ecor-10q_20190930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED September 30, 2019

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

 

Commission File Number 001-38538

 

electroCore, Inc.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

 

20-3454976

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

150 Allen Road, Suite 201, Basking Ridge, NJ 07920

(Address of principal executive offices, including zip code)

 

(973) 290-0097

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

ECOR

 

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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 provided pursuant to Section 13(a) of the Exchange Act.        

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes No

As of November 8, 2019, the registrant had 29,514,434 shares of common stock outstanding. 

 

 


 

PART I. FINANCIAL INFORMATION

 

Page

 

 

 

 

 

Cautionary Note Regarding Forward-Looking Statements

 

3

Item 1.

Financial Statements

 

 

 

Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018

 

 

4

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

 

 

5

 

Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

 

 

6

 

Consolidated Statements of Changes in Convertible Preferred Units, Members’ (Deficit) and Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

 

 

7

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 (Unaudited)

 

 

9

 

Notes to Consolidated Financial Statements (Unaudited)

 

 

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

34

Item 4.

Controls and Procedures

 

 

34

 

PART II. OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

 

 

36

Item 1A.

Risk Factors

 

 

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

82

Item 3.

Defaults Upon Senior Securities

 

 

82

Item 4.

Mine Safety Disclosures

 

 

82

Item 5.

Other Information

 

 

82

Item 6.

Exhibits

 

 

83

 

Signatures

 

 

84

 

2


 

REFERENCES TO ELECTROCORE

In this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise requires, references to the “Company,” “electroCore,” “we,” “us” and “our” following the date of the Corporate Conversion (June 21, 2018) refer to electroCore, Inc. a Delaware corporation, and its subsidiaries and affiliate; references to the “Company,” “electroCore,” “we,” “us” and “our” prior to the date of the Corporate Conversion refer to ElectroCore, LLC, a Delaware limited liability company, and its subsidiaries and affiliate; and references to the “Corporate Conversion” or “corporate conversion” refer to all of the transactions related to the statutory conversion of ElectroCore, LLC from a Delaware limited liability company to a Delaware corporation and the change of its name to electroCore, Inc., effected on June 21, 2018.  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those included in our Annual Report on Form 10-K dated December 31, 2018, filed with the SEC described under “Risk Factors” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report and elsewhere in this Quarterly Report on Form 10-Q. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

The electroCore logo, gammaCore and other trademarks of electroCore, Inc. appearing in this Quarterly Report on Form 10-Q are the property of electroCore, Inc. All other trademarks, service marks and trade names in this Quarterly Report on Form 10-Q are the property of their respective owners. We have omitted the ® and ™ designations, as applicable, for the trademarks used in this Quarterly Report on Form 10-Q.

 

3


 

ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

Consolidated Balance Sheets

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,548,506

 

 

$

7,600,284

 

Marketable securities

 

 

26,939,593

 

 

 

60,963,087

 

Accounts receivable, net

 

 

753,377

 

 

 

267,599

 

Inventories, net

 

 

3,111,271

 

 

 

1,949,402

 

Prepaid expenses and other current assets

 

 

1,597,250

 

 

 

1,918,164

 

Total current assets

 

 

38,949,997

 

 

 

72,698,536

 

Inventories, noncurrent

 

 

2,010,000

 

 

 

 

Property and equipment, net

 

 

371,408

 

 

 

380,904

 

Operating lease right of use assets

 

 

1,552,537

 

 

 

 

Other assets

 

 

1,206,509

 

 

 

424,896

 

Total assets

 

$

44,090,451

 

 

$

73,504,336

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,630,357

 

 

$

2,698,902

 

Accrued expenses

 

 

3,717,270

 

 

 

4,374,101

 

Note payable

 

 

461,341

 

 

 

 

Current portion of operating lease liabilities

 

 

436,904

 

 

 

 

Total current liabilities

 

 

10,245,872

 

 

 

7,073,003

 

Noncurrent liabilities:

 

 

 

 

 

 

 

 

Deferred rent

 

 

 

 

 

245,632

 

Operating lease liabilities

 

 

1,550,065

 

 

 

 

Total liabilities

 

 

11,795,937

 

 

 

7,318,635

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred Stock, par value $0.001 per share; 10,000,000 shares authorized at

   September 30, 2019 and December 31, 2018; 0 shares issued and outstanding at

   September 30, 2019 and December 31, 2018

 

 

 

 

 

 

Common Stock, par value $0.001 per share; 500,000,000 shares authorized at

   September 30, 2019 and December 31, 2018; 29,468,966 issued and outstanding

   at September 30, 2019 and 29,450,035 shares issued and outstanding at

   December 31, 2018

 

 

29,468

 

 

 

29,450

 

Additional paid-in capital

 

 

106,498,093

 

 

 

103,791,013

 

Accumulated deficit

 

 

(74,981,008

)

 

 

(38,331,215

)

Accumulated other comprehensive income

 

 

112,351

 

 

 

60,843

 

Total stockholders' equity

 

 

31,658,904

 

 

 

65,550,091

 

Noncontrolling interest

 

 

635,610

 

 

 

