of our product candidates achieve regulatory approval, a collaborator with marketing and distribution rights to our product candidates may not commit sufficient resources to the marketing and distribution of such product | |
| candidates; | ||
| ● | collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; | |
| ● | collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and | |
| ● | collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to either find alternative collaborators (which we may be unable to do) or raise additional capital to pursue further development or commercialization of our product candidates on our own. |
Our business would be materially or perhaps significantly harmed if any of the foregoing or similar risks comes to pass with respect to our key collaborations.
If we electit becomes necessary for us to establish a sales and marketing infrastructure, we may not realize a positive return on this investment. We willwould have to compete with established and well-funded medical device companies to recruit, hire, train and retain sales and marketing personnel. Once hired, the training process is lengthy because it requires significant education of new sales representatives to achieve the level of clinical competency with our products expected by specialists. Upon completion of the training, we expect our sales representatives would typically require lead time in the field to grow their network of accounts and achieve the productivity levels we expect them to reach in any individual territory. If we are unable to attract, motivate, develop and retain a sufficient number of qualified sales personnel, or if our sales representatives do not achieve the productivity levels in the time period we expect them to reach, our revenue will not grow at the rate we expect and our business, results of operations and financial condition will suffer. Also, to the extent we hire sales personnel from our competitors, we may be required to wait until applicable non-competition provisions have expired before deploying such personnel in restricted territories or incur costs to relocate personnel outside of such territories. In addition, we have been in the past, and may be in the future, subject to allegations that these new hires have been improperly solicited, or that they have divulged to us proprietary or other confidential information of their former employers. Any of these risks may adversely affect our ability to increase sales of our product candidates .candidates. If we are unable to expand our sales and marketing capabilities, we may not be able to effectively commercialize our product candidates, , which would adversely affect our business, results of operations and financial condition.
Product liability lawsuits against us could cause us to incur substantial liabilities, limit sales of our existing product candidates and limit commercialization of any products that we may develop.
Our business exposes us to the risk of product liability claims that are inherent in the manufacturing, distribution, and sale of medical devices. This risk exists even if a device is cleared or approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA or an applicable foreign regulatory authority. Manufacturing and marketing of our commercial devices and clinical testing of our product candidates under development may expose us to product liability and other tort claims. Furthermore, surgeons may misuse our product candidates or use improper techniques if they are not adequately trained, potentially leading to injury and an increased risk of product liability. If our product candidates are misused or used with improper technique, we may become subject to costly litigation by our customers or their patients. Regardless of the merit or eventual outcome, product liability claims may result in:
| ● | significant litigation costs; | |
| ● | decreased demand for our product candidates and any product candidates that we may develop; | |
| ● | damage to our reputation; | |
| ● | withdrawal of clinical trial participants; | |
| ● | substantial monetary awards to trial participants, patients or other claimants; | |
| ● | loss of revenue; and | |
| ● | the inability to commercialize any product candidates that we may develop. |
Although we intend to maintain liability insurance, the coverage limits of our insurance policies may not be adequate, and one or more successful claims brought against us may have a material adverse effect on our business and results of operations. If we are unable to obtain insurance in the future at an acceptable cost or on acceptable terms with adequate coverage, we will be exposed to significant liabilities.
We bear the risk of warranty claims on our product candidates.
We provide limited product warranties against manufacturing defects of the ProCol Vascular Bioprosthesis, including component parts manufactured by third parties. Our product warranty requires us to repair defects arising from product design and production processes, and if necessary, replace defective components. Thus far, we have not accrued a significant liability contingency for potential warranty claims.
If we experience warranty claims in excess of our expectations, or if our repair and replacement costs associated with warranty claims increase significantly, we will incur liabilities for potential warranty claims that may be greater than we expect. An increase in the frequency of warranty claims or amount of warranty costs may harm our reputation and could have a material adverse effect on our business, results of operations and financial condition.
The loss of our executive officers or our inability to attract and retain qualified personnel may adversely affect our business, financial conditions and results of operations.
Our business and operations depend to a significant degree on the skills, efforts and continued services of our executive officers who have critical industry experience and relationships. Although we have entered into employment agreements with our executive officers, they may terminate their employment with us at any time. Accordingly, these executive officers may not remain associated with us. The efforts of these persons will be critical to us as we continue to develop our product candidates and business. We do not carry key person life insurance on any of our management, which would leave our company uncompensated for the loss of any of our executive officers.
Further, competition for highly-skilled and qualified personnel is intense. As such, our future viability and ability to achieve sales and profit will also depend on our ability to attract, train, retain and motivate highly qualified personnel in the diverse areas required for continuing our operations. If we were to lose the services one or more of our current executive officers or if we are unable to attract, hire and retain qualified personnel, we may experience difficulties in competing effectively, developing and commercializing our products and implementing our business strategies, which could have a material adverse effect on our business, operations and financial condition.
Our employees, consultants, independent sales agencies, distributors and other commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.
We are exposed to the risk that our employees, consultants, collaborators, distributors and other commercial partners may engage in fraudulent or illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct or other unauthorized activities that violate the regulations of the FDA and non-U.S. regulators, including those laws requiring the reporting of true, complete and accurate information to such regulators, manufacturing standards, healthcare fraud and abuse laws and regulations in the United States and abroad or laws that require the true, complete and accurate reporting of financial information or data. In particular, sales, marketing and business arrangements in the healthcare industry, including the sale of medical devices, are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. It is not always possible to identify and deter misconduct by our employees, sales agencies, distributors and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines or other sanctions, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment of operations, any of which could adversely affect our ability to operate our business and our results of operations. Whether or not we are successful in defending against such actions or investigations, we could incur substantial costs, including legal fees, and divert the attention of management in defending ourselves against any of these claims or investigations.
We may not be able to successfully complete any future acquisitions and any acquisitions, joint ventures or other investments may result in dilution of our stockholders’ ownership, increase our debt or cause us to incur significant expense.
We may seek to grow our business through the acquisition of additional products, technologies, services or businesses that we believe have significant commercial potential. Growth through acquisitions will depend upon the continued availability of suitable acquisition candidates at favorable prices and on commercially acceptable terms and conditions. Even if these opportunities are present, we may be unable to successfully identify suitable acquisition candidates. In addition, we may not be able to successfully integrate any acquired companies or achieve the commercial potential or synergies projected for any acquisition. Future acquisitions may also divert management’s attention from other business activities. Further, any such acquisitions may result in the incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill, any of which could have a negative impact on our cash flows, financial condition and results of operations.
Additionally, we may pursue strategic alliances and joint ventures that leverage our technology and industry experience. We may be unable to find suitable partners or, in the event we identify such a partner, we may be unable to realize the anticipated benefits of any such alliance or joint venture. To finance any such acquisitions, alliances or joint ventures, we may choose to issue shares of capital stock as consideration, which could dilute the ownership of our stockholders. If the price of our common stock is low or volatile, however, we may not be able to acquire other companies or fund a joint venture project using our stock as consideration.
If we experience significant disruptions in our information technology systems, our business may be adversely affected.
We depend on our information technology systems for the efficient functioning of our business, including accounting, data storage, compliance, purchasing and inventory management. We do not have redundant systems at this time. While we will attempt to mitigate interruptions, we may experience difficulties in implementing some upgrades, which would impact our business operations, or experience difficulties in operating our business during the upgrade, either of which could disrupt our operations, including our ability to timely ship and track product orders, project inventory requirements, manage our supply chain and otherwise adequately service our customers. In the event we experience significant disruptions as a result of the current implementation of our information technology systems, we may not be able to repair our systems in an efficient and timely manner. Accordingly, such events may disrupt or reduce the efficiency of our entire operation and have a material adverse effect on our results of operations and cash flows.
We are increasingly dependent on sophisticated information technology for our infrastructure. Our information systems require an ongoing commitment of significant resources to maintain, protect and enhance existing systems. Failure to maintain or protect our information systems and data integrity effectively could have a material and adverse effect on our business. For example, third parties may attempt to hack into systems and may obtain our proprietary information.
Our ability to use our net operating loss carry-forwards and certain other tax attributes may be limited.
As of December 31, 2016,2019 and 2018, we had available federal and state net operating loss carryforwards, or NOLs, of approximately $5.7$26.1 and $17.4 million, whichrespectively. Pre-2018 federal and state NOLs carryovers may be carried forward for twenty years and begin to expire in 2029. Under the year ending December 31, 2026.Tax Act, post-2017 federal NOLs can be carried forward indefinitely and the annual limit of deduction equals 80% of taxable income. As of December 31, 2016,2019, we also had federal research and development tax credit carryforwards of approximately $0.2 million.million which begin to expire in 2027. In general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” (generally defined as a cumulative change in equity ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period) may be subject to limitations on its ability to utilize its NOLs and certain credit carryforwards to offset future taxable income and taxes. We are currently analyzing the tax impacts of any potential ownership changes on our federal NOLs and credit carryforwards. Future changes in our stock ownership, including this or future offerings, as well as other changes that may be outside of our control, could result in ownership changes. Our NOLs and credit carryforwards may also be limited under similar provisions of state law. We have recorded a full valuation allowance related to our NOLs and other deferred tax assets due to the uncertainty of the ultimate realization of the future tax benefits of such assets.
Risks Related to Regulatory Approval and Other Governmental Regulations
Our business and product candidates are subject to extensive governmental regulation and oversight, and our failure to comply with applicable regulatory requirements could harm our business.
Our product candidates and operations are subject to extensive regulation in the United States by the FDA and by regulatory agencies in other countries where we anticipate conducting business activities. The FDA regulates the development, testing, manufacturing, labeling, storage, record-keeping, promotion, marketing, sales, distribution and post-market support and reporting of medical devices in the United States. The regulations to which we are subject are complex and may become more stringent over time. Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated sales.
In order to conduct a clinical investigation involving human subjects for the purpose of demonstrating the safety and effectiveness of a medical device, a company must, among other things, apply for and obtain Institutional Review Board, or IRB, approval of the proposed investigation. In addition, if the clinical study involves a “significant risk” (as defined by the FDA) to human health, the sponsor of the investigation must also submit and obtain FDA approval of an IDE application. Our system product iscandidates are considered a significant risk devicedevices requiring IDE approval prior to investigational use. We may not be able to obtain FDA and/or IRB approval to undertake clinical trials in the United States for any new devices we intend to market in the United States in the future. If we obtain such approvals, we may not be able to conduct studies which comply with the IDE and other regulations governing clinical investigations or the data from any such trials may not support clearance or approval of the investigational device. Failure to obtain such approvals or to comply with such regulations could have a material adverse effect on our business, financial condition and results of operations. It is uncertain whether clinical trials will meet desired endpoints, produce meaningful or useful data and be free of unexpected adverse effects, or that the FDA will accept the validity of foreign clinical study data, and such uncertainty could preclude or delay market clearance or authorizations resulting in significant financial costs and reduced revenue.
Our product candidates may be subject to extensive governmental regulation in foreign jurisdictions, such as the EU ,EEA, and our failure to comply with applicable requirements could cause our business, results of operations and financial condition to suffer.
In the EEA, our product candidates will need to comply with the Essential Requirements set forth in Annex I to the EU Active Implantable Medical Devices Directive.Device Regulation. Compliance with these requirements is a prerequisite to be able to affix thea CE mark to a product, without which a product cannot be marketed or sold in the EEA. To demonstrate compliance with the Essential Requirements and obtain the right to affix the CE m arkmark to our product candidates, we must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification. Except for low risk medical devices (Class I with no measuring function and which are not sterile), where the manufacturer can issue an EC Declaration of Conformity based on a self-assessment of the conformity of its products with the Essential Requirements, aThe conformity assessment procedure requires the interventioninvolvement of a Notified Body, which is an organization designated by a competent authority of an EEA country to conduct conformity assessments. Depending on the relevant conformity assessment procedure, theThe Notified Body would audit and examine the Technical File and the quality system for the manufacture, design and final inspection of our products. The Notified Body issues a CE Certificate of Conformity following successful completion of a conformity assessment procedure and quality management system audit conducted in relation to the medical device and its manufacturer and their conformity with the Essential Requirements. This Certificate entitles the manufacturer to affix the CE mark to its medical products after having prepared and signed a related EC Declaration of Conformity.
As a general rule, demonstration of conformity of medical products and their manufacturers with the Essential Requirements must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use and that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended performance, and that any claims made about the performance and safety of the device (e.g., product labeling and instructions for use) are supported by suitable evidence. This assessment must be based on clinical data, which can be obtained from (1) clinical studies conducted on the devices being assessed, (2) scientific literature from similar devices whose equivalence with the assessed device can be demonstrated or (3) both clinical studies and scientific literature. However, the pre-approval and post-market clinical requirements are much more rigorous. The conduct of clinical studies in the EEA is governed by detailed regulatory obligations. These may include the requirement of prior authorization by the competent authorities of the country in which the study takes place and the requirement to obtain a positive opinion from a competent Ethics Committee. This process can be expensive and time-consuming.
The FDA regulatory approval, clearance and license process is complex, time-consuming and unpredictable.
In the United States, our product candidates are expected to be regulated as medical devices. Before our medical device product candidates canmay be marketed in the United States, we must submit, and the FDA must approve a PMA.PMA application. For the PMA approval process, the FDA must determine that a proposed device is safe and effective for its intended use based, in part, on extensive data, including, but not limited to, technical, pre-clinical, clinical trial, manufacturing and labeling data. In addition, modifications to products that are approved through a PMA application generally needrequire FDA approval. The time required to obtain approval, clearance or license by the FDA to market a new therapy is unpredictable but typically takes many years and depends upon many factors, including the substantial discretion of the FDA.
Our product candidates could fail to receive regulatory approval, clearance or license for many reasons, including the following:
| ● | the FDA may disagree with the design or implementation of our clinical trials or study endpoints; | |
| ● | we may be unable to demonstrate to the satisfaction of the FDA that our product candidates are safe and effective for their proposed indications or that our product candidates provide significant clinical benefits; | |
| ● | the results of our clinical trials may not meet the level of statistical significance required by the FDA for approval, clearance or license or may not support approval of a label that could command a price sufficient for us to be profitable; | |
| ● | the FDA may disagree with our interpretation of data from preclinical studies or clinical trials; | |
| ● | the opportunity for bias in the clinical trials as a result of the open-label design may not be adequately handled and may cause our trial to fail; | |
| ● | our product candidates may be subject to an FDA advisory committee review, which may be requested at the sole discretion of the FDA, and which may result in unexpected delays or hurdles to approval; | |
| ● | the FDA may determine that the manufacturing processes at our facilities or facilities of third-party manufacturers with which we contract for clinical and commercial supplies are inadequate; and | |
| ● | the approval, clearance or license policies or regulations of the FDA may significantly change in a manner rendering our clinical data insufficient for approval. |
Even if we were to obtain approval, clearance or license, the FDA may grant approval, clearance or license contingent on the performance of costly post-marketing clinical trials, or may approve our product candidates with a label that does not include the labeling claims necessary or desirable for successful commercialization of our product candidates. Any of the above could materially harm our product candidates’ commercial prospects.
Even if our product candidates are approved by regulatory authorities, if we fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our product candidates, our product candidates could be subject to restrictions or withdrawal from the market.
The manufacturing processes, post-approval clinical data and promotional activities of any product candidate for which we or our collaborators obtain marketing approval will be subject to continual review and periodic inspections by the FDA and other regulatory bodies. Even if regulatory approval of our product candidates is granted in the United States, the approval may be subject to limitations on the indicated uses for which the product candidates may be marketed or contain requirements for costly post-marketing testing and surveillance to monitor the safety or effectiveness of the product. Later discovery of previously unknown and unanticipated problems with our product candidates, including but not limited to unanticipated severity or frequency of adverse events, delays or problems with the manufacturer or manufacturing processes, or failure to comply with regulatory requirements, may result in restrictions on such product candidates or manufacturing processes, withdrawal of the product candidates from the market, voluntary or mandatory recall, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties.
Legislative or regulatory reforms in the United States or the EU may make it more difficult and costly for us to obtain regulatory clearances or approvals for our product candidates or to manufacture, market or distribute our product candidates after clearance or approval is obtained.
From time to time, legislation is drafted and introduced in the U.S. Congress that could significantly change the statutory provisions governing the regulation of medical devices or the reimbursement thereof. In addition, the FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our product candidates. For example, as part of the Food and Drug Administration Safety and Innovation Act, or FDASIA, Congress reauthorized the Medical Device User Fee Amendments with various FDA performance goal commitments and enacted several “Medical Device Regulatory Improvements” and miscellaneous reforms, which are further intended to clarify and improve medical device regulation both pre- and post-clearance or approval. Any new statutes, regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of any future products or make it more difficult to manufacture, market or distribute our product candidates or future products. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:
| ● | additional testing prior to obtaining clearance or approval; | |
| ● | changes to manufacturing methods; | |
| ● | recall, replacement or discontinuance of our systems or future products; or | |
| ● | additional record keeping. |
Any of these changes could require substantial time and cost and could harm our business and our financial results.
In September 2012,The highly publicized PIP scandal (use of non-medical grade silicone in breast implants) in 2010 led to publishing the first version of EU Medical Device Regulation (MDR) by European Commission published proposals forin 2012. After 347 amendments by European Parliament in 2014, followed by various versions, the revisionfinal version of the EU regulatory framework for medical devices. The proposal would replace thenew EU Medical Devices DirectiveDevice Regulation (MDR 2017/745) was published on May 5, 2017. The official entry to force of the MDR started on May 26, 2017 with the transition period of 3 years. The date of application of all existing and the Active Implantable Medical Devices Directive with a new regulation (the Medical Devices Regulation)medical devices under MDR is May 26, 2020; however, Notified Bodies are currently not accepted any new CE Mark applications under MDD (Medical Device Directives). Unlike the DirectivesAll existing MDD CE certificates become void on May 26, 2024. EU requires that must be implemented into national laws, the Regulation would be directly applicable in all EEA Member Statesexisting and so is intended to eliminate current national differences in regulation ofnew medical devices.device undergo assessment under MDR as if they are new product application.
The changes from EU Medical Device Directives (MDD) to Medical Device Regulation (MDR) are significant, with stricter clinical requirements and post-market surveillance, shift from pre-approval to Life-cycle approach, centralized EUDAMED database for public transparency (e.g., Periodic Safety Update Reports) and device registration, more device specific requirements (e.g., Common Specifications), legal liability for defective devices, etc. The QMS audit under MDR will be much more rigorous, including audits and assessment of suppliers and device testing. In October 2013,addition, EU MDR introduces new stakeholders participating during the European Parliament approved a package of reforms to the European Commission’s proposals. Under the revised proposals, only designated “special notified bodies” would be entitled to conduct conformity assessments of high-risk devices. These special notified bodiesapplication review process, which will need to notify the European Commission when they receive an application for a conformity assessment for a new high-risk device. The European Commission will then forward the notification and the accompanying documents on the device to the Medical Devices Coordination Group, or MDCG (a new, yet to be created, body chaired by the European Commission, and representatives of EEA Member States), for an opinion. These new procedures may result in a longer orand more burdensome assessment of our new products.
Our product candidates may in the future be subject to recalls or market withdrawals that could harm our business, results of operation The new stakeholders will include Medical Device Coordination Group (MDCG) established by Member States and financial condition.
Manufacturers may, on their own initiative, initiate actions, including a non-reportable market withdrawal or a reportable product recall, for the purpose of correcting a material deficiency, improving device performance or other reasons. Additionally, the FDA and similar foreign governmental authorities have the authority to require the recall of commercialized devices in the event of material deficiencies or defects in the design, manufacture or labeling in the event that a product poses an unacceptable risk to health. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is a reasonable probability that the device would cause serious adverse health consequences or death. Manufacturers may, under their own initiative, conduct a device notification to inform surgeons of changes to instructions for use or of a deficiency, or of a suspected deficiency, found in a device. A government-mandated recall or voluntary recallExpert Panels appointed by us or one of our distributors could occur as a result of component failures, manufacturing errors, design or labeling defects or other issues. Recalls, which include certain notifications and corrections as well as removals, of any of our product candidates, could divert managerial and financial resources and could have an adverse effect on our financial condition, harm our reputation with customers and reduce our ability to achieve expected revenues.European Union.
