ecor-20200930.htm
0 Common Stock, par value $0.001 per share false true DE NASDAQ true Non-accelerated Filer 2020 Q3 --12-31 29,835,183 true false false 0001560258 4 4 true 2 4 0 45,199,088 3,574 Reflects commitment shares issued in accordance with the Company's equity facility purchase agreement with Lincoln Park Capital. For additional information see Note 12. Lincoln Park Stock Purchase Agreement. 0001560258 2020-01-01 2020-03-31 0001560258 2019-01-01 2019-03-31 0001560258 2020-07-01 2020-09-30 0001560258 2019-07-01 2019-09-30 0001560258 2020-01-01 2020-09-30 0001560258 2019-01-01 2019-09-30 0001560258 2020-09-30 0001560258 2019-12-31 0001560258 2018-12-31 0001560258 us-gaap:CommonStockMember 2018-12-31 0001560258 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001560258 us-gaap:RetainedEarningsMember 2018-12-31 0001560258 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001560258 us-gaap:ParentMember 2018-12-31 0001560258 us-gaap:NoncontrollingInterestMember 2018-12-31 0001560258 2019-03-31 0001560258 us-gaap:CommonStockMember 2019-01-01 2019-03-31 0001560258 us-gaap:CommonStockMember 2019-03-31 0001560258 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31 0001560258 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0001560258 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0001560258 us-gaap:RetainedEarningsMember 2019-03-31 0001560258 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-03-31 0001560258 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0001560258 us-gaap:ParentMember 2019-01-01 2019-03-31 0001560258 us-gaap:ParentMember 2019-03-31 0001560258 us-gaap:NoncontrollingInterestMember 2019-03-31 0001560258 2019-09-30 0001560258 us-gaap:CommonStockMember 2019-09-30 0001560258 us-gaap:CommonStockMember 2019-07-01 2019-09-30 0001560258 us-gaap:AdditionalPaidInCapitalMember 2019-07-01 2019-09-30 0001560258 us-gaap:AdditionalPaidInCapitalMember 2019-09-30 0001560258 us-gaap:RetainedEarningsMember 2019-07-01 2019-09-30 0001560258 us-gaap:RetainedEarningsMember 2019-09-30 0001560258 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-07-01 2019-09-30 0001560258 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-09-30 0001560258 us-gaap:ParentMember 2019-07-01 2019-09-30 0001560258 us-gaap:ParentMember 2019-09-30 0001560258 2020-03-31 0001560258 us-gaap:CommonStockMember 2020-01-01 2020-03-31 0001560258 us-gaap:CommonStockMember 2020-03-31 0001560258 us-gaap:CommonStockMember 2020-07-01 2020-09-30 0001560258 us-gaap:CommonStockMember 2020-09-30 0001560258 us-gaap:AdditionalPaidInCapitalMember 2020-07-01 2020-09-30 0001560258 us-gaap:AdditionalPaidInCapitalMember 2020-03-31 0001560258 us-gaap:AdditionalPaidInCapitalMember 2020-09-30 0001560258 us-gaap:RetainedEarningsMember 2020-03-31 0001560258 us-gaap:RetainedEarningsMember 2020-07-01 2020-09-30 0001560258 us-gaap:RetainedEarningsMember 2020-09-30 0001560258 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-03-31 0001560258 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-07-01 2020-09-30 0001560258 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-09-30 0001560258 us-gaap:ParentMember 2020-03-31 0001560258 us-gaap:ParentMember 2020-07-01 2020-09-30 0001560258 us-gaap:ParentMember 2020-09-30 0001560258 srt:EuropeMember 2020-07-01 2020-09-30 0001560258 srt:EuropeMember 2019-07-01 2019-09-30 0001560258 srt:EuropeMember 2020-01-01 2020-09-30 0001560258 srt:EuropeMember 2019-01-01 2019-09-30 0001560258 ecor:OtherMember 2020-07-01 2020-09-30 0001560258 ecor:OtherMember 2019-07-01 2019-09-30 0001560258 ecor:OtherMember 2020-01-01 2020-09-30 0001560258 ecor:OtherMember 2019-01-01 2019-09-30 0001560258 ecor:StockPurchaseAgreementMember ecor:LincolnParkCapitalFundLLCMember 2020-03-27 0001560258 ecor:StockPurchaseAgreementMember ecor:LincolnParkCapitalFundLLCMember 2020-01-01 2020-09-30 0001560258 us-gaap:USTreasuryBondSecuritiesMember 2020-09-30 0001560258 ecor:SecuritiesPurchaseAgreementMember 2020-05-05 2020-05-14 0001560258 us-gaap:USTreasuryBondSecuritiesMember 2019-12-31 0001560258 2020-05-05 2020-05-06 0001560258 us-gaap:SalesRevenueNetMember 2020-07-01 2020-09-30 0001560258 us-gaap:SalesRevenueNetMember 2020-01-01 2020-09-30 0001560258 us-gaap:SalesRevenueNetMember 2019-07-01 2019-09-30 0001560258 us-gaap:SalesRevenueNetMember 2019-01-01 2019-09-30 0001560258 us-gaap:FairValueInputsLevel1Member 2020-09-30 0001560258 us-gaap:FairValueInputsLevel1Member 2019-12-31 0001560258 us-gaap:USTreasuryBondSecuritiesMember us-gaap:FairValueInputsLevel1Member 2020-09-30 0001560258 us-gaap:USTreasuryBondSecuritiesMember us-gaap:FairValueInputsLevel1Member 2019-12-31 0001560258 us-gaap:OtherAssetsMember 2019-12-31 0001560258 us-gaap:InventoryValuationAndObsolescenceMember 2019-12-31 0001560258 2020-05-01 2020-05-04 0001560258 ecor:PromissoryNoteMember ecor:CitibankNAMember ecor:PaycheckProtectionProgramMember 2020-05-01 2020-05-04 0001560258 ecor:PromissoryNoteMember ecor:CitibankNAMember ecor:PaycheckProtectionProgramMember 2020-05-04 0001560258 ecor:PromissoryNoteMember ecor:CitibankNAMember ecor:PaycheckProtectionProgramMember 2020-05-05 2020-05-31 0001560258 ecor:StockPurchaseAgreementMember ecor:LincolnParkCapitalFundLLCMember srt:MaximumMember 2020-03-27 0001560258 ecor:StockPurchaseAgreementMember ecor:LincolnParkCapitalFundLLCMember 2020-09-30 0001560258 ecor:FirstSecuritiesPurchaseAgreementMember 2020-04-01 2020-04-14 0001560258 ecor:SecondSecuritiesPurchaseAgreementMember 2020-01-01 2020-09-30 0001560258 ecor:ThirdSecuritiesPurchaseAgreementMember 2020-05-01 2020-05-18 0001560258 us-gaap:EmployeeStockOptionMember 2020-01-01 2020-09-30 0001560258 us-gaap:EmployeeStockOptionMember 2019-01-01 2019-09-30 0001560258 us-gaap:RestrictedStockUnitsRSUMember 2020-01-01 2020-09-30 0001560258 us-gaap:RestrictedStockUnitsRSUMember 2019-01-01 2019-09-30 0001560258 us-gaap:WarrantMember 2020-01-01 2020-09-30 0001560258 us-gaap:WarrantMember 2019-01-01 2019-09-30 0001560258 ecor:NewJerseyTechnologyBusinessTaxCertificateTransferProgramMember 2020-05-05 2020-05-06 0001560258 2019-01-01 2019-12-31 0001560258 us-gaap:RestrictedStockMember 2020-01-01 2020-09-30 0001560258 us-gaap:RestrictedStockMember 2020-09-30 0001560258 ecor:RestrictedStockAndDeferredStockMember 2020-01-01 