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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, 2022



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 Capital 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 August 1, 2022 the registrant had 71,121,078 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, 2022 (unaudited) and December 31, 2021 4

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited) 5

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited) 6

Condensed Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited) 7

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (Unaudited) 9

Notes to Condensed Consolidated Financial Statements (unaudited) 10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
Item 4. Controls and Procedures 25

PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 1A. Risk Factors 26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Mine Safety Disclosures 26
Item 5. Other Information 26
Item 6. Exhibits 27

Signatures 28


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.

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, 2021, 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. AND SUBSIDIARIES

(unaudited)

(in thousands, except share data)


 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

26,330

 

 

$

34,689

 

      Restricted cash

250





Accounts receivable, net

 

 

575

 

 

 

438

 

Inventories, net

 

 

1,739

 

 

 

1,361

 

Prepaid expenses and other current assets

 

 

230

 

 

 

1,053

 

Total current assets

 

 

29,124

 

 

 

37,541

 

Inventories, noncurrent

 

 

2,905

 

 

 

3,941

 

Property and equipment, net

 

 

99

 

 

 

147

 

Operating lease right of use assets, net

 

 

592

 

 

 

613

 

Other assets, net

 

 

761

 

 

 

591

 

Total assets

 

$

33,481

 

 

$

42,833

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,053

 

 

$

938

 

Accrued expenses and other current liabilities

 

 

3,523

 

 

 

4,486

 

Current portion of operating lease liabilities

 

 

68

 

 

 

61

 

Total current liabilities

 

 

5,644

 

 

 

5,485

 

Noncurrent liabilities:

 

 

 

 

 

 

 

 

Operating lease liabilities, noncurrent

 

 

664

 

 

 

700

 

Total liabilities

 

 

6,308

 

 

 

6,185

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred Stock, par value $0.001 per share; 10,000,000 shares authorized at June 30, 2022 and December 31, 2021; 0 shares issued and outstanding at June 30, 2022 and December 31, 2021

 

 

 

 

 

 

Common Stock, par value $0.001 per share; 500,000,000 shares authorized at June 30, 2022 and December 31, 2021; 71,119,471 shares issued and outstanding at June 30, 2022 and 70,704,123 shares issued and outstanding at December 31, 2021

 

 

71

 

 

 

71

 

Additional paid-in capital

 

 

162,301

 

 

 

160,772

 

Accumulated deficit

 

 

(135,127

)

 

 

(124,208

)

Accumulated other comprehensive loss

 

 

(72

)

 

 

13

Total equity

 

 

27,173

 

 

 

36,648

 

Total liabilities and equity

 

$

33,481

 

 

$

42,833

 

 

 


 

 

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


ELECTROCORE, INC. AND SUBSIDIARIES

(unaudited)

(in thousands, except per share data) 


 

   Three months ended

June 30,


Six months ended

June 30,


 

2022


2021


2022

2021

Net sales

$

2,157



$

1,269



$ 4,056

$ 2,473

Cost of goods sold


358


374


718


738

Gross profit


1,799


895


3,338


1,735

Operating expenses
















Research and development


1,341


825


2,275


1,324

Selling, general and administrative


6,278




5,272


12,464


10,997

Total operating expenses


7,619




6,097


14,739


12,321

    Loss from operations


(5,820 )

(5,202 )

(11,401 )

(10,586 )

Other (income) expense
















      Gain on extinguishment of debt





(1,422 )




(1,422 )

Interest and other income


(38 )

(1)

(42 )

(1 )

Other expense







5


 Total other (income) expense


(38 )

(1,423 )

(37 )

(1,423 )
Loss before income taxes
(5,782 )

(3,779 )

(11,364 )

(9,163 )
Benefit from income taxes
445


885


445

885
Net loss $ (5,337 )
$ (2,894 )
$ (10,919 )
$ (8,278 )

Net loss per share of common stock - Basic and Diluted (see Note 8)

$ (0.08 )
$ (0.06 )
$ (0.15 )
$ (0.17 )

Weighted average common shares outstanding - Basic and Diluted (see Note 8)


70,816


48,520


70,744


48,089

 

See accompanying notes to unaudited condensed consolidated financial statements.


5



ELECTROCORE, INC. AND SUBSIDIARIES

(unaudited)

(in thousands)


 

Three months ended June 30,


Six months ended June 30,


 

2022

2021
2022


2021

Net loss

$ (5,337 )
$ (2,894 ) $ (10,919 )
$ (8,278 )

   Other comprehensive (loss) income:















    Foreign currency translation adjustment 


(58 )

5
(85 )

147

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








2

    Other comprehensive (loss) income


(58 )

5
(85 )

149

Comprehensive loss

$ (5,395 )
$ (2,889 ) $ (11,004 )
$ (8,129 )

 

See accompanying notes to unaudited condensed consolidated financial statements.


