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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 June 30, 2021



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.)

 

200 Forge Way, Suite 205, Rockaway, NJ 07866

(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 July 30, 2021 the registrant had 69,392,030 shares of common stock outstanding. 


1




PART I. FINANCIAL INFORMATION

Page Number


Cautionary Note Regarding Forward-Looking Statements 3
Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020 4

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020 (Unaudited) 5

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2021 and 2020 (Unaudited) 6

Condensed Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2021 and 2020 (Unaudited) 7

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 (Unaudited) 9

Notes to Condensed Consolidated Financial Statements (Unaudited) 10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28
Item 4. Controls and Procedures 28

PART II. OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 1A. Risk Factors 31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 31
Item 3. Defaults Upon Senior Securities 31
Item 4. Mine Safety Disclosures 31
Item 5. Other Information 31
Item 6. Exhibits 32

Signatures 33


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 Form 10-Qs, our Annual Report on Form 10-K for the year ended December 31, 2020, in our other filings with the U.S. Securities and Exchange Commission or in materials incorporated by reference therein, as well as information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report. Furthermore, any such forward-looking statements in this Quarterly Report speak only as of the date of this report. Except as required by law, we undertake no obligation to update or revise 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


ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

14,699,111

 

 

$

4,241,937

 

Marketable securities

 

 

9,027,807

 

 

 

18,386,160

 

Accounts receivable, net

 

 

369,189

 

 

 

270,546

 

Inventories, net

 

 

1,077,818

 

 

 

876,436

 

Prepaid expenses and other current assets

 

 

235,705

 

 

 

1,288,588

 

Total current assets

 

 

25,409,630

 

 

 

25,063,667

 

Inventories, noncurrent

 

 

4,450,569

 

 

 

4,865,181

 

Property and equipment, net

 

 

195,852

 

 

 

244,047

 

Operating lease right of use assets

 

 

555,238

 

 

 

517,257

 

Other assets, net

 

 

685,894

 

 

 

828,011

 

Total assets

 

$

31,297,183

 

 

$

31,518,163

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,298,721

 

 

$

2,078,699

 

Accrued expenses

 

 

2,916,080

 

 

 

2,800,820

 

Notes payable, current

 

 

 

 

 

476,236

 

Current portion of operating lease liabilities

 

 

542,695

 

 

 

534,547

 

Total current liabilities

 

 

5,757,496

 

 

 

5,890,302

 

Noncurrent liabilities:

 

 

 

 

 

 

 

 

Operating lease liabilities, noncurrent

 

 

923,181

 

 

 

885,333

 

      Note payable, noncurrent





1,097,946

Total liabilities

 

 

6,680,677

 

 

 

7,873,581

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred Stock, par value $0.001 per share; 10,000,000 shares authorized at June 30, 2021 and December 31, 2020; 0 shares issued and outstanding at June 30, 2021 and December 31, 2020

 

 

 

 

 

 

Common Stock, par value $0.001 per share; 500,000,000 shares authorized at June 30, 2021 and December 31, 2020; 48,690,424 shares issued and outstanding at June 30, 2021 and 45,559,765 shares issued and outstanding at December 31, 2020

 

 

48,690

 

 

 

45,560

 

Additional paid-in capital

 

 

139,302,400

 

 

 

130,205,027

 

Accumulated deficit

 

 

(115,267,732

)

 

 

(106,990,148

)

Accumulated other comprehensive loss

 

 

(102,462

)

 

 

(251,467

)

Total stockholders' equity

 

 

23,980,896

 

 

 

23,008,972

 

Noncontrolling interest

 

 

635,610

 

 

 

635,610

 

Total equity

 

 

24,616,506

 

 

 

23,644,582

 

Total liabilities and equity

 

$

31,297,183

 

 

$

31,518,163

 

 

 


 

 

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

(Unaudited)

 

 

Three months ended 

June 30,


 

Six months ended 

June 30,

 

 

2021

2020

 

2021

 

 

2020

 

Net sales

$ 1,269,464

$ 752,955

 

$

2,473,308

 

 

$

1,486,726

 

Cost of goods sold


374,271


272,986

 

 

738,258

 

 

 

571,101

 

Gross profit


895,193


479,969

 

 

1,735,050

 

 

 

915,625

 

Operating expenses








 

 

 

 

 

 

 

 

Research and development


824,906


1,030,530

 

 

1,323,871

 

 

 

2,553,644

 

Selling, general and administrative


5,272,921


5,273,329

 

 

10,997,509

 

 

 

11,834,055

 

Restructuring and other severance related charges





99,606

 

 

 

 

