enVVeno Medical Corp

Note 1 –Business Organization and Nature of Operations

enVVeno Medical Corporation (the “Company”) is a late clinical-stage medical device company focused on the advancement of innovative bioprosthetic (tissue-based) solutions to improve the standard of care for the treatment of venous disease. The Company is developing surgical and non-surgical replacement venous valves for patients suffering from severe Chronic Venous Insufficiency (“CVI”) of the deep venous system of the leg.

The Company’s lead product is the VenoValve®, which is a potential first-in-class surgical replacement venous valve that is currently being evaluated in a U.S. pivotal study. The Company is also developing a second product called enVVe®, which is a potential first-in-class, non-surgical, transcatheter based replacement venous valve system consisting of the enVVe valve, the enVVe delivery system, and the delivery system accessories. The Company is currently conducting pre-clinical testing on enVVe. Both the VenoValve and enVVe are designed to act as one-way valves, to help assist in propelling blood up the veins of the leg, and back to the heart and lungs.

The VenoValve and enVVe are being developed first for approval by the U.S. Food and Drug Administration (FDA). We expect the VenoValve to be eligible for FDA approval first, followed two to three years later by enVVe. If approved, we expect the VenoValve and enVVe to co-exist, with the VenoValve as a surgical replacement venous valve option and enVVe as a non-surgical replacement venous valve option.

Note 2 –Management’s Liquidity Plan

As of December 31, 2024, the Company had a cash balance of $1.8 million, investments of $41.4 million and working capital of $41.7 million. Although the Company expects to continue incurring losses for the foreseeable future and may 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 our capital resources are sufficient to meet our obligations as they become due within one year after the date of this Annual Report.

Note 3 –Significant Accounting Policies

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.

Investments

We consider all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values. Investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year are classified as long-term investments.

Debt investments are classified as trading securities and realized gains and losses are recorded using the specific identification method. Changes in fair value, excluding credit losses and impairments, are recorded in unrealized gains (losses) from investments. Fair value is calculated based on publicly available market information. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. We recognize interest income based on the stated coupon rate of the investments purchased.

Property and Equipment, Net

Property and equipment are stated at cost, net of accumulated depreciation using the straight-line method over their estimated useful lives, which range from 5 to 7 years. Leasehold improvements are amortized over the lesser of (a) the useful life of the asset; or (b) the remaining lease term. Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations as incurred, and expenditures, which extend the economic life are capitalized. When assets are retired, or otherwise disposed of, the costs and related accumulated depreciation or amortization are removed from the accounts and any gain or loss on disposal is recognized.

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.

Income Taxes

The Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2024 or December 31, 2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.

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:

Financial instruments, including accounts payable are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments.

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 shares outstanding during the period including warrants exercisable for little or no cash consideration. 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.

Stock-Based Compensation

The Company has an Equity Incentive Plan under which the Board of Directors may grant restricted stock or stock options to employees and nonemployees. The accounting treatment for share-based payments to employees and non-employees is substantially equivalent.

Share-based compensation cost is recorded for all option grants and awards of non-vested stock based on the grant date fair value of the award, and is recognized over the service period required for the award.

The fair value of the Company’s stock options is estimated at the date of grant using the Black-Scholes based option valuation model. For the expected term, the Company uses SEC Staff Accounting Bulletin No. 107 simplified method for “plain vanilla” options with following characteristics: (i) the share options are granted at the market price on the grant date; (ii) exercisability is conditional on performing service through the vesting date on most options; (iii) if an employee terminates service prior to vesting, the employee would forfeit the share options; (iv) if an employee terminates service after vesting, the employee would have 30 to 90 days to exercise the share options; and (v) the share options are nontransferable and nonhedgeable.

The Company uses its stock’s historical market information to calculate volatility used in estimating fair value of options granted. The volatility assumption is based on the historical volatility of the Company’s common stock with an equivalent remaining expected term. The risk-free interest rate is based on the implied yield available on U.S. treasury zero-coupon issues with an equivalent remaining expected term. The dividend yield assumption is based on the Company’s history and expectation of future dividend payouts on the common stock.

For option grants without performance conditions, the Company recognizes compensation expense over the requisite service period ratably, recognizing expense for each tranche of each grant starting on the grant date. For grants that have both service and performance conditions, the Company recognizes compensation expense using the graded attribution method. Compensation expense for grants with performance conditions is recognized only for those awards expected to vest.

Forfeitures of unvested stock options are recorded when they occur.

Loss Contingencies

The Company will accrue an estimated loss if information available before the consolidated financial statements are issued or are available to be issued indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the consolidated financial statements and the amount of loss can be reasonably estimated.