2020-09-30 0001560258 ecor:RestrictedStockAndDeferredStockMember 2020-09-30 0001560258 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2020-07-01 2020-09-30 0001560258 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2019-07-01 2019-09-30 0001560258 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2020-01-01 2020-09-30 0001560258 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2019-01-01 2019-09-30 0001560258 us-gaap:ResearchAndDevelopmentExpenseMember 2020-07-01 2020-09-30 0001560258 us-gaap:ResearchAndDevelopmentExpenseMember 2019-07-01 2019-09-30 0001560258 us-gaap:ResearchAndDevelopmentExpenseMember 2020-01-01 2020-09-30 0001560258 us-gaap:ResearchAndDevelopmentExpenseMember 2019-01-01 2019-09-30 0001560258 us-gaap:CostOfSalesMember 2020-07-01 2020-09-30 0001560258 us-gaap:CostOfSalesMember 2019-07-01 2019-09-30 0001560258 us-gaap:CostOfSalesMember 2020-01-01 2020-09-30 0001560258 us-gaap:CostOfSalesMember 2019-01-01 2019-09-30 0001560258 ecor:RestrictedStockAndDeferredStockMember srt:MinimumMember 2020-01-01 2020-09-30 0001560258 ecor:RestrictedStockAndDeferredStockMember srt:MaximumMember 2020-01-01 2020-09-30 0001560258 2019-01-31 0001560258 ecor:MadisonGlobalPartnersMember us-gaap:CommonStockMember 2019-01-31 0001560258 2020-07-05 2020-07-17 0001560258 ecor:MadisonGlobalPartnersMember us-gaap:CommonStockMember srt:MaximumMember 2019-01-31 0001560258 ecor:MadisonGlobalPartnersMember us-gaap:CommonStockMember srt:MinimumMember 2019-01-31 0001560258 us-gaap:EmployeeSeveranceMember ecor:NewEmployeeMember 2020-01-25 2020-01-31 0001560258 ecor:ThirdSecuritiesPurchaseAgreementMember 2020-05-18 0001560258 us-gaap:EmployeeSeveranceMember ecor:FormerOfficerMember 2020-01-25 2020-01-31 0001560258 us-gaap:OtherAssetsMember 2020-09-30 0001560258 ecor:SecuritiesPurchaseAgreementMember 2020-05-14 0001560258 ecor:SecondSecuritiesPurchaseAgreementMember 2020-05-02 2020-05-14 0001560258 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0001560258 us-gaap:NoncontrollingInterestMember 2019-09-30 0001560258 us-gaap:RetainedEarningsMember 2020-01-01 2020-03-31 0001560258 us-gaap:ParentMember 2020-01-01 2020-03-31 0001560258 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-03-31 0001560258 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-03-31 0001560258 us-gaap:RestrictedStockMember 2019-12-31 0001560258 us-gaap:NoncontrollingInterestMember 2020-09-30 0001560258 us-gaap:NoncontrollingInterestMember 2020-03-31 0001560258 us-gaap:NoncontrollingInterestMember 2019-12-31 0001560258 us-gaap:FairValueInputsLevel2Member 2020-09-30 0001560258 us-gaap:FairValueInputsLevel3Member 2020-09-30 0001560258 us-gaap:FairValueInputsLevel2Member 2019-12-31 0001560258 us-gaap:USTreasuryBondSecuritiesMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0001560258 us-gaap:FairValueInputsLevel3Member 2019-12-31 0001560258 us-gaap:USTreasuryBondSecuritiesMember us-gaap:FairValueInputsLevel3Member 2019-12-31 0001560258 us-gaap:NoncontrollingInterestMember 2019-07-01 2019-09-30 0001560258 us-gaap:NoncontrollingInterestMember 2020-07-01 2020-09-30 0001560258 us-gaap:RetainedEarningsMember 2020-04-01 2020-06-30 0001560258 us-gaap:ParentMember 2020-04-01 2020-06-30 0001560258 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-04-01 2020-06-30 0001560258 us-gaap:CommonStockMember 2020-04-01 2020-06-30 0001560258 us-gaap:AdditionalPaidInCapitalMember 2020-04-01 2020-06-30 0001560258 us-gaap:NoncontrollingInterestMember 2020-04-01 2020-06-30 0001560258 us-gaap:CommonStockMember 2020-06-30 0001560258 us-gaap:AdditionalPaidInCapitalMember 2020-06-30 0001560258 us-gaap:RetainedEarningsMember 2020-06-30 0001560258 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-06-30 0001560258 us-gaap:ParentMember 2020-06-30 0001560258 us-gaap:NoncontrollingInterestMember 2020-06-30 0001560258 2020-04-01 2020-06-30 0001560258 us-gaap:NoncontrollingInterestMember 2020-01-01 2020-03-31 0001560258 2019-04-01 2019-06-30 0001560258 us-gaap:RetainedEarningsMember 2019-04-01 2019-06-30 0001560258 us-gaap:ParentMember 2019-04-01 2019-06-30 0001560258 us-gaap:CommonStockMember 2019-04-01 2019-06-30 0001560258 us-gaap:AdditionalPaidInCapitalMember 2019-04-01 2019-06-30 0001560258 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-04-01 2019-06-30 0001560258 us-gaap:NoncontrollingInterestMember 2019-04-01 2019-06-30 0001560258 us-gaap:CommonStockMember 2019-06-30 0001560258 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0001560258 us-gaap:RetainedEarningsMember 2019-06-30 0001560258 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0001560258 us-gaap:ParentMember 2019-06-30 0001560258 us-gaap:NoncontrollingInterestMember 2019-06-30 0001560258 us-gaap:NoncontrollingInterestMember 2019-01-01 2019-03-31 0001560258 2019-06-30 0001560258 2020-06-30 0001560258 us-gaap:CommonStockMember 2019-12-31 0001560258 us-gaap:RetainedEarningsMember 2019-12-31 0001560258 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0001560258 us-gaap:ParentMember 2019-12-31 0001560258 srt:AmericasMember 2020-07-01 2020-09-30 0001560258 srt:AmericasMember 2019-07-01 2019-09-30 0001560258 srt:AmericasMember 2020-01-01 2020-09-30 0001560258 srt:AmericasMember 2019-01-01 2019-09-30 0001560258 us-gaap:RestrictedStockMember ecor:NonExecutiveDirectorMember 2020-01-01 2020-09-30 0001560258 us-gaap:USTreasuryBondSecuritiesMember us-gaap:FairValueInputsLevel2Member 2020-09-30 0001560258 us-gaap:USTreasuryBondSecuritiesMember us-gaap:FairValueInputsLevel3Member 2020-09-30 0001560258 ecor:LincolnParkCapitalFundLLCMember 2020-01-01 2020-09-30 0001560258 2020-11-08 0001560258 ecor:FirstSecuritiesPurchaseAgreementMember 2020-04-14 0001560258 ecor:SecondSecuritiesPurchaseAgreementMember 2020-05-14 0001560258 ecor:RestrictedStockAndDeferredStockMember 2019-12-31 0001560258 ecor:WarrantOneMember 2019-01-31 0001560258 ecor:WarrantTwoMember 2019-01-31 0001560258 ecor:WarrantThreeMember 2019-01-31 0001560258 ecor:WarrantFourMember 2019-01-31 0001560258 ecor:MadisonGlobalPartnersMember 2019-01-01 2019-01-31 0001560258 us-gaap:InventoryValuationAndObsolescenceMember 2020-09-30 0001560258 2020-07-05 2020-07-30 0001560258 2020-07-30 xbrli:shares xbrli:pure iso4217:USD iso4217:USD xbrli:shares ecor:InvestorsAsDefendents ecor:Dispute