6


  

ELECTROCORE, INC. AND SUBSIDIARIES

(unaudited)

(in thousands)


 

Common

 

 

Additional

 

 

 

 

 

 

Accumulated other

 


 

 

 

 

Stock

 

 

paid-in

 

 

Accumulated

 

 

comprehensive

 


Total

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

income (loss)

 


equity

 

Balance, January 1, 2022
70,704

$ 71

$
160,772


$ (124,208 )
$ 13

$ 36,648

Net loss











(5,582 )




(5,582 )

Other comprehensive loss  














(27 )

(27 )

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


14















Share based compensation








777








777
Balance, March 31, 2022
70,718

$ 71

$ 161,549

$ (129,790 )
$ (14 )
$ 31,816

Net loss

 

 

 

 

 

 

 

 

 

 

(5,337

)

 

 

 


 

(5,337

)
   Other comprehensive income  












(58 )

(58 )

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


401














Share based compensation








752










752


Balance, June 30, 2022

71,119



$

71



$

162,301



$

(135,127

)
$

(72

)
$

27,173



























 

See accompanying notes to unaudited condensed consolidated financial statements 

 

7



ELECTROCORE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Equity

(unaudited)

(in thousands)




 


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
45,560

$ 45

$ 130,205

$ (106,990 )
$ (251 )
$ 23,009

$ 635

$ 23,644

Net loss











(5,384 )




(5,384 )




(5,384 )

Other comprehensive income 














144


144





144

Issuance of stock


2,750


3


6,918








6,921





6,921

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


18





















Settlement of accrued bonus 


165





400








400





400

Share based compensation








942








942





942
Balances as of March 31, 2021
48,493

$ 48

$ 138,465

$ (112,374 )
$ (107 )
$ 26,032

$ 635

$ 26,667

Net loss

 

 

 

 

 

 

 

 

 

 

(2,894

)

 

 


 

 

(2,894

)

 

 

 


 

(2,894 )

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

5

 

 

 


 

5

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

 

197

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 


 

 

Share based compensation

 

 

 

 

 

 

 

838

 

 

 

 

 

 


 

 

838

 

 

 

 


 

838

 

Balances as of June 30, 2021

 

48,690

 

 

  $

48

 

 

$

139,303

 

 

$

(115,268

)

 

$

(102 )

 

$

23,981

 

 

$

635

 


$

24,616

 


8


ELECTROCORE, INC. AND SUBSIDIARIES

(unaudited)

(in thousands)

  

 

 

Six months ended

June 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(10,919

)

 

$

(8,278

)  

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

1,529

 

 

 

1,780

 

Depreciation and amortization

 

 

247

 

 

 

191

 

Amortization of marketable securities discount

 

 

 

 

114

           Gain on extinguishment of debt




(1,422 )

Net noncash lease expense

 

 

21

 

 

41

           Inventory reserve charge




39

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(137

)

 

 

(98

)

Inventories

 

 

658

 

 

174

Prepaid expenses and other current assets

 

 

823

 

 

1,082

Accounts payable

 

 

1,115

 

 

220

Accrued expenses and other current liabilities

 

 

(963

)

 

 

363

                Right of use operating leases




(78 )
                Operating lease liabilities

(29 )

46
                Other assets

(369 )


Net cash used in operating activities

 

 

(8,024

)

 

 

(5,826

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

 

 

(5,083

)

Proceeds from maturities of marketable securities

 

 

 

 

 

14,300

 

Net cash provided by investing activities

 

 

 

 

9,217

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Shares issued






6,920

Net cash provided by financing activities 

 

 

 

 

 

6,920

Effect of changes in exchange rates on cash and cash equivalents

 

 

(85

)

 

 

146

Net (decrease) increase in cash and cash equivalents

 

 

(8,109

)

 

 

10,457

Cash and cash equivalents – beginning of period

 

 

34,689

 

 

 

4,242

 

Cash and cash equivalents and restricted cash – end of period

 

$

26,580

 

$

14,699

 

 

 

 

 

 

 

 

 

 

Supplemental cash flows disclosures:

 

 

 

 

 

 

 

 

      Proceeds from sale of state net operating losses
$ 445

$ 1,425

Interest paid

  

$

4

 

 

$

 

Supplemental schedule of noncash activity:







      2020 Accrued bonus awarded in equity
$

$

400


 

See accompanying notes to unaudited condensed consolidated financial statements. 


9


ELECTROCORE, INC. AND SUBSIDIARIES

(unaudited)

 

Note 1. The Company

electroCore is commercial stage medical device company with a proprietary non-invasive vagus nerve stimulation, or nVNS, therapy, called gammaCore. nVNS is a platform bioelectronic medical therapy that modulates neurotransmitters and immune function through its effects on both the peripheral and central nervous systems. The Company is focused on utilizing gammaCore in the management and treatment of primary headache conditions. 

electroCore, headquartered in Rockaway, 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, 2021 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2022. The results for the three and six months ended June 30, 2022 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 was consolidated with the non-controlled equity presented as non-controlling interest in the Company's Condensed Consolidated Statement of Equity for the three and six months ended June 30, 2021. The Company terminated its affiliation with electroCore Australia on November 2, 2021 and, as such, this dormant entity was not included in the Company's Condensed Consolidated Statement of Equity for the six months ended June 30, 2022. 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 the 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, incremental borrowing rate and contingencies. 