 

464,606

 

Total operating expenses


6,097,827


6,403,465

 

 

12,321,380

 

 

 

14,852,305

 

     Loss from operations


(5,202,634 )

(5,923,496 )

 

 

(10,586,330

)

 

 

(13,936,680

)

Other (income) expense








 

 

 

 

 

 

 

 

      Gain on extinguishment of debt
(1,422,214 )




(1,422,214

)


Interest and other income


(1,273)

(11,765 )

 

 

(1,137

)

 

 

(74,741

)

Other expense





687

 

 

 

 

 

9,828

 

     Total other (income) expense


(1,423,487 )

(11,078 )

 

 

(1,423,351

)

 

 

(64,913

)
Loss before income taxes
(3,779,147 )

(5,912,418 )

(9,162,979 )

(13,871,767 )
Benefit from income taxes (see Note 13)
885,395


1,170,890


885,395


1,170,890
Net loss $ (2,893,752 )
$ (4,741,528 )

 

$

(8,277,584

)

 

$

(12,700,877

)

Net loss per share of common stock - Basic and Diluted (see Note 12)

$ (0.06 )
$ (0.13 )

 

$

(0.17

)

 

$

(0.38

)

Weighted average common shares outstanding - Basic and Diluted (see Note 12)


48,520,241


36,658,797

 

 

48,089,117

 

 

 

33,216,512

 

 

See accompanying notes to unaudited condensed consolidated financial statements.


5



ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

(Unaudited)

 

 

Three months ended  

June 30,



Six months ended  

June 30,

 

 

2021

2020

2021

 

 

2020

 

Net loss

$ (2,893,752 )
$ (4,741,528 )

$

(8,277,584

)

 

$

(12,700,877

)

   Other comprehensive income (loss):









 

 

 

 

 

 

 

        Foreign currency translation adjustment 


5,267

(109,337 )

 

146,648

 

 

(64,015

)

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


(406 )

(7,059 )

 

2,357

 

 

(1,233

)

             Other comprehensive income (loss)


4,861

(116,396 )

 

149,005

 

 

(65,248

)

Comprehensive loss

$ (2,888,891 )
$ (4,857,924 )

$

(8,128,579

)

 

$

(12,766,125

)

 

See accompanying notes to unaudited condensed consolidated financial statements.


6



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 (loss)

 

 

equity

 

 

interest

 


equity

 

Balances as of January 1, 2021
45,559,765

$ 45,560

$ 130,205,027

$ (106,990,148 )
$ (251,467 )
$ 23,008,972

$ 635,610

$ 23,644,582

Net loss











(5,383,832 )




(5,383,832 )




(5,383,832 )

Other comprehensive income 














144,144


144,144





144,144

Issuance of stock (see Note 11)


2,750,000


2,750


6,917,600








6,920,350





6,920,350

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


17,599


18


(18 )














Settlement of accrued bonus 


165,413


165


399,832








399,997





399,997

Share based compensation








942,183








942,183





942,183
Balances as of March 31, 2021
48,492,777

$ 48,493

$ 138,464,624

$ (112,373,980 )
$ (107,323 )
$ 26,031,814

$ 635,610

$ 26,667,424

Net loss

 

 

 

 

 

 

 

 

 

 

(2,893,752

)

 

 


 

 

(2,893,752

)

 

 

 


 

(2,893,752

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

4,861

 

 

4,861

 

 

 


 

4,861

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

 

197,647

 

 

 

197

 

 

 

(197)

 

 

 

 

 


 

 

 

 

 

 


 

 

Share based compensation

 

 

 

 

 

 

 

837,973

 

 

 

 

 

 


 

 

837,973

 

 

 

 


 

837,973

 

Balances as of June 30, 2021

 

48,690,424

 

 

  $

48,690

 

 

$

139,302,400

 

 

$

(115,267,732

)

 

$

(102,462

)

 

$

23,980,896

 

 

$

635,610

 


$

24,616,506

 


 


 

 

 


 

 

 


 

 

 



 

 


 

 

 



 

 


 


 



 

See accompanying notes to unaudited condensed consolidated financial statements

 

7



ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE


Condensed Consolidated Statements of Equity

(Unaudited)


 

Common

 

 

Additional

 

 

 

 

 

 

Accumulated other

 

 

Total electroCore, Inc.