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, 2020



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 6, 2020 the registrant had 45,454,457 shares of common stock outstanding. 







PART I. FINANCIAL INFORMATION

Page Number


Cautionary Note Regarding Forward-Looking Statements 3

Risk Factor Summary 4
Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019 6

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited) 7

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited) 8

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited) 9

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (Unaudited) 11

Notes to Condensed Consolidated Financial Statements 12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
Item 4. Controls and Procedures 32

PART II. OTHER INFORMATION
Item 1. Legal Proceedings 33
Item 1A. Risk Factors 34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 86
Item 3. Defaults Upon Senior Securities 86
Item 4. Mine Safety Disclosures 86
Item 5. Other Information 86
Item 6. Exhibits 87

Signatures 88


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” refer to electroCore, Inc. a Delaware corporation, and its subsidiaries and affiliate.

This Quarterly Report on Form 10-Q, or Quarterly Report, 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, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or 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 them. 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, (i) risks and uncertainties related to the impact of the COVID-19 pandemic on general political and economic conditions, including as a result of efforts by governmental authorities to mitigate the COVID-19 pandemic, such as travel bans, shelter in place orders and third-party business closures and resource allocations, manufacturing and supply chains and patient access to commercial products; our ability to execute our operational and budget plans in light of the COVID-19 pandemic, and (ii) those included in our Annual Report on Form 10-K for the year ended December 31, 2019 and in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report and elsewhere herein. 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 are the property of electroCore, Inc. All other trademarks, service marks and trade names in this Quarterly Report are the property of their respective owners. We have omitted the ® and ™ designations, as applicable, for the trademarks used in this Quarterly Report.