 

(d)

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash to the balance reflected on the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2022:


(in thousands)

Six months ended June 30, 2022

Cash and cash equivalents

$

26,330


Restricted cash

250


Total cash, cash equivalents and restricted cash

$ 26,580


(e)

Restricted Cash

The Company's restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its new corporate credit card arrangement with Citibank.

  

(f)

Reclassification of Balance Sheet Item

Certain accounts payable amounts reported at December 31, 2021 have been reclassified to conform to current period presentation. A total of  approximately $605,000 of legal fees accrued at December 31, 2021 were reported on the line Accrued expenses and other current liabilities in the accompanying Condensed Consolidated Balance Sheet at December 31, 2021. See Note 7. Accrued Expenses and Other Current Liabilities.

 

10


Note 3Significant Risks and Uncertainties

Liquidity

The Company has experienced significant net losses and cash used in operations, and it expects to continue to incur net losses and cash used in operations for the near future as it works to increase market acceptance of its gammaCore therapy. The Company has never been profitable and has incurred net losses and cash used in operations in each year since its inception. The Company incurred net losses of $10.9 and $8.3 million for the six months ended June 30, 2022 and 2021, respectively. Net cash used in operating activities for the six months ended June 30, 2022 and 2021 was $8.0 million and $5.8 million, 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. The Company believes its cash and cash equivalents on hand 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 ("VA/DoD") 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. The VA/DoD and National Health Service were the Company’s sole customers accounting for 10% or more of total net sales during the three and six months ended June 30, 2022 and 2021. The following table reflects the respective concentration as a percentage of the Company's net sales: 


 

Three months ended June 30,


Six months ended June 30,


 


2022

2021
2022


2021

Revenue channel:













    VA/DoD


55.1%

61.3%
60.4%


59.0%

    National Health Service


16.4%

27.0%
15.3%


26.4%

During the three months ended June 30, 2022 and 2021, three and six VA/DOD facilities represented approximately 53.1% and 64.4%, respectively, of total VA/DOD net sales and two facilities accounted for more than 10% of total VA/DOD net sales in both periods. During the six months ended June 30, 2022 and 2021, three and four VA/DOD facilities represented approximately 51.9% and 51.0%, respectively, of total VA/DOD net sales and three and two facilities accounted for more than 10% of total VA/DOD net sales, 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, customers, and the global supply chain. While the Company experienced disruptions during the three and six months ended June 30, 2022 and 2021 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. The coronavirus pandemic 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 

Geographical Net Sales

The following table presents net sales disaggregated by geographic market:  


 

Three months ended June 30,

Six months ended June 30,

(in thousands)


2022


2021


2022


2021

Product revenue
















United States

$ 1,690

$ 882

$ 3,284
$ 1,706
United Kingdom
355


354


621


671
Other
64


33


103


96
License revenue














Japan
48





48



Total Net Sales

$ 2,157

$ 1,269

$ 4,056

$ 2,473


Performance Obligations 

The Company’s net revenue represents total revenue, net of discounts, vouchers, rebates, returns, co-payment assistance, and certain fees for services related to its e-commerce platform. These adjustments represent variable consideration and are recorded for the Company’s estimate of cash consideration expected to be given by the Company to a customer that is presumed to be a reduction of the transaction price of the Company’s products and, therefore, are characterized as a reduction of revenue. These adjustments are established by management as its best estimate of available information and will be adjusted to reflect known changes in the factors that impact such allowances. Adjustments for variable consideration are determined based on the contractual terms with customers, historical trends, the levels of inventory remaining in the distribution channel, as well as expectations about the market for the product. 

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.

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, 2022 and 2021, the trade credits and discounts were immaterial.

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, 2022 and 2021.

Agreed upon payment terms with customers are within generally within 30 days of shipment. Accordingly, contracts with customers do not include a significant financing component. 

License Agreement with Teijin Limited

Effective March 29, 2022, the Company entered into an agreement with Teijin Limited (Teijin), to license certain exclusive rights to its nVNS technology for commercialization in Japan for a range of primary headache disorders.

Under the agreement, the Company will receive a non-refundable, upfront payment for the licenses and rights granted to Teijin. The financial terms of the Teijin license agreement contain milestone payments, payable upon the decision by Teijin to commercialize the licensed product for specific indications. The Company also will receive an annual license fee commencing on the first anniversary of the agreement and payable annually until the first commercial sale on any approved indication. Upon favorable regulatory and payor coverage decisions in Japan, the parties plan to enter into an exclusive commercial supply agreement for gammaCore nVNS.