635,610

 

Total equity

 

 

32,294,514

 

 

 

66,185,701

 

Total liabilities and equity

 

$

44,090,451

 

 

$

73,504,336

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

4


 

ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

Consolidated Statements of Operations

(Unaudited)

 

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net sales

 

$

682,993

 

 

$

150,972

 

 

$

1,715,337

 

 

$

625,385

 

Cost of goods sold

 

 

353,939

 

 

 

97,067

 

 

 

766,173

 

 

 

386,502

 

Gross profit

 

 

329,054

 

 

 

53,905

 

 

 

949,164

 

 

 

238,883

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,274,855

 

 

 

2,333,255

 

 

 

8,279,432

 

 

 

9,006,659

 

Selling, general and administrative

 

 

8,143,356

 

 

 

11,272,531

 

 

 

28,155,604

 

 

 

30,104,551

 

Restructuring and other severance related charges

 

 

804,643

 

 

 

 

 

 

1,997,292

 

 

 

 

Total operating expenses

 

 

11,222,854

 

 

 

13,605,786

 

 

 

38,432,328

 

 

 

39,111,210

 

Loss from operations

 

 

(10,893,800

)

 

 

(13,551,881

)

 

 

(37,483,164

)

 

 

(38,872,327

)

Other income/(expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of warrant liability

 

 

 

 

 

 

 

 

 

 

 

(1,870,923

)

Interest and other income, net

 

 

206,057

 

 

 

355,228

 

 

 

850,062

 

 

 

579,838

 

Other expense

 

 

 

 

 

(4,856

)

 

 

(16,692

)

 

 

(263,728

)

Total other income/(expense)

 

 

206,057

 

 

 

350,372

 

 

 

833,370

 

 

 

(1,554,813

)

Loss before income taxes

 

 

(10,687,743

)

 

 

(13,201,509

)

 

 

(36,649,794

)

 

 

(40,427,140

)

Provision for income taxes

 

 

 

 

 

2,431

 

 

 

 

 

 

2,431

 

Net loss from operations

 

 

(10,687,743

)

 

 

(13,203,940

)

 

 

(36,649,794

)

 

 

(40,429,571

)

Less: Net income attributable to noncontrolling

   interest

 

 

 

 

 

 

 

 

 

 

 

55,005

 

Total net loss attributable to Electrocore LLC and

   electroCore, Inc., subsidiaries and affiliate

 

$

(10,687,743

)

 

$

(13,203,940

)

 

$

(36,649,794

)

 

$

(40,484,576

)

Net loss attributable to Electrocore, LLC

   subsidiaries and affiliate

 

$

 

 

$

 

 

$

 

 

$

(21,118,337

)

Net loss attributable to electroCore, Inc.,

   subsidiaries and affiliate

 

$

(10,687,743

)

 

$

(13,203,940

)

 

$

(36,649,794

)

 

$

(19,366,239

)

Net loss per share of common stock - Basic and Diluted

   (see Note 14)

 

$

(0.36

)

 

$

(0.45

)

 

$

(1.25

)

 

$

(0.66

)

Weighted average common shares outstanding -

   Basic and Diluted (see Note 14)

 

 

29,352,026

 

 

 

29,261,942

 

 

 

29,339,384

 

 

 

29,261,942

 

 

See accompanying notes to unaudited consolidated financial statements.

5


 

ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

Consolidated Statements of Comprehensive Loss

(Unaudited)

 

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss from operations

 

$

(10,687,743

)

 

$

(13,203,940

)

 

$

(36,649,794

)

 

$

(40,429,571

)

Other comprehensive income/(loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

17,674

 

 

 

27,094

 

 

 

5,935

 

 

 

(25,553

)

Amount reclassified from accumulated OCI

 

 

 

 

 

2

 

 

 

 

 

 

11,026

 

Unrealized (loss)/gains on securities, net of taxes as applicable

 

 

(10,781

)

 

 

(38,383

)

 

 

45,628

 

 

 

(35,232

)

Other comprehensive income/(loss)

 

 

6,893

 

 

 

(11,287

)

 

 

51,563

 

 

 

(49,759

)

Comprehensive loss

 

 

(10,680,850

)

 

 

(13,215,227

)

 

 

(36,598,231

)

 

 

(40,479,330

)

Less: Net comprehensive income attributable to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

5,085

 

Comprehensive loss attributable to Electrocore, LLC

   and electroCore, Inc., subsidiaries and affiliate

 

$

(10,680,850

)

 

$

(13,215,227

)

 

$

(36,598,231

)

 

$

(40,474,245

)

Comprehensive loss attributable to

   Electrocore, LLC subsidiaries and affiliate

 

$

 

 

$

 

 

$

 

 

$

(21,118,056

)

Comprehensive loss attributable to

   electroCore, Inc., subsidiaries and affiliate

 

$

(10,680,850

)

 

$

(13,215,227

)

 

$

(36,598,231

)

 

$

(19,356,189

)

 

See accompanying notes to unaudited consolidated financial statements.