3


Risk Factor Summary
The following is a summary of the factors that may make an investment in our Company speculative or risky. You should carefully consider the fuller risk factor disclosure set forth in this Quarterly Report, in addition to the other information herein, including the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes.  

The coronavirus pandemic could have a significant negative impact on our business, revenues, financial condition and results of operations.

We have a history of significant losses. If we do not achieve and sustain profitability, our financial condition could suffer. Our failure to become and remain profitable could negatively impact the results of our operations and your investment. 


We recently received an Emergency Use Authorization, or EUA, from the U.S. Food and Drug Administration, or FDA, to facilitate the study and clinical use of gammaCore Sapphire CV for the acute treatment of asthma exacerbations in known or suspected COVID-19 patients. However, there can be no assurance as to the impact, if any, that the EUA will have on us, our business, operations or financial condition.

Commercializing our gammaCore Sapphire CV therapy for the acute treatment of asthma exacerbations in known or suspected COVID-19 patients may require significant investment in research and development and expansion of our sales and marketing capabilities.

If third-party payers do not provide adequate coverage and reimbursement for the use of gammaCore, we may be unable to generate significant revenues.

Regulatory requirements from executing upon our commercialization strategy and changes to payers’ prescription benefit plans and medical pathway plans could adversely impact our business and financial results.

Third-party payers have been resistant to cover gammaCore through pharmacy benefit plans, which has hindered our commercialization strategy and required changes to our existing business that could delay and negatively impact our ability to generate revenue.

We must demonstrate to physicians the medical and economic benefits of our gammaCore therapy compared to those of our competitors.

Our operating results may vary significantly from quarter to quarter because of seasonality or otherwise.

Clinical trials are very expensive, time-consuming and difficult to design and implement and involve uncertain outcomes. Furthermore, results of earlier preclinical studies and clinical trials may not be predictive of results of future preclinical studies or clinical trials.

If we fail to develop and retain an effective direct sales force, our business could suffer.

We have only recently been granted EUA from the FDA for use of our gammaCore Sapphire CV for the acute treatment of asthma exacerbations in known or suspected COVID-19 patients. We have never before commercialized a respiratory therapy product in the United States and may never achieve market acceptance.

We only recently began commercializing our gammaCore therapy for the acute treatment of episodic cluster headache, or eCH, prevention of cluster headache, preventive and acute treatment of migraine in the United States and we may never achieve market acceptance.

If our competitors are better able to develop and market cluster headache, or CH, and migraine treatments that are safer, more effective, less costly, easier to use or otherwise more attractive than our gammaCore therapy, our business will be adversely impacted.


4



Many of our competitors are large, well-established companies with substantially greater resources than us and have a long history of competing in the CH and migraine markets.

Traditional products used to treat CH and migraine have been available for decades, while our gammaCore therapy has only been commercially available in Europe for several years, and for approximately three years in the United States, and, as a result, we have a limited track record compared to our competitors.

We may not be able to establish or strengthen our brand.

We rely upon primary and secondary third-party manufacturers for components of our gammaCore product, and multiple suppliers of consumer electronic components, and in certain cases sole-source suppliers for components and materials used in gammaCore, and for critical packaging services, making us vulnerable to supply shortages and problems and price fluctuations, which could harm our business.

We rely upon specialty pharmacies to distribute our products in the United States.

Our potential revenue in the United Kingdom is substantially dependent on government funding arrangements.

Our business is subject to extensive governmental regulation that makes it expensive and time consuming for us to bring our gammaCore therapy to market in the United States and other countries and to expand the use of our gammaCore therapy to additional therapeutic indications.

We are currently subject to securities class action lawsuits against us, which could result in adverse outcomes.

The sale or issuance of our common stock to Lincoln Park Capital Fund, LLC, or Lincoln Park, may cause dilution and the sale of the shares of common stock acquired by Lincoln Park, or the perception that such sales may occur, could cause the price of our common stock to fall.

Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

We do not currently intend to pay dividends on our common stock, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

Our stock price may be volatile, and you may not be able to resell shares of our common stock at or above the price you paid.


5


ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,832,454

 

 

$

13,563,791

 

Marketable securities

 

 

22,135,211

 

 

 

10,495,350

 

Accounts receivable, net

 

 

175,954

 

 

 

496,140

 

Inventories, net

 

 

793,216

 

 

 

890,992

 

Prepaid expenses and other current assets

 

 

1,663,699

 

 

 

1,087,111

 

Total current assets

 

 

28,600,534

 

 

 

26,533,384

 

Inventories, non-current

 

 

6,133,878

 

 

 

6,020,180

 

Property and equipment, net

 

 

267,549

 

 

 

345,236

 

Operating lease right of use assets

 

 

1,153,939

 

 

 

1,430,641

 

Other assets

 

 

919,421

 

 

 

1,132,238

 

Total assets

 

$

37,075,321

 

 

$

35,461,679

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,028,439

 

 

$

5,208,979

 

Accrued expenses and other current liabilities

 

 

2,535,941

 

 

 

3,337,379

 

Notes payable

 

 

732,305

 

 

 

111,878

 

Current portion of operating lease liabilities

 

 

514,934

 

 

 

486,445

 

Total current liabilities

 

 

5,811,619

 

 

 

9,144,681

 

Noncurrent liabilities:

 

 

 

 

 

 

 

 

Operating lease liabilities

 

 

1,036,117

 

 