The agreement contains customary terms and conditions, including renewal and termination provisions, as well as minimum purchase commitments once a commercial supply agreement is in place. Furthermore, Teijin is responsible for all costs associated with regulatory approval by the Pharmaceuticals and Medical Devices Agency (PMDA), the Japanese FDA equivalent. As part of the agreement, Teijin will have the right of first negotiation for a license to additional indications in Japan. The Company began to recognize revenue from the non-refundable upfront payment over the 12-month period from the effective date due to the Company's continuing requirement to supply data under the agreement.

12


Note 5Inventories

As of June 30, 2022 and December 31, 2021, inventories consisted of the following:  


(in thousands)

 

June 30, 2022

 

 

December 31, 2021

 

Raw materials

 

$

865

 

 

$

769

 

Work in process

 

 

3,437

 

 

 

4,072

 

Finished goods

 

 

342

 

 

 

461

 

     Total inventories, net

 

 

4,644

 

 

 

5,302

 

Less: noncurrent inventories

 

 

2,905

 

 

3,941

     Current inventories

 

$

1,739

 

 

$

1,361

 

The reserve for obsolete inventory was $711,000 and $821,000 as of June 30, 2022 and December 31, 2021, respectively. The decrease in the reserve for obsolete inventory was due to the disposal of previously reserved inventory. The Company records charges for obsolete inventory in cost of goods sold. As of June 30, 2022 and December 31, 2021, noncurrent inventory was comprised of approximately $0.6 million and $0.9 million of raw materials, respectively, and $2.3 million and $3.0 million of work in process, respectively. Inventory classified under the category work in process consists of prefabricated assembled product.

 

Note 6Leases

For the three and six months ended June 30, 2022 the Company recognized lease expense of $38,000 and $76,000, respectively, and $47,000 and $87,000, for the three and six months ended June 30, 2021 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.

Supplemental Balance Sheet Information for Operating Leases: 


(in thousands)


June 30, 2022

 

 

December 31, 2021

 

Operating leases:

 

 

 

 

 

 

 

 

Operating lease right of use assets


$

592

 

 

$

613

 

Operating lease liabilities:


 

 

 

 

 

 

 

Current portion of operating lease liabilities 

 

 

68

 

 

 

61

 

Noncurrent operating lease liabilities


 

664

 

 

 

700

 

Total operating lease liabilities


$

732

 

 

$

761

 

Weighted average remaining lease term (in years)


 

6.7

 

 

 

6.9

 

Weighted average discount rate


 

13.8

%

 

 

13.8

%

 

 Future minimum lease payments under non-cancellable operating leases as of June 30, 2022:


(in thousands)



Remainder of 2022

 

$

81

 

2023

 

 

164

 

2024

 

 

168

 

2025

 

 

171

 

2026

 

 

161

 

2027 and thereafter

373

Total future minimum lease payments

 

 

1,118

 

Less: Amounts representing interest

 

 

(386

)

Total

 

$

732

 


13



Note 7Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities as of June 30, 2022 and December 31, 2021 consisted of the following:


(in thousands)

 

June 30, 2022

 

 

December 31, 2021

 

Accrued professional fees 

 

$

503

 

 

$

468

 

Accrued bonuses and incentive compensation

 

 

910

 

 

 

1,849

 

Accrued legal fees litigation expense

947


605
Accrued insurance expense




499


Accrued vacation and other employee related expenses

642


455
Accrued international taxes

85


263

Other

 

 

436

 

 

 

347

 

 


$

3,523

 

 

$

4,486



Finance and Security Agreement
On July 2, 2021, the Company entered into a Commercial Insurance Premium Finance and Security Agreement (the "2021 Agreement"). The 2021 Agreement provided for a single borrowing by the Company of $1.2 million, with a ten-month term and an annual interest rate of 1.55%. The proceeds from this transaction were used to partially fund the premiums due under certain of the Company's insurance policies. All borrowings were repaid as of June 30, 2022. On July 5, 2022, the Company entered into a new Commercial Insurance Premium Finance and Security Agreement. See Note 12. Subsequent Event.

 

Note 8.  Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding adjusted to give effect to potentially dilutive securities. Restricted stock and unit awards, stock options, and warrants have not been included in the diluted loss per share calculation as their inclusion would have had an anti-dilutive effect.   

The potential common stock equivalents that have been excluded from the computation of diluted loss per share consist of the following: 


 

 

Six months ended June 30,


(in thousands)

 

2022

 

 

2021


Outstanding stock options

 

 6,282

 

 

 5,070


Nonvested restricted stock and unit awards 947

 

1,265


Stock purchase warrants

 

178

 

217




7,407

6,552


14


Note 9.  Income Taxes

The Company may be eligible, from time to time, to receive cash from the sale of its net operating losses under New Jersey's Department of the Treasury - Division of Taxation NOL Transfer Program. On April 14, 2022, the Company received a net cash amount of approximately $445,000 from the sale of its New Jersey state net operating losses. In 2021, the Company received a net cash amount of approximately $880,000 from the sale of its New Jersey state net operating losses and tax credits. These sale proceeds are included in the Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2022 and 2021, under the caption Benefit from income taxes. 