 

 

 

 

 


 

 

 

 

Stock

 

 

paid-in

 

 

Accumulated

 

 

comprehensive

 

 

stockholders'

 

 

Noncontrolling

 


Total

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

income (loss)

 

 

equity

 

 

interest

 


equity

 

Balances as of January 1, 2020
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 11)


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

 


 


 

 

 


 

 

 


 

 

 



 

 


 

 

 



 

 


 


 



* Reflects commitment shares issued in accordance with the Company's equity facility purchase agreement with Lincoln Park. For additional information see Note 11. Lincoln Park Stock Purchase Agreement.



8



ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

(Unaudited)

 

 

 

Six months ended

June 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(8,277,584

)

 

$

(12,700,877

)

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

1,780,156

 

 

 

1,747,623

 

Depreciation and amortization

 

 

191,342

 

 

 

193,687

 

Amortization of marketable securities discount

 

 

114,404

 

 

(1,396

)
           Gain on extinguishment of debt

(1,422,214 )


Legal expense settled with stock






156,434

Net noncash lease expense

 

 

40,641

 

 

178,302

           Inventory reserve charge

39,478





Other

 

 

 

 

 

10,058

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(98,643

)

 

 

376,654

Inventories

 

 

173,752

 

 

(58,286

)

Prepaid expenses and other current assets

 

 

1,081,918

 

 

897,481

 

Accounts payable

 

 

220,022

 

 

(1,787,364

)

Accrued expenses and other current liabilities

 

 

363,289

 

 

(1,294,684

)

                 Right of use operating leases

(78,622 )


                 Operating lease liabilities

45,996

(228,572 )

Net cash used in operating activities

 

 

(5,826,065

)

 

 

(12,510,940

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(5,082,730

)

 

 

(3,998,604

)

Proceeds from maturities of marketable securities

 

 

14,300,000

 

 

 

10,500,000

 

Net cash provided by investing activities

 

 

9,217,270

 

 

6,501,396

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from shares issued

 

 

6,920,350

 

 

 

5,959,101

 

Proceeds from note issued






1,410,524

Net cash provided by financing activities 

 

 

6,920,350

 

 

 

7,369,625

Effect of changes in exchange rates on cash and cash equivalents

 

 

145,619

 

 

(60,744

)

Net increase in cash and cash equivalents

 

 

10,457,174

 

 

1,299,337

Cash and cash equivalents – beginning of period

 

 

4,241,937

 

 

 

13,563,791

 

Cash and cash equivalents – end of period

 

$

14,699,111

 

 

$

14,863,128

 

 

 

 

 

 

 

 

 

 

Supplemental cash flows disclosures:

 

 

 

 

 

 

 

 

      Proceeds from sale of state net operating losses
$

1,425,395



$ 1,170,890

Interest paid

  

 

 


5,797

 

      Income taxes paid




4,666
Supplemental schedule of noncash activity:







      2020 Accrued bonus awarded in equity

399,997



Accounts payable paid through issuance of common stock






1,548,702

 

See accompanying notes to unaudited condensed consolidated financial statements. 


9


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 primary headache conditions (migraine and cluster headache). 

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. 

Note 2Summary 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, 2020 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 11, 2021. The results for the three and six months ended June 30, 2021 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 subsidiary. 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)

Reclass of Statement of Cash Flows Activity 

In order to reflect certain activity for the six months ended June 30, 2020 consistent with the June 30, 2021 presentation, this activity as reflected in the accompanying Condensed Consolidated Statements of Cash Flows was reclassed for presentation purposes only. The repayments of note payable of $111,878, included under the caption Cash flows from financing activities for the six months ended June 30, 2020 was reclassed to Net cash used in operating activities under the caption Accrued expense and other current liabilities within the accompanying Condensed Consolidated Statements of Cash Flows. Additionally, the decrease in operating lease liabilities of $228,572 previously included under the caption Net noncash lease expense for the six months ended June 30, 2020 was reclassed to Operating lease liabilities within the accompanying Condensed Consolidated Statements of Cash Flows. 


(e)

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.


10


Note 3Significant Risks and Uncertainties

Liquidity

The Company has experienced significant net losses, and it expects to continue to incur net losses for the near future as it 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 in adults and adolescents. The Company has never been profitable and has incurred net losses in each year since its inception. The Company incurred net losses of $8.3 million and $12.7 million for the six months ended June 30, 2021 and 2020, respectively.

The Company’s expected cash requirements for the next 12 months and beyond are largely based on the commercial success of its products. 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 ongoing COVID-19 pandemic. These conditions raised substantial doubt about the Company’s ability to continue as a going concern.

The Company has historically funded its operations from the sale of its common stock. During the six months ended June 30, 2021, the Company received net proceeds of approximately $6.9 million from such sales and as of June 30, 2021, the Company’s cash, cash equivalents and marketable securities totaled $23.7 million. Further, on July 2, 2021 the Company closed a public offering resulting in approximately $18.8 million of additional net proceeds, See FN 16. Subsequent Events, Public Offering of Common.