 

1,419,880

 

      Notes payable, non-current


1,331,559





Total liabilities

 

 

8,179,295

 

 

 

10,564,561

 

Commitments and contingencies

 

 

 

 

 

 


 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred Stock, par value $0.001 per share; 10,000,000 shares authorized at September 30, 2020 and December 31, 2019; 0 shares issued and outstanding at September 30, 2020 and December 31, 2019

 

 

 

 

 

 

Common Stock, par value $0.001 per share; 500,000,000 shares authorized at September 30, 2020 and December 31, 2019; 45,199,088 shares issued and outstanding at September 30, 2020 and 29,835,183 shares issued and outstanding at December 31, 2019

 

 

45,199

 

 

 

29,835

 

Additional paid-in capital

 

 

129,071,951

 

 

 

107,752,066

 

Accumulated deficit

 

 

(100,666,379

)

 

 

(83,479,098

)

Accumulated other comprehensive loss

 

 

(190,355

)

 

 

(41,295

)

Total electroCore, Inc. stockholders' equity

 

 

28,260,416

 

 

 

24,261,508

 

Noncontrolling interest

 

 

635,610

 

 

 

635,610

 

Total equity

 

 

28,896,026

 

 

 

24,897,118

 

Total liabilities and equity

 

$

37,075,321

 

 

$

35,461,679

 

 

 


 

 

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.


6



ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

(Unaudited)

 

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net sales

 

$

1,080,841

 

 

$

682,993

 

 

$

2,567,567

 

 

$

1,715,337

 

Cost of goods sold

 

 

347,504

 

 

 

353,939

 

 

 

918,605

 

 

 

766,173

 

Gross profit

 

 

733,337

 

 

 

329,054

 

 

 

1,648,962

 

 

 

949,164

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

629,002

 

 

 

2,274,855

 

 

 

3,182,646

 

 

 

8,279,432

 

Selling, general and administrative

 

 

4,592,936

 

 

 

8,143,356

 

 

 

16,426,991

 

 

 

28,155,604

 

Restructuring and other related charges

 

 

 

 

 

804,643

 

 

 

464,606

 

 

 

1,997,292

 

Total operating expenses

 

 

5,221,938

 

 

 

11,222,854

 

 

 

20,074,243

 

 

 

38,432,328

 

Loss from operations

 

 

(4,488,601

)

 

 

(10,893,800

)

 

 

(18,425,281

)

 

 

(37,483,164

)

Other (income)/expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

 

(5,719

)

 

 

(206,057

)

 

 

(80,460

)

 

 

(850,062

)

Other expense

 

 

3,522

 

 

 

 

 

 

13,350

 

 

 

16,692

 

Total other (income)/expense

 

 

(2,197

)

 

 

(206,057

)

 

 

(67,110

)

 

 

(833,370

)

Loss before income taxes

 

 

(4,486,404

)

 

 

(10,687,743

)

 

 

(18,358,171

)

 

 

(36,649,794

)

Benefit from income taxes (see Note 14)

 

 

 

 

 

 

 

 

1,170,890

 

 

 

 

Net loss

 

$

(4,486,404

)

 

$

(10,687,743

)

 

$

(17,187,281

)

 

$

(36,649,794

)

Net loss per share of common stock - Basic and Diluted (see Note 13)

 

$

(0.10

)

 

$

(0.36

)

 

$

(0.47

)

 

$

(1.25

)

Weighted average common shares outstanding - Basic and Diluted (see Note 13)

 

 

44,030,685

 

 

 

29,352,026

 

 

 

36,847,548

 

 

 

29,339,384

 

 

See accompanying notes to unaudited condensed consolidated financial statements.


7



ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

(Unaudited)

 

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net loss

 

$

(4,486,404

)

 

$

(10,687,743

)

 

$

(17,187,281

)

 

$

(36,649,794

)

   Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Foreign currency translation adjustment

 

 

(81,602

)

 

 

17,674

 

 

(145,617

)

 

 

5,935

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

 

 

(2,210

)

 

 

(10,781

)

 

 

(3,443

)

 

 

45,628

 

   Other comprehensive (loss) income

 

 

(83,812

)

 

 

6,893

 

 

(149,060

)

 

 

51,563

 

Comprehensive loss

 

$

(4,570,216

)

 

$

(10,680,850

)

 

$

(17,336,341

)

 

$

(36,598,231

)

 

See accompanying notes to unaudited condensed consolidated financial statements.


8



ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

(Unaudited)

 

 

 

Common

 

 

Additional

 

 

 

 

 

 

Accumulated other

 

 

Total electroCore, Inc.

 

 

 

 

 

 

 

 

 

 

 

Stock

 

 

paid-in

 

 

Accumulated

 

 

comprehensive

 

 

stockholders'

 

 

Noncontrolling

 

 

Total

 

 

 

Shares


 

Amount

 

 

capital

 

 

deficit

 

 

income

 

 

equity

 

 

interest

 

 

equity

 

Balances as of December 31, 2018

 

 

29,450,035

 

 

$

29,450

 

 

$

103,791,013

 

 

$

(38,331,215

)

 

$

60,843

 

 

$

65,550,091

 

 

$

635,610

 

 

$

66,185,701

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(13,861,530

)

 

 

 

 

 

(13,861,530

)

 

 

 

 

 

(13,861,530

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

83,713

 

 

 

83,713

 

 

 

 

 

 

83,713

 

Issuance of warrants in settlement of lawsuit

 

 

 

 

 

 

 

 

16,692

 

 

 

 

 

 

 

 

 

16,692

 

 

 

 

 

 

16,692

 

Issuance of stock related to employee compensation plans, net of forfeitures

 