Note 10.  Stock Based Compensation

The following table presents a summary of activity related to stock options during the six months ended June 30, 2022:


 

Number of Options

(in thousands)

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term (Years)

 

Outstanding, January 1, 2022  

$

5,137

 

 

$

4.61

 

 

  

8.0

 

Granted

 

1,238

 

 

 

0.75

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

Cancelled

 

(93

)

 

 

1.98

 

 

 

 

 

Outstanding, June 30, 2022

$

6,282


 

$

3.88



  

7.8


Exercisable, June 30, 2022

$

3,083

 

 

$

6.17

 

 

  

7.0

 

The intrinsic value is calculated as the difference between the fair market value at June 30, 2022 and the exercise price per share of the stock options. As of June 30, 2022, all options outstanding had no intrinsic value. The options granted to employees generally vest over a three or four year period. 

 

15


The following table presents a summary of activity related to restricted and deferred stock units (“Stock Units”) granted during the six months ended June 30, 2022:  


 

 

Number of Shares

(in thousands)

 

 

Weighted Average Grant Date Fair Value

 

Nonvested, January 1, 2022

 

 

1,056

 

 

$

1.66

 

Granted

 

 

300

 

 

 

0.50

 

Vested

 

 

(416

)

 

 

1.51

 

Cancelled

 

 

(5

)

 

 

2.83

 

Nonvested, June 30, 2022

 

 

935

 

 

$

1.34

 

 

In general, Stock Units granted to employees vest over two to four-year periods.

Immediately following the Company’s annual meeting of stockholders, the Company generally grants each non-employee director an equity award that vests over a 12-month period. Upon a non-employee director’s initial appointment or election to the board of directors, the Company grants such non-employee director an equity award subject to vesting as determined by the board of directors. 

The Company recognized stock compensation expense for its equity awards as follows: 


 


Three months ended June 30,

Six months ended June 30,

(in thousands) 


2022

2021

2022


2021

Selling, general and administrative

$ 676

$ 704

$ 1,381

$ 1,513

Research and development


68


114


134


227

Cost of goods sold


8


20


14


40
Total expense  $ 752

$ 838

$ 1,529

$ 1,780

 


Total unrecognized compensation cost related to unvested awards as of June 30, 2022 was $3.5 million and is expected to be recognized over the next two years.

Valuation Information for Stock-Based Compensation

The fair value of each stock option award during the three and six months ended June 30, 2022 and 2021 was estimated on the date of grant using the Black-Scholes model. Expected volatility was based on historical common stock volatility of the Company's peers. The risk-free interest rate was based on the average U.S. Treasury rate that most closely resembled the expected life of the related award. The expected term of the award was calculated using the simplified method. No dividend was assumed as the Company does not pay regular dividends on its common stock and does not anticipate paying any dividends in the foreseeable future.  

The weighted average assumptions used in the Black-Scholes option pricing model in valuing stock options granted in the three and six months ended June 30, 2022 and 2021 are summarized in the table below. 



Six months ended June 30,


2022


2021

Fair value at grant date

$

0.53

 

$ 1.36

Expected volatility

84.0


80.1
 

Risk-free interest rate

1.7


0.7 %

Expected holding period, in years

6.0

 


6.0

Dividend yield

 


%

 

16


Note 11. Commitments and Contingencies

Stockholders Litigation

On July 8, 2019 and August 1, 2019, purported stockholders of the Company served putative class action lawsuits in the Superior Court of New Jersey for Somerset County, captioned Paul Kuehl vs. electroCore, Inc., et al., Docket No. SOM-L 000876-19 and Shirley Stone vs. electroCore, Inc., et al., Docket No. SOM-L 001007-19, respectively. In addition to the Company, the defendants include present and past directors and officers, Evercore Group L.L.C., Cantor Fitzgerald & Co., JMP Securities LLC and BTIG, LLC, the underwriters for its IPO; and two of the Company’s stockholders. On August 15, 2019, the Superior Court entered an order consolidating the Kuehl and Stone actions, which proceeded under Docket No. SOM-L 000876-19. Each plaintiff was appointed a co-lead plaintiff. The plaintiffs filed a consolidated amended complaint, which sought certification of a class of stockholders who purchased common stock in the IPO or whose purchases are traceable to that offering. The consolidated amended complaint alleged that the defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act with respect to the registration statement and related prospectus for the IPO. The complaint sought unspecified compensatory damages, interest, costs and attorneys’ fees.  