Further, under the FDA’s Medical Device Reporting or MDR regulations, we are required to report to the FDA any incident in which our product candidates may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Any adverse event involving our products could result in future voluntary corrective actions, such as product actions or customer notifications, or regulatory authority actions, such as inspection, mandatory recall or other enforcement action. Repeated product malfunctions may result in a voluntary or involuntary product recall, which could divert managerial and financial resources, impair our ability to manufacture our product candidates in a cost-effective and timely manner and have an adverse effect on our reputation, financial condition and operating results.
Moreover, depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA may require, or we may decide, that we will need to obtain new approvals or clearances for the device before we may market or distribute the corrected device. Seeking such approvals or clearances may delay our ability to replace the recalled devices in a timely manner. Moreover, if we do not adequately address problems associated with our product candidates, we may face additional regulatory enforcement action, including FDA warning letters, product seizure, injunctions, administrative penalties, withdrawals or clearances or approvals or civil or criminal fines. We may also be required to bear other costs or take other actions that may have a negative impact on our sales as well as face significant adverse publicity or regulatory consequences, which could harm our business, including our ability to market our product candidates in the future.
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We are required to report certain malfunctions, deaths and serious injuries associated with our product candidates, which can result in voluntary corrective actions or agency enforcement actions.
Under MDR regulations, medical device manufacturers are required to submit information to FDA when they become aware of information that reasonably suggests a device may have caused or contributed to a death or serious injury or has malfunctioned, and, upon recurrence, the malfunction would likely cause or contribute to death or serious injury. If our product candidates are approved for commercial marketing and sale, we determine that an MDR report is not required to be submitted for an event, and FDA disagrees with that determination, it could take enforcement action against us for failing to report the event. All manufacturers marketing medical devices in the EEA are legally bound to report incidents involving devices they produce or sell to the regulatory agency, or competent authority, in whose jurisdiction the incident occurred. Under the EU Medical Devices Directive (Directive 93/42/EEC), an incident is defined as any malfunction or deterioration in the characteristics and/or performance of a device, as well as any inadequacy in the labeling or the instructions for use which, directly or indirectly, might lead to or might have led to the death of a patient, or user or of other persons or to a serious deterioration in their state of health.
Malfunction or misuse of our product candidates could result in future voluntary corrective actions, such as recalls, including corrections (e.g., customer notifications), or agency action, such as inspection or enforcement actions. If malfunctions or misuse do occur, we may be unable to correct the malfunctions adequately or prevent further malfunctions or misuse, in which case we may need to cease manufacture and distribution of the affected products, initiate voluntary recalls, and redesign the products or the instructions for use for those products. Regulatory authorities may also take actions against us, such as ordering recalls, imposing fines, or seizing the affected products. Any corrective action, whether voluntary or involuntary, will require the dedication of our time and capital, may distract management from operating our business, and may harm our business, results of operations and financial condition.
The potential misuse or off-label promotion of our product candidates may harm our reputation in the marketplace, result in injuries that lead to product liability litigation or result in costly investigations and sanctions by regulatory bodies.
If our product candidates are cleared by the FDA and CE m arked in the EEA for specific indications, we may only promote or market our product candidates for their specifically cleared or approved indications. We will train our marketing and sales force against promoting our product candidates for uses outside of the cleared or approved indications for use, known as “off-label uses.”
If the FDA determines that our promotional materials or training constitute promotion of unsupported claims or an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance or imposition of an untitled letter, which is used for violators that do not necessitate a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment of our operations. Any of these events could significantly harm our business, results of operations and financial condition.
Further, the contemplated advertising and promotion of our product candidates will be subject to EEA Member States laws implementing Directive 93/42/EEC concerning Medical Devices, or the EU Medical Devices Directive, Directive 2006/114/EC concerning misleading and comparative advertising, and Directive 2005/29/EC on unfair commercial practices, as well as other EEA Member State legislation governing the advertising and promotion of medical devices. EEA Member State legislation may also restrict or impose limitations on our ability to advertise our product candidates directly to the general public. In addition, voluntary EU and national Codes of Conduct provide guidelines on the advertising and promotion of our product candidates to the general public and may impose limitations on our promotional activities with healthcare professionals harming our business, results of operations and financial condition.
We are subject to federal, state and foreign healthcare laws and regulations, and a finding of failure to comply with such laws and regulations could have a material and adverse effect on our business.
Our operations are, and will continue to be, directly and indirectly affected by various federal, state or foreign healthcare laws, including, but not limited to, those described below. These laws include:
| ● | the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act. Violations of the federal Anti-kickback Statute may result in substantial civil or criminal penalties, including criminal fines of up to $25,000, imprisonment of up to five years, civil penalties under the Civil Monetary Penalties Law of up to $50,000 for each violation, plus three times the remuneration involved, civil penalties under the federal False Claims Act of up to $11,000 for each claim submitted, plus three times the amounts paid for such claims and exclusion from participation in the Medicare and Medicaid programs; | |
| ● | the federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other federal third-party payors that are false or fraudulent. Suits filed under the False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government and such individuals, commonly known as “whistleblowers,” may share in any amounts paid by the entity to the government in fines or settlement. When an entity is determined to have violated the False Claims Act, the government may impose penalties of not less than $5,500 and not more than $11,000, plus three times the amount of the damages that the government sustains due to the submission of a false claim and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs; | |
| ● | the federal Civil Monetary Penalties Law, which prohibits, among other things, offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier; | |
| ● | HIPAA, as amended by the HITECH Act, and their respective implementing regulations, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information. Failure to comply with the HIPAA privacy and security standards can result in civil monetary penalties up to $50,000 per violation, not to exceed $1.5 million per calendar year for non-compliance of an identical provision, and, in certain circumstances, criminal penalties with fines up to $250,000 per violation and/or imprisonment. State attorneys general can bring a civil action to enjoin a HIPAA violation or to obtain statutory damages up to $25,000 per violation on behalf of residents of his or her state. HIPAA also imposes criminal penalties for fraud against any healthcare benefit program and for obtaining money or property from a healthcare benefit program through false pretenses and provides for broad prosecutorial subpoena authority and authorizes certain property forfeiture upon conviction of a federal healthcare offense. Significantly, the HIPAA provisions apply not only to federal programs, but also to private health benefit programs. HIPAA also broadened the authority of the U.S. Office of Inspector General of the U.S. Department of Health and Human Services to exclude participants from federal healthcare programs; | |
| ● | the federal physician sunshine requirements under the Patient Protection and Affordable Care Act, or PPACA, which requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, which is defined broadly to include other healthcare providers and teaching hospitals and ownership and investment interests held by physicians and their immediate family members. Manufacturers are required to submit reports to CMS by the 90th day of each calendar year. Failure to submit the required information may result in civil monetary penalties up to an aggregate of $150,000 per year (and up to an aggregate of $1 million per year for “knowing failures”) for all payments, transfers of value or ownership or investment interests not reported in an annual submission, and may result in liability under other federal laws or regulations; and | |
| ● | analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third- party payor, including commercial insurers; state laws that require device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Any failure by us to ensure that our employees and agents comply with applicable state and foreign laws and regulations could result in substantial penalties or restrictions on our ability to conduct business in those jurisdictions, and our results of operations and financial condition could be materially and adversely affected. |
The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of our business activities, including our relationships with surgeons and other healthcare providers, some of whom recommend, purchase and/or prescribe our product candidates, and our distributors, could be subject to challenge under one or more of such laws.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us now or in the future, we may be subject to penalties, including civil and criminal penalties, damages, fines, disgorgement, exclusion from governmental health care programs and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.
Regulatory healthcare reform measures and other legislative changes may have a material and adverse effect on business, results of operations and financial condition.
FDA regulations and guidance are often revised or reinterpreted by FDA and such actions may significantly affect our business and our product candidates .candidates. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times for our product candidates. Delays in receipt of, or failure to receive, regulatory approvals for our product candidates would have a material and adverse effect on our business, results of operations and financial condition.
In March 2010, the PPACA was signed into law, which includes a deductible 2.3% excise tax on any entity that manufactures or imports medical devices offered for sale in the United States, with limited exceptions, that began on January 1, 2013. Although a moratorium was placed on the medical device excise tax in 2016 and 2017 and its reinstatement thereafter is uncertain, if it is reinstated, it may adversely affect our results of operations and cash flows. Otherlaw. Certain elements of the PPACA, including comparative effectiveness research, an independent payment advisory board and payment system reforms, including shared savings pilots and other provisions, may significantly affect the payment for, and the availability of, healthcare services and result in fundamental changes to federal healthcare reimbursement programs, any of which may materially affect numerous aspects of our business, results of operations and financial condition.
In addition, other legislative changes have been proposed and adopted in the United States since the PPACA was enacted. On August 2, 2011, the Budget Control Act of 2011 created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect on April 1, 2013, and will remain in effect through 2024 unless additional Congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012, or the ATRA, was signed into law which further reduced Medicare payments to certain providers, including hospitals.
We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates, if approved, and services or additional pricing pressures.
We could be negatively impacted by violations of global anti-bribery laws, including the U.S. Foreign Corrupt Practices Act, or FCPA.
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Certain anti-bribery laws, including the FCPA or the UK Bribery Act of 2010, prohibit covered entities from offering, promising, authorizing or giving anything of value, directly or indirectly, to foreign officials or other commercial parties with the intent to influence the recipient’s act or decision, to induce action or inaction in violation of lawful duty or for the purpose of improperly obtaining or retaining business or other advantages. In addition, the FCPA imposes recordkeeping and internal controls requirements on publicly traded corporations and their foreign affiliates. As we expect to generate substantial revenue from countries outside the United States, we are subject to the risk that we, our employees, or any third parties such as sales agents and distributors acting our behalf in foreign countries may take action determined to be in violation of applicable anti-corruption laws, including the FCPA. Any violations of these laws, or even allegations of such violations, can lead to an investigation, which could disrupt our operations, involve significant management distraction, lead to significant costs and expenses, including legal fees, and could result in a material adverse effect on our business, prospects, financial condition or operations. We could also suffer severe penalties, including criminal and civil penalties, disgorgement and other costly remedial measures.
Although we intend to implement a program designed to ensure our employees and distributors comply with the FCPA and other anti-bribery laws, this program may not prevent all potential violations of the FCPA and other anti-corruption laws. Similarly, our books and records and internal control policies and procedures do not guarantee that we will, in all instances, comply with the accounting provisions of the FCPA.
Our relationships with physician consultants, owners and investors could be subject to additional scrutiny from regulatory enforcement authorities and could subject us to possible administrative, civil or criminal sanctions.
Federal and state laws and regulations impose restrictions on our relationships with physicians who are consultants, owners and investors. We may enter into consulting agreements, license agreements and other agreements with physicians in which we provide cash as compensation. We have or may have other written and oral arrangements with physicians, including for research and development grants and for other purposes as well.
We could be adversely affected if regulatory agencies were to interpret our financial relationships with these physicians, who may be in a position to influence the ordering of and use of our product candidates for which governmental reimbursement may be available, as being in violation of applicable laws. If our relationships with physicians are found to be in violation of the laws and regulations that apply to us, we may be required to restructure the arrangements and could be subject to administrative, civil and criminal penalties, including exclusion from participation in government healthcare programs, imprisonment, and the curtailment or restructuring of our operations, any of which could negatively impact our ability to operate our business and our results of operations.
ManyOur company and many of our customerscollaborators and potential customerscollaborators are required to comply with the federalFederal Health Insurance Portability and Accountability Act of 1996, the Health Information Technology for Economic and Clinical Health Act and implementing regulation affecting the transmission, security and privacy of health information, and failure to comply could result in significant penalties.
Numerous federal and state laws and regulations, including the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and the Health Information Technology for Economic and Clinical Health Act, or the HITECH Act, govern the collection, dissemination, security, use and confidentiality of health information that identifies specific patients. HIPAA and the HITECH Act require our surgeon and hospital customers and potential customers to comply with certain standards for the use and disclosure of health information within their companies and with third parties. The Privacy Standards and Security Standards under HIPAA establish a set of standards for the protection of individually identifiable health information by health plans, health care clearinghouses and certain health care providers, referred to as Covered Entities, and the business associates with whom Covered Entities enter into service relationships pursuant to which individually identifiable health information may be exchanged. Notably, whereas HIPAA previously directly regulated only these Covered Entities, the HITECH Act makes certain of HIPAA’s privacy and security standards also directly applicable to Covered Entities’ business associates. As a result, both Covered Entities and business associates are now subject to significant civil and criminal penalties for failure to comply with Privacy Standards and Security Standards.
HIPAA requires Covered Entities (like many of our customers and potential customers) and business associates to develop and maintain policies and procedures with respect to protected health information that is used or disclosed, including the adoption of administrative, physical and technical safeguards to protect such information. The HITECH Act expands the notification requirement for breaches of patient-identifiable health information, restricts certain disclosures and sales of patient-identifiable health information and provides for civil monetary penalties for HIPAA violations. The HITECH Act also increased the civil and criminal penalties that may be imposed against Covered Entities and business associates and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney fees and costs associated with pursuing federal civil actions. Additionally, certain states have adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA.
Any new legislation or regulation in the area of privacy and security of personal information, including personal health information, could also adversely affect our business operations. If we do not comply with existing or new applicable federal or state laws and regulations related to patient health information, we could be subject to criminal or civil sanctions and any resulting liability could adversely affect our financial condition.
In addition, countries around the world have passed or are considering legislation that would impose data breach notification requirements and/or require that companies adopt specific data security requirements. If we experience a data breach that triggers one or more of these laws, we may be subject to breach notification obligations, civil liability and litigation, all of which could also generate negative publicity and have a negative impact on our business.
Our business involves the use of hazardous materials and we and our current or future third-party manufacturers must comply with environmental laws and regulations, which may be expensive and restrict how we do business.
Our third-party manufacturers’ activities and our own activities involve the controlled storage, use and disposal of hazardous materials. We and our manufacturers are subject to federal, state, local and foreign laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these hazardous materials. We currently carry no insurance specifically covering environmental claims relating to the use of hazardous materials, but we do reserve funds to address these claims at both the federal and state levels. Although we believe that our safety procedures for handling and disposing of these materials and waste products comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental injury or contamination from the use, storage, handling or disposal of hazardous materials. In the event of an accident, state or federal or other applicable authorities may curtail our use of these materials and interrupt our business operations. In addition, if an accident or environmental discharge occurs, or if we discover contamination caused by prior operations, including by prior owners and operators of properties we acquire, we could be liable for cleanup obligations, damages and fines. If such unexpected costs are substantial, this could significantly harm our financial condition and results of operations.
New regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and may result in damage to our reputation with customers.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, required the SEC to establish new disclosure and reporting requirements for those companies that use certain minerals and metals mined in the Democratic Republic of Congo and adjoining countries, known as conflict minerals, in their products whether or not these products or the components containing such conflict minerals are manufactured by third parties. The new rule may affect sourcing at competitive prices and availability in sufficient quantities of certain minerals used in the manufacture of our products. The number of suppliers who provide conflict-free minerals may be limited. In addition, there may be material costs associated with complying with the disclosure requirements, such as costs related to determining the source of certain minerals used in our products, as well as costs of possible changes to products, processes or sources of supply as a consequence of such verification activities. Since our supply chain is complex, we may not be able to verify the origins for these minerals used in our products sufficiently through the due diligence procedures that we implement, which may prevent us from certifying our products as conflict-free, harming our reputation. In addition, we may encounter challenges to satisfy those customers who require that all of the components of our products be certified as conflict-free, which could place us at a competitive disadvantage if we are unable to do so.
Consolidation in the healthcare industry could lead to demands for price concessions or to the exclusion of some suppliers such as us from certain markets, which could have an adverse effect on our business, results of operations or financial condition.
Because healthcare costs have risen significantly over the past decade, numerous initiatives and reforms initiated by legislators, regulators and third-party payors to curb these costs have resulted in a consolidation trend in the healthcare industry to aggregate purchasing power. As the healthcare industry consolidates, competition to provide products and services to industry participants has become and will continue to become more intense. This in turn has resulted and will likely continue to result in greater pricing pressures and the exclusion of certain suppliers, including us, from important market segments as GPOs, independent delivery networks and large single accounts continue to use their market power to consolidate purchasing decisions for hospitals. We expect that market demand, government regulation, third-party coverage and reimbursement policies and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances among our customers, which may reduce competition, exert further downward pressure on the prices of our product candidates and may adversely impact our business, results of operations or financial condition.
If coverage and reimbursement from third-party payors for procedures using our product candidates significantly decline, surgeons, hospitals and other healthcare providers may be reluctant to use our product candidates and our sales may decline.
In the United States, healthcare providers who may purchase our product candidates, if approved, will generally rely on third-party payors, principally Medicare, Medicaid and private health insurance plans, to pay for all or a portion of the cost of our product candidates in the procedures in which they are employed. Because there is often no separate reimbursement for instruments and supplies used in surgical procedures, the additional cost associated with the use of our product candidates can impact the profit margin of the hospital or surgery center where the surgery is performed. Some of our target customers may be unwilling to adopt our product candidates in light of the additional associated cost. Further, any decline in the amount payors are willing to reimburse our customers for the procedures using our product candidates may make it difficult for existing customers to continue using, or adopt, our products and could create additional pricing pressure for us. We may be unable to sell our product candidates, if approved, on a profitable basis if third-party payors deny coverage or reduce their current levels of reimbursement.
To contain costs of new technologies, governmental healthcare programs and third-party payors are increasingly scrutinizing new and even existing treatments by requiring extensive evidence of favorable clinical outcomes. Surgeons, hospitals and other healthcare providers may not purchase our product candidates if they do not receive satisfactory reimbursement from these third-party payors for the cost of the procedures using our product candidates.
In addition to uncertainties surrounding coverage policies, there are periodic changes to reimbursement. Third-party payors regularly update reimbursement amounts and also from time to time revise the methodologies used to determine reimbursement amounts. This includes annual updates to payments to physicians, hospitals and ambulatory surgery centers for procedures during which our products are used. Because the cost of our product candidates generally will be recovered by the healthcare provider as part of the payment for performing a procedure and not separately reimbursed, these updates could directly impact the demand for our products. An example of payment updates is the Medicare program’s updates to hospital and physician payments, which are done on an annual basis using a prescribed statutory formula. With respect to physician payments, in the past, when the application of the formula resulted in lower payment, Congress has passed interim legislation to prevent the reductions. In April 2015, however, the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, was signed into law, which repealed and replaced the statutory formula for Medicare payment adjustments to physicians. MACRA provides a permanent end to the annual interim legislative updates that had previously been necessary to delay or prevent significant reductions to payments under the Medicare Physician Fee Schedule. MACRA extended existing payment rates through June 30, 2015, with a 0.5% update for July 1, 2015 through December 31, 2015, and for each calendar year through 2019, after which there will be a 0% annual update each year through 2025. In addition, MACRA requires the establishment of the Merit-Based Incentive Payment System, beginning in 2019, under which physicians may receive performance-based payment incentives or payment reductions based on their performance with respect to clinical quality, resource use, clinical improvement activities and meaningful use of electronic health records. MACRA also requires Centers for Medicare & Medicaid Services, or CMS, beginning in 2019, to provide incentive payments for physicians and other eligible professionals that participate in alternative payment models, such as accountable care organizations, that emphasize quality and value over the traditional volume-based fee-for-service model. It is unclear what impact, if any, MACRA will have on our business and operating results, but any resulting decrease in payment may result in reduced demand for our products.
Moreover, some healthcare providers in the United States have adopted or are considering a managed care system in which the providers contract to provide comprehensive healthcare for a fixed cost per person. Healthcare providers may attempt to control costs by authorizing fewer surgical procedures or by requiring the use of the least expensive devices available. Additionally, as a result of reform of the U.S. healthcare system, changes in reimbursement policies or healthcare cost containment initiatives may limit or restrict coverage and reimbursement for our product candidates and cause our revenue to decline.
Outside of the United States, reimbursement systems vary significantly by country. Many foreign markets have government-managed healthcare systems that govern reimbursement for laparoscopic procedures. Additionally, some foreign reimbursement systems provide for limited payments in a given period and therefore result in extended payment periods. If adequate levels of reimbursement from third-party payors outside of the United States are not obtained, international sales of our product candidates, if approved, may decline.
We are currently, and in the future our contract manufacturers may be, subject to various governmental regulations related to the manufacturing of our product candidates, and we may incur significant expenses to comply with, experience delays in our product commercialization as a result of, and be subject to material sanctions if we or our contract manufacturers violate these regulations.