 

183,205

 

 

 

183

 

 

 

(183

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

 

 

 

 

 

 

744,032

 

 

 

 

 

 

 

 

 

744,032

 

 

 

 

 

 

744,032

 

Balances as of March 31, 2019

 

 

29,633,240

 

 

 

29,633

 

 

 

104,551,554

 

 

 

(52,192,745

)

 

 

144,556

 

 

 

52,532,998

 

 

 

635,610

 

 

 

53,168,608

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(12,100,520

)

 

 

 

 

 

(12,100,520

)

 

 

 

 

 

(12,100,520

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(39,098

)

 

 

(39,098

)

 

 

 

 

 

(39,098

)

Stock based compensation

 

 

(51,549

)

 

 

(52

)

 

 

726,851

 

 

 

 

 

 

 

 

 

726,799

 

 

 

 

 

 

726,799

 

Balances as of June 30, 2019

 

 

29,581,691

 

 


29,581

 

 


105,278,405

 

 


(64,293,265

)

 


105,458

 

 


41,120,179

 

 


635,610

 

 

 

41,755,789

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(10,687,743

)

 

 

 

 

 

 

(10,687,743

)

 

 

 

 

 

(10,687,743

)
Other comprehensive income













6,893


6,893





6,893
Issuance of stock related to employee compensation plans, net of forfeitures

28,202


28


(28 )














Stock cancellations

(140,927 )

(141

)

141




















Stock based compensation







1,219,575








1,219,575





1,219,575
Balances as of September 30, 2019

29,468,966

$ 29,468

$
106,498,093

$ (74,981,008 )
$ 112,351

$ 31,658,904

$ 635,610

$ 32,294,514


9



ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)


 

 

Common

 

 

Additional

 

 

 

 

 

 

Accumulated other

 

 

Total electroCore, Inc.

 

 

 

 

 

 

 

 

 

 

 

Stock

 

 

paid-in

 

 

Accumulated

 

 

comprehensive

 

 

stockholders'

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

income

 

 

equity

 

 

interest

 

 

equity

 

Balances as of December 31, 2019

 

 

29,835,183

 

 

$

29,835

 

 

$

107,752,066

 

 

$

(83,479,098

)

 

$

(41,295

)

 

$

24,261,508

 

 

$

635,610

 

 

$

24,897,118

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,959,349

)

 

 

 

 

 

(7,959,349

)

 

 

 

 

 

(7,959,349

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51,148

 

 

 

51,148

 

 

 

 

 

 

51,148

 

Equity financing commitment fee*

 

 

461,676

 

 

 

462

 

 

 

(462

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock related to employee compensation plans, net of forfeitures

 

 

124,568

 

 

 

125

 

 

 

(125

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share based compensation

 

 

 

 

 

 

 

 

744,865

 

 

 

 

 

 

 

 

 

744,865

 

 

 

 

 

 

744,865

 

Balances as of March 31, 2020

 

 

30,421,427

 

 

 

30,422

 

 

 

108,496,344

 

 

 

(91,438,447

)

 

 

9,853

 

 

 

17,098,172

 

 

 

635,610

 

 

 

17,733,782

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,741,528

)

 

 

 

 

 

(4,741,528

)

 

 

 

 

 

(4,741,528

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(116,396

)

 

 

(116,396

)

 

 

 

 

 

(116,396

)

Issuance of stock (see Note 12)

 

 

8,028,372

 

 

 

8,028

 

 

 

7,823,507

 

 

 

 

 

 

 

 

 

7,831,535

 

 

 

 

 

 

7,831,535

 

Equity financing commitment fee*

 

 

181,273

 

 

 

181

 

 

 

(181

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing fees

 

 

 

 

 

 

 

 

(167,299

)

 

 

 

 

 

 

 

 

(167,299

)

 

 

 

 

 

(167,299

)

Issuance of stock related to employee compensation plans, net of forfeitures

 

 

184,073

 

 

 

184

 

 

 

(184

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share based compensation

 

 

 

 

 

 

 

 

1,002,758

 

 

 

 

 

 

 

 

 

1,002,758

 

 

 

 

 

 

1,002,758

 

Balances as of June 30, 2020

 

 

38,815,145

 

 


38,815

 

 

 

117,154,945

 

 


(96,179,975

)

 

 

(106,543

)

 


20,907,242

 

 

 

635,610

 

 


21,542,852

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,486,404

)

 

 

 

 

 

(4,486,404

)

 

 

 

 

 

(4,486,404

)
Other comprehensive income













(83,812 )

(83,812 )




(83,812 )
Issuance of stock (see Note 12)

6,079,676


6,080


11,197,581








11,203,661





11,203,661
Equity financing commitment fee*

49,565


49


(49 )














Financing fees







(23,199 )







(23,199 )




(23,199 )
Issuance of stock related to employee compensation plans, net of forfeitures

254,702


255


(255 )














Share based compensation







742,928








742,928





742,928
Balances as of September 30, 2020

45,199,088

$ 45,199

$ 129,071,951

$ (100,666,379 )
$ (190,355 )
$ 28,260,416

$ 635,610

$ 28,896,026


* Reflects commitment shares issued in accordance with the Company's equity facility purchase agreement with Lincoln Park Capital. For additional information see Note 12. Lincoln Park Stock Purchase Agreement.