 

 

6


 

ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

Consolidated Statements of Changes in Convertible Preferred Units, Members’ (Deficit) and Stockholders’ Equity

(Unaudited)

 

Series A

 

 

Series B

 

 

Common

 

 

Common

 

 

Additional

 

 

 

 

 

 

Accumulated

other

 

 

(Deficit)/Equity

attributable to

Electrocore

LLC and

electroCore, Inc.,

 

 

 

 

 

 

Total

 

 

Preferred Units

 

 

Preferred Units

 

 

Units

 

 

Stock

 

 

paid-in

 

 

Accumulated

 

 

comprehensive

 

 

subsidiaries

 

 

Noncontrolling

 

 

equity/

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

income

 

 

and affiliate

 

 

interest

 

 

(deficit)

 

Balances as of December 31, 2017

 

70,918,506

 

 

$

53,518,463

 

 

 

105,186,020

 

 

$

68,755,544

 

 

 

218,982,140

 

 

$

40,180,619

 

 

 

 

 

$

 

 

$

22,596,485

 

 

$

(152,928,928

)

 

$

80,213

 

 

$

(90,071,611

)

 

$

604,055

 

 

$

(89,467,556

)

Net loss attributable to Electrocore, LLC

   subsidiaries and affiliate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,498,540

)

 

 

 

 

 

(9,498,540

)

 

 

55,005

 

 

 

(9,443,535

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(139,261

)

 

 

(139,261

)

 

 

 

 

 

(139,261

)

Noncontrolling interest distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(49,920

)

 

 

(49,920

)

Stock and Unit-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

267,145

 

 

 

 

 

 

 

 

 

267,145

 

 

 

 

 

 

267,145

 

Balances as of March 31, 2018

 

70,918,506

 

 

$

53,518,463

 

 

 

105,186,020

 

 

$

68,755,544

 

 

 

218,982,140

 

 

$

40,180,619

 

 

 

 

 

$

 

 

$

22,863,630

 

 

$

(162,427,468

)

 

$

(59,048

)

 

$

(99,442,267

)

 

$

609,140

 

 

$

(98,833,127

)

Net loss attributable to electroCore, LLC

   subsidiaries and affiliate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,619,797

)

 

 

(5,085

)

 

 

(11,624,882

)

 

 

5,085

 

 

 

(11,619,797

)

Reclass of accumulated deficit to APIC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(174,047,265

)

 

 

174,047,265

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

105,873

 

 

 

105,873

 

 

 

(5,085

)

 

 

100,788

 

Conversion of Series A preferred units to

   common stock

 

(70,918,506

)

 

 

(53,518,463

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,939,917

 

 

 

3,940

 

 

 

53,514,523

 

 

 

 

 

 

 

 

 

53,518,463

 

 

 

 

 

 

53,518,463

 

Conversion of Series B preferred units to

   common stock

 

 

 

 

 

 

 

(105,186,020

)

 

 

(68,755,544

)

 

 

 

 

 

 

 

 

5,843,668

 

 

 

5,844

 

 

 

68,749,700

 

 

 

 

 

 

 

 

 

68,755,544

 

 

 

 

 

 

68,755,544

 

Conversion of members common units to

   common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(218,982,140

)

 

 

(40,180,619

)

 

 

12,099,280

 

 

 

12,099

 

 

 

40,168,520

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock dividend issued to Series A preferred holders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

241,939

 

 

 

242

 

 

 

3,628,850

 

 

 

(3,629,092

)

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued related to

   initial public offering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,980,000

 

 

 

5,980

 

 

 

89,692,675

 

 

 

 

 

 

 

 

 

89,698,655

 

 

 

 

 

 

89,698,655

 

Issuance costs related to

   initial public offering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,012,086

)

 

 

 

 

 

 

 

 

(12,012,086

)

 

 

 

 

 

(12,012,086

)

Reclass of warrant liability to equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,110,467

 

 

 

 

 

 

 

 

 

4,110,467

 

 

 

 

 

 

4,110,467

 

Noncontrolling interest distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26,469

 

 

 

26,469

 

Stock issued upon conversion

   of profit interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,345,230

 

 

 

1,345

 

 

 

 

 

 

 

 

 

 

 

 

1,345

 

 

 

 

 

 

1,345

 

Stock and Unit-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,364,448

 

 

 

 

 

 

 

 

 

5,364,448

 

 

 

 

 

 

5,364,448

 

Net loss attributable to

   electroCore, Inc., subsidiaries

   and affiliate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,162,299

)

 

 

 

 

 

(6,162,299

)

 

 

 

 

 

(6,162,299

)

Balances as of June 30, 2018

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

29,450,034

 

 

$

29,450

 

 

$

102,033,462

 

 

$

(9,791,391

)

 

$

41,740

 

 

$

92,313,261

 

 

$

635,609

 

 

$

92,948,870

 

Net loss attributable to

   electroCore, Inc., subsidiaries

   and affiliate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,203,940

)

 

 

 

 

 

(13,203,940

)

 

 

 

 

 

(13,203,940

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,286

)

 

 

(11,286

)

 

 

 

 

 

(11,286

)

Noncontrolling interest distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1