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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 September 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 November 1, 2021 the registrant had 70,697,680 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 September 30, 2021 (unaudited) and December 31, 2020 4

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

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

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

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 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 32
Item 3. Defaults Upon Senior Securities 32
Item 4. Mine Safety Disclosures 32
Item 5. Other Information 32
Item 6. Exhibits 33

Signatures 34


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, vaccine mandates, 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, including the information in the sections entitled Risk Factors and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in such filings. 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)
 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

37,995,008

 

 

$

4,241,937

 

Marketable securities

 

 

1,001,080

 

 

 

18,386,160

 

Accounts receivable, net

 

 

329,778

 

 

 

270,546

 

Inventories, net

 

 

1,082,325

 

 

 

876,436

 

Prepaid expenses and other current assets

 

 

1,476,348

 

 

 

1,288,588

 

Total current assets

 

 

41,884,539

 

 

 

25,063,667

 

Inventories, noncurrent

 

 

4,349,009

 

 

 

4,865,181

 

Property and equipment, net

 

 

171,028

 

 

 

244,047

 

Operating lease right of use assets

 

 

539,728

 

 

 

517,257

 

Other assets, net

 

 

626,445

 

 

 

828,011

 

Total assets

 

$

47,570,749

 

 

$

31,518,163

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,250,534

 

 

$

2,078,699

 

Accrued expenses and other current liabilities

 

 

4,429,843

 

 

 

2,965,702

 

Note payable, current

 

 

 

 

 

311,354

 

Current portion of operating lease liabilities

 

 

58,482

 

 

 

534,547

 

Total current liabilities

 

 

5,738,859

 

 

 

5,890,302

 

Noncurrent liabilities:

 

 

 

 

 

 

 

 

Operating lease liabilities, noncurrent

 

 

715,530

 

 

 

885,333

 

      Note payable, noncurrent





1,097,946

Total liabilities

 

 

6,454,389

 

 

 

7,873,581

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Common Stock, par value $0.001 per share; 500,000,000 shares authorized at September 30, 2021 and December 31, 2020; 70,442,309 shares issued and outstanding at September 30, 2021 and 45,559,765 shares issued and outstanding at December 31, 2020

 

 

70,442

 

 

 

45,560

 

Additional paid-in capital

 

 

159,796,442

 

 

 

130,205,027

 

Accumulated deficit

 

 

(119,261,417

)

 

 

(106,990,148

)

Accumulated other comprehensive loss

 

 

(124,717

)

 

 

(251,467

)

Total stockholders' equity

 

 

40,480,750

 

 

 

23,008,972

 

Noncontrolling interest

 

 

635,610

 

 

 

635,610

 

Total equity

 

 

41,116,360

 

 

 

23,644,582

 

Total liabilities and equity

 

$

47,570,749

 

 

$

31,518,163

 

 

 


 

 

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

(Unaudited)

 

 

Three months ended 

September 30,


 

Nine months ended 

September 30,

 

 

2021

2020

 

2021

 

 

2020

 

Net sales

$ 1,487,093

$ 1,080,841

 

$

3,960,401

 

 

$

2,567,567

 

Cost of goods sold


355,046


347,504

 

 

1,093,304

 

 

 

918,605

 

Gross profit


1,132,047


733,337

 

 

2,867,097

 

 

 

1,648,962

 

Operating expenses








 

 

 

 

 

 

 

 

Research and development


470,275


629,002

 

 

1,794,146

 

 

 

3,182,646

 

Selling, general and administrative


4,646,815


4,592,936

 

 

15,644,324

 

 

 

16,426,991

 

Restructuring and other severance related charges






 

 

 

 

 

464,606

 

Total operating expenses


5,117,090


5,221,938

 

 

17,438,470

 

 

 

20,074,243

 

     Loss from operations


(3,985,043 )

(4,488,601 )

 

 

(14,571,373

)

 

 

(18,425,281

)

Other (income) expense








 

 

 

 

 

 

 

 

     Gain on extinguishment of debt





(1,422,214

)


Interest and other income


(3,834 )

(5,719 )

 

 

(8,493

)

 

 

(80,460

)

Other expense


3,771


3,522

 

 

7,293

 

 

 

13,350

 

     Total other (income) expense


(63 )