On October 31, 2019, the Company and the other defendants filed a motion to dismiss the complaint or in the alternative to stay the action in favor of the pending federal action (discussed below). On February 21, 2020, the court granted the defendants’ motion to dismiss the consolidated amended complaint with prejudice. On March 2, 2020 the court entered an amended order dismissing the consolidated amended complaint with prejudice. On March 27, 2020, the plaintiffs filed a notice of appeal with the N.J. Superior Court – Appellate Division. The appeal was argued on September 27, 2021. On October 8, 2021, the Appellate Division issued an order reversing the decision of the Superior Court. The case has been remanded to the Superior Court for oral argument on the motion to dismiss. On November 11, 2021 the defendants filed a supplemental motion to dismiss based on the forum selection clause in our certificate of incorporation's. On December 10, 2021, the Superior Court heard argument of the original motion to dismiss and the supplemental motion to dismiss based on the federal forum selection clause. On December 14, 2021, the Superior Court granted the supplemental motion to dismiss based on the federal forum selection clause with prejudice and granted the original motion to dismiss without prejudice. On January 27, 2022, the plaintiffs filed a notice of appeal to the Appellate Division. On April 15, 2022 the plaintiffs filed their appeal brief. The brief of defendant-appellees was filed on May 16, 2022. The appeal is fully briefed. No argument date for the appeal has been set. 

On September 26, 2019 and October 31, 2019, purported stockholders of the Company served putative class action lawsuits in the United States District Court for the District of New Jersey captioned Allyn Turnofsky vs. electroCore, Inc., et al., Case 3:19-cv-18400, and Priewe vs. electroCore, Inc., et al., Case 1:19-cv-19653, respectively. In addition to the Company, the defendants include present and past directors and officers, and Evercore Group L.L.C., Cantor Fitzgerald & Co., JMP Securities LLC and BTIG, LLC, the underwriters for the IPO. The plaintiffs each seek to represent a class of stockholders who (i) purchased the Company’s common stock in the IPO or whose purchases are traceable to the IPO, or (ii) who purchased common stock between the IPO and September 25, 2019. The complaints each alleged that the defendants violated Sections 11 and 15 of the Securities Act and Sections 10(b) and 20(a) of the Exchange Act, with respect to (i) the registration statement and related prospectus for the IPO, and (ii) certain post-IPO disclosures filed with the SEC. The complaints sought unspecified compensatory damages, interest, costs and attorneys’ fees. The Priewe case was voluntarily dismissed on February 19, 2020.

In the Turnofsky case, on November 25, 2019 several plaintiffs and their counsel moved to be selected as lead plaintiff and lead plaintiff’s counsel. On April 24, 2020, the Court granted the motion of Carole Tibbs and the firm Bragar, Eagel & Squire, P.C. On July 17, 2020 the plaintiffs filed an amended complaint in Turnofsky. In addition to the prior claims, the amended complaint added an additional director defendant and two investors as defendants and adds a claim against the Company and the underwriters for violating Section 12(a)(2) of the Securities Act. On September 15, 2020, the Company and the other defendants filed a motion to dismiss the amended complaint for failure to state a claim. On November 6, 2020, the plaintiffs filed their opposition to the motion to dismiss. The Company and the other defendants filed reply papers in support of the motion on December 7, 2020. Argument of the motion to dismiss occurred on June 18, 2021. On August 13, 2021, the Court dismissed the amended complaint with leave to re-plead. On October 4, 2021, the plaintiffs filed a second amended complaint in the Turnofsky case. Briefing on the motion was complete on January 7, 2022. On July 5, 2022, the case was reassigned to Judge Zahid N. Quraishi, who has ordered that he will consider the pending motion to dismiss in due course. Argument of the motion has not yet been scheduled.

 

17


On March 4, 2021, purported stockholder Richard Maltz brought a purported stockholder derivative action in the United States District Court for the District of New Jersey. The action is captioned Richard Maltz, derivatively on behalf of electroCore, Inc., vs. Francis R. Amato, et al., Case 3:21-cv-04135. The defendants include present and past directors and officers of the Company. The plaintiff purports to pursue derivative claims on behalf of the Company in connection with the IPO and actions occurring between the IPO and September 25, 2019. The complaint alleges that demand on the board of directors is excused. The complaint purports to allege claims against the defendants for violating Section 14(a) of the Exchange Act, breaching fiduciary duties, unjust enrichment and waste of corporate assets. The complaint also purports to allege claims for contribution in connection with the Turnofsky case described above, pursuant to Section 11(f) of the Securities Act and Sections 10(b) and 21D of the Exchange Act. The complaint seeks unspecified compensatory damages, interest, costs and attorneys’ fees; declaratory relief; and an order requiring changes to corporate governance and internal procedures and a vote on proposed amendments to the Bylaws and Certificate of Incorporation. 