The Company believes that the substantial doubt of its ability to continue as a going concern is alleviated based on proceeds received from these public offerings. The Company believes its cash and marketable securities will enable it to fund its operating expenses and capital expenditure requirements, as currently planned, for at least the next 12 months from the date the accompanying financial statements are issued.


Concentration of Revenue Risks 

The Company earns a significant amount of its revenue (i) in the United States 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. Each of these two channels accounted for 10% or more of the Company's net sales as summarized below:


 


Three months ended June 30,

Six months ended June 30,

 

 


2021


2020

2021

 

 

2020

 

Revenue channel:









 

 

 

 

 

 

 

    Department of Veterans Affairs and Department of Defense


61.3%


55.1%


59.0%

  

 


58.4%


    National Health Service


27.0%


30.0%

 

26.4%

  

 

 

31.0%


During the three months ended June 30, 2021 and 2020 six and four specific VA/DoD facilities represented approximately 64.4% and 46.0% of the Company’s revenue from this channel, and two facilities accounted for more than 10% individually, respectively. During the six months ended June 30, 2021 and 2020 four and two specific VA/DoD facilities represented approximately 51.0% and 38.8% of the Company’s revenue from this channel, and two facilities accounted for more than 10% individually, 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 three and six months ended June 30, 2021 and 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. COVID-19 has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. Depending upon the duration and severity of the pandemic, the continuing effect on the Company's results and outlook over the long term remains uncertain.


11


Note 4. Revenue Recognition

Geographical Net Sales

The following table presents net sales disaggregated by geographic area: 


 


Three months ended June 30,



Six months ended June 30,

 

 


2021


2020

2021

 

 

2020

 

Geographic Market









 

 

 

 

 

 

 

United States

$ 882,572

$ 506,451

$

1,706,548

 

 

$

964,010

 

United Kingdom


353,949


233,137

 

670,942

 

 

 

478,603

 

Other
32,943


13,367


95,818


44,113

Total Net Sales

$ 1,269,464

$ 752,955

$

2,473,308

 

 

$

1,486,726

 


Performance Obligations 

Revenue, net of discounts, vouchers, rebates, returns, and co-payment assistance is solely generated from the sales of the gammaCore products. Revenue is recognized when delivery of the product is completed. The Company deems control to have transferred upon the completion of delivery because that is the point in which (1) it has a present right to payment for the product, (2) it has transferred the physical possession of the product, (3) the customer has legal title to the product, (4) the customer has risks and rewards of ownership and (5) the customer has accepted the product. After the products have been delivered and control has transferred, the Company has no remaining unsatisfied performance obligations.

Revenue is measured based on the consideration that the Company expects to receive in exchange for gammaCore, which represents the transaction price. The transaction price includes the fixed per-unit price of the product and variable consideration in the form of trade credits, rebates, and co-payment assistance. The per-unit price is based on the Company’s established wholesale acquisition cost less a contractually agreed upon distributor discount with the customer.  

Trade credits are discounts that are contingent upon a timely remittance of payment and are estimated based on historical experience. For the three and six months ended June 30, 2021 and 2020, trade credits and discounts were immaterial. 

Reimbursement for co-payments made by patients under the co-payment assistance program is considered variable consideration. Effective March 1, 2020, the amount of monthly co-payment assistance was reduced to a maximum of $100 per prescription. For the three and six months ended June 30, 2021 and 2020, net sales reflect a reduction for the reduced cost of therapy under the co-payment assistance program. The calculation of the accrual is based on an estimate of claims and the cost per claim that the Company expects to incur associated with inventory that exists in the distribution channel at period end.

Managed care rebates represent our estimated obligations to pharmacy benefit managers. Rebate accruals are recognized in the same period the related revenue is recognized. Gross to net accruals based on estimated rebates were determined to be de minimis.

Contract Balances

The Company generally invoices the customer and recognizes revenue once its performance obligations are satisfied, at which point payment is unconditional. Accordingly, under ASC 606, the Company’s contracts with customers did not give rise to contract assets or liabilities during the three and six months ended June 30, 2021 and 2020.

Agreed upon payment terms with customers are within 120 days of shipment. Accordingly, contracts with customers do not include a significant financing component.



12


Note 5. Cash, Cash Equivalents and Marketable Securities

The following tables summarize the Company’s cash, cash equivalents and marketable securities as of June 30, 2021 and December 31, 2020.