Our manufacturing processes and facility are required to comply with the FDA’s QSR, which covers the procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage, and shipping of our product candidates. Although we believe we are compliant with the QSRs,QSR, the FDA enforces the QSR through periodic announced or unannounced inspections of manufacturing facilities. We have been, and anticipate in the future being, subject to such inspections, as well as to inspections by other federal and state regulatory agencies. We are required to register our manufacturing facility with the FDA and list all devices that are manufactured. We also operate an International Organization for Standards, or ISO, 13485 certified facility and annual audits are required to maintain that certification. The suppliers of our components are alsomay be required to comply with the QSR and aremay be subject to inspections. We have limited ability to ensure that any such third-party manufacturers will take the necessary steps to comply with applicable regulations, which could cause delays in the delivery of our products. Failure to comply with applicable FDA requirements, or later discovery of previously unknown problems with our products or manufacturing processes, including our failure or the failure of one of our third-party manufacturers to take satisfactory corrective action in response to an adverse QSR inspection, can result in, among other things:
| ● | administrative or judicially imposed sanctions; | |
| ● | injunctions or the imposition of civil penalties; | |
| ● | recall or seizure of our product candidates; | |
| ● | total or partial suspension of production or distribution; | |
| ● | the FDA’s refusal to grant future clearance or pre-market approval for our product |
| ● | withdrawal or suspension of marketing clearances or approvals; | |
| ● | clinical holds; | |
| ● | warning letters; | |
| ● | refusal to permit the import or export of our product | |
| ● | criminal prosecution of us or our employees. |
Any of these actions, in combination or alone, could prevent us from marketing, distributing, or selling our products and would likely harm our business. In addition, a product defect or regulatory violation could lead to a government-mandated or voluntary recall by us. Regulatory agencies in other countries have similar authority to recall devices because of material deficiencies or defects in design or manufacture that could endanger health. Any recall would divert management attention and financial resources, could expose us to product liability or other claims, including contractual claims from parties to whom we sold products and harm our reputation with customers. A recall involving any of our product candidates would be particularly harmful to our business and financial results and, even if we remedied a particular problem, would have a lasting negative effect on our reputation and demand for our products.
Risks Related to Our Intellectual Property
If we are unable to adequately protect our proprietary technology or maintain issued patents that are sufficient to protect our product candidates, others could compete against us more directly, which could harm our business, financial condition and results of operations.
Our commercial success willmay depend in part on our success in obtaining and maintaining issued patents and other intellectual property rights in the United States and elsewhere and protecting our proprietary technology.technologies. If we do not adequately protect our intellectual property and proprietary technology,technologies, competitors may be able to use our technologies and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability.
We have filed and are actively pursuing patent applications for our VenoValve product candidates and manufacturing processes. As of February 2, 2017,Implantable Vein Frame Two product with the critical design componentsU.S. Patent and function relationshipsTrademark Office but there are no assurances that patents will be issued. We also are working on new developments for our bioprosthetic heart valve are protected by U.S.CoreoGraft product and expect to be filing for patent 7,815,677 issuedprotection on October 19, 2010, and we owned 2 issued U.S. patents, no foreign patents, 2 pending U.S. patent applications and no pending foreign patent applications. Assuming all required fees are paid, individual patents or applications owned by us will expire between July 20, 2027 and November 20, 2029.that product as well.
Our patents may not have, or our pending patent applications that mature into issued patents may not include, claims with a scope sufficient to protect our products, any additional features we develop for our current products or any new products. Other parties may have developed technologies that may be related or competitive to our products, may have filed or may file patent applications and may have received or may receive patents that overlap or conflict with our patent applications, either by claiming the same methods or devices or by claiming subject matter that could dominate our patent position. The patent positions of medical device companies, including our patent position, may involve complex legal and factual questions, and, therefore, the scope, validity and enforceability of any patent claims that we may obtain cannot be predicted with certainty. Patents, if issued, may be challenged, deemed unenforceable, invalidated or circumvented. Proceedings challenging our patents could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such proceedings may be costly. Thus, any patents that we may own may not provide any protection against competitors. Furthermore, an adverse decision in an interference proceeding can result in a third party receiving the patent right sought by us, which in turn could affect our ability to commercialize our implant systems.
Furthermore, though an issued patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its enforceability and it may not provide us with adequate proprietary protection or competitive advantages against competitors with similar products. Competitors may also be able to design around our patents. Other parties may develop and obtain patent protection for more effective technologies, designs or methods. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants, suppliers, vendors, former employees and current employees. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries. If any of these developments were to occur, they each could have a negative impact on our business and competitive position.
Our ability to enforce our patent rights depends on our ability to detect infringement. It may be difficult to detect infringers who do not advertise the components that are used in their products. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful.
In addition, proceedings to enforce or defend our patents could put our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Such proceedings could also provoke third parties to assert claims against us, including that some or all of the claims in one or more of our patents are invalid or otherwise unenforceable. If any of our patents covering our products are invalidated or found unenforceable, our financial position and results of operations could be negatively impacted. In addition, if a court found that valid, enforceable patents held by third parties covered one or more of our products, our financial position and results of operations could be harmed.
We rely upon unpatented trade secrets, unpatented know-how and continuing technological innovation to develop and maintain our competitive position, which we will seek to protect, in part, by entering into confidentiality agreements with our employees and our collaborators and consultants. We also have agreements with our employees and selected consultants that obligate them to assign their inventions to us and have non-compete agreements with some, but not all, of our consultants. It is possible that technology relevant to our business will be independently developed by a person that is not a party to such an agreement. Furthermore, if the employees and consultants who are parties to these agreements breach or violate the terms of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets through such breaches or violations. Further, our trade secrets could otherwise become known or be independently discovered by our competitors.
Obtaining and maintaining our patent protection depends on compliance with various procedures, document submission requirements, fee payments and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The U.S. Patent and Trademark Office, or USPTO, and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payments such as maintenance and annuity fee payments and other provisions during the patent procurement process as well as over the life span of an issued patent. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.
Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.
We may employ individuals who previously worked with other companies, including our competitors or potential competitors. Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third party. Litigation may be necessary to defend against these claims. If we fail in defending any such claims or settling those claims, in addition to paying monetary damages or a settlement payment, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and/or be a distraction to management and other employees.
We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights to, or use, our technology.
Our success will depend in part on our ability to operate without infringing the intellectual property and proprietary rights of third parties. Our business, product candidates and methods could infringe the patents or other intellectual property rights of third parties.
The medical device industry is characterized by frequent and extensive litigation regarding patents and other intellectual property rights. Many medical device companies with substantially greater resources than us have employed intellectual property litigation as a way to gain a competitive advantage. We may become involved in litigation, interference proceedings, oppositions, reexamination, protest or other potentially adverse intellectual property proceedings as a result of alleged infringement by us of the rights of others or as a result of priority of invention disputes with third parties, either in the United States or internationally. We may also become a party to patent infringement claims and litigation or interference proceedings declared by the USPTO to determine the priority of inventions. Third parties may also challenge the validity of any of our issued patents and we may initiate proceedings to enforce our patent rights and prevent others from infringing on our intellectual property rights. Any claims relating to the infringement of third-party proprietary rights or proprietary determinations, even if not meritorious, could result in costly litigation, lengthy governmental proceedings, diversion of our management’s attention and resources, or entrance into royalty or license agreements that are not advantageous to us. In any of these circumstances, we may need to spend significant amounts of money, time and effort defending our position. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.
Even if we are successful in these proceedings, we may incur substantial costs and divert management time and attention in pursuing these proceedings, which could have a material and adverse effect on us. If we are unable to avoid infringing the intellectual property rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of intellectual property in court or redesign our product candidates .candidates.
Risks Related to this Offering and Ownership of Our collaborations with outside scientistsSecurities
If you purchase securities in this offering, you may incur immediate and consultantssubstantial dilution in the book value of your Shares.
The combined public offering price per Share and related Warrant is substantially higher than the net tangible book value per share of our common stock immediately prior to the offering. After giving effect to the sale of 3,222,341 Units in this offering, at a public offering price of $9.31 per Unit (the last reported sale price of our common stock on The Nasdaq Capital Market on January 29, 2021), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us (without taking into account a reduced underwriting discount as applied to shares sold to the strategic healthcare investor referred to herein) and attributing no value to the Warrants sold in this offering, purchasers of our common stock in this offering will incur immediate dilution of $2.72 per share in the net tangible book value of the common stock they acquire. In the event that you exercise your Warrants, you may experience additional dilution to the extent that the exercise price of the Warrants is higher than the tangible book value per share of our common stock. For a further description of the dilution that investors in this offering may experience, see “Dilution.” In addition, to the extent that outstanding stock options or warrants have been or may be subject to restriction and change.
We work with scientists at academic andexercised or other institutions, and consultants who assist us in our research, development, and regulatory efforts, including the members of our medical advisory board. These scientists and consultants have provided, and we expect that they will continue to provide, valuable advice on our programs. These scientists and consultants are not our employees,shares issued, you may have other commitments that would limit their future availability to us and typically will not enter into non-compete agreements with us. If a conflict of interest arises between their work for us and their work for another entity, we may lose their services. In addition, we will be unable to prevent them from establishing competing businesses or developing competing products. For example, if a key scientist acting as a principal investigator in any of our clinical trials identifies a potential product or compound that is more scientifically interesting to his or her professional interests, his or her availability to remain involved in our clinical trials could be restricted or eliminated.
We have entered into or intend to enter into non-competition agreements with certain of our employees. These agreements prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors for a limited period. However, under current law, we may be unable to enforce these agreements against certain of our employees and it may be difficult for us to restrict our competitors from gaining the expertise our former employees gained while working for us. If we cannot enforce our employees’ non-compete agreements, we may be unable to prevent our competitors from benefiting from the expertise of our former employees.experience further dilution.
Recent changesWe have broad discretion in U.S. patent lawsthe use of the net proceeds we receive from this offering, including to use such proceeds to finance the business operations of any acquired or merged company, and may limit our ability to obtain, defend and/or enforce our patents.not use them effectively.
Recent patent reform legislation could increaseOur management will have broad discretion in the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. The Leahy-Smith America Invents Act, or the Leahy-Smith Act, includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted and also affect patent litigation. The USPTO recently developed new regulations and procedures to govern administrationapplication of the Leahy-Smith Act, and manynet proceeds we receive in this offering, including for any of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, which only became effective on March 16, 2013. The first to file provisions limit the rights of an inventor to patent an invention if not the first to file an application for patenting that invention, even if such invention was the first invention. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business.
However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the enforcement and defense of our issued patents. For example, the Leahy-Smith Act provides that an administrative tribunal known as the Patent Trial and Appeals Board, or PTAB, provides a venue for challenging the validity of patents at a cost that is much lower than district court litigation and on timelines that are much faster. Although it is not clear what, if any, long-term impact the PTAB proceedings will have on the operation of our business, the initial results of patent challenge proceedings before the PTAB since its inception in 2013 have resultedpurposes described in the invalidationsection entitled “Use of many U.S. patent claims. The availability of the PTAB as a lower-cost, fasterProceeds,” and potentially more potent tribunal for challenging patents could increase the likelihood that our own patents will be challenged, thereby increasing the uncertainties and costs of maintaining and enforcing them.
We may not be able to adequately protect our intellectual property rights throughout the world.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This could make it difficult for us to stop infringement of our foreign patents, if obtained, or the misappropriation of our other intellectual property rights. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, some countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and weyou will not have the benefitopportunity as part of patent protectionyour investment decision to assess whether our management is using the net proceeds appropriately. Because of the number and variability of factors that will determine our use of our net proceeds from this offering, including the possibility that the proceeds are used to support any products or product candidates acquired in such countries.
Proceedingsany transaction, their ultimate use may vary substantially from their currently intended use. The failure by our management to enforce our patent rights in foreign jurisdictionsapply these funds effectively could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of our intellectual property.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest andfinancial losses that could have a material adverse effect on our business may be adversely affected.
Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented, declared generic or determined to be infringing on other marks or names. We may not be able to protect our rights in these trademarks and trade names, which we need in order to build name recognition with potential customers in our markets of interest. In addition, third parties may register trademarks similar and identical to our trademarks in foreign jurisdictions, and may incause the future file for registration of such trademarks. If they succeed in registering or developing common law rights in such trademarks, and if we were not successful in challenging such third-party rights, we may not be able to use these trademarks to market our products in those countries. In any case, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business, results of operations and financial condition may be adversely affected.
Risks Related to this Offering and Ownership of Our Common Stock
The market price of our common stock to decline. Pending their use, we may be highly volatile, and you could lose all or part of your investment.invest our net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders.
Prior to this offering, there wasThere is no public market for shares of our common stock. The offering pricethe Warrants being offered in this offering.
There is no established trading market for the shares of our common stock soldWarrants being offered in this offering, and we do not expect a market to develop. In addition, we do not intend to apply to list the Warrants on any national securities exchange or other nationally recognized trading system, including The Nasdaq Capital Market. Without an active trading market, the liquidity of the Warrants will be determined by negotiation between the underwriters and us. This price may not reflect the market price of our common stock following this offering. As a result, thelimited.
The trading price of our common stocksecurities is likely to be volatile which may prevent you from being ableand could be subject to sell your shares at or above the public offering price. Our stockwide fluctuations in response to a variety of factors.
The trading price of our securities is likely to be volatile and could be subject to wide fluctuations in response to a variety of factors, which include:
| ● | whether we achieve our anticipated corporate objectives; | |
| ● | actual or anticipated fluctuations in our financial condition and operating results; | |
| ● | changes in financial or operational estimates or projections; | |
| ● | the development status of our product candidates and when our product candidates receive regulatory approval if at | |
| all; | ||
| ● | our execution of our sales and marketing, manufacturing and other aspects of our business plan; | |
| ● | performance of third parties on whom we rely to manufacture our product candidate components and product candidates, including their ability to comply with regulatory requirements; | |
| ● | the results of our preclinical studies and clinical trials; | |
| ● | results of operations that vary from those of our competitors and the expectations of securities analysts and investors; | |
| ● | our announcement of significant contracts, acquisitions or capital commitments; | |
| ● | announcements by our competitors of competing products or other initiatives; | |
| ● | announcements by third parties of significant claims or proceedings against us; | |
| ● | regulatory and reimbursement developments in the United States and internationally; | |
| ● | future sales of our common stock; | |
| ● | product liability claims; | |
| ● | healthcare reform measures in the United States; | |
| ● | additions or departures of key personnel; and | |
| ● | general economic or political conditions in the United States or elsewhere. |
In addition, the stock market in general, and the stock of medical device companies like ours, in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the issuer. These market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.
We have issued a significant number of options, warrants and shares of convertible preferred stock and may be subjectcontinue to do so in the future. The vesting and, if applicable, exercise of these securities litigation, which is expensive and could divert our management’s attention.
The marketthe sale of the shares of common stock issuable thereunder may dilute your percentage ownership interest and may also result in downward pressure on the price of our securities may be volatile, and in the past companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
We have broad discretion in the use of the net proceeds from this offering and may invest or spend the proceeds in ways with which you disagree or that may not yield a return.
While we set forth our anticipated use for the net proceeds from this offering in the section titled “Use of Proceeds”, our management will have broad discretion on how to use and spend any proceeds that we receive from this offering and may use the proceeds in ways that differ from the anticipated uses set forth in this prospectus. Investors in this offering will need to rely upon the judgment of our management with respect to the use of proceeds with only limited information concerning management’s specific intentions. It is possible that we may decide in the future not to use the proceeds of this offering in the manner described in this offering. Our management may spend a portion or all of the net proceeds from this offering in ways that holders of our common stock may not desire or that may not yield a significant return or any return at all. Investors will receive no notice or vote regarding any such change and may not agree with our decision on how to use such proceeds. If we fail to utilize the proceeds we receive from this offering effectively, our business and financial condition could be harmed and we may need to seek additional financing sooner than expected. Pending their use, we may also invest the net proceeds from this offering in a manner that does not produce income or that loses value.
There is no existing market for our common stock and we do not know if one will develop to provide you with adequate liquidity.stock.
PriorAs of January 25, 2021, we have issued and outstanding options to this offering, there has not been a public market for our common stock. Although our common stock has been approved for listing on the Nasdaq, an active trading market for our common stock may never develop or be sustained following this offering. You may not be able to sell your shares quickly or at the market price if trading in our common stock is not active. The initial public offering price for the shares will be determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the trading market. You may not be able to sell yourpurchase 211,888 shares of our common stock at or above thewith a weighted average exercise price you paid in the offering. As a result, you could lose all or part of your investment. Further, an inactive market may also impair our ability$31.48, 4,942 restricted stock units subject to raise capital by sellingvesting, and warrants to purchase 1,461,830 shares of our common stock with a weighted average exercise price of $23.29. Further, we have 383,170 shares available for issuance under our Amended and may impair our ability to enter into strategic partnerships or acquire companies or products by using ourRestated 2016 Omnibus Incentive Plan, the number of shares of common stock as consideration.
Our principal stockholders and management own a significant percentage of our capital stock andavailable under the plan will be ableincreased January 1st (and each January 1st thereafter) by an amount equal to exert a controlling influence over our business affairs and matters submitted to stockholders for approval.
After this offering, it is anticipated that our officers and directors, together with holders of 5% or more of our outstanding common stock before this offering and their respective affiliates, will beneficially own or control 6,376,902 shares of our common stock, which in the aggregate will represent approximately 60.2 %3% of the total issued and outstanding shares of our common stock as of such anniversary (or such lesser number of shares as may be approved by our Board of Directors). Because the market for our common stock is thinly traded, the sales and/or 58.7 %the perception that those sales may occur, could adversely affect the market price of our common stock. Furthermore, the mere existence of a significant number of shares of common stock issuable upon vesting and, if the underwriters’ option to purchase additional shares is exercised in full. As a result, if someapplicable, exercise of these persons or entities act together, they will have the ability to exercise significant influence over matters submitted to our stockholders for approval, including the election and removal of directors, amendments to our certificate of incorporation and bylaws, the approval of any business combination and any other significant corporate transaction. These actionssecurities may be taken even if theyperceived by the market as having a potential dilutive effect, which could lead to a decrease in the price of our common stock.
We will need to raise additional capital to meet our business requirements in the future, and such capital raising may be costly or difficult to obtain and can be expected to dilute current stockholders’ ownership interests.
Taking into account the closing of this offering, we will still need to raise additional capital in the future, including, potentially, to remain listed on Nasdaq. Such additional capital may not be available on reasonable terms or at all. Any future issuance of our equity or equity-backed securities may dilute then-current stockholders’ ownership percentages. If we are opposed byunable to obtain required additional capital, we may have to curtail our growth plans or cut back on existing business and we may be delisted from Nasdaq.
We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other stockholders. This concentration of ownershipcosts. We may also have the effect of delaying or preventing a change of control ofbe required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes, restricted stock, stock options and warrants, which may adversely impact our company or discouraging others from making tender offers for our shares, which could prevent our stockholders from receiving a premium for their shares. Some of these persons or entities who make up our principal stockholders may have interests different from yours.financial condition.
Future sales or issuances of substantial amounts of our common stock could result in significant dilution.
Any future issuance of our equity or equity-backed securities, including, potentially, the issuance of securities in connection any merger transaction, may dilute then-current stockholders’ ownership percentages and could also result in a decrease in the fair market value of our equity securities, because our assets would be owned by a larger pool of outstanding equity. As stated above, we intend to conduct additional rounds of financing in the future and we may need to raise additional capital through public or private offerings of our common stock or other securities that are convertible into or exercisable for our common stock. We may also issue securities in connection with hiring or retaining employees and consultants (including stock options issued under an equity incentive plan), as payment to providers of goods and services, in connection with future acquisitions or for other business purposes. Our Board of Directors may at any time authorize the issuance of additional common stock without stockholder approval, subject only to the total number of authorized shares of common stock set forth in our articles of incorporation. The terms of equity securities issued by us in future transactions may be more favorable to new investors, and may include dividend and/or liquidation preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect. Also, the future issuance of any such additional shares of common stock or other securities may create downward pressure on the trading price of the common stock. There can be no assurance that any such future issuances will not be at a price (or exercise prices) below the price at which shares of the common stock are then traded on Nasdaq or other then-applicable over-the-counter quotation system or exchange.