On March 8, 2021, purported stockholder Erin Yuson brought a purported stockholder derivative action in the United States District Court for the District of New Jersey. The action is captioned Erwin Yuson, derivatively on behalf of electroCore, Inc., vs. Francis R. Amato, et al., Case 3:21-cv-04481. The defendants include present and past directors and officers of the Company. The plaintiff purports to pursue derivative claims on behalf of the Company in connection with a 2019 proxy statement and actions occurring from the IPO through September 25, 2019. The complaint alleges that demand on the board of directors is excused. The complaint purports to allege claims against the defendants for violating Section 14(a) of the Exchange Act and breaching fiduciary duties. The complaint seeks unspecified compensatory damages, interest, costs and attorneys’ fees; declaratory relief; and an order requiring changes to corporate governance and internal procedures and a vote on proposed amendments to the Bylaws and Certificate of Incorporation.

The plaintiffs in the Maltz and Yuson derivative actions agreed to consolidate and stay those actions. The actions are stayed until and through the resolution of any motion for summary judgment in the Turnofsky federal securities class action. A stipulation to that effect was filed by the plaintiffs on April 14, 2021 and ordered by the court on April 30, 2021. These cases also have been re-assigned.

The Company intends to continue to vigorously defend itself in these matters. However, in light of, among other things, the preliminary stage of these litigation matters, the Company is unable to determine the reasonable probability of loss or a range of potential loss. Accordingly, the Company has not established an accrual for potential losses, if any, that could result from any unfavorable outcome, and there can be no assurance that these litigation matters will not result in substantial defense costs and/or judgments or settlements that could adversely affect the Company’s financial condition.

The Company is subject to various claims, complaints and legal actions in the normal course of business from time to time. The Company is not aware of any further currently pending litigation for which it believes the outcome could have a material adverse effect on its operations or financial position. The Company expenses associated legal fees including those relating to the stockholder litigation described in this Note 11 in the period they are incurred.

Note 12. Subsequent Event

On July 5, 2022, the Company entered into a Commercial Insurance Premium Finance and Security Agreement (the "2022 Agreement"). The 2022 Agreement provides for a single borrowing by the Company of approximately $783,000 thousand with a nine-month term and an annual interest rate of 2.49%. The proceeds from this transaction were used to partially fund the premiums due under certain of the Company's insurance policies. The amounts payable are secured by the Company's rights under such policies. The Company began to pay monthly installments of approximately $87,900 in July 2022.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

CONDITION AND RESULTS OF OPERATIONS


You should read this section in conjunction with our unaudited interim condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2021 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC. As discussed in the section titled “Cautionary Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those under the caption "Risk Factors" in the aforementioned Annual Report and this Form 10-Q.


Overview

We are a commercial stage medical device company with a proprietary non-invasive vagus nerve stimulation, or nVNS, therapy, called gammaCore. nVNS is a platform bioelectronic medical therapy that modulates neurotransmitters and immune function through its effects on both the peripheral and central nervous systems. We are focused on utilizing gammaCore in the management and treatment of primary headache conditions.

Our gammaCore nVNS therapy is the first non-invasive, hand-held medical therapy applied at the neck as an adjunctive therapy to treat migraine and cluster headache through the utilization of a mild electrical stimulation to the vagus nerve that passes through the skin. Designed as a portable, easy-to-use technology, gammaCore is self-administered by patients, prophylactically or as needed, without the potential side effects associated with commonly prescribed drugs. When placed on a patient ’s neck over the vagus nerve, gammaCore stimulates the nerve’s afferent fibers, which may lead to a reduction of pain in patients. gammaCore (nVNS) is FDA cleared in the United States for adjunctive use for the preventive treatment of cluster headache in adult patients, the acute treatment of pain associated with episodic cluster headache in adult patients, the acute and preventive treatment of migraine in adults and adolescent (ages 12 and older) patients, and paroxysmal hemicrania and hemicrania continua in adult patients. gammaCore is CE-marked in the United Kingdom and European Union for the acute and/or prophylactic treatment of primary headache (Migraine, Cluster Headache, Trigeminal Autonomic Cephalalgias and Hemicrania Continua) and Medication Overuse Headache in adults.

Since May 2019, we have primarily focused our sales efforts in two channels, the U.S. Department of Veterans Affairs and U.S. Department of Defense, and the United Kingdom. More recently, we began making targeted investments to increase the adoption of our gammaCore therapy in both the United States and abroad. We continue to evaluate strategies to expand commercial adoption of gammaCore, including traditional reimbursement models as well as the potential use of e-commerce and cash pay models through direct-to-physician and direct-to-consumer approaches. We expect to make continued targeted investments in the evaluation and possible execution of these strategies in future quarters. We are unable to predict the impact these strategies will have on our financial condition, results of operations and cash flows due to numerous uncertainties.

In April 2022, we announced that nVNS was selected for further study under the United States Department of Defense Biotech Optimized for Operational and Tactics (BOOST) research program conducted under the leadership of the 711 Human Performance Wing Performance Optimization Branch of the United States Air Force to provide accelerated training, sustained attention, reduced fatigue, and improved mood. The continued efforts of the BOOST Program may result in adoption by the United States Air Force of a device not intended for primary headache, which may result in the requirement by the Company to provide field devices to the United States Air Force in the future. We are unable to predict the impact the BOOST Program will have on our financial condition, results of operations and cash flows due to numerous uncertainties.