As of June 30, 2021

 

 

 

Amortized Cost

 

 

Unrealized Gain

 

 

Unrealized (Loss)

 

 

Fair Value

 

Cash and cash equivalents

 

$

14,699,111

 

 

$

 

 

$

 

$

14,699,111

 

Marketable securities:

















     U.S. Treasury Bonds

 


9,028,260

 

 


 

 


(453

)

 


9,027,807

 

Total cash, cash equivalents, and marketable securities

 

$

23,727,371

 

 

$

 

 

$

(453

)

 

$

23,726,918

 

 

As of December 31, 2020

 

 

 

Amortized Cost

 

 

Unrealized Gain

 

 

Unrealized (Loss)

 

 

Fair Value

 

Cash and cash equivalents

 

$

4,241,937

 

 

$

 

 

$

 

$

4,241,937

 

Marketable securities:















     U.S. Treasury Bonds

 


18,388,970

 

 


 

 


(2,810

)

 


18,386,160

 

Total cash, cash equivalents, and marketable securities

 

$

22,630,907

 

 

$

 

 

$

(2,810

)

 

$

22,628,097

 


13



Note 6Fair Value Measurements

Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three levels of the fair value hierarchy:

Level 1—Quoted prices in active markets for identical assets or liabilities.


Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.


Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

A summary of the assets and liabilities carried at fair value in accordance with the hierarchy defined above is as follows: 


 

 

 

 

 

Fair Value Hierarchy

 

June 30, 2021

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

14,699,111

 

 

$

14,699,111

 

 

$

 

 

$

 

Marketable Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury bonds

 

 

9,027,807

 

 

 

9,027,807

 

 

 

 

 

 

 

Total

 

$

23,726,918

 

 

$

23,726,918

 

 

$

 

 

$



 

 

 

 

 

 

Fair Value Hierarchy

 

December 31, 2020

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,241,937

 

 

$

4,241,937

 

 

$

 

 

$

 

Marketable Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury bonds

 

 

18,386,160

 

 

 

18,386,160

 

 

 

 

 

 

 

Total

 

$

22,628,097

 

 

$

22,628,097

 

 

$

 

 

$

 


The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the six months ended June 30, 2021 and year ended December 31, 2020. The carrying amount of the Company’s receivables and payables approximate their fair values due to their short maturities.

Note 7Inventories

As of June 30, 2021 and December 31, 2020, inventories consisted of the following:  


 

 

June 30, 2021

 

 

December 31, 2020

 

Raw materials

 

$

867,096

 

 

$

1,008,653

 

Work in process

 

 

 4,245,931

 

 

 

4,304,415

 

Finished goods

 

 

415,360

 

 

 

428,549

 

     Total inventories, net

 

 

5,528,387

 

 

 

5,741,617

 

Less: noncurrent inventories

 

 

4,450,569

 

 

4,865,181

     Current inventories, net

 

$

1,077,818

 

 

$

876,436

 

The reserve for obsolete inventory was $760,940 and $721,462 as of June 30, 2021 and December 31, 2020 respectively. The Company records charges for obsolete inventory in cost of goods sold. As of June 30, 2021 and December 31, 2020, noncurrent inventory was comprised of approximately $0.8 million and $0.7 million of raw materials, respectively, and $3.7 million and $4.2 million of work in process, respectively. 


14


Note 8. Leases

For the three and six months ended June 30, 2021, the Company recognized lease expense of $46,942 and $87,247, respectively, and $119,650 and $273,034 for the three and six months ended June 30, 2020, respectively. This expense does not include non-lease components associated with the lease agreements as the Company elected not to include such charges as part of the lease expense.

The tables below provide the details of the right of use assets and lease liabilities:

Supplemental Balance Sheet Information for Operating Leases


 


June 30, 2021

 

 

December 31, 2020

 

Operating leases:

 

 

 

 

 

 

 

 

Operating lease right of use assets


$

555,238

 

 

$

517,257

 

Operating lease liabilities:


 

 

 

 

 

 

 

Current portion of operating lease liabilities

 

 

542,695

 

 

 

534,547

 

Noncurrent operating lease liabilities


 

923,181

 

 

 

885,333

 

Total operating lease liabilities


$

1,465,876

 

 

$

1,419,880

 

Weighted average remaining lease term (in years)


 

5.3

 

 

 

5.7

 

Weighted average discount rate


 

13.8

%

 

 

13.8

%

 

 Future minimum lease payments under non-cancellable operating leases as of June 30, 2021:


Remainder of 2021

 

$

665,504

 

2022

 

 

355,923

 

2023

 

 

163,962

 

2024