(2,197 )

 

 

(1,423,414

)

 

 

(67,110

)
Loss before income taxes
(3,984,980 )

(4,486,404 )

(13,147,959 )

(18,358,171 )
(Provision) benefit from income taxes (see Note 14)
(8,705 )




876,690


1,170,890
Net loss $ (3,993,685 )
$ (4,486,404 )

 

$

(12,271,269

)

 

$

(17,187,281

)

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

$ (0.06 )
$ (0.10 )

 

$

(0.22

)

 

$

(0.47

)

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


69,511,498


44,030,685

 

 

55,308,381

 

 

 

36,847,548

 

 

See accompanying notes to unaudited condensed consolidated financial statements.


5



ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

(Unaudited)

 

 

Three months ended  

September 30,



Nine months ended  

September 30,

 

 

2021

2020

2021

 

 

2020

 

Net loss

$ (3,993,685 )
$ (4,486,404 )

$

(12,271,269

)

 

$

(17,187,281

)

   Other comprehensive (loss) income:









 

 

 

 

 

 

 

        Foreign currency translation adjustment 


(22,282 )

(81,602 )

 

124,366

 

 

(145,617

)

        Unrealized gain (loss) on securities,

        net of taxes as applicable


27

(2,210 )

 

2,384

 

 

(3,443

)

        Other comprehensive (loss) income


(22,255 )

(83,812 )

 

126,750

 

 

(149,060

)

Comprehensive loss

$ (4,015,940 )
$ (4,570,216 )

$

(12,144,519

)

 

$

(17,336,341

)

 

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

 

Net loss

 

 

 

 

 

 

 

 

 

 

(3,993,685

)

 

 

 

 

 

(3,993,685

)

 

 

 


 

(3,993,685

)

Other comprehensive income 














(22,255 )

(22,255

)




(22,255

)

Issuance of stock, net of related expenses (see Note 11)


20,700,000




20,700




18,744,182










18,764,882







18,764,882


Issuance of stock to satisfy legal fee obligation (see Note 11)


952,380


952


989,523








990,475





990,475

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


99,505




100




(100

)














Share based compensation








760,437










760,437







760,437


Balances as of September 30, 2021

70,442,309



$

70,442



$

159,796,442



$

(119,261,417

)
$

(124,717

)
$

40,480,750



$

635,610



$

41,116,360


 

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

 

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 11)


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. For additional information see Note 11. Lincoln Park Stock Purchase Agreement. 


 

8



 ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

(Unaudited)

 

 

 

Nine months ended

September 30,

 

 

 

2021

 

 

2020

 






(revised)

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(12,271,269

)

 

$

(17,187,281

)

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

2,540,593

 

 

 

2,490,551

 

Depreciation and amortization

 

 

286,448

 

 

 

288,589

 

Amortization of marketable securities discount

 

 

141,159

 

 

23,422

           Gain on extinguishment of debt

(1,422,214 )


(Gain) loss on legal fee obligation settled with stock



(9,525 )

156,434

Net noncash lease expense

 

 

56,151

 

 

273,070

           Inventory reserve charge

39,478





Other

 

 

 

 

 

14,893

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(59,232

)

 

 

320,186

Inventories

 

 

270,805

 

 

(15,922

)

Prepaid expenses and other current assets

 

 

703,257

 

 

561,248

Accounts payable

 

 

171,835

 

 

(1,631,839

)

Accrued expenses and other current liabilities

 

 

324,316

 

 

(1,407,813

)

                 Right of use operating leases

(78,622 )


                 Operating lease liabilities

33,277

(355,274 )

Net cash used in operating activities

 

 

(9,273,543

)

 

 

(16,469,736

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(5,082,730

)

 

 

(22,166,376

)

Proceeds from maturities of marketable securities

 

 

22,300,000

 

 

 

10,500,000

 

Net cash provided by (used in) investing activities

 

 

17,217,270

 

 

(11,666,376

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Shares issued, net of related expenses

25,685,232


17,139,563

Proceeds from note issued






1,410,524

Net cash provided by financing activities 

 

 

25,685,232

 

 

 

18,550,087

Effect of changes in exchange rates on cash and cash equivalents

 

 

124,112

 

 

(145,312

)