In addition, we have announced agreements with new distributors to make gammaCore Sapphire available in several countries beyond the U.S. and United Kingdom, as well as a licensing agreement enabling market access activities to begin in Japan.

Capital Activities

On January 18, 2022, we filed a Form S-3 registration statement, or the 2022 Shelf Registration Statement, with the SEC, for the issuance of common stock, preferred stock, warrants, rights, debt securities and units, up to an aggregate amount of $75 million. The 2022 Shelf Registration Statement was declared effective on January 25, 2022. The proposed maximum offering price per unit and the proposed maximum aggregate offering price per class of security will be determined from time to time by us in connection with the issuance by us of the securities registered under the 2022 Shelf Registration Statement. Until such time as the aggregate market value of our securities held by non-affiliates equals or exceeds $75 million, the aggregate maximum offering price of all securities issued by the us in any given 12-calendar month period pursuant to this and any of our other registration statements may not exceed one-third of the aggregate market value of our securities held by non-affiliates. 

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License Agreement with Teijin Limited

On March 29, 2022, we entered into an agreement with Teijin Limited (Teijin), to license certain exclusive rights to its nVNS technology for commercialization in Japan for a range of primary headache disorders.

Under the agreement, we will receive a non-refundable, upfront payment for the license and rights granted to Teijin, which we expect to receive in the third quarter of 2022. The Company began to recognize revenue for this upfront payment ratably over a period of one year commencing in the second quarter of 2022. The financial terms contain milestone payments, payable upon the decision by Teijin to commercialize the licensed product for specific indications. We will also receive an annual license fee commencing on the first anniversary of the agreement and payable annually until the first commercial sale on any approved indication. Upon favorable regulatory and payor coverage decisions in Japan, the parties plan to enter into an exclusive commercial supply agreement for gammaCore nVNS.

The agreement contains customary terms and conditions, including renewal and termination provisions, as well as minimum purchase commitments once a commercial supply agreement is in place. Furthermore, Teijin is responsible for all costs associated with regulatory approval by the Pharmaceuticals and Medical Devices Agency (PMDA), the Japanese FDA equivalent. As part of the agreement, Teijin will have the right of first negotiation for a license to additional indications in Japan. 

Sale of New Jersey Net Operating Losses

We may be eligible, from time to time, to receive cash from the sale of our net operating losses under New Jersey's Department of the Treasury - Division of Taxation NOL Transfer Program. On April 14, 2022, we received a net cash amount of approximately $445,000 from the sale of our New Jersey state net operating losses.

Impact of COVID-19

We continue to monitor the impact of the coronavirus pandemic on all aspects of our business and geographies, including how it will impact business partners, customers and the global supply chain. While we experienced disruptions during the three and six months ended June 30, 2022 and 2021 from the coronavirus pandemic, we are unable to predict the full impact that the coronavirus pandemic may have on our 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 coronavirus pandemic 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 our results and outlook over the long term remains uncertain.

Critical Accounting Policies and Estimates

The significant accounting policies and basis of presentation of our condensed consolidated financial statements are described in Note 2 “Summary of Significant Accounting Policies” of the consolidated financial statements included with the annual report on Form 10-K.included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC on March 10, 2022 ("2021 Annual Report"), and in Note 2 "Summary of Significant Accounting Policies" of the condensed consolidated financial statements included within this quarterly report on Form 10-Q.

The preparation of our financial statements is in accordance with U.S. Generally Accepted Accounting Principles, or GAAP, require us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and other related disclosures. While we believe our estimates, assumptions and judgments are reasonable, they are based on information presently available. Actual results may differ significantly from these estimates due to changes in judgments, assumptions and conditions as a result of unforeseen events or otherwise, which could have a material impact on our financial position and results of operations.

The critical accounting policies that we believe, the judgements, estimates, and assumptions associated with such policies, have the greatest potential impact on the condensed consolidated financial statements are disclosed in the section titled Critical Accounting Policies and Estimates in Part II of our 2021 Annual Report.


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Results of Operations

Comparison of the three months ended June 30, 2022 to the three months ended June 30, 2021

The following table sets forth amounts from our condensed consolidated statements of operations for the three months ended June 30, 2022 and 2021:

 

 

 

For the three months ended June 30,

 

 

 

 

 

 

 

2022

 

 

2021

 

 

Change

 

 

 

(in thousands)

 

Consolidated statements of operations:

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

2,157

 

 

$

1,269

 

 

$

888

Cost of goods sold

 

 

358

 

 

 

374

 

 

 

(16

)

Gross profit

 

 

1,799

 

 

 

895

 

 

 

904

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

1,341

 

 

 

825

 

 

 

516

Selling, general and administrative

 

 

6,278

 

 

 

5,272

 

 

 

1,006

Total operating expenses

 

 

7,619

 

 

6,097

 

 

 

1,522