Our failure to meet the continued listing requirements of Nasdaq could result in a de-listing of our common stock.Common Stock.
If, afterWhile we are currently in compliance with Nasdaq’s continued listing requirements, we failhave received deficiency notices in the past and there is no guarantee that we will be able to satisfycontinue to meet the continued listing requirements of Nasdaq. In the event we are unable to do so, our securities may be delisted from The Nasdaq such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to de-list our common stock.Stock Market. Such a de-listingdelisting would likely have a negative effect on the price of our common stockCommon Stock and would impair your ability to sell or purchase our common stockCommon Stock when you wish to do so. In the event of a de-listing,delisting, we would expect to take actions to restore our compliance with Nasdaq Marketplace Rules, but our common stock may not be listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with the Nasdaq Marketplace Rules.
If our shares become subject to the penny stock rules, it would become more difficult to trade our shares.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not obtain or retain a listing on Nasdaq and if the price of our common stock is less than $5.00, our common stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.
Future sales of shares by existing stockholders could cause our stock price to decline.
If our existing stockholders sell, or indicate an intent to sell, substantial amounts of our common stock in the public market after the 180-day contractual lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline significantly and could decline below the initial public offering price. After giving effect to this offering and based on 7,817,290 shares outstanding as of the date of this prospectus, we will have outstanding 9,692,290 shares of common stock, assuming no conversion of existing Notes or exercise of outstanding options and warrants. Of these shares, 1,875,000 shares of common stock, plus any shares sold pursuant to the underwriters’ option to purchase additional shares, will be immediately freely tradable, without restriction, in the public market. If our existing stockholders sell substantial amounts of our common stock in the public market, or if the public perceives that such sales could occur, this could have an adverse impact on the market price of our common stock, even if there is no relationship between such sales and the performance of our business. We also intend to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in the “Underwriting” section of this prospectus.
After the lock-up agreements pertaining to this offering expire and based on shares outstanding after this offering, an additional 5,484,564 shares will be eligible for sale in the public market. In addition, upon issuance, the 1,422,000 shares subject to outstanding options under our stock option plans and the shares reserved for future issuance under our equity compensation plans will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations. If our existing stockholders sell substantial amounts of our common stock in the public market, or if the public perceives that such sales could occur, this could have an adverse impact on the market price of our common stock, even if there is no relationship between such sales and the performance of our business.
Sales of our common stock in this offering may take place concurrently with sales of our common stock by selling stockholders, which might affect the price and liquidity of, and demand for, shares of our common stock.
We are registering shares of common stock underlying the Underwriters’ Warrants, and the Notes and the Warrants that were issued together to certain Selling Stockholders, concurrently with this offering. The conversion price of the Notes is the lesser of (i) $12.00 or (ii) the per share price in this offering, multiplied by 70%. The exercise price per share of the related Warrants is the lesser of (i) $14.40 or (ii) 120% of the conversion price of the Notes. As a result, the shares of our common stock issued to Selling Stockholders upon conversion of the Notes or exercise of the related Warrants may be issued at a discount to the price of the shares of our common stock sold in this offering, which would result in further dilution of your investment. Concurrent or future sales of our common stock by these Selling Stockholders may reduce the price of our common stock and demand for the shares sold in the offering and, as a result, the liquidity of your investment.
If you purchase shares of common stock in this offering, you will suffer immediate dilution of your investment.
The public offering price of our common stock will be substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. To the extent shares subsequently are issued under outstanding stock options, you will incur further dilution. Based on an assumed initial public offering price of $7.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $6.25 per share, representing the difference between our pro forma net tangible book value per share, after giving effect to this offering, and the assumed initial public offering price. In addition, purchasers of common stock in this offering will have contributed approximately 30% of the aggregate price paid by all purchasers of our stock but will own only approximately 19% of our common stock outstanding after this offering.
We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. We may remain an emerging growth company until as late as December 20222023 (the fiscal year-end following the fifth anniversary of the completion of our initial public offering), though we may cease to be an emerging growth company earlier under certain circumstances, including (1) if the market value of our common stock that is held by nonaffiliatesnon-affiliates exceeds $700 million as of any June 30, in which case we would cease to be an emerging growth company as of the following December 31, or (2) if our gross revenue exceeds $1.07 billion in any fiscal year. Emerging growth companies may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Investors could find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, Section 102 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
We will incur significant costs as a result of operating as a public company and our management expects to devote substantial time to public company compliance programs.
As a public company, we will incur significant legal, accounting and other expenses due to our compliance with regulations and disclosure obligations applicable to us, including compliance with the Sarbanes-Oxley Act, as well as rules implemented by the SEC and Nasdaq. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact, in ways we cannot currently anticipate, the manner in which we operate our business. Our management and other personnel will devote a substantial amount of time to these compliance programs and monitoring of public company reporting obligations and as a result of the new corporate governance and executive compensation related rules, regulations and guidelines prompted by the Dodd-Frank Act and further regulations and disclosure obligations expected in the future, we will likely need to devote additional time and costs to comply with such compliance programs and rules. These rules and regulations will cause us to incur significant legal and financial compliance costs and will make some activities more time-consuming and costly.
To comply with the requirements of being a public company, we may need to undertake various actions, including implementing new internal controls and procedures and hiring new accounting or internal audit staff. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is accumulated and communicated to our principal executive and financial officers. Our current controls and any new controls that we develop may become inadequate and weaknesses in our internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls when we become subject to this requirement could negatively impact the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we may be required to include in our periodic reports we will file with the SEC under Section 404 of the Sarbanes-Oxley Act, harm our operating results, cause us to fail to meet our reporting obligations or result in a restatement of our prior period financial statements. In the event that we are not able to demonstrate compliance with the Sarbanes-Oxley Act, that our internal control over financial reporting is perceived as inadequate or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and the price of our common stock could decline. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on Nasdaq.
Our management team has limited experience managing a public company.
Most members of our management team have limited experience managing a publicly-traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition and operating results.
Because we have elected to use the extended transition period for complying with new or revised accounting standards for an emerging growth company our financial statements may not be comparable to companies that comply with public company effective dates.
We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates, and thus investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on us. If no securities or industry analysts commence coverage of us, the price for our common stock could be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our stock price could decline. In addition, if our operating results fail to meet the forecast of analysts, our stock price could decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our stock price and trading volume to decline.
Provisions of our charter documents or Delaware law could delay or prevent an acquisition of us, even if the acquisition would be beneficial to our stockholders, which could make it more difficult for you to change management.
Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws that will become effective upon the consummation of this offering may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempt by our stockholders to replace or remove our current management by making it more difficult to replace or remove our board of directors. These provisions include, but are not limited to:
| ● | a classified board of directors so that not all directors are elected at one time; | |
| ● | a prohibition on stockholder action through written consent; | |
| ● | no cumulative voting in the election of directors; | |
| ● | the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director; | |
| ● | a requirement that special meetings of the stockholders may be called only by our chairman of the board, chief executive officer or president, or by a resolution adopted by a majority of our board of directors; | |
| ● | an advance notice requirement for stockholder proposals and nominations; | |
| ● | the authority of our board of directors to issue preferred stock with such terms as our board of directors may determine; and | |
| ● | a requirement of approval of not less than 66 2/3% of all outstanding shares of our capital stock entitled to vote to amend any bylaws by stockholder |
In addition, the Delaware General Corporate Law, or DGCL, prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person who, together with its affiliates, owns, or within the last three years has owned, 15% or more of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Accordingly, the DGCL may discourage, delay or prevent a change in control of our company.
Furthermore, our amended and restated certificate of incorporation will specifyspecifies that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions involving actions brought against us by stockholders. We believe this provision benefits us by providing increased consistency in the application of the DGCL by chancellors particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, the provision may have the effect of discouraging lawsuits against our directors and officers.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future and, as such, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
We have never declared or paid cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. In addition, and any future loan arrangements we enter into may contain, terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
We may be a “controlled company” within the meaning of the Nasdaq Marketplace Rules and may on certain corporate governance exemptions afforded to controlled companies in the future. If we utilize the exemptions afforded to us under the Nasdaq Marketplace Rules, you will not have the same protections afforded to stockholders of companies that are subject to such requirements.
Prior to this offering, Biodyne Holding, S.A., or Biodyne, has controlled a majority of the voting power of our company on account of its ownership of our common stock. Upon completion of this offering, Biodyne may not continue to control a majority of the voting power of our company on account of its ownership of our common stock. Upon completion of this offering, and assuming the midpoint of the price range listed on the cover page of this Prospectus, Biodyne will hold 44.8% of our common stock. If its ownership increases by just 5.3%, we may be a “controlled company” within the meaning of the Nasdaq Marketplace Rules. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirements:
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Even if we are a controlled company, we do not currently intend to utilize these exemptions. However, we may use these exemptions in the future, and as a result, we could choose not to have a majority of independent directors on our board of directors, or any of our board committees. If that were the case, you would not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq Marketplace Rules. In any case, these exemptions do not modify the independence requirements for our audit committee, and we intend to comply with the requirements of Rule 10A-3 of the Exchange Act and the Nasdaq Marketplace Rules within the applicable time frame.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY AND MARKET DATA
Special Note Regarding Forward-Looking Statements
This prospectus contains forward-looking statements that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the sections titled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” but are also contained elsewhere in this prospectus. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future, although not all forward-looking statements contain these words. These statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements include, but are not limited to, statements about:
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You should read this prospectus,These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the section titledrisks outlined under “Risk Factors,” and the documents that we referenceFactors” or elsewhere in this prospectus and have filed as exhibits to the registration statement, ofdocuments incorporated by reference herein, which this prospectus is a part, completely and with the understanding thatmay cause our or our industry’s actual results, may differ materially from what we expect aslevels of activity, performance or achievements expressed or implied by ourthese forward-looking statements. Furthermore, ifMoreover, we operate in a highly regulated, very competitive, and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.
We have based these forward-looking statements provelargely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short term and long term business operations, and financial needs. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this prospectus, and in particular, the risks discussed below and under the heading “Risk Factors” and those discussed in other documents we file with the SEC. The following discussion should be inaccurate,read in conjunction with the inaccuracy may be material.consolidated financial statements for the fiscal years ended December 31, 2019 and 2018 and notes incorporated by reference herein. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. In light of these risks, uncertainties and assumptions, the significant uncertaintiesforward-looking events and circumstances discussed in thesethis prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements, youstatement.
You should not regard these statements as a representation or warranty by us orplace undue reliance on any other person that we will achieve our objectives and plans in any specified time frame, or at all.
These forward-looking statements represent our estimates and assumptionsstatement, each of which applies only as of the date of this prospectus regardless of the time of delivery of this prospectus or any sale of our common stock.prospectus. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements whether as a result of new information, future events or otherwise after the date of this prospectus. All subsequentprospectus to conform our statements to actual results or changed expectations. Any forward-looking statement you read in this prospectus, any prospectus supplement or any document incorporated by reference reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, operating results, growth strategy and liquidity. You should not place undue reliance on these forward-looking statements attributablebecause such statements speak only as to usthe date when made. We assume no obligation to publicly update or revise these forward-looking statements for any person actingreason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future, except as otherwise required by applicable law. You are advised, however, to consult any further disclosures we make on related subjects in our behalf are expressly qualified in their entirety byreports on Forms 10-Q, 8-K and 10-K filed with the cautionary statements containedSEC. You should understand that it is not possible to predict or referredidentify all risk factors. Consequently, you should not consider any such list to herein.be a complete set of all potential risks or uncertainties.
Industry and Market Data
Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market opportunity and market size, is based on information from various sources, including independent industry publications. In presenting this information, we have also made assumptions based on such data and other similar sources, and on our knowledge of, and our experience to date in, the markets for our products. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We believe that the information from these industry publications that is included in this prospectus is reliable. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
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We estimate that the net proceeds to us from our issuance and sale of 1,875,000 shares of common stock in this offering will be approximately $11.32$26.7 million (or approximately $13.10 million if the underwriters exercise their option to purchase additional shares of common stock in full), based uponon an assumed initial public offering price of $7.00$9.31 per share, which is the mid-pointUnit (the last reported sale price of the price range set forthour common stock on the cover page of this prospectus, andNasdaq on January 29, 2021), after deducting underwriting discounts and commissions andthe estimated offering expenses payable by us.
Each $1.00 increase or decrease in the assumed initial public offering price of $7.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us would increase or decrease, as applicable,described in the “Underwriting” section beginning on page 70 of this prospectus, and excluding the proceeds, if any, from the exercise of the Warrants.
We currently intend to use the net proceeds to us from this offering by approximately $1.69 million, assumingprimarily for the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. Each increase or decrease of one million in the number of shares we are offering at the assumed initial public offering price of $7.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, would increase or decrease, as applicable, the net proceeds to us from this offering by approximately $6.3 million, assuming the assumed initial public offering price remains the same.
We intend to use the net proceeds from this offering as follows:
In addition, on December 13, 2017 we issued a promissory note to NYFF Investors LLC in the aggregate principal amount of $200,000, or the December note. The December note bears interest at a rate of 10% per annum and is due on the earlier of sixty days from the date of issuance or upon the consummation of this offering. The December note is secured by all of our assets. We intend to use a portion oftwo lead products, VenoValve and the net proceeds from this offering to repay all of the principalCoreoGraft, and accrued interest on the December note in full. The proceeds from the December note were used for general corporate purposes, including working capital purposes,and investing in or acquiring companies that are synergistic with or complementary to our technologies. The amounts and timing of these expenditures will depend on numerous factors, including a portionthe development of the expenses of this offering.
In addition, on May 10, 2013, we issued a note payable with a principal balance amount of $1,070,000, or the Leman note, in connection with the purchase of certain assets from Leman Cardiovascular S.A., or Leman. The Leman note bears interest at a rate of 6% per annum and originally matured on May 10, 2014, which was later extended to May 10, 2018. During the years ended 2013, 2014, 2015, and 2016, we repaid principal of $302,000, $30,000, $248,000 and $76,000, respectively. As of December 31, 2016 and 2015, the principal balance due on the Leman note was $444,772 and $520,396, respectively, and the related accrued interest was $15,419 and $954, respectively. As of September 30, 2017, the principal balance due is $270,038. The highest principal balance owed under the Leman note since January 1, 2015 was approximately $768,011. We intend to use a portion of the net proceeds from this offering to repay all of the principal and accrued interest on the Leman note in full.
Theour current business initiatives. This expected use of our net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development, the status of and results from clinical trials our sales, marketing and manufacturing efforts, any collaborations that we may enter into with third parties for our product candidates and any unforeseen cash needs. As a result, our managementAccordingly, we will retainhave broad discretion over the allocation of the net proceeds from this offering.
We believe opportunities may exist from time to time to expand our current business through the acquisition or in-license of complementary product candidates. While we have no current agreements or commitments for any specific acquisitions or in-licenses at this time, we may use a portion of the net proceeds for these purposes.
Pending our useuses of the net proceeds from this offering and investors will be relying on the judgment of our management regarding the application of the net proceeds from this offering. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Pending these uses, we intend to invest the net proceeds from this offering in a variety of capital preservation investments, including short-term, investment-grade interest-bearing instrumentssecurities such as money market funds, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government securities.government.
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We have never declared or paid any cash dividendsdividend on our capital stock. We do not anticipate paying any cash dividends in the foreseeable future and we intend to retain all of our earnings, if any, to finance our growth and operations and to fund the expansion of our business. Payment of any dividends will be made in the discretion of our Board of Directors, after its taking into account various factors, including our financial condition, operating results, current and anticipated cash needs and plans for expansion. Any dividends that may be declared or paid on our common stock, must also be paid in the foreseeable future. We currently intend to retain all available funds and any future earnings to supportsame consideration or manner, as the case may be, on our operations and finance the growth and developmentshares of our business. Any future determination related to our dividend policy will be made at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects, the requirements of current or then-existing debt instruments and other factors our board of directors may deem relevant.preferred stock, if any.
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In addition, subject to limited exceptions, the terms of the Notes prohibit us from paying dividends on our equity securities so long as at least 33% of the principal amount of the Notes remains outstanding.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock began trading on Nasdaq under the symbol “HJLI” on May 31, 2018. Our warrants issued as part of the units consisting of one share of common stock and one warrant to purchase commons stock sold to the public through the initial public offering began trading on Nasdaq under the symbol “HJLIW” on May 31, 2018.
Holders of Record
On January 25, 2021, the closing price per share of our common stock and listed warrants were $9.09 and $0.25, respectively as reported on The Nasdaq Capital Market, and we had approximately 76 stockholders of record and 1 listed warrant holder of record. On January 25, 2021 there were 2,589,352 shares of our common stock issued and outstanding and 69,000 shares of common stock issuable upon exercise of listed warrants issued and outstanding. In addition, we believe that a significant number of beneficial owners of our common stock and listed warrants hold their shares in street name.
Securities Authorized for Issuance under Equity Compensation Plan
The following is information as of December 31, 2020 about shares of our common stock that may be issued upon the exercise of options, warrants and rights under all equity compensation plans in effect as of that date.
| Plan Category | Number of securities to be issued upon exercise of outstanding options and restricted stock units | Weighted-average exercise price of outstanding options | Number of securities remaining available for future issuance under equity compensation plans | |||||||||
| Equity compensation plans approved by security holders | 216,830 | $ | 31.48 | 383,170 | ||||||||
| Equity compensation plans not approved by security holders | - | - | - | |||||||||
| 216,830 | $ | 31.48 | 383,170 | |||||||||
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The following table sets forth our cash and cash equivalents and capitalization assumed as of September 30, 2017:2020:
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The pro forma and pro forma as adjustedas-adjusted information below is illustrative only, and our capitalization following the completionclosing of this offering is subject to adjustmentwill be adjusted based on the initialactual public offering price of our common stock and other terms of this offering determined at pricing. You should read the following tablethis information in conjunction with “Use of Proceeds,” “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Capital Stock”Operations” our audited and other financial information contained in this prospectus, including theunaudited financial statements and the related notes appearing elsewhere in this prospectus.
| Actual | Pro Forma | Pro Forma As Adjusted(1) | ||||||||||
| Cash and cash equivalents | $ | 311,483 | $ | 851,947 | $ | 12,178,505 | ||||||
| Total debt | $ | 4,130,280 | $ | 4,010,242 | $ | 4,010,242 | ||||||
| Series A preferred stock, par value $0.00001 per share; 1,300,000 shares authorized, 1,005,700 shares issued and outstanding, actual; no shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted | $ | 3,935,638 | - | - | ||||||||
| Series B convertible preferred stock, par value $0.00001 per share; 2,000,000 shares authorized, 127,125 shares issued and outstanding, actual; no shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted | $ | 630,770 | - | - | ||||||||
| Stockholders’ (deficit) equity: | ||||||||||||
| Common stock, par value $0.00001 per share; 30,000,000 shares authorized, 6,133,679 shares issued and outstanding, actual; 50,000,000 shares authorized, 7,817,290 shares issued and outstanding, pro forma; 50,000,000 shares authorized, 9,692,290 shares issued and outstanding, pro forma as adjusted | 61 | 78 | 97 | |||||||||
| Preferred stock, $0.00001 par value per share; no shares authorized, issued and outstanding, actual; 10,000,000 shares authorized and no shares issued and outstanding, pro forma and pro forma as adjusted | ||||||||||||
| Additional paid-in capital | 24,235,011 | 30,991,548 | 42,318,087 | |||||||||
| Accumulated deficit | (32,395,780 | ) | ( 33,925,424 | ) | ( 33,925,424 | ) | ||||||
| Total stockholders’ (deficit) equity | $ | (8,160,708 | ) | ( 2,933,798 | ) | 8,392,760 | ||||||
| Total capitalization | $ | 535,980 | $ | 1,076,444 | $ | 12,403,002 | ||||||
| Actual | As Adjusted | |||||||
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| Cash | $ | 5,629,003 | $ | 36,770,386 | ||||
| Stockholder’s Equity | ||||||||
| Convertible preferred stock, par value $0.00001, 10,000,000 shares authorized: 4,205,406 shares issued or outstanding as of September 30, 2020, actual; 0 shares issued and outstanding, as adjusted | 42 | - | ||||||
| Common Stock, par value $0.00001 per share (250,000,000 shares authorized; 1,609,710 shares issued and outstanding, actual; 5,456,484 shares issued and outstanding, as adjusted | $ | 16 | $ | 55 | ||||
| Additional paid-in capital | $ | 65,744,311 | $ | 98,930,378 | ||||
| Accumulated deficit | $ | (60,949,408 | ) | $ | (62,994,089 | ) | ||
| Total Stockholders’ Equity (Deficiency) | $ | 4,794,961 | $ | 35,936,344 | ||||
| Total Capitalization | $ | 4,794,961 | $ | 35,936,344 | ||||
A $1.00 increase in the assumed public offering price of $9.31 per Unit would increase each of: additional paid-in capital, total stockholders’ equity, and total capitalization by approximately $2.9 million, assuming that the assumed public offering of 3,222,341 Units remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. There can be no assurance of any such increase in the public offering price.