Recently Adopted Accounting Standards

In November 2023, the FASB issued ASU No. 2023-07,Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures(ASU 2023-07). ASU 2023-07 requires that a public entity that has a single reportable segment, such as the Company, provide all the disclosures required by the existing segment disclosure requirements in Topic 280, as amended.

These segment disclosures include significant segment expenses regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment loss, disclosure of other segment items by reportable segment and a description of the segment’s composition, disclosures about our reportable segment’s profit or loss and assets currently required, disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. We adopted ASU 2023-07 effective on January 1, 2024, and have retrospectively applied it to all periods presented. There was no impact on our financial statements from its adoption.

Recent Accounting Standards

In December 2023, the FASB issued ASU No. 2023-09,Income Taxes (Topic 740 – Improvements to Income Tax Disclosures (ASU 2023-09). ASU 2023-09 is effective for annual periods beginning after December 15, 2024, and requires enhanced disclosures related to the income tax rate reconciliation and income taxes paid to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. We are currently evaluating the impact that this guidance will have on our consolidated financial statements.

In December 2024, the FASB issued ASU No. 2024-03,Income Statement - Reporting Comprehensive Income- Expense Disaggregation Disclosures(ASU 2024-03). ASU 2024-03 requires disclosure of specific information about certain costs and expenses in the notes to its financial statements for interim and annual reporting periods. The objective of the disclosure requirements is to provide disaggregated information to help financial statement users (a) better understand the Company’s performance, (b) better assess the Company’s prospects for future cash flows, and (c) compare the Company’s performance over time and with that of other entities. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. We are currently evaluating the impact that this guidance will have on our consolidated financial statements.

Note 4 –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 $0.9 million as of December 31, 2024.

Note 5 –Investments

The components of investments were as follows at December 31, 2024 and December 31, 2023:

(In thousands)

Unrealized losses of $0.1 million and unrealized gains of $0.5 million for the year ended December 31, 2024 and 2023, respectively, from fixed-income securities are primarily attributable to changes in interest rates.

Note 6 –Property and Equipment

As of December 31, 2024, and 2023, property and equipment consist of the following:

Depreciation expense was $0.2 million and $0.2 million for both the years ended December 31, 2024 and 2023 and is reflected in general and administrative expenses in the accompanying statements of operations.

Note 7 –Right-of-Use Assets and Liabilities

The Company leases its facility in Irvine, California under an operating lease which it amended in November 2021 to extend the lease term an additional 60 months through September 30, 2027. The lease rate at the date of the amendment was $30,206 per month with escalating payments adjusting annually. 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.

Lease liabilities were determined using the Company’s estimated incremental borrowing rate of 3.95% to estimate the present value of the remaining monthly lease payments.

Our operating lease cost is as follows*(in thousands)*:

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 8 –Accounts payable, accrued expenses and other current liabilities

As of December 31, 2024 and 2023, accounts payable, accrued expenses and other current liabilities consist of the following:

Note 9 –Income Taxes

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, 2024 and 2023 is as follows:

Significant components of the Company’s deferred tax assets at December 31, 2024 and 2023 are as follows:

ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of any future tax benefit is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s history of operating losses, management believes that recognition of the deferred tax assets arising from the above listed future tax benefits is currently not more likely than not to be realized and, accordingly, has provided a full valuation allowance. The valuation allowance increased by $5.4 million and $5.6 million during the years ended December 31, 2024 and 2023, respectively.

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 net operating loss (NOL) carryforwards and other pre-change tax attributes to offset its post-change income taxes may be limited. Due to various equity transactions, the Company’s ownership changes crossed the 50% threshold in 2018, 2020, 2021 and 2024, creating NOL annual use limitations based on the Company’s value at each of the change dates. Further, the federal annual limit of NOL use is 80% of taxable income. As a result, the maximum amount of NOL the Company may use in any year is currently 80% of taxable income for that year, or $2.0 million, whichever is less.

At December 31, 2024 and 2023, the Company net operating loss carryforwards for federal income tax purposes of approximately $72.2 million and $61.7 million, respectively. Of this, pre-2018 federal NOLs of approximately $12.0 million may be carried forward for twenty years and begin to expire in 2029. Post 2018 federal NOLs of approximately $60.2 million can be carried forward indefinitely. Based on the 2020, 2021, and 2024 ownership changes, the Company expects substantially all of its pre-2018 federal NOLs to expire unused.

To the extent the Company utilizes its NOL carryforwards in the future, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities of the future period tax return in which the attribute is utilized. The Company also has federal research and development tax credit carryforwards of approximately $0.2 million which begin to expire in 2027.