Net increase (decrease) in cash and cash equivalents

 

 

33,753,071

 

 

(9,731,337

)

Cash and cash equivalents – beginning of period

 

 

4,241,937

 

 

 

13,563,791

 

Cash and cash equivalents – end of period

 

$

37,995,008

 

$

3,832,454

 

 

 

 

 

 

 

 

 

 

Supplemental cash flows disclosures:

 

 

 

 

 

 

 

 

      Proceeds from sale of state net operating losses
$

1,425,935



$ 1,170,890

Interest paid

  

$

4,649

 

 

$

9,366

 

      Income taxes paid
$ 38,622

$ 3,254
Supplemental schedule of noncash activity:







      2020 Accrued bonus awarded in equity
$ 399,997

$


Accounts payable paid through issuance of common stock


$ 1,000,000

$ 1,548,702

 

See accompanying notes to unaudited condensed consolidated financial statements. 


9


ELECTROCORE, INC., SUBSIDIARIES AND AFFILIATE

Notes to Condensed Consolidated Financial Statements

(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 nine months ended September 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)

Revision of Statement of Cash Flows Activity 

In preparation of its financial statements for the quarter ended March 31, 2021, the Company realized that proceeds from its July 1, 2020 Commercial Insurance Premium Finance and Security Agreement should have been treated as a noncash activity instead of grossed up on the accompanying condensed consolidated statement of cash flows. Even though the amount was not considered material, the financial statements have been revised. As a result, cash used in operating and cash provided by financing activities for the nine months ended September 30, 2020, decreased by approximately $600,000.


(e)

Reclassification of Statement of Cash Flows Activity 

Certain prior period amounts have been reclassified to conform to current period presentation. The reclassifications did not have an impact on net loss as previously reported.


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 in adults, 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 $12.3 million and $17.2 million for the nine months ended September 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 raise 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 nine months ended September 30, 2021, the Company received net proceeds of approximately $25.7 million from such sales and as of September 30, 2021, the Company’s cash, cash equivalents and marketable securities totaled $39.0 million. The Company believes that the substantial doubt of its ability to continue as a going concern is alleviated based on proceeds received from its common stock 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 September 30,

Nine months ended September 30,

 

 


2021


2020

2021

 

 

2020

 

Revenue channel:









 

 

 

 

 

 

 

    Department of Veterans Affairs and Department of Defense


63.6%


59.8%


60.7%

  

 


59.0%


    National Health Service


24.1%


24.2%

 

25.6%

  

 

 

28.1%


During the three months ended September 30, 2021 and 2020 four and five specific VA/DoD facilities represented approximately 53.9% and 58.6% of the Company’s revenue from this channel, and two facilities accounted for more than 10% individually, respectively. During the nine months ended September 30, 2021 and 2020 four and three specific VA/DoD facilities represented approximately 52.1% and 41.0% 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 coronavirus 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 nine months ended September 30, 2021 and 2020 from the coronavirus pandemic, it is unable to predict the full impact that the coronavirus 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 September 30,



Nine months ended September 30,

 

 


2021


2020

2021

 

 

2020

 

Geographic Market









 

 

 

 

 

 

 

United States

$ 1,103,604
$ 800,767

$

2,810,152

 

 

$

1,759,477

 

United Kingdom


366,966


278,340

 

1,037,908

 

 

 

801,055

 

Other
16,523


1,734


112,341


7,035

Total Net Sales

$ 1,487,093

$ 1,080,841

$

3,960,401

 

 

$

2,567,567

 


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.


12


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 nine months ended September 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 nine months ended September 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 nine months ended September 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.


Note 5. Cash, Cash Equivalents and Marketable Securities

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


As of September 30, 2021

 

 

 

Amortized Cost

 

 

Unrealized Gain

 

 

Unrealized (Loss)

 

 

Fair Value

 

Cash and cash equivalents

 

$

37,995,008

 

 

$

 

 

$

 

$

37,995,008

 

Marketable securities:

















     U.S. Treasury Bonds

 


1,001,506

 

 


 

 


(426

)

 


1,001,080

 

Total cash, cash equivalents, and marketable securities

 

$

38,996,514

 

 

$

 

 

$

(426

)

 

$

38,996,088

 

 

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