The number of shares of our common stock to be outstanding after this offering is based on 7,817,2901,609,710 shares of our common stock outstanding as of December 11, 2017,September 30, 2020, plus 381,308 issued to investors in our October 2020 offering, 243,125 issued to our preferred stockholders in November 2020 in exchange for all of their 4,205,406 shares of preferred stock, and excludes:excludes as of such date:
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Additionally, the number of shares of common stock to be outstanding after this offering excludes:
Unless otherwise indicated, all information contained in the information above assumes:
| ● | 381,309 shares of our common stock issuable upon the exercise of outstanding warrants issued in a private placement offering on October 9, 2020 with an exercise price of $10.25; | |
| ● | no exercise | |
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If you investPurchasers of Units in this offering will experience an immediate dilution of the net tangible book value per share of our common stock. Net tangible book value per share is equal to our total tangible assets less our total liabilities, divided by the number of shares of our outstanding common stock. Our net tangible book value as of September 30, 2020 was approximately $4,794,961, or $2.98 per share of our common stock.
After giving effect to the closing on October 9, 2020 of our registered direct offering of shares of common stock and concurrent private placement of warrants to purchase common stock for aggregate gross proceeds of approximately $4,450,000, and the exchange of our Series C convertible preferred stock in November 2020, adjusted net tangible book value as of September 30, 2020 was $9.2 million, or $4.14 per share of common stock.
Dilution per share of common stock equals the difference between the amount paid by purchasers of common stock in this offering your ownership interest will be immediately diluted(ascribing no value to the extent of the difference between the initial public offering price per share of our common stockWarrants) and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering.
Our historical net tangible book value (deficit) is the amount of our total assets less our liabilities. Our historical net tangible book value (deficit) per share is our historical net tangible book value (deficit) divided by the number of shares of common stock outstanding as of September 30, 2017. Our historical net tangible book value (deficit) as of September 30, 2017, was approximately ($4,927,628), or ($0.80) per share of common stock. Our pro forma net tangible book value (deficit) as of September 30, 2017 was ($4,267,126) or ( $0.54 ) per share of common stock, afterAfter giving effect to (i) the salesecurities offered by us on October 9, 2020, the exchange of 126,667 additional shares ofour Series BC convertible preferred stock prior toin November 2020, and the assumed sale by us in this offering for net proceeds of $660,502, (ii) the issuance3,222,341 Units at an assumed public offering price of an additional Note for $150,000 prior to the offering, (iii) the issuance and repayment of the December note for $200,000 prior to the offering, (iv) the repayment of the Leman note, and (v) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 1,683,611 shares$9.31 per Unit (the last reported sale price of our common stock which includes 75,178on Nasdaq on January 29, 2021), after deducting the estimated underwriting discounts and commissions (without taking into account a reduced underwriting discount as applied to shares of common stock in payment of accrued dividends as of December 11, 2017, which will occur immediately priorsold to the closing of this offering.
Pro formastrategic healthcare investor referred to herein) and estimated offering expenses payable by us, our as adjusted net tangible book value (deficit) is our pro forma net tangible book value, after giving further effect to the saleas of 1,875,000 shares of our common stock in this offering at an assumed initial public offering price of $7.00September 30, 2020 would have been approximately $35.9 million, or approximately $6.59 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.share. This amount represents an immediate increase in pro forma net tangible book value (deficit) of $1.29$2.45 per share to our existing stockholders and an immediate dilutiondecrease in net tangible book value of $6.25$2.72 per share to new investors participatingpurchasing Units in this offering.
offering, attributing none of the assumed combined public offering price to the Warrants offered hereby. The following table illustrates this dilution on a per share basis to new investors:dilution:
| Assumed initial public offering price per share | $ | 7.00 | ||||||
| Historical net tangible book value (deficit) per share as of September 30, 2017 | $ | (0.80 | ) | |||||
| Increase in pro forma net tangible book value (deficit) attributable to the sale of Series B preferred stock prior to the offering | 0.11 | |||||||
| Increase in pro forma net tangible book value (deficit) attributable to conversion of our convertible preferred stock | 0.15 | |||||||
| Pro forma net tangible book value (deficit) per share as of September 30, 2017, before giving effect to this offering | (0.54 | ) | ||||||
| Increase in pro forma net tangible book value (deficit) per share attributable to new investors participating in this offering | 1.29 | |||||||
| Pro forma as adjusted net tangible book value (deficit) per share after this offering | 0.75 | |||||||
| Dilution in pro forma net tangible book value (deficit) per share to new investors participating in this offering | $ | 6.25 |
| Assumed combined public offering price per Share and related Warrant | $ | 9.31 | ||
| Net tangible book value per share as of September 30, 2020, before giving effect to this offering | $ | 2.98 | ||
| Pro forma increase in net tangible book value per share attributable to the October transaction | $ | 1.66 | ||
| Pro forma decrease in net tangible book value per share attributable to the exchange of our Series C convertible preferred stock | $ | (0.50 | ) | |
| Increase in net tangible book value per share attributable to this offering | $ | 2.45 | ||
| As adjusted net tangible book value per share after giving effect to this offering | $ | 6.59 | ||
| Dilution to net tangible book value per share to new investors in this offering | $ | 2.72 |
AThe information discussed above is illustrative only and will adjust based on the actual public offering price, the actual number of Shares and related Warrants sold in this offering and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $7.00$9.31 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease as applicable, theour pro forma as adjusted net tangible book value (deficit) per share after this offering by approximately $0.17 per share$0.53 and decrease or increase, as appropriate, the dilution in pro forma net tangible book value (deficit) per share to new investors participatingpurchasing shares of common stock in this offering by approximately $0.17 per share,$0.47, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Similarly, a one million share increase or decrease in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease, as appropriate, the pro forma as adjusted net tangible book value (deficit) per share after this offering by approximately $0.52 and decrease or increase, as appropriate, the dilution in pro forma net tangible book value (deficit) per share to investors participating in this offering by approximately $0.52, assuming the assumed initial public offering price of $7.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
The pro forma information discussed above is illustrative only and will change based on the actual initial public offering price, number of shares and other terms of this offering determined at pricing.
If the underwriters exercise in full their option to purchase 281,250 additional shares of our common stock in this offering, the pro forma as adjusted net tangible book value will increase to $0.90 per share, representing an immediate increase in pro forma net tangible book value to existing stockholders of $0.16 per share and a decrease in immediate dilution of $0.16 per share to new investors participating in this offering.
The following table sets forth, as of the date of this prospectus, on the pro forma as adjusted basis described above, the differences between our existing stockholders and the purchasers of shares of common stock in this offering with respect to the number of shares of common stock purchased from us, the total consideration paid to us and the weighted average price paid per share paid to us, based on an assumed initial public offering price of $7.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us:
| Shares Purchased | Total Consideration | Weighted Average Price | ||||||||||||||||||
| Number | Percent | Amount | Percent | per Share | ||||||||||||||||
| Existing stockholders | 7,817,290 | 80.7 | % | $ | 30,138,996 | 69.7 | % | $ | 3.86 | |||||||||||
| New investors | 1,875,000 | 19.3 | % | $ | 13,125,000 | 30.3 | % | $ | 7.00 | |||||||||||
| Total | 9,692,290 | 100.0 | % | $ | 43,263,996 | 100.0 | .% | $ | 4.46 | |||||||||||
If the underwriters exercise in full their option to purchase additional shares of our common stock, inour pro forma as adjusted net tangible book value per share after this offering the numberwould be $6.73, representing an immediate increase in pro forma as adjusted net tangible book value per share of shares held by$2.59 to existing stockholders will be reducedand immediate dilution in pro forma as adjusted net tangible book value per share of $2.58 to 78.4% of the total number ofnew investors purchasing shares of common stock that will be outstanding upon completion of this offering, and the number of shares of common stock held by new investors participating in this offering, will be further increased to 21.6% of the total number of shares of common stock that will be outstanding upon completion of the offering, before any sales by any Selling Stockholders of any of the shares of common stock registered concurrently with this offering.
If the Selling Stockholders sell, inassuming a separate offering covered by the Selling Stockholder Prospectus, all 1,018,869 shares of our common stock registered concurrently with this offering (calculated using the midpoint of the price range listed on the cover page of this prospectus, assuming the conversion of all Notes, and the exercise of all Warrants, held by the Selling Stockholders, and after giving effect to the reverse stock split to be effected prior to the completion of this offering), the number of shares held by existing stockholders will be further reduced to 71.1% of the total number of shares of common stock that will be outstanding upon completion of both offerings, and the number of shares of common stock held by new investors will be further increased to 28.9% of the total number of shares of common stock that will be outstanding upon completion of both offerings.
A $1.00 increase or decrease in the assumed initial public offering price of $7.00$9.31 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as appropriate, the total consideration paid by new investors by $1.69 million, assuming the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Similarly, each increase or decrease of one million shares in the number of shares offered by us would increase or decrease, as appropriate, the total consideration paid by new investors by $6.3 million, assuming that the assumed initial price to the public remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
We may choose to raise additional capital through the sale of equity or equity-linked securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that any options are issued under our equity incentive plan or we issue additional shares of common stock or equity-linked securities in the future, there will be further dilution to investors purchasing in this offering.
The number of shares of our common stock to be outstanding after this offering is based on 7,817,2901,609,710 shares of our common stock outstanding as of December 11, 2017,September 30, 2020, plus 381,308 issued to investors in our October 2020 offering and excludes:243,125 issued to our preferred stockholders in November 2020 in exchange for all of their 4,205,406 shares of preferred stock and excludes as of such date:
| ● | ||
| $31.68 per share; | ||
| ● | ||
| ● | any additional shares of our common stock reserved for future issuance under |
Unless otherwise indicated, all information contained in
Additionally, the information above assumes:number of shares of common stock to be outstanding after this offering excludes:
| ● | 381,309 shares of our common stock issuable upon the exercise of outstanding warrants issued in a private placement offering on October 9, 2020 with an exercise price of $10.25;
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is based on, and should be read in conjunction with our financial statements, which are included elsewhere in this prospectus. Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Actual results could differ materially because of the factors discussed in “Risk Factors” elsewhere in this prospectus, and other factors that we may not know. Results of Operations Comparison of the three months ended September 30, 2020 and 2019
As a Selling, General and For the three months ended September 30, 2020, selling, general and administrative expenses increased by $7,025 or Legal expenses increased approximately $57,000 mainly due to the
Interest income of $564 and $19,139 was earned during the three months ended September 30, 2020 and 2019, respectively.
Comparison of the nine months ended September 30, 2020 and 2019
Revenues Revenue earned during the nine months ended September 30,
Selling, General and Administrative Expenses
For the nine months ended September 30,
For the nine months ended September 30,
Change in Fair Value of Derivative Liability For the nine months ended September 30, 2020, we Comparison of the year ended December 31, 2019 to the year ended December 31, 2018 Financial Highlights We reported net losses of $7,625,397 and $13,042,709 for the years ended December 31, 2019 and 2018, respectively, representing a decrease in net loss of $5,417,312 or 42%, resulting from a decrease in amortization of debt discount of $6,562,736 (see below), a decrease in operating expenses of $603,969, a decrease of $348,076 in interest expense, net, partially offset by a decrease in the gain on extinguishment of convertible note payable of $1,481,317 (see below), an increase in the loss on impairment of $269,187 (see below), a decrease in the gain on the change in fair value of derivative liabilities of $191,656 (see below) and a decrease of gross profit of $155,309. Revenues Revenues earned during the year ended December 31, 2019 decreased by $155,309 to $31,243 from $186,552 for the year ended December 31, 2018 as royalty income and contract research – related party decreased by $84,909 and $70,400, respectively. Royalty income was earned pursuant to the terms of our March 2016 asset sale agreement with LeMaitre Vascular, Inc., which three-year term ended on March 18, 2019. Since March 18, 2019, we no longer generate royalty revenue and we do not expect to generate any other royalty revenues until one of our product candidates secure regulatory approval and is licensed or otherwise marketed, if ever. The contract research revenue is related to research and development services performed pursuant to a Development and Manufacturing Agreement dated April 1, 2016 (the “HJLA Agreement”) with Hancock Jaffe Laboratory Aesthetics, Inc. (“HJLA”) and no research and development services were performed during 2019. 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 year ended December 31, 2019, selling, general and administrative expenses decreased by $1,571,340 or 24%, to $4,911,613 from $6,482,953 for the year ended December 31, 2018. The decrease is primarily due to a decrease of approximately $980,000 in non-cash stock compensation expense from fewer awards in 2019 of common stock and warrants to consultants and stock options and restricted stock units to employees and directors, decrease in severance expenses of $300,000 from the accrual in 2018 for the termination of the prior CFO, decrease in salaries and benefits of approximately $551,000 as certain personnel focused on research and development activities in 2019 (which is recorded as a research and development expense), partially offset by an increase of approximately $179,000 in insurance expenses primarily in D&O insurance from being a public company during the full year of 2019 as compared to being a private company for the first five months of 2018 and an increase in D&O premiums in 2019. Research and Development Expenses For the year ended December 31, 2019, research and development expenses increased by $967,371 or 78%, to $2,206,120 from $1,238,749 for the year ended December 31, 2018. The increase is primarily due to increased salaries and benefits expenses of $690,000 as certain personnel focused on research and development activities in 2019 and increased supplies, consulting, packaging and outside services of $240,000 associated with research and development activities supporting the first-in-human trials for the VenoValve occurring in Columbia, which started in February 2019, along with an increase of $66,000 in preclinical animal studies. Interest (Income) Expense, Net For the year ended December 31, 2019, interest (income) expense, net decreased by $348,076 or 117%, to $49,915 in interest income, net from $298,161 in interest expense, net for the year ended December 31, 2018, due to the conversion of the convertible notes issued during the period from June 2017 through January 2018 (“Notes”) into shares of our common stock upon the consummation of our IPO on June 4, 2018. On this date, principal and interest totaling $5,778,145 owed in connection with the Notes were converted into 1,650,537 shares of our common stock at a conversion price of $3.50 per share. Interest income of $50,848 and $25,219 was earned during the year ended December 31, 2019 and 2018, respectively. Net Gain on Extinguishment of Convertible Notes Payable During the year ended December 31, 2018, we recognized non-cash gain on the extinguishment of convertible notes payable of $1,481,317. On February 28, 2018, the Notes were amended such that the maturity date was extended to May 15, 2018, the warrants issued in connection with the convertible notes issued in 2017 became exercisable for the number of shares of common stock equal to 100% of the total shares issuable upon conversion and the warrants issued in connection with the convertible notes issued in 2018 became exercisable for the number of shares of common stock equal to 75% of the total shares issuable upon the conversion. The amendment of the Notes was deemed to be a debt extinguishment. Since the Notes were converted on June 4, 2018 into common stock in connection with the Company’s IPO, there was no extinguishment of convertible notes payable in the year ended December 31, 2019. Amortization of Debt Discount During the year ended December 31, 2018, we recognized non-cash amortization of debt discount expense of $6,562,736 related to the embedded conversion option in the Notes as well as the
Change in Fair Value of Derivative Liability
For the
Loss
On April 1, 2016,
Liquidity and Capital Resources
We have incurred losses since inception and negative cash flows from operating activities for the nine months ended September 30, As of
We measure our liquidity in a variety of ways, including the following:
Based upon our cash and working capital as of September 30,
Contractual Obligations As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the Critical Accounting Policies and
For a description of our critical accounting policies, see Note 4 – Significant Accounting Policies in Part 1, Item 1 of our financial statements for the
Each of our
Our
Background Chronic venous disease (“CVD”) is the world’s most prevalent chronic disease. CVD is generally classified using a standardized system known as CEAP (clinical, etiological, anatomical, and pathophysiological). The CEAP system consists of seven clinical classifications (C0 to C6) with C5 to C6 being the most severe types of CVD. Chronic Venous Insufficiency (“CVI”) is a subset of CVD and is generally used to describe patients with C4 to C6 CVD. CVI is a condition that affects the venous system of the leg causing pain, swelling, edema, skin changes, and ulcerations. In order for blood to return to the heart from the foot, ankle, and lower leg, the calf muscle pushes the blood up the veins of the leg and through a series of one-way valves. Each valve is supposed to open as blood passes through, and then close as blood moves up the leg to the next valve. CVI occurs when the one-way valves in the
Estimates indicate that approximately 2.4 million people in
The
There are presently no FDA approved medical devices to address There are approximately 2.4 million people in the U.S. that suffer from deep venous CVI due to valvular incompetence.
In preparation for the VenoValve U.S. pivotal trial, we submitted a Pre-IDE filing with the FDA and met with the FDA on January 11, 2021. For more information on the January 11, 2021 Pre-IDE meeting with the FDA see the Recent Developments section below. An investigational device exemption or
CoreoGraft
Although CABG surgeries are invasive, improved surgical techniques over the years have lowered the fatality rate from CABG surgeries to between 1% and 3% prior to discharge from the hospital. Arteries around heart are accessed via an incision along the sternum known as a sternotomy. Once the incision is CABG surgery is relatively safe and effective. In most instances, doctors prefer to use the left internal mammary artery (“LIMA”), an artery running inside the ribcage and close to the sternum, to re-vascularize the left side of the heart. Use of the LIMA to revascularize the left descending coronary artery (known as the “widow maker”) has The saphenous vein harvest procedure is
Researchers have determined that there are two main causes of SVGs failure: size mismatch, and a thickening of the
failure.
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.
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
The
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 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
receive CoreoGraft
Government Regulation
Our product candidates and our operations are subject to extensive regulation by the FDA, and other federal and state authorities in the United States, as well as comparable authorities in foreign jurisdictions. Our product candidates are subject to regulation as medical devices in the United States under the
FDA Pre-market Clearance and Approval Requirements
Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA clearance of a 510(k) pre-market notification, or approval of a
510(k) Marketing Clearance Pathway
PMA Approval Pathway
Class III devices generally require PMA approval before they can be marketed The FDA will approve the new device for commercial distribution if it determines that the data and information in the PMA constitute valid scientific evidence and that there is reasonable assurance that the device is safe and effective for its intended use(s). The FDA may approve a PMA with post-approval conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution, Certain changes to an approved device, such as changes in manufacturing facilities, methods or quality control procedures, or changes in the design performance specifications, which affect the safety or effectiveness of the device, require submission of a PMA supplement. PMA supplements often require submission of the same type of information as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and may not require as extensive clinical data or the convening of an advisory panel. Certain other changes to an approved device require the submission of a new PMA, such as when the design change causes a different intended use, mode of operation and technical basis of operation, or when the design change is so significant that a new generation of the device will be developed, and the data that were submitted with the original PMA are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness.
Clinical trials are almost always required to support a PMA and are sometimes required to support a 510(k) submission. All clinical investigations of devices to determine safety and effectiveness must be conducted in accordance with the FDA’s IDE regulations, which govern investigational device labeling, prohibit promotion of the investigational device and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. If the device presents a “significant risk,” to human health, as defined by the FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human clinical trials. A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. We believe that both the VenoValve and the CoreoGraft will require IDE applications prior to human testing in the United States. An IDE application must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE will automatically become effective 30 days after receipt by the FDA unless the FDA notifies the company that the investigation may not begin. If the FDA determines that there are deficiencies or other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial to proceed under a conditional approval. In addition, the study must be approved by, and conducted under the oversight of, an Institutional Review Board, or IRB, for each clinical site. The IRB is responsible for the initial and continuing review of the IDE, and may pose additional requirements for the conduct of the study. If an IDE application is approved by the FDA and one or more IRBs, human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. During a study, the sponsor is required to comply with the applicable FDA requirements, including, for example, trial monitoring, selecting clinical investigators and providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping and prohibitions on the promotion of investigational devices or on making safety or effectiveness claims for them. The clinical investigators in the clinical study are also subject to FDA’s regulations and must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of the investigational device and comply with all reporting and recordkeeping requirements. Additionally, after a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits.