As of December 31, 2024 and 2023, the Company had net operating loss carryforwards for state income tax purposes of approximately $97.7 million and $61.1 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 income taxes for the years beginning in 2020 remain subject to examination. The Company’s state and local income tax returns for the years beginning in 2021 remain subject to examination. No tax audits were initiated during 2024 or 2023.

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2024 and 2023. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date. The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses in the statements of operations.

Note 10 –Commitments and Contingencies

Litigation Claims and Assessments

In the normal course of business, the Company may be involved in legal proceedings, claims and assessments. The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements.

Note 11 –Stockholders’ Equity

Equity Issuances

The Company completed equity transactions in each of 2024 and 2023. The following table provides an overview of those transactions.

(In thousands)

The 2023 transaction included 9.6 million warrants subject to performance conditions,1.0 million prefunded warrants and 0.2 million warrants to the placement agent. The weighted average exercise price of the warrants was $6.94.

The performance condition for 50% of the warrants was met on March 6, 2024, and the warrants expired. The performance condition for the remaining 50% of the warrants has not yet been met. If the performance conditions for the remaining 50% of these warrants is not met, they will expire in October 2026. If the performance conditions are achieved the holders have 30 days to exercise.

The 2024 transaction included 0.1 million prefunded warrants and 0.3 million warrants to the underwriter. The weighted average exercise price of the warrants is $4.03.

The warrants issued in 2024 and 2023 have a fair value of $1.0 million and $19.7 million, respectively, based on the Black Scholes method and the following weighted average input assumptions:

Warrants

A summary of warrant activity during the years ended December 31, 2024 and 2023 is presented below:

Note 12 –Share Based Compensation

Omnibus Incentive Plan

The Company issues share-based awards under its Company’s 2016 Omnibus Incentive Plan, as amended, which enables the Company to grant stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, other share based awards and cash awards to associates, directors, consultants, and advisors of the Company and its affiliates, and to improve the ability of the Company to attract, retain, and motivate individuals upon whom the Company’s sustained growth and financial success depend, by providing such persons with an opportunity to acquire or increase their proprietary interest in the Company. Stock options granted under the 2016 Plan may be non-qualified stock options or incentive stock options, within the meaning of Section 422(b) of the Internal Revenue Code of 1986, except that stock options granted to outside directors and any consultants or advisers providing services to the Company or an affiliate shall in all cases be non-qualified stock options. The option price must be at least 100% of the fair market value on the date of grant and if issued to a 10% or greater shareholder must be 110% of the fair market value on the date of the grant.

The 2016 Plan is to be administered by the Board, which has discretion over the awards and grants thereunder. No awards may be issued after November 21, 2026.

The number of shares authorized to be issued under the Plan is automatically adjusted from time to time when the Company issues additional shares of common stock or securities that are convertible or exercisable into shares of common stock (other than pursuant to the Plan) such that shares authorized under the plan after such issuance shall be equal to at least 20% of the issued and outstanding shares of the Company on a fully diluted basis. As of December 31, 2024 there are approximately 7.2 million shares authorized to be issued under the Plan.

Stock Options

The fair value of each option grant is estimated at the grant date using the Black Scholes method. The following assumptions were used in estimating fair value:

A summary of the option activity during the years ended December 31, 2024 and 2023 is presented below:

The Company includes share-based compensation expense in selling, general and administrative expenses, and recognized $4.1 million and $5.2 million during the years ended December 31, 2024 and 2023, respectively.

As of December 31, 2024, there was $4.9 million of unrecognized share-based compensation expense related to outstanding stock options and restricted stock units that will be recognized over the weighted average remaining vesting period of 1.7 years.

Restricted Stock Units

The Company also issues restricted shares and restricted stock units under the 2016 Plan. A summary of the restricted share and restricted stock units activity during the years ended December 31, 2023 and 2022 is presented below:

Note 13 –Net Loss Per Share

The following table summarizes the number of potentially dilutive common stock equivalents excluded from the calculation of diluted net loss per common share as of December, 2024 and 2023:

Note 14 –Segment Reporting

The Company has determined that it currently operates in a single segment, Medical Device development, located in a single geographic location, the United States. The accounting policies of the segment are the same as those described in the summary of significant accounting policies. Since the Company operates in a single segment, the measure of segment total assets and loss from operations is the same as that reported on the accompanying balance sheets as total assets, and the accompanying statement of operations as loss from operations, respectively.

The Company’s chief operating decision maker (“CODM”) is the chief executive officer. The CODM uses operating expenses to measure performance against progress in its clinical trials and its product development. The following table sets forth segment expenses.

Adjustments and reconciling items in the above table consist of interest income and realized and unrealized gains and losses related to our investments in US Treasury securities.