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

10


ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

(Unaudited)

 

 

 

Nine months ended

September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(17,187,281

)

 

$

(36,649,794

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

2,490,551

 

 

 

2,690,406

 

Depreciation and amortization

 

 

288,589

 

 

 

152,255

 

Amortization of marketable securities discount

 

 

23,422

 

 

(480,840

)

Cloud computing arrangement implementation costs

 

 

 

 

 

(1,114,568

)

Legal expense settled with stock

 

 

156,434

 

 

 

 

Net noncash lease expense

 

 

(82,204

)

 

 

411,142

 

Noncash portion of litigation settlement

 

 

 

 

 

16,692

 

Other

 

 

14,893

 

 

 

(157,759

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

320,186

 

 

 

(485,778

)

Inventories

 

 

(15,922

)

 

 

(3,171,868

)

Prepaid expenses and other current assets

 

 

(586,588

)

 

 

274,199

 

Accounts payable

 

 

(1,631,839

)

 

 

3,219,105

Accrued expenses and other current liabilities

 

 

(801,439

)

 

 

(656,734

)

Net cash used in operating activities

 

 

(17,011,198

)

 

 

(35,953,542

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(22,166,376

)

 

 

(35,216,037

)

Proceeds from maturities of marketable securities

 

 

10,500,000

 

 

 

69,766,000

 

Purchases of property and equipment

 

 

 

 

 

(72,241

)

Net cash (used in) provided by investing activities

 

 

(11,666,376

)

 

 

34,477,722

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from shares issued, net of related expenses

 

 

17,139,563

 

 

 

 

Proceeds from notes issued

 

 

2,558,360

 

 

 

807,347

 

Repayments of notes issued

 

 

(606,374

)

 

 

(346,006

)

Net cash provided by financing activities

 

 

19,091,549

 

 

 

461,341

 

Effect of changes in exchange rates on cash and cash equivalents

 

 

(145,312

)

 

 

(37,299

)

Net decrease in cash and cash equivalents

 

 

(9,731,337

)

 

 

(1,051,778

)

Cash and cash equivalents – beginning of period

 

 

13,563,791

 

 

 

7,600,284

 

Cash and cash equivalents – end of period

 

$

3,832,454

 

 

$

6,548,506

 

 

 

 

 

 

 

 

 

 

Supplemental cash flows disclosures:

 

 

 

 

 

 

 

 

Proceeds from sale of state net operating losses

 

$

1,170,890

 

 

$

 

Interest paid

 

$

9,366

 

 

$

3,457

 

Income taxes paid

 

$

3,254

 

 

$

 

 

 

 

 

 

 

 

 

 

Supplemental schedule of noncash activity:

 

 

 

 

 

 

 

 

Prepaid lease payments included in right of use assets

 

$

 

 

$

42,857

 

Accounts payable paid through issuance of common stock

 

$

1,548,702

 

 

$

 

      Insurance premium financing


$ 654,563

$ 461,341

 

See accompanying notes to unaudited condensed consolidated financial statements. 


11


ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

(Unaudited)

Note 1. The Company

electroCore, Inc. (“electroCore” or the “Company”) is a medical device company, engaged in the commercialization and development of a platform non-invasive Vagus Nerve Stimulation (“nVNS”) therapy that can be self-administered by patients. electroCore was founded in 2005 and has primarily focused on headache conditions (migraine and cluster headache). In July 2020, the U.S. Food and Drug Administration (“FDA”) granted the Company an Emergency Use Authorization (EUA) authorizing the use of the Company’s gammaCore Sapphire™ CV nVNS therapy at home or in a healthcare setting to acutely treat adult patients with known or suspected COVID-19 who are experiencing exacerbation of asthma-related dyspnea and reduced airflow, and for whom approved drug therapies are not tolerated or provide insufficient symptom relief.

electroCore, headquartered in New Jersey, has two wholly owned subsidiaries: electroCore Germany GmbH, and electroCore UK Ltd. The Company has ceased its operations in Germany, although sales to Germany are still supported by electroCore UK Ltd. In addition, an affiliate, electroCore (Aust) Pty Limited (“electroCore Australia”), is subject to electroCore’s control on a basis other than voting interests and is a variable interest entity (“VIE”), for which electroCore is the primary beneficiary.

Note 2.  Summary of Significant Accounting Policies

(a)

Basis of Presentation

The accompanying condensed consolidated financial statements were prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and with instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended. In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments necessary for a fair presentation of the Company’s condensed consolidated financial position and results of operations for the interim periods presented. Certain information and disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2020. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for a full year, any other interim periods or any future year or period.

(b)

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of electroCore and its wholly owned subsidiaries. electroCore Australia, a VIE for which electroCore is the primary beneficiary, is also consolidated with the non-controlled equity presented as a non-controlling interest. All intercompany balances and transactions have been eliminated in consolidation.

(c)

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of these condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include allowances for doubtful accounts, trade credits, rebates, co-payment assistance and sales returns, valuation of inventory, stock compensation, and contingencies.

(d)

Credit Losses on Financial Instruments

In June 2016, the Financial Accounting Standard Board ("FASB") issued guidance on the measurement of credit losses which requires measurement and recognition of expected credit losses for financial assets, including trade receivables held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The method to determine a loss is different from the existing guidance, which requires a credit loss to be recognized when it is probable. The Company adopted this guidance and determined the impact was immaterial on the consolidated to the financial statements.

(e)

Fair Value Measurement

In August 2018, the FASB issued guidance which modified the disclosure requirements for fair value measurements. The guidance is effective for the year ended December 31, 2020. The Company adopted this guidance and it was properly reflected in the condensed consolidated financial statements. There were no material changes to the prior disclosure.


12



(f)

Recent Accounting Standards Not Yet Adopted

In December 2019, the FASB issued an update to simplify the accounting for income taxes and improve consistent application by clarifying or amending existing guidance. This guidance is effective for the year ended December 31, 2021. The Company does not expect this guidance to have a material impact on its consolidated financial statements upon adoption.