Post-market Regulation
After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply. These include: establishing registration and device listing with the FDA; QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; labeling regulations and FDA prohibitions against the promotion of investigational products, or “off-label” uses of cleared or approved products; requirements related to promotional activities; clearance or approval of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices; medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA; and post-market surveillance activities and regulations. Regulation Outside of the U.S. Each country or territory outside of the U.S. has its own rules and regulations with respect to the manufacture, marketing and sale of medical devices. For example, in December of 2018, we received regulatory approval from Instituto Nacional de Vigilancia de Medicamentos y Alimentos (“INVIMA”), the Colombian equivalent of the U.S. Food and Drug Administration, for our first-in-human trial for the VenoValve in Colombia. At this time, other than the first-in-human trial in Colombia, we have not determined which countries outside of the U.S., if any, for which we will seek approval for our product candidates. Our Competitive Strengths We believe we will offer the cardiovascular device market a compelling value proposition with the launch of our two product candidates, if approved, for the following reasons:
Intellectual Property We possess an extensive proprietary processing and manufacturing
As of Properties and Facilities
We lease a 14,507 square foot manufacturing facility in Irvine,
Legal Proceedings
From time to time we may be On July 9, 2020, the Company was served with a civil complaint filed in the
We were incorporated in
Dr. Sanjay Shrivastava has served as a member of our board of directors since October 2018. He has been involved in developing, commercializing, evaluating, and acquiring medical devices for more than 18 years, including serving in Chief Executive Officer and board of director positions at several medical device start-ups, and leadership positions in research and development, business development, and marketing at BTG (from 2017 to 2018), Medtronic (2007 to 2017), Abbott Vascular (2003 to 2007), and Edwards Life Sciences (2000 to 2003). He is presently Director of Business Development at Johnson & Johnson and a co-founder and board member of BlackSwan Vascular, Inc. While working as a vice president, upstream marketing and strategy at BTG, a medical device and specialty pharmaceutical company with annual revenue of about $800 million, Dr. Shrivastava worked on several acquisition and investment deals. At Medtronic, Dr. Shrivastava was the Director of Global Marketing for the Cardiac and Vascular Group where he helped build the embolization business, from its initiation to a substantial revenue with a very high CAGR over a period of six years. Dr. Shrivastava was a Manager of Research and Development for the peripheral vascular business at Abbott Vascular and a Principal Research and Development Engineer for Trans-Catheter heart valves at Edwards Life Sciences. Dr. Shrivastava received his Bachelor of Science in engineering at the Indian Institute of Technology, and his Doctorate of Philosophy in materials science and engineering from the University of Florida. We believe that Dr. Shrivastava is qualified to serve as a member of our board of directors because of having served in Chief Executive Officer and board of director positions at several medical device start-ups, and leadership positions in research and development, business development, and marketing at BTG, Medtronic, Abbott Vascular, and Edwards Life Sciences. Matthew M. Jenusaitis has served as a member of our board of directors since September 2019. He has over 30 years of health care experience with an emphasis on building and selling companies that develop medical devices to treat vascular diseases. Since March 2015, Mr. Jenusaitis has been the Chief of Staff and Chief of Innovation and Transformation for the UC San Diego Health System. From June 2009 to March 2015, Mr. Jenusaitis was President and CEO of OCTANe Foundation for Innovation, a non-profit focused on the development of innovation in Orange County, CA. Over the course of his career, Mr. Jenusaitis has been on the board of directors of Pulsar Vascular (2008-2017), which was sold to Johnson and Johnson, Creagh Medical (2008-2015), which was sold to SurModics, and Precision Wire Components (2009-2014), which was sold to Creganna Medical. Mr. Jenusaitis was also a Senior Vice President at ev3 (April 2006 to July 2008), which was sold to Covidian and later purchased by Medtronics. In addition, Mr. Jenusaitis was the President of the Peripheral Division at Boston Scientific (July 2003 to August 2005) and was an Executive in Residence at Warburg Pincus (September 2005 to March 2006). Mr. Jenusaitis has an MBA from the University of California, Irvine, a Masters Degree in Biomedical Engineering from Arizona State University, and a Bachelors Degree in Chemical Engineering from Cornell University. We believe that Mr. Jenusaitis is qualified to serve as a member of our board of directors because of over 30 years of health care experience with an emphasis on building and selling companies that develop medical devices to treat vascular diseases and his prior board experiences. Robert C. Gray has served as a member of our board of directors since September 2019. He had a 20-year career at Highmark, Inc., one of America’s largest health insurance organizations, which serves over 20 million subscribers, and includes Highmark Blue Cross Blue Shield Pennsylvania, Highmark Blue Cross Blue Shield Delaware, and Highmark Blue Cross Blue Shield West Virginia, which he retired from in 2008. While at Highmark, Mr. Gray helped increase revenues to $12.3 billion from $6.9 billion, and helped generate an operating gain of $375 million from an operating loss of $91 million. In addition to being the board chairman, Chief Executive Officer, and President of several of Highmark’s subsidiaries and affiliated companies, Mr. Gray was the Chief Financial Officer
Marc H. Glickman, M.D. has served as our Senior Vice President and Chief Medical Officer since May 2016 and served as member of our board of directors from July 2016 to August 2017. In 1981, Dr. Glickman started a vascular practice in Norfolk, Virginia. He established the first Vein Center in Virginia and also created a dialysis access center. He was employed by Sentara Health Care as director of Vascular Services until he retired in 2014. Dr. Glickman is a board certified vascular surgeon. Dr. Glickman received his Doctor of Medicine from Case Western Reserve, in Cleveland, Ohio and completed his residency at the University of Washington, Seattle. He is board certified in Vascular Surgery and was the past president of the Vascular Society of the Americas. He has served on the advisory boards of Possis Medical, Cohesion Technologies, Thoratec, GraftCath, Inc., TVA medical, Austin, Texas.
There are no arrangements between our directors and any other person pursuant to which our directors were nominated or elected for their positions. There are no family relationships between
Certain Legal Proceedings Except as set forth above, none of the Company’s directors or executive officers have been involved, in the past ten years and in a manner material to an evaluation of such director’s or officer’s ability or integrity to serve as a director or executive officer, in any of those “Certain Legal Proceedings” more fully detailed in Item 401(f) of Regulation S-K, which include but are not limited to, bankruptcies, criminal convictions and an adjudication finding that an individual violated federal or state securities laws. Board Composition
Our business and affairs are organized under the direction of our board of directors, which currently consists of five members. Our directors hold office until the earlier of their death,
We have no formal policy regarding board diversity. Our priority in selection of board members is identification of members who will further the interests of our stockholders through his or her established record of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business and understanding of the competitive landscape.
Class I Directors (serving until the 2021 Annual Meeting of Stockholders, or until their earlier death, disability, resignation or removal): Dr. Francis Duhay* and Dr. Sanjay Shrivastava* Class II Directors (serving until the 2022 Annual Meeting of Stockholders, or until their earlier death, disability, resignation or removal): Matthew M. Jenusaitis*, Robert A. Berman Class III Director (serving until the 2020 Annual Meeting of Stockholders, or until his earlier death, disability, resignation or removal): Robert C. Gray* (*) Independent Director.
At each annual meeting of stockholders to be held after the initial classification, the successors to directors whose terms then expire will serve until the third annual meeting following their election and until their successors are duly elected and qualified. The authorized size of our board of directors is currently five members. The authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed between the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of the board of directors may have the effect of delaying or preventing changes in our control or management. Our directors may be removed for cause by the affirmative vote of the holders of at least 66 2/3% of our voting stock.
Director Independence
The Nasdaq Marketplace Rules require a majority of a listed company’s board of directors to be comprised of independent directors within one year of listing. In addition, the Nasdaq Marketplace Rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent and that audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act.
Under Rule 5605(a)(2) of the Nasdaq Marketplace Rules, a director will only qualify as an “independent director” if, in the opinion of our board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered independent for purposes of Rule 10A-3 of the Exchange Act, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries.
Our board of directors has reviewed the composition of our board of directors and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our board of directors has determined that each of
Board Committees
Our board of directors has established three standing committees—audit, compensation, and nominating and corporate governance—each of which operates under a charter that has been approved by our board of directors.
Audit Committee
Our audit committee consists of Mr.
Our board of directors has determined that Mr.
Compensation Committee
Our compensation committee consists of
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of
Code of Conduct
Our
Board Leadership Structure
Our board of directors is free to select the Chairman of the board of directors and a
Our board of directors, as a whole and also at the committee level, plays an active role overseeing the overall management of our risks. Our Audit Committee reviews risks related to financial and operational items with our management and our independent registered public accounting firm. Our board of directors is in regular contact with our
Role of Board in Risk Oversight Process
The following table sets forth total compensation paid to our named executive officers for the years ended December 31,
Employment Agreements
We have entered into various employment agreements with certain of our executive officers. Set forth below is a summary of many of the material provisions of such agreements, which summaries do not purport to contain all of the material terms and conditions of each such agreement. For purposes of the following employment agreements:
On
Mr.
Pursuant to the terms of his employment agreement, Mr.
On July
Mr.
Mr. Rankin’s employment with the
Effective March 30, 2020, Mr. Rankin resigned from the Company. Marc H. Glickman, M.D.
On July 22, 2016, we entered into an employment agreement with Marc H. Glickman, M.D., our Senior Vice President and Chief Medical On July 26, 2019, we entered into an employment agreement with Dr. Glickman (the “New Employment Agreement”) that supersedes the terms base salary is $350,000 per year, subject to annual review and adjustment at the discretion of the Board. In connection with entering into the New Employment Agreement, Dr. Glickman’s existing seven thousand three hundred and eighty (7,380) options (“Existing Options”) to purchase Company common stock at ten dollars ($250.00) per share until October 1, 2026, were repriced to two dollars ($50.00) per share. Additionally, Dr. Glickman,
Pursuant to the terms of
Potential Payments Upon Termination or Change-in-Control
Pursuant to the terms of the employment agreements discussed above, we will pay severance in the event of certain terminations of employment. In the event employment is terminated by us without cause and other than by reason of disability or
Outstanding Equity Awards at Fiscal Year-End The following table sets forth information regarding equity awards held by our named executive officers as of December 31, 2020.
Employee Benefit Plans
Amended and Restated 2016 Omnibus Incentive Plan
On October 1, 2016, our board of directors and our stockholders adopted and approved the Hancock Jaffe Laboratories, Inc. 2016 Omnibus Incentive Plan, Share Reserve
We have reserved otherwise, all as determined by our company from time to time.
If any award is canceled, terminates, expires or lapses for any reason prior to the issuance of shares or if shares are issued under the 2016
Administration
The 2016
Eligibility
Awards may be granted under the 2016
Awards
The 2016
Clawback
All cash and equity awards granted under the 2016 plan will be subject to all applicable laws regarding the recovery of erroneously awarded compensation, any implementing rules and regulations under such laws, any policies we adopted to implement such requirements and any other compensation recovery policies as we may adopt from time to time.
Change in Control
Under the 2016
Subject to the terms and conditions of the applicable award agreements, awards granted to non-employee directors will fully vest on an accelerated basis, and any performance goals will be deemed to be satisfied at target. For awards granted to all other service providers, vesting of awards will depend on whether the awards are assumed, converted or replaced by the resulting entity.
Amendment and Termination of the 2016
Unless earlier terminated by our board of directors, the 2016
Limitation of Liability and Indemnification Matters
Our amended and restated certificate of incorporation
Our amended and restated bylaws
We
The above description of the indemnification provisions of our amended and restated bylaws and our indemnification agreements is not complete and is qualified in its entirety by reference to these documents, each of which is incorporated by reference as an exhibit to the registration statement to which this prospectus forms a part.
The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our stockholders. A stockholder’s investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. Insofar as indemnification for liabilities under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and may be unenforceable. There is no pending litigation or proceeding naming any of our directors or officers as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer. Director Compensation
The table below shows the compensation paid to our non-employee directors during 2020 and 2019.
(1) Under the Company’s nonemployee director compensation program, Dr. Duhay, Dr. Shrivastava, Mr. Gray and Mr. Jenusaitis were each granted 2,500 Restricted Stock Grants on July 17, 2020, which based on the Company’s closing stock price on the grant date were valued at $10.00 per unit. These units fully vested on December (2) Under the Company’s nonemployee director compensation program, Dr. Duhay, Dr. Shrivastava, Mr. Gray and Mr. Jenusaitis were each granted 4,000 options to purchase shares of our common stock on July 17, 2020 at an exercise price of $10.00 per share. The options were valued at $7.80 per share as of the date of the grant. All of these options vest in equal quarterly portions from the grant date through December 31, 2020, such that they are fully vested at December 31, 2020, and valued in accordance with FASB ASC Topic 718. (3) Under the Company’s nonemployee director compensation program, Messrs. Gray and Jenusaitis in connection with their appointment to (4) Under the Company’s nonemployee director compensation program, Messrs. Gray and Jenusaitis in connection with their appointment to the BOD on September 13, 2019 were each
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a description of transactions since January 1,
Indemnification of Officers and Directors
Our amended and restated certificate of incorporation and amended and restated bylaws
To the best of our knowledge, during the past two fiscal years, other than as set forth above, there were no material transactions, or series of similar transactions, or any currently proposed transactions, or series of similar transactions, to which we were or are to be a party, in which the amount involved exceeds the lesser of (A) $120,000 or (B) one percent of our average total assets at year end for the last two completed fiscal years, and in which any director or executive officer, or any security holder who is known by us to own of record or beneficially more than 5% of any class of our common stock, or any member of the immediate family of any of the foregoing persons, has an interest (other than compensation to our officers and directors in the ordinary course of business). Policies and Procedures for Related Party Transactions
All future transactions between us and our officers, directors or five percent stockholders, and respective affiliates will be on terms no less favorable than could be obtained from unaffiliated third parties and will be approved by a majority of our independent directors who do not have an interest in the transactions and who had access, at our expense, to our legal counsel or independent legal counsel.
The following
* Represents beneficial ownership of less than 1%.
DESCRIPTION OF SECURITIES WE ARE OFFERING General Our fifth amended and restated certificate of incorporation
As of the date of this prospectus, We are offering 3,222,341 Units consisting of an aggregate of 3,222,341 Shares and Warrants to purchase 1,611,170 shares of our common stock The following description of Common Stock
Under the terms of our fifth amended and restated certificate of incorporation, holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, including the election of directors, and do not have cumulative voting rights. The holders of outstanding shares of common stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and in such amounts as our board of directors from time to time may determine. Our common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution or winding up of our company, the assets legally available for distribution to stockholders are distributable ratably among the holders of our common stock after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.
Exercisability. The Warrants are exercisable on the original issuance date and will expire on the date
the Warrants. However, any holder may increase or decrease such percentage, provided that any increase will not be effective until the 61st day after such election.
Exercise Price. The Warrants
Cashless Exercise. If, at the time a Transferability. Subject to applicable laws, the Warrants may be offered for sale, sold, transferred or assigned without our consent. Exchange Listing. There is no established trading market for the Warrants being offered and we do not expect a market to develop. In addition, we do not intend to apply for the listing of the Warrants on any national securities exchange or other trading market. Without an active trading market, the liquidity of the Warrants will be limited. Fundamental Transactions. If a fundamental transaction occurs, then the successor entity will succeed to, and be substituted for us, and may exercise every right and power that we may exercise and will assume all of our obligations under the Warrants with the same effect as if such successor entity had been named in the warrant itself. If holders of our common stock are given a choice as to the securities, cash or property to be received in a fundamental transaction, then the holder shall be given the same choice as to the consideration it receives upon any exercise of the warrant following such Rights as
Delaware Anti-Takeover Law and Provisions of Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws
Some provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could make the following transactions more difficult: an acquisition of us by means of a tender offer; an acquisition of us by means of a proxy contest or otherwise; or the removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions which provide for payment of a premium over the market price for our shares.
These provisions, summarized below, are intended to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of the increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.
Delaware Anti-Takeover Law
We are subject to Section 203 of the DGCL. Section 203 generally prohibits a publicly traded corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:
Section 203 defines a “business combination” to include:
In general, Section 203 defines an “interested stockholder” as any person that is:
Under specific circumstances, Section 203 makes it more difficult for an “interested stockholder” to effect various business combinations with a corporation for a three-year period, although the stockholders may, by adopting an amendment to the corporation’s certificate of incorporation or bylaws, elect not to be governed by this section, effective 12 months after adoption.
Our amended and restated certificate of incorporation and amended and restated bylaws do not exclude us from the restrictions of Section 203. We anticipate that the provisions of Section 203 might encourage companies interested in acquiring us to negotiate in advance with our board of directors since the stockholder approval requirement would be avoided if a majority of the directors then in office approve either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder.
Undesignated Preferred Stock
The ability of our board of directors, without action by the stockholders, to issue up to 10,000,000 shares of undesignated preferred stock with voting or other rights or preferences as designated by our board of directors could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.
Stockholder Meetings
Our amended and restated certificate of incorporation and amended and restated bylaws provide that a special meeting of stockholders may be called only by our chairman of the board, chief executive officer or president, or by a resolution adopted by a majority of our board of directors.
Requirements for
Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals to be brought before a stockholder meeting and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors.
Elimination of Stockholder Action by Written Consent
Our amended and restated certificate of incorporation and amended and restated bylaws eliminate the right of stockholders to act by written consent without a meeting. Removal of Directors
Our amended and restated certificate of incorporation provides that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of not less than two-thirds of the total voting power of all of our outstanding voting stock then entitled to vote in the election of directors.
Stockholders Not Entitled to Cumulative Voting
Our amended and restated certificate of incorporation does not permit stockholders to cumulate their votes in the election of directors. Accordingly, the holders of a majority of the outstanding shares of our common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they choose, other than any directors that holders of our preferred stock may be entitled to elect.
Choice of Forum
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws; any action to interpret, apply, enforce, or determine the validity of our amended and restated certificate of incorporation or amended and bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable.
Amendment Provisions
The amendment of any of the above provisions, except for the provision making it possible for our board of directors to issue preferred stock, would require approval by holders of at least a majority of the total voting power of all of our outstanding voting stock.
The provisions of the DGCL, our amended and restated certificate of incorporation and our amended and restated bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in the composition of our board and management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
Elimination of Monetary Liability for Officers and Directors
Our amended and restated certificate of incorporation incorporates certain provisions permitted under the DGCL relating to the liability of directors. The provisions eliminate a director’s liability for monetary damages for a breach of fiduciary duty. Our amended and restated certificate of incorporation also contains provisions to indemnify the directors and officers to the fullest extent permitted by the DGCL. We believe that these provisions will assist us in attracting and retaining qualified individual to serve as directors.
Exchange Listing
Our common stock
Transfer Agent and Registrar
The transfer agent and registrar for our common stock and warrants is
A copy of the underwriting agreement is filed as an exhibit to the registration statement of which this prospectus forms a part. We have been advised by the underwriters that they propose to offer the Units directly to the public at the public offering price
The underwriting agreement provides that subject to the satisfaction or waiver by the representative of the conditions contained in the underwriting agreement, the underwriters are obligated to purchase and pay for all of the Units offered by this prospectus. No action has been taken by us or the underwriters that would permit a public offering of the Units, or the shares of common stock, shares of preferred stock, shares of common stock underlying the preferred stock and warrants to purchase common stock included in the
The underwriters
The following table
The securities we are offering are being offered by the underwriters subject to certain conditions specified in the underwriting agreement. Overallotment Option We have
Determination of Offering Price Our common stock is currently traded on The The public offering price of the securities
The offering price stated on the cover page of this prospectus should not be considered an indication of the actual value of the securities sold in this offering.
Lock-up Agreements and Waivers Our officers and directors have agreed with the
Other Relationships and Prior Transactions We have previously granted the representative a right of first refusal to In July 2020, Ladenburg Thalmann & Co. Inc. acted as the underwriter relating to a firm commitment public offering (the “Public Offering”) by the Company of 500,000 units (the “Units”), consisting of an aggregate of 500,000 shares of common stock and warrants to purchase up to 500,000 shares of common stock at a public offering price of $8.00 per Unit. Pursuant to the terms of the Underwriting Agreement, the underwriters also exercised their overallotment option in full, purchasing an additional 75,000 shares of common stock and warrants to purchase up to 75,000 shares of common stock for an aggregate purchase of 575,000 shares and warrants to purchase up to 575,000 shares of common stock.
These
Neither we, nor the underwriters make any representation or Indemnification We have agreed to indemnify the underwriters against certain liabilities, including certain liabilities arising under the Securities Act or to contribute to payments that the underwriters may be required to make for these liabilities. Notice to Non-US Investors Canada The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are “accredited investors”, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are “permitted clients”, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws. Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor. Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering. European Economic Area In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, each, a Relevant Member State, with effect from and including the date on which the European Union Prospectus Directive, or the EU Prospectus Directive, was implemented in that Relevant Member State, or the Relevant Implementation Date, no offer of securities may be made to the public in that Relevant Member State other than: 1. to any legal entity which is a qualified investor as defined under the EU Prospectus Directive; 2. to fewer than 150 natural or legal persons (other than qualified investors as defined in the EU Prospectus Directive), subject to obtaining the prior consent of the representatives; or 3. in any other circumstances falling within Article 3(2) of the EU Prospectus Directive; provided that no such offer of securities shall require the Company or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive and each person who initially acquires any securities or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with each of the underwriters In the case of any securities being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the securities acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any securities to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale. For the purposes of this provision, the expression an “offer of securities to the public” in relation to any securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the EU Prospectus Directive in that Member State. The expression “EU Prospectus Directive” means Directive 2003/71/EC (and any amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State, and the expression “2010 PD Amending Directive” means Directive 2010/73/EU. United Kingdom In the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or the Order, and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”) or otherwise in circumstances which have not resulted and will not result in an offer to the public of the securities in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on the information included in this
Certain legal matters with respect to the
The financial statements of Hancock Jaffe Laboratories, Inc. as of December 31,
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of our common stock offered
HANCOCK JAFFE LABORATORIES, INC. INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Hancock Jaffe Laboratories, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Hancock Jaffe Laboratories (the “Company”) as of December 31, 2019 and 2018, the related statements of operations, changes in stockholders’ equity (deficiency) and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
HANCOCK JAFFE LABORATORIES, INC. BALANCE SHEETS
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF OPERATIONS
HANCOCK JAFFE LABORATORIES, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
[1] net of offering costs of $2,542,555.
[2] net of offering costs of $386,724. [3] net of offering costs of $549,060. [4] stock issued for vested restricted stock units. [5] net of forfeiture of 246 shares. The accompanying notes are an integral part of these financial statements.
HANCOCK JAFFE LABORATORIES, INC. STATEMENTS OF CASH FLOWS
[1] Net of cash offering costs of $386,724. [2] Net of cash offering costs of $549,060. [3] Net of cash offering costs of $967,573. [4] Net of cash offering costs of $293,750. The accompanying notes are an integral part of these financial statements.
HANCOCK JAFFE LABORATORIES, INC.
HANCOCK JAFFE LABORATORIES, INC. NOTES TO
Note 1 – Business Organization and Nature of Operations
Hancock Jaffe Laboratories, Inc.
Note 2 – Going Concern and Management’s Liquidity Plan
The accompanying 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. The financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going
As of
The Company expects to continue incurring losses for the foreseeable future and will need to raise additional capital to sustain its operations, pursue its product development initiatives and penetrate markets for the sale of its products. Management believes that the Company terms, if at all. The inability of the Company to raise needed capital would have a material adverse effect on the Company’s business, financial condition and results of operations, and ultimately the Company could be forced to curtail or discontinue its operations, liquidate and/or seek reorganization in bankruptcy. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 3 – Significant Accounting Policies
The
Equity investments over which the Company exercises significant influence, but does not control, are accounted for using the equity method, whereby investment accounts are increased (decreased) for the Company’s proportionate share of income (losses), but investment accounts are not reduced below zero.
The Company holds a Property and Equipment, Net Property and equipment are stated at cost, net of accumulated depreciation using the straight-line method
Impairment of Long-lived Assets
The Company reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.
Derivative
On June 4, 2018, in connection with the Company’s IPO, all of its previously issued convertible notes were converted and paid in full and the embedded conversion options and warrants no longer qualified as derivatives; accordingly, the derivative liabilities were remeasured to fair value on June 4, 2018 and the fair value of derivative liabilities of $3,594,002 was reclassified to additional paid in capital.
The Company
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 Basic and diluted net loss per common share are the same since the inclusion of common
The following table summarizes net loss attributable to common stockholders used in the calculation of basic and diluted loss per common share:
The following table summarizes the number of potentially dilutive common
In March 2016, the The Company recognizes revenue when goods or services are transferred to customers in an amount that reflects the consideration which it expects to receive in exchange for those goods or services. In determining when and how revenue is recognized from contracts with customers, the Company performs the following five-step analysis: (i) identification of contract with customer; (ii) determination of performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The following table summarizes the Company’s revenue recognized in the accompanying statements of operations:
Revenue from sales of products is recognized at the point where the customer obtains control of the goods and the Company satisfies its performance obligation, which generally is at the time the product is shipped to the customer. Royalty revenue, which is based on resales of ProCol Vascular Bioprosthesis to third-parties, will be recorded when the third-party sale occurs and the performance obligation has been satisfied. Contract research and development revenue is recognized over time using an input model, based on labor hours incurred to perform the research services, since labor hours incurred over time is thought to best reflect the transfer of service.
Information on Remaining Performance Obligations and Revenue Recognized from Past Performance Information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less is not disclosed. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at December 31, 2019. Contract Balances The timing of our revenue recognition may differ from the timing of payment by our customers. A receivable is recorded when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, deferred revenue is recorded until the performance obligations are satisfied. The Company had deferred revenue of $33,000 and $33,000 as of December 31, 2019 and 2018, respectively, related to cash received in advance for contract research and development services. 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 During the year ended December 31, 2019, 100% of the
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 Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. ASU 2016-02 will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15,
In
Note 4 –
As of December 31,
Depreciation Note 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 60-month term at the end of 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 adopted Accounting Standards Codification (“ASC”) Topic 842, Leases (Topic 842) effective January 1, 2019 using the modified-retrospective method and elected the package of transition practical expedients for expired or existing contracts, which does not require reassessment of previous conclusions related to contracts containing leases, lease classification and initial direct costs, and therefore the comparative periods presented are not adjusted. In addition, the Company elected to adopt the short-term lease exception and not apply Topic 842 to arrangements with lease terms of 12 months or less. On January 1, 2019, upon adoption of Topic 842, the Company recorded right-of-use assets of $1,099,400, lease liabilities of $1,121,873 and eliminated deferred rent of $22,473. The Company determined the lease liabilities using the Company’s estimated incremental borrowing rate of 8.5% to estimate the present value of the remaining monthly lease payments. Our operating lease cost is as follows:
Supplemental cash flow information related to our operating lease is as follows:
Remaining lease term and discount rate for our operating lease is as follows:
Maturity of our lease liabilities by fiscal year for our operating lease is as follows:
Note 6 – Intangible Assets
On May 10, 2013, the Company purchased United States Patent 7,815,677, “lntraparietal Aortic Valve Reinforcement Device and a
As of December 31, 2019 and 2018, the Company’s intangible
Amortization expense charged to operations for the years ended December 31,
Note
As of December 31,
The following summarizes the Company’s income tax provision (benefit):
The reconciliation between the U.S. statutory federal income tax rate and the Company’s effective tax rate for the year’s ended December 31,
Significant components of the Company’s deferred tax assets
Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change net operating loss, or NOL, carryforwards and other pre-change tax attributes to offset its post-change income taxes may be limited.
At December 31, As of December 31, 2019 and 2018, the Company had net operating loss carryforwards for state income tax purposes of approximately $26.1 million and $17.4 million, respectively, which can be carried forward for twenty years and begin to expire in 2029.
The Company files income tax returns in the U.S. federal jurisdiction as well as California and local jurisdictions and is subject to examination by those taxing authorities. The Company’s federal
Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements as of December 31,
Note
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.
On October 8, 2018, Gusrae Kaplan Nusbaum PLLC (“Gusrae”) filed a complaint with the Supreme Court of the State of New York seeking payment of $178,926 plus interest and legal costs for invoices to the Company dated from November 2016 to December 2017. In July 2016, the Company retained Gusrae to represent the Company in connection with certain specific matters. The
Employment Agreement Senior Vice President and Chief Medical Officer On July 22, 2016, the Company entered into an employment agreement with Marc H. Glickman, M.D., the Company’s Senior Vice President and Chief Medical Officer (the “Pre-existing Employment Agreement”). On July 26, 2019, the Company entered an employment agreement with Dr. Glickman (the “New Employment Agreement”) that shall supersede the terms of the Pre-existing Employment Agreement. Pursuant to the terms of the New Employment Agreement, Dr. Glickman’s base salary is
Note 10 – Common Stock On April 26, 2018, the Company issued 1,778 shares of common stock with an aggregate fair value of $200,000, in satisfaction of deferred salary to its Chief Medical Officer Outside the United States. On May 30, 2018, the Company’s registration statement on Form S-1 relating to its initial public offering of its common stock (the “IPO”) was declared effective by the Securities and Exchange Commission (“SEC”). The Company completed the IPO with an offering of 60,000 units (the “Units”) at $125.00 per unit on June 4, 2018, each consisting of one share of the Company’s common stock, On June 8, 2018, the underwriters notified the Company of their exercise in full of their option to purchase an additional 9,000 Units (the “Additional Units”) to cover over-allotments. On June 12, 2018, the underwriters purchased the Additional Units at the IPO price of $125.00 per Unit, generating $1,125,000 in gross proceeds before underwriting discounts and commissions. On June 18, 2018, the Company issued 1,200 shares of common stock with an aggregate fair value of $90,000, in satisfaction of fees payable to its Medical Advisory Board and granted 6,400 shares of immediately vested common stock with an aggregate fair value of $798,400 to certain On June 18, 2018, the Company also granted 800 shares of common stock to a consultant with a fair value of $99,800, which per the Consulting Agreement with the consultant will vest monthly over next twelve months. However, the Company terminated the Consulting Agreement with that consultant as of December 26, 2018. Per the Agreement, the 246 unvested shares are to be returned to the Company by the consultant. The Company recognized $69,176 of stock-based compensation expense related to the vested shares of common stock On May 1, 2018, Dr Broennimann entered into a Service Agreement to perform the role of Chief Medical Officer (Out of US) for a fee of $15,000 monthly provided that the Company may, at its sole option, elect to pay 25% of the monthly fee in company common stock On February 7, 2019, the Company entered into an Agreement (“MZ Agreement”) with MZHCI, LLC, a MZ Group Company (“MZ”) for MZ to provide investor relations advisory services. The MZ Agreement is for a term of twelve (12) months and can be cancelled by either party at
On April 18, 2019, 246 unvested shares were returned to the
On May 31, 2019, the Company issued 6,280 restricted shares of common stock to the Boxer Parties pursuant to the Boxer Settlement Agreement valued at $298,300 or $47.50 per share, the closing price of the On June 14, 2019, the Company completed a public offering of
On November 5, 2019, the Company issued
Note 11 - Warrants
On
The On May 31, 2019, the Company issued a The warrants On May 31, 2019, the Company issued a five-year warrant to purchase 2,000 shares of common stock that vested immediately with an exercise price of $50 to DFC Advisory Services LLC, D.B.A. Tailwinds Research Group, LLC (“Tailwinds”) to provide digital marketing services. The warrants had a grant date fair value The placement agent for the Public Offering on
A summary of warrant activity during the years ended December 31, 2019 and 2018 is presented below:
A summary of outstanding and exercisable warrants as of December 31,
Omnibus Incentive Plan
On November 21, 2016, the board of directors approved the Company’s 2016 Omnibus Incentive Plan,
The 2016 Plan is to be administered by the Board, which shall have discretion over the awards and grants thereunder.
Stock Options
On On February 7, 2019, the Board approved the grant in accordance with the Option Plan of 1,200 non-qualified stock options to purchase shares of the Company’s common stock to H. Jorge Ulloa as compensation for services provided as the Company’s Primary Investigator for the first-in-human trials of our VenoValve in Colombia in February and April 2019. The stock options were granted at an exercise price of $39.75, equal to the closing price of our common stock on the date that the Board approved the option grant. The options vest monthly over a one (1) year period. The options had grant date fair value of $14.50 per share for an aggregate grant date fair value of $17,400, using the Black Scholes method with the following assumptions used: stock price of $39.75, risk-free interest rate of 2.47%, volatility of 36.1%, annual rate of quarterly dividends of 0%, and a contractual term of 5.3 years. On January 7, 2019, Dr. Peter Pappas agreed to join the Company’s Medical Advisory Board for a term of two years. The Board approved in accordance with the Option Plan the grant on March 6, 2019 of 800 non-qualified options to purchase shares of the Company’s common stock to Dr. Pappas as compensation. The stock options were granted at an exercise price of $34.50, equal to the closing price of our common stock on the date that the Board approved the option grant. The options will
On July 3, 2019, in connection with his Employment Agreement dated June 24, 2019, the Board approved the grant in accordance with the Option Plan of 4,600 non-qualified stock options for the purchase of shares of common stock at an exercise price of $50.00 to Brian Roselauf, our Director of Research and Development. The options have a ten-year term and 1,534 of the options will vest on the first anniversary of Mr. Roselauf’s employment with the Company, and the remaining 3,067 options will vest on a quarterly basis over the On July 3, 2019, the Company granted in accordance with the Option Plan non-qualified stock options for the purchase of an aggregate of 1,600 shares of common stock at an exercise price of $50.00 to two members of its Medical Advisory Board. The options have a ten-year term and vest monthly over two years. The options had grant date value of $3.75 per share for an aggregate grant date value of $6,000, using the Black Scholes method with the following assumptions used: stock price of $25.50, risk-free interest rate of 1.76%, volatility of 35.9%, annual rate of quarterly dividends of 0%, and a contractual term of 5.3 years. On July 3, 2019, the Company granted in accordance with the Option Plan non-qualified stock options for the purchase of an aggregate of 2,400 shares of common stock at an exercise price of $50.00 to three key employees: Araceli Palacios, Maria Ruiz and Lydia Sepulveda. The options have a ten-year term and vest quarterly over three years. The options had grant date value of $3.75 per share for an aggregate grant date value of $9,000, using the Black Scholes method with the following assumptions used: stock price of $25.50, risk-free interest rate of 1.76%, volatility of 35.9%, annual rate of quarterly dividends of 0%, and a contractual term of 5.3 years. On July 22, 2016, the Company entered into an employment agreement with Marc H. Glickman, M.D., the Company’s Senior Vice President and Chief Medical Officer (the “Pre-existing Employment Agreement”). On July 26, 2019, the Company entered an employment agreement with Dr. Glickman (the “New Employment Agreement”) that superseded the terms of the On September 13, 2019, under the Company’s nonemployee director compensation program, Robert Gray and Matthew Jenusaitis in connection with their appointment to the Board were each granted 2,400 options to purchase shares of our common stock at an exercise price of $50.00 per share in accordance with the Option Plan. All of these options vest in equal quarterly portions over a 3 year period starting from the September 13, 2019 grant date. The Options had grant date fair value of $3.25 per share for an aggregate grant date fair value of $15,600 using the Black-Scholes method with the following assumptions used: stock price of $24.00, risk-free interest rate of 1.75%, volatility of 35.7%, annual rate of quarterly dividends of 0%, and a contractual term of 5.3 years.
A summary of the option activity during the
A summary of outstanding and exercisable options and Restricted Stock units as of December 31, 2019 is presented below:
The Company recognized stock-based compensation
Susan Montoya, our Senior Vice President of Operations and Quality Assurance/Regulatory Affairs resigned as of November 15, 2018 from the Company. Pursuant to the provisions of the 2016 Omnibus Incentive Plan and terms and conditions of her stock option Award Agreement, the exercisable portion or 32,740 options remained exercisable for 90 days following her resignation date. Ms. Montoya failed to exercise her exercisable options within the 90 day period and they were forfeited as of February 13, 2019. Restricted Stock Units In April 2019, Mr. Marcus Robins, a Director on the Board passed away. Per his restricted stock unit Award Agreement, upon his death, 1,168 units representing the non-vested portion of his restricted stock units were forfeited. On September 13, 2019, under the Company’s nonemployee director compensation program, Robert Gray and Matthew Jenusaitis in connection with their appointment to the Board were each granted 3,125 restricted stock units in accordance with the Option Plan, which based on the Company’s closing stock price on the grant date were valued at $24.00 per unit for an aggregate grant date value of $150,000. These units vest in equal annual portions on the September 13, 2020, September 13, 2021 and September 13, 2022.
Note 13 – Related Party Transactions Contract & Research Revenue – Related Party
During the years ended December 31, 2019 and 2018, the Company recognized $0.0 and $70,400, respectively of revenue for contract research services provided pursuant to a Development and Manufacturing Agreement with HJLA dated April 1, 2016. Note 14 – Subsequent Events On February 25, 2020, the Company raised $650,000 in gross proceeds through a private placement bridge offering of its common stock and warrants to purchase its common stock to certain accredited investors (the “Bridge Offering”). The Company sold an aggregate of 52,000 shares of common stock and warrants to purchase 52,000 shares of common stock at an exercise price per share equal to $19.75 in the Bridge Offering pursuant to a securities purchase agreement between the Company and each of the investors in the Bridge Offering. The Company engaged Spartan Capital Securities, LLC, a FINRA-member as the exclusive placement agent for the Bridge Offering and to pay a fee in cash equal to 10% of the aggregate gross proceeds of the Bridge Offering and a warrant to purchase 3,292 shares of the Company’s common stock containing substantially the same terms as the warrant issued to investors in the Bridge Offering. Note 15 – Reverse Stock Split On November 30, 2020, the Company effected a one-for-twenty five (1:25) reverse stock split of the shares of the Company’s common stock. As a result of the reverse stock split, every twenty five (25) shares of issued and outstanding common stock was automatically combined into one (1) issued and outstanding share of common stock, without any change in the par value per share. No fractional shares were issued as a result of the reverse stock split and any fractional shares resulting from the reverse stock split were rounded up to the nearest whole share. Following the reverse stock split, the number of shares of Common Stock outstanding was reduced from 55,853,569 shares to 2,234,143 shares. Pursuant to their terms, proportional adjustments were also made to the Company’s outstanding stock options and warrants such that the number of shares of Common Stock underlying such securities were reduced by a factor of 25 and the exercise prices of such securities were increased by a factor of 25. The financial statements and accompanying notes including per share amounts give effect to each of these reverse stock splits as if they occurred at the beginning of the first period presented. There have been no changes to previously reported earnings.
HANCOCK JAFFE LABORATORIES, INC. CONDENSED BALANCE SHEETS
See Notes to these Unaudited Condensed Financial Statements
HANCOCK JAFFE LABORATORIES, INC. CONDENSED STATEMENTS OF OPERATIONS (unaudited)
See Notes to these Unaudited Condensed Financial Statements
HANCOCK JAFFE LABORATORIES, INC. CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY) (unaudited)
[1] net of offering costs of $386,724. [2] net of offering costs of $549,060. [3] net of forfeiture of 246 shares.