Note 3. Risks and Uncertainties

Going Concern

The Company is subject to risks common to emerging medical device companies, including uncertainties related to commercialization of products and failing to secure additional funding.

The Company has experienced significant net losses, and it expects to continue to incur losses for the near future as it operates its sales and marketing infrastructure, and works to increase market acceptance of its gammaCore therapy for the acute treatment of episodic cluster headache (“eCH”), the prevention of cluster headache, and the preventive and acute treatment of migraine. The Company has never been profitable and has incurred net losses in each year since its inception.

The Company incurred net losses of $4.5 million and $17.2 million for the three and nine months ended September 30, 2020, respectively.

On March 27, 2020, the Company and Lincoln Park Capital Fund, LLC (“Lincoln Park”) entered into an equity facility purchase agreement pursuant to which the Company has the right to sell to Lincoln Park shares of common stock having an aggregate value of up to $25.0 million, subject to certain significant limitations and conditions set forth in the purchase agreement (the “LPC Purchase Agreement”).

During the nine months ended September 30, 2020, the Company received net proceeds of approximately $17.1 million from sales of common stock to Lincoln Park and private placement transactions. These private placement transactions included sales to certain affiliates and existing shareholders of the Company, including some members of the Company’s board of directors. As of September 30, 2020, the Company had the right to sell under the LPC Purchase Agreement approximately $9.9 million of additional shares of common stock. 

On May 14, 2020, the Company entered into a Securities Purchase Agreement with its legal counsel pursuant to which it issued 1,564,345, shares of common stock, at a purchase price of $0.99 per share. Upon issuance of the shares, certain of the Company’s outstanding financial obligations to such legal counsel were deemed paid and satisfied in full.

In May 2020, the Company received $1.4 million in connection with its Paycheck Protection Program (“PPP”) loan under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Under the terms of the CARES Act, PPP loan recipients can be granted forgiveness for all or a portion of the loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of certain expenses and loan recipients maintaining their payroll levels over certain required thresholds under the PPP. The terms of any forgiveness also may be subject to further requirements in any regulations and guidelines the Small Business Administration (“SBA”) may adopt. No assurance can be provided that the Company will obtain forgiveness of the PPP Loan in whole or in part. Official guidance and interpretations of the requirements of the program have been limited and have been changing over time. Despite the Company’s good-faith belief that it has properly satisfied all eligibility requirements for the PPP loan, there has been increasing scrutiny of public companies that received loans, and there can be no assurance that the Company will not become subject to regulatory or other scrutiny, including a request or requirement for repayment of some or all of the loan.

The Company may be eligible, from time to time, to receive cash from the sale of its Net Operating Losses under the State of New Jersey’s NOL Transfer Program. On May 6, 2020, the Company received a net cash amount of approximately $1.2 million from the sale of its state NOLs and research and development tax credits for the year ended December 31, 2018.

The Company’s expected cash requirements for 2020 and beyond are based on the commercial success of its products and its ability to reduce operating expenses. There are significant risks and uncertainties as to its ability to achieve these operating results, including as a result of the adverse impact on its headache business from the COVID-19 pandemic and significant potential investment necessary to generate potential sales of gammaCore Sapphire™ CV. Due to these risks and uncertainties, the Company may need to reduce its activities significantly more than in its current operating plan and cash flow projections assume in order to fund its operations beyond one year of the date these financial statements are issued. There can be no assurance that the Company will have sufficient cash flow and liquidity to fund its planned activities, which could force it to significantly reduce or curtail its activities and, ultimately, potentially cease operations.


13


There is no assurance that the Company will generate sufficient funding through its operating results or financing activity, raising substantial doubt about the Company’s ability to continue as a going concern within one year of the date these financial statements are issued. The accompanying financial statements do not include any adjustment that might result from the outcome of this uncertainty.

Concentration of Revenue Risks 

The Company earns a significant amount of its revenue (i) in the U.S. from the Department of Veterans Affairs and Department of Defense pursuant to its qualifying contract under the Federal Supply Schedule and open market sales to individual Department of Veterans Affairs facilities and (ii) in the United Kingdom from the National Health Service. Net sales from these two channels represented 84.0% and 87.2% of the Company’s net sales for the three and nine months ended September 30, 2020, and 63.4% and 47.5% for the three and nine months ended September 30, 2019, respectively.

Foreign Currency Exchange

The Company has foreign currency exchange risk related to revenue and operating expenses in currencies other than the local currencies in which it operates. The Company is exposed to currency risk from the potential changes in functional currency values of its assets, liabilities, and cash flows denominated in foreign currencies.

COVID-19 Risks and Uncertainties

The Company continues to monitor the impact of the COVID-19 pandemic on all aspects of its business and geographies, including how it will impact business partners. While the Company experienced disruptions during the nine months ended September 30, 2020 from the COVID-19 pandemic, it is unable to predict the full impact that the COVID-19 pandemic may have on its financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets.

In addition, because the COVID-19 pandemic affected, among other things, the Company's access to prescribing physicians and their access to headache patients, on March 23, 2020 the Company suspended its earlier full-year revenue guidance until it could better understand the trajectory of its business, as well as announced a reduction in its activities, and adjusted its cash runway expectations in response to the potential adverse impact caused by the COVID-19 pandemic. Compared to its earlier expectations, the Company believes that its results for the nine months ended September 30, 2020 reflect a negative impact from, among other things, the global pandemic. Moreover, the Company's expectations for the remainder of 2020 have also been adversely affected by both the uncertainty and potential negative impact of the global pandemic, which it believes may also have had an adverse effect