[4] net of offering costs of $79,658. [5] net of offering costs of $360,026. [6] net of offering costs of $718,093. [7] net of offering costs of $197,901. See Notes to these Unaudited Condensed Financial Statements
HANCOCK JAFFE LABORATORIES, INC. CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
[1] Net of cash offering costs of $79,568 and $386,724 in 2020 and 2019, respectively. [2] Net of cash offering costs of $197,901. [3] Net of cash offering costs of $1,078,119 and $549,060 in 2020 and 2019, respectively. See Notes to these Unaudited Condensed Financial Statements
HANCOCK JAFFE LABORATORIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited)
See Notes to these Unaudited Condensed Financial Statements
HANCOCK JAFFE LABORATORIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) Note 1 – Business Organization and Nature of Operations Hancock Jaffe Laboratories, Inc. (“we”, “us”, “our”, “HJLI” or the “Company”) is a medical device company developing tissue-based solutions 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 two lead products which we are developing are: 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 our current products are being developed for approval by the U.S. Food and Drug Administration (“FDA”). We currently receive tissue for development of our products from one domestic suppliers and one international supplier. Our current business model is to license, sell, or enter into strategic alliances with large medical device companies with respect to our products, either prior to or after FDA approval. 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 product. Each of our product candidates will be required to successfully complete clinical trials and other testing to demonstrate the safety and efficacy of the product candidate before it will be approved by the FDA. The completion of these clinical trials and testing will require a significant amount of capital and the hiring of additional personnel. On September 15, 2020, at a special stockholders meeting, the Company’s stockholders approved the increase of its authorized common shares to 250,000,000 for a sufficient authorized number to settle all outstanding stock options, warrants and convertible preferred stock. 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. The unaudited condensed financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern for the next twelve months from the filing of this Form 10-Q. The Company incurred a net loss of $4,761,483 and $5,334,644 for the nine months ended September 30, 2020 and 2019, respectively, and had an accumulated deficit of $60,949,408 at September 30, 2020. Cash used in operating activities was $5,063,516 and $4,273,179 for the nine months ended September 30, 2020 and 2019, respectively. The aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance date of the financial statements. The Company expects to continue incurring losses for the foreseeable future and recognizes the need to raise additional capital to sustain its operations, pursue its product development initiatives and penetrate markets for the sale of its products. Toward that end, the Company has completed five separate equity sales in 2020 through the filing date of this report raising aggregate net proceeds of approximately $12,200,000 (see Notes 10 and 11). As of September 30, 2020, the Company had cash balances of $5,629,003 and working capital of $4,062,232. Management believes the proceeds from these transactions should provide sufficient cash to sustain the Company’s operations at least one year after the issuance date of these financial statements. If necessary, after one year, management believes that the Company could have access to additional capital resources through possible public or private equity offerings, debt financings, corporate collaborations or other means. However, there is a material risk that the Company will be unable to raise additional capital or obtain new financing when needed on commercially acceptable terms, if at all, or if it will be successful in implementing its business plan and developing its medical devices. Further, the COVID-19 pandemic has disrupted the global economy and eroded capital markets which makes it more difficult to obtain the financing that we need to fund and continue our operations. The inability of the Company to raise needed capital would have a material adverse effect on the Company’s business, financial condition and results of operations, and ultimately the Company could be forced to curtail or discontinue its operations, liquidate and/or seek reorganization in bankruptcy. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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 September 30, 2020 and December 31, 2019, and for the three and nine months ended September 30, 2020 and 2019. The results of operations for the three and nine months ended September 30, 2020 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, 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. Fair Value of Financial Instruments The Company measures the fair value of financial assets and liabilities based on the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. FASB ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
HANCOCK JAFFE LABORATORIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) Financial instruments, including accounts receivable and accounts payable are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. The Company’s other financial instruments include notes payable, the carrying value of which approximates fair value, as the notes bear terms and conditions comparable to market for obligations with similar terms and maturities. Derivative liabilities are accounted for at fair value on a recurring basis. On September 15, 2020, the fair value of derivative liabilities was reclassified to equity when the Company’s stockholders approved the increase of its authorized shares of capital stock. (See Note 10 –Stockholders’ Equity (Deficiency) Common Stock). Accordingly, there is no fair value of derivative liabilities as of September 30, 2020. The following table sets forth a summary of the changes in the fair value of Level 3 derivative liabilities that are measured at fair value on a recurring basis:
Derivative Liabilities On February 25, 2020 in connection with a private placement of its securities (Note 10), the Company issued warrants to purchase 57,200 shares of its common stock. The Company determined these warrants were derivative financial instruments when issued. Derivative financial instruments are recorded as a liability at fair value and are marked-to-market as of each balance sheet date. The change in fair value at each balance sheet date is recorded as a change in the fair value of derivative liabilities on the statement of operations for each reporting period. The fair value of the derivative liabilities was determined using a Monte Carlo simulation, incorporating observable market data and requiring judgment and estimates. The Company reassesses the classification of the financial instruments at each balance sheet date. If the classification changes as a result of events during the period, the financial instrument is marked to market and reclassified as of the date of the event that caused the reclassification. On September 15, 2020, the fair value of derivative liabilities was reclassified to equity when the Company’s stockholders approved the increase of its authorized shares of capital stock. (See Note 10 –Stockholders’ Equity (Deficiency) Common Stock). The Company recorded a gain on the change in fair value of derivative liabilities of $211,807 during the nine months ended September 30, 2020 and a loss on the change in fair value of derivative liabilities of $53,046 during the quarter ended September 30, 2020. Sequencing Policy On July 15, 2020, the Company adopted a sequencing policy, whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuances of securities to the Company’s employees and directors, or to compensate grantees in a share-based payment arrangement, are not subject to the sequencing policy.
HANCOCK JAFFE LABORATORIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) 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. Net loss attributable to common stockholders consists of net loss, adjusted for the convertible preferred stock deemed dividend resulting from the 8% cumulative dividend on the Preferred Stock (see Note 10 - Stockholders Equity (Deficiency) Series C Convertible Preferred Stock). 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. 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 September 30, 2020 and 2019:
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 $5,379,003 and $1,867,286 as of September 30, 2020 and December 31, 2019, respectively. The Company periodically evaluates the financial stability of the financial institutions with whom it maintains its cash balances. As of September 30, 2020, and as of the date of filing this report, the Company is not aware of any circumstances which would indicate they are not financially sound. For the nine months ended September 30, 2019, all of the Company’s revenues were from royalties as a 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, except as disclosed in Note 11 - Subsequent Events. Recent Accounting Pronouncements 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, and early adoption is permitted. We are currently evaluating the impact that this guidance will have on our condensed financial statements.
HANCOCK JAFFE LABORATORIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) Note 4 – Restricted Cash As of September 30, 2020, the Company did not have any restricted cash. Previously, the Company had maintained a restricted cash balance in connection with a vendor litigation matter with ATSCO, Inc. (see Note 9 - Commitments and Contingencies - Litigations Claims and Assessments). The matter was resolved on July 20, 2020, and on August 28, 2020 ATSCO took possession of the restricted cash as full settlement of the dispute. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the balance sheet as of September 30, 2019 and that sum to the total of the same amounts shown in the statement of cash flows for the nine months ending September 30, 2019 with the comparative cash balance without restricted cash as of September 30, 2020.
Note 5 – Property and Equipment As of September 30, 2020 and December 31, 2019, property and equipment consist of the following:
Depreciation expense amounted to $66,857 and $26,828 for the nine months ended September 30, 2020 and 2019, respectively. Depreciation expense is reflected in general and administrative expenses in the accompanying statements of operations. Note 6 – 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 60-month term at the end of 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 adopted Accounting Standards Codification (“ASC”) Topic 842, Leases (Topic 842) effective January 1, 2019 using the modified-retrospective method and elected the package of transition practical expedients for expired or existing contracts, which does not require reassessment of previous conclusions related to contracts containing leases, lease classification and initial direct costs, and therefore the comparative periods presented are not adjusted. In addition, the Company elected to adopt the short-term lease exception and not apply Topic 842 to arrangements with lease terms of 12 months or less. On January 1, 2019, upon adoption of Topic 842, the Company recorded right-of-use assets of $1,099,400, lease liabilities of $1,121,873 and eliminated deferred rent of $22,473. The Company determined the lease liabilities using the Company’s estimated incremental borrowing rate of 8.5% to estimate the present value of the remaining monthly lease payments.
HANCOCK JAFFE LABORATORIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) Our operating lease cost is as follows:
Supplemental cash flow information related to our operating lease is as follows:
Maturity of our lease liabilities by fiscal year for our operating lease is as follows:
Note 7 – Accrued Expenses and Accrued Interest As of September 30, 2020, and December 31, 2019, accrued expenses consist of the following:
Note 8 – Note Payable On April 12, 2020, the Company obtained loan (the “Loan”) in the amount of $312,700, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The Loan, which was in the form of a Note dated April 12, 2020, matures on April 12, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on November 12, 2020. The Note may be prepaid at any time before maturity with no prepayment penalties. Funds from the Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. The Company believes it has used the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain As of September 30, 2020, the note payable balance was $312,700.
HANCOCK JAFFE LABORATORIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) Note 9 – 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. On September 21, 2018, ATSCO, Inc., a vendor, filed a lawsuit with the Superior Court seeking payment of $809,520 plus legal costs for disputed invoices to the Company dated from 2015 to June 30, 2018. The Company had entered into a Services and Material Supply Agreement (“Agreement”), dated March 4, 2016 for ATSCO to supply porcine and bovine tissue to the Company. On January 18, 2019, the Orange County Superior Court granted a Right to Attach Order and Order for Issuance of Writ of Attachment in the amount of $810,055 (the “Disputed Amount”) and on March 21, 2019, the Santa Clara, CA sheriff department served the Writ of Attachment and took custody of and was holding the Disputed Amount (see Note 4 – Restricted Cash). On July 20, 2020, the Company and ATSCO agreed to settle the dispute. Pursuant to the terms of the settlement, the Company agreed to release the Disputed Amount of restricted cash in exchange for a full release from all claims made by ATSCO related to this matter. On August 28, 2020, ATSCO took possession of the Restricted Cash. Accordingly, as of September 30, 2020, the Company has removed the restricted cash and related accounts payable from its financial statements. The Company has replaced ATSCO and has entered into new supply relationships with two domestic and one international company to supply porcine and bovine tissues. On October 8, 2018, Gusrae Kaplan Nusbaum PLLC (“Gusrae”) filed a complaint with the Supreme Court of the State of New York seeking payment of $178,926 plus interest and legal costs for invoices to the Company dated from November 2016 to December 2017. In July 2016, the Company retained Gusrae to represent the Company in connection with certain specific matters. The Company believes that Gusrae has not applied all of the payments made by the Company along with billing irregularities and errors and is disputing the amount owed. The Company recorded the disputed invoices in accounts payable and as of June 30, 2020, the Company has fully accrued for the outstanding claim against the Company. On December 4, 2020 the Company and Gusrae settle the dispute. See Note 11 – Subsequent Events. 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 as the Company’s Chief Financial Officer, Secretary and Treasurer on March 30, 2020. The complaint asserts 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 with the Company. The complaint seeks, among other things, back pay, unpaid wages, compensatory damages, punitive damages, attorneys’ fees, and costs. The Company intends to vigorously defend the claims, investigate the allegations, and assert counterclaims.
HANCOCK JAFFE LABORATORIES, INC. (unaudited) Note 10 –Stockholders’ Equity (Deficiency) On September 15, 2020, the Company completed a special meeting of stockholders (the “Special Meeting”). At the Special Meeting, the Company’s stockholders, among other things, (i) approved an amendment to the Company’s Amended and Restated Certificate of Incorporation (the “A&R Certificate of Incorporation”) to increase the aggregate number of authorized shares of common stock by 200,000,000 shares from 50,000,000 to 250,000,000 shares; (ii) approved an amendment to the A&R Certificate of Incorporation to reduce the vote required to amend, repeal, or adopt any provisions of the A&R Certificate of Incorporation from the approval of 66 2/3% of the voting power of the shares of the then outstanding voting stock of the Company
Common Stock On February 25, 2020, the Company
On The closing of the sales of these securities under the April 2020 Purchase Agreement occurred on April 28, 2020. Net proceeds to the Company On
HANCOCK JAFFE LABORATORIES, INC. (unaudited)
The closing of this transaction occurred on July 21, 2020. Net proceeds to the Company, after deducting the underwriters and placement agent’s fees and expenses, including the Company’s estimated offering expenses, and excluding the proceeds, if any, from the exercise of the warrants issued in the Public Offering, were $3,882,000. As of the July 21, 2020 closing, did not have sufficient authorized common shares to share settle all outstanding stock options and warrants. On February 7, 2019, the Company entered into an Series C Convertible Preferred Stock In a private placement occurring concurrently with the Public Offering, the Company entered into a Securities Purchase Agreement with certain investors pursuant to
Series
The holders of the Company’s
HANCOCK JAFFE LABORATORIES, INC. (unaudited) In the event of any liquidation, dissolution, or winding up of the Company, either voluntary or involuntary, or any sale of the Company, the holders of As of September 30, 2020, the
The Warrants Certain investors in the Public Offering agreed with the underwriter to enter into a lock-up and voting agreement (the “Lock-Up and Voting Agreements”) whereby each such investor was subject to a lock-up period through July 21, 2020 and agreed to vote all Exercisability of the warrants issued in the February 25 transaction was subject to stockholder approval of a Capital Event. The warrants issued in the April and June transactions were immediately exercisable. Exercisability of the warrants issued in the July Public Offering and Private Placement was subject to the later to occur of (i) date that the Company files an amendment to its amended and restated certificate of incorporation to reflecting stockholder approval of either an increase in the number of our authorized shares of Common Stock or a reverse stock split (in either case in an amount sufficient to permit the conversion in full of the Preferred Stock and exercise in full of the warrants), and (ii) the date of approval as may be required by the applicable rules and regulations of The Nasdaq Stock Market LLC (or any successor entity) from the stockholders of the Company with respect to the transactions contemplated by the Securities Purchase Agreement, including the issuance of all of the shares issuable upon conversion of the Preferred Stock and warrants in excess of 19.99% of the issued and outstanding common stock on the closing date of the private placement. On June 15, 2020, the Company filed a registration statement covering the warrants issued in the April and June transactions. The registration statement was declared effective on June 23, 2020. At the Special Meeting held on September 15, 2020, the Company’s stockholders approved measures comprising a Capital Event, as defined in the February transaction, increasing the authorized common shares by an amount sufficient to cover the exercise of warrants purchased in that transaction as well as the Public Offering and Private Placement, and including common shares issuable upon conversion of the Company’s Series C Preferred Stock. The Company filed its amended and restated certificate of incorporation on September 17, 2020 and filed a registration statement covering the warrants issued in the February and July transactions. This registration statement became effective on October 22, 2020, such that all of the warrants issued in 2020 are On January 3, 2019, the Company entered into an Agreement (“Alere Agreement”) with Alere Financial Partners, a division of Cova Capital Partners LLC (“Alere”) for Alere to provide capital markets advisory services. The Alere Agreement is on a month to month basis that can be cancelled by either party with thirty (30) days advance notice. The Company will pay a monthly fee of $7,500 and issued to Alere five-year warrants to purchase 1,400 shares of the Company’s common stock at an exercise price of $39.75, equal to the closing price of the Company’s common stock on February 7, 2019, the date of approval by the Company’s board of directors. On June 11, 2019, both parties agreed to terminate the Alere Agreement as of June 30, 2019 and the unvested warrants as of June 30, 2019, totaling 700, were forfeited.
HANCOCK JAFFE LABORATORIES, INC. (unaudited) In addition to the warrants issued to investors in the Bridge Offering described above, the placement agent received a warrant to purchase 5,200 shares of the Company’s common stock containing substantially the same terms as the warrant issued to investors in that transaction. The Company determined that all of the warrants issued in connection with the Bridge Offering were derivative instruments because the Company did not have control of the obligation to obtain shareholder approval by May 25, 2020 to increase the number of authorized shares or The fair value of the warrants was determined using a Monte Carlo simulation, incorporating observable market data and requiring judgment and estimates. The Company reassesses the classification at each balance sheet date. If the classification changes as a result of events during the period, the contract will be The warrant derivatives were valued as of the February 25, 2020 issuance date, as of the quarter ended March 31, 2020, as of June 30, 2020, and as of September 15, 2020 when the Company’s stockholders approved an increase in authorized shares in an amount sufficient to allow full exercise of these warrants. The value at issuance was $546,036 and was recorded as a derivative liability. The value of the derivative liability was $199,907 at March 31, 2020, $281,183 at June 30, 2020, and $334,229 at September 15, 2020. The derivative liability increased $53,046 and decreased $211,807 during the three and nine months ended September 30, 2020, respectively. The changes in derivative liability is reflected in Other Income on the Condensed Statement of Operations. On September 15, 2020, the fair value of derivative liabilities was reclassified to equity when the Company’s stockholders approved items comprising a Capital Event. Accordingly, there is no fair value of derivative liabilities as of September 30, 2020. The following
HANCOCK JAFFE LABORATORIES, INC. (unaudited)
During the three and nine months ending September 30, 2020, warrants to purchase 72,748 shares of common stock Stock Options From time to time, the Company issues options for the purchase of its common stock to employees and others. On July 18, 2020, the Company granted 4,000 options to each of its four independent directors and a total of 106,000 options to various executive officers, other employees and a consultant. The exercise price for these stock options is $10.00 per share, the closing price of the Company’s stock on the business day preceding the grant date. The Company recognized $194,421 and $159,865 of stock-based compensation related to stock options during the three months ended September 30, 2020 and 2019, respectively, and recognized $363,027 and $329,454 of stock-based compensation related to stock options during the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, there was $1,138,934 of unrecognized stock-based compensation expense related to outstanding stock options that will be recognized over the weighted average remaining vesting period of 2.5 years. Restricted Stock Units On September 13, 2019, under the
On October 7, 2020, the The closing of the sales of these securities under the October 2020 Purchase Agreement occurred on October 9, 2020. Net proceeds to the Company from the On November 10, 2020 the Company agreed to pay Spartan Capital Securities LLC $355,000 in cash, and warrants to purchase 17,618 shares of common stock at a purchase price of $8.00 per share, and warrants to purchase 18,057 shares of common stock at a purchase price of $10.25 per share. These amounts were in dispute and were paid pursuant to an investment banking agreement dated February 12, 2020 in connection with financings which occurred in July and October. The investment banking agreement has now been terminated with no further obligations. On November 24, 2020, the Company completed the exchange of all its outstanding Series C Convertible Preferred Stock into common stock, exchanging 4,205,406 shares of its Series C Convertible Preferred stock for 243,125 shares of its common stock. On November 30, 2020, the The condensed financial statements and accompanying notes including per share amounts give effect to each of these reverse stock splits as if they occurred at the beginning of the first period presented. There have been no changes to previously reported earnings. On December 4, 2020, the Company and Gusrae entered a Settlement Agreement and Release resolving their dispute and the related complaint filed in In December 2020 and through the date of filing this prospectus,
In January 2021, we entered into
You should rely only on the information contained in this document. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The Additional risks and
3,222,341Units consisting of up to 3,222,341 Shares of Common Stock and Warrants to Purchase 1,611,170 Shares of (and Shares of
,
INFORMATION NOT REQUIRED IN PROSPECTUS
Section 102 of the General Corporation Law of the State of Delaware permits a corporation to eliminate the personal liability of directors of a corporation to the corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director, except for breaches of the director’s duty of loyalty to the corporation or its stockholders, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of a law, authorizations of the payments of a dividend or approval of a stock repurchase or redemption in violation of Delaware corporate law or for any transactions from which the director derived an improper personal benefit. Our certificate of incorporation
Section 145 of the General Corporation Law of the State of Delaware provides that a corporation has the power to indemnify a director, officer, employee, or agent of the corporation and certain other persons serving at the request of the corporation in related capacities against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlements actually and reasonably incurred by the person in connection with a threatened, pending, or completed action, suit or proceeding to which he or she is or is threatened to be made a party by reason of such position, if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, in any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful, except that, in the case of actions brought by or in the right of the corporation, indemnification is limited to expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with defense or settlement of such action or suit and no indemnification shall be made with respect to any claim, issue, or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. In addition, to the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding described above (or claim, issue, or matter therein), such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith. Expenses (including attorneys’ fees) incurred by an officer or director in defending any civil, criminal, administrative, or investigative action, suit, or proceeding may be advanced by the corporation upon receipt of an undertaking by such person to repay such amount if it is ultimately determined that such person is not entitled to indemnification by the corporation under Section 145 of the General Corporation Law of the State of Delaware. Our amended and restated certificate of incorporation
Set forth below is information regarding securities sold and issued by us since January 1,
The offers, sales and issuances of securities listed in items (1) through
All financial statement schedules have been omitted since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto. (a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
Provided, however, that Paragraphs (a)(1)(i), (ii), and (iii) of this section do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act,
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act
(5) That, for the purpose of determining liability
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and (iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) The undersigned registrant hereby undertakes to supplement the prospectus, after the expiration of the subscription period, to set forth the results of the subscription offer, the transactions by the underwriters during the subscription period, the amount of unsubscribed securities to be purchased by the underwriters, and the terms of any subsequent reoffering thereof. If any public offering by the underwriters is to be made on terms differing from those set forth on the cover page of the prospectus, a post-effective amendment will be filed to set forth the terms of such offering. (d) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (e) For the purpose of determining any liability under the Securities Act, the registrant will treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this February, 2